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 September 30, 2020

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, TX 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 every Interactive Data File required to be submitted 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 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 “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Smaller reporting company	☐	Non-accelerated filer	☐
		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 October 30, 2020
Common stock, Par Value $0.10 per share	1,828,953

ATRION CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

PART I. Financial Information
Item 1.	Financial Statements	2
	Condensed Consolidated Statements of Income (Unaudited) For the Three and Nine Months Ended September 30, 2020 and 2019	3
	Condensed Consolidated Balance Sheets (Unaudited) September 30, 2020 and December 31, 2019	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2020 and 2019	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) For the Three and Nine Months Ended September 30, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II. Other Information		21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 6.	Exhibits	22
SIGNATURES		23

2

PART I

FINANCIAL INFORMATION

Item 1.   Financial Statements.

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 (Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(in thousands, except per share amounts)
Revenues	$	33,785		$	38,883		$	115,348		$	120,600
Cost of goods sold		18,887			20,992			63,114			65,414
Gross profit		14,898			17,891			52,234			55,186
Operating expenses:
Selling		1,888			2,092			5,660			6,574
General and administrative		4,039			3,990			13,066			12,480
Research and development		1,388			1,359			4,165			3,678
Total Operating Expense		7,315			7,441			22,891			22,732
Operating income		7,583			10,450			29,343			32,454
Interest and dividend income		303			733			1,161			1,896
Other investment income (losses)		678			(106	)		5			265
Total Non Operating Income Expenses		981			627			1,166			2,161
Income before provision for income taxes		8,564			11,077			30,509			34,615
Provision for income taxes		(1,321	)		(1,482	)		(5,764	)		(5,918	)
Net income	$	7,243		$	9,595		$	24,745		$	28,697
Net income per basic share	$	3.96		$	5.17		$	13.46		$	15.48
Weighted average basic shares outstanding		1,829			1,855			1,839			1,854
Net income per diluted share	$	3.95		$	5.15		$	13.42		$	15.40
Weighted average diluted shares outstanding		1,834			1,862			1,844			1,863
Dividends per common share	$	1.75		$	1.55		$	4.85		$	4.25

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

3

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

Assets	September 30, 2020			December 31, 2019
	(in thousands)
Current assets:
Cash and cash equivalents	$	23,996		$	45,048
Short-term investments		18,779			23,766
Accounts receivable		17,747			18,886
Inventories		48,622			42,093
Prepaid expenses and other current assets		4,013			2,545
Total current assets		113,157			132,338
Long-term investments		45,381			31,772
Property, plant and equipment		213,203			200,990
Less accumulated depreciation and amortization		122,150			116,384
Property, plant and equipment net		91,053			84,606
Other assets and deferred charges:
Patents		1,450			1,539
Goodwill		9,730			9,730
Other		2,261			2,046
Total other assets		13,441			13,315
Total assets	$	263,032		$	262,031
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	11,694		$	10,855
Accrued income and other taxes		1,005			419
Total current liabilities		12,699			11,274
Line of credit		-			-
Other non-current liabilities		12,215			12,887
Stockholders’ equity:
Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares		342			342
Paid-in capital		53,581			52,043
Retained earnings		333,523			317,745
Treasury shares,1,591 at September 30, 2020 and 1,565 at December 31, 2019, at cost		(149,328	)		(132,260	)
Total stockholders’ equity		238,118			237,870
Total liabilities and stockholders’ equity	$	263,032		$	262,031

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

4

ATRION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
	(in thousands)
Cash flows from operating activities:
Net income	$	24,745		$	28,697
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,517			7,961
Deferred income taxes		1,315			1,922
Stock-based compensation		1,540			1,306
Net change in unrealized gains and losses on investments		256			(257	)
Net change in accrued interest, premiums, and discounts on investments		25			367
Other		22			(6	)
		36,420			39,990
Changes in operating assets and liabilities:
Accounts receivable		1,136			(1,756	)
Inventories		(6,529	)		(4,742	)
Prepaid expenses		(1,468	)		581
Other non-current assets		(258	)		17
Accounts payable and accrued liabilities		839			277
Accrued income and other taxes		586			884
Other non-current liabilities		(1,977	)		914
		28,749			36,165
Cash flows from investing activities:
Property, plant and equipment additions		(14,899	)		(15,239	)
Purchase of investments		(40,025	)		(54,539	)
Proceeds from sale of investments		899			--
Proceeds from maturities of investments		30,223			46,992
		(23,802	)		(22,786	)
Cash flows from financing activities:
Purchase of treasury stock		(17,037	)		--
Shares tendered for employees’ withholding taxes on stock-based compensation		(55	)		(579	)
Dividends paid		(8,907	)		(7,880	)
		(25,999	)		(8,459	)
Net change in cash and cash equivalents		(21,052	)		4,920
Cash and cash equivalents at beginning of period		45,048			58,753
Cash and cash equivalents at end of period	$	23,996		$	63,673
Cash paid for:
Income taxes	$	4,518		$	2,630

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

5

ATRION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three Months ended September 30, 2020 and 2019
	Common Stock				Treasury Stock					Additional
	Shares Outstanding		Amount		Shares		Amount			Paid-in Capital		Retained Earnings			Total
Balances, June 30, 2019		1,855	$	342		1,565	$	(132,260	)	$	51,332	$	305,846		$	225,260
Net income													9,595			9,595
Stock-based compensation transactions											328					328
Dividends													(2,878	)		(2,878	)
Balances, September 30, 2019		1,855	$	342		1,565	$	(132,260	)	$	51,660	$	312,563		$	232,305
Balances, June 30, 2020		1,829	$	342		1,591	$	(149,329	)	$	53,020	$	329,494		$	233,527
Net income													7,243			7,243
Stock-based compensation transactions								1			561					562
Shares surrendered in stock transactions								-								-
Dividends													(3,214	)		(3,214	)
Balances, September 30, 2020		1,829	$	342		1,591	$	(149,328	)	$	53,581	$	333,523		$	238,118

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

6

ATRION CORPORATION AND SUBSIDIARIES

CONDENSED Consolidated Statements of CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

For the Nine Months ended September 30, 2020 and 2019
	Common Stock					Treasury Stock						Additional
	Shares Outstanding			Amount		Shares			Amount			Paid-in Capital		Retained Earnings			Total
Balances, December 31 , 2018		1,853		$	342		1,567		$	(131,727	)	$	50,391	$	291,761		$	210,767
Net income															28,697			28,697
Stock-based compensation transactions		3					(3	)		46			1,269					1,315
Shares surrendered in stock transactions		(1	)				1			(579	)							(579	)
Dividends															(7,895	)		(7,895	)
Balances, September 30, 2019		1,855		$	342		1,565		$	(132,260	)	$	51,660	$	312,563		$	232,305
Balances, December 31, 2019		1,855		$	342		1,565		$	(132,260	)	$	52,043	$	317,745		$	237,870
Cumulative change in accounting principal															(36	)		(36	)
Balances, January 1, 2020		1,855			342		1,565			(132,260	)		52,043		317,709			237,834
Net income															24,745			24,745
Stock-based compensation transactions										24			1,538					1,562
Shares surrendered in stock transactions										(55	)							(55	)
Purchase of treasury stock		(26	)				26			(17,037	)							(17,037	)
Dividends															(8,931	)		(8,931	)
Balances, September 30, 2020		1,829		$	342		1,591		$	(149,328	)	$	53,581	$	333,523		$	238,118

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

7

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Atrion Corporation and its subsidiaries (collectively referred to herein as “Atrion” the “Company,” “we,” “our,” and “us”) 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 can have a significant impact on our revenue, operating income, and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. At least quarterly, we evaluate our assumptions, judgments, and estimates, and make changes as deemed necessary.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of November 9, 2020, the date of issuance of this Quarterly Report on Form 10-Q. However, these estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 ("2019 Form 10-K").

The Coronavirus Aid, Relief, and Economic Security Act, which became law on March 27, 2020, includes a provision that permits an employer to defer the payment of the employer’s portion of payroll taxes that otherwise would be due between March 27, 2020 and December 31, 2020. The Company has elected to take advantage of such deferral provision.

8

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(2) Inventories

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

	September 30,		December 31,
	2020		2019
Raw materials	$	19,994	$	18,157
Work in process		10,724		8,525
Finished goods		17,904		15,411
Total inventories	$	48,622	$	42,093

(3) Income per share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share amounts)
Net income	$	7,243	$	9,595	$	24,745	$	28,697
Weighted average basic shares outstanding		1,829		1,855		1,839		1,854
Add:Effect of dilutive securities		5		7		5		9
Weighted average diluted shares outstanding		1,834		1,862		1,844		1,863
Earnings per share:
Basic	$	3.96	$	5.17	$	13.46	$	15.48
Diluted	$	3.95	$	5.15	$	13.42	$	15.40

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 two and zero shares of common stock for the quarters ended September 30, 2020 and 2019, respectively, and an average of six and zero shares of common stock for the nine months ended September 30, 2020 and 2019, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.

9

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(4) Investments

As of September 30, 2020 and December 31, 2019, we held investments in commercial paper, bonds, money market accounts, mutual funds and equity securities. The commercial paper and bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance sheets. The money market accounts, equity securities and mutual funds are recorded at fair value in the accompanying consolidated balance sheets. The fair values of these investments were estimated using recently executed transactions and market price quotations. 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 components of the Company’s cash and cash equivalents and our short and long-term investments are as follows (in thousands):

	September 30, 2020			December 31, 2019
Cash and cash equivalents:
Cash deposits	$	19,573		$	38,942
Money market funds		3,673			3,460
Commercial paper		750			2,646
Total cash and cash equivalents	$	23,996		$	45,048
Short-term investments:
Commercial paper (held-to-maturity)	$	4,469		$	6,778
Bonds (held-to-maturity)		14,330			16,988
Allowance for credit losses		(20	)		-
Total short-term investments	$	18,779		$	23,766
Long-term investments:
Mutual funds (available for sale)	$	499		$	1,105
Bonds (held-to-maturity)		42,177			27,845
Allowance for credit losses		(57	)		-
Equity securities (available for sale)		2,762			2,822
Total long-term investments	$	45,381		$	31,772
Total cash, cash equivalents and short and long-term investments	$	88,156		$	100,586

Recently adopted Topic 326 utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for held-to-maturity securities at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. Our credit loss calculations for held-to-maturity securities are based upon historical default and recovery rates of bonds rated with the same rating as our portfolio. We also apply an adjustment factor to these credit loss calculations based upon our assessment of the expected impact from current economic conditions on our investments, including the impact of COVID-19. We monitor the credit quality of debt securities classified as held-to-maturity through the use of their respective credit rating and update them on a quarterly basis with our latest assessment completed on September 30, 2020.

10

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the amortized cost of our held-to-maturity bonds at September 30, 2020, aggregated by credit quality indicator (in thousands):

Held-to-Maturity Bonds
Credit Quality Indicators	Asset Backed Bonds		Fed Govt. Bonds/Notes		Municipal Bonds		Corporate Bonds		Totals
AAA/AA/A	$	1,891	$	3,265	$	759	$	31,490	$	37,405
BBB/BB		-		-		-		19,102		19,102
TOTAL	$	1,891	$	3,265	$	759	$	50,592	$	56,507

The following table presents information regarding our allowance for credit losses on our short-term and long-term investments for the nine months ended September 30, 2020 (in thousands):

	Short- Term Securities		Long- Term Securities		Total
Beginning balance, December 31, 2019	$	-	$	-	$	-
Allowance recognized upon adoption of Topic 326		9		33		42
Provision for credit loss expense		11		24		35
Ending balance, September 30, 2020	$	20	$	57	$	77

Our investments are required to be measured for disclosure purposes at fair value on a recurring basis. Our investments are considered Level 1 or Level 2 as detailed in the table below. 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 September 30, 2020:
Money market		1		3,673	$	-	$	-		$	3,673
Commercial paper		2		5,219	$	4	$	-		$	5,223
Bonds		2		56,506	$	544	$	(60	)	$	56,990
Mutual funds		1		566	$	-	$	(67	)	$	499
Equity investments		2		5,675	$	-	$	(2,913	)	$	2,762
As of December 31, 2019:
Money Market		1		3,460	$	-	$	-		$	3,460
Commercial paper		2		9,424	$	2	$	-		$	9,426
Bonds		2		44,833	$	138	$	(19	)	$	44,952
Mutual funds		1		1,052	$	53	$	-		$	1,105
Equity investments		2		5,675	$	-	$	(2,853	)	$	2,822

11

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The bonds represent investments in various issuers at September 30, 2020.

The unrealized losses for these bond investments relate to the impact of COVID-19 on the bond market which resulted in a lower market price for those securities. None of these bond investments has been in a loss position for more than 12 months.

The commercial paper has maturities from less than a month to five months. The bonds have maturities from less than a month to 54 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):

September 30, 2020						December 31, 2019
Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization		Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization
	15.67	$	13,840	$	12,390		15.67	$	13,840	$	12,301

Aggregate amortization expense for patents and licenses was $30,000 in each of the three months ended September 30, 2020 and 2019 and $90,000 in each of the nine months ended September 30, 2020 and 2019.

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

2021	$	119
2022	$	117
2023	$	113
2024	$	113
2025	$	112

(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.

12

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A summary of revenues by geographic area, based on shipping destination, for the three and six months ended September 30, 2020 and 2019 are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
United States	$	19,925	$	24,644	$	65,648	$	76,640
Germany		2,485		2,168		8,640		6,427
Other countries less than 5% of revenues		11,375		12,071		41,060		37,533
Total	$	33,785	$	38,883	$	115,348	$	120,600

A summary of revenues by product line for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Fluid Delivery	$	16,512	$	17,888	$	60,620	$	54,334
Cardiovascular		11,297		14,565		36,963		44,564
Ophthalmology		1,171		1,556		2,970		5,656
Other		4,805		4,874		14,795		16,046
Total	$	33,785	$	38,883	$	115,348	$	120,600

More than 99 percent of our total revenue in the periods presented herein is pursuant to shipments initiated 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. Effective January 1, 2020, we adopted the new credit loss accounting methodology as discussed in footnote 7 to calculate our credit loss allowance for our trade receivables. An account is written off when we determine 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.

13

ATRION CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(7) Recent Accounting Pronouncements

ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU introduces a new credit loss methodology, Current Expected Credit Losses (CECL), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB has issued several updates to the original ASU.

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and trade and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized.

On January 1, 2020, we adopted the guidance prospectively with a cumulative adjustment to retained earnings. Atrion has not restated comparative information for 2019 and, therefore, the comparative information for 2019 is reported under the old model and is not comparable to the information presented for 2020.

At adoption, we recognized an incremental allowance for credit losses on our allowance for credit losses related to our held-to-maturity debt securities of approximately $42,000 and our trade accounts receivable of approximately $4,000. Additionally, we recorded an approximately $36,000 decrease in retained earnings associated with the increased estimated credit losses on our trade accounts receivable and investments.

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.

14

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 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 design, product quality, price, 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, respectful and entrepreneurial culture.

For the three months ended September 30, 2020, we reported revenues of $33.8 million, operating income of $7.6 million and net income of $7.2 million, down 13 percent, 27 percent and 25 percent, respectively, from the three months ended September 30, 2019.

Results for the three months ended September 30, 2020

Consolidated net income totaled $7.2 million, or $3.96 per basic and $3.95 per diluted share, in the third quarter of 2020. This is compared with consolidated net income of $9.6 million, or $5.17 per basic and $5.15 per diluted share, in the third quarter of 2019. The income per basic share computations are based on weighted average basic shares outstanding of 1,829,000 in the 2020 period and 1,855,000 in the 2019 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,834,000 in the 2020 period and 1,862,000 in the 2019 period.

Consolidated revenues of $33.8 million for the third quarter of 2020 were 13 percent lower than revenues of $38.9 million for the third quarter of 2019. This decrease was primarily attributable to a decrease in volumes of our Cardiovascular, Fluid Delivery and Ophthalmology products.

15

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

	Three Months ended September 30,
	2020		2019
Fluid Delivery	$	16,512	$	17,888
Cardiovascular		11,297		14,565
Ophthalmology		1,171		1,556
Other		4,805		4,874
Total	$	33,785	$	38,883

Cost of goods sold of $18.9 million for the third quarter of 2020 was 10.0 percent lower than cost of goods sold of $21.0 million for the third quarter of 2019 primarily due to lower sales volumes. Our cost of goods sold in the third quarter of 2020 was 55.9 percent of revenues compared to 54.0 percent of revenues in the third quarter of 2019.

Gross profit of $14.9 million in the third quarter of 2020 was $3.0 million or 16.7 percent lower than in the comparable 2019 period. Our gross profit percentage in the third quarter of 2020 was 44.0 percent of revenues compared with 46.0 percent of revenues in the third quarter of 2019. The decrease in gross profit percentage in the 2020 period compared to the 2019 period was primarily related to increased manufacturing costs coupled with lower sales volumes.

Our third quarter 2020 operating expenses of $7.3 million were $126,000 lower than the operating expenses for the third quarter of 2019. This decrease was attributable to a $204,000 decrease in Selling expenses, primarily resulting from lower travel and conference expenses due to COVID-19, partially offset by increases in General and Administrative, or G&A, expenses of $49,000 and Research and Development, or R&D, expenses of $29,000. The increase in G&A expenses was mainly due to increased software maintenance and salary expenses and the R&D expense increase was primarily due to higher salary expenses.

Operating income in the third quarter of 2020 decreased by $2.8 million to $7.6 million due to the lower sales and gross profit discussed above, a 27 percent decrease compared to our operating income for the third quarter of 2019. Operating income was 22 percent of revenues for the third quarter of 2020 and 27 percent of revenues for the third quarter of 2019.

Interest and dividend income in the third quarter of 2020 was $303,000 compared with $733,000 for the same period in the prior year. The decline in interest and dividend income was largely due to lower interest rates in the 2020 period as compared to the 2019 period.

Other investment income in the third quarter of 2020 was $678,000 compared with an Other investment loss of $106,000 in the third quarter of 2019. These amounts were attributable to unrealized gains or losses on equity investments resulting from changes in the market values of the investments in each respective quarter.

16

Income tax expense was $1.3 million for the third quarter of 2020 compared with $1.5 million for the third quarter of 2019. The effective tax rate for the third quarter of 2020 was 15.4 percent compared with 13.4 percent for the third quarter of 2019. The increase in the 2020 period’s effective tax rate was primarily related to decreased tax benefits booked for sales outside the United States under the foreign derived intangible income (“FDII”) deduction.

Results for the nine months ended September 30, 2020

Consolidated net income totaled $24.7 million, or $13.46 per basic and $13.42 per diluted share, in the first nine months of 2020. This is compared with consolidated net income of $28.7 million, or $15.48 per basic and $15.40 per diluted share, in the first nine months of 2019. The income per basic share computations are based on weighted average basic shares outstanding of 1,839,000 in the 2020 period and 1,854,000 in the 2019 period. The income per diluted share computations are based on weighted average diluted shares outstanding of 1,844,000 in the 2020 period and 1,863,000 in the 2019 period.

Consolidated revenues of $115.3 million for the first nine months of 2020 compared with revenues of $120.6 million for the first nine months of 2019. Higher sales in Fluid Delivery were offset by lower Cardiovascular, Ophthalmology and Other sales.

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

	Nine Months ended September 30,
	2020		2019
Fluid Delivery	$	60,620	$	54,334
Cardiovascular		36,963		44,564
Ophthalmology		2,970		5,656
Other		14,795		16,046
Total	$	115,348	$	120,600

Cost of goods sold of $63.1 million for the first nine months of 2020 was $2.3 million lower than in the comparable 2019 period. This reduction was due to lower sales volumes, favorable product sales mix, and continued cost improvement projects, partially offset by increased manufacturing costs. Our cost of goods sold for the first nine months of 2020 was 54.7 percent of revenues compared to 54.2 percent of revenues for the first nine months of 2019.

Gross profit was $52.2 million in the first nine months of 2020 and $55.2 million in the comparable 2019 period. Our gross profit percentage was 45.3 percent of revenues in the first nine months in 2020 and 45.8 percent in the first nine months in 2019. This decrease in gross profit percentage was due to increased manufacturing costs coupled with lower sales volumes in the 2020 period. This reduction was softened by a favorable product sales mix and continued cost improvements in the current year period as mentioned above.

17

Operating expenses of $22.9 million for the first nine months 2020 were $159,000 higher than the operating expenses for the first nine months of 2019. This increase was attributable to a $487,000 increase in R&D expenses and a $586,000 increase in G&A expenses largely offset by a $914,000 decrease in Selling expenses. The increase in R&D expenses was primarily related to increases in outside services and compensation. The increase in G&A expenses for the first nine months of 2020 was principally attributable to increased compensation, software maintenance, and outside services. The decrease in Selling expenses was principally attributable to Company-mandated travel restrictions and cancelled conferences due to COVID-19.

Operating income in the first nine months of 2020 decreased by $3.1 million to $29.3 million, a 10 percent decrease from our operating income in the first nine months of 2019. Operating income was 25 percent of revenues for the first nine months of 2020 and 27 percent of revenues in the comparable 2019 period.

Interest and dividend income for the first nine months of 2020 was $1.2 million compared with $1.9 million for the same period in the prior year. The decline in interest and dividend income was largely due to lower interest rates in the 2020 period as compared to the 2019 period.

Other investment income was $5,000 for the first nine months of 2020 compared with Other investment income of $265,000 in the first nine months of 2019. These amounts were attributable to gains on equity investments resulting from changes in the market values of the investments in each respective period.

Income tax expense was $5.8 million for the first nine months of 2020 and $5.9 million in the comparable 2019 period. The effective tax rate for the first nine months of 2020 was 18.9 percent compared with 17.1 percent for the first nine months of 2019. The increase in the effective tax rate in the 2020 period was primarily related to decreased tax benefits booked for sales outside the United States under the FDII deduction and from lower stock compensation deductions. We expect the effective tax rate for the fourth quarter of 2020 to be approximately 15 percent.

Liquidity and Capital Resources

As of September 30, 2020, 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 September 30, 2020. 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 September 30, 2020, we were in compliance with all financial covenants.

At September 30, 2020, we had a total of $88.2 million in cash and cash equivalents, short-term investments and long-term investments, a decrease of $12.4 million from December 31, 2019. The principal contributor to this decrease was stock buybacks of $17.0 million.

18

Cash flows from operating activities of $28.7 million for the nine months ended September 30, 2020 were primarily comprised of net income plus the net effect of non-cash expenses and decreases in accounts receivable and other taxes partially offset by increases in inventories and prepaid expenses. During the first nine months of 2020, we expended $40.0 million for the purchase of investments, $14.9 million for the addition of property and equipment, $17.0 million in stock buybacks and $8.9 million for dividends. During the same period, maturities and sales of investments generated $30.2 million in cash.

At September 30, 2020, we had working capital of $100.5 million, including $24.0 million in cash and cash equivalents and $18.8 million in short-term investments compared to working capital of $121.1 million at December 31, 2019. The $20.6 million decrease in working capital during the first nine months of 2020 was primarily related to decreases of cash and cash equivalents of $21.1 million and short term investments of $4.9 million partially offset by increased inventories of $6.5 million.

We believe that our $88.2 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 increase during the remainder of 2020.

COVID-19 Impact

COVID-19, which has spread throughout the United States and the world, has resulted in the implementation and continuation of numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. Although we are unable to predict accurately the full impact that COVID-19 will have on our results of operations, financial condition, liquidity, and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has disrupted and may continue to disrupt our business and operations, as well as those of many of our key customers, suppliers, and other counterparties. In response to the COVID-19 pandemic, various national, state, and local governments where we, our customers, and our suppliers operate issued decrees prohibiting certain businesses from continuing to operate or restricting certain of their operations. To help protect the health and well-being of our employees and communities, some of our employees have been working remotely, and we implemented and are continuing additional health and safety measures in our facilities. In addition, many of our customers implemented and are continuing similar measures in their facilities, which have delayed, and may continue to delay, the timing of some orders and deliveries.

These disruptions had a material adverse impact on our financial results for the first nine months of 2020 and for the three months ended September 30, 2020. For the first nine months of 2020, our revenues were down 4 percent, our operating income was down 10 percent and our net income was down 14 percent from the nine months ended September 30, 2019. For the third quarter 2020, our revenues were down 13 percent, our operating income was down 27 percent and our net income was down 25 percent from the three months ended September 30, 2019. Results for the fourth quarter of 2020, and for an indeterminate period thereafter, may be affected by the impact of the global pandemic. OEM customers and end users of our products may experience financial distress, mass illness, supply chain disruptions, and government prohibitions that could impact purchases of products from us. Illnesses, government prohibitions and restrictions, and supply chain disruptions could also impact our ability to fulfill orders. Additionally, we may be unable to collect receivables from those customers significantly impacted by COVID-19. A decrease in orders in a given period could negatively affect our revenues in future periods, particularly if experienced on a sustained basis.

We will continue to evaluate the nature and extent of the impact of COVID-19 to our business.

19

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 2020, 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, the impact of the COVID-19 pandemic on our business and operations, and our financial results, and the increase in cash, cash equivalents, and investments during the remainder of 2020. 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: the risk that the COVID-19 pandemic leads to material delays and cancellations of, or reduced demand for, procedures in which our products are utilized; curtailed or delayed capital spending by hospitals and other healthcare providers; disruption to our supply chain; closures of our facilities; delays in training; delays in gathering clinical evidence; diversion of management and other resources to respond to the COVID-19 outbreak; the impact of global and regional economic and credit market conditions on healthcare spending; the risk that the COVID-19 virus disrupts local economies and causes economies in our key markets to enter prolonged recessions; 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 September 30, 2020, we did not experience any material changes in market risk exposures that affect the quantitative and qualitative disclosures presented in our 2019 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 September 30, 2020. 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 September 30, 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

20

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.

Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A. of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 include discussions of our risk factors. There have been no material changes in the risk factors described in those reports, except with respect to the risk factor regarding COVID-19 included in Part II, Item 1A entitled “Risk Factors, “of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 which is supplemented below.

The ongoing COVID-19 pandemic has adversely affected our consolidated results of operations and may continue to do so.

The disruptions resulting from COVID-19 pandemic had a material adverse impact on our financial results for the first nine months of fiscal 2020 and for the three months ended September 30, 2020. For the first nine months of 2020, our revenues were down 4 percent, our operating income was down 10 percent and our net income was down 14 percent from the nine months ended September 30, 2019. For the third quarter of 2020, our revenues were down 13 percent, our operating income was down 27 percent and our net income was down 25 percent from the three months ended September 30, 2019.Our results for the fourth quarter of 2020, and for an indeterminate period thereafter, may be affected by the impact of the global pandemic.

21

Item 6. Exhibits.

Exhibit Index

Exhibit Number	Description
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

22

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:November 9, 2020	By:	/s/ David A. Battat
		David A. Battat
		President and
		Chief Executive Officer
Date:November 9, 2020	By:	/s/ Jeffery Strickland
		Jeffery Strickland
		Vice President and
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

23

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: November 9, 2020	/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: November 9, 2020	/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 June 30, 2020 (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: November 9, 2020	/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 June 30, 2020 (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: November 9, 2020	/s/ Jeffery Strickland
	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.

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Cover - shares	9 Months Ended
	Sep. 30, 2020	Oct. 30, 2020
Cover [Abstract]
Entity Registrant Name	Atrion Corporation
Entity Central Index Key	0000701288
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	false
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Sep. 30, 2020
Entity Filer Category	Large Accelerated Filer
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2020
Entity Common Stock Shares Outstanding		1,828,953
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-32982
Entity Incorporation State Country Code	DE
Entity Tax Identification Number	63-0821819
Entity Address Address Line 1	One Allentown Parkway
Entity Address City Or Town	Allen
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Entity Address Postal Zip Code	75002
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Local Phone Number	390-9800
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Revenues	$ 33,785	$ 38,883	$ 115,348	$ 120,600
Cost of goods sold	18,887	20,992	63,114	65,414
Gross profit	14,898	17,891	52,234	55,186
Operating expenses:
Selling	1,888	2,092	5,660	6,574
General and administrative	4,039	3,990	13,066	12,480
Research and development	1,388	1,359	4,165	3,678
Total Operating Expense	7,315	7,441	22,891	22,732
Operating income	7,583	10,450	29,343	32,454
Interest and dividend income	303	733	1,161	1,896
Other investment income (losses)	678	(106)	5	265
Total Non Operating Income Expenses	981	627	1,166	2,161
Income before provision for income taxes	8,564	11,077	30,509	34,615
Provision for income taxes	(1,321)	(1,482)	(5,764)	(5,918)
Net income	$ 7,243	$ 9,595	$ 24,745	$ 28,697
Net income per basic share	$ 3.96	$ 5.17	$ 13.46	$ 15.48
Weighted average basic shares outstanding	1,829	1,855	1,839	1,854
Net income per diluted share	$ 3.95	$ 5.15	$ 13.42	$ 15.40
Weighted average diluted shares outstanding	1,834	1,862	1,844	1,863
Dividends per common share	$ 1.75	$ 1.55	$ 4.85	$ 4.25

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 23,996,000	$ 45,048,000
Short-term investments	18,779,000	23,766,000
Accounts receivable	17,747,000	18,886,000
Inventories	48,622,000	42,093,000
Prepaid expenses and other current assets	4,013,000	2,545,000
Total current assets	113,157,000	132,338,000
Long-term investments	45,381,000	31,772,000
Property, plant and equipment	213,203,000	200,990,000
Less accumulated depreciation and amortization	122,150,000	116,384,000
Property, plant and equipment net	91,053,000	84,606,000
Other assets and deferred charges:
Patents	1,450,000	1,539,000
Goodwill	9,730,000	9,730,000
Other	2,261,000	2,046,000
Total other assets	13,441,000	13,315,000
Total assets	263,032,000	262,031,000
Current liabilities:
Accounts payable and accrued liabilities	11,694,000	10,855,000
Accrued income and other taxes	1,005,000	419,000
Total current liabilities	12,699,000	11,274,000
Line of credit	0	0
Other non-current liabilities	12,215,000	12,887,000
Stockholders' equity:
Common stock, par value $0.10 per share; authorized 10,000 shares, issued 3,420 shares	342,000	342,000
Paid-in capital	53,581,000	52,043,000
Retained earnings	333,523,000	317,745,000
Treasury shares,1,591 at September 30, 2020 and 1,565 at December 31, 2019, at cost	(149,328,000)	(132,260,000)
Total stockholders' equity	238,118,000	237,870,000
Total liabilities and stockholders' equity	$ 263,032,000	$ 262,031,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2020	Dec. 31, 2019
Stockholders' equity
Common stock, shares par value	$ 0.10	$ 0.10
Common stock, shares authorized	10,000	10,000
Common stock, shares issued	3,420	3,420
Treasury stock, shares	1,591	1,565

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities:
Net income	$ 24,745	$ 28,697
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,517	7,961
Deferred income taxes	1,315	1,922
Stock-based compensation	1,540	1,306
Net change in unrealized gains and losses on investments	256	(257)
Net change in accrued interest, premiums, and discounts on investments	25	367
Other	22	(6)
Adjustment to reconcile net income	36,420	39,990
Changes in operating assets and liabilities:
Accounts receivable	1,136	(1,756)
Inventories	(6,529)	(4,742)
Prepaid expenses	(1,468)	581
Other non-current assets	(258)	17
Accounts payable and accrued liabilities	839	277
Accrued income and other taxes	586	884
Other non-current liabilities	(1,977)	914
Net Cash flows from operating activities	28,749	36,165
Cash flows from investing activities:
Property, plant and equipment additions	(14,899)	(15,239)
Purchase of investments	(40,025)	(54,539)
Proceeds from sale of investments	899
Proceeds from maturities of investments	30,223	46,992
Net Cash flows from investing activities	(23,802)	(22,786)
Cash flows from financing activities:
Purchase of treasury stock	(17,037)
Shares tendered for employees' withholding taxes on stock-based compensation	(55)	(579)
Dividends paid	(8,907)	(7,880)
Net Cash flows from financing activities	(25,999)	(8,459)
Net change in cash and cash equivalents	(21,052)	4,920
Cash and cash equivalents at beginning of period	45,048	58,753
Cash and cash equivalents at end of period	23,996	63,673
Cash paid for:
Income taxes	$ 4,518	$ 2,630

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited) - USD ($) shares in Thousands	Total	Common Stock	Treasury Stock	Additional Paid-In Capital	Retained Earnings
Balance, shares at Dec. 31, 2018		1,853	1,567
Balance, amount at Dec. 31, 2018	$ 210,767,000	$ 342,000	$ (131,727,000)	$ 50,391,000	$ 291,761,000
Net income	28,697,000				28,697,000
Stock-based compensation transactions, shares		3	(3)
Stock-based compensation transactions, amount	1,315,000		$ 46,000	1,269,000
Shares surrendered in stock transactions, shares		(1)	1
Shares surrendered in stock transactions, amount	(579,000)		$ (579,000)
Dividends	(7,895,000)				(7,895,000)
Balance, shares at Sep. 30, 2019		1,855	1,565
Balance, amount at Sep. 30, 2019	232,305,000	$ 342,000	$ (132,260,000)	51,660,000	312,563,000
Balance, shares at Jun. 30, 2019		1,855	1,565
Balance, amount at Jun. 30, 2019	225,260,000	$ 342,000	$ (132,260,000)	51,332,000	305,846,000
Net income	9,595,000				9,595,000
Stock-based compensation transactions, amount	328,000			328,000
Dividends	(2,878,000)				(2,878,000)
Balance, shares at Sep. 30, 2019		1,855	1,565
Balance, amount at Sep. 30, 2019	232,305,000	$ 342,000	$ (132,260,000)	51,660,000	312,563,000
Balance, shares at Dec. 31, 2019		1,855	1,565
Balance, amount at Dec. 31, 2019	237,870,000	$ 342,000	$ (132,260,000)	52,043,000	317,745,000
Net income	24,745,000				24,745,000
Stock-based compensation transactions, amount	1,562,000		24,000	1,538,000
Shares surrendered in stock transactions, amount	(55,000)		$ (55,000)
Dividends	(8,931,000)				(8,931,000)
Cumulative change in accounting principal	(36,000)				(36,000)
Purchase of treasury stock, shares		(26)	26
Purchase of treasury stock, amount	(17,037,000)		$ (17,037,000)
Balance, shares at Sep. 30, 2020		1,829	1,591
Balance, amount at Sep. 30, 2020	238,118,000	$ 342,000	$ (149,328,000)	53,581,000	333,523,000
Balance, shares at Jun. 30, 2020		1,829	1,591
Balance, amount at Jun. 30, 2020	233,527,000	$ 342,000	$ (149,329,000)	53,020,000	329,494,000
Net income	7,243,000				7,243,000
Stock-based compensation transactions, amount	562,000		1,000	561,000
Shares surrendered in stock transactions, amount	0		$ 0
Dividends	(3,214,000)				(3,214,000)
Balance, shares at Sep. 30, 2020		1,829	1,591
Balance, amount at Sep. 30, 2020	$ 238,118,000	$ 342,000	$ (149,328,000)	$ 53,581,000	$ 333,523,000

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Basis of Presentation

9 Months Ended

Sep. 30, 2020

Basis of Presentation

1- Basis of Presentation

(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Atrion Corporation and its subsidiaries (collectively referred to herein as “Atrion” the “Company,” “we,” “our,” and “us”) 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 can have a significant impact on our revenue, operating income, and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. At least quarterly, we evaluate our assumptions, judgments, and estimates, and make changes as deemed necessary.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of November 9, 2020, the date of issuance of this Quarterly Report on Form 10-Q. However, these estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 ("2019 Form 10-K").

The Coronavirus Aid, Relief, and Economic Security Act, which became law on March 27, 2020, includes a provision that permits an employer to defer the payment of the employer’s portion of payroll taxes that otherwise would be due between March 27, 2020 and December 31, 2020. The Company has elected to take advantage of such deferral provision.

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Inventories

9 Months Ended

Sep. 30, 2020

Inventories

2- Inventories

(2) Inventories

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

	September 30,		December 31,
	2020		2019
Raw materials	$	19,994	$	18,157
Work in process		10,724		8,525
Finished goods		17,904		15,411
Total inventories	$	48,622	$	42,093

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Income per share

9 Months Ended

Sep. 30, 2020

Income per share

3- Income per share

(3) Income per share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share amounts)
Net income	$	7,243	$	9,595	$	24,745	$	28,697
Weighted average basic shares outstanding		1,829		1,855		1,839		1,854
Add:Effect of dilutive securities		5		7		5		9
Weighted average diluted shares outstanding		1,834		1,862		1,844		1,863
Earnings per share:
Basic	$	3.96	$	5.17	$	13.46	$	15.48
Diluted	$	3.95	$	5.15	$	13.42	$	15.40

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 two and zero shares of common stock for the quarters ended September 30, 2020 and 2019, respectively, and an average of six and zero shares of common stock for the nine months ended September 30, 2020 and 2019, respectively, were excluded from the computation of weighted average diluted shares outstanding because their effect would have been anti-dilutive.

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Investments

9 Months Ended

Sep. 30, 2020

Investments

4- Investments

(4) Investments

As of September 30, 2020 and December 31, 2019, we held investments in commercial paper, bonds, money market accounts, mutual funds and equity securities. The commercial paper and bonds are considered held-to-maturity and are recorded at amortized cost in the accompanying consolidated balance sheets. The money market accounts, equity securities and mutual funds are recorded at fair value in the accompanying consolidated balance sheets. The fair values of these investments were estimated using recently executed transactions and market price quotations. 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 components of the Company’s cash and cash equivalents and our short and long-term investments are as follows (in thousands):

	September 30, 2020			December 31, 2019
Cash and cash equivalents:
Cash deposits	$	19,573		$	38,942
Money market funds		3,673			3,460
Commercial paper		750			2,646
Total cash and cash equivalents	$	23,996		$	45,048
Short-term investments:
Commercial paper (held-to-maturity)	$	4,469		$	6,778
Bonds (held-to-maturity)		14,330			16,988
Allowance for credit losses		(20	)		-
Total short-term investments	$	18,779		$	23,766
Long-term investments:
Mutual funds (available for sale)	$	499		$	1,105
Bonds (held-to-maturity)		42,177			27,845
Allowance for credit losses		(57	)		-
Equity securities (available for sale)		2,762			2,822
Total long-term investments	$	45,381		$	31,772
Total cash, cash equivalents and short and long-term investments	$	88,156		$	100,586

Recently adopted Topic 326 utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for held-to-maturity securities at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. Our credit loss calculations for held-to-maturity securities are based upon historical default and recovery rates of bonds rated with the same rating as our portfolio. We also apply an adjustment factor to these credit loss calculations based upon our assessment of the expected impact from current economic conditions on our investments, including the impact of COVID-19. We monitor the credit quality of debt securities classified as held-to-maturity through the use of their respective credit rating and update them on a quarterly basis with our latest assessment completed on September 30, 2020.

The following table summarizes the amortized cost of our held-to-maturity bonds at September 30, 2020, aggregated by credit quality indicator (in thousands):

Held-to-Maturity Bonds
Credit Quality Indicators	Asset Backed Bonds		Fed Govt. Bonds/Notes		Municipal Bonds		Corporate Bonds		Totals
AAA/AA/A	$	1,891	$	3,265	$	759	$	31,490	$	37,405
BBB/BB		-		-		-		19,102		19,102
TOTAL	$	1,891	$	3,265	$	759	$	50,592	$	56,507

The following table presents information regarding our allowance for credit losses on our short-term and long-term investments for the nine months ended September 30, 2020 (in thousands):

	Short- Term Securities		Long- Term Securities		Total
Beginning balance, December 31, 2019	$	-	$	-	$	-
Allowance recognized upon adoption of Topic 326		9		33		42
Provision for credit loss expense		11		24		35
Ending balance, September 30, 2020	$	20	$	57	$	77

Our investments are required to be measured for disclosure purposes at fair value on a recurring basis. Our investments are considered Level 1 or Level 2 as detailed in the table below. 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 September 30, 2020:
Money market		1		3,673	$	-	$	-		$	3,673
Commercial paper		2		5,219	$	4	$	-		$	5,223
Bonds		2		56,506	$	544	$	(60	)	$	56,990
Mutual funds		1		566	$	-	$	(67	)	$	499
Equity investments		2		5,675	$	-	$	(2,913	)	$	2,762
As of December 31, 2019:
Money Market		1		3,460	$	-	$	-		$	3,460
Commercial paper		2		9,424	$	2	$	-		$	9,426
Bonds		2		44,833	$	138	$	(19	)	$	44,952
Mutual funds		1		1,052	$	53	$	-		$	1,105
Equity investments		2		5,675	$	-	$	(2,853	)	$	2,822

The bonds represent investments in various issuers at September 30, 2020.

The unrealized losses for these bond investments relate to the impact of COVID-19 on the bond market which resulted in a lower market price for those securities. None of these bond investments has been in a loss position for more than 12 months.

The commercial paper has maturities from less than a month to five months. The bonds have maturities from less than a month to 54 months.

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Patents and Licenses

9 Months Ended

Sep. 30, 2020

Patents and Licenses

5- Patents and Licenses

(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):

September 30, 2020						December 31, 2019
Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization		Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization
	15.67	$	13,840	$	12,390		15.67	$	13,840	$	12,301

Aggregate amortization expense for patents and licenses was $30,000 in each of the three months ended September 30, 2020 and 2019 and $90,000 in each of the nine months ended September 30, 2020 and 2019.

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

2021	$	119
2022	$	117
2023	$	113
2024	$	113
2025	$	112

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Revenues

9 Months Ended

Sep. 30, 2020

Revenues

6- Revenues

(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.

A summary of revenues by geographic area, based on shipping destination, for the three and six months ended September 30, 2020 and 2019 are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
United States	$	19,925	$	24,644	$	65,648	$	76,640
Germany		2,485		2,168		8,640		6,427
Other countries less than 5% of revenues		11,375		12,071		41,060		37,533
Total	$	33,785	$	38,883	$	115,348	$	120,600

A summary of revenues by product line for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Fluid Delivery	$	16,512	$	17,888	$	60,620	$	54,334
Cardiovascular		11,297		14,565		36,963		44,564
Ophthalmology		1,171		1,556		2,970		5,656
Other		4,805		4,874		14,795		16,046
Total	$	33,785	$	38,883	$	115,348	$	120,600

More than 99 percent of our total revenue in the periods presented herein is pursuant to shipments initiated 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. Effective January 1, 2020, we adopted the new credit loss accounting methodology as discussed in footnote 7 to calculate our credit loss allowance for our trade receivables. An account is written off when we determine 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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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2020

Recent Accounting Pronouncements

7- Recent Accounting Pronouncements

(7) Recent Accounting Pronouncements

ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU introduces a new credit loss methodology, Current Expected Credit Losses (CECL), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB has issued several updates to the original ASU.

The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and trade and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized.

On January 1, 2020, we adopted the guidance prospectively with a cumulative adjustment to retained earnings. Atrion has not restated comparative information for 2019 and, therefore, the comparative information for 2019 is reported under the old model and is not comparable to the information presented for 2020.

At adoption, we recognized an incremental allowance for credit losses on our allowance for credit losses related to our held-to-maturity debt securities of approximately $42,000 and our trade accounts receivable of approximately $4,000. Additionally, we recorded an approximately $36,000 decrease in retained earnings associated with the increased estimated credit losses on our trade accounts receivable and investments.

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.

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Inventories (Tables)

9 Months Ended

Sep. 30, 2020

Inventories

Schedule of inventories

	September 30,		December 31,
	2020		2019
Raw materials	$	19,994	$	18,157
Work in process		10,724		8,525
Finished goods		17,904		15,411
Total inventories	$	48,622	$	42,093

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Income Per Share (Tables)

9 Months Ended

Sep. 30, 2020

Income per share

Schedule of Computation of Basic and Diluted Income Per Share

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share amounts)
Net income	$	7,243	$	9,595	$	24,745	$	28,697
Weighted average basic shares outstanding		1,829		1,855		1,839		1,854
Add:Effect of dilutive securities		5		7		5		9
Weighted average diluted shares outstanding		1,834		1,862		1,844		1,863
Earnings per share:
Basic	$	3.96	$	5.17	$	13.46	$	15.48
Diluted	$	3.95	$	5.15	$	13.42	$	15.40

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Investments (Tables)

9 Months Ended

Sep. 30, 2020

Investments

Schedule of cash and cash equivalents andshort and long-term investments

	September 30, 2020			December 31, 2019
Cash and cash equivalents:
Cash deposits	$	19,573		$	38,942
Money market funds		3,673			3,460
Commercial paper		750			2,646
Total cash and cash equivalents	$	23,996		$	45,048
Short-term investments:
Commercial paper (held-to-maturity)	$	4,469		$	6,778
Bonds (held-to-maturity)		14,330			16,988
Allowance for credit losses		(20	)		-
Total short-term investments	$	18,779		$	23,766
Long-term investments:
Mutual funds (available for sale)	$	499		$	1,105
Bonds (held-to-maturity)		42,177			27,845
Allowance for credit losses		(57	)		-
Equity securities (available for sale)		2,762			2,822
Total long-term investments	$	45,381		$	31,772
Total cash, cash equivalents and short and long-term investments	$	88,156		$	100,586

Schedule of investments, held-to-maturity securities

Held-to-Maturity Bonds
Credit Quality Indicators	Asset Backed Bonds		Fed Govt. Bonds/Notes		Municipal Bonds		Corporate Bonds		Totals
AAA/AA/A	$	1,891	$	3,265	$	759	$	31,490	$	37,405
BBB/BB		-		-		-		19,102		19,102
TOTAL	$	1,891	$	3,265	$	759	$	50,592	$	56,507

Schedule of allowance for credit losses on short-term and long-term investments

	Short- Term Securities		Long- Term Securities		Total
Beginning balance, December 31, 2019	$	-	$	-	$	-
Allowance recognized upon adoption of Topic 326		9		33		42
Provision for credit loss expense		11		24		35
Ending balance, September 30, 2020	$	20	$	57	$	77

Schedule of gross unrealized gains and losses on investments

					Gross Unrealized
	Level		Cost		Gains		Losses			Fair Value
As of September 30, 2020:
Money market		1		3,673	$	-	$	-		$	3,673
Commercial paper		2		5,219	$	4	$	-		$	5,223
Bonds		2		56,506	$	544	$	(60	)	$	56,990
Mutual funds		1		566	$	-	$	(67	)	$	499
Equity investments		2		5,675	$	-	$	(2,913	)	$	2,762
As of December 31, 2019:
Money Market		1		3,460	$	-	$	-		$	3,460
Commercial paper		2		9,424	$	2	$	-		$	9,426
Bonds		2		44,833	$	138	$	(19	)	$	44,952
Mutual funds		1		1,052	$	53	$	-		$	1,105
Equity investments		2		5,675	$	-	$	(2,853	)	$	2,822

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Patents and Licenses (Tables)

9 Months Ended

Sep. 30, 2020

Patents and Licenses

Schedule of patents and licenses

September 30, 2020						December 31, 2019
Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization		Weighted Average Original Life (years)		Gross Carrying Amount		Accumulated Amortization
	15.67	$	13,840	$	12,390		15.67	$	13,840	$	12,301

Schedule of estimated future amortization expense

2021	$	119
2022	$	117
2023	$	113
2024	$	113
2025	$	112

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Revenues (Tables)

9 Months Ended

Sep. 30, 2020

Revenues (Tables)

Schedule of revenues by geographic area

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
United States	$	19,925	$	24,644	$	65,648	$	76,640
Germany		2,485		2,168		8,640		6,427
Other countries less than 5% of revenues		11,375		12,071		41,060		37,533
Total	$	33,785	$	38,883	$	115,348	$	120,600

Schedule of revenues by product

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Fluid Delivery	$	16,512	$	17,888	$	60,620	$	54,334
Cardiovascular		11,297		14,565		36,963		44,564
Ophthalmology		1,171		1,556		2,970		5,656
Other		4,805		4,874		14,795		16,046
Total	$	33,785	$	38,883	$	115,348	$	120,600

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Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Inventories
Raw materials	$ 19,994	$ 18,157
Work in process	10,724	8,525
Finished goods	17,904	15,411
Total inventories	$ 48,622	$ 42,093

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Income Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income per share
Net income	$ 7,243	$ 9,595	$ 24,745	$ 28,697
Weighted average basic shares outstanding	1,829	1,855	1,839	1,854
Add:Effect of dilutive securities	5	7	5	9
Weighted average diluted shares outstanding	1,834	1,862	1,844	1,863
Earnings per share:
Basic	$ 3.96	$ 5.17	$ 13.46	$ 15.48
Diluted	$ 3.95	$ 5.15	$ 13.42	$ 15.40

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Income Per Share (Details Narrative) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income per share
Shares excluded from computation of weighted average diluted shares outstanding	2	0	6	0

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Investments (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Cash and cash equivalents:
Total cash and cash equivalents	$ 23,996	$ 45,048
Short-term investments:
Total short-term Investments	18,779	23,766
Allowance for credit losses	(20)	0
Long-term investments:
Total long-term investments	45,381	31,772
Allowance for credit losses	(57)	0
Total cash, cash equivalents and short and long-term investments	88,156	100,586
Commercial Paper (Held-To-Maturity) [Member]
Short-term investments:
Total short-term Investments	4,469	6,778
Bonds (Held-To-Maturity) [Member]
Short-term investments:
Total short-term Investments	14,330	16,988
Mutual funds (available for sale) [Member]
Long-term investments:
Total long-term investments	499	1,105
Bonds [Held-To-Maturity] [Member]
Long-term investments:
Total long-term investments	42,177	27,845
Equity securities (available for sale] [Member]
Long-term investments:
Total long-term investments	2,762	2,822
Cash Deposits [Member]
Cash and cash equivalents:
Total cash and cash equivalents	19,573	38,942
Money Market Funds [Member]
Cash and cash equivalents:
Total cash and cash equivalents	3,673	3,460
Commercial Paper [Member]
Cash and cash equivalents:
Total cash and cash equivalents	$ 750	$ 2,646

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Investments (Details1)	Sep. 30, 2020 USD ($)
Debt securities, held-to-maturity	$ 56,507,000
AAA /AA/A [Member]
Debt securities, held-to-maturity	37,405,000
BBB/BB [Member]
Debt securities, held-to-maturity	19,102,000
Asset Backed Bonds [Member] | BBB/BB [Member]
Debt securities, held-to-maturity	0
Fed Govt. Bonds/Notes [Member]
Debt securities, held-to-maturity	3,265,000
Fed Govt. Bonds/Notes [Member] | BBB/BB [Member]
Debt securities, held-to-maturity	0
Fed Govt. Bonds/Notes [Member] | AAA /AA/A [Member]
Debt securities, held-to-maturity	3,265,000
Municipal Bonds [Member]
Debt securities, held-to-maturity	759,000
Municipal Bonds [Member] | BBB/BB [Member]
Debt securities, held-to-maturity	0
Municipal Bonds [Member] | AAA /AA/A [Member]
Debt securities, held-to-maturity	759,000
Assets Baked Bonds [Member]
Debt securities, held-to-maturity	1,891,000
Assets Baked Bonds [Member] | AAA /AA/A [Member]
Debt securities, held-to-maturity	1,891,000
Corporate Bonds [Member]
Debt securities, held-to-maturity	50,592,000
Corporate Bonds [Member] | AAA /AA/A [Member]
Debt securities, held-to-maturity	31,490,000
Corporate Bonds [Member] | BBB/BB [Member]
Debt securities, held-to-maturity	$ 19,102,000

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Investments (Details 2)	9 Months Ended
	Sep. 30, 2020 USD ($)
Short-term Investments [Member]
Beginning balance, December 31, 2019	$ 0
Allowance recognized upon adoption of Topic 326	9,000
Provision for credit loss expense	11,000
Ending balance, September 30, 2020	20,000
Long Term Investments [Member]
Beginning balance, December 31, 2019	0
Allowance recognized upon adoption of Topic 326	33,000
Provision for credit loss expense	24,000
Ending balance, September 30, 2020	57,000
Total [Member]
Beginning balance, December 31, 2019	0
Allowance recognized upon adoption of Topic 326	42,000
Provision for credit loss expense	35,000
Ending balance, September 30, 2020	$ 77,000

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Investments (Details 3) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Debt securities, held-to-maturity	$ 56,507,000
Short-term Investments [Member] | Mutual funds (available for sale) [Member]
Debt securities, held-to-maturity	566,000	$ 1,052,000
Gross Unrealized Fair Value	499,000	1,105,000
Gross Unrealized Gains	0	53,000
Gross Unrealized Losses	(67,000)	0
Money Market Funds [Member] | Short-term Investments [Member]
Debt securities, held-to-maturity	3,673,000	3,460,000
Gross Unrealized Fair Value	3,673	3,460
Gross Unrealized Gains		0
Gross Unrealized Losses	0	0
Equity investments [Member] | Short-term Investments [Member]
Debt securities, held-to-maturity	5,675,000	5,675,000
Gross Unrealized Fair Value	2,762,000	2,822,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	(2,913,000)	(2,853,000)
Commercial Paper [Member] | Short-term Investments [Member]
Debt securities, held-to-maturity	5,219,000	9,424,000
Gross Unrealized Fair Value	5,223	9,426
Gross Unrealized Gains	4	2
Gross Unrealized Losses	0
Bonds [Member] | Short-term Investments [Member]
Debt securities, held-to-maturity	56,506,000	44,833,000
Gross Unrealized Fair Value	56,990,000	44,952,000
Gross Unrealized Gains	544,000	138,000
Gross Unrealized Losses	$ (60,000)	$ (19,000)

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Investments (Details Narrative)	9 Months Ended
	Sep. 30, 2020
Maximum [Member] | Bonds [Member]
Securities Maturity	54 years

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Patents and Licenses (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Patents and Licenses
Weighted Average Original Life (years)			15 years 8 months 1 day		15 years 8 months 1 day
Gross Carrying Amount			$ 13,840,000		$ 13,840,000
Accumulated Amortization	$ 30,000,000	$ 30,000	$ 12,390,000	$ 90,000,000	$ 12,301,000

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Patents and Licenses (Details 1) $ in Thousands	Dec. 31, 2019 USD ($)
Patents and Licenses
2021	$ 119
2022	117
2023	113
2024	113
2025	$ 112

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Patents and Licenses (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Patents and Licenses
Aggregate amortization expense	$ 30,000,000	$ 30,000	$ 12,390,000	$ 90,000,000	$ 12,301,000

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Revenues (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenues	$ 33,785	$ 38,883	$ 115,348	$ 120,600
United States [Member]
Revenues	19,925	24,644	65,648	76,640
Germany [Member]
Revenues	2,485	2,168	8,640	6,427
Other Countries Less Than 5% Of Revenues [Member]
Revenues	$ 11,375	$ 12,071	$ 41,060	$ 37,533

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Revenues (Details 1) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Total Revenues	$ 33,785	$ 38,883	$ 115,348	$ 120,600
Fluid Delivery [Member]
Total Revenues	16,512	17,888	60,620	54,334
Cardiovascular [Member]
Total Revenues	11,297	14,565	36,963	44,564
Ophthalmology [Member]
Total Revenues	1,171	1,556	2,970	5,656
Other [Member]
Total Revenues	$ 4,805	$ 4,874	$ 14,795	$ 16,046

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Recent Accounting Pronouncements (Details Narrative)	9 Months Ended
	Sep. 30, 2020 USD ($)
Decrease in retained earnings	$ 36,000
Trade Accounts Receivable [Member]
Provision for Other Credit Losses	4,000
Held-to-maturity Securities [Member]
Provision for Other Credit Losses	$ 42,000