# EDGAR Filing Document

**Accession Number:** 0000701288
**File Stem:** 0001654954-23-002127
**Filing Date:** 2023-2
**Character Count:** 259672
**Document Hash:** 52be4d49a0719af6f516b3c9360d64e3
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001654954-23-002127.hdr.sgml**: 20230227

**ACCESSION NUMBER**: 0001654954-23-002127

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 74

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230227

**DATE AS OF CHANGE**: 20230227

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** ATRION CORP
- **CENTRAL INDEX KEY:** 0000701288
- **STANDARD INDUSTRIAL CLASSIFICATION:** SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
- **IRS NUMBER:** 630821819
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-32982
- **FILM NUMBER:** 23675478

**BUSINESS ADDRESS:**
- **STREET 1:** ONE ALLENTOWN PARKWAY
- **CITY:** ALLEN
- **STATE:** TX
- **ZIP:** 75002
- **BUSINESS PHONE:** 9723909800

**MAIL ADDRESS:**
- **STREET 1:** ONE ALLENTOWN PARKWAY
- **CITY:** ALLEN
- **STATE:** TX
- **ZIP:** 75002

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** ALATENN RESOURCES INC
- **DATE OF NAME CHANGE:** 19920703

?xml version="1.0" encoding="utf-8"?atri_10k.htm

**UNITED STATES** 

**SECURITIES AND EXCHANGE COMMISSION** 

 **Washington, D.C. 20549**

&nbsp;&nbsp;&nbsp;&nbsp;**_______________________**

**Form 10-K**

**☒** **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the Fiscal Year Ended December 31, 2022**

**☐** **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 of incorporation or organization) | (I.R.S. Employer Identification No.) |
| **One Allentown Parkway,** <br>**Allen, Texas** | **75002** |
| (Address of principal executive offices) | (ZIP code) |
| <br>Registrant's telephone number, including area code: (972) 390-9800 | <br>Registrant's telephone number, including area code: (972) 390-9800 |
| **SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:** | **SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:** |

---

---

| | | |
|:---|:---|:---|
| **Title of Class** | **Trading** <br>**Symbol(s)** | **Name of Each Exchange** <br>**on Which Registered** |
| Common Stock, $0.10 Par Value | ATRI | The Nasdaq Global Select Market |

---

**SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT**: None<br>

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐&nbsp;&nbsp;&nbsp;&nbsp; No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐&nbsp;&nbsp;&nbsp;&nbsp; No ☒

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 ☒&nbsp;&nbsp;&nbsp;&nbsp; No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒&nbsp;&nbsp;&nbsp;&nbsp; No ☐

Indicate by check 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 the 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 | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
|  |  | Emerging Growth Company | ☐ |

---

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Yes ☐&nbsp;&nbsp;&nbsp;&nbsp; No ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). Yes ☐&nbsp;&nbsp;&nbsp;&nbsp; No ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐&nbsp;&nbsp;&nbsp;&nbsp; No ☒

The aggregate market value of the voting Common Stock held by nonaffiliates of the registrant as of, June 30, 2022, the last business day of the registrant's most recently completed second fiscal quarter was approximately $869,536,041 based on the $628.86 closing price reported for such date on the The Nasdaq Global Select Market.

Number of shares of Common Stock outstanding at February 14, 2023: 1,761,478

**DOCUMENTS INCORPORATED BY REFERENCE** 

Part III of this Form 10-K incorporates by reference information from the registrant's definitive proxy statement relating to its 2023 annual meeting of stockholders, to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this report.

**ATRION CORPORATION**

**FORM 10-K**

**ANNUAL REPORT TO**

**THE SECURITIES AND EXCHANGE COMMISSION**

**FOR THE YEAR ENDED DECEMBER 31, 2022**

**________**

**TABLE OF CONTENTS**

---

| | | |
|:---|:---|:---|
| **<u>ITEM</u>** |  | **<u>PAGE</u>** |
| **[PART I](#p1)** |  | **3** |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 1.](#i1) | [BUSINESS](#i1) | 3 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 1A.](#i1a) | [RISK FACTORS](#i1a) | 11 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 1B.](#i1b) | [UNRESOLVED STAFF COMMENTS](#i1b) | 27 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 2.](#i2) | [PROPERTIES](#i2) | 27 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 3.](#i3) | [LEGAL PROCEEDINGS](#i3) | 27 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 4.](#i4) | [MINE SAFETY DISCLOSURES](#i4) | 27 |
|  | [INFORMATION ABOUT OUR EXECUTIVE OFFICERS](#infor) | 28 |
| **[PART II](#p2)** |  | **29** |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 5.](#i5) | [MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](#i5) | 29 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 7.](#i7) | [MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](#i7) | 30 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 7A.](#i7a) | [QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](#i7a) | 34 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 8.](#i8) | [FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](#i8) | 35 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 9.](#i9) | [CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](#i9) | 56 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 9A.](#i9a) | [CONTROLS AND PROCEDURES](#i9a) | 56 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 9B.](#i9b) | [OTHER INFORMATION](#i9b) | 58 |
| **[PART III](#p3)** |  | **58** |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 10.](#i10) | [DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](#i10) | 58 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 11.](#i11) | [EXECUTIVE COMPENSATION](#i11) | 59 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 12.](#i12) | [SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS](#i12) | 59 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 13.](#i13) | [CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](#i13) | 59 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 14.](#i14) | [PRINCIPAL ACCOUNTANT FEES AND SERVICES](#i14) | 59 |
| **[PART IV](#p4)** |  | **60** |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 15.](#i15) | [EXHIBITS AND FINANCIAL STATEMENT SCHEDULES](#i15) | 60 |
| &nbsp;&nbsp;&nbsp;&nbsp;[ITEM 16.](#i16) | [SUMMARY OF FORM 10K](#i16) | 62 |
| **[SIGNATURES](#sig)** |  | **63** |

---

---

| |
|:---|
| 2 |
| *[**Table of Contents**](#toc)* |

---

**ATRION CORPORATION**

**FORM 10-K**

**ANNUAL REPORT TO**

**THE SECURITIES AND EXCHANGE COMMISSION**

**FOR THE YEAR ENDED DECEMBER 31, 2022**

**PART I**

**ITEM 1. BUSINESS.**

**General**

Atrion Corporation and its subsidiaries ("we," "our," "us," "Atrion," or the "Company") develop and manufacture products, primarily for medical applications. Our medical products are used in a number of fields including fluid delivery, cardiovascular, and ophthalmic applications.

Our fluid delivery products accounted for 46 percent of net revenues for 2022, 47 percent for 2021, and 51 percent for 2020. We have developed a wide variety of proprietary valves designed to precisely fill, hold, and release controlled amounts of fluids or gasses on demand for use in various intubation, intravenous, catheter, and other applications in fields such as anesthesia and oncology. We manufacture products that deliver fluids as well as promote infection control in hospital and home healthcare environments.

Our cardiovascular products accounted for 37 percent of net revenues for 2022, 34 percent for 2021, and 33 percent for 2020. At the core of our cardiovascular products is our Myocardial Protection System, a proprietary technology that is the only open-heart surgery system that delivers to the heart essential fluids and medications, mixes critical drugs, and controls temperature, pressure, and other important variables. This system indicates improved outcomes offering an integrated, flexible set of choices during surgery without diluting the blood. In late 2020, we launched a latest generation of our system, the MPS®3, which features even greater levels of performance, safety, and flexibility. We also develop and manufacture other cardiovascular products such as cardiac surgery vacuum relief valves; silicone vessel loops for retracting and occluding vessels in minimally invasive surgical procedures; inflation devices for balloon catheter dilation, stent deployment, and fluid dispensing; as well as products used in heart bypass surgery to make a precision opening in the heart for attachment of the bypass vessels.

Our ophthalmic products accounted for 3 percent of net revenues for 2022, 4 percent for 2021, and 3 percent for 2020. We are a leading manufacturer of specialized medical devices that disinfect contact lenses. We also manufacture a proprietary line of balloon catheters used in the treatment of nasolacrimal duct obstruction in children and adults.

Our other medical and non-medical products accounted for 14 percent of net revenues for 2022, 15 percent for 2021, and 13 percent for 2020. Within this area, we manufacture and sell a line of products designed for safe needle and scalpel blade containment. We are also the leading manufacturer of inflation systems and valves used in marine and aviation safety products. We manufacture components used in inflatable survival products and structures. We also produce one-way and two-way pressure relief valves that protect sensitive electronics and other products during transport in medical and non-medical applications.

**Business Strategy**

Our business strategy is to provide hospitals, physicians, and other healthcare providers with the tools they need to improve the lives of the patients they serve. To do so, we provide a broad selection of products in our areas of expertise in the medical device industry. We focus on meeting customer needs with existing products and expanding current product lines. We seek to develop new products for our current customers and to develop new customers in niche markets. We reach a broad base of customers through our direct sales force, independent sales representatives, and distributors in the United States, Canada, Europe, and other countries. We have diverse product lines serving primarily the fluid delivery, cardiovascular, and ophthalmic markets, and this diversity has served us well as we encounter changing market conditions. Our manufacturing operations are conducted at three geographically separate facilities, thereby lessening the risk that a singular event in any one location could cripple our manufacturing operations. Furthermore, all of our manufacturing activities are conducted in the United States, thus lessening the risk that offshore events could interfere with our manufacturing operations. We make significant investments in research and development, or R&D, at all three of our facilities in order to maintain and enhance our position in the medical device industry.

---

| |
|:---|
| 3 |
| *[**Table of Contents**](#toc)* |

---

We have created and maintained a culture of controlling costs, and we regularly invest in modern manufacturing technologies. We have been successful in consistently generating cash from operations, thus enabling us to expand our operations. Over the past 22 years, we have grown our existing businesses and, in doing so, we have succeeded in increasing revenues from $51.4 million in 2000 to $183.5 million in 2022 and increasing net income from $2.8 million in 2000 to $35.0 million in 2022. We plan to continue focusing on internal growth and are significantly expanding one of our manufacturing facilities to support that growth. During this 22-year period, we have explored various acquisition opportunities but have elected not to proceed with them, focusing instead on internal growth. However, we believe that we can continue growing internally and, at the same time, make acquisitions that will enhance our growth, and we are continuing to seek such opportunities.

**Marketing** 

We market components to other equipment manufacturers for incorporation in their products and sell finished devices to physicians, hospitals, clinics, and other treatment centers. We sell our products through a sales force which consists of direct sales personnel, independent sales representatives, and distributors. Our sales managers also work closely with major customers in designing and developing products to meet customer requirements.

We offer customer service, training and education, and technical support such as field service, spare parts, maintenance, and repair for certain of our products. We periodically advertise our products in trade journals, routinely attend and participate in industry trade shows throughout the United States and internationally, and sponsor scientific symposia as a means of disseminating product information. We also have supportive literature on the benefits of our products.

**Manufacturing**

Our medical and non-medical products are manufactured at facilities in Florida, Alabama, and Texas. The facilities in Alabama and Florida both utilize plastic injection molding and specialized assembly as their primary manufacturing processes. Our other manufacturing processes consist of the assembly of standard and custom component parts, including the assembly of electronic components, and the testing of completed products.

Our Quality Management System complies with US FDA Quality System Regulations, Medical Device Single Audit Program requirements, and the European Medical Device Directives, which require manufacturers of medical devices to adhere to certain design testing, quality control, documentation, and other quality assurance procedures during and after the manufacturing process. Our devices comply with all regulations applicable to the countries where they are registered. We devote significant attention to quality assurance and regulatory compliance. Our quality assurance measures begin with the suppliers which participate in our supplier quality assurance program. These measures continue at the manufacturing level where many components are assembled in a clean room environment designed and maintained to reduce product exposure to particulate matter. Products are tested throughout the manufacturing process for adherence to specifications. Most finished products are then shipped to outside processors for sterilization by radiation or ethylene oxide gas. After sterilization, the products are quarantined and tested before they are shipped to customers.

Our medical device operations are EN ISO13485:2016 certified and are subject to FDA jurisdiction.

---

| |
|:---|
| 4 |
| *[**Table of Contents**](#toc)* |

---

**Research and Development**

A well-targeted R&D program is an essential part of our activities, and we are currently engaged in a number of R&D projects. The objective of this program is to develop new products in our current product lines, improve current products, and develop new product lines. The Company expects to continue additional R&D in 2023 in all aspects of this program.

**Sources and Availability of Raw Materials** 

The principal raw materials that we use in our products are resins. Our ability to operate profitably is dependent, in part, on the availability and pricing of these resins. The resins we use are derived from petroleum and natural gas, and the prices fluctuate substantially as a result of changes in petroleum and natural gas prices, demand, and the capacity of the companies that produce these resins to meet market needs. Instability in the world markets for petroleum and natural gas could adversely affect the availability and pricing of these resins.

We contract with various suppliers to provide the component parts necessary to assemble our products. Substantially all of these components are available from a number of different suppliers, although certain components are purchased from single sources that manufacture these components using our tooling. We believe that we have satisfactory backup plans for single-sourced components, although a sudden disruption in supply from one or more of these suppliers could adversely affect our ability to deliver finished products on time. We own the molds used for production of substantially all our components. Consequently, in the event of supply disruption, we believe we would be able to fabricate our own components or contract with another supplier, albeit after a possible delay in the production process.

**Intellectual Property**

We have developed, and our business depends in part on, significant know-how and proprietary technology. To protect our know-how and proprietary technology, we rely on trade secret laws, trademarks, patents, copyrights, confidentiality agreements, and other contracts. We own 481 patents and patent applications pending on products that are currently being sold by us or which we intend to sell in the future, 110 of which relate to fluid delivery products, 114 of which relate to cardiovascular products, 59 of which relate to ophthalmic products, and 198 of which relate to other products. We pay royalties to an outside party under a license agreement for one patent. Our patents expire at various times over the next 18 years. In assessing the importance of patents to our business and the impact of the expirations of our patents, we believe it is appropriate to take into account a number of factors, including the following: We have contractual commitments for certain products that extend beyond the expiration dates of our patents. Additionally, many of our products are components in other medical devices, and the cost of those components is generally very small compared to the cost of those medical devices. As a result, substituting alternative components would likely result in the manufacturers of those medical devices and their customers experiencing an elaborate technical and regulatory process that could add significant costs and delays and may not be cost effective, thus making it difficult for our potential competitors to replace our components in those medical devices. We manufacture our own products, and that experience has been and is expected to continue to be, beneficial to us beyond the expiration of our patents. During the life of a patent, we frequently invest in automation to increase quality and reduce cost, and we allocate resources to improving and developing enhancements to our products. Our experience has been that these steps increase the likelihood that we will be able to compete effectively if others try to duplicate our products after our patents expire. We have often been able to sell our products for many years beyond their patent expirations and expect that to continue in the future. However, we recognize that our future growth depends, in part, on our success in continuing to expand our patent portfolio as older patents expire. Much of our R&D effort is aimed at developing new products that will eventually take the place of our current products. We also have a number of trademark registrations that are generally for fixed but renewable terms. For the above reasons, as well as others, we believe that no single patent, technology, trademark, intellectual property asset, or license is material in relation to our business as a whole.

---

| |
|:---|
| 5 |
| *[**Table of Contents**](#toc)* |

---

We have developed technical knowledge which, although non-patentable, we consider to be significant in enabling us to compete. We have entered into agreements with key employees prohibiting them from disclosing any of our trade secrets or other confidential information. In addition, generally these agreements also provide that inventions or discoveries relating to our business by these individuals will be assigned to us and become our sole property.

The medical device industry is characterized by extensive intellectual property litigation, and companies in this industry sometimes use intellectual property litigation to gain a competitive advantage. Intellectual property litigation, regardless of outcome, is often complex and expensive, and the outcome of this litigation is generally difficult to predict.

**Competition**

Depending on the product and the nature of the project, we compete on the basis of our ability to provide engineering and design expertise, quality, service, product, and price. As such, successful competitors must have technical strength, responsiveness, and scale. We believe that our expertise and reputation for quality medical products have allowed us to compete favorably with respect to each such factor and to maintain long-term relationships with our customers.

In many of our markets, we compete with numerous other companies in the sale of healthcare products. These markets are dominated by established manufacturers that have broader product lines, greater distribution capabilities, substantially greater capital resources, and larger marketing and R&D staffs and facilities than ours. Many of these competitors offer broader product lines within the specific product market and in the general field of medical devices and supplies. Broad product lines give many of our cardiovascular and fluid delivery competitors the ability to negotiate exclusive, long-term medical device supply contracts and, consequently, the ability to offer comprehensive pricing of their competing products. By offering a broader product line in the general field of medical devices and supplies, competitors may also have a significant advantage in marketing competing products to group purchasing organizations, health maintenance organizations, and other managed care organizations that are increasingly seeking to reduce costs through centralization of purchasing functions. Furthermore, innovations in surgical techniques, product design or functions, or medical practices could have the effect of reducing or eliminating market demand for one or more of our products. In addition, our competitors may use price reductions to preserve market share in their product markets.

For some customers or prospective customers, we design products for a customer or potential customer prior to entering into long-term development and manufacturing agreements with those customers or prospective customers. Because these products are somewhat limited in number and normally are only a component of the ultimate product sold by our customers, we are dependent on our ability to meet the quality requirements of our customers and must continually be attentive to the need to manufacture such products at competitive prices and in compliance with strict manufacturing standards. Additionally, we are dependent on our customers' success in the marketing of the ultimate products sold. We also compete in the market for inflation devices used in marine and aviation equipment.

**Government Regulation**

*<u>Medical Device Regulation in the United States</u>*

In the United States, medical devices are subject to comprehensive regulation by the FDA under the Federal Food, Drug and Cosmetic Act, or FDCA, and its implementing regulations, and certain other federal and state statutes and regulations. These laws and regulations govern, among other things, the design, manufacture, storage, recordkeeping, approval, labeling, promotion, post-approval monitoring and reporting, distribution, and import and export of medical devices. All manufacturers of medical devices must register with the FDA and list all medical devices manufactured by them. The list must be updated annually. Our medical device subsidiaries and certain of our customers are subject to inspection by the FDA for compliance with such regulations and procedures and our medical device manufacturing facilities are subject to regulation by the FDA.

---

| |
|:---|
| 6 |
| *[**Table of Contents**](#toc)* |

---

The FDA has traditionally pursued a rigorous enforcement program to ensure that regulated entities comply with the FDCA. A company not in compliance may face a variety of regulatory actions, including warning letters, product detentions, device alerts, mandatory recalls or field corrections, product seizures, total or partial suspension of production, injunctive actions or civil penalties, and criminal prosecutions of the company or responsible employees, officers, and directors.

The FDA promulgates rules, which are available to the public, for the approval of medical devices. The process of obtaining FDA approval for new devices can take several months to several years depending on the type of application required for a particular device. Furthermore, the process of obtaining FDA approval can be expensive and uncertain. Even if granted, FDA approval may include significant limitations on the indicated uses for which a product may be marketed. FDA enforcement policy strictly regulates the promotion of approved medical devices. Product approvals can be withdrawn for failure to comply with regulatory requirements or the occurrence of unforeseen problems following initial marketing. In addition, after a device is placed on the market, numerous FDA and other regulatory requirements continue to apply. These include establishment registration and device listing with the FDA; compliance with medical device reporting regulations requiring that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur; and compliance with corrections and removal reporting regulations requiring that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health. The FDA and the Federal Trade Commission, or FTC, also regulate the advertising and promotion of our products to ensure that the claims we make are consistent with our regulatory clearances, that scientific data substantiates the claims, and that our advertising is not false or misleading. We are permitted to promote and advertise our products solely for uses within the scope of our intended use statement in our clearances and cannot make unsupported safety and effectiveness claims. A number of enforcement actions have been taken against manufacturers that promote products for "off-label" uses (i.e., uses that are not described in the approved or cleared labeling), including actions alleging that claims submitted to government healthcare programs for reimbursement of products that were promoted for off-label uses are fraudulent in violation of the Federal False Claims Act or other federal and state statutes and that the submission of those claims was caused by off-label promotion. The failure to comply with prohibitions on off-label promotion can result in significant monetary penalties, revocation or suspension of a company's business license, suspension of sales of certain products, product recalls, civil or criminal sanctions, exclusion from participating in federal healthcare programs, or other enforcement actions. In the United States, allegations of such wrongful conduct could also result in a corporate integrity agreement with the United States government that imposes significant administrative obligations and costs. Many jurisdictions outside the United States have similar regulations.

Certain of our aviation and marine safety products are subject to regulation by the United States Coast Guard and the Federal Aviation Administration and similar organizations in foreign countries which regulate the safety of marine and aviation equipment.

*<u>Medical Device Regulation Outside the United States</u>*

In order for our devices to be marketed in countries outside the United States, regulatory approvals must be obtained, and extensive product and quality system regulations must be complied with, in those countries. These regulations, including the requirements for approvals or clearance and the time required for regulatory review, vary significantly from country to country. Some countries have regulatory review processes which are substantially longer than similar processes in the United States. Failure to obtain regulatory approval in a timely manner and to meet all local requirements including language and specific safety standards in any foreign country in which we would like for our products to be sold could prevent our products from being marketed in those countries. The regulatory regime in the European Union requires that medical devices may only be placed on the market if they do not compromise safety and health when properly installed, maintained, and used in accordance with their intended purpose. Although some of the more variable national requirements under which medical devices were formerly regulated were substantially replaced by the European Union Medical Devices Directive in 1993, individual nations can still impose unique requirements that may require supplemental submissions. The European Union medical device laws require manufacturers to declare that their products conform to the essential regulatory requirements after which the products may be placed on the market bearing the CE Mark. Manufacturers' quality systems for products in all but the lowest risk classification are also subject to certification and audit by an independent notified body.

---

| |
|:---|
| 7 |
| *[**Table of Contents**](#toc)* |

---

In May 2017, the European Union implemented a new regulatory scheme for medical devices under the Medical Device Regulation, or MDR, which became fully effective on May 26, 2021 and replaced the European Union Medical Devices Directive. The MDR brought significant new requirements for many medical devices, including enhanced requirements for clinical evidence and documentation, increased focus on device identification and traceability, new definitions and registration of economic operators throughout the distribution chain, and additional post-market surveillance and vigilance. Compliance with the MDR requires re-certification of many of our products to the enhanced standards and has resulted, and will continue to result, in substantial additional expense.

In many of the other foreign countries in which we market our products, we may be subject to regulations affecting, among other things, product standards and specifications, packaging requirements, labeling requirements, and quality system requirements.

Many of the regulations applicable to our devices and products in these countries are similar to those of the FDA. In some regions, the level of government regulation of medical devices is increasing, which can lengthen time to market and increase registration and approval costs. In many countries, our products may have to be qualified before they can be marketed and considered eligible for reimbursement.

*<u>Foreign Corrupt Practices Act and Similar Anti-Corruption Laws</u>*

The Foreign Corrupt Practices Act, or FCPA, and similar anti-corruption laws in other jurisdictions, broadly prohibit businesses and their representatives from offering to pay, paying, promising to pay, or authorizing the payment of money or anything of value to a foreign official in order to influence any act or decision of the foreign official in his or her official capacity or to secure any other improper advantage in order to obtain or retain business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books and records, which in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation, including international subsidiaries, if any, and to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements. The scope of the FCPA includes interactions with certain healthcare professionals in many countries.

We operate in parts of the world that have experienced governmental corruption to some degree and in certain circumstances strict compliance with anti-corruption laws may conflict with local customs and practices. Compliance with the FCPA and these other laws may be expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, anti-corruption laws present particular challenges in the medical device industry because in many countries hospitals are operated by the government and doctors and other hospital employees are considered foreign officials. There is no assurance that our policies and procedures will protect us from acts committed by our employees, consultants, sales agents, or distributors in violation of those laws. Noncompliance with the FCPA or any other anti-corruption law could result in fines, penalties, or other adverse consequences and negatively affect our reputation.

---

| |
|:---|
| 8 |
| *[**Table of Contents**](#toc)* |

---

*<u>Healthcare and Environmental Regulations</u>*

In the United States, healthcare providers, including hospitals and physicians, that purchase medical products for treatment of their patients generally rely on third-party payors, including Medicare, Medicaid, and private health insurance plans, to reimburse all or a part of the costs and fees associated with the procedures performed using these products.

Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. Many international markets have government-managed healthcare systems that control reimbursement for new products and procedures. In most markets, there are private insurance systems as well as government-managed systems. Market acceptance of our products in international markets depends, in part, on the availability and level of reimbursement.

Medicare and Medicaid reimbursement for hospitals is generally based on a fixed amount for a patient based upon that patient's specific diagnosis. Because of this fixed reimbursement method, hospitals may seek to reduce the costs they incur in treating Medicare and Medicaid patients. Frequently, reimbursement is reduced to reflect the availability of a new procedure or technique, and as a result hospitals are generally willing to implement new cost saving technologies before these downward adjustments take effect. Likewise, because the rate of reimbursement for physicians who perform certain procedures has been and may in the future be reduced, physicians may seek greater cost efficiency in treatment to minimize any negative impact of reduced reimbursement. Third-party payors may challenge the prices charged for medical products and services and may deny reimbursement if they determine that a device was not used in accordance with cost-effective treatment methods as determined by the payor, was experimental, or was used for an unapproved application.

In March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively known as the "Affordable Care Act") were enacted. The Affordable Care Act made changes that have had a significant impact on healthcare providers, medical device and pharmaceutical companies, and insurers. The Affordable Care Act also established a payment transparency program, sometimes referred to as the Physician Payments Sunshine Act, that requires medical device and drug manufacturers, including the Company, to report to the Centers for Medicare & Medicaid Services, or CMS, payments or other transfers of value made to physicians, teaching hospitals, and certain other providers. The program is intended to provide patients with enhanced transparency as to the financial relationships that physicians, teaching hospitals, and certain other providers have with medical device and drug manufacturers. There have been judicial and congressional challenges to certain aspects of the Affordable Care Act, as well as efforts to modify, repeal, or otherwise invalidate all, or certain provisions, of the Affordable Care Act. We cannot predict with certainty what affect further changes to the Affordable Care Act would have on our business. Various legislation has been proposed and adopted since the Affordable Care Act was enacted, including certain reductions in payments to Medicare providers. Future legislation and regulations may impact the health insurance marketplaces, essential health benefits requirements, reimbursement rates, and Medicaid marketplace waivers for state flexibilities. Any regulatory or legislative developments in domestic or foreign markets that eliminate or reduce reimbursement rates for procedures performed with our products could harm our ability to sell our products or cause downward pressure on the prices of our products, either of which would adversely affect our business, financial condition, and results of operations. Further, we anticipate that state legislatures and the private sector will continue to review and assess healthcare reform, including alternative healthcare delivery and payment systems. We cannot predict with certainty what impact the adoption or modification of any such reform measures or market forces may have on our business.

We are, directly or indirectly, subject to various federal and state laws governing our relationship with healthcare providers and pertaining to healthcare fraud and abuse, including anti-kickback laws. In particular, the federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual or the furnishing, arranging for or recommending a good or service for which payment may be made in whole or part under federal healthcare programs, such as the Medicare and Medicaid programs. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid, and other federal healthcare programs. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. The Office of Inspector General of the United States Department of Health and Human Services, or OIG, has issued a series of regulations, known as "safe harbors," setting forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable element of a safe harbor may result in increased scrutiny by government enforcement authorities, such as the OIG.

---

| |
|:---|
| 9 |
| *[**Table of Contents**](#toc)* |

---

The Federal False Claims Act, or FCA, imposes civil liability on any person or entity that submits, or causes the submission of, a false or fraudulent claim to the United States government. Damages under the FCA can be significant and consist of the imposition of fines and penalties. The FCA also allows a private individual or entity with knowledge of past or present fraud against the federal government to sue on behalf of the government to recover the civil penalties and treble damages. The United States Department of Justice, or DOJ, on behalf of the government, has previously alleged that the marketing and promotional practices of medical device and drug manufacturers that included the off-label promotion of products or the payment of prohibited kickbacks to doctors violated the FCA resulting in the submission of improper claims to federal and state healthcare entitlement programs such as Medicaid. In certain cases, manufacturers have entered into criminal and civil settlements with the federal government under which they entered into plea agreements, paid substantial monetary amounts, and entered into corporate integrity agreements that require, among other things, substantial reporting and remedial actions going forward.

We are also subject to various local, state, federal, and international laws and regulations relating to environmental protection, hazardous substances, and health and safety. These requirements govern, among other things, matters such as safe working conditions, laboratory and manufacturing practices, the handling, storage, use, and disposal of hazardous materials and wastes and, if any, the associated cleanup of properties affected by discharges, releases, or exposure to pollutants, air emissions, wastewater, and occupational and human health and safety. We believe we have been, and we are, in material compliance with all applicable environmental laws and regulations laws and regulations.

**Product Liability and Insurance**

The design, manufacture, and marketing of products of the types we produce entail an inherent risk of product liability claims. A problem with one of our products could result in product liability claims or a recall of, or safety alert, or advisory notice relating to, the product. We have product liability insurance in amounts that we believe are adequate.

**Clinical Advisors**

Several physicians and other healthcare professionals serve as our clinical advisors. These clinical advisors have assisted in the identification of the market need for some of our products. Members of our management and scientific and technical staff from time to time consult with these clinical advisors to better understand the technical and clinical requirements of current and future products. We anticipate that these clinical advisors will continue to play a role in our development activities.

Certain of the clinical advisors are employed by academic institutions and may have commitments to, or consulting or advisory agreements with, other entities that may limit their availability to advise us. The clinical advisors may also serve as consultants to other medical device companies. Our clinical advisors are not expected to devote more than a small portion of their time in providing services to us.

**Human Capital**

*<u>Our Employees</u>*

As of December 31, 2022, we had 722 employees, all of whom were employed in the United States. Our highly qualified and experienced team, including employees responsible for our sales, marketing, manufacturing, regulatory, finance, and other important functions is critical to our success. During 2022, the number of employees increased by approximately 55. We also leverage temporary workers to provide flexibility for our business needs. As we grow our business over the next several years, we expect to add additional employees. We continually evaluate our business needs and opportunities and balance in house expertise and capacity with external expertise and capacity. Currently, we manufacture all of our products.

---

| |
|:---|
| 10 |
| *[**Table of Contents**](#toc)* |

---

*<u>Our Culture</u>*

The success of our human capital management is evidenced by our typically low employee turnover, which is regularly reviewed by our senior management as part of its oversight of our human capital strategy. We have a strong commitment to our communities and are proud to offer jobs with excellent benefits to people often overlooked by too many businesses. We pride ourselves on having a strong, inclusive, and positive culture based on our shared mission and values.

*Employee Engagement and Benefits.*

We believe that our continued success largely depends upon our ability to attract and retain highly qualified employees. We provide our employees with competitive salaries and bonuses, certain opportunities for equity ownership, development programs that foster continued learning and growth, and an employment package that promotes well-being across all aspects of their lives, including health care, retirement planning, and paid time off. As part of our promotion and retention efforts, we regularly conduct employee surveys to gauge employee engagement and identify areas of focus.

*Diversity and Inclusion.*

The tenets of diversity and inclusion have long been baked into the DNA of our Company. We have always operated our business in the United States, with a highly diverse workforce. We laud the popular focus on diversity in the boardroom—our Board had its first female director 21 years ago, and today, one of our four independent directors is a person of color. We believe that the focus on diversity and inclusion should be present at all levels of every company. Companies that do not offer opportunities to those who are struggling are failing in this mission. Over half of our employees have at most a high school degree. We proudly employ individuals who have come from difficult circumstances that all too often have the effect of disqualifying them from being hired at many companies, and we believe that businesses that ignore them often are losing out on exceptional talent. Additionally, we do not have a mandatory retirement age, and many of our employees have tenures with us ranging from 10 to 40 years. We believe that our business benefits from the different perspectives a diverse workforce brings us.

**Available Information**

Our website address is <u>www.atrioncorp.com</u>. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements, and amendments to these filings, as soon as reasonably practicable after filing with or furnished to the Securities and Exchange Commission, or SEC. These filings are also available at www.sec.gov. The contents of these websites are not incorporated in this Form 10-K, and any references to our website are intended to be inactive textual references only.

**ITEM 1A. RISK FACTORS.**

In addition to the other information contained in this Form 10-K, the following risk factors should be considered carefully in evaluating our business. Any of the risks and uncertainties described below could significantly and negatively affect our business, financial condition, or results of operations, as well as our prospects now or in the future. Additional risks and uncertainties that are not presently known to us, or risks that we currently consider immaterial, could also impair our business, financial condition, or results of operations, as well as our prospects.

---

| |
|:---|
| 11 |
| *[**Table of Contents**](#toc)* |

---

**Risks Relating to Our Business**

**Our sales could decline materially if we lose business from one or more of our larger customers or a significant number of our smaller customers.**

Our sales are generally made under open short-term purchase orders or purchase contracts. Customers with purchase orders could reduce their volumes, or cease purchasing our products, with minimal notice. Customers having purchase contracts may elect not to renew those contracts at expiration or the contracts may be renewed on terms less favorable to us. The loss of, or material reduction in orders by, one or more of our larger customers or a significant number of our smaller customers could have a material adverse effect on our business, financial condition, and results of operations.

**Our business is dependent on the price and availability of resins and our ability to pass on resin price increases to our customers.**

The principal raw materials that we use in our products are polyethylene, polypropylene, and polyvinyl chloride resins. Our ability to operate profitably is dependent, in part, on the availability and pricing of these resins. The resins we use are derived from petroleum and natural gas; therefore, prices fluctuate substantially as a result of changes in petroleum and natural gas prices, demand, and the capacity of the companies that produce these products to meet market needs. Instability in the world markets for petroleum and natural gas could adversely affect the prices of these raw materials and their availability.

Our ability to maintain profitability depends, in part, upon our ability to pass through increases in raw material costs to our customers. If resin prices increase and we are not able to pass on the increases to our customers, our results of operations and our financial condition will be adversely affected.

**We depend on third-party suppliers for raw materials and key components used in our manufacturing processes, and the loss of these third-party suppliers or their inability to supply us with adequate raw materials or components could harm our business.**

We rely on a limited number of suppliers for raw materials and components for certain of our products. If we experience a shortage in any of these raw materials or components, we will need to identify and qualify new supply sources, which could increase our costs, result in manufacturing delays, and cause delays in the delivery of our products. We may also experience a delay in completing validation and verification testing or sterility audits for controlled-environment rooms at our manufacturing facilities.

If any of those suppliers is unable or unwilling to provide these raw materials or produce these components or supply them in the quantities that we need, and at acceptable prices, we would experience manufacturing delays and may not be able to deliver our products on a timely or cost-effective basis to our customers, or at all, which could reduce our product sales, increase our costs, and harm our business. Although we believe that we could obtain replacement raw materials and components from alternative suppliers, we may be unable to do so on a timely basis, or at all. Losing any of these suppliers could cause a disruption in our production. Establishing additional or replacement suppliers for these materials may take significant time, as certain of these suppliers must be approved by regulatory authorities, which could disrupt our production. Some raw materials and components, including those that are available from multiple sources, are at times subject to industry-wide shortages and significant commodity pricing fluctuations that could materially adversely affect our financial condition and operating results. As a result, we could experience significant delays in manufacturing and delivering our products to customers and increased manufacturing costs. We cannot assure you we can continue obtaining required materials and components that are in short supply within the time frames we require at an affordable cost, or at all. If we cannot secure on a timely basis sufficient quantities of the materials we depend on to manufacture our products, if we encounter delays or contractual or other difficulties in our relationships with these suppliers, or if we cannot find replacement suppliers at an acceptable cost, then manufacturing our products may be disrupted, which could increase our costs, prevent or impair our development or commercialization efforts, and have a material adverse effect on our business, financial condition, and results of operations.

---

| |
|:---|
| 12 |
| *[**Table of Contents**](#toc)* |

---

If our supply of components for a new or existing product continues to be delayed or constrained for any reason, including if an outsourcing partner delayed shipments of completed products to us or additional time is required to obtain sufficient quantities from the original source, or if we have to identify and obtain sufficient quantities from an alternative source, then our financial condition and operating results could be materially adversely affected. In addition, the continued availability of these components at acceptable prices, or at all, can be affected for any number of reasons, including if suppliers decide to concentrate on the production of common components or components for other customers instead of components customized to meet our requirements. Although we have entered into agreements for the supply of many components, there can be no assurance that we will be able to extend or renew these agreements on similar terms, or at all. Raw material and component suppliers may suffer from poor financial conditions that can lead to business failure for the supplier or consolidation within a particular industry, further limiting our ability to obtain sufficient quantities of raw materials or components on commercially reasonable terms. Additionally, we may be unsuccessful in our efforts to negotiate with existing suppliers to obtain cost reductions and avoid unfavorable changes to terms, source less expensive suppliers for certain raw materials or parts, and redesign certain parts to make them less expensive to produce. Any of these occurrences may harm our business, financial condition, and results of operations.

**We are subject to risks associated with public health crises such as pandemics and epidemics, including the COVID-19 pandemic, which may continue to have a material adverse effect on our business, the nature and extent of future impacts of which are highly uncertain and unpredictable*.***

Although many countries have removed or reduced the restrictions taken in response to the COVID-19 pandemic, certain COVID-19 risks remain and the emergence of new variants of the virus may result in new governmental lockdowns, quarantine requirements, or other restrictions to slow the spread of the SARS-CoV-2 virus. This could result in significant reductions in the demand for certain of our products due to reductions in elective and non-essential procedures, reduced capital spending by customers, decreases in research activity, and reduced hospital and clinical occupancy, and healthcare system staffing shortages. These measures could also include determinations that our or our suppliers' facilities are not essential businesses, which could result in closures or other restrictions that significantly disrupt our operations or those of distributors or suppliers in our supply chain. In addition, any such measures could also impact the global economy more broadly, for example by leading to further economic slowdowns.

Although COVID-19 case volumes have decreased in the United States and certain other countries, the global outlook remains uncertain as case counts fluctuate and vaccination and booster rates remain relatively low in many parts of the world. Going forward, medical procedure rates may vary by country based on regional infection and vaccination and booster rates, hospital occupancy and staffing levels, transportation limitations, quarantines and other restrictions, and the emergence of new variants of the virus.

In addition, the COVID-19 pandemic has impacted our global supply chain network, and we may continue to experience significant challenges in our network, including shortages in supply or disruptions or delays in shipments, as well as price increases, of certain materials or components used in our products. The COVID-19 pandemic has escalated challenges that existed for global healthcare systems prior to the pandemic, including budget constraints and staffing shortages, particularly shortages of nursing staff, that could impact the future demand for our products and services. As COVID-19 conditions have improved, there have been increases in demand for certain of our products, which may pose challenges to our supply chain and could adversely affect our business.

The scope and duration of any future public health crisis, including the potential emergence of new variants of the SARS-CoV-2 virus, the pace at which government restrictions are imposed and lifted, the scope of additional actions taken to mitigate the spread of disease, global vaccination and booster rates, the speed and extent to which global markets and utilization rates for our products fully recover from the disruptions caused by such a public health crisis, and the impact of these factors on our business, financial condition and results of operations, will depend on future developments that are highly uncertain and unpredictable.

---

| |
|:---|
| 13 |
| *[**Table of Contents**](#toc)* |

---

To the extent the COVID-19 pandemic or other public health crisis adversely affects our business, prospects, operating results, or financial condition, many of the other risks described in this "Risk Factors" section may also be heightened.

**Our business is dependent on third-party sterilization for many of our products, and the loss or limitation of access to those facilities could adversely affect our business.**

In 2019, the FDA issued a caution concerning a nationwide shortage of medical devices due to issues with contract sterilizers, and reductions in sterilization capacity caused significant delays in medical device sterilization in this country's sterilization facilities. Many of our products require sterilization prior to sale, and we utilize third parties for this process. In some instances, only a few facilities are qualified under applicable regulations to conduct this sterilization. If our third-party providers are unable to sterilize our products, whether due to lack of capacity, availability of materials for sterilization, regulatory requirements, or otherwise, we may be unable to transition sterilization to other sites or modalities in a timely or cost-effective manner, or at all, which could have an adverse impact on our operating results and financial condition.

The United States Environmental Protection Agency and state environmental regulatory agencies have increased their focus on the use and emission of ethylene oxide in sterilization operations. Additional regulatory requirements associated with the use and emission of ethylene oxide for sterilization may be imposed in the future, both domestically and outside the United States. This increased regulation could require our sterilization service providers to temporarily suspend operations to install additional emissions control technology, limit the use of ethylene oxide, or take other actions which would further reduce the available capacity to sterilize medical devices and healthcare products, and could also result in additional costs. Governmental agencies may also regulate the use and emission of ethylene oxide. If any existing regulatory requirements or any such regulatory actions or rulemaking results in the suspension or interruption of sterilization at medical device sterilizers used by us, or otherwise limit the availability of third-party sterilization capacity, this could interrupt or otherwise adversely impact production of certain of our products.

**Political and economic conditions could materially and adversely affect our revenue and results of operations.** 

Our business may be affected by a number of factors that are beyond our control such as general geopolitical economic and business conditions, conditions in the financial markets, and changes in the overall demand for our products. A severe or prolonged economic downturn could adversely affect our customers' financial condition and the levels of business activity of our customers. Uncertainty about current global political or economic conditions could cause businesses to postpone spending in response to tighter credit, negative financial news, or declines in income or asset values, which could have a material negative effect on the demand for our products. There could be additional effects on our business from these economic developments including the insolvency of key suppliers or their inability to obtain credit, the inability of our customers to pay for or obtain credit to finance purchases of our products, and increased pressure to reduce the prices of our products. Turbulence in the United States and international markets and economies could have a material adverse impact on our business, operating results, and financial condition. In addition, if we are unable to successfully anticipate changing economic and political conditions, we may be unable to effectively plan for and respond to those changes, which could materially adversely affect our business, financial condition, and results of operations.

---

| |
|:---|
| 14 |
| *[**Table of Contents**](#toc)* |

---

**International economic and industry conditions constantly change and could materially and adversely affect our business, financial condition, and results of operations.**

Sales outside the United States accounted for approximately 40 percent of our net sales during the year ended December 31, 2022. We anticipate that sales from international operations will continue to represent a significant portion of our total sales, and we intend to continue our expansion into emerging or faster-growing markets outside the United States. Our sales and profitability from our international operations are subject to risks and uncertainties that could have a material adverse effect on our business, financial condition, and results of operations, many of which we cannot predict, including:

· multiple non-United States regulatory requirements that are subject to change and could restrict our ability to manufacture and sell our products;

· restrictive trade policies, including tariffs, trade protection measures, and import or export licensing requirements imposed by the United States and other countries;

· local product preferences and product requirements;

· less intellectual property protection in some countries outside the United States than exists in the United States;

· different labor regulations and workforce instability;

· the expiration and non-renewal of foreign tax rulings;

· economic instability and inflation, recession or interest rate fluctuations; and

· risks and uncertainties described elsewhere in this Risk Factors section.

In addition, the United Kingdom's departure from the European Union, commonly known as "Brexit," has created uncertainties affecting business operations in the United Kingdom and the European Union and a number of other countries, including with respect to compliance with the regulatory regimes regarding the labeling and registration of the products we sell in those markets. As a result, we could face increased costs, volatility in exchange rates, market instability, and other risks depending on the effects of existing and future agreements between the United Kingdom and the European Union regarding Brexit and the future trading relationships.

The military conflict between Russia and Ukraine has resulted in the implementation of sanctions by the United States and other governments against Russia and has caused significant volatility in and disruptions to the global markets. The short- and long-term implications of this conflict, which could include but are not limited to further sanctions, uncertainty about economic and political stability, increases in inflation rates and energy prices, supply chain challenges, and adverse effects on currency exchange rates and financial markets, are unpredictable. In addition, the United States government reported that United States sanctions against Russia in response to the conflict could lead to an increased threat of cyberattacks against United States companies. These increased threats could pose risks to the security of our information technology systems, networks, and product offerings, as well as the confidentiality, availability, and integrity of our data. Further, if the conflict develops beyond Ukraine or further intensifies, it could have an adverse impact on our operations in the European Union or other affected areas. We are continuing to monitor the situation in Ukraine and globally as well as assess its potential impact on our business. A significant escalation or further expansion of the conflict's current scope or related disruptions to the global markets could have a material adverse effect on our business, financial condition, and results of operations.

**Product liability claims could adversely affect our financial condition and results of operations.**

We may be subject to product liability actions asserting claims of personal injury or property damage. Our product liability insurance coverage may not be adequate to cover the cost of defense and the potential award in the event of a claim. A product liability claim, regardless of its merit or outcome, could result in significant legal defense costs. Also, a well-publicized actual or perceived problem with one or more of our products could adversely affect our reputation and reduce the demand for our products.

---

| |
|:---|
| 15 |
| *[**Table of Contents**](#toc)* |

---

**Issues with product quality could have an adverse effect upon our business, subject us to regulatory actions, and cause a loss of customer confidence in us or our products.** 

Our success depends upon the quality and reliability of our products. Quality management plays an essential role in determining and meeting customer requirements, preventing defects, improving our products, and assuring the safety and efficacy of our products. Our future success depends on our ability to maintain and continuously improve our quality management program. Although we have one quality system that covers the lifecycle of our products, quality and safety issues may occur with respect to any of our products. A quality or safety issue may result in adverse inspection reports, warning letters, product recalls, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations, or withdrawal of existing approvals and licenses. An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity or a loss of customer confidence in us or our current or future products, which may result in the loss of sales and difficulty in successfully launching new products. Additionally, we have made and continue to make significant investments in assets, including inventory and property, plant, and equipment, which relate to potential new products or modifications to existing products. Product quality or safety issues and costs associated therewith may restrict us from being able to realize the expected returns from these investments and may adversely affect our business, financial condition, and results of operations.

**Any losses we incur as a result of our exposure to the credit risk of our customers could harm our results of operations.** 

We monitor individual customer payment capability in granting credit arrangements, seek to limit credit to amounts we believe the customers can pay, and maintain reserves we believe are adequate to cover exposure for doubtful accounts. As we have grown our revenue and customer base, our exposure to credit risk has increased. Any material losses as a result of customer defaults could harm, and have an adverse effect on, our business, financial condition, and results of operations.

**The success of certain of our products depends upon relationships with healthcare professionals.** 

The research, development, marketing, and sales of many of our new and improved products are dependent upon our maintaining working relationships with healthcare professionals. We rely on these professionals to provide us with considerable knowledge and experience regarding our products. If we are unable to maintain our relationships with these professionals and do not continue to receive their advice and input, the development and commercialization of our products could suffer, which could have a material, adverse impact on our business, financial condition, and results of operations. At the same time, companies in the medical device industry are under continued scrutiny by the OIG and the DOJ for improper relationships with physicians and other healthcare providers.

**Our success is measured in part by our ability to develop patentable products, to preserve our trade secrets, and to operate without infringing or violating the proprietary rights of third parties.**

Our ability to remain competitive is dependent, in part, upon our ability to protect our intellectual property rights and prevent other companies from using our intellectual property. We seek to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, and confidentiality agreements. However, these measures afford only limited protection and may be challenged, invalidated, or circumvented by third parties. Additionally, these measures may not prevent competitors from duplicating our products or gaining access to our proprietary information and technology. Third parties may copy all or portions of our products or otherwise use our intellectual property without authorization, and we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, former employees, or current employees despite the existence of nondisclosure and confidentiality agreements and other contractual restrictions, all of which could have an adverse effect on our business, financial condition, and results of operations. Others may challenge the validity of any patents issued to us, and we could encounter legal and financial difficulties in enforcing our patent rights against infringers. In addition, there can be no assurance that other technologies cannot or will not be developed or that patents will not be obtained by others which would render our patents less valuable or obsolete. Our patents expire at various times over the next 18 years. Once patents expire, some customers may not continue to purchase from us, opting for competitive copies instead. In such event, our sales and profits could decline substantially. During the terms of our patents, third parties may develop similar or superior technology independently or by designing around our patents. Additionally, if we do not develop and launch new products prior to the expiration of patents or before the demand for our existing products declines, our sales and profits could be adversely affected.

---

| |
|:---|
| 16 |
| *[**Table of Contents**](#toc)* |

---

Changes in patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection, Future changes in patent laws or in their interpretation may materially affect our patents or patent applications and our ability to obtain additional patent protection in the future.

We have developed technical knowledge which, although non-patentable, we consider to be significant in enabling us to compete. However, the proprietary nature of such knowledge may be difficult to protect. We have entered into agreements with key employees prohibiting them from disclosing any of our trade secrets or other confidential information. In addition, generally these agreements also provide that inventions or discoveries relating to our business by these individuals will be assigned to us and become our sole property. We cannot ensure, however, that the enforceability of these agreements will not be challenged or that our trade secrets will not become known to, or be independently developed by, our competitors

The medical device industry is characterized by extensive intellectual property litigation, and companies in the medical device industry sometimes use intellectual property litigation to gain a competitive advantage. Intellectual property litigation, regardless of outcome, is often complex and expensive, and the outcome of this litigation is generally difficult to predict. An adverse determination in any such proceeding could subject us to significant liabilities to third parties or require us to seek licenses from third parties, or pay royalties that may be substantial. Furthermore, there can be no assurance that necessary licenses would be available to us on satisfactory terms, or at all. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing or selling certain of our products, which could have a material adverse effect on our business, financial condition, and results of operations.

**New lines of business or new or enhanced products and services may subject us to additional risks.**

We may implement new lines of business or offer new or enhanced products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business or new or enhanced products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and new or enhanced products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new or enhanced product or service. Furthermore, any new line of business or new or enhanced product or service could have a significant impact on the effectiveness of our system of internal control. Failure to successfully manage these risks in the development and implementation of new lines of business or new or enhanced products or services could have a material adverse effect on our business, financial condition, and results of operations.

**Some of our competitors have significantly greater resources than we do, and it may be difficult for us to compete against them.**

In many of our markets, we compete with numerous other companies that have substantially greater financial resources and engage in substantially more R&D activities than we do. Furthermore, innovations in surgical techniques or medical practices could have the effect of reducing or eliminating market demand for one or more of our products. In addition, the trend of consolidation in the medical device industry and among our customers could result in greater competition and pricing pressure.

---

| |
|:---|
| 17 |
| *[**Table of Contents**](#toc)* |

---

Some of the markets in which we compete are dominated by established manufacturers that have broader product lines, greater distribution capabilities, and substantially larger marketing and R&D staffs and facilities than we do. Many of these competitors offer broader product lines within the specific product market and in the general field of medical devices and supplies. Broad product lines give many of our cardiovascular and fluid delivery competitors the ability to negotiate exclusive, long-term medical device supply contracts and, consequently, the ability to offer comprehensive pricing of their competing products. By offering a broader product line in the general field of medical devices and supplies, competitors may also have a significant advantage in marketing competing products to group purchasing organizations. In addition, our competitors may use price reductions to preserve market share in their product markets.

**Any major disruption or failure of our information technology systems, or our failure to successfully implement new technology effectively, could adversely affect our business and operations.**

We rely on various information technology systems to manage our operations. Over the last several years, we have been implementing and continue to implement modifications and upgrades to our systems, including making changes to legacy systems, replacing legacy systems with successor systems with new functionality and acquiring new systems with new functionalities. For example, we are in the process of transforming our Enterprise Resource Planning software solutions and other complementary information technology systems, which is expected to be completed over the next year. The implementation of these solutions and systems is highly dependent on the coordination of numerous software and system providers and internal business teams. We could experience changes in our operational processes and internal controls, which in turn could require significant capital investments and personnel changes, including recruiting and training of qualified personnel. The interdependence of these solutions and systems is key to the successful completion of this project. The failure of any one solution or system could have a material impact on our business processes and information systems, including loss or corruption of data, delayed shipments, decreases in productivity as our personnel and third-party providers implement and become familiar with new systems, increased costs, and lost revenues, which could have an adverse effect on our overall information technology infrastructure. These activities subject us to inherent costs and risks associated with replacing and upgrading these systems, including impairment of our ability to fulfill customer orders, potential disruption of our internal control structure, substantial capital expenditures, additional administration and operating expenses, retention of sufficiently skilled personnel to implement and operate the new systems, demands on management time, and other risks and costs of delays or difficulties in transitioning to new or upgraded systems or of integrating new or upgraded systems into our current systems. Our system implementations may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the difficulties with implementing new or upgraded technology systems may cause disruptions in our business operations and have an adverse effect on our business and operations, if not anticipated and appropriately mitigated.

**We face cybersecurity risks and may incur increasing costs in an effort to minimize those risks.**

We utilize systems and websites that allow for the secure storage and transmission of proprietary or confidential information regarding our customers, employees, and others, including personal information. As evidenced by the numerous companies that have suffered serious data security breaches, we may be vulnerable to, and unable to anticipate or detect, data security breaches and data loss, including rapidly evolving and increasingly sophisticated cybersecurity attacks. In addition, data security breaches can also occur as a result of a breach by us or our employees or by persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. In addition to our own databases, we use third-party service providers to store, process, and transmit confidential or sensitive information on our behalf. Although we contractually require these service providers to implement and use reasonable security measures, we cannot control third parties and cannot guarantee that a data security breach will not occur in the future either at their location or within their systems. A data security breach may expose us to a risk of loss or misuse of this information, and could result in significant costs to us, which may include, among others, fines and penalties, potential liabilities from governmental or third-party investigations, proceedings or litigation, and diversion of management attention. We could also experience delays or interruptions in our ability to function in the normal course of business, including delays in the fulfillment of customer orders or disruptions in the manufacture and shipment of products. In addition, actual or anticipated attacks may cause us to incur costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. Any compromise or breach of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation.

---

| |
|:---|
| 18 |
| *[**Table of Contents**](#toc)* |

---

**We are increasingly dependent on the consistent functioning of our information technology and cybersecurity systems along with our information technology dependent product portfolios. If we are exposed to any intrusions, disruptions, corruption, or destruction, or if we fail to maintain the integrity of our systems or products, or the privacy of our data, our business and our reputation could be materially adversely affected.**

We are increasingly dependent on consistent functioning of our information technology and cybersecurity systems for our infrastructure and software-based products. Our information technology and cybersecurity systems have been and may continue to be subjected to viruses or other malicious codes, unauthorized access attempts, cyber- or phishing-attacks, tampering, or other security breaches. Our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, regulatory standards, integration of acquisitions, and the increasing need to protect patient, customer, and supplier information. In addition, the EU-wide General Data Protection Regulation imposes stringent data protection requirements and provides for significant penalties for noncompliance. Our products include technologies that support connectivity and decision support infrastructure, which could be subject to intrusion, disruption, or corruption and could impact the quality of care that patients receive or the confidentiality of patient information. In addition, third parties might attempt to hack into our products or systems in an effort to obtain proprietary information. As a result of the COVID-19 pandemic, we have faced and may continue to face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. If we fail to maintain or protect our information technology and cybersecurity systems and information technology-dependent products effectively, we could lose existing customers or suppliers, have difficulty attracting new customers or suppliers, have problems that adversely impact internal controls, have difficulty preventing, detecting, and controlling fraud, have disputes with customers and suppliers, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach, or cyber-based attack, or suffer other adverse consequences. Any significant breakdown, intrusion, interruption, corruption, or destruction of these systems, as well as any data breaches or cyber-based attacks, could have a material adverse effect on our business. We have experienced targeted and non-targeted cybersecurity attacks and incidents in the past, and we could in the future experience similar attacks. We are continuously investing in our cybersecurity program to [mature] current capabilities, in addition to accelerating the implementation of new capabilities to keep pace with the changing threat landscape. To date, no cybersecurity incident or attack has had a material impact on our business, financial condition, or results of operations.

**Our current credit agreement contains restrictions that may limit our flexibility in operating our business. We have pledged certain of our assets as collateral under our current credit agreement. If we borrow funds under that credit agreement and default on the terms of such credit agreement and the holder of our indebtedness accelerates the repayment of such indebtedness, there can be no assurance that we will have sufficient assets to repay our indebtedness.**

Our current credit agreement contains, and any future agreements may contain, covenants that could impose significant operating and financial restrictions on us. Although we currently do not have any borrowings under our credit agreement, the covenants in those agreements may limit the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.

---

| |
|:---|
| 19 |
| *[**Table of Contents**](#toc)* |

---

Under our current credit agreement, we are required to satisfy and maintain specified financial ratios. Our ability to meet those financial ratios can be affected by events beyond our control, and there can be no assurance that we will meet those ratios. A failure to comply with the covenants contained in the agreement could result in an event of default under such agreement, which, if not cured or waived, could have a material adverse effect on our business, financial condition, and results of operations. In the event of any default under our credit agreement, the holder of our indebtedness thereunder:

· will not be required to lend any additional amounts to us;

· could elect to declare all indebtedness outstanding, together with accrued and unpaid interest and fees, to be due and payable and terminate all commitments to extend further credit, if applicable; or

· could require us to apply all of our available cash to repay such indebtedness.

If we are unable to repay our indebtedness, the holder could proceed against the collateral securing that indebtedness. If the indebtedness under our current credit agreement were to be accelerated, there can be no assurance that our assets at that time would be sufficient to repay such indebtedness in full.

**We may not be able to attract and retain skilled people.**

Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most activities we engage in can be intense, and we may not be able to hire qualified people or to retain them. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business if we are unable to promptly find qualified replacement personnel.

**A portion of our business relies on distribution agreements and relationships with various distributors, and any adverse change in those relationships could result in a loss of revenue and harm that business.**

We have strategic relationships with, and sell many of our products through, a number of distributors. To the extent that we rely on distributors, our success will depend on the efforts of others over whom we may have little or no control. Some of our distributors also sell our competitors' products, and, if they favor our competitors' products for any reason, they may fail to market our products as effectively or to devote resources necessary to provide effective sales, which would cause our results to suffer. The success of the arrangements with these distributors depends, in part, on the continued adherence to the terms of our agreements with them. Any disruption in these arrangements may adversely affect our business, financial condition, and results of operations. The actions of distributors in foreign countries may adversely affect our ability to market effectively our products in those countries, particularly if a distributor holds the regulatory authorization in such countries and such actions result in the suspension or revocation of such authorization. In such cases, re-establishing market access or regulatory authorization may be difficult, expensive, or time consuming. Also, we may be named as a defendant in litigation against our distributors related to sales of our products by them.

**Severe weather, natural disasters, acts of war or terrorism or other external events could significantly impact our business.**

We currently conduct all our development, manufacturing, and management at three locations. Severe weather, natural disasters, public health crises, including the occurrence of a contagious disease or illness such as a novel coronavirus, acts of war or terrorism, and other adverse external events at any one or more of these locations could have a significant impact on our ability to conduct business. We have the ability to transfer the production of certain products from a facility affected by such events but doing so would be expensive. Our disaster recovery policies and procedures may not be effective and the occurrence of any such event could have a material adverse effect on our business, financial condition, and results of operations. The insurance we maintain may not be adequate to cover our losses.

---

| |
|:---|
| 20 |
| *[**Table of Contents**](#toc)* |

---

**We may lose revenues, market share, and profits due to exchange rate fluctuations related to our international business.**

Fluctuations in exchange rates may affect the prices that our international customers are willing to pay for our products and may put us at a price disadvantage compared to our competitors. Potentially volatile shifts in exchange rates may negatively affect our financial condition and operations. Because payments from our international customers are received primarily in United States dollars, increases in the value of the United States dollar relative to foreign currencies could make our products less competitive or less affordable, and therefore adversely affect our sales in international markets.

**We continue to evaluate expansion through acquisitions of, and investments in, other companies or technologies, which may carry significant risks.**

If we pursue acquisitions of, or investments in, other companies or technologies, we may:

· use cash that we may need in the future to operate our business;

· incur debt, including on terms that could be unfavorable to us or debt that we might be unable to repay;

· structure the transaction in a manner that has unfavorable tax consequences, such as a stock purchase that does not permit a step-up in the tax basis for the assets acquired;

· be unable to realize the anticipated benefits, such as increased revenues, cost savings, or synergies from additional sales;

· be unable to integrate, upgrade, or replace the purchasing, accounting, financial, sales, billing, employee benefits, payroll, and regulatory compliance functions of an acquisition target;

· be unable to secure or retain the services of key employees related to the acquisition;

· be unable to succeed in the marketplace with the acquisition; or

· assume material unknown liabilities associated with the acquired business.

Any of the above risks, should they occur, could materially adversely affect our business, financial condition, and results of operations, including the inability to recover our investment or cause a write down or write off of such investment, associated goodwill, or assets.

**If we make divestitures, we could encounter difficulties that harm our business.** 

We may sell a business or product line. Any divestiture may result in significant write-offs, which could have a material adverse effect on our business, financial condition, and results of operations. Divestitures could also involve additional risks, including difficulties in separation of operations, services, and personnel, the diversion of management's attention from other operations, and the potential loss of key personnel.

**If we fail to manage our exposure to market risk and credit risk successfully, our financial condition could be adversely impacted.** 

We have exposure to market risk and credit risk in our investment activities. The fair values of our investments vary from time to time depending on economic and market conditions. Fixed income securities expose us to interest rate risk as well as credit risk. Equity securities expose us to equity price risk. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. These and other factors also affect the equity securities owned by us. The outlook of our investment portfolio depends on the future direction of interest rates, fluctuations in the equity securities market, and the amount of cash flows available for investment. Our investments may decline in value in future periods, which could have a material adverse effect on our financial condition.

---

| |
|:---|
| 21 |
| *[**Table of Contents**](#toc)* |

---

**Risks Related to Our Regulatory Environment**

**We are subject to healthcare fraud and abuse regulations that could result in significant liability, require us to change our business practices, and restrict our operations in the future.**

We are subject to various federal, state, and local laws targeting fraud and abuse in the healthcare industry, including anti-kickback and false claims laws. Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment, and exclusion from participation in healthcare programs such as Medicare and Medicaid as well as healthcare programs outside the United States. These laws and regulations are wide ranging and subject to changing interpretations and applications, which could restrict our sales or marketing practices. A violation of these laws could have a material adverse effect on our business, financial condition, and results of operations.

**We and our suppliers may not meet regulatory quality standards applicable to our manufacturing processes, which could have a material adverse effect on our business, financial condition, and results of operations.**

As a medical device manufacturer, we must register with the FDA and non-U.S. regulatory agencies, and we are subject to periodic inspection by the FDA and similar foreign regulatory agencies for compliance with certain good manufacturing practices, including design controls, product validation and verification, in process testing, quality control, and documentation procedures. Compliance with applicable regulatory requirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA and foreign regulatory agencies. Some of our suppliers are also required to meet certain standards applicable to their manufacturing processes.

We cannot assure you that we or our suppliers comply or can continue to comply with all regulatory requirements. A failure by us or one of our suppliers to achieve or maintain compliance with these requirements or quality standards may disrupt our ability to supply products sufficient to meet demand until compliance is achieved or, with a supplier, until a new supplier has been identified and evaluated. Our or any of our suppliers' failure to comply with applicable regulations could cause sanctions to be imposed on us, including warning letters, fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension, or withdrawal of approvals or clearances, license revocation, seizures or recalls of products, operating restrictions, and criminal prosecutions, which could harm our business. We cannot assure you that if we need to engage new suppliers to satisfy our business requirements we will be able to locate new suppliers in compliance with regulatory requirements at a reasonable cost and in an acceptable timeframe. Our failure to do so could have a material adverse effect on our business, financial condition, and results of operations.

**We will be unable to sell our products if we fail to comply with governmental regulations.**

To manufacture our products commercially, we must comply with governmental regulations that govern design controls, quality systems, and documentation policies and procedures, including continued compliance with the Quality System Regulation. The FDA and similar foreign governmental authorities periodically inspect our manufacturing facilities and the manufacturing facilities of our Original Equipment Manufacturer, or OEM, medical device customers. If we or our OEM medical device customers fail to comply with these manufacturing regulations, including meeting reporting obligations to the FDA or foreign governmental authorities, or fail any FDA or foreign governmental authority inspections, marketing or distribution of our products may be prevented or delayed, which would negatively impact our business.

**Our products are subject to product recalls even after receiving regulatory clearance or approval, and any such recalls would negatively affect our financial performance and could harm our reputation.**

Any of our products may be found to have significant deficiencies or defects in design or manufacture. The FDA and similar governmental authorities in other countries have the authority to require the recall of any such defective products. A government-mandated or voluntary recall could occur as a result of component failures, manufacturing errors, or design defects. We do not maintain insurance to cover losses incurred as a result of product recalls. Any product recall would divert managerial and financial resources and negatively affect our financial performance and could harm our reputation with customers and end-users.

---

| |
|:---|
| 22 |
| *[**Table of Contents**](#toc)* |

---

**We may not receive regulatory approvals for new product candidates or for modifications of existing products or approvals may be delayed.**

Regulation by governmental authorities in the United States and foreign countries is a significant factor in the development, manufacture, and marketing of our proposed products and in our ongoing research and product development activities. Any failure to receive the regulatory approvals necessary to commercialize our product candidates, or the subsequent withdrawal of any such approvals, would harm our business. Additionally, modification of our existing products may require regulatory approval. The process of obtaining these approvals and the subsequent compliance with governmental regulations require spending substantial time and financial resources. If we fail to obtain or maintain, or encounter delays in obtaining or maintaining, regulatory approvals, the marketing of any products we develop or modify, our ability to receive product revenues, and our liquidity and capital resources could be adversely affected.

**We sell many of our products to healthcare providers that rely on Medicare, Medicaid, and private health insurance plans to reimburse the costs associated with the procedures performed using our products and these third-party payors may deny reimbursement for use of our products.**

We are dependent, in part, upon the ability of healthcare providers to obtain satisfactory reimbursement from third-party payors for medical procedures in which our products are used. Third-party payors may deny reimbursement if they determine that a product has not received appropriate regulatory clearances or approvals, is not used in accordance with cost-effective treatment methods as determined by the payor, or is experimental, unnecessary, or inappropriate. Failure by hospitals and other users of our products to obtain reimbursement from third-party payors, or adverse changes in government or private third-party payors' policies toward reimbursement for procedures utilizing our products, could have a material adverse effect on our business, financial condition, and results of operations. Major third-party payors for medical services in the United States and other countries continue to try to contain healthcare costs. The introduction of cost containment incentives, combined with closer scrutiny of healthcare expenditures by both private health insurers and employers, has resulted in increased discounts and contractual adjustments to charges for services performed. Further implementation of legislative or administrative reforms to the United States or international reimbursement systems in a manner that significantly reduces reimbursement for procedures using our products or denies coverage for such procedures may result in hospitals or physicians substituting lower cost products or other therapies for our products which could have a material adverse effect on our business, financial condition, and results of operations. Additionally, uncertainty about whether and how changes may be implemented could also have a negative impact on the demand for our products.

**Changes in healthcare legislation and policy may have a material adverse effect on our business, financial condition, and results of operations.**

A number of legislative initiatives to contain healthcare costs have been and continue to be introduced in the United States. In March 2010, the Affordable Care Act was enacted, which made changes that impacted and are expected to significantly impact the pharmaceutical and medical device industries. Among other things, the Affordable Care Act contains a number of provisions designed to generate the revenues necessary to fund health insurance coverage expansions. The Affordable Care Act also implemented a number of Medicare payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians, and other providers to improve the coordination, quality, and efficiency of certain healthcare services through bundled payment models, and appropriated funding for comparative effectiveness research. The expansion in the government's role in the United States healthcare industry may result in decreased profits to us, lower reimbursement by payors for our products, and reduced medical procedure volumes, all of which may have a material adverse impact on our business, financial condition, and results of operations.

---

| |
|:---|
| 23 |
| *[**Table of Contents**](#toc)* |

---

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted, including aggregate reductions to Medicare payments to providers. It is unclear what impact new quality and payment programs may have on our business, financial condition, and results of operations. Individual states in the United States have also become increasingly aggressive in passing legislation and implementing regulations designed to control product pricing, including price or patient reimbursement constraints and discounts, and require marketing cost disclosure and transparency measures. We believe that additional state and federal healthcare reform measures will be adopted in the future that could have a material adverse effect on our industry generally and on our customers. Any changes in, or uncertainty with respect to, future reimbursement rates could impact our customers' demand for our products, which could have a material adverse effect on our business, financial condition, and results of operations. Future significant changes in the healthcare systems in the United States or other countries, including changes intended to reduce expenditures along with uncertainty about whether and how changes may be implemented, may have a material adverse impact on our business, financial condition, and results of operations.

**The enactment of tax reform legislation could materially impact our financial position and results of operations.**

Legislation or other changes in tax laws could materially affect our financial position and results of operations. In the ordinary course of our business, there are many transactions and calculations in which tax determinations may be uncertain. There can be no assurance that our tax positions will not be challenged by relevant tax authorities or that we would be successful in any such challenge, which could result in additional taxation, penalties, and interest payments.

**Unfavorable outcomes related to uncertain tax positions could result in significant tax liabilities.**

We have recorded tax benefits related to various uncertain tax positions taken or expected to be taken in a tax return. Although we believe our positions are appropriate, the United States Internal Revenue Service [IRS], or state tax authorities could disagree with our positions, which could result in significant tax liabilities.

**The regulatory environment surrounding information security and privacy is increasingly demanding.**

The regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements. In the United States, various laws and regulations apply to the collection, processing, disclosure, and security of certain types of data, including the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act of 1996, the Gramm Leach Bliley Act, and state laws relating to privacy and data security. Several foreign countries and governmental bodies, including the European Union, also have laws and regulations dealing with the handling and processing of personal information obtained from their residents, which in certain cases are more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security of various types of data, including data that identifies or may be used to identify an individual, such as names, email addresses, and, in some jurisdictions, internet protocol addresses. Such laws and regulations may be modified or subject to new or different interpretations, and new laws and regulations may be enacted in the future. Within the European Union, the General Data Protection Regulation, or GDPR, which became effective in May 2018 and is one of the strictest and most comprehensive privacy laws in the world, is being continuously enforced, and increasingly heavy fines are now being levied on businesses. The GDPR's extraterritorial scope makes it applicable to our United States-based legal entities whenever our business activities, systems, and products process the personal data of European Union residents. Any failure or perceived failure by us to comply with laws, regulations, policies, or regulatory guidance relating to privacy or data security may result in governmental investigations and enforcement actions, litigation, fines and penalties, or adverse publicity, and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business.

---

| |
|:---|
| 24 |
| *[**Table of Contents**](#toc)* |

---

**Our sales and operations are subject to the risks of doing business internationally.** 

A substantial portion of our sales occur outside the United States, and we are increasing our presence in international markets. Sales outside the United States subject us to many risks, including regulatory risks such as:

· the imposition of governmental controls;

· less favorable intellectual property or other applicable laws;

· protectionist laws and business practices that favor local competitors;

· the inability to obtain any necessary foreign regulatory or pricing approvals of products in a timely manner; and

· changes in trade policies, tariffs, and tax laws.

Our operations and marketing practices are also subject to regulation and scrutiny by the governments of the other countries in which we operate. In addition, we and those acting on our behalf operate in a number of jurisdictions where companies in the medical device industry are exposed to a high risk of potential FCPA violations associated with sales to healthcare professionals and institutions. We participate in transactions with third parties whose corrupt or illegal activities could potentially subject us to liability under the FCPA or local anti-corruption laws, even if we do not explicitly authorize or have actual knowledge of such activities. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. We are subject to other United States laws in our international operations. Failure to comply with domestic or foreign laws could result in various adverse consequences. If we are found to be liable for FCPA or other violations (either due to our own acts or our inadvertence or due to the acts or inadvertence of others), we could suffer from civil and criminal penalties or other sanctions, including contract cancellations, recalls, seizures, withdrawal of an approved product from the market, debarment, or loss of reputation, any of which could have a material adverse impact on our business, financial condition, and results of operations.

**Governmental export or import controls could limit our ability to compete in foreign markets and subject us to liability if we violate them.** 

Our products may be subject to United States export controls. Governmental regulation of the import or export of our products, or our failure to obtain any required import or export authorization for our products, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our products may create delays in the introduction of our products in international markets or, in some cases, prevent the export of our products to some countries altogether. Furthermore, United States export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments, and persons targeted by United States sanctions. If we fail to comply with export and import regulations and such economic sanctions, we may be fined, or other penalties could be imposed, including a denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons, or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export our products to existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell access to our products would likely materially and adversely affect our business, financial condition, and results of operations.

---

| |
|:---|
| 25 |
| *[**Table of Contents**](#toc)* |

---

**Climate Change Risks**

**Climate change, or legal, regulatory, or market measures to address climate change, could adversely affect our business, financial condition, and results of operations.**

The long-term effects of climate change are difficult to predict and may be widespread. The impacts of climate change may include physical risks (such as rising sea levels or frequency and severity of extreme weather conditions), social and human effects (such as population dislocations or harm to health and well-being), compliance costs and transition risks (such as regulatory or technology changes), shifts in market trends (such as customers putting an increased priority on purchasing products that are sustainably made), and other material effects. Such impacts may disrupt our supply chain and operations by adversely affecting our ability to procure goods or services required for the operation of our business due to impairment of the availability and cost of certain products, materials, commodities, and energy.

In addition, the increasing concern over climate change has resulted, and may continue to result, in more regional, national, and global legal and regulatory requirements relating to climate change, including regulating greenhouse gas emissions, alternative energy policies, and sustainability initiatives. If legislation or regulations are enacted or promulgated in the United States or in any other jurisdictions in which we do business that impose more stringent restrictions and requirements than our current legal or regulatory obligations, we may experience disruptions in, or increases in the costs associated with, sourcing, manufacturing, and distributing our products, which may adversely affect our business, financial condition, and results of operations. Any such regulatory changes could have a significant effect on our operating and financial decisions, including those involving capital expenditures to reduce emissions and comply with other regulatory requirements.

**Risks Related to Our Stock**

**We may experience fluctuations in our quarterly operating results.** 

We have historically experienced, and may continue to experience, fluctuations in our quarterly operating results. These fluctuations are due to a number of factors, many of which are outside our control and may result in volatility of our stock price. Future operating results will depend on many factors, including:

---

| |
|:---|
| demand for our products; |
| pricing decisions, and those of our competitors, including decisions to increase or decrease prices; |
| regulatory approvals for our products; |
| timing and levels of spending for R&D, sales, and marketing; |
| timing and market acceptance of new product introductions by us or our competitors; |
| development or expansion of business infrastructure in new clinical and geographic markets; |
| tax rates in the jurisdictions in which we operate; |
| supply chain delays or interruptions; |
| customer credit holds; |
| timing and recognition of certain R&D milestones and license fees; and |
| ability to control our costs; |

---

**Our stock price has been and may continue to be volatile.**

Stock price volatility may make it more difficult for our stockholders to sell their common stock when they want to and at prices they find attractive. Our stock price can fluctuate significantly in response to a variety of factors including, among other things:

· actual or anticipated variations in quarterly results of operations;

· recommendations by securities analysts;

· operating and stock price performance of other companies that investors deem comparable to the Company;

· perceptions in the marketplace regarding the Company and our competitors;

· new technology used, or services offered, by competitors;

· trading by funds with high-turnover practices or strategies;

· significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving the Company or our competitors;

· failure to integrate acquisitions or realize anticipated benefits from acquisitions;

· our stock repurchase program;

· changes in government regulations; and

· economic or political instability, natural disasters, public health crises, acts or threats of terrorism or military conflicts.

---

| |
|:---|
| 26 |
| *[**Table of Contents**](#toc)* |

---

Additionally, our public float is small which can result in large fluctuations in stock price during periods with increased selling or buying activity. General market fluctuations, industry factors, and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, or credit loss trends, could also cause our stock price to decrease regardless of operating results.

**Provisions in our governing documents and Delaware law may discourage or prevent a change of control, which could cause our stock price to decline and prevent attempts by our stockholders to replace or remove our current management.** 

Our certificate of incorporation and bylaws contain provisions that may discourage, delay or prevent a change in the ownership of the Company or a change in our management. We are also subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15 percent or more of our outstanding common stock. Although a delay or prevention of a change of control transaction or of changes in our Board of Directors could be effective in improving stockholder value, they also carry a risk of causing the market price of our common stock to decline.

**ITEM 1B. UNRESOLVED STAFF COMMENTS.**

**None.**

**ITEM 2. PROPERTIES.**

We own three facilities comprising approximately 398,000 square feet, and the 139 acres on which they are situated, in Texas, Alabama, and Florida. Administrative, engineering, manufacturing, and warehouse operations are conducted at each facility, and our corporate headquarters are located at our Texas facility.

**ITEM 3. LEGAL PROCEEDINGS.**

We have no pending legal proceedings of the type described in Item 103 of Regulation S-K.

**ITEM 4. MINE SAFETY DISCLOSURES.**

Not applicable.

---

| |
|:---|
| 27 |
| *[**Table of Contents**](#toc)* |

---

**Information about our Executive Officers**

---

| | | |
|:---|:---|:---|
| **<u>Name</u>** | **<u>Age</u>** | **<u>Title</u>** |
| Emile A Battat | 84 | Chairman of the Board of the Company and Chairman of the Board of Halkey-Roberts Corporation, or Halkey-Roberts, one of our subsidiaries |
| David A. Battat | 53 | President and Chief Executive Officer of the Company, President of Halkey-Roberts and Chairman of the Board of all other subsidiaries |
| Jeffery Strickland | 64 | Vice President and Chief Financial Officer, Secretary and Treasurer of the Company and Vice President or Secretary-Treasurer of all subsidiaries |

---

Messrs. David Battat and Strickland currently serve as officers of the Company and all subsidiaries. Mr. Emile Battat currently serves as an officer of the Company. The officers of the Company and our subsidiaries are elected annually by the respective Boards of Directors of the Company and our subsidiaries at the first meeting of such Boards of Directors held after the annual meetings of stockholders of such entities. The next meetings of the stockholders of the Company and our subsidiaries are expected to be held in May 2023, and the Boards of Directors of the Company and our subsidiaries are expected to meet promptly thereafter. The terms of office of Messrs. Emile Battat and David Battat are anticipated to expire in May 2023. Mr. Strickland is retiring on March 3, 2023, on which date his positions as an officer of the Company and our subsidiaries will terminate. Cindy Ferguson, who is currently serving as our Corporate Controller, has been elected as Vice President and Chief Financial Officer, Secretary and Treasurer of the Company and Vice President or Secretary-Treasurer of all subsidiaries effective March 4, 2023.

There are no arrangements or understandings between any officer and any other person pursuant to which the officer was elected. The only family relationship between any of our executive officers or directors is that Mr. David Battat is the son of Mr. Emile Battat.

There have been no events under any bankruptcy act, no criminal proceedings, and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officers during the past ten years.

**Brief Account of Business Experience During the Past Five Years**

Mr. Emile Battat has been a director of the Company since 1987 and has served as Chairman of the Board of the Company since January 1998. He has served as Chairman of the Board of Halkey-Roberts since October 1998. He served as Chief Executive Officer of the Company and Chairman of the Board or President of all subsidiaries from October 1998 until May 2011.

Mr. David Battat has been President and Chief Executive Officer of the Company and Chairman of the Board of all subsidiaries with the exception of Halkey-Roberts, Atrion Leasing Company, LLC, and AlaTenn Pipeline Company, LLC, since May 2011. He has been President of Halkey-Roberts since January 2006. He also serves as President of Atrion Leasing Company, LLC and AlaTenn Pipeline Company, LLC. He served as the Company's President and Chief Operating Officer from May 2007 until May 2011 and from February 2005 until December 2005 he served as Vice President - Business Development and General Counsel at Halkey-Roberts.

Mr. Strickland has served as Vice President and Chief Financial Officer, Secretary and Treasurer of the Company since February 1, 1997 and has served as a Vice President, Secretary or Treasurer of all the Company's subsidiaries since January 1997. Mr. Strickland was employed by the Company or our subsidiaries in various other positions from September 1983 through January 1997. Mr. Strickland is retiring on March 3, 2023.

---

| |
|:---|
| 28 |
| *[**Table of Contents**](#toc)* |

---

**PART II**

**ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.**

Our common stock is traded on The Nasdaq Global Select Market (Symbol ATRI). As of February 16, 2023, we had 95 record holders, and approximately 14,739 beneficial owners, of our common stock. We are currently paying quarterly cash dividends on our common stock and expect to continue paying quarterly cash dividends in the future.

During the year ended December 31, 2022, we did not sell any equity securities that were not registered under the Securities Act of 1933.

The table below sets forth information with respect to our purchases of our common stock during each of the three months in the period ended December 31, 2022.

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Period** | **Total Number of Shares Purchased** | **Average Price Paid per Share** | **Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs** | **Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)** |
| **10/1/2022 through 10/31/2022** | 8089 | $595.28 | 8089 | 142361 |
| **11/1/2022 through 11/30/2022** | 6834 | $605.42 | 6834 | 135527 |
| **12/1/2022 through 12/31/2022** | 3905 | $615.67 | 3905 | 131622 |
| **Total** | 18828 | $603.19 | 18828 | 131622 |

---

(1) On May 21, 2015 our Board of Directors adopted a new stock repurchase program pursuant to which we can repurchase up to 250,000 shares of our common stock from time to time in open market or privately-negotiated transactions. As of December 31, 2022, we had repurchased 118,378 shares of our common stock authorized under the program approved in May 2015. This program has no expiration date but may be terminated by the Board of Directors at any time.

---

| |
|:---|
| 29 |
| *[**Table of Contents**](#toc)* |

---

**ITEM 7. 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 ophthalmic markets. Our other medical and non-medical products include valves and inflation devices used in marine and aviation safety products. In 2022, approximately 40 percent of our sales were outside the United States.

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

Our business strategy is to provide hospitals, physicians, and other healthcare providers with the tools they need to improve the lives of the patients they serve. To do so, we provide a broad selection of products in the areas of our expertise. We have diverse product lines serving primarily the fluid delivery, cardiovascular, and ophthalmic markets, and this diversity has served us well as we encounter changing market conditions. R&D 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 or eliminate indebtedness, fund capital expenditures, make investments, repurchase stock, and 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;

· Maintaining a culture of controlling cost; and

· Preserving and fostering a collaborative, entrepreneurial management structure.

For the year ended December 31, 2022, we reported revenues of $183.5 million, operating income of $39.7 million and net income of $35.0 million.

**Results of Operations**

Our net income was $35.0 million, or $19.59 per basic and $19.56 per diluted share, in 2022 compared to $33.1 million, or $18.22 per basic and $18.18 per diluted share in 2021. Revenues were $183.5 million in 2022 compared with $165.0 million in 2021.

Annual revenues by product line were as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **2022** | 2021 |
| Fluid Delivery | $84084 | $77753 |
| Cardiovascular | 67632 | 56919 |
| Ophthalmology | 5849 | 6332 |
| Other | 25941 | 24005 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $183506 | $165009 |

---

---

| |
|:---|
| 30 |
| *[**Table of Contents**](#toc)* |

---

Consolidated revenues of $183.5 million in 2022 were 11 percent higher than revenues in 2021. The increase was primarily related to higher volumes from increased demand in 2022, including a 19 percent increase in Cardiovascular revenues and an 8 percent increase in Fluid Delivery revenues as compared to 2021.

Our cost of goods sold was $107.6 million in 2022 compared with $95.6 million in 2021. The increase in 2022 is primarily due to higher sales volumes and higher manufacturing costs.

Gross profit in 2022 was $75.9 million compared with $69.4 million in 2021. Our gross profit was 41 percent of revenues in 2022 compared with 42 percent of revenues in 2021. The decrease in gross profit percentage in 2022 from 2021 was primarily related to higher manufacturing costs partially offset by increased pricing.

Operating expenses were $36.2 million in 2022 and $33.3 million in 2021. R&D expenses decreased $0.2 million from 2021 primarily related to supplies. R&D expenses consist primarily of salaries and other related expenses of our R&D personnel as well as costs associated with regulatory matters. In 2022, selling expenses increased $1.7 million compared with 2021 primarily for compensation, outside services, and increased travel. Selling expenses consist primarily of salaries, commissions, and other related expenses for sales and marketing personnel, marketing, advertising, and promotional expenses. General and Administrative, or G&A, expenses increased $1.3 million in 2022 as compared to 2021 primarily as a result of higher compensation. G&A expenses consist primarily of salaries and other related expenses of administrative, executive, and financial personnel, and outside professional fees.

Our operating income for 2022 was $39.7 million compared with $36.0 million in 2021. Operating income was 22 percent of revenues in each of the years ended December 31, 2022 and 2021.

Interest and Dividend income for 2022 was $1.0 million compared with $0.8 million in 2021. The increase in interest and dividend income was largely due to higher interest income received on cash and investments.

Other Investment Income was a $0.2 million loss in 2022 compared to a $1.5 million gain in 2021. The loss during 2022 was primarily related to unrealized losses on equity investments resulting from changes in the market values of our investments.

Income tax expense in 2022 totaled $5.6 million compared with $5.4 million in 2021. The effective tax rate was 14.0 percent for each of the years ended December 31, 2022 and 2021. We expect our effective tax rate for 2023 to be approximately 17 percent.

For a comparison of our results of operations for years 2021 and 2020, see "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission on February 25, 2022.

**Liquidity and Capital Resources**

As of December 31, 2022, 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, 2024. The credit facility is secured by substantially all of our inventories, equipment, and accounts receivable. The interest rate on borrowings under this credit facility, if drawn, is indexed to the 30-day, 60-day, or 90-day LIBOR, as selected by us. We had no outstanding borrowings under the credit facility at December 31, 2022 or December 31, 2021. Our ability to borrow funds under the credit facility is contingent upon 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 December 31, 2022, we were in compliance with all of these covenants.

At December 31, 2022, we had a total of $34.6 million in cash and cash equivalents, short-term investments, and long-term investments, a decrease of $46.2 million from December 31, 2021. This decrease was primarily due to purchases of our stock in the open market totaling $25.8 million and capital spending of $33.7 million in 2022.

---

| |
|:---|
| 31 |
| *[**Table of Contents**](#toc)* |

---

Cash flows provided by operations of $28.8 million in 2022 were primarily comprised of net income plus the net effect of non-cash expenses offset by an increase in inventory as we strategically purchased raw materials in a tight supply environment. At December 31, 2022, we had working capital of $101.3 million, including $4.7 million in cash and cash equivalents and $21.2 million in short-term investments. The $21.9 million decrease in working capital during 2022 was primarily related to a decrease in cash and cash equivalents and short-term investments. Working capital items consisted primarily of cash, accounts receivable, short-term investments, inventories, and other current assets minus accounts payable and other current liabilities.

Capital expenditures for property, plant, and equipment totaled $33.7 million in 2022, compared with $15.8 million in 2021. These expenditures were primarily for the expansion at one of our facilities that began in 2021. We expect this total project to cost about $25.0 million and to be complete in the first half of 2023. Purchases of investments totaled $35.7 million in 2022, compared to $23.2 million in 2021. Proceeds from maturities of investments totaled $53.9 million in 2022 and $40.2 million in 2021. After the completion of our building expansion, we expect 2023 capital expenditures, primarily for machinery and equipment, to be consistent with prior years.

We paid cash dividends totaling $14.6 million in 2022 and $13.4 in 2021. We expect to fund future dividend payments with cash flows from operations. We purchased $25.8 million of treasury stock during 2022 and $17.0 million during 2021.

Our current contractual obligations are normal for our line of business and mainly consist of purchase orders for raw materials. These obligations will be funded through funds generated through operations and require no additional funding. We have almost completed the expansion of one of our facilities which will require total funds of about $25.0 million, of which we have about $9.2 million not yet paid. We believe this expansion is required to support our anticipated increases in capacity in the coming years. We believe our cash, cash equivalents, short-term and long-term investments, 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. We believe our strong financial position would allow us to access equity or debt financing should that be necessary.

**COVID-19 Impact**

The COVID-19 pandemic has impacted the global economy and our business, caused market instability and uncertainty in the labor market, and put pressure on supply chains and healthcare systems. Even with the public health actions that have been taken to reduce the spread and severity of the virus, the global economy and markets continue to experience disruptions, and the virus may continue to pose future risks with the emergence of new variants.

Although many countries have removed or reduced the restrictions taken in response to the COVID-19 pandemic, certain COVID-19 risks remain and the emergence of new variants of the virus may result in new governmental lockdowns, quarantine requirements, or other restrictions to slow the spread of the SARS-CoV-2 virus. This could result in significant reductions in the demand for certain of our products due to reductions in elective and non-essential procedures, reduced capital spending by customers, decreases in research activity, and reduced hospital and clinical occupancy, and healthcare system staffing shortages. These measures could also include determinations that our or our suppliers' facilities are not essential businesses, which could result in closures or other restrictions that significantly disrupt our operations or those of distributors or suppliers in our supply chain. In addition, any such measures could also impact the global economy more broadly, for example by leading to further economic slowdowns.

Although COVID-19 case volumes have decreased in the United States and certain other countries, the global outlook remains uncertain as case counts fluctuate and vaccination and booster rates remain relatively low in many parts of the world. Going forward, medical procedure rates may vary by country based on regional infection and vaccination and booster rates, hospital occupancy and staffing levels, transportation limitations, quarantines and other restrictions, and the emergence of new variants of the virus.

---

| |
|:---|
| 32 |
| *[**Table of Contents**](#toc)* |

---

In addition, the COVID-19 pandemic has impacted our global supply chain network, and we may continue to experience significant challenges in our network, including shortages in supply or disruptions or delays in shipments, as well as price increases, of certain materials or components used in our products. The COVID-19 pandemic has escalated challenges that existed for global healthcare systems prior to the pandemic, including budget constraints and staffing shortages, particularly shortages of nursing staff, that could impact the future demand for our products and services. As COVID-19 conditions have improved, there have been increases in demand for certain of our products, which may pose challenges to our supply chain and could adversely affect our business.

We will continue to monitor the COVID-19 pandemic as well as resulting legislative and regulatory changes to manage our response and assess and seek to mitigate potential adverse impacts on our business.

**Off-Balance Sheet Arrangements**

We have no off-balance sheet financing arrangements.

**Impact of Inflation**

We experience the effects of inflation primarily in the prices we pay for labor, materials, and services. Over the last three years, we have experienced the effects of inflation in these costs, and in the last 12 months have seen this increase significantly. At times, we have been able to offset a portion of these increased costs by increasing the sales prices of our products. However, competitive pressures have not allowed for full recovery of these cost increases.

**New Accounting Pronouncements**

From time to time new accounting pronouncements applicable to us are issued by the Financial Accounting Standards Board (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.

**Critical Accounting Estimates**

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In the preparation of these financial statements, we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. We believe the following discussion addresses our most significant accounting policies and estimates, which are those that are most important to the portrayal of our financial condition and results and require management's most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Actual results could differ significantly from those estimates under different assumptions and conditions.

We are required to estimate our provision for income taxes and uncertain tax positions in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the balance sheet. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is more likely than not, do not establish a valuation allowance. In the event that actual results differ from these estimates, the provision for income taxes could be materially impacted.

---

| |
|:---|
| 33 |
| *[**Table of Contents**](#toc)* |

---

During 2022, 2021 and 2020, none of our significant accounting estimates required material adjustments.

**Quantitative and Qualitative Disclosures About Market Risks**

*<u>Foreign Exchange Risk</u>*

We are not exposed to material fluctuations in currency exchange rates that would result in realized gains or losses being reflected in the consolidated statements of income because the payments from our international customers are received primarily in United States dollars.

However, fluctuations in exchange rates may affect the prices that our international customers are willing to pay and may put us at a price disadvantage compared to other competitors. Increases in the value of the United States dollar relative to foreign currencies could make our products less competitive or less affordable and therefore adversely affect our sales in international markets.

*<u>Market Risk and Credit Risk</u>*

Our cash deposits are held in accounts with financial institutions that we believe are creditworthy. Certain of these accounts at times may exceed federally-insured limits. We have not experienced any credit losses in those accounts and do not believe we are exposed to any significant credit risk on these funds.

We have investments in money market funds, bonds, and commercial paper. As a result, we are exposed to potential loss from market risks that may occur as a result of changes in interest rates, changes in credit quality of the issuer, and otherwise. These securities have a higher degree of, and a greater exposure to, credit or default risk and may be less liquid in times of economic weakness or market disruptions as compared with cash deposits. We have also invested a portion of our available funds in equity securities and mutual funds. The value of these securities fluctuates due to changes in the equity and credit markets along with other factors. In times of economic weakness, the market value and liquidity of these assets may decline and may negatively impact our financial condition.

**Forward-looking Statements**

Statements in this Management's Discussion and Analysis and elsewhere in this Form 10-K 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 2023, our 2023 capital expenditures, the costs of expanding one of our facilities, funding future dividend payments with cash flows from operations, availability of equity and debt financing, our ability to meet our cash requirements for the foreseeable future, the impact on our consolidated financial statement of recently issued accounting standards when we adopt those standards, and the effect that the COVID-19 pandemic may have on our business and operations. 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 may again lead 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 pandemic; the impact of global and regional economic and credit market conditions on healthcare spending; the risk that the COVID-19 virus continues to disrupt 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 Form 10-K 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

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

---

| |
|:---|
| 34 |
| *[**Table of Contents**](#toc)* |

---

**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.**

**Report of Independent Registered Public Accounting Firm**

Board of Directors and Stockholders

Atrion Corporation

**Opinion on the financial statements** 

We have audited the accompanying consolidated balance sheets of Atrion Corporation (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and schedule included under Item 15(a) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and our report dated February 27, 2023 expressed an unqualified opinion.

**Basis for opinion** 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

**Critical audit matters**

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ GRANT THORNTON LLP

We have served as the Company's auditor since 2002.

Dallas, Texas

February 27, 2023

---

| |
|:---|
| 35 |
| *[**Table of Contents**](#toc)* |

---

ATRION CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31, 2022, 2021, and 2020

---

| | | | |
|:---|:---|:---|:---|
|  | **2022** | 2021 | 2020 |
|  | (In thousands, except per share amounts) | (In thousands, except per share amounts) | (In thousands, except per share amounts) |
| Revenues | $**183506** | $165009 | $147591 |
| Cost of Goods Sold | **107602** | 95637 | 81428 |
| Gross Profit | **75904** | 69372 | 66163 |
| Operating Expenses: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Selling | **9782** | 8061 | 7520 |
| &nbsp;&nbsp;&nbsp;&nbsp;General and administrative | **20935** | 19597 | 17330 |
| &nbsp;&nbsp;&nbsp;&nbsp;Research and development | **5500** | 5672 | 5645 |
|  | **36217** | 33330 | 30495 |
| Operating Income  | **39687** | 36042 | 35668 |
| Interest and Dividend Income | **988** | 843 | 1444 |
| Other Investment Income (Loss) | **(150**) | 1477 | 1355 |
| Other Income  | **92** | 67 | -- |
| Income before Provision for Income Taxes | **40617** | 38429 | 38467 |
| Provision for Income Taxes  | **(5609**) | (5374) | (6352) |
| Net Income | $**35008** | $33055 | $32115 |
| Net Income Per Basic Share | $**19.59** | $18.22 | $17.49 |
| Weighted Average Basic Shares Outstanding | **1787** | 1814 | 1836 |
| Net Income Per Diluted Share | $**19.56** | $18.18 | $17.44 |
| Weighted Average Diluted Shares Outstanding | **1790** | 1818 | 1841 |
| Dividends Per Common Share | $**8.20** | $7.40 | $6.60 |

---

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

---

| |
|:---|
| 36 |
| *[**Table of Contents**](#toc)* |

---

ATRION CORPORATION

CONSOLIDATED BALANCE SHEETS

As of December 31, 2022 and 2021

---

| | | |
|:---|:---|:---|
| Assets: | **2022** | 2021 |
|  | (In thousands) | (In thousands) |
| Current Assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | $**4731** | $32264 |
| &nbsp;&nbsp;&nbsp;&nbsp;Short-term investments | **21152** | 29059 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net of allowance for doubtful accounts of $71 and $69 in 2022 and 2021, respectively | **23951** | 21023 |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventories | **65793** | 50778 |
| &nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | **3770** | 3447 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Current Assets | **119397** | 136571 |
| Long-term investments | **8669** | 19423 |
| Property, Plant and Equipment | **270642** | 233217 |
| Less: accumulated depreciation | **146888** | 135245 |
|  | **123754** | 97972 |
| Other Assets and Deferred Charges: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Patents and licenses, net of accumulated amortization of $12,655 and $12,538 in 2022 and 2021, respectively | **1185** | 1302 |
| &nbsp;&nbsp;&nbsp;&nbsp;Goodwill | **9730** | 9730 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **1977** | 2266 |
|  | **12892** | 13298 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total Assets | $**264712** | $267264 |

---

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

---

| |
|:---|
| 37 |
| *[**Table of Contents**](#toc)* |

---

---

| | | |
|:---|:---|:---|
| Liabilities and Stockholders' Equity: | **2022** | 2021 |
|  | (In thousands) | (In thousands) |
| Current Liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | $**12074** | $7146 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued liabilities | **5950** | 5930 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued income and other taxes | **74** | 270 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Current Liabilities | **18098** | 13346 |
| Line of credit | **-** | - |
| Other Liabilities and Deferred Credits: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes | **3888** | 7082 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **3185** | 2540 |
|  | **7073** | 9622 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Liabilities | **25171** | 22968 |
| Commitments and Contingencies |  |  |
| Stockholders' Equity: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Common stock, par value $0.10 per share, authorized 10,000 shares, issued 3,420 shares  | **342** | 342 |
| &nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital | **66347** | 61174 |
| &nbsp;&nbsp;&nbsp;&nbsp;Retained earnings | **377682** | 357324 |
| &nbsp;&nbsp;&nbsp;&nbsp;Treasury shares, 1,659 shares in 2022 and 1,619 shares in 2021, at cost | **(204830**) | (174544) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Stockholders' Equity | **239541** | 244296 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Liabilities and Stockholders' Equity | $**264712** | $267264 |

---

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

---

| |
|:---|
| 38 |
| *[**Table of Contents**](#toc)* |

---

ATRION CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the year ended December 31, 2022, 2021 and 2020

---

| | | | |
|:---|:---|:---|:---|
|  | **2022** | 2021 | 2020 |
|  | (In thousands) | (In thousands) | (In thousands) |
| **Cash Flows From Operating Activities:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income | $**35008** | $33055 | $32115 |
| &nbsp;&nbsp;&nbsp;&nbsp;Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | **13812** | 12885 | 11652 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes | **(3194)** | (3686) | 2282 |
| &nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation | **1730** | 2312 | 1731 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net change in unrealized gains and losses on investments | **89** | (1472) | (1093) |
| &nbsp;&nbsp;&nbsp;&nbsp;Net change in accrued interest, premiums, and discounts on investments | **119** | 632 | 112 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **-** | 22 | 21 |
|  | **47564** | 43748 | 46820 |
| &nbsp;&nbsp;&nbsp;&nbsp;Changes in operating assets and liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | **(2928)** | (4579) | 2438 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | **(15015)** | (480) | (8205) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | **(673)** | 423 | (1323) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other non-current assets | **640** | 11 | (275) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities | **(1247)** | (656) | 2095 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued income and other taxes | **(196)** | (165) | 17 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other non-current liabilities | **644** | 496 | (2347) |
|  | **28789** | 38798 | 39220 |
| **Cash Flows From Investing Activities:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment additions | **(33736)** | (15828) | (21886) |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchase of investments | **(35676)** | (23158) | (45768) |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sale of investments | **245** | 793 | 899 |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from maturities of investments | **53884** | 40189 | 35923 |
|  | **(15283)** | 1996 | (30832) |
| **Cash Flows From Financing Activities:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Shares tendered for employees' withholding taxes on stock-based compensation | **(633)** | (585) | (55) |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchase of treasury stock | **(25786)** | (16988) | (18831) |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends paid | **(14620)** | (13407) | (12100) |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from draw on line of credit | **607** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Repayment of draw on line of credit | **(607)** | - | - |
|  | **(41039)** | (30980) | (30986) |
| **Net change in cash and cash equivalents** | **(27533)** | 9814 | (22598) |
| **Cash and cash equivalents, beginning of year** | **32264** | 22450 | 45048 |
| **Cash and cash equivalents, end of year** | $**4731** | $32264 | $22450 |
| **Cash paid for:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Income taxes, net of refunds | $**9876** | $7744 | $5565 |
| **Non-cash financing activities:** |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Non-cash effect of stock option exercises | $**4007** | $6012 | $- |

---

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

---

| |
|:---|
| 39 |
| *[**Table of Contents**](#toc)* |

---

ATRION CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

For the year ended December 31, 2022, 2021, and 2020

(in thousands)

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | **Treasury Stock** | **Treasury Stock** | | | |
|  | Shares Outstanding | Amount | Shares | Amount | **Additional Paid-in** <br>**Capital** | **Retained**<br> **Earnings** |<br>**Total** |
| Balances, December 31, 2019 | 1855 | $342 | 1565 | $(132260) | $52043 | $317745 | $237870 |
| Cumulative change in accounting principle |  |  |  |  |  | (36) | (36) |
| Adjusted Balance at January 1, 2020 | 1855 | $342 | 1565 | $(132260) | $52043 | $317709 | $237834 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income |  |  |  |  |  | 32115 | 32115 |
| &nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation transactions |  |  |  | 19 | 1484 |  | 1503 |
| &nbsp;&nbsp;&nbsp;&nbsp;Shares surrendered in stock transactions |  |  |  | (55) |  |  | (55) |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchase of treasury stock | (29) |  | 29 | (18831) |  |  | (18831) |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends |  |  |  |  |  | (12124) | (12124) |
| Balances, December 31, 2020 | 1826 | $342 | 1594 | $(151127) | $53527 | $337700 | $240442 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income |  |  |  |  |  | 33055 | 33055 |
| &nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation transactions | 4 |  | (4) | (5844) | 7647 |  | 1803 |
| &nbsp;&nbsp;&nbsp;&nbsp;Shares surrendered in stock transactions | (1) |  | 1 | (585) |  |  | (585) |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchase of treasury stock | (28) |  | 28 | (16988) |  |  | (16988) |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends |  |  |  |  |  | (13431) | (13431) |
| Balances, December 31, 2021 | 1801 | $342 | 1619 | $(174544) | $61174 | $357324 | $244296 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income |  |  |  |  |  | 35008 | 35008 |
| &nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation transactions | 4 |  | (4) | (3867) | 5173 |  | 1306 |
| &nbsp;&nbsp;&nbsp;&nbsp;Shares surrendered in stock transactions | (1) |  | 1 | (633) |  |  | (633) |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchase of treasury stock | (43) |  | 43 | (25786) |  |  | (25786) |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends |  |  |  |  |  | (14650) | (14650) |
| Balances, December 31, 2022 | 1761 | $342 | 1659 | $(204830) | $66347 | $377682 | $239541 |

---

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

---

| |
|:---|
| 40 |
| *[**Table of Contents**](#toc)* |

---

**(1) Summary of Significant Accounting Policies**

Atrion Corporation and its subsidiaries ("we," "our," "us," "Atrion," or the "Company") develop and manufacture products primarily for medical applications. We market our products throughout the United States and internationally. Our customers include physicians, hospitals, distributors, and other manufacturers. Atrion Corporation's principal subsidiaries through which these operations are conducted are Atrion Medical Products, Inc., Halkey-Roberts Corporation, and Quest Medical, Inc.

*Principles of Consolidation*

The consolidated financial statements include the accounts of Atrion Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain prior-year balances have been reclassified in order to conform to the current year presentation.

*Estimates*

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

*Cash and Cash Equivalents and Investments*

Cash and cash equivalents include cash on hand and cash deposits in the bank as well as money market funds and debt securities with maturities at the time of purchase of 90 days or less. Cash deposits in the bank include amounts in operating accounts, savings accounts, and money market accounts.

Our investments consist of corporate and government bonds, commercial paper, mutual funds, and equity securities. We classify our investment securities in one of three categories: held-to-maturity, available-for-sale, or trading. Securities that we have the intent and ability to hold to maturity are reported at amortized cost and classified as held-to-maturity securities.

We report our available-for-sale and trading securities at fair value with changes in fair value recognized in other investment income (loss) in the Consolidated Statements of Income.

We consider as current assets those investments which will mature in the next 12 months including interest receivable on long-term bonds. The remaining investments are considered non-current assets which we intend to hold longer than 12 months. We periodically evaluate our investments for impairment.

---

| |
|:---|
| 41 |
| *[**Table of Contents**](#toc)* |

---

The components of the Company's cash and cash equivalents and our short and long-term investments as of December 31, 2022 and 2021 are as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,**<br>**2022**  | December 31, <br>2021  |
| **Cash and cash equivalents:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash deposits | $**603** | $2388 |
| &nbsp;&nbsp;&nbsp;&nbsp;Money market funds | **2380** | 29876 |
| &nbsp;&nbsp;&nbsp;&nbsp;Commercial paper | **1748** | - |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total cash and cash equivalents | $**4731** | $32264 |
| **Short-term investments:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Commercial paper (held-to-maturity) | $**12227** | $2248 |
| &nbsp;&nbsp;&nbsp;&nbsp;Bonds (held-to-maturity) | **8597** | 26831 |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity Securities (available for sale) | **330** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Allowance for credit losses  | **(2)** | (20) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total short-term investments | $**21152** | $29059 |
| **Long-term investments:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity securities (available for sale) | $**5139** | $5468 |
| &nbsp;&nbsp;&nbsp;&nbsp;Bonds (held-to-maturity) | **3180** | 13405 |
| &nbsp;&nbsp;&nbsp;&nbsp;Mutual funds (available for sale) | **350** | 559 |
| &nbsp;&nbsp;&nbsp;&nbsp;Allowance for credit losses | **-** | (9) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total long-term investments | $**8669** | $19423 |
| **Total cash, cash equivalents and short and long-term investments** | $**34552** | $80746 |

---

*Accounts Receivable*

Accounts receivable are recorded at the original sales price to the customer. We maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments. The allowance for doubtful accounts is updated periodically to reflect our estimate of collectability. Accounts are written off when we determine the receivable will not be collected.

*Inventories*

Inventories are stated at the lower of cost (including materials, direct labor, and applicable overhead) or net realizable value. Cost is determined by using the first-in, first-out method. The following table details the major components of inventory (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | 2021 |
| Raw materials | $**33329** | $23733 |
| Work in process | **13618** | 9571 |
| Finished goods | **18846** | 17474 |
| Total inventories | $**65793** | $50778 |

---

---

| |
|:---|
| 42 |
| *[**Table of Contents**](#toc)* |

---

*Accounts Payable*

We reflect disbursements as trade accounts payable until such time as payments are presented to our bank for payment. Disbursements totaling approximately $887 thousand at December 31, 2022 and $1.989 million at December 31, 2021, had not been presented for payment to our bank.

As of December 31, 2022, there were expenditures of $5.7 million related to property, plant, and equipment included in our accounts payable and accrued liabilities balance.

*Income Taxes*

We account for income taxes utilizing Accounting Standards Codification (ASC 740), *Income Taxes*, or ASC 740. ASC 740 requires the asset and liability method for the recording of deferred income taxes, whereby deferred tax assets and liabilities are recognized based on the tax effects of temporary differences between the financial statement and the tax basis of assets and liabilities, as measured at current enacted tax rates. When appropriate, we evaluate the need for a valuation allowance to reduce deferred tax assets.

ASC 740 also requires the accounting for uncertainty in income taxes recognized in an enterprise's financial statements and prescribes a recognition threshold and measurement attributes of income tax positions taken or expected to be taken on a tax return. Under ASC 740, the impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the provision for income taxes unless it is more-likely-than-not of being sustained.

Any uncertain tax positions are recorded within "Other non-current liabilities" in the accompanying consolidated balance sheets. We classify interest expense on underpayments of income taxes and accrued penalties related to unrecognized tax benefits in the income tax provision.

We account for excess tax benefits ("windfalls") and deficiencies ("shortfalls") related to employee stock compensation as required by ASU 2016-09, *Stock Compensation: Improvements to Employee Share-Based Payment Accounting* (ASU 2016-09), within income tax expense. An excess tax benefit is the realized tax benefit related to the amount of deductible compensation cost reported on an employer's tax return for equity instruments in excess of the compensation cost for those instruments recognized for financial reporting purposes.

We made quarterly payments in excess of federal and state income taxes due of approximately $1.0 million during the year ended December 31, 2022 and $345 thousand during the year ended December 31, 2021. These amounts were recorded in prepaid expenses and other current assets on our consolidated balance sheets.

*Property, Plant, and Equipment*

Property, plant, and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Additions and improvements are capitalized, including all material, labor, and engineering costs to design, install, or improve the asset. Expenditures for repairs and maintenance are charged to expense as incurred. The following table represents a summary of property, plant, and equipment at original cost (in thousands):

---

| | | | |
|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | |
|  | **2022** | 2021 | Useful<br>Lives |
| Land | $**5511** | $5511 |  |
| Buildings | **60984** | 38223 | 30-40 yrs. |
| Machinery and equipment | **204147** | 189483 | &nbsp;&nbsp;&nbsp;&nbsp;3-15 yrs. |
| Total property, plant and equipment | $**270642** | $233217 |  |

---

---

| |
|:---|
| 43 |
| *[**Table of Contents**](#toc)* |

---

Depreciation expense was $13.695 million in 2022, $12.767 million in 2021, and $11.533 million in 2020. Depreciation expense is recorded in either cost of goods sold or operating expenses based on the associated assets' usage.

*Patents and Licenses*

Costs for patents and licenses acquired are determined at acquisition date. Patents and licenses are amortized over the useful lives of the individual patents and licenses, which are from seven to 20 years. Patents and licenses are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

*Goodwill*

Goodwill represents the excess of cost over the fair value of tangible and identifiable intangible net assets acquired. Annual impairment testing for goodwill is performed in the fourth quarter of each year using a qualitative assessment on goodwill impairment to determine whether it is more likely than not that the carrying value of our reporting units exceeds their fair value. If necessary, a two-step goodwill impairment analysis is performed. Goodwill is also reviewed whenever events or changes in circumstances indicate a change in value may have occurred. We have identified three reporting units where goodwill was recorded for purposes of testing goodwill impairment annually: (1) Atrion Medical Products, Inc., (2) Halkey-Roberts Corporation, and (3) Quest Medical, Inc. The total carrying amount of goodwill in each of the years ended December 31, 2022 and 2021 was $9.730 million. Our evaluation of goodwill during each year resulted in no impairment losses.

*Current Accrued Liabilities*

The items comprising current accrued liabilities are as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2022** | 2021 |
| Accrued payroll and related expenses | $**4718** | $4988 |
| Accrued vacation | **408** | 387 |
| Other accrued liabilities | **824** | 555 |
| Total accrued liabilities | $**5950** | $5930 |

---

*Revenues*

We recognize revenue when 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.

We believe that our medical device business will benefit in the long term from an aging world population along with an increase in life expectancy. In the near term, however, demand for our products fluctuates based on our customers' requirements which are driven in large part by their customers' or patients' needs for medical care which does not always follow broad economic trends. This affects the nature, amount, timing, and uncertainty of our revenue. Also, changes in the value of the United States dollar relative to foreign currencies could make our products more or less affordable and therefore affect our sales in international markets.

---

| |
|:---|
| 44 |
| *[**Table of Contents**](#toc)* |

---

A summary of revenues by geographic area, based on shipping destination, for 2022, 2021, and 2020 is as follows (in thousands):

---

| | | | |
|:---|:---|:---|:---|
|  | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|  | **&nbsp;&nbsp;&nbsp;&nbsp; 2022** | &nbsp;&nbsp;&nbsp;&nbsp; 2021 | &nbsp;&nbsp;&nbsp;&nbsp; 2020 |
| United States | $**109740** | $96925 | $85682 |
| European Union | **30311** | 28657 | 27786 |
| All other regions | **43455** | 39427 | 34123 |
| Total | $**183506** | $165009 | $147591 |

---

A summary of revenues by product line for 2022, 2021 and 2020 is as follows (in thousands):

---

| | | | |
|:---|:---|:---|:---|
|  | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|  | **2022** | 2021 | &nbsp;&nbsp;&nbsp;&nbsp; 2020 |
| Fluid Delivery | $**84084** | $77753 | $75228 |
| Cardiovascular | **67632** | 56919 | 48524 |
| Ophthalmology | **5849** | 6332 | 4700 |
| Other | **25941** | 24005 | 19139 |
| Total | $**183506** | $165009 | $147591 |

---

More than 98 percent of our total revenue in the periods presented herein is pursuant to shipments initiated by a purchase order. Under the guidance from Accounting Standards Update (ASU) 2014-09, *Revenue from Contracts with Customers* (ASC 606), the purchase order is the contract with the customer. As a result, the vast majority of our revenue is recognized at a single point in time when the performance obligation of the product being shipped is satisfied, rather than recognized over time.

Our payment terms vary by the type and location of our customers and the products or services offered. The term between invoicing and when payment is due is 30 days in most cases. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

We evaluate the collectability of specific accounts and determine when to grant credit to our customers using a combination of factors, including the age of the outstanding balances, evaluation of customers' current and past financial condition, recent payment history, current economic environment, and discussions with our personnel and with the customers directly. We apply these same factors and more when evaluating certain aged receivables for collectability issues and to determine changes necessary to our allowance for doubtful accounts. If circumstances change, our estimates of the collectability of amounts could be changed by a material amount.

We have elected to recognize the cost for shipping as an expense in cost of sales when control over the product has transferred to the customer. Shipping and handling fees charged to customers are reported as revenue.

We do not make any material accruals for product returns and warranty obligations. Our manufactured products come with a standard warranty to be free from defect and, in the event of a defect, may be returned by the customer within a reasonable period of time. Historically, our returns have been unpredictable but very low due to our focus on quality control. A one-year warranty is provided with certain equipment sales but warranty claims and our accruals for these obligations have been minimal.

---

| |
|:---|
| 45 |
| *[**Table of Contents**](#toc)* |

---

We expense sales commissions when incurred because the amortization period would be one year or less. These costs are recorded within selling expense.

Atrion has contracts in place with customers for equipment leases, equipment financing, and equipment and other services. These contracts represent less than four percent of our total revenue in all periods presented herein. A portion of these contracts contain multiple performance obligations including embedded leases.

We treat agreements with an embedded lease component as a single performance obligation and recognize revenue under ASC 606 rather than under the lease accounting guidelines, since the predominant component of revenue is the non-lease component.

Our fixed monthly equipment rentals to customers are accounted for as operating leases under ASU 2016-02, Leases (ASC 842). Fixed monthly rentals provide for a flat rental fee each month.

A limited number of our contracts have variable consideration including tiered pricing and rebates which we monitor closely for potential constraints on revenue. For these contracts, we estimate our position quarterly using the most-likely-outcome method, including customer-provided forecasts and historical buying patterns, and we accrue for any asset or liability these arrangements may create. The effect of accruals for variable consideration on our consolidated financial statements is immaterial.

We do not disclose the value of unsatisfied performance obligations for contracts for which we recognize revenue at the amount 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 under ASC 606 about immaterial contracts would potentially obscure more useful and important information.

*Leases to Customers*

The lease assets from our sales-type leases are recorded in our accounts receivable in the accompanying consolidated balance sheets, and the balance totaled $356 thousand as of December 31, 2022 and $470 thousand as of December 31, 2021.

Our equipment treated as leases to customers is included in Property, Plant, and Equipment on our consolidated balance sheets. Due to the immaterial amount of revenue and assets from our lessor activity, all other lessor disclosures have been omitted.

*Leased Property and Equipment*

As a lessee, we had eight leases in total for equipment and facilities used internally during 2022, which we account for as operating leases. At December 31, 2022, our right-of-use asset balance was $683 thousand and our lease liability at December 31, 2022 for these leases was $672 thousand. The monthly expense of $43 thousand for these operating leases, which are our only lessee arrangements, is immaterial and therefore all other lessee disclosures have been omitted.

*Research and Development Costs*

Research and Development, or R&D, costs relating to the development of new products and improvements of existing products are expensed as incurred.

*Stock-Based Compensation* 

We have a stock-based compensation plan covering certain of our officers, directors, key employees, and non-physician consultants. As explained in detail in Note 8, we account for stock-based compensation utilizing the fair value recognition provisions of ASC 718, *Compensation-Stock Compensation,* or ASC 718.

---

| |
|:---|
| 46 |
| *[**Table of Contents**](#toc)* |

---

*Liability-classified Awards*

The Company classifies certain awards that can or will be settled in cash as liability awards. The fair value of a liability-classified award is determined on a quarterly basis beginning at the grant date until final vesting. Changes in the fair value of liability-classified awards are recorded to general and administrative expense over the vesting period of the award.

*New Accounting Pronouncements*

From time to time new accounting pronouncements applicable to us are issued by the FASB, or other standards setting bodies, which we 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.

*Fair Value Measurements* 

Accounting standards use a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. These tiers are: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists therefore requiring an entity to develop its own assumptions.

As of December 31, 2022 and 2021, we held investments in commercial paper, bonds, money market funds, mutual funds, and equity securities that are required to be measured for disclosure purposes at fair value on a recurring basis. The fair values of these investments and their tier levels are shown in Note 2.

The carrying values of our other financial instruments including cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and accrued income and other taxes approximated fair value due to their liquid and short-term nature.

*Concentration of Credit Risk*

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments, and accounts receivable.

Our cash deposits are held in accounts with financial institutions that we believe are creditworthy. Certain of these amounts at times may exceed federally-insured limits.

We have investments in money market funds, bonds, equity securities, and commercial paper. As a result, we are exposed to potential loss from market risks that may occur as a result of changes in interest rates, changes in credit quality of the issuer, and otherwise. These securities have a higher degree of, and a greater exposure to, credit or default risk and may be less liquid in times of economic weakness or market disruptions as compared with cash deposits.

For accounts receivable, we perform ongoing credit evaluations of our customers' financial condition and generally do not require collateral. We maintain reserves for possible credit losses. We had allowances for doubtful accounts of approximately $71 thousand at December 31, 2022 and $69 thousand, at December 31, 2021. The carrying amount of the receivables approximates their fair value.

---

| |
|:---|
| 47 |
| *[**Table of Contents**](#toc)* |

---

**(2) Investments**

As of December 31, 2022 and 2021, 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. These investments are considered Level 1 or Level 2 as detailed in the table below. 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** | **Gross Unrealized** | |
| | <br>**Level** | <br>**&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cost** | **Gains** | **Losses** |<br>**Fair Value** |
| <br>**As of December 31, 2022:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Money market funds | **1** | $**2380** | $**-** | $**-** | $**2380** |
| &nbsp;&nbsp;&nbsp;&nbsp;Commercial paper | **2** | $**13975** | $**1** | $**(9)** | $**13967** |
| &nbsp;&nbsp;&nbsp;&nbsp;Bonds | **2** | $**11777** | $**-** | $**(353)** | $**11424** |
| &nbsp;&nbsp;&nbsp;&nbsp;Mutual funds | **1** | $**466** | $**-** | $**(116)** | $**350** |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity investments | **2** | $**6054** | $**-** | $**(585)** | $**5469** |
| **As of December 31, 2021:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Money market funds | 1 | $29876 | $- | $- | $29876 |
| &nbsp;&nbsp;&nbsp;&nbsp;Commercial paper | 2 | $2248 | $- | $- | $2248 |
| &nbsp;&nbsp;&nbsp;&nbsp;Bonds | 2 | $40236 | $97 | $(37) | $40296 |
| &nbsp;&nbsp;&nbsp;&nbsp;Mutual funds | 1 | $558 | $1 | $- | $559 |
| &nbsp;&nbsp;&nbsp;&nbsp;Equity investments | 2 | $5675 | $- | $(207) | $5468 |

---

The above equity investments represent an investment in two companies at December 31, 2022 and are classified as available for sale. The carrying value of our investments is reviewed quarterly for changes in circumstances or the occurrence of events that suggest an investment may not be recoverable. As of December 31, 2022, we had seven bond investments in a loss position for more than 12 months.

At December 31, 2022, the length of time until maturity of the bonds we currently own ranged from one to 36 months and the length of time until maturity of the commercial paper ranged from one to four months.

We use 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. We monitor the credit quality of debt securities classified as held-to-maturity through the use of their respective credit ratings and update them on a quarterly basis with our latest assessment completed on December 31, 2022. Our allowance for credit losses was $2 thousand as of December 31, 2022 and $29 thousand as of December 31, 2021. The decrease in allowance was primarily due to the decrease in the balance of the underlying assets.

---

| |
|:---|
| 48 |
| *[**Table of Contents**](#toc)* |

---

The following table summarizes the amortized cost of our held-to-maturity bonds at December 31, 2022, aggregated by credit quality indicator (in thousands):

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Held-to-Maturity Bonds** | **Held-to-Maturity Bonds** | **Held-to-Maturity Bonds** | **Held-to-Maturity Bonds** | **Held-to-Maturity Bonds** |
| **Credit Quality Indicators** | **Fed Govt. Bonds/Notes** | **Municipal Bonds** | **Corporate Bonds** | **Total** |
| **AA/A** | $180 | $- | $3044 | $3224 |
| **BBB** | - | - | 8553 | 8553 |
| &nbsp;&nbsp;&nbsp;&nbsp;**TOTAL** | $180 | $- | $11597 | $11777 |

---

**(3) Patents and Licenses**

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):

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **December 31, 2022** | **December 31, 2022** | **December 31, 2022** | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| Weighted Average <br>Original Life <br>(years) | Gross<br>Carrying<br>Amount | Accumulated<br>Amortization | Weighted Average <br>Original Life <br>(years) | Gross<br>Carrying<br>Amount | Accumulated<br>Amortization |
| **15.67** | $**13840** | $**12655** | **15.67** | $**13840** | $**12538** |

---

Aggregate amortization expense for patents and licenses was $117 thousand for 2022 and $119 thousand for 2021. Estimated future amortization expense for each of the years set forth below ending December 31 is as follows (in thousands):

---

| | |
|:---|:---|
| 2023 | $**113** |
| 2024 | $**113** |
| 2025 | $**112** |
| 2026 | $**112** |
| 2027 | $**108** |

---

**(4) Line of Credit**

As of December 31, 2022 and 2021, 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, 2024. On February 12, 2021, this credit facility was amended to, among other things, extend the date for advances to February 28, 2024. The credit facility is secured by substantially all our inventories, equipment, and accounts receivable. The interest rate on borrowings under this credit facility is indexed to the 30-day, 60-day, or 90-day LIBOR, as selected by us, and was immaterial in 2022. We had no outstanding borrowings under the credit facility at December 31, 2022 or December 31, 2021. Our ability to borrow funds under the credit facility is contingent upon 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 December 31, 2022, we were in compliance with all of the covenants.

---

| |
|:---|
| 49 |
| *[**Table of Contents**](#toc)* |

---

**(5) Income Taxes**

The items comprising Provision for Income Taxes are as follows (in thousands):

---

| | | | |
|:---|:---|:---|:---|
|  | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|  | **2022** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2021  | &nbsp;&nbsp;&nbsp;&nbsp; 2020  |
| Current — Federal | $**8030** | $7445 | $3166 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; — State | **773** | 1615 | 904 |
|  | **8803** | 9060 | 4070 |
| Deferred — Federal | **(3021)** | (3349) | 2111 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; — State | **(173)** | (337) | 171 |
|  | **(3194)** | (3686) | 2282 |
| Provision for Income Taxes | $**5609** | $5374 | $6352 |

---

Temporary differences and carryforwards which have given rise to deferred tax assets and liabilities as of December 31, 2022 and 2021 are as follows (in thousands):

---

| | | |
|:---|:---|:---|
|  | **2022** | 2021 |
| **Deferred tax assets** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Benefit plans | $**1421** | $1853 |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventories | **730** | 336 |
| &nbsp;&nbsp;&nbsp;&nbsp;Capitalized R&D | **2275** | -- |
| **Total deferred tax assets** | **4426** | 2189 |
| &nbsp;&nbsp;&nbsp;&nbsp;Valuation allowance | **--** | (36) |
| **Net deferred tax assets** | **4426** | 2153 |
| **Deferred tax liabilities** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Property, plant, and equipment | **6334** | 7289 |
| &nbsp;&nbsp;&nbsp;&nbsp;Patents and goodwill | **1745** | 1773 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | **235** | 173 |
| **Total deferred tax liabilities** | **8314** | 9235 |
| **Net deferred tax liabilities** | $**3888** | $7082 |

---

---

| |
|:---|
| 50 |
| *[**Table of Contents**](#toc)* |

---

Total income tax expense differs from the amount that would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below (in thousands):

---

| | | | |
|:---|:---|:---|:---|
|  | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|  | **2022** | 2021 | 2020 |
| Income tax expense at the statutory federal income tax rate | $**8530** | $8070 | $8078 |
| Increase (decrease) resulting from: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;State income taxes | **438** | 1027 | 839 |
| &nbsp;&nbsp;&nbsp;&nbsp;R&D tax credits | **(1332)** | (1703) | (1589) |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign-derived intangible income deduction | **(2133)** | (2091) | (1051) |
| &nbsp;&nbsp;&nbsp;&nbsp;Excess tax benefit from stock compensation | **(97)** | (185) | (81) |
| &nbsp;&nbsp;&nbsp;&nbsp;Uncertain tax positions | **--** |  | (450) |
| &nbsp;&nbsp;&nbsp;&nbsp;Other, net | **203** | 256 | 606 |
| Provision for Income Taxes | $**5609** | $5374 | $6352 |

---

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):

---

| | |
|:---|:---|
| Gross unrecognized tax benefits at January 1, 2020 | $450 |
| Increase in tax positions for prior years | 8 |
| Increase in tax positions for current years |  |
| Lapse in statutes of limitation | (458) |
| Gross unrecognized tax benefits at December 31, 2020 | $**--** |
| Increase in tax positions for prior years | **--** |
| Increase in tax positions for current year | **--** |
| Lapse in statutes of limitation | **--** |
| Gross unrecognized tax benefits at December 31, 2021 | $**--** |
| Increase in tax positions for prior years | **--** |
| Increase in tax positions for current year | **--** |
| Lapse in statutes of limitation | **--** |
| Gross unrecognized tax benefits at December 31, 2022 | $**--** |

---

We are subject to United States federal income tax as well as to income tax of multiple state jurisdictions. We have concluded all United States federal income tax matters, as well as all material state and local income tax matters, for years through 2017. The Internal Revenue Service is currently auditing our 2018 federal tax return.

On August 16, 2022, the "Inflation Reduction Act" (H.R. 5376) was signed into law in the United States. We do not currently expect the Inflation Reduction Act to have a material impact on our financial results, including on our annual estimated effective tax rate or on our liquidity.

We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. Tax expense included a net interest benefit of zero for the years ended December 31, 2022 and December 31, 2021 and $35 thousand for the year ended December 31, 2020.

---

| |
|:---|
| 51 |
| *[**Table of Contents**](#toc)* |

---

**(6) Stockholders' Equity**

Our Board of Directors has at various times authorized repurchases of our stock in open-market or privately-negotiated transactions at such times and at such prices as management or the Board of Directors may from time to time determine. On May 21, 2015, our Board of Directors adopted a stock repurchase program authorizing the repurchase of up to 250 thousand shares of our common stock in open-market or privately-negotiated transactions. This program has no expiration date but may be terminated by the Board of Directors at any time. As of December 31, 2022, there remained 131,622 shares available for repurchase under this program. As of December 31, 2021, there remained 174,190 shares available for repurchase under this program. We repurchased a total of 42,568 shares of our common stock during 2022 and 27,828 shares in 2021 in open-market transactions.

We have increased our quarterly cash dividend rate in September of each of the past three years. The quarterly dividend rate was increased to $1.75 per share in September 2020, to $1.95 per share in September 2021, and to $2.15 per share in September 2022. Holders of our stock units earned non-cash dividend equivalents of $30 thousand in 2022 and $24 thousand in each of the years 2021 and 2020.

**(7) Income Per Share**

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

---

| | | | |
|:---|:---|:---|:---|
|  | **Year ended December 31,** | **Year ended December 31,** | **Year ended December 31,** |
|  | **2022** | 2021 | 2020 |
|  | (In thousands, except per share amounts) | (In thousands, except per share amounts) | (In thousands, except per share amounts) |
| Net Income | $**35008** | $33055 | $32115 |
| Weighted average basic shares outstanding | **1787** | 1814 | 1836 |
| Add: Effect of dilutive securities  | **3** | 4 | 5 |
| Weighted average diluted shares outstanding | **1790** | 1818 | 1841 |
| Net Income per share  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic | $**19.59** | $18.22 | $17.49 |
| &nbsp;&nbsp;&nbsp;&nbsp;Diluted | $**19.56** | $18.18 | $17.44 |

---

Nonvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and, therefore, are included in the computation of basic income per share pursuant to the two-class method.

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. Potentially dilutive securities have been excluded when their inclusion would be anti-dilutive. For the year ended December 31, 2022, there were no shares with an anti-dilutive effect. We excluded two shares of our common stock for the year ended December 31, 2021 and six shares of common stock for the year ended December 31, 2020.

---

| |
|:---|
| 52 |
| *[**Table of Contents**](#toc)* |

---

**(8) Stock-based Compensation**

At December 31, 2022, we had two stock-based compensation plans described below.

Our 2021 Equity Incentive Plan, or 2021 Plan, and our Amended and Restated 2006 Equity Incentive Plan, or 2006 Plan, provide for awards to key employees, non-employee directors, and consultants of incentive and nonqualified stock options, restricted stock, restricted stock units, deferred stock units, stock appreciation rights, performance shares, and other stock-based awards. Under the 2021 Plan, 100,000 shares, in the aggregate, of common stock are reserved for awards, and under the 2006 Plan, 200,000 shares, in the aggregate, of common stock were reserved for awards. As of December 31, 2021, no future stock-based awards are permitted under the 2006 plan. The purchase price of shares issued on the exercise of options under both plans is required to be at least equal to the fair market value of such shares on the date of grant. The options granted become exercisable and expire as determined by the Compensation Committee.

A summary of stock option transactions for the year ended December 31, 2022, is presented below:

---

| | | | |
|:---|:---|:---|:---|
| **Options** | Shares | Weighted Average Exercise Price | Weighted<br>Average Remaining Contractual Term |
| Outstanding at December 31, 2021 | 8000 | $501.03 | 0.3 years |
| &nbsp;&nbsp;&nbsp;&nbsp;Granted |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Exercised | 8000 |  |  |
| Outstanding at December 31, 2022 | -- |  |  |

---

There were no outstanding options remaining at December 31, 2022. None of our grants includes performance-based or market-based vesting conditions.

There were no restricted stock grants during 2022 or 2021. During 2017, we granted two awards of restricted stock under the 2006 Plan. Under the terms of our restricted stock awards, the restrictions usually lapse over a five-year period. Both of the 2017 awards include restrictions on transfer for a two-year period following vesting. Under both plans, during the vesting period holders of restricted stock have voting rights and earn dividends, but the shares may not be sold, assigned, transferred, pledged, or otherwise encumbered. Nonvested shares are generally forfeited on termination of employment unless otherwise provided in the participant's employment agreement or the termination is in connection with a change in control. We calculated the weighted average fair value per share of the restricted stock awarded in 2017 using the market value of our common stock on the date of the grant with a discount for post-vesting restrictions of 11.2%. We estimated this discount using the Chaffe protective put method. A summary of changes in nonvested restricted stock for the year ended December 31, 2022, is presented below:

---

| | | |
|:---|:---|:---|
| **Nonvested Shares** | Shares | Weighted Average Award Date Fair Value Per Share |
| Restricted stock at December 31, 2021 | 1180 | $445.47 |
| &nbsp;&nbsp;&nbsp;&nbsp;Granted |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Vested | (1180) | $445.47 |
| Restricted stock at December 31, 2022 | -- |  |

---

---

| |
|:---|
| 53 |
| *[**Table of Contents**](#toc)* |

---

There were no remaining nonvested shares of restricted stock outstanding at December 31, 2022. The total fair value of restricted stock was $796 thousand for stock vested in 2022, $754 thousand for stock vested during 2021, and $762 thousand for stock vested in 2020.

During 2022, restricted stock units were granted to certain employees. All of our restricted stock units granted under both plans are convertible to shares of stock on a one-for-one basis when the restrictions lapse, which is generally after a five-year period. Nonvested restricted stock units are generally forfeited upon termination of employment unless the termination is in connection with a change in control. Under both plans, during the vesting period, holders of restricted stock units earn dividends in the form of additional units.

A summary of changes in stock units for the year ended December 31, 2022, is presented below:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Nonvested Stock Units** | Restricted <br>Stock Units | Weighted Average Award Date Fair Value Per Unit | Director's Stock Units | Weighted Average Award Date Fair Value Per Unit |
| Nonvested at December 31, 2021 | 4171 | $666.14 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Granted & Added | 644 | $618.99 | 7 | $616.83 |
| &nbsp;&nbsp;&nbsp;&nbsp;Forfeited | (374) | $649.30 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Vested | (1711) | $613.21 | (7) | $616.83 |
| Nonvested at December 31, 2022 | 2730 | $690.50 | -- |  |

---

All nonvested restricted stock units at December 31, 2022 are expected to vest. The total intrinsic value of these outstanding stock units which were not convertible at December 31, 2022, including 515 stock units held for the accounts of non-employee directors, was $1.8 million. The total fair value of directors' stock units was $4 thousand for units that vested during each of the years ended December 31, 2022 and 2021 and $11 thousand for units that vested during 2020.

During 2020, we granted 3,865 restricted stock units outside of the plans to three employees that will be settled in cash and are treated as liability-classified awards. The grant-date fair value per unit for these awards was $646.90. No grants of this type were made outside the plans prior to 2020. These units vest 20 percent each year over a five-year period beginning in 2021. Changes in the fair value of these awards are recorded to G&A expense over the vesting period of the award. The liability recorded for these units is adjusted to the current market value at the end of each reporting period. We paid cash of $524 thousand to settle the 20 percent vesting in 2022 and $485 thousand to settle the 20 percent vesting in 2021. At December 31, 2022, our recorded liability for the remaining units was $227 thousand. The intrinsic value of these units at December 31, 2022 was $1.304 million including accrued amounts for dividend equivalents.

The total value of stock awards to nonemployee directors awarded under the plans was $492 thousand in 2022 and $432 thousand in 2021. No stock awards were granted in 2020. These awards vested immediately at the time of the grants.

Compensation related to stock option awards, restricted stock, and restricted stock units that are treated as equity-classified awards is based on the fair market value of the stock on the date of the award. These fair values are then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

We recorded stock-based compensation expense as a G&A expense in the amount of $1.730 million for the year ended December 31, 2022, $2.312 million for the year ended December 31, 2021, and $1.731 million for the year ended December 31 2020, for all of the above-mentioned stock-based compensation arrangements. The total tax benefit recognized in the income statement from stock-based compensation arrangements was $461 thousand for the year ended December 31, 2022, $1.203 million for the year ended December 31, 2021, and $444 thousand for the year ended December 31, 2020. These amounts include excess tax benefits in each year.

---

| |
|:---|
| 54 |
| *[**Table of Contents**](#toc)* |

---

Unrecognized compensation cost information for our various stock-based compensation awards is shown below as of December 31, 2022 (in thousands):

---

| | | |
|:---|:---|:---|
|  | Unrecognized Compensation Cost | Weighted Average<br>Remaining Years in Amortization Period |
| Stock options  | $-- |  |
| Restricted stock  |  |  |
| Restricted stock units | 1079 | 3.4 |
| Restricted stock units (to be settled in cash) | 1304 | 2.5 |
| Total | $2383 |  |

---

We have a policy of utilizing treasury shares to satisfy stock option exercises, stock unit conversions, and restricted stock awards that are equity-classified awards.

**(9) Industry Segment and Geographic Information**

We operate in one reportable industry segment: developing and manufacturing products primarily for medical applications. We have no foreign operating subsidiaries. We have other product lines which include pressure relief valves and inflation systems, which are sold primarily to the aviation and marine industries. Due to the similarities in product technologies and manufacturing processes, these products are managed as part of our medical products segment. Our revenues from sales to customers outside the United States totaled approximately 40 percent of our net revenues in 2022, 41 percent in 2021, and 42 percent in 2020. We have no assets located outside the United States.

**(10) Employee Retirement and Benefit Plans**

We sponsor a defined contribution 401(k) plan for all employees. Each participant may contribute certain amounts of eligible compensation. We make a matching contribution to the plan. Our contributions under this plan were $1.061 million in 2022, $980 thousand in 2021, and $917 thousand in 2020.

The Company has a Nonqualified Deferred Compensation Plan for certain key management or highly-compensated employees. The plan allows for the deferral of salary and bonus compensation until retirement or other specified payment events occur. Employees' deferred compensation amounts are deemed to be invested in certain investment funds, indexes, or vehicles selected by our Compensation Committee and designated by each participant and their deferral balances are adjusted for earnings based upon the performance of these deemed investments. Our deferred compensation obligation under the plan was $2.355 million at December 31, 2022 and $2.031 million at December 31 2021. These amounts are reflected in "Other Liabilities and Deferred Credits" in the accompanying consolidated balance sheets.

**(11) Commitments and Contingencies**

From time to time and in the ordinary course of business, we may be subject to various claims, charges, and litigation. In some cases, the claimants may seek damages, as well as other relief, which, if granted, could require significant expenditures. We accrue the estimated costs of settlement or damages when a loss is deemed probable and such costs are estimable, and accrue for legal costs associated with a loss contingency when a loss is probable and such amounts are estimable. Otherwise, these costs are expensed as incurred. If the estimate of a probable loss or defense costs is a range and no amount within the range is more likely, we accrue the minimum amount of the range. As of December 31, 2022, we had no ongoing litigation or arbitration for such matters.

We had a dispute which was favorably settled in the third quarter of 2007. This settlement was amended in December 2008. The amended settlement agreement provides that we may receive annual payments from 2009 through 2024. We have not recorded $1.0 million in potential future payments under this settlement as of December 31, 2022 due to the uncertainty of payment.

We have arrangements with three of our executive officers pursuant to which the termination of their employment under certain circumstances would result in lump sum payments to them. Termination under such circumstances at December 31, 2022, could have resulted in payments aggregating $5.4 million.

At December 31, 2022, the Company had lease obligations totaling $672 thousand with certain lessors for equipment and facilities.

---

| |
|:---|
| 55 |
| *[**Table of Contents**](#toc)* |

---

**ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.**

None.

**ITEM 9A. 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 December 31, 2022. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, were effective as of December 31, 2022. There were no changes in our internal control over financial reporting for the fourth fiscal quarter ended December 31, 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

**MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING**

Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control system is designed 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. All internal control systems, no matter how well designed, have inherent limitations. A system of internal control may become inadequate over time because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 *Internal Control-Integrated Framework*. Based on this assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was effective.

Grant Thornton LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Report and, as part of its audit, has issued the following attestation report on the effectiveness of our internal control over financial reporting.

---

| |
|:---|
| 56 |
| *[**Table of Contents**](#toc)* |

---

**Report of Independent Registered Public Accounting Firm**

Board of Directors and Stockholders

Atrion Corporation

***Opinion on internal control over financial reporting***

We have audited the internal control over financial reporting of Atrion Corporation (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 2022, based on criteria established in the 2013 *Internal Control—Integrated Framework* issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 *Internal Control—Integrated Framework* issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our report dated February 27, 2023 expressed an unqualified opinion on those financial statements.

***Basis for opinion***

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

***Definition and limitations of internal control over financial reporting***

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP

Dallas, Texas

February 27, 2023

---

| |
|:---|
| 57 |
| *[**Table of Contents**](#toc)* |

---

**ITEM 9B. OTHER INFORMATION.**

There was no information required to be disclosed in a report on Form 8-K during the three months ended December 31, 2022 that was not reported.

**PART III**

**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.**

Certain information required by Part III is omitted from this Form 10-K and is incorporated herein by reference to our definitive proxy statement for our 2023 annual meeting of stockholders which we intend to file pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, within 120 days after December 31, 2022.

**Directors** 

The information for this item relating to our directors is incorporated by reference from our definitive proxy statement to be filed in connection with our 2023 annual meeting of stockholders.

**Executive Officers**

The information required by this item relating to executive officers is set forth in Part I of this report.

The information required by Item 405 of Regulation S-K is incorporated by reference from our definitive proxy statement to be filed in connection with our 2023 annual meeting of stockholders.

We have adopted a Code of Business Conduct that applies to all of our directors, officers, and employees. The Code of Business Conduct will be provided to any person, without charge, upon request addressed to: Corporate Secretary, Atrion Corporation, One Allentown Parkway, Allen, Texas 75002.

**ITEM 11. EXECUTIVE COMPENSATION.**

The information required by this item is incorporated by reference from our definitive proxy statement to be filed in connection with our 2023 annual meeting of stockholders.

---

| |
|:---|
| 58 |
| *[**Table of Contents**](#toc)* |

---

**ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**

The information in the section entitled "Securities Ownership" in our definitive proxy statement to be filed in connection with our 2023 annual meeting of stockholders is incorporated herein by reference.

**Equity Compensation Plans**

Equity incentive compensation plans under which shares of the Company's common stock may be issued:

---

| | | | |
|:---|:---|:---|:---|
| **&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Plan Category** | **Number of securities to be issued upon exercise of outstanding options, warrants and rights** <br>**(a)** | **Weighted-average exercise price of outstanding options, warrants and rights**<br>**(b)** | **Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))** <br>**(c)** |
| Equity compensation plans  |  |  |  |
| approved by security holders<sup>(1)</sup> | 2730 |  | 96547 |
| Equity compensation plans not |  |  |  |
| approved by security holders |  |  |  |
| Total | 2730 |  | 96547 |

---

(1) Consists of shares of our common stock authorized for issuance under our 2006 Equity Plan and our 2021 Equity Plan. The number of shares available for issuance under those plans is subject to equitable adjustment in the event of any change in our capitalization. No additional awards will be made under the 2006 Equity Plan.

(2) Stock units awarded under our 2006 Equity Plan and 2021 Equity Plan are excluded from the calculation of the weighted average exercise price.

**ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.**

The information required by this item is incorporated by reference from our definitive proxy statement to be filed in connection with our 2023 annual meeting of stockholders.

**ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**

The information required by this item is incorporated by reference from our definitive proxy statement to be filed in connection with our 2023 annual meeting of stockholders.

---

| |
|:---|
| 59 |
| *[**Table of Contents**](#toc)* |

---

**PART IV**

**ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.** 

(a) The following documents are filed as a part of this report on Form 10-K:

(1) Financial Statements of the Company:

---

| |
|:---|
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 248) |
| Consolidated Statements of Income |
| Consolidated Balance Sheets |
| Consolidated Statements of Cash Flows |
| Consolidated Statement of Changes in Stockholders' Equity |

---

---

| | |
|:---|:---|
| (2) | Financial Statement Schedules: |
| <br>Schedule II – Consolidated Valuation and Qualifying Accounts | <br>Schedule II – Consolidated Valuation and Qualifying Accounts |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31, (Thousands) | December 31, (Thousands) | December 31, (Thousands) | December 31, (Thousands) |
|  | Balance at Beginning of Period | Additions Charged to Expense | Deductions from Reserve | Ending Balance |
| Allowance for Doubtful Receivables |  |  |  |  |
| 2022 | $**69** | $**45** | $**(43)** | $**71** |
| 2021 | $41 | $32 | $(4) | $69 |
| 2020 | $36 | $22 | $(17) | $41 |
| Deferred Income Tax Valuation Allowance |  |  |  |  |
| 2022 | $**36** | $**-** | $**(36)** | $**-** |
| 2021 | $580 | $- | $(544) | $36 |
| 2020 | $593 | $- | $(13) | $580 |

---

All other financial statement schedules have been omitted since the required information is included in the consolidated financial statements or the notes thereto or is not applicable or required.

---

| |
|:---|
| 60 |
| *[**Table of Contents**](#toc)* |

---

(3) Exhibits. 

Exhibit Index

---

| | |
|:---|:---|
| **<u>Exhibit</u>**<br>**<u>Numbers</u>** | **<u>Description</u>** |
| [3a](http://www.sec.gov/Archives/edgar/data/701288/0000950144-97-000184.txt) | [Certificate of Incorporation of Atrion Corporation, dated December 30, 1996 incorporated by reference to Appendix B to the Definitive Proxy Statement of Atrion Corporation filed January 10, 1997.](http://www.sec.gov/Archives/edgar/data/701288/0000950144-97-000184.txt) |
| [3b](http://www.sec.gov/Archives/edgar/data/701288/000114420418015548/tv488845_ex3-1.htm) | [Bylaws of Atrion Corporation (as last amended on March 13, 2018) incorporated by reference to Exhibit 3.1 Atrion Corporation Form 8-K of filed March 19, 2018.](http://www.sec.gov/Archives/edgar/data/701288/000114420418015548/tv488845_ex3-1.htm) |
| [4a](atri_ex4a.htm) | [Description of Atrion Corporation's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. <sup>+</sup>](atri_ex4a.htm) |
| [10a\*](http://www.sec.gov/Archives/edgar/data/701288/000165495418004943/atri_ex101.htm) | [Atrion Corporation Short-Term Incentive Compensation Plan (as last amended on March 12, 2018) incorporated by reference to Exhibit 10.1 to Atrion Corporation Form 10-Q filed May 9, 2018.](http://www.sec.gov/Archives/edgar/data/701288/000165495418004943/atri_ex101.htm) |
| [10b\*](http://www.sec.gov/Archives/edgar/data/701288/000110465900000223/0001104659-00-000223.txt) | [Severance Plan for Chief Financial Officer incorporated by reference to Exhibit 10b to Atrion Corporation Form 10-Q filed May 12, 2000.](http://www.sec.gov/Archives/edgar/data/701288/000110465900000223/0001104659-00-000223.txt) |
| [10c\*](http://www.sec.gov/Archives/edgar/data/701288/000115752306010928/a5265753ex101.txt) | [Amended and Restated Employment Agreement for Chairman incorporated by reference to Exhibit 10.1 to Atrion Corporation Form 10-Q filed November 6, 2006.](http://www.sec.gov/Archives/edgar/data/701288/000115752306010928/a5265753ex101.txt) |
| [10d\*](http://www.sec.gov/Archives/edgar/data/701288/000100579411000093/employmentagreement.htm) | [First Amendment to Amended and Restated Employment Agreement for Chairman incorporated by reference to Exhibit 10.1 to Atrion Corporation Form 8-K filed May 27, 2011.](http://www.sec.gov/Archives/edgar/data/701288/000100579411000093/employmentagreement.htm) |
| [10e\*](http://www.sec.gov/Archives/edgar/data/701288/000157104916015523/t1600366_ex10-1.htm) | [Second Amendment to Amended and Restated Employment Agreement for Chairman incorporated by reference to Exhibit 10.1 to Atrion Corporation Form 8-K filed May 25, 2016.](http://www.sec.gov/Archives/edgar/data/701288/000157104916015523/t1600366_ex10-1.htm) |
| [10f\*](http://www.sec.gov/Archives/edgar/data/701288/000114420418015548/tv488845_ex10-1.htm) | [Third Amendment to Amended and Restated Employment Agreement for Chairman incorporated by reference to Exhibit 10.1 to Atrion Corporation Form 8-K filed March 19, 2018.](http://www.sec.gov/Archives/edgar/data/701288/000114420418015548/tv488845_ex10-1.htm) |
| [10g\*](http://www.sec.gov/Archives/edgar/data/701288/000165495417010221/atri_ex102.htm) | [Amended and Restated Atrion Corporation 2006 Equity Incentive Plan (as last amended on August 14, 2017) incorporated by reference to Exhibit 10.2 to Atrion Corporation Form 10-Q filed November 8, 2017.](http://www.sec.gov/Archives/edgar/data/701288/000165495417010221/atri_ex102.htm) |
| [10h\*](http://www.sec.gov/Archives/edgar/data/701288/000115752311004739/a6814785ex10_2.htm) | [Form of Award Agreement for Incentive Stock Option Award under Amended and Restated Atrion Corporation 2006 Equity Incentive Plan incorporated by reference to Exhibit 10.2 to Atrion Corporation Form 10-Q filed August 4, 2011.](http://www.sec.gov/Archives/edgar/data/701288/000115752311004739/a6814785ex10_2.htm) |
| [10i\*](http://www.sec.gov/Archives/edgar/data/701288/000115752311004739/a6814785ex10_3.htm) | [Form of Award Agreement for Non-Qualified Stock Option Award under Amended and Restated Atrion Corporation 2006 Equity Incentive Plan incorporated by reference to Exhibit 10.3 to Atrion Corporation Form 10-Q filed August 4, 2011.](http://www.sec.gov/Archives/edgar/data/701288/000115752311004739/a6814785ex10_3.htm) |
| [10j\*](http://www.sec.gov/Archives/edgar/data/701288/000115752311004739/a6814785ex10_4.htm) | [Form of Award Agreement for Common Stock Award under Amended and Restated Atrion Corporation 2006 Equity Incentive Plan incorporated by reference to Exhibit 10.4 to Atrion Corporation Form 10-Q filed August 4, 2011.](http://www.sec.gov/Archives/edgar/data/701288/000115752311004739/a6814785ex10_4.htm) |
| [10k\*](http://www.sec.gov/Archives/edgar/data/701288/000115752311004739/a6814785ex10_5.htm) | [Form of Award Agreement for Restricted Stock Award under Amended and Restated Atrion Corporation 2006 Equity Incentive Plan incorporated by reference to Exhibit 10.5 to Atrion Corporation Form 10-Q filed August 4, 2011.](http://www.sec.gov/Archives/edgar/data/701288/000115752311004739/a6814785ex10_5.htm) |
| [10l\*](http://www.sec.gov/Archives/edgar/data/701288/000115752311004739/a6814785ex10_6.htm) | [Form of Award Agreement for Restricted Stock Units Award under Amended and Restated Atrion Corporation 2006 Equity Incentive Plan incorporated by reference to Exhibit 10.6 to Atrion Corporation Form 10-Q filed August 4, 2011.](http://www.sec.gov/Archives/edgar/data/701288/000115752311004739/a6814785ex10_6.htm) |
| [10m\*](http://www.sec.gov/Archives/edgar/data/701288/000110465921047283/tm212580d2_def14a.htm) | [Atrion Corporation 2021 Equity Incentive Plan effective May 21, 2021 incorporated by reference to Appendix A Definitive Proxy Statement of Atrion Corporation filed on April 7, 2021.](http://www.sec.gov/Archives/edgar/data/701288/000110465921047283/tm212580d2_def14a.htm) |
| [10n\*](http://www.sec.gov/Archives/edgar/data/701288/000165495421008638/atri_102.htm) | [Form of Common Stock Award Agreement under Atrion Corporation 2021 Equity Incentive plan incorporated by reference to Exhibit 10.2 to Atrion Corporation Form 10-Q filed August 9, 2021.](http://www.sec.gov/Archives/edgar/data/701288/000165495421008638/atri_102.htm) |
| [10o\*](http://www.sec.gov/ix?doc=/Archives/edgar/data/701288/000165495422002094/atri_10k.htm) | [Form of Restricted Stock Unit Award Agreement under Atrion Corporation 2021 Equity Incentive Plan incorporated by reference to Exhibit 10.1 to Atrion Corporation Form 10-Q filed November 8, 2021.](http://www.sec.gov/ix?doc=/Archives/edgar/data/701288/000165495422002094/atri_10k.htm) |
| [10p\*](http://www.sec.gov/Archives/edgar/data/701288/000165495421002137/atri_ex10m.htm) | [First Amended and Restated Restricted Stock Unit Award Agreement between the Company and Emile A Battat dated as of December 29, 2020 incorporated by reference to Exhibit 10m to Atrion Corporation Form 10-K filed March 1, 2021.](http://www.sec.gov/Archives/edgar/data/701288/000165495421002137/atri_ex10m.htm) |
| [10q\*](http://www.sec.gov/Archives/edgar/data/701288/000165495421002137/atri_ex10n.htm) | [First Amended and Restated Restricted Stock Unit Award Agreement between the Company and David A. Battat dated as of December 29, 2020 incorporated by reference to Exhibit 10n to Atrion Corporation Form 10-K filed March 1, 2021.](http://www.sec.gov/Archives/edgar/data/701288/000165495421002137/atri_ex10n.htm) |
| [10r\*](http://www.sec.gov/Archives/edgar/data/701288/000165495421002137/atri_ex10n.htm) | [First Amended and Restated Restricted Stock Unit Award Agreement between the Company and Jeffery Strickland dated as of December 29, 2020 incorporated by reference to Exhibit 10o to Atrion Corporation Form 10-K filed March 1, 2021.](http://www.sec.gov/Archives/edgar/data/701288/000165495421002137/atri_ex10n.htm) |

---

---

| |
|:---|
| 61 |
| *[**Table of Contents**](#toc)* |

---

---

| | |
|:---|:---|
| [10s\*](http://www.sec.gov/Archives/edgar/data/701288/000165495421002137/atri_ex10n.htm) | [Non-Employee Directors Stock Purchase Plan (as amended and restated as of December 2, 2008) incorporated by reference to Exhibit 10l to Atrion Corporation Form 10-K filed March 13, 2009.](http://www.sec.gov/Archives/edgar/data/701288/000165495421002137/atri_ex10n.htm) |
| [10t\*](http://www.sec.gov/Archives/edgar/data/701288/000100579407000348/atrionforms8062707.htm) | [Form of Stock Purchase Election Form – Non-Employee Directors Stock Purchase Plan incorporated by reference to Exhibit 10.1 to Atrion Corporation Form S-8 filed June 27. 2007.](http://www.sec.gov/Archives/edgar/data/701288/000100579407000348/atrionforms8062707.htm) |
| [10u\*](http://www.sec.gov/Archives/edgar/data/701288/000110262409000112/exh10n.htm) | [Deferred Compensation Plan for Non-Employee Directors (as amended and restated as of December 2, 2008) incorporated by reference to Exhibit 10n to Atrion Corporation Form 10-K filed March 13, 2009.](http://www.sec.gov/Archives/edgar/data/701288/000110262409000112/exh10n.htm) |
| [10v\*](http://www.sec.gov/Archives/edgar/data/701288/000100579407000349/atrionforms8062707b.htm) | [Form of Deferred Fee Election Form – Deferred Compensation Plan for Non-Employee Directors incorporated by reference to Exhibit 10.1 to Atrion Corporation Form S-8 filed June 27. 2007](http://www.sec.gov/Archives/edgar/data/701288/000100579407000349/atrionforms8062707b.htm) |
| [10w\*](http://www.sec.gov/Archives/edgar/data/701288/000135448814005348/atri_ex101.htm) | [Amended and Restated Change in Control Agreement for President and Chief Executive Officer incorporated by reference to Exhibit 10.1 to Atrion Corporation Form 10-Q filed October 31, 2014.](http://www.sec.gov/Archives/edgar/data/701288/000135448814005348/atri_ex101.htm) |
| [10x\*](http://www.sec.gov/Archives/edgar/data/701288/000115752312001352/a50191194ex10_v.htm) | [Form of Indemnification Agreement for Directors and Executive Officers incorporated by reference to Exhibit 10v to Atrion Corporation Form 10-K filed March 12, 2012.](http://www.sec.gov/Archives/edgar/data/701288/000115752312001352/a50191194ex10_v.htm) |
| [10y](http://www.sec.gov/Archives/edgar/data/701288/000114420417012740/v461069_ex10-1.htm) | [Credit Agreement dated as of February 28, 2017 by and between Atrion Corporation, as Borrower, and Wells Fargo Bank, National Association, as Lender incorporated by reference to Exhibit 10.1 to Atrion Corporation Form 8-K filed March 3, 2017.](http://www.sec.gov/Archives/edgar/data/701288/000114420417012740/v461069_ex10-1.htm) |
| [10z](http://www.sec.gov/Archives/edgar/data/701288/000114420417012740/v461069_ex10-2.htm) | [Guaranty Agreement dated as of February 28, 2017 made by certain Subsidiaries of Atrion Corporation in favor of Wells Fargo Bank, National Association, as Lender incorporated by reference to Exhibit 10.2 to Atrion Corporation Form 8-K filed March 3, 2017.](http://www.sec.gov/Archives/edgar/data/701288/000114420417012740/v461069_ex10-2.htm) |
| [10aa](http://www.sec.gov/Archives/edgar/data/701288/000114420417012740/v461069_ex10-3.htm) | [Collateral Agreement dated as of February 28, 2017 among Atrion Corporation, certain Subsidiaries of Atrion Corporation and Wells Fargo Bank, National Association, as lender incorporated by reference to Exhibit 10.3 to Atrion Corporation Form 8-K filed March 3, 2017.](http://www.sec.gov/Archives/edgar/data/701288/000114420417012740/v461069_ex10-3.htm) |
| [10bb\*](http://www.sec.gov/ix?doc=/Archives/edgar/data/701288/000165495422002094/atri_10k.htm) | [First Amendment to Credit Agreement by and between Atrion Corporation, as Borrower, and Wells Fargo Bank, National Association, as Lender, dated February 12, 2021 incorporated by reference to Exhibit 10y to Atrion Corporation Form 10-K filed March 1, 2021.](http://www.sec.gov/ix?doc=/Archives/edgar/data/701288/000165495422002094/atri_10k.htm) |
| [10cc](http://www.sec.gov/Archives/edgar/data/701288/000165495417010221/atri_ex101.htm) | [Nonqualified Deferred Compensation Plan incorporated by reference to Exhibit 10.1 to Atrion Corporation Form 10-Q filed November 8, 2017.](http://www.sec.gov/Archives/edgar/data/701288/000165495417010221/atri_ex101.htm) |
| [10dd](http://www.sec.gov/ix?doc=/Archives/edgar/data/701288/000165495423001433/atri_10q.htm) | [Retirement Agreement between Atrion Corporation and Jeffery Strickland dated July 29, 2022 incorporated by reference to Exhibit 10.1 to Atrion Corporation Form 10-Q/A filed February 7, 2023](http://www.sec.gov/ix?doc=/Archives/edgar/data/701288/000165495423001433/atri_10q.htm) |
| [21](atri_ex21.htm) | [Subsidiaries of Atrion Corporation as of December 31, 2022. +](atri_ex21.htm) |
| [23](atri_ex23.htm) | [Consent of Grant Thornton LLP .+](atri_ex23.htm) |
| [31.1](atri_ex311.htm) | [Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer. +](atri_ex311.htm) |
| [31.2](atri_ex312.htm) | [Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer. +](atri_ex312.htm) |
| [32.1](atri_ex321.htm) | [Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes – Oxley Act Of 2002. +](atri_ex321.htm) |
| [32.2](atri_ex322.htm) | [Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes – Oxley Act Of 2002. +](atri_ex322.htm) |
| 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 |

---

**<u>Notes</u>**

+ Filed herewith.

\* Management Contract or Compensatory Plan or Arrangement

\*\* XBRL (Extensible Business Reporting Language) information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934. In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 of this Form 10-K shall not be subject to the liability of Section 18 of the Securities Exchange Act of 1934 and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing.

**ITEM 16. FORM 10-K SUMMARY.**

None.

---

| |
|:---|
| 62 |
| *[**Table of Contents**](#toc)* |

---

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) 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 | Atrion Corporation |
| By: | /s/ David A. Battat |
|  | David A. Battat President and Chief<br>Executive Officer |

---

Dated: February 27, 2023

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| <u>Signature</u> | <u>Title</u> | <u>Date</u> |
| /s/ David A. Battat | President and Chief Executive  | February 27, 2023 |
| David A. Battat | Officer (Principal Executive Officer) |  |
| /s/ Jeffery Strickland | Vice President, Chief Financial Officer and | February 27, 2023 |
| Jeffery Strickland | Secretary-Treasurer (Principal Financial  |  |
|  | and Accounting Officer) |  |
| /s/ Emile A Battat | Chairman | February 27, 2023 |
| Emile A Battat |  |  |
| /s/ Hugh J. Morgan, Jr. | Director | February 27, 2023 |
| Hugh J. Morgan, Jr. |  |  |
| /s/ John P. Stupp, Jr. | Director | February 27, 2023 |
| John P. Stupp, Jr. |  |  |
| /s/ Ronald N. Spaulding | Director | February 27, 2023 |
| Ronald N. Spaulding |  |  |
| /s/ Preston G. Athey | Director | February 27, 2023 |
| Preston G. Athey |  |  |

---

## Ex-4.A

**EXHIBIT 4A**

**DESCRIPTION OF ATRION CORPORATION'S SECURITIES** 

**REGISTERED PURSUANT TO SECTION 12 OF THE** 

**SECURITIES EXCHANGE ACT OF 1934**

As of December 31, 2022, Atrion Corporation. ("Atrion," the "Company," "we," "us," or "our") had one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"): our common stock, $0.10 par value per share ("Common Stock").

**Description of Common Stock**

The following description of our Common Stock is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to our Certificate of Incorporation (the "Certificate of Incorporation") and our Amended and Restated Bylaws (the "Bylaws"), each of which is incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.2 is a part. We encourage you to read our Certificate of Incorporation, our Bylaws, and the applicable provisions of the Delaware General Corporation Law for additional information.

**Authorized Capital Stock**

Our authorized capital stock consists of 10,000,000 shares of Common Stock. The outstanding shares of our Common Stock are fully paid and nonassessable.

**Voting Rights**

The holders of Common Stock are entitled to one vote per share on all matters on which the holders of Common Stock are entitled to vote. Stockholders do not have cumulative voting rights. In addition, the affirmative vote of holders of 67% of the voting power of all of the then outstanding voting stock is required to take certain actions, including amending certain provisions of our Certificate of Incorporation and Bylaws, such as the provisions relating to stockholder action, number of directors, limitation of liability, and the amendments of certain provisions of our Certificate of Incorporation and our Bylaws.

**Dividend Rights**

The holders of outstanding shares of Common Stock are entitled to receive ratably any dividends out of assets legally available therefor as our Board of Directors may from time to time determine.

**Liquidation Rights**

In the event of a liquidation, dissolution, or winding-up of the Company, holders of Common Stock are entitled to share equally and ratably in the assets of the Company, if any.

**Rights and Preferences**

Holders of our Common Stock have no preemptive, conversion, subscription, or other rights, and there are no redemption or sinking fund provisions applicable to our Common Stock.

**Listing**

Our Common Stock is listed and traded on the Nasdaq Global Select Market under the symbol "ATRI."

**Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Amended and Restated Bylaws**

Some provisions of Delaware law, our Certificate of Incorporation, and our Bylaws contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy contest or otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.

These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our Board of Directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

***Delaware Anti-Takeover Statute***

We are subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 provides that a Delaware corporation with a class of voting stock listed on a national securities exchange or held of record by more than 2,000 stockholders may not engage in various business combination transactions with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder unless:

· the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder prior to the time that stockholder became an interested stockholder;

· upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding, for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, shares owned (i) by persons who are directors and also officers and (ii) by certain employee stock plans); or

· at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66<sup>2</sup>⁄<sub>3</sub>% of the outstanding voting stock which is not owned by the interested stockholder.

In general, a "business combination" is broadly defined to include (i) any merger or consolidation of the corporation or any of its direct or indirect majority-owned subsidiaries with the interested stockholder; (ii) any sale, lease or other disposition (except proportionally as a stockholder of the corporation) to or with the interested stockholder of assets of the corporation or of any direct or indirect majority-owned subsidiary of the corporation, which assets have a market value equal to 10% or more of either the aggregate market of all of the assets of the corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the corporation; (iii) subject to certain exceptions, any transaction which results in the issuance or transfer by the corporation or by any of its direct or indirect majority-owned subsidiaries of any stock of the corporation or of such subsidiary to the interested stockholder; (iv) subject to certain exceptions, any transaction involving the corporation or any of its direct or indirect majority-owned subsidiaries which has the effect of increasing the proportionate share of the stock of any class or series of the corporation or of any such subsidiary which is owned by the interested stockholder; and (v) subject to certain exceptions, any receipt by the interested stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of such corporation), of any loans, advances or other financial benefits provided by or through the corporation or any direct or indirect majority-owned subsidiary. In general, an "interested stockholder" is any person (other than the corporation and any direct or indirect majority-owned subsidiary of the corporation) that (i) is the owner of 15% or more of the outstanding voting stock of the corporation or (ii) is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the 3-year period immediately prior to the date of determination, and the affiliates and associates of such person.

The Delaware General Corporation Law permits a corporation to "opt out" of, or choose not to be governed by, the restrictions in Section 203 by expressly stating so in its original certificate of incorporation (or in a subsequent amendment to its certificate of incorporation or bylaws approved by its stockholders). However, neither our Certificate of Incorporation nor our Bylaws contains a provision electing to opt out of Section 203.

***Special Stockholder Meetings***

Our Certificate of Incorporation provides that a special meeting of stockholders may be called only by a majority of our Board of Directors.

***Requirements for Advance Notification of Stockholder Nominations and Proposals***

Our Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the Board of Directors. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to a meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive office not less than 120 days nor more than 150 days prior to the first anniversary date of the annual meeting the preceding year. As a result, our Bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of the Company.

***No Cumulative Voting***

The Delaware General Corporation Law provides that stockholders are entitled to the right to cumulate votes in the election of directors if authorized in a corporation's certificate of incorporation. Our Certificate of Incorporation does not authorize cumulative voting.

***Classified Board of Directors***

Our Board of Directors is divided into three classes. The directors in each class serve for a three-year term, one class being elected each year by the stockholders. The stockholders may only remove directors for cause and with the vote of a majority of the total voting power of the issued and outstanding Common Stock entitled to vote in the election of directors. This system of electing and removing directors may discourage a third party from making a tender offer or otherwise attempting to obtain control of the Company, because it generally makes it more difficult for stockholders to replace a majority of the Company's directors.

***Board Composition***

Our Certificate of Incorporation also provides that the authorized number of directors may be changed only by resolution of the Board of Directors. Furthermore, any vacancy on our Board of directors, however occurring, including a vacancy resulting from an increase in the size of our Board, may only be filled by the affirmative vote of a majority of our directors then in office, even if less than a quorum, unless our Board of Directors determines by resolution that such vacancy or newly created directorship shall be filled by the stockholders. The limitations on the number of directors and treatment of vacancies have the effect of making it more difficult for stockholders to change the composition of our Board of Directors.

***No Stockholder Action by Written Consent***

Our Certificate of Incorporation provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting and that stockholders may not take any action by written consent in lieu of a meeting. This provision may lengthen the amount of time required to take stockholder actions and would prevent the amendment of our Bylaws or removal of directors by our stockholders without holding a meeting of stockholders.

**Transfer Agent**

The transfer agent and registrar for our Common Stock is Broadridge Corporate Issuer Solutions, Inc.

## Ex-21

**EXHIBIT 21**

**Subsidiaries of Atrion Corporation**

As of December 31, 2022

---

| | | |
|:---|:---|:---|
| Subsidiary | State of<br> Incorporation | Ownership |
| Atrion Medical Products, Inc. | Delaware | 100% |
| Halkey-Roberts Corporation | Delaware | 100% |
| Quest Medical, Inc. | Texas | 100% |
| AlaTenn Pipeline Company LLC | Alabama | 100% |
| Atrion Leasing Company LLC | Alabama | 100% |

---

## Ex-23

**EXHIBIT 23**

**Consent of Independent Registered Public Accounting Firm**

We have issued our reports dated February 27, 2023, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of Atrion Corporation on Form 10-K for the year ended December 31, 2022. We consent to the incorporation by reference of said reports in the Registration Statements of Atrion Corporation on Forms S-8 (File No. 333-142917, effective May 14, 2007, File No. 333-144085, effective June 27, 2007, File No. 333-144086 effective June 27, 2007, File No. 333-172767, effective March 11, 2011 and File No 333-256352 effective May 21, 2021).

/s/ GRANT THORNTON LLP

Dallas, Texas

February 27, 2023

## Exhibit 31.1

**EXHIBIT 31.1**

**Chief Executive Officer Certification**

I, David A. Battat, certify that:

1. I have reviewed this annual report 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 annual 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 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: February 27, 2023

---

| |
|:---|
| /s/ David A. Battat |
| David A. Battat<br> President and<br> Chief Executive Officer |

---

## Exhibit 31.2

**EXHIBIT 31.2**

**Chief Financial Officer Certification**

I, Jeffery Strickland, certify that:

1. I have reviewed this annual report 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 annual 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 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: February 27, 2023

---

| |
|:---|
| /s/ Jeffery Strickland |
| Jeffery Strickland<br> Vice President and<br> Chief Financial Officer |

---

## Exhibit 32.1

**EXHIBIT 32.1**

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

Pursuant to 18 U.S.C. section 1350, the undersigned officer of Atrion Corporation (the "Company"), hereby certifies, to such officer's knowledge, that the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (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: February 27, 2023

---

| |
|:---|
| /s/ David A. Battat |
| David A. Battat<br> President and<br> Chief Executive Officer |

---

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

## Exhibit 32.2

**EXHIBIT 32.2**

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

Pursuant to 18 U.S.C. section 1350, the undersigned officer of Atrion Corporation (the "Company"), hereby certifies, to such officer's knowledge, that the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (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: February 27, 2023

---

| |
|:---|
| /s/ Jeffery Strickland |
| Jeffery Strickland<br> Vice President and<br> Chief Financial Officer |

---

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