UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549




FORM
10-K





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


For the
fiscal year endedDecember 31,
2008




Commission
File Number:000-11178




UTAH
MEDICAL PRODUCTS, INC.


(Exact
name of registrant as specified in its charter)




Utah
                87-0342734(State
      or other jurisdiction of
                (I.R.S.
      Employerincorporation
      or organization)
                Identification
      No.)7043
      S 300 W, Midvale Utah
                84047(Address
      of principal executive offices)
                (Zip
      Code)Registrant’s
      telephone number, including area code:
                Telephone
      (801) 566-1200Facsimile
      (801) 566-7305Securities
      registered pursuant to Section 12(b) of the Act:Title
      of each class
                Name
      of each exchange on which registeredCommon
      Stock, $.01 Par Value
                The
      NASDAQ Global MarketPreferred
      Stock Purchase Rights





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


(Title of
Class)


None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.




Yes o   No x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.


Yes o   No x




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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 x   No o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  x




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


Large
      accelerated filer o
              Accelerated
      filer x
              Non-accelerated
      filer o
              Smaller
      reporting company o


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




State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.  As of June
30, 2008, the aggregate market value of the voting and nonvoting common equity
held by nonaffiliates of the registrant was$99,134,000.




Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.  As of March 5, 2009, common shares
outstanding were 3,607,000.




DOCUMENTS
INCORPORATED BY REFERENCE.  The Company’s definitive proxy
statement for the Annual Meeting of Shareholders is incorporated by reference
into Part III, Item 10, 11, 12, and 13, and 14 of this Form
10-K.











INDEX TO FORM
10-K








PAGEPART
      IItem
      1
                              Business
                              1Item
      1A
                              Risk
      Factors
                              11Item
      1B
                              Unresolved
      Staff Comments
                              12Item
      2
                              Properties
                              12Item
      3
                              Legal
      Proceedings
                              12Item
      4
                              Submission
      of Matters to a Vote of Security Holders
                              12PART
      IIItem
      5
                              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                              13Item
      6
                              Selected
      Financial Data
                              14Item
      7
                              Management’s
      Discussion and Analysis of Financial Condition and Results
      of  Operations
                              15Item
      7A
                              Quantitative
      and Qualitative Disclosures About Market Risk
                              24Item
      8
                              Financial
      Statements and Supplementary Data
                              25Item
      9
                              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                              43Item
      9A
                              Controls
      and Procedures
                              43Item
      9B
                              Other
      Information
                              43PART
      IIIItem
      10
                              Directors,
      Executive Officers and Corporate Governance
                              44Item
      11
                              Executive
      Compensation
                              44Item
      12
                              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                              44Item
      13
                              Certain
      Relationships and Related Transactions, and Director
      Independence
                              45Item
      14
                              Principal
      Accounting Fees and Services
                              45PART
      IVItem
      15
                              Exhibits,
      Financial Statement Schedules
                              46SIGNATURES
                              48

















PART I





ITEM
1 – BUSINESS





Dollar amounts throughout this report
and where noted, are in thousands except per-share amounts.





Utah Medical Products, Inc. (“UTMD” or
“the Company”) is in the business of producing high quality cost-effective
medical devices that are predominantly proprietary, disposable and for hospital
use.  Success depends on 1) recognizing needs of clinicians and
patients,  2) rapidly designing or acquiring economical solutions that
gain premarketing regulatory concurrence,  3) reliably producing
products that meet those clinical needs, and then  4) selling
through


a)
            UTMD's
      own direct channels into markets where the Company enjoys an established
      reputation and has a critical mass of sales and support resources,
      or


b)
            establishing
      relationships with other medical companies that have the resources to
      effectively introduce and support the Company's
  products.





UTMD's success in providing reliable
solutions comes from its proven ability to integrate a number of engineering and
technical disciplines in electronics, software, mechanical packaging,
instrumentation, plastics processing and materials.   The
resulting proprietary products represent significant incremental improvements in
patient safety, clinical outcomes and/or total cost over preexisting clinical
tools. UTMD's experience is that, in the case of labor-saving devices, the
improvement in cost-effectiveness of clinical procedures also leads to an
improvement in overall healthcare including lower risk of
complications.  UTMD markets a broad range of medical devices used in
critical care areas, especially the neonatal intensive care unit (NICU), the
labor and delivery (L&D) department and the women’s health center in
hospitals, as well as products sold to outpatient clinics and physician's
offices.





The opportunity to apply solutions to
recognized needs results from an excellent core of practicing clinicians who
introduce ideas to the Company, and key employees who are both clinical
applications savvy and development engineering adept.





UTMD’s products are sold directly to
end users in the U.S. domestic market by the Company’s own direct sales
representatives and independent manufacturers’ representatives.  In
addition, some of UTMD’s products are sold through specialty distributors,
national hospital distribution companies and other medical device
manufacturers.  Internationally, products are sold through other
medical device companies and through independent medical products
distributors.  UTMD has representation in all major developed
countries through 117 international distributors, each of which purchased at
least five thousand dollars in UTMD products during 2008.





UTMD was formed as a Utah corporation
in 1978.  UTMD sold stock to the public one time in 1982 for $1,750
(before offering costs of $321).  Since 1992, UTMD has returned
$111,622 in the form of share repurchases, and an additional $15,123 in the form
of cash dividends, to its public shareholders.





In 1995, Utah Medical Products Ltd., a
wholly-owned subsidiary with manufacturing located in Ireland, was formed to
better serve UTMD’s international customers. In 1997, UTMD purchased Columbia
Medical, Inc. (CMI), a Redmond, Oregon company specializing in silicone
injection molding, assembly and marketing vacuum-assisted obstetrical delivery
systems.  In 1998, UTMD acquired the neonatal product line of Gesco
International, a subsidiary of Bard Access Systems and C.R. Bard,
Inc.  In 2004, UTMD acquired Abcorp, Inc., its supplier of fetal
monitoring belts.  Sales of the products, or derivatives of the
products, from the three acquisitions noted above, comprised about 35% of UTMD’s
2008 sales.  The net book value of intangible assets (goodwill)
remaining on UTMD’s balance sheet at the end of 2008 resulting from the three
acquisitions, as a ratio of sales, was 26%.





UTMD's corporate offices are located
at 7043 South 300 West, Midvale, Utah 84047 USA.  The corporate office
telephone number is (801) 566-1200.  Ireland operations are located at
Athlone Business and Technology Park, Athlone, County Westmeath,
Ireland.  The Ireland telephone number is 353 (90)
647-3932.  CMI’s mailing address is 1830 S.E. 1st, Redmond,
Oregon  97756.  The Oregon telephone number is (541)
548-7738.





1





PRODUCTS





Labor and Delivery/
Obstetrics:


Fetal
Monitoring Accessories.


The majority of births are considered
"higher risk" due to lack of prenatal care, or use of anesthesia, among other
factors.  In many of these births, labor may become complicated and
does not progress normally.  The obstetrician or perinatologist must
assess progression of labor to be able to intervene with drug therapy, infuse a
solution to augment amniotic fluid, or ultimately if necessary, perform an
operative procedure, and then be prepared for complications immediately
following childbirth.





To assist the physician in controlling
the effectiveness of administration of oxytocin and monitoring effects of
amnioinfusion, contraction intensities, uterine resting tones and peak
contraction pressures are closely monitored through the use of an invasive
intrauterine pressure catheter system.  In addition, to help identify
the possible onset of fetal hypoxia, correlation of the changes in fetal heart
rate (FHR) relative to the frequency and duration of contractions are often
electronically monitored.  UTMD’s intrauterine pressure (IUP)
catheters provide for clinician choices from a traditional fluid-filled system
to INTRAN® PLUS, the most widely accepted transducer-tipped
system.  In addition, adjunct FHR electrodes, leg plates, toco belts
and chart paper are provided by UTMD to complete a package of fetal monitoring
supplies.  UTMD’s IUP catheters include:





·
            IUP-075
      and UTMD’s other custom fluid-filled clear catheter kits utilize a
      saline-filled catheter that is placed within the uterine cavity, connected
      to a separate external reusable or disposable transducer.  This
      product package, utilizing double lumen catheters, was the traditional
      mode of intrauterine monitoring prior to the introduction of
      INTRAN.  An intrauterine pressure change is transmitted through
      the fluid column to the external pressure
  transducer.





·
            Introduced
      in 1987, INTRAN was the first disposable intrauterine pressure catheter
      that placed the pressure transducer at the pressure source within the
      uterine cavity.  This design eliminated the complicated setup of
      fluid-filled systems and provided more accurate pressure
      waveforms.  INTRAN I was discontinued in 1995 in favor of the
      more widely preferred INTRAN PLUS, also covered by UTMD’s original INTRAN
      patent.





·
            INTRAN
      PLUS was introduced in 1991.  The INTRAN PLUS catheter combines
      the transducer tip concept of INTRAN I with a refined tip design, a
      zeroing switch that allows the clinician to reset the reference of the
      monitor, and a dedicated amnio lumen which provides access to the amniotic
      fluid environment which may be helpful in the diagnosis and intervention
      of certain fetal conditions.  In 1996, a viewport enhancement
      which allows physicians to observe amniotic fluid in a closed system was
      added to INTRAN PLUS.  In 1997, UTMD introduced several
      variations to allow user preferences in tip size, zero switch location and
      amniotic fluid visualization.





UTMD markets tocodynamometer belts,
disposable electrodes, catheters and accessories as outlined above, but does not
currently market electronic monitors, the capital equipment that process the
electrical signals.  In addition to products currently offered, UTMD
intends to continue to investigate and introduce tools that enhance fetal
monitoring techniques.





Vacuum-Assisted
Delivery Systems (VAD).


UTMD’s VAD Systems include CMI®
patented soft silicone bell-shaped birthing cups and patented hand-held vacuum
pumps which UTMD believes are the safest products available for use in
vacuum-assisted operative deliveries.  UTMD’s patented soft silicone
cup is a bell-shaped cup design that should be preferred for fetal well-being in
low or outlet fetal stations with occiput anterior presentations, which
represent more than 90% of the cases where VAD is
indicated.  Operative vaginal deliveries using forceps or
vacuum-assisted delivery systems provide knowledgeable physicians with a trial
vaginal operative delivery prior to a more invasive C-section
intervention.  Although there are risks associated with vaginal
operative deliveries which may currently represent 5-9% of all U.S. hospital
births, the procedures are generally regarded as safer for the mother, and at
least as safe for the fetus, as abdominal (Cesarean) delivery in comparable
clinical situations.  UTMD estimates that the VAD operative approach
is used for about 4-8% of all U.S. births, with forceps continuing to lose
ground as the alternative.  UTMD’s patented bell-shaped soft silicone
TENDER TOUCH® cups enjoy a low reported complication rate compared to other
vacuum cup designs, as evidenced by the FDA Medical Device Reporting System
which reports injuries from specific names of products used in
hospitals.





2




Other
Obstetrical Tools.


AROM-COTTM is a finger cover with a
patented prong design to rupture maternal membranes with less patient pain and
anxiety.  MUC-X is an aspiration device used immediately after birth
to clear neonatal respiratory passages and reduce exposure to potential
infections.  CORDGUARD® is a product which unifies the multiple steps
of clamping the neonate’s cord close to the umbilicus, severing the cord without
splattering blood, drawing a clean cord blood sample, and assisting in the
removal of the placenta.  CORDGUARD’s sharpless, closed system reduces
the risk of exposure to potentially infected blood, and consequently reduces the
high cost of exposure treatment under OSHA and CDC guidelines.  In
addition, CORDGUARD facilitates obtaining neonatal blood that is otherwise hard
to obtain safely and cleanly.  BT-CathTM, patent pending, is a uterine
balloon tamponade catheter for controlling severe postpartum
hemorrhage.  Its benefits include the ease of rapid deployment and
ability to monitor further bleeding after the tamponade has been
placed.  Abcorp toco belts and straps for fetal monitoring by an
external tocodynamometer are provided in latex-free form in several
configurations.





Neonatal Intensive
Care:


DISPOSA-HOODTM


The DISPOSA-HOOD is an infant
respiratory hood that is used in the NICU to administer oxygen to neonates and
flush CO2 (carbon dioxide) while maintaining a neutral thermal environment
critical to proper physiologic responses.  The DISPOSA-HOOD, placed
over the infant's head, incorporates a round diffusor connection specifically
designed to disperse the incoming gases along the inner surfaces of the hood,
rather than allowing them to blow directly on the infant's head.  The
design allows more precise FIO2 (fractional inspired oxygen) control, minimizes
convective heat loss from the head and provides optimum flows for elimination of
CO2 by ventilation. DISPOSA-HOOD, in contrast to an incubator, allows for
excellent access to and visualization of the underdeveloped
infant.  Because it is a disposable product, it also prevents
cross-contamination.





DELTRAN®
PLUS


UTMD’s DELTRAN blood pressure
monitoring system has been adapted specifically for use in the
NICU.  The streamlined version eliminates needles used for blood
sampling, avoids the loss of scarce neonatal blood volume and provides a closed
system that reduces the risk of infection.  The system features
excellent visualization of clearing volume, and one-handed use.





GESCO®


In the third quarter of 1998, UTMD
acquired the neonatal product line of Gesco International.  GESCO,
best known for innovative silicone catheters, gained an early distinctive
reputation for its focus on the special developmental needs of tiny,
critically-ill babies.





A class of catheters called umbilical
vessel catheters (UVCs) are specially designed for administering vital
medications and fluids immediately following birth through the infant’s
umbilical vessel into the inferior vena cava.  Because of the
neonate’s small size and lack of vascular development, there is no better access
to vital organs.  The catheters are also called umbilical artery
catheters (UACs) when placed in one of the umbilical arteries to measure blood
pressure or monitor metabolic processes through blood analysis.  In
developing its UMBILI-CATHTM product line, Gesco pioneered the use of soft,
biocompatible silicone catheters, helping to reduce the number of insertions
required as well as other complications associated with invasive
applications.  UTMD has expanded the UVC product line to include
catheters made from a proprietary thermosensitive polyurethane (Tecoflex®) that
offers many of the flexibility and biocompatibility advantages of silicone after
insertion, with the greater rigidity of polyurethane preferred by many
clinicians for insertion. In addition, GESCO provides a convenient
catheterization procedure tray of implements and supplies necessary to place UVC
catheters, as well as perform other similar procedures.





The primary distinction of GESCO
products is that they were developed with the special needs of the neonate in
mind, not just cut-down or smaller versions of adult devices.  For
example, in the case of invasive catheters, the introducer, the soft rounded
distal tip, mode of securing to the patient after insertion to avoid migration,
luer-locking hub with minimal dead space, number of lumens, catheter radiopaque
striping for visualization, variations in catheter lengths and diameters and
special packaging are all features specially designed for
neonates.  UTMD continues to modify product features to incorporate
current neonatal nurse practitioner preferences.





3





The soft, biocompatible silicone
catheter concept had important advantages in other applications including
peripherally inserted central venous catheters (PICC lines), enteral feeding
tubes, urinary drainage catheters, and chest drainage tubes.  GESCO
developed and marketed initial versions of all of these neonatal
products.  In order to keep pace with the trend of caring for smaller
babies, UTMD has added smaller diameter versions of its URI-CATH® and
NUTRI-CATH® products.  In 2000, UTMD gained FDA premarketing clearance
of a new PICC family of products specifically designed to minimize trauma to the
critically ill neonate, named PICC-NATE®.  The PICC-Nate product line
was designed with the input of experienced neonatal nurse practitioners for use
as a long-term indwelling catheter system for single-use, therapeutic central
venous infusion of drug solutions, blood products or other fluids and for blood
sampling.  The soft, strong silicone PICC-Nate comes in two diameter
sizes and two hub configurations.  In early 2003, UTMD added a
Tecoflex polyurethane version that offers many of the flexibility and
biocompatibility advantages of silicone after insertion, with the greater
rigidity of polyurethane preferred by many clinicians for
insertion.  In 2006, UTMD developed a unique enteral feeding-only
extension set that addresses important safety risks in the NICU – inadvertent
connections with IV lines and inadvertent disconnections of components of the
system spanning the dispensing container through the infusion
catheter.  Nutri-Lok®, patent pending,
was launched to the market in January 2007.  In October 2007, UTMD
added dispensing syringes with interlocking connectors to its Nutri-Cath/Lok
family of devices.  In 2008, UTMD further expanded the Nutri-Lok
system with specialty extension sets for GI tubes and for continuous feeding
connection to a fluid pump.





In 2006, UTMD completed the
replacement of all DEHP plasticizer PVC materials in its Gesco product line that
may come in contact with neonatal patients, addressing another evolving safety
concern related specifically to the possible maldevelopment of male
neonates.





Other GESCO specialty products include
a disposable peritoneal dialysis set that is a pre-assembled, sterile, closed
system, called DIALY-NATE®;  a patented silicone oral protection
device used to prevent palatal soft tissue injury by orotracheal tubes, called
PALA-NATE®; and a lumbar sampling kit with a tiny, specially-beveled needle for
obtaining cerebral spinal fluid samples, called MYELO-NATE®.





GESCO’s first patented product,
HEMO-NATE®, is a disposable filter designed to remove microaggregates from
stored blood prior to transfusion into a neonate where any deficiency can have
an overwhelmingly negative impact on a neonate’s chances for survival, given an
under-developed vasculature and small total blood volume.  In 2001,
UTMD introduced a new filter and an improved blood bag spike for Hemo-Nate, and
a needleless version.





In 2009, UTMD will continue to improve
and expand its neonatal product line, seeking to reinforce a reputation as
having the most developmentally-friendly NICU specialty products in the medical
device industry.  In addition to products already offered and being
developed internally, UTMD will look to continue to expand sales through
international distribution arrangements, and through selective complementary
product acquisitions.





Gynecology /Urology
/Electrosurgery:


LETZ®
System


The LETZ System (loop excision of the
transformation zone) is used to excise cervical intraepithelial neoplasia (CIN)
and other lower genital tract lesions related to human papilloma virus (HPV)
infections.  The electrosurgery procedure with hemostasis has become
the standard of care for HPV cervical infection treatment, replacing cold knife
scalpel, laser and cryotherapy procedural approaches because it is economical,
safe, effective, quick and easy to perform, has fewer potential side effects,
and requires little physician training.  A major incentive for
performing the LETZ procedure is that it may be performed using local anesthetic
in a physician's office, eliminating the time and expense of hospital or
surgical center admittance.  Most importantly clinically, in contrast
to laser (tissue ablation) and cryotherapy (freezing of tissue), LETZ provides a
fine tissue specimen for pathological assessment.





UTMD’s LETZ System includes patented
disposable electrodes, the patented FINESSE® electrosurgical generator, and
other miscellaneous components.  A disposable loop electrode used to
excise the tissue specimen is a pencil-like tube with a thin tungsten wire loop
attached.  The loop is available in varying sizes and includes a
patented Safe-T-Gauge® that can be positioned so the physician can accurately
colposcopically monitor the amount of tissue being excised.  UTMD
continues to augment its specialty electrodes.  For example, the
Company introduced a patented conization electrode for deep endocervical disease
called C-LETZ®, designed to limit the removal of healthy tissue margins that
might compromise adequate cervical function.  UTMD also will continue
to provide adapters and other components which allow its market-leading
specialty electrodes to be used with other manufacturers’ electrosurgical
generators.  The FINESSE electrosurgical generator is the only
generator on the market that contains an integral smoke evacuator, required to
filter smoke and vapors that contain potentially hazardous particulate material
produced during electrosurgery.





4





As a result of the 2007 American
Society for Colposcopy and Cervical Pathology (ASCCP) revised guidelines for the
treatment of CIN, which advised greater monitoring of lower grade lesions in
lieu of surgical treatment, UTMD has observed approximately a 10% decline in use
of LETZ electrodes from a consistent gynecology customer base.  The
effect of the new guidelines now seems to have stabilized.





FINESSE®
Generator; Specialty Loop, Ball, and Needle Electrodes; FILTRESSE® Evacuator;
Other Specialty Electrodes; Other Supplies and Gynecologic Tools.


UTMD has FDA clearance to market its
electrosurgical system and tools for use in general surgery applications,
including dermatology, plastic surgery and otolaryngology.  In 2002,
UTMD introduced a product line of ultra-fine tipped microdissection needles,
called OptiMicroTM Needles.  These electrosurgical needles are
particularly useful in small-scale plastic and reconstructive surgery
applications.  FILTRESSE is a stand-alone surgical smoke filtration
system that combines high filtration efficiency, low cost and convenient use in
a surgical office setting. Other electrosurgery tools and accessories include
disposable electrosurgical pens, dispersive pads, footswitches, filter packs,
speculums, retractors, forceps, tenacula and hooks.  UTMD acquired the
distribution rights to a unique reusable four-way expander system which
facilitates access to, and visualization of, the cervix, eliminating the need
for less effective specula and lateral retractors.  In 2007, UTMD
developed OptiSpec®, patent-pending,
an ultra-bright light for cervical visualization without physician distraction
during exams, pap smears and other vaginal procedures requiring direct cervical
visualization without the use of a colposcope.





EPITOME®


EPITOME is a patented electrosurgical
scalpel which delivers precise performance in incision and excision with
hemostasis while minimizing thermal side effects.  Where rapid yet
precise dissection of dense tissue is necessary, such as in mammaplasty or
abdominoplasty, UTMD believes that EPITOME has no close
substitute.  Furthermore, an independent study concludes that the
EPITOME scalpel provides a significant improvement over older devices in wound
healing and patient comfort.  EPITOME allows a rapid incision without
countertraction, yielding limited morbidity, less post-surgical pain and
cosmetically superior results.   EPITOME is useful where
minimization of thermal tissue injury is important but control of bleeding
needed.  A patented bendable version of EPITOME with a smaller active
electrode was introduced in 1998.  Designed to significantly reduce
the chance of tissue burns due to inadvertent electrode contact and where a
smaller, bent scalpel tip is needed, the bendable EPITOME is of particular
value, e.g., to thoracic surgeons in harvesting the internal mammary artery
during coronary artery bypass surgery, as well as to otolaryngologists for
tonsillectomies or uvulapalatalplasties.





LIBERTY®
System


LIBERTY is a device for the
conservative treatment and effective control of urinary incontinence in
women.  UTMD believes that LIBERTY is the easiest-to-use, most cost
effective incontinence treatment available that yields a therapeutic effect, not
just a cover-up. LIBERTY consists of a battery operated electrical stimulation
unit and an intravaginal electrode probe.  This physiotherapy
technique, which can be done in the privacy of the home, involves passive
strengthening of the periurethral muscles.  Pulsed, low voltage, high
frequency current is applied primarily to the pudendal neuromuscular tissue
causing the pelvic area muscles to contract, leading to better muscle
tone.  Because electrical stimulation has no known adverse side
effects, LIBERTY provides women suffering from mild to moderate incontinence an
effective, lower cost and lower risk alternative to more traumatic treatments
such as surgery and drug therapy.





PATHFINDER
PLUSTM


PATHFINDER PLUS is a proprietary
endoscopic irrigation device that allows a uro/gyn surgeon to precisely
irrigate, clearing the visual field, with the same hand that controls the
endoscope, eliminating the need for a separate assistant to irrigate without
visualization.  An example of a procedure where Pathfinder has found
success is ureteroscopic stone ablation.





5





ENDOCURETTETM


In cooperation with Mayo Clinic, UTMD
developed an advanced curette for uterine endometrial tissue sampling in the
doctor’s office.  The sampling procedure is intended primarily to rule
out precancer or cancerous change of the uterus in premenopausal women with
abnormal uterine bleeding, or women with postmenopausal bleeding.  The
device is part of a class of catheters designed to be used without dilitation of
the cervix and without general anesthetic.  The inherent weakness of
this type of device, which is related to its small size, is that it may not
remove enough tissue of the endometrium for an accurate histologic assessment,
in contrast to a more invasive D&C hospital procedure.  The
patented tip of the EndoCurette was designed to obtain a more thorough tissue
specimen without the need for dilitation, and without an increase in patient
discomfort.





TVUS/HSG-CathTM


In order to further assess persistent
abnormal or dysfunctional uterine bleeding and other suspected abnormalities of
the uterus, or as a next step after endometrial tissue sampling with an
EndoCurette, gynecologists are increasingly utilizing transvaginal ultrasound
imaging of the uterus.  UTMD’s TVUS/HSG-Cath was designed to provide
effective cervical occlusion that allows distention of the uterus to
differentiate anterior and posterior endometrium, among other irregularities,
together with minimal visual obstruction of the uterus near the internal
os.  In addition, the TVUS/HSG-Cath may be used in
hysterosalpingography radiographic procedures to assess the patency of fallopian
tubes.  A patent has been filed on the design of the TVUS/HSG-Cath,
which was released for marketing in October 2007.





LUMIN®


LUMIN® is a patented gynecological
tool developed by UTMD for reliably and safely manipulating the uterus in
laparoscopic procedures.  LUMIN combines the strength, range of motion
and versatility of the higher end reusable instruments with the lower cost and
cleanliness of the inexpensive less functional disposable instruments presently
on the market, while at the same time reducing the number of tools needed to
move and secure the uterus.





Blood
Pressure Monitoring:


DELTRAN®
Disposable Pressure Transducer (DPT)


In pressure monitoring, a transducer
is used to convert physiological (mechanical) pressure into an electrical signal
that is displayed on electronic monitoring equipment.  UTMD developed,
patented and is now distributing its disposable transducer as a stand-alone
product, and as a component in sterile blood pressure monitoring kits through
direct representatives and other medical companies in the U.S., as well as
independent distributors and other medical device companies
internationally.





The Company believes that the DELTRAN
DPT which it designed over twenty years ago (original patents have expired), and
currently manufactures, remains the standard in terms of accuracy, reliability
and ease of use.  UTMD has an automated assembly line which allows the
Company to effectively compete with larger suppliers on the basis of consistent
quality and low manufacturing costs.  Introduced in 1998, the DELTRAN
PLUS provides a closed system for blood sampling, without the use of needles,
reducing the risk of an unwanted infection for both the patient and the
practitioner.





Pressure
Monitoring Accessories, Components and Other Molded Parts.


Components included in blood pressure
monitoring kit configurations include flush devices, stopcocks, fluid
administration sets, caps, pressure tubing, interface cables and
organizers.  The Company sells similar components designed for other
medical device company applications which incorporate UTMD’s technologies and
designs.  DELTA-CALTM is a calibration device used to check proper
functioning of an arterial pressure system.  In addition, UTMD sells
plastic molded parts on a subcontract basis to a number of medical and
non-medical device companies.  In addition, partly as a result of its
excellent quality system and ISO13485 certification, UTMD performs subcontract
assembly, testing and packaging of components that are proprietary to other
medical device firms.  UTMD believes that this practice helps better
utilize its investment in fixed plant and equipment, and spreads overhead costs
resulting in better profit margins on finished device sales.





6





MARKETING





UTMD competes on the basis of its
value-added technologies and cost effective clinical solutions.  UTMD
believes that a number of its products are strong brands because they are
recognized as clinically different, and consistently reliable in achieving their
intended results.  The Company’s primary marketing challenge is to
keep its customers focused on those differences and their important clinical
benefits.  Access to the clinical decision-makers, together with the
active involvement of clinicians in medical device purchasing decisions, is
critical to the Company’s success.





UTMD’s specialty focus, innovation and
extensive experience in its specialties are important marketing attributes which
help ensure its ability to successfully compete and survive in a consolidating
marketplace where competitors try to degrade UTMD’s product
differences.





For U.S. hospitals, which now
represent about 56% of UTMD’s device sales, marketing efforts are complicated
and fragmented.  Although UTMD’s focus is with clinicians who take
responsibility for obtaining optimal patient care outcomes, other people who are
primarily administrative are often responsible for hospital purchasing
decisions.





DISTRIBUTION





An important success factor in the
current healthcare industry is access to customers.  Although the U.S.
hospital supplier environment has been consolidating as a result of group
purchasing organizations (GPOs), or their equivalent, establishing long term
contracts with large medical device suppliers with diverse product lines in
recent years, the financial relationships and true benefits for hospitals has
come under increased scrutiny, both by hospitals’ managements themselves and by
the government.  As a potential positive factor to UTMD’s future
performance, the increased scrutiny may lead to an understanding consistent with
UTMD’s belief that hospitals are not currently saving money under the GPO
contracts.  In addition, the longer term overall cost of care will
continue to increase, with quality of care lower, as innovative suppliers are
excluded from participating in the marketplace.





The length of time and number of
administrative steps required in evaluating new products for use in hospitals
has grown substantially in recent years.  As a potential negative
factor to future performance, as UTMD introduces new products it believes are
safer and more effective, it may find itself excluded from certain customers
because of the existence of long term supply agreements for existing
products.  UTMD may also be unable to establish viable relationships
with other medical device companies that do have access to users but lack an
interest in the Company’s approach or demand too great a financial or
administrative burden.





In the United States, UTMD sells its
products through its own directly employed sales force and through selective
independent manufacturer representatives.  The direct representatives
concentrate on applications for UTMD products where customer training and
support are important.  As of February 2009, the direct sales force is
comprised both of “outside” representatives operating remotely in specific
geographic areas, and “inside” representatives who operate primarily by
telephone from corporate offices.  Direct representatives are trained
to understand the medical procedures being performed within UTMD’s clinical
focus.  Through the use of its one-on-one contacts with physicians and
other clinical practitioners directly involved in patient care, the direct sales
force positions UTMD to gain market leadership with solutions to clinical
problems.  In addition to its direct representatives, UTMD utilizes
third party consulting clinical specialists to augment its customer training
programs.





When hospital customers request it,
UTMD provides its products through national distribution companies, also known
as Med/Surg distributors.  Sales to Med/Surg distributors currently
comprise about 10% of total domestic sales.  In contrast, twelve years
ago, national distributors and independent stocking distributors in the U.S.
represented more than 65% of UTMD’s direct domestic Ob/Gyn and Neonatal products
business.





In
addition to the above traditional sales approaches, UTMD encourages customers to
take advantage of fast and easy online ordering at https://storefront.utahmed.com.
UTMD introduced this advanced “portal” website in 2006. It provides a convenient
and secure method for placing orders, allows the customer to easily monitor the
status of orders and shipments, and gives quick access to account
information.





7





Additionally, UTMD sells component
parts to other companies for use with their product lines.  This OEM
distribution channel effort is simply maximizing utilization of manufacturing
capabilities that are otherwise needed for UTMD's primary business, and does not
compete with or dilute UTMD’s direct distribution and marketing
programs.





Internationally, the Company sells its
products through over 300 regional distributors and OEMs (other medical device
manufacturers).  The international business is driven by the
initiative and resourcefulness of those independent
distributors.  UTMD’s Internet website www.utahmed.com
is a frequent conduit for international customer inquiries.





NEW PRODUCT
DEVELOPMENT





New product development has been a key
ingredient to UTMD’s market identity.  Product development takes three
interrelated forms: 1) improvements, enhancements and extensions of current
product lines in response to clinical needs or clinician requests, 2)
introduction of new or augmented devices that represent a significant
improvement in safety, effectiveness and/or cost of care, and 3) acquisitions of
products or technology from others.  Manufacturing process development
is an equally important aspect that cannot be separated from the
successful  design and development of new products.





Because of UTMD’s reputation as a
focused product developer, its financial strength and its established clinician
user base, it enjoys a substantial inflow of new product development
ideas.  Internal development, joint development, product acquisitions
and licensing arrangements are all included as viable options in the
investigation of opportunities.  Only a small percentage of ideas
survive feasibility screening.  For internal development purposes,
projects are assigned to a project manager who assembles an interdisciplinary,
cross-functional development team.  The team’s objective is to have a
clinically acceptable, manufacturable and FDA released product ready for
marketing by a specific date.  Approximately ten projects on the
average, depending on the level of resources required, are underway at UTMD at
any given time.  More than 50% of assigned projects do not succeed in
attaining a product that meets all of the Company’s criteria.  In
particular, this includes a product that is highly reliable, easy to use,
cost-effective, safe, useful and differentiated from the competition. Once a
product is developed, tooled, fully tested and cleared for marketing by the FDA,
there remains a reasonable probability it cannot be successfully marketed for
any number of reasons, not the least of which is being beaten to the market by a
competitor with a better solution, or not having access to users because of
limitations in marketing and distribution resources or exclusionary contracts of
GPOs.





UTMD’s current product development
projects are in three areas of focus: 1) labor & delivery, 2) neonatal
intensive care, and 3) specialized procedures for the assessment and treatment
of cervical/uterine disease.  Internal product development expenses
are expected to be in the range of 1-2% of sales in 2009.  In 2008,
2007 and 2006 respectively, new product development expenses were $359 (1.3% of
sales), $382 (1.3% of sales) and $316 (1.1% of sales).





EMPLOYEES





At December 31, 2008, the Company had
186 employees, and an additional six contract employees.  The contract
employees represent UTMD’s desire to provide handicapped persons additional work
opportunities, hired through the Utah state-supported Work Activity
Center.  The average tenure of UTMD’s employees is about eleven years,
which conveys an important benefit due to the level of training required to
produce consistently high quality medical devices.  The Company's
continued success will depend to a large extent upon its ability to retain
skilled employees.  No assurances can be given that the Company will
be able to retain or attract such employees in the future, although management
is committed to providing an attractive environment in which reliable, creative
and high achieving people wish to work.





None of the Company's officers or
directors is bound by restrictive covenants from prior employers that limit
their ability to contribute to UTMD’s programs.  All professional
employees sign a code of conduct and a confidentiality and non-compete agreement
as a condition of employment, and as consideration for receipt of stock option
awards and participation in the annual sales and management bonus
program.  All employees participate in contemporaneous
performance-based bonus programs.  None of the Company's employees is
represented by labor unions or other collective bargaining groups.





8





PATENTS, TRADEMARKS AND
TECHNOLOGY LICENSES





The Company owns or exclusively
licenses twenty-five unexpired patents, has three patents pending and is the
licensee of certain other technology.  There can be no assurance,
however, that patents will be issued with respect to any pending applications,
that marketable products will result from the patents or that issued patents can
be successfully defended in a patent infringement situation.  The
Company also owns a number of trademarks which have achieved brand
recognition.





The ability of the Company to achieve
commercial success depends in part on the protection afforded by its patents and
trademarks.  However, UTMD believes that the protections afforded by
patents and trademarks are less important  to  UTMD’s
business, taken as a whole,  than a medical device’s incremental
clinical utility, which may be dominated by a number of other factors including
relative cost, ease of use, ease of training/adoption, perceived clinical value
of different design features, risk of use in applicable procedures, the
reliability of achieving a desired outcome in the hands of different users and
market access to potential users.  In cases where competitors
introduce products that may infringe on UTMD’s technology, the Company has an
obligation to its shareholders to defend its intangible property to the extent
that it can afford to do so, and that it is material to the Company’s
success.  The Company must also defend itself when competitors allege
that UTMD may be infringing their technology.





As a matter of policy, UTMD has
acquired and will continue to acquire the use of technology from third parties
that can be synergistically combined with UTMD proprietary product
ideas.  During 2008, ongoing royalties included in cost of goods sold
were $2.  Other royalties have been previously paid as a lump sum, or
are incorporated into the price of acquisitions, or into the cost of purchased
components which practice certain patents of third parties.  Also as a
matter of policy, UTMD licenses its proprietary technology to others in
circumstances where licensing does not directly compete with UTMD's own
marketing initiatives.  UTMD’s future financial performance may also
depend on the marketing ability of other companies that license UTMD’s
technology. During
2008 the Company received $450 in royalty income, the same as in 2007 and 2006.
The patents have now expired under which the $450 annual royalty income of the
last three years was received.





GOVERNMENT
REGULATION





UTMD's products and manufacturing
processes are subject to regulation by the U.S. Food & Drug Administration
(“FDA”), as well as other regulatory bodies globally.  The FDA has
authority to regulate the marketing, manufacturing, labeling, packaging and
distribution of medical devices in the U.S.  In addition, requirements
exist under other federal laws and under state, local and foreign statutes that
may apply to the manufacturing and marketing of the Company's
products.





All manufacturers of medical devices
must register with the FDA and list all medical devices produced by
them.   In addition, prior to commercial distribution of some
devices for human use, a manufacturer must file a notice with the FDA, setting
forth certain information regarding the safety and effectiveness of the device
that is acceptable in content to the FDA.





Devices
which are classified in Class I are subject only to the general controls
concerning adulteration, misbranding, good manufacturing practices, record
keeping and reporting requirements.  Devices classified in Class II
must, in addition, comply with special controls or performance standards
promulgated by the FDA.





All of UTMD’s present products are
unclassified, Class I or Class II devices.  The Company is in
compliance with all applicable U.S. regulatory standards including CFR Part 820,
the FDA Quality System Regulation (QSR) effective in 1997, also known as cGMPs
(current good manufacturing practices).





9





In 1994, UTMD received certification
of its quality system under the ISO9001/EN46001 standards (“ISO” stands for
“International Organization of Standardization”) which it maintained until
December 2003.  In October 2003, UTMD’s Utah facility was certified
under the more stringent ISO13485 standard for medical devices. UTMD’s Ireland
facility was certified under the concomitant ISO13488 standard.  In
July 2006, both facility ISO certifications were upgraded to the even more
stringent ISO13485:2003 standards, which continue to be
maintained.  UTMD remains on a continuous periodic audit schedule by
its independent notified body in order to stay current with international
regulatory standards, and retain its certification. The most recent audit was
conducted in December 2008. UTMD has received formal product certifications
allowing the use of the CE Mark (demonstrates proof of compliance with the
European Community’s ISO standards) for essentially all of its
products.  The U.S. FDA QSR was developed in harmony with the ISO
standards.




SOURCES AND AVAILABILITY OF
RAW MATERIALS





Most of the components which the
Company purchases from various vendors are readily available from a number of
sources.  Alternative sourcing of various components is continually
underway.  Vendors are qualified by Corporate Quality Assurance. The
Company has a vendor quality monitoring program that includes routinely checking
incoming material for conformance to specifications, as required per written
procedures.





EXPORTS





UTMD continues to regard the
international marketplace as an important element of its growth
strategy.   UTMD is keenly aware that not only are international
markets different from the U.S. market, but also that each country has its own
set of driving influences that affects the dynamics of the nature of care given
and medical devices used.  In 1996 UTMD completed construction of a
manufacturing facility in Athlone, County Westmeath, Ireland.  The
facility offers a number of advantages: 1) from a marketing point of view,
better response to European Union customers, including a better understanding of
customized needs, less costly distribution and duty-free access to 500 million
patients; 2) from a regulatory point of view, faster new product introductions;
and 3) from a manufacturing point of view, reduced dependence on one
manufacturing site and increased capacity for existing U.S.
facilities.





Revenues from customers outside the
U.S. in 2008 were $8,668 (31% of total sales), compared to $8,576 (30% of total
sales) in 2007 and $7,390 (26% of total sales) in 2006.  After growing
annually by 16% in each of the two prior years of 2007 and 2006, international
sales in 2008 were up only 1%.  This was due primarily to a stronger
U.S. Dollar, as well as a general slowing of economic activity, in the
2H08.  UTMD expects the slowing of international distributor orders
that was experienced in 2H08 will continue into 2009.  In early 2009,
UTMD learned that its largest international customer located in Germany and
third largest international customer located in South Africa, combined
representing $2,327 (27%) of 2008 international sales, would not be purchasing
UTMD products at least for the first quarter of 2009.





Blood pressure monitoring products
represented 58% of international sales in 2008, 2007 and in
2006.  International Ob/Gyn and neonatal product sales were $3,612 in
2008, compared to $3,586 in 2007 and $3,109 in 2006.  For financial
information by geographic area, please see notes 1, 5 and 10 to the
Consolidated Financial Statements.





BACKLOG





“Backlog” is defined as orders
received and accepted by UTMD which have not shipped yet.  As a
supplier of primarily disposable hospital products, the nature of UTMD’s
business requires fast response to customer orders.  Virtually all
direct shipments to end users are accomplished within a few days of receipt of
customer purchase orders.  Consequently, UTMD’s backlog at any point
in time is comprised mainly of orders from OEM and international customers,
which purchase in larger quantities at less frequent
intervals.  Backlog shippable in less than 90 days was  $685
as of January 1, 2009, $823 as of January 1, 2008 and $906 as of January 1,
2007.  The lower backlog at the beginning of 2009 reflects the
international slowdown described above.





10





SEASONAL
ASPECTS





The Company's business is generally
not affected by seasonal factors.





PRODUCT LIABILITY RISK
MANAGEMENT





The risk of product liability lawsuits
is a negative factor in the medical device business because devices are
frequently used in inherently risky situations to help physicians achieve a more
positive outcome than what might otherwise be the case.  In any
lawsuit against a company where an individual plaintiff suffers a physical
injury, a possibility of a large award for damages exists whether or not a
causal relationship exists.  However, no such damages have been
awarded against UTMD in its 30 year history.





UTMD is self-insured for product
liability risk and reserves funds against its current performance on an ongoing
basis to provide for its defense should any lawsuits be filed.  The
best defense the Company believes that it has is the consistent conformance to
specifications of its proven safe and effective products.  Over the
time span of the last sixteen years, UTMD has been named as a defendant, along
with each attending physician and hospital, in four lawsuits which involved a
patient injury.  All four were related to operative vaginal deliveries
where a UTMD VAD birthing cup or hand pump was used by the
surgeon.  The VADS products in all four cases did conform to
specifications.  UTMD was ultimately dismissed as a defendant in the
lawsuits, and legal costs were not material to performance.  During
the same sixteen year period of time, in which more than 18 million UTMD
finished devices were used, no other UTMD product was the subject of a patient
injury which resulted in a lawsuit.








FORWARD LOOKING
INFORMATION





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








ITEM
1A – RISK FACTORS





General risk factors that may impact
the Company’s revenues include: the market acceptance of competitive products;
administrative practices of group purchasing organizations; obsolescence caused
by new technologies; the possible introduction by competitors of new products
that claim to have many of the advantages of UTMD’s products at lower prices;
the timing and market acceptance of UTMD’s own new product introductions; UTMD’s
ability to efficiently and responsively manufacture its products, including the
possible effects of lack of performance of suppliers; opportunities in gaining
access to important global distribution channels; budgetary constraints; the
timing of regulatory approvals for newly developed products; regulatory
intervention in current operations; and third party reimbursement of health care
costs of patients.





Negative factors that may adversely
impact future performance include managed care reforms or hospital group buying
agreements that may limit physicians’ ability to choose certain products or
procedures, new products introduced by other companies that displace UTMD’s
products, new product regulatory approval delays, changes in the Company’s
relationships with, or lack of performance of, its distribution partners, and
loss of key personnel.





11





The length of time and number of
administrative steps required in adopting new products for use in hospitals has
grown substantially in recent years.  As a potential negative factor
to future performance, as UTMD introduces new products it believes are safer and
more effective, it may find itself excluded from certain customers because of
the existence of long term supply agreements for preexisting
products.  UTMD may also be unable to establish viable relationships
with other medical device companies that do have access to users but lack an
interest in the Company’s approach or present unreasonable burdens.





Risk factors, in addition to the risks
outlined in the previous paragraphs and elsewhere in this report that may impact
the Company’s assets and liabilities, as well as cash flows, include: risks
inherent to companies manufacturing products used in healthcare, including
claims resulting from the improper use of devices and other product liability
claims; defense of the Company’s intellectual property and infringement claims
of others; productive use of assets in generating revenues; management of
working capital, including inventory levels required to meet delivery
commitments at a minimum cost; and timely collection of accounts
receivable.





Additional risk factors that may
affect non-operating income include: the continuing viability of the Company’s
technology license agreements; actual cash and investment balances; asset
dispositions; and acquisition activities that may or may not require external
funding.








ITEM
1B – UNRESOLVED STAFF COMMENTS





None








ITEM
2 - PROPERTIES





Office
and Manufacturing Facilities.


The Company's current operations are
located in a 100,000 square foot facility in Midvale, Utah, a suburb of Salt
Lake City, a 20,000 square foot facility in Redmond, Oregon, and a 77,000 square
foot facility in Athlone, County Westmeath, Ireland.  UTMD owns its
property and facilities in Utah and Ireland, with the exception of a long-term
lease on one section of its Midvale parking lot.  The Oregon facility
is leased.





UTMD is a vertically-integrated
manufacturing company.  Capabilities include silicone and
plastics-forming operations including injection molding, insert and
over-molding, thermoforming and extrusion; sensor production; manual and
automated assembly of mechanical, electrical and electronic components; parts
printing; various testing modalities; advanced packaging in clean room
conditions; and a machine shop for mold-making and fabrication of assembly tools
and fixtures.  Capabilities also include an R&D laboratory for
both electronic and chemical processes, software development resources,
communications and computer systems networked real time internationally, and
administrative offices.








ITEM
3 - LEGAL PROCEEDINGS





The Company may be a party from time
to time in litigation incidental to its business.  Presently, there is
no litigation for which the Company believes the outcome may be material to its
financial results.








ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





No matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise during the
fourth quarter of the fiscal year covered by this report.








12





PART II





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





Market
Information.


UTMD's common stock trades on the
NASDAQ Global Market (symbol:UTMD).  The following table sets forth
the high and low sales price information as reported by NASDAQ for the periods
indicated:





2008
                        
                        
                        2007High
                        
                        
                        Low
                        
                        
                        High
                        
                        
                        Low1st
      Quarter
                        
                        $
                        32.35
                        
                        
                        $
                        27.13
                        
                        
                        $
                        34.88
                        
                        
                        $
                        31.242nd
      Quarter
                        
                        
                        30.05
                        
                        
                        
                        26.80
                        
                        
                        
                        34.59
                        
                        
                        
                        29.303rd
      Quarter
                        
                        
                        30.01
                        
                        
                        
                        24.96
                        
                        
                        
                        32.84
                        
                        
                        
                        29.504th
      Quarter
                        
                        
                        29.77
                        
                        
                        
                        20.04
                        
                        
                        
                        31.99
                        
                        
                        
                        29.27





Stockholders.


The approximate number of beneficial
stockholders of UTMD’s common stock as of March 6, 2009 was 2,300.





Dividends.


The following sets forth cash
dividends declared or paid during the past two years:





Record Date
                                    
                                    Payable Date
                                    
                                    Per Share AmountDecember
      14, 2006
                                    
                                    January
      4, 2007
                                    
                                    0.21March
      15, 2007
                                    
                                    April
      4, 2007
                                    
                                    0.22June
      15, 2007
                                    
                                    July
      5, 2007
                                    
                                    0.22September 14, 2007
                                    
                                    October 3, 2007
                                    
                                    0.22December
      14, 2007
                                    
                                    January
      3, 2008
                                    
                                    0.225March
      14, 2008
                                    
                                    April
      3, 2008
                                    
                                    0.225June
      16. 2008
                                    
                                    July
      3, 2008
                                    
                                    0.225September
      15, 2008
                                    
                                    October
      3, 2008
                                    
                                    0.225December
      16, 2008
                                    
                                    December
      30, 2008
                                    
                                    0.232007
      total paid
                                    
                                    $0.872008
      total paid
                                    
                                    $1.13





Issuer
Purchases of Equity Securities.


The following table details purchases
by UTMD of its own securities during fourth quarter 2008.





Period
                          Total
      Number of Shares purchased (1)
                          
                          Average
      Price Paid per Share
                          
                          Total
      Number of Shares Purchased as Part of Publicly Announced Plans or Programs
      (1)
                          
                          Maximum
      Number (or Approximate Dollar Value) of Shares that May Yet be Purchased
      Under the Plans or Programs (1)10/01/08
      – 10/31/08
                          27,171
                          
                          $  26.38
                          
                          27,171
                          
                          see
      (1) below11/01/08
      - 11/30/08
                          118,623
                          
                          23.79
                          
                          118,62312/01/08
      - 12/31/08
                          108,305
                          
                          21.65
                          
                          108,305Total
                          254,099
                          
                          $  23.15
                          
                          254,099








(1)  In
fourth quarter 2008 UTMD repurchased an aggregate of 254,100 shares of its
common stock at an average cost of $23.15 per share pursuant to a continued open
market repurchase program instituted in August 1992.  Since 1993
through 2008, the Company has repurchased 6,714,100 shares at an average cost of
$12.44 per share including broker commissions and fees in open market
transactions.  In addition, the Company conducted tender offer
transactions in which it purchased an additional 2,775,700 shares at an average
cost of $9.76 per share including fees and administrative costs.  In
total, UTMD has repurchased 9.5 million of its shares at an average price of
$11.66 per share since 1993.  To complete the picture relating to
current shares outstanding, since 1993 the Company’s employees and directors
have exercised and purchased 1.6 million option shares at an average price of
$9.02 per share.  All options were awarded at the market value of the
stock on the date of the award.





13





The frequency of UTMD’s continuing
open market share repurchases will depend on the availability of sellers and the
price of the stock.  The board of directors has not established an
expiration date or a maximum dollar or share limit for UTMD’s continuing long
term program of open market share repurchases.





The purpose of UTMD’s share
repurchases is to maximize the value of the Company for its continuing
shareholders, and maximize its return on shareholder equity by employing excess
cash generated from effectively managing its business.  UTMD does not
intend to repurchase shares that would result in terminating its NASDAQ Global
Market listing.








ITEM
6 - SELECTED FINANCIAL DATA


Dollar
amounts are in thousands, except per share data.





The
following selected consolidated financial data of UTMD and its subsidiaries for
the five years ended December 31, 2008, are derived from the audited financial
statements and notes of UTMD and its subsidiaries, certain of which are included
in this report.  The selected consolidated financial data should be
read in conjunction with UTMD’s Consolidated Financial Statements and the notes
included elsewhere in this report.





Year Ended December 312008
                        
                        
                        2007
                        
                        
                        2006
                        
                        
                        2005
                        
                        
                        2004Net
      Sales
                        
                        $
                        27,782
                        
                        
                        $
                        28,502
                        
                        
                        $
                        28,753
                        
                        
                        $
                        27,692
                        
                        
                        $
                        26,485Net
      Income
                        
                        
                        7,205
                        
                        
                        
                        7,905
                        
                        
                        
                        8,168
                        
                        
                        
                        7,547
                        
                        
                        
                        10,220Earnings
      Per Common Share (Diluted)
                        
                        
                        1.86
                        
                        
                        
                        1.98
                        
                        
                        
                        2.02
                        
                        
                        
                        1.80
                        
                        
                        
                        2.19Total
      Assets
                        
                        
                        38,821
                        
                        
                        
                        45,986
                        
                        
                        
                        44,187
                        
                        
                        
                        41,642
                        
                        
                        
                        41,262Working
      Capital
                        
                        
                        21,511
                        
                        
                        
                        26,767
                        
                        
                        
                        25,030
                        
                        
                        
                        22,230
                        
                        
                        
                        20,194Long-term
      Debt
                        
                        
                        1,828
                        
                        
                        
                        3,689
                        
                        
                        
                        4,383
                        
                        
                        
                        4,883
                        
                        
                        
                        -Cash
      Dividends Per Common Share
                        
                        
                        1.13
                        
                        
                        
                        0.87
                        
                        
                        
                        0.74
                        
                        
                        
                        0.61
                        
                        
                        
                        0.30
   Quarterly Data for 2008First Quarter
                              
                              
                              Second Quarter
                              
                              
                              Third Quarter
                              
                              
                              Fourth QuarterNet
      Sales
                              
                              $
                              6,890
                              
                              
                              $
                              7,115
                              
                              
                              $
                              7,181
                              
                              
                              $
                              6,596Gross
      Profit
                              
                              
                              3,750
                              
                              
                              
                              3,921
                              
                              
                              
                              3,937
                              
                              
                              
                              3,410Net
      Income
                              
                              
                              1,891
                              
                              
                              
                              1,917
                              
                              
                              
                              1,820
                              
                              
                              
                              1,577Earnings
      Per Common Share (Diluted)
                              
                              
                              .48
                              
                              
                              
                              .49
                              
                              
                              
                              .47
                              
                              
                              
                              .42Quarterly Data for 2007First Quarter
                              
                              
                              Second Quarter
                              
                              
                              Third Quarter
                              
                              
                              Fourth QuarterNet
      Sales
                              
                              $
                              7,118
                              
                              
                              $
                              7,211
                              
                              
                              $
                              7,097
                              
                              
                              $
                              7,076Gross
      Profit
                              
                              
                              3,937
                              
                              
                              
                              4,005
                              
                              
                              
                              3,973
                              
                              
                              
                              3,873Net
      Income
                              
                              
                              1,944
                              
                              
                              
                              1,985
                              
                              
                              
                              2,021
                              
                              
                              
                              1,955Earnings
      Per Common Share (Diluted)
                              
                              
                              .48
                              
                              
                              
                              .50
                              
                              
                              
                              .51
                              
                              
                              
                              .49




14





ITEM 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Dollar
amounts are in thousands except per-share amounts and where noted.





The
following comments should be read in conjunction with the accompanying financial
statements.





Productivity
of Assets and Working Capital.


a)  Assets.  Year-end
2008 total assets were $38,821 compared to $45,986 in 2007. The decrease was due
primarily to a $6,347 decrease in cash and investments.  In 2008, UTMD
used its cash to repurchase 320,900 of its shares for $7,792 and pay $4,329 in
dividends to shareholders  As a result, the 2008 productivity of total
assets (= average total asset turns; total sales divided by average total assets
for the year) was about 4% higher than in 2007.  In both years
productivity was diluted by UTMD’s substantial cash-equivalent balances.
Year-end 2008 and 2007 cash and investment balances were $16,025 and $22,372,
representing 42% and 49% of total assets, respectively.  UTMD also
used its cash generated in Ireland in 2008 to reduce the principle on the
Ireland loan by $2,020. Excluding average cash and investment balances, average
total asset turns were 1.2 in both 2008 and 2007.  In 2009, total
assets excluding cash and investment balances will continue to be substantially
less than annual sales, which benefits return on average shareholders equity
(ROE).  Other asset changes which aided the decline in total assets
included a $479 decrease in the net book value of property and equipment due to
depreciation, and a $388 decrease in receivables due to lower sales and better
A/R collections performance.





Property, plant and equipment (PP&E)
assets are comprised of Utah, Oregon and Ireland manufacturing molds, production
tooling and equipment, test equipment, computer/communications equipment and
software, and the Utah and Ireland facilities.  UTMD leases the Oregon
facility as a result of the 1997 CMI acquisition, and a portion of its Midvale,
Utah parking lot.  In 2008, net consolidated PP&E (depreciated
book value of all fixed assets) decreased $479 as a result of $544 in
depreciation, capital expenditures of $274 and the effect of currency exchange
rates on equipment in Ireland.  The net book value of PP&E in the
U.S. decreased $168, and in Ireland decreased $311.  The year-end 2008
net book value (after accumulated depreciation) of consolidated PP&E was 32%
of actual acquisition cost.  Since UTMD’s PP&E is in good working
order and capable of supporting increased sales activity, the continued
productivity of fixed assets will remain a source of future
profitability.  In 2009, depreciation of fixed assets should again
equal or exceed new PP&E purchases required to sustain current
operations.





Average 2008 inventory turns were 4.0
despite lower sales, and continued to meet management’s
objective.  Net (after allowance for doubtful accounts) year-end trade
accounts receivable (A/R) balances decreased $360 or about 10% while 2008 sales
activity decreased 3%.  The resulting average days in A/R on December
31, 2008 of 46 days, based on 4Q 2008 shipments, improved from 47 days at the
end of 2007. This performance remained well within management’s continuing
objective of 55 days.  A/R over 90 days from invoice date at year-end
2008 were 3% of total A/R, down significantly from 10% at the end of
2007.  The Company believes the older A/R will be collected or are
within its reserve balances for uncollectible accounts.





Working capital at year-end 2008 was
$21,511 compared to $26,767 at year-end 2007.  Both of those amounts
exceed UTMD’s working capital needs for internally financing growth in normal
operations. UTMD’s current ratio (current assets divided current liabilities)
increased to 13.2 from 9.5 due to a $1,397 (44%) decline in the
denominator.  Accrued liabilities, a subset of current liabilities
(C/L), declined $1,263 because of lower accrued management bonuses and the fact
that in 2008 the 4Q08 shareholder dividend was paid at the end of December
instead of early January, as in prior years.  The current portion of
the Ireland note, which is also included in C/L, declined by
$158.  UTMD expects to be able to maintain a very healthy current
ratio in 2009.





Net (after accumulated amortization)
intangible assets, which are comprised of goodwill resulting from acquisitions
and the costs of obtaining patents and other intellectual property including
technology rights, were $7,414 at the end of 2008 compared to $7,449 at the end
of 2007. UTMD’s goodwill balance is $7,191. Under current GAAP, goodwill is not
expensed unless and until the market value of the acquired entity becomes
impaired. The three acquisitions of 1997, 1998 and 2004 continue to be viable
parts of UTMD’s overall business, representing 35% of total sales in 2008. UTMD
does not expect the current intangible value of goodwill associated with the
acquisitions to become impaired in 2009.  Purchases of other
intangibles of $13 in 2008 were offset by $47 in amortization expense. Net
intangible assets at the end of 2008 represented 19% of total assets compared to
16% at the end of 2007.





15





b)Liabilities.  In
2008, UTMD’s total liabilities decreased $3,181 from the end of
2007.  The resulting 2008-ending total debt ratio was 10% of total
assets, down from a total debt ratio of 16% at the end of 2007. Current
liabilities declined primarily because of the decrease in accrued expenses and
the current portion of the Ireland loan, as noted above.  The Ireland
note payable as a whole, denominated in Euros, declined $2,019 in USD book value
compared to actual principal payments of $1,917.  The difference
results from currency exchange in the value of the USD compared to the Euro. In
thousand Euro, the note declined 47% from €2,791 at the beginning of 2008 to
€1,485 at the end of 2008.  As a reminder to shareholders, the note
was initiated in December 2005 to finance repatriation of profits achieved in
Ireland since 1996 through 2005 under The American Jobs Creation Act of
2004.  UTMD Ltd. plans to repay this note from profits generated in
Ireland over the next two to three years.  In addition to liabilities
on the balance sheet, UTMD has operating lease and purchase obligations
described in note 7.




Results
of Operations.


a) Revenues.  Global
consolidated sales in 2008 were $27,782, compared to $28,502 in 2007 and $28,753
in 2006.





Domestic sales were $19,113 in 2008,
compared to $19,926 in 2007 and $21,363 in 2006. UTMD divides its domestic sales
into two distribution channels: “direct sales” which are sales to end user
customers by UTMD’s direct sales force, independent commissioned sales reps,
specialty distributors and national hospital distribution companies, and “OEM
sales” which are component sales to other companies where products are packaged
and resold as part of another company’s finished product
offerings.  As a percentage of total domestic sales, direct domestic
sales were 92% in 2008, and 94% in both 2007 and 2006.  Therefore,
domestic OEM sales were 8% of total domestic sales in 2008, and 6% of sales in
both 2007 and 2006.  Domestic direct sales represented 63% of global
consolidated sales in 2008, compared to 66% in 2007 and 70% in
2006.





International (foreign) sales in 2008
were $8,668 compared to $8,576 in 2007 and $7,390 in
2006.  International sales grew to 31% of global consolidated sales in
2008, compared to 30% in 2007 and 26% in 2006.  Of the 2008
international sales, 55% were to customers in Europe compared to 55% in
2007 and 53% in 2006.  Ireland operations (UTMD Ltd.) shipped 46% of
international sales (in USD terms) in 2008, compared to 51% in 2007 and 52% in
2006.  UTMD Ltd. trade shipments were down 17% in Euro terms, and down
10% in USD terms, in 2008 compared to 2007.





UTMD groups its sales into four general
product categories:  1) obstetrics, comprised of labor and delivery
management tools for monitoring fetal and maternal well-being, for reducing risk
in performing difficult delivery procedures and for improving clinician and
patient safety;  2) gynecology/ electrosurgery/ urology, comprised of
tools for gynecological procedures associated primarily with cervical/ uterine
disease including LETZ, endometrial sampling, transvaginal uterine sonography,
diagnostic laparoscopy, and other MIS procedures; specialty excision and
incision tools; conservative urinary incontinence therapy devices; and urology
tools;  3) neonatal critical care, comprised of devices that provide
developmentally-friendly care to the most critically ill babies, including
providing vascular access, enteral feeding, administering vital fluids,
maintaining a neutral thermal environment, providing protection and assisting in
specialized applications; and 4) blood pressure monitoring/ accessories/ other,
comprised of specialized components as well as molded parts sold on an OEM basis
to other companies.  In these four categories, UTMD’s primary revenue
contributors enjoy a significant market share and may have differentiated
product features protected by patents.





Global
revenues by product category:


2008
                  
                  
                  %
                  
                  
                  2007
                  
                  
                  %
                  
                  
                  2006
                  
                  
                  %Obstetrics
                  
                  $
                  7,054
                  
                  
                  
                  25
                  
                  
                  $
                  8,473
                  
                  
                  
                  30
                  
                  
                  $
                  9,371
                  
                  
                  
                  33Gynecology/
      Electrosurgery/ Urology
                  
                  
                  6,157
                  
                  
                  
                  22
                  
                  
                  
                  6,143
                  
                  
                  
                  21
                  
                  
                  
                  6,106
                  
                  
                  
                  21Neonatal
                  
                  
                  7,334
                  
                  
                  
                  27
                  
                  
                  
                  7,062
                  
                  
                  
                  25
                  
                  
                  
                  7,073
                  
                  
                  
                  25Blood
      Pressure Monitoring and Accessories*
                  
                  
                  7,236
                  
                  
                  
                  26
                  
                  
                  
                  6,824
                  
                  
                  
                  24
                  
                  
                  
                  6,203
                  
                  
                  
                  21Total:
                  
                  $
                  27,782
                  
                  
                  
                  100
                  
                  
                  $
                  28,502
                  
                  
                  
                  100
                  
                  
                  $
                  28,753
                  
                  
                  
                  100


*includes molded components sold to
OEM customers.





16





International
revenues by product category:


2008
                    
                    
                    %
                    
                    
                    2007
                    
                    
                    %
                    
                    
                    2006
                    
                    
                    %Obstetrics
                    
                    $
                    572
                    
                    
                    
                    7
                    
                    
                    $
                    881
                    
                    
                    
                    10
                    
                    
                    $
                    764
                    
                    
                    
                    10Gynecology/
      Electrosurgery/ Urology
                    
                    
                    2,193
                    
                    
                    
                    25
                    
                    
                    
                    1,944
                    
                    
                    
                    23
                    
                    
                    
                    1,820
                    
                    
                    
                    25Neonatal
                    
                    
                    847
                    
                    
                    
                    10
                    
                    
                    
                    761
                    
                    
                    
                    9
                    
                    
                    
                    525
                    
                    
                    
                    7Blood
      Pressure Monitoring and Accessories*
                    
                    
                    5,056
                    
                    
                    
                    58
                    
                    
                    
                    4,990
                    
                    
                    
                    58
                    
                    
                    
                    4,281
                    
                    
                    
                    58Total:
                    
                    $
                    8,668
                    
                    
                    
                    100
                    
                    
                    $
                    8,576
                    
                    
                    
                    100
                    
                    
                    $
                    7,390
                    
                    
                    
                    100


*includes molded components sold to
OEM customers.





As a
summary explanation of revenues in the above tables,





1.  Obstetrics.  The
$1,419 decline in total obstetrics (L&D) device sales in 2008 was primarily
the result of the restrictive effects of U.S. GPO administrative
agreements.  For example, GPO restrictions included a sole source contract
consummated by HealthTrust Purchasing Group (HPG) with a UTMD competitor for
IUPCs and VADS which took effect on September 1, 2007.  These
specialty catheters and surgical tools are clearly in the category of “clinician
preference products.”  The HPG sole source agreement violates the
mandate by the U.S. Senate Judiciary Antitrust Subcommittee in April 2002 that
GPOs only allow multi-source contracting for clinician-preference products, as
well as the ensuing “Healthcare Group Purchasing Industry Initiative” code of
ethics, of which HPG was a founding member. It also represented a violation of
HPG’s own code of ethics, which states in Section HPG.008, “No GPO should come
between hospital administration and their physicians when it comes to the choice
of medical devices needed to treat the patient.  To this end,
HealthTrust offers a complete line of contracts in these areas
[clinician-preference products] that provides substantial choice to our members
and their physicians.”  In the U.S., 2008 sales of Intran Plus
intrauterine pressure catheters (IUPCs) declined $1,016 and sales of CMI
vacuum-assisted delivery systems (VADS) declined $112. About 10% of the IUPC
decline resulted from lower prices.  The silver lining of this decline
is that the Company’s reliance on a single product is much less concentrated;
i.e., in 2008, U.S. IUPC sales were 17% of total sales compared to 2004 when
U.S. IUPC sales were 31% of total sales.  The $1,129 decline in U.S.
IUPC and VADS sales but only $720 decline in total sales indicates that UTMD’s
sales of its other devices and its international business are
expanding.





2.  International
gynecology/ electrosurgery/ urology (ES/gyn) product sales increased $248 (13%),
while U.S. ES/gyn sales declined $235 (6%).  As a result of the 2007
American Society for Colposcopy and Cervical Pathology (ASCCP) revised
guidelines for the treatment of CIN, which advised greater monitoring of lower
grade lesions in lieu of surgical treatment, UTMD observed approximately a 10%
decline in use of LETZ electrodes from a consistent gynecology customer
base.  The effect of the new guidelines now seems to have
stabilized.





3.  Neonatal critical care
device (NICU) sales increased $186 (3%) in the U.S. and $86 (11%)
internationally.  In the U.S., because products in this category are
sold to hospitals, sales are affected by GPO restrictions.  However,
because NICU devices are more diverse and lower volume than in L&D, and
because of the special nature of the patients, UTMD believes that clinicians
remain more heavily involved in product selection.  Therefore, U.S.
GPO administrative deals are less of a challenge in supplying specialty NICU
devices than for L&D.   UTMD expects that NICU devices will
lead its sales growth in 2009.





4.  Blood pressure
monitoring and accessories (BPM).   U.S. BPM sales increased $347
(19%), while international BPM sales increased $66 (1%). Virtually all of UTMD’s
domestic OEM sales were included in the BPM category in
2008.  Domestic OEM sales increased $274 (22%) compared to
2007.  The category includes molded components (some of which are not
related to medical devices) sold to other companies for use in their
products.  In contrast to the other product categories, international
sales of BPM devices comprise most (70% in 2008 and 73% in 2007) of UTMD’s BPM
sales.  UTMD’s BPM sales depend heavily on successful marketing by
international distributors and OEMs.  Due to a stronger US Dollar and
a general economic downturn, UTMD experienced substantial slowing of
international distributor orders for BPM products in 2H08, and expects that it
will continue into 2009.  In early 2009, UTMD learned that its largest
international customer located in Germany and third largest international
customer located in South Africa, combined representing $2,327 (27%) of 2008
international sales, would not be purchasing UTMD products at least for the
first quarter of 2009.





17





Looking forward to 2009, UTMD’s
improvement in domestic direct sales depends on its ability to obtain medical
staff involvement in purchasing decisions for UTMD’s “physician-preference”
products used in U.S. hospitals where administrators are making the product
decisions through the use of GPOs contracts awarded on bases which may not
adequately take into consideration the total cost of patient care, which
includes complication rates and longer term health outcomes.  An
important factor in UTMD’s ability to compete in this administratively
cumbersome environment is its continuing ability to develop devices that are
clearly differentiated on the basis of patient safety and better health
outcomes.  Despite the apparent weakness in international sales
entering the year, and excluding the possibility of acquisition of a new product
line with established sales, management projects overall revenues in 2009 about
the same as in 2008.  This assumes continued increases in domestic
NICU and ES/Gyn sales of about 5% and resumption of international customer
purchases in 2Q 09.





b)  Gross
Profit.  UTMD’s 2008 gross profit, the surplus after
subtracting costs of manufacturing, inspecting, packaging, sterilizing and
shipping products (CGS) from net revenues, was $15,018 compared to $15,788 in
2007 and $16,147 in 2006.  Gross profit margins (GPMs), gross profits
expressed as a percentage of net sales, were 54.1% in 2008 compared to 55.4% in
2007 and 56.2% in 2006. The GPM in 2008 was lower for several
reasons:


1)
Because many of UTMD’s manufacturing overhead expenses are fixed in order to
preserve capabilities, the lower consolidated sales activity in 2008 had a
higher overhead content.  UTMD retains facilities and other
manufacturing infrastructure well in excess of its current needs, which will
help GPM when sales expand.


2)
Because of competition and a number of long term fixed pricing agreements, UTMD
had a limited ability to increase product prices in 2008, at the same time
direct labor and direct materials costs were increasing fairly
substantially.


3)  In
2008, UTMD reduced domestic prices of its IUPCs by 3%. This represented 11% of
the obstetrics sales decline and 20% of the decline in total gross
profits.  Management doesn’t expect any significant price decreases in
2009.


4)  UTMD
conducted an IUPC recall in 2008 due to potentially defective packaging, for
which it estimates a marginal cost, after applying its warranty reserve, of
about a half percentage point in total GPM.  The recall was completed
successfully without any indication of a risk of patient injury, and with no
interruption to the supply of IUPCs needed by hospital customers.


5)   The
distribution mix helped lower the average GPM since domestic OEM and
international sales increased while domestic direct sales
decreased.  GPMs on domestic direct sales must be higher in order to
support sales and marketing expenses that are not associated with domestic OEM
and international sales.





UTMD
expects 2009 GPM to again be under pressure as a result of higher direct labor,
direct materials and overhead costs with about the same projected
sales.





UTMD utilizes OEM sales as a means to
help maximize utilization of its capabilities established to satisfy its direct
sales business.  As a general rule, prices for OEM sales expressed as
a multiple of direct variable manufacturing expenses are lower than for direct
sales because, in the OEM and international channels, UTMD’s business partners
incur significant expenses of sales and marketing.  Because of UTMD’s
small size and period-to-period fluctuations in OEM business activity,
allocations of fixed manufacturing overhead expenses cannot be meaningfully
allocated between direct and OEM sales. Therefore, UTMD does not report GPM by
sales channels.





c) Operating
Income.  Operating income is the surplus after operating
expenses are subtracted from gross profits.  Operating expenses
include sales and marketing (S&M) expenses, product development (R&D)
expenses and general and administrative (G&A) expenses.  Combined
operating expenses were $4,629 in 2008, compared to $5,032 in 2007 and $5,312 in
2006.  The lower operating expenses were primarily due to $268 lower
accrued management bonuses and $74 lower GPO fees.





18





2008
                
                
                2007
                
                
                2006R&D
      expenses
                
                $
                359
                
                
                $
                382
                
                
                $
                316S&M
      expenses
                
                
                1,816
                
                
                
                2,075
                
                
                
                2,272G&A
      – a) litigation expense provision
                
                
                80
                
                
                
                127
                
                
                
                230G&A
      – b) corporate legal expenses
                
                
                48
                
                
                
                15
                
                
                
                21G&A
      – c) stock option compensation expense
                
                
                120
                
                
                
                95
                
                
                
                140G&A
      – d) management bonus accrual
                
                
                148
                
                
                
                378
                
                
                
                380G&A
      – e) outside accounting audit/tax expenses
                
                
                167
                
                
                
                134
                
                
                
                100G&A
      – f) all other expenses
                
                
                1,891
                
                
                
                1,826
                
                
                
                1,854G&A
      expenses – total
                
                
                2,454
                
                
                
                2,575
                
                
                
                2,725Total
      operating expenses
                
                $
                4,629
                
                
                $
                5,032
                
                
                $
                5,312





Operating income in 2008 was $10,389
compared to $10,756 in 2007, and $10,835 in 2006.  UTMD’s operating
profit margin (operating income divided by total sales) was 37.4% in 2008,
compared to 37.7% in both 2007 and 2006.  Looking forward to 2009,
UTMD expects an operating margin of about 36%, as it plans to increase expenses
in all three areas of S&M, R&D and G&A with about the same volume of
sales as in 2008.





i)  S&M
expenses:  S&M expenses are the costs of communicating UTMD’s
differences and product advantages, providing training and other customer
service in support of the use of UTMD’s solutions, attending clinical meetings
and medical trade shows, processing orders and funding GPO fees. Because UTMD
sells internationally through third party distributors, its S&M expenses are
predominantly for U.S. business activity where it sells directly to clinical
users.  The largest component of S&M expenses is the cost of
directly employing representatives that solicit product sales and provide
customer support across the U.S.  The decline in S&M expenses
primarily reflects fewer direct sales representatives.  As a percent
of total sales, S&M operating expenses were 6.5% in 2008, 7.3% in 2007 and
7.9% in 2006.  In 2009, UTMD intends to increase S&M expenses, but
hold the ratio to total sales to about 7%.





ii)  R&D
expenses:  R&D expenses include the costs of investigating
clinical needs, developing innovative concepts, testing concepts for viability,
validating methods of manufacture, completing premarketing regulatory
documentation and other activities required for design control, responding to
customer requests for product enhancements, and assisting manufacturing
engineering on an ongoing basis in developing new processes or improving
existing processes.  As a percent of sales, R&D expenses were 1.3%
in 2008 compared to 1.3% in 2007 and 1.1% in 2006.  UTMD will continue
to opportunistically invest in R&D in order to reinvigorate its product
development pipeline.  In 2009, R&D expenses should remain in the
range of 1-2% of sales.





iii)  G&A
expenses:  G&A expenses include the functional costs of
executive management, finance and accounting, corporate information systems,
human resources, shareholder relations, risk management, protection of
intellectual property, and legal costs.  Aggregate G&A expenses as
a percent of sales were 8.8% in 2008, 9.0% in 2007 and 9.5% in 2006. Except for
the categories of G&A expenses isolated in the table above, UTMD’s G&A
expenses have remained fairly consistent over the last three years. The
following lettered items refer to the same G&A subcategories in the table
above:





a)
            If
      no currently unforeseen litigation arises, UTMD expects litigation
      expenses in 2009 to continue to
decline.


b)
            The
      increase in 2008 corporate legal expenses was essentially due to the legal
      costs associated with the filing of SEC Form S-3, Registration Statement
      Under the Securities Act of 1933, in 3Q 2008.  In 2009, UTMD
      expects a return to expenses more consistent with those in 2007 and
      2006.


c)
            Stock
      option expense in 2008 was calculated using a Black-Scholes pricing model
      for unvested options.   Please see Note 9 to “Notes to
      Consolidated Financial Statements” for further explanation.  In
      2009, UTMD expects option expense about the same as in
    2007.


d)
            The
      difference in 2008 management bonus compared to the two earlier years was
      due to the fact that UTMD’s CEO did not receive a 2008 management
      bonus.  Accrued bonuses in 2009 will continue to depend both on
      UTMD’s overall performance and each individual’s
    performance.


e)
            UTMD’s
      personnel, fundamental business activities, internal control systems and
      financial reporting mechanisms have remained relatively unchanged over the
      last several years.  Nevertheless, due to the “Accountants’ Full
      Employment Act of 2002”, also known as “The Sarbanes-Oxley Act of 2002”,
      outside auditor and tax consultant costs have grown
      rapidly.  Still, UTMD’s costs remain below these expenses
      incurred by most companies.  Management expects 2009
      accounting/financial controls audit costs will remain about the same as in
      2008.





19





d) Non-operating Income,
Non-operating Expense and EBT.  Non-operating income (NOI)
includes royalties from licensing UTMD’s technology, rent from leasing
underutilized property to others, income earned from investing the Company’s
excess cash and gains or losses from the sale of assets, offset by non-operating
expenses which include interest on the Ireland bank loan, bank service fees and
excise taxes.  NOI was $388 in 2008, compared to $1,283 in 2007 and
$1,582 in 2006.





1)
      Investment
      of excess cash.  Investment income (including gains and losses
      on sales) in 2008 was $115, compared to $1,022 in 2007 and $1,383 in
      2006.  In 2008, average interest rates were substantially lower
      and the Company realized an investment loss of $718 due just to the
      failure of Washington Mutual (WM) savings and loan.  UTMD
      recognized capital gains and corporate dividends of $306 on other common
      stock investments which helped offset the loss. The WM holding represented
      about 3.5% of UTMD’s investment portfolio at cost.  Capital
      gains (or losses) and dividends from investments in common stocks were
      ($407) in 2008, $20 in 2007 and $593 in 2006.  The capital gains
      in the two earlier years allowed the loss in 2008 to be fully
      tax-deductible. The Company also holds investments in CitiCorp (C) and
      General Electric (GE) common stock which together were about $405 below
      their aggregate purchase price at the end of 2008.  When
      purchased, these holdings at cost represented less than 3% of UTMD’s total
      investment portfolio. Unless one or both of the companies fail, as was the
      case with WM, UTMD will not sell the holdings at current prices, expecting
      that they will recover in value, and therefore will not have an associated
      NOI loss which impacts earnings. Currently, 99% of UTMD’s cash investments
      are being held in interest bearing money market securities yielding only
      about 1.0%.2) Royalties.  Annual
      royalties received in all three years were $450, which came from the
      license of patents which expired during 2008.  Presently, there
      are no other patents under which UTMD is receiving royalties from other
      parties.3)Interest
      Expense.  In 2008, UTMD paid $198 in interest expense on the
      Ireland loan, compared to $270 in 2007 and $255 in 2006.  The
      interest expense results from borrowing €4.5 million ($5,336) in December
      2005 to allow the repatriation of profits generated by UTMD’s Ireland
      subsidiary since 1996 through 2005.  Due to a lower loan balance
      as well as lower expected interest rates, UTMD estimates that its interest
      expense will be less than $80 in 2009, resulting in about $120 less
      interest cost in 2009 compared to 2008.4)Other
      NOI.  Income received from renting underutilized warehouse space
      in Ireland and parking lot space in Utah for a cell phone tower, offset by
      bank fees and excise taxes, was $21 in 2008, $80 in 2007 and $5 in
      2006.  UTMD expects other NOI in 2009 will be about ($18)
      because of expected lack of Ireland warehouse space rent in a soft
      economic period of
time.




UTMD expects total 2009 NOI will be
approximately $200.  That estimate does not include the possibility of
a failure of Citibank that would require recognition of a capital loss of
approximately $494.  The estimated 2009 NOI may also be lower if UTMD
utilizes its invested cash for an acquisition, unexpected litigation costs or
substantial share repurchases.





Earnings before income taxes (EBT)
result from adding UTMD’s non-operating income to its operating income. EBT was
$10,777 in 2008, compared to $12,038 in 2007 and $12,418 in 2006.  EBT
margin is EBT divided by total sales.  UTMD’s EBT margin was 38.8% in
2008, 42.2% in 2007 and 43.2% in 2006.  UTMD is targeting 2009 EBT of
about $10,500, in the range of 36-37% of sales.





20




e)  Net Income, EPS and
ROE.  Net income is EBT minus income taxes, often called the
“bottom line”.  Net income was $7,205 in 2008, $7,905 in 2007 and
$8,168 in 2006.   The effective consolidated corporate income tax
provision rate was 33.1%, 34.3% and 34.2% respectively.  Year to year
fluctuations in the tax rate may result from:  1) variations in
profits of the Ireland subsidiary which is taxed at a 10% rate on exported
manufactured products and a 25% rate on rental and other types of income; 2)
special U.S. tax exclusions such as the manufacturing profit deduction; 3)
higher marginal tax rates for EBT above $10 million; and 4) other factors such
as R&D tax credits.  Management expects the 2009 consolidated
income tax provision rate to be closer to the 2007 and 2006 rates.





UTMD’s net income expressed as a
percentage of sales was 25.9% in 2008, 27.7% in 2007 and 28.4% in
2006.  UTMD’s profitability has consistently ranked it in the top
performance tier of all U.S. publicly-traded companies, and has been a primary
driver for UTMD’s past excellent returns on shareholders’ equity
(ROE).





Earnings per share (EPS) is net income
divided by the number of shares of stock outstanding (diluted to take into
consideration stock option awards which are “in the money,” i.e., have exercise
prices below the applicable period’s weighted average market
value).  Diluted EPS were $1.858 in 2008, $1.982 in 2007 and $2.020 in
2006.  If UTMD achieves the projections above for 2009, EPS will be
approximately the same as in 2008 as a result of fewer outstanding
shares.





The end of 2008 weighted average number
of diluted common shares (the number used to calculate diluted EPS) were 3,878
(in thousands), compared to 3,989 shares in 2007 and 4,043 shares in
2006.  Dilution for “in the money” unexercised options for the year
2008 was 35 shares (in thousands), compared to 62 in 2007 and 100 in
2006.  The total number of options outstanding at year-end 2008
declined 2% from year-end 2007.  Dilution decreased in 2008 from 2007
because the average number of options outstanding decreased, and because the
share price in the stock market decreased, diminishing the dilutive effect of
each option.  Actual outstanding common shares as of December 31, 2008
were 3,602,761.





Return on shareholders’ equity (ROE) is
the portion of net income retained by UTMD (after payment of dividends) to
internally finance its growth, divided by the average accumulated shareholders’
equity during the applicable time period. ROE includes balance sheet measures as
well as income statement measures.  ROE for 2008 was 10% excluding the
fifth dividend payment which would normally have been paid in January 2009 (20%
before dividends), compared to 12% (21% before dividends) in 2007 and 15% (24%
before dividends) in 2006.  UTMD’s ROE is primarily driven by its high
net profit margin, which in 2008 declined to 25.9% from 27.7% in
2007.  ROE was also reduced by a lower debt ratio as UTMD nearly cut
its bank loan balance in Ireland by half and had no dividend payable at year-end
2008, but was aided by higher total asset turns. UTMD’s ROE (before dividends)
has averaged 31% per year over the last 23 years.  This ratio
determines how fast the Company can afford to grow without diluting shareholder
interests.  For example, a 30% ROE will financially support 30% annual
growth in revenues without having to issue more stock.





Looking forward, unless UTMD utilizes
its cash to make an acquisition or actively repurchase shares, 2009 ROE will be
lower than 2008 because the 2009 net profit margin is projected to be lower
while financial leverage and asset utilization remain about the
same.  Retaining a high cash balance which returns only about 1-2%
dilutes overall ROE.








Liquidity
and Capital Resources.


Cash
Flows.


Net cash provided by operating
activities, including adjustments for depreciation and other non-cash operating
expenses, along with changes in working capital and the tax benefit attributable
to exercise of employee incentive stock options, totaled $7,762 in 2008,
compared to $7,474 in 2007 and $8,403 in 2006.  Compared to 2007, net
cash provided by operating activities in 2008 was higher due to a $898 smaller
decrease in gain on investments (which occurred largely because the WM capital
loss was recognized in net income) and a $482 larger decrease in accounts
receivable, among other changes that were generally consistent with excellent
balance sheet management in the presence of lower sales
activity.  Accelerating into December 2008 the payment of the cash
dividend that normally would have been paid in January 2009 resulted in $836
less cash provided by operating activities in 2008.





21





The Company’s use of cash for investing
activities was primarily as a result of purchases of liquid investments, in an
effort to maximize returns on excess cash balances while maintaining safety and
liquidity.  UTMD expended $2,650 in 2008 on such purchases, compared
to $2,000 in 2007 and $6,600 in 2006.  In 2008, UTMD received $7,792
from selling short-term investments, compared to $2,023 in 2007 and $4,306 in
2006.  No acquisitions requiring investment of cash were made in any
of the three years.





In 2008, UTMD received $224 and issued
18,369 shares of stock upon the exercise of employee stock
options.  Employees exercised a total of 20,169 option shares in 2008,
with 1,800 shares immediately being retired as a result of some optionees
trading the shares in payment of the exercise price of the
options.  The Company received a $42 tax benefit from option exercises
in 2008.  UTMD repurchased 320,905 shares of stock in the open market
at a cost of $7,792 during 2008.  Option exercises in 2008 were at an
average price of $13.79 per share.  Share repurchases in the open
market were at an average cost of $24.28 per share, including commissions and
fees.  In comparison, in 2007 UTMD received $180 from issuing 27,519
shares of stock on the exercise of employee stock options, including 7,543
shares retired upon optionees trading those shares in payment of the stock
option exercise price. In 2006, the Company received $627 from issuing 155,823
shares of stock on the exercise of employee and director stock options,
including 168,725 shares retired upon employees and directors trading those
shares in payment of the stock option exercise price and related tax withholding
subject to statutory limitations. UTMD paid $2,700 in 2006 to meet tax
withholding requirements on options exercised, but received a $2,450 tax benefit
from those exercises.





UTMD did not borrow during 2008, 2007 or
2006.  In December 2005, UTMD’s foreign subsidiary borrowed €4.5
million ($5,336) to allow repatriation (from Ireland to the U.S.) of profits
achieved since 1996, per The American Jobs Creation Act of
2004.  During 2008, the Bank of Ireland loan terms were modified to no
longer require a guarantee by UTMD’s line of credit with U.S.
Bank.  The U.S. Bank line of credit terminated on May 31, 2008. In
2008, UTMD made repayments of $1,917 on the Ireland note, compared to $1,239 in
2007 and $1,057 in 2006.





Management believes that future income
from operations and effective management of working capital will provide the
liquidity needed to finance internal growth plans.  Planned 2009
capital expenditures are expected to be less than $500 to keep facilities,
equipment and tooling in good working order.  In addition, UTMD may
use cash in 2009 for selective infusions of technological, marketing or product
manufacturing rights to broaden the Company's product offerings; for continued
share repurchases when the price of the stock is undervalued; and if available
for a reasonable price, acquisitions that may strategically fit UTMD’s business
and are accretive to performance.





In summary, management plans to utilize
cash not needed to support normal operations in one or a combination of the
following:  1) to make investments in new technology and/or
processes;  2) to acquire a product line that will augment revenue
growth and better utilize UTMD’s existing infrastructure; and/or  3)
to repurchase UTMD shares in the open marketplace.





Management's
Outlook.


In summary, in 2009 UTMD plans
to


1)  work to retain its
significant global market shares of established key specialty
products,


2)  accelerate revenue
growth of newer products;


3)  develop
additional proprietary products helpful to clinicians through internal new
product development;


4)  continue
achieving excellent overall financial operating performance;


5)  look for new
acquisitions to augment sales growth;  and


6)  utilize current cash
balances in shareholders’ best long-term interest, including continued cash
dividends and open market share repurchases.





The safety, reliability and
performance of UTMD’s products are high and represent significant clinical
benefits while providing minimum total cost of care.  In the U.S.,
UTMD will continue to leverage its reputation as an innovator which will
responsively take on challenges to work with physicians who use its products in
specialty hospital areas, or outside the hospital in their office
practices.  Internationally, where UTMD must depend on the knowledge,
focus, relationships and energy of independent distributors, management will
continue to closely monitor performance and recruit needed business
partners.





22




UTMD will continue to focus on
differentiating itself, especially from commodity-oriented
competitors.  UTMD is small, but its employees are experienced and
diligent in their work.  UTMD’s passion is in providing innovative
clinical solutions that will help reduce health risks for women and their
babies.  The Company has a fundamental focus to do an excellent job in
meeting customers’ and patients’ needs, while providing shareholders with
excellent returns.





Despite the decline in EPS and share
price over the last two years, looking back eight years to the end of 2000,
UTMD’s EPS have more than doubled and the resulting year-ending share price has
almost tripled.  Combining this performance with steadily growing
dividends since 2004, longer term UTMD shareholders have experienced excellent
returns.  In comparison, the NASDAQ Composite, S&P 500 Index and
DJIA indices declined 36%, 32% and
19%, respectively, over that same eight year time span.





In 2008, while the year ending
share price decreased 26% (largely in 4Q), UTMD increased dividends/share
actually paid (not counting the dividend paid in late December 2008 that would
normally have been paid in January 2009) to shareholders by 3.5% (from $.87 in
2007 to $.90 in 2008), and decreased shares outstanding at the end of the year
by 7.7%.  This was accomplished in 2008 by UTMD continuing to achieve
a high positive cash flow.  UTMD’s balance sheet is strong enough to
be able to finance a substantial acquisition in 2009 without issuing stock,
should an immediately accretive one become available.  In 2008, UTMD
also filed an S-3 “shelf” registration statement that gives it speed and
flexibility in obtaining additional financing should an acquisition that exceeds
current cash availability become available.  In considering
acquisitions, UTMD looks to acquire successful companies, products or
technologies that will enhance its specialist focus, but not significantly
increase its business risk and not dilute its financial
performance.





Off
Balance Sheet Arrangements


None





Contractual
Obligations


The following is a summary of UTMD’s
significant contractual obligations and commitments as of December 31,
2008:




Contractual
      Obligations and
                  Commitments
                
                Total
                
                
                2009
                
                
                
                2010-
      2011
                
                
                
                2012-
      2013
                
                
                2014
      and
                  thereafterLong-term
      debt obligations
                
                $
                2,399
                
                
                $
                343
                
                
                $
                686
                
                
                $
                686
                
                
                $
                685Operating
      lease obligations
                
                
                947
                
                
                
                73
                
                
                
                80
                
                
                
                80
                
                
                
                714Purchase
      obligations
                
                
                1,494
                
                
                
                1,385
                
                
                
                109
                
                
                
                -
                
                
                
                -Total
                
                $
                4,840
                
                
                $
                1,801
                
                
                $
                875
                
                
                $
                766
                
                
                $
                1,399




Critical
Accounting Policies and Estimates


The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as well as the reported amounts of
revenues and expenses during the reporting period.





Management bases its estimates and
judgments on historical experience, current economic and industry conditions and
on various other factors that are believed to be reasonable under the
circumstances. This forms the basis for making judgments about the carrying
values of assets and liabilities that are not readily available from other
sources. Management has identified the following as the Company’s most critical
accounting policies which require significant judgment and estimates. Although
management believes its estimates are reasonable, actual results may differ from
these estimates under different assumptions or conditions.


·
            Allowance
      for doubtful accounts: The majority of the Company’s receivables are with
      hospitals and medical device distributors.  Although the Company
      has historically not had significant write-offs of bad-debt, the
      possibility exists, particularly with foreign customers where collection
      efforts can be difficult or in the event of widespread U.S. hospital
      bankruptcies.





23





·
            Inventory
      valuation reserves:  The Company strives to maintain a good
      balance of inventory to 1) meets its customer’s needs while 2) not
      tying-up an unnecessary amount of the Company’s resources increasing the
      possibility of, among other things, obsolescence.  The Company
      believes its method of reviewing actual and projected demand for its
      existing inventory allows it to arrive at a fair inventory valuation
      reserve. While the Company has historically not had significant inventory
      write-offs, the possibility exists that one or more of its products may
      become unexpectedly obsolete for which a reserve has not previously been
      created. The Company’s historical write-offs have not been materially
      different from its estimates.





Accounting
Policy Changes




In June 2006, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109.”  This statement clarifies the accounting for
uncertainty in income tax positions.  The Company or one of its
subsidiaries files or has filed income tax returns in the U.S. federal
jurisdiction, in various states and in Ireland.  With few exceptions,
UTMD is no longer subject to U.S. federal, state and local, or non-U.S. income
tax examinations by tax authorities for years before 2005.  In 2005,
the Internal Revenue Service examined the Company’s federal income tax returns
for 2002 – 2004 and suggested one immaterial adjustment which the Company made.
The Company’s income tax return for 2005 is presently being audited by the
IRS.


The Company adopted the provisions of
FIN 48 on January 1, 2007.  UTMD did not make any adjustment to
opening retained earnings as a result of the implementation.  The
Company recognizes interest accrued related to unrecognized tax benefits in
interest expenses and any related penalties in income taxes.  During
the years ended December 31, 2008, 2007 and 2006, the Company did not recognize
any interest or penalties relating to income taxes.  UTMD did not have
any accrual for the payment of interest or penalties at December 31, 2008, 2007
or 2006.








ITEM
7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The Company had manufacturing
operations, including related assets, in Ireland denominated in the Euro, and
sold products under agreements denominated in various Western European
currencies.  The Euro and other currencies have been and are subject
to exchange rate fluctuations that are beyond the control of
UTMD.  The exchange rate for the Euro was .7096, .6786 and .7611 per
U.S. Dollar as of December 31, 2008, 2007 and 2006,
respectively.  Please see note 1 in Item, 8, below under “Translation
of Foreign Currencies” for more information.  UTMD manages its foreign
currency risk without separate hedging transactions by converting currencies as
transactions occur.











24





ITEM
8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Dollar
amounts are in thousands except per-share amounts and where noted.








TABLE
OF CONTENTS


Management’s
      Report on Internal Control Over Financial Reporting
              26Report
      of Independent Registered Public Accounting Firm on the Company’s Internal
      Control Over Financial Reporting
              27Report
      of Independent Registered Public Accounting Firm on Financial
      Statements
              28Consolidated
      Balance Sheet
              29Consolidated
      Statement of Income and Comprehensive Income
              30Consolidated
      Statement of Cash Flow
              31Consolidated
      Statement of Stockholders’ Equity
              32Notes
      to Consolidated Financial Statements
              33














25





MANAGEMENT’S
REPORT ON INTERNAL CONTROL


OVER
FINANCIAL REPORTING






Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934. The Company's internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). The
Company's internal control over financial reporting includes those policies and
procedures that:




·      pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Company;


·      provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and


·      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.




As
required by Section 404 of the Sarbanes-Oxley Act of 2002, management
assessed the effectiveness of the Company's internal control over financial
reporting as of December 31, 2008. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework.




Based on
its assessment and those criteria, management believes that the Company
maintained effective internal control over financial reporting as of
December 31, 2008.




The
Company's independent registered public accounting firm, Jones Simkins, P.C.,
has audited the Company's internal control over financial reporting as of
December 31, 2008, and its report is shown on the next page.













By:
              /s/ Kevin L.
      CornwellKevin
      L. CornwellChief
      Executive OfficerBy:
              /s/ Paul O.
    RichinsPaul
      O. RichinsPrincipal
      Financial Officer





26





REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Stockholders


of Utah
Medical Products, Inc.





We have
audited Utah Medical Products, Inc.’s internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Utah Medical Products, Inc.’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
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.





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.





In our
opinion, Utah Medical Products, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).





We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets and the related
consolidated statements of income and comprehensive income, stockholders’
equity, and cash flows of Utah Medical Products, Inc., and our report dated
February 27, 2009 expressed an unqualified opinion.




/s/ Jones Simkins,
P.C.





JONES
SIMKINS, P.C.


Logan,
Utah


February
27, 2009





27




REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM













To the
Board of Directors and Stockholders


of Utah
Medical Products, Inc.





We have
audited the accompanying consolidated balance sheets of Utah Medical Products,
Inc. as of December 31, 2008 and 2007, and the related consolidated statements
of income and comprehensive income, stockholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2008. Utah Medical
Products, Inc.’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Utah Medical Products, Inc. as of
December 31, 2008 and 2007, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2008 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), Utah Medical Products, Inc.’s internal control
over financial reporting as of December 31, 2008, based on criteria established
in Internal Control-Integrated
Frameworkissued by theCommittee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February
27, 2009 expressed an unqualified opinion.





/s/ Jones Simkins,
P.C.


JONES
SIMKINS, P.C.


Logan,
Utah


February
27, 2009





28




UTAH MEDICAL PRODUCTS, INC.CONSOLIDATED BALANCE SHEETDecember 31, 2008 and 2007(In
      thousands)ASSETS
                                                  
                                                  2008
                                                  
                                                  
                                                  2007Current
      assets:Cash
                                                  
                                                  $
                                                  97
                                                  
                                                  
                                                  $
                                                  1,251Investments,
      available-for-sale (notes 3 and 4)
                                                  
                                                  
                                                  15,927
                                                  
                                                  
                                                  
                                                  21,121Accounts
      and other receivables, net (note 2)
                                                  
                                                  
                                                  3,517
                                                  
                                                  
                                                  
                                                  3,905Inventories
      (note 2)
                                                  
                                                  
                                                  3,275
                                                  
                                                  
                                                  
                                                  3,153Prepaid
      expenses and other current assets
                                                  
                                                  
                                                  214
                                                  
                                                  
                                                  
                                                  282Deferred
      income taxes (note 8)
                                                  
                                                  
                                                  248
                                                  
                                                  
                                                  
                                                  220Total
      current assets
                                                  
                                                  
                                                  23,280
                                                  
                                                  
                                                  
                                                  29,931Property
      and equipment, net (note 5)
                                                  
                                                  
                                                  8,127
                                                  
                                                  
                                                  
                                                  8,606Goodwill
                                                  
                                                  
                                                  7,191
                                                  
                                                  
                                                  
                                                  7,191Other
      intangible assets - net (note 2)
                                                  
                                                  
                                                  223
                                                  
                                                  
                                                  
                                                  258Total
      assets
                                                  
                                                  $
                                                  38,821
                                                  
                                                  
                                                  $
                                                  45,986LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      liabilities:Accounts
      payable
                                                  
                                                  $
                                                  418
                                                  
                                                  
                                                  $
                                                  393Accrued
      expenses (note 2)
                                                  
                                                  
                                                  1,086
                                                  
                                                  
                                                  
                                                  2,349Current
      portion of note payable (note 6)
                                                  
                                                  
                                                  265
                                                  
                                                  
                                                  
                                                  423Total
      current liabilities
                                                  
                                                  
                                                  1,768
                                                  
                                                  
                                                  
                                                  3,165Note
      payable (note 6)
                                                  
                                                  
                                                  1,828
                                                  
                                                  
                                                  
                                                  3,689Deferred
      income taxes (note 8)
                                                  
                                                  
                                                  420
                                                  
                                                  
                                                  
                                                  343Total
      liabilities
                                                  
                                                  
                                                  4,016
                                                  
                                                  
                                                  
                                                  7,197Commitments
      and contingencies (notes 7 and 12)
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Stockholders'
      equity:Preferred
      stock, $.01 par value; 5,000 shares authorized, no shares issued and
      outstanding
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Common
      stock, $.01 par value; 50,000 shares authorized, issued 3,603 shares in
      2008 and 3,905 shares in 2007
                                                  
                                                  
                                                  36
                                                  
                                                  
                                                  
                                                  39Accumulated
      other comprehensive income
                                                  
                                                  
                                                  (1,122
                                                  )
                                                  
                                                  
                                                  (789
                                                  )Retained
      earnings
                                                  
                                                  
                                                  35,892
                                                  
                                                  
                                                  
                                                  39,539Total
      stockholders' equity
                                                  
                                                  
                                                  34,805
                                                  
                                                  
                                                  
                                                  38,789Total
      liabilities and stockholders' equity
                                                  
                                                  $
                                                  38,821
                                                  
                                                  
                                                  $
                                                  45,986




See
accompanying notes to financial statements.





29




UTAH MEDICAL PRODUCTS, INC.CONSOLIDATED STATEMENT OF
      INCOMEAND COMPREHENSIVE INCOMEYears ended December 31, 2008, 2007 and
      2006(In
      thousands, except per share amounts)2008
                                                      
                                                      
                                                      2007
                                                      
                                                      
                                                      2006Sales,
      net (notes 10 and 11)
                                                      
                                                      $
                                                      27,782
                                                      
                                                      
                                                      $
                                                      28,502
                                                      
                                                      
                                                      $
                                                      28,753Cost
      of goods sold
                                                      
                                                      
                                                      12,764
                                                      
                                                      
                                                      
                                                      12,714
                                                      
                                                      
                                                      
                                                      12,606Gross
      profit
                                                      
                                                      
                                                      15,018
                                                      
                                                      
                                                      
                                                      15,788
                                                      
                                                      
                                                      
                                                      16,147Operating
      income (expense):Sales
      and marketing expense
                                                      
                                                      
                                                      (1,816
                                                      )
                                                      
                                                      
                                                      (2,075
                                                      )
                                                      
                                                      
                                                      (2,272
                                                      )Research
      and development expense
                                                      
                                                      
                                                      (359
                                                      )
                                                      
                                                      
                                                      (382
                                                      )
                                                      
                                                      
                                                      (316
                                                      )General
      and administrative expense
                                                      
                                                      
                                                      (2,454
                                                      )
                                                      
                                                      
                                                      (2,575
                                                      )
                                                      
                                                      
                                                      (2,725
                                                      )Operating
      income
                                                      
                                                      
                                                      10,389
                                                      
                                                      
                                                      
                                                      10,756
                                                      
                                                      
                                                      
                                                      10,835Other
      income (expense):Dividend
      and interest income
                                                      
                                                      
                                                      543
                                                      
                                                      
                                                      
                                                      1,003
                                                      
                                                      
                                                      
                                                      862Capital
      gains and (losses) on investments
                                                      
                                                      
                                                      (428
                                                      )
                                                      
                                                      
                                                      19
                                                      
                                                      
                                                      
                                                      520Royalty
      income (note 12)
                                                      
                                                      
                                                      450
                                                      
                                                      
                                                      
                                                      450
                                                      
                                                      
                                                      
                                                      450Interest
      expense
                                                      
                                                      
                                                      (198
                                                      )
                                                      
                                                      
                                                      (270
                                                      )
                                                      
                                                      
                                                      (255
                                                      )Other,
      net
                                                      
                                                      
                                                      21
                                                      
                                                      
                                                      
                                                      80
                                                      
                                                      
                                                      
                                                      5Income
      before provision for income taxes
                                                      
                                                      
                                                      10,777
                                                      
                                                      
                                                      
                                                      12,038
                                                      
                                                      
                                                      
                                                      12,418Provison
      for income taxes (note 8)
                                                      
                                                      
                                                      3,572
                                                      
                                                      
                                                      
                                                      4,134
                                                      
                                                      
                                                      
                                                      4,250Net
      income
                                                      
                                                      $
                                                      7,205
                                                      
                                                      
                                                      $
                                                      7,905
                                                      
                                                      
                                                      $
                                                      8,168Earnings
      per common share (basic) (note 1):
                                                      
                                                      $
                                                      1.87
                                                      
                                                      
                                                      $
                                                      2.01
                                                      
                                                      
                                                      $
                                                      2.07Earnings
      per common share (diluted) (note 1):
                                                      
                                                      $
                                                      1.86
                                                      
                                                      
                                                      $
                                                      1.98
                                                      
                                                      
                                                      $
                                                      2.02Other
      comprehensive income:Foreign
      currency translation net of taxes of$(93), $29 and $(41)
                                                      
                                                      $
                                                      (146
                                                      )
                                                      
                                                      $
                                                      58
                                                      
                                                      
                                                      $
                                                      (75
                                                      )Unrealized
      loss on investments net oftaxes of $(60), $(100) and $(69)
                                                      
                                                      
                                                      (94
                                                      )
                                                      
                                                      
                                                      (156
                                                      )
                                                      
                                                      
                                                      (109
                                                      )Total
      comprehensive income
                                                      
                                                      $
                                                      6,965
                                                      
                                                      
                                                      $
                                                      7,807
                                                      
                                                      
                                                      $
                                                      7,984


See
accompanying notes to financial statements.





30




UTAH MEDICAL PRODUCTS, INC.CONSOLIDATED STATEMENT OF CASH
      FLOWYears Ended December 31, 2008, 2007 and
      2006(In
      thousands)2008
                                                    
                                                    
                                                    2007
                                                    
                                                    
                                                    2006Cash flows from operating
      activities:Net
      income
                                                    
                                                    $
                                                    7,205
                                                    
                                                    
                                                    $
                                                    7,905
                                                    
                                                    
                                                    $
                                                    8,168Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                                    
                                                    
                                                    591
                                                    
                                                    
                                                    
                                                    597
                                                    
                                                    
                                                    
                                                    634Gain
      on investments
                                                    
                                                    
                                                    (94
                                                    )
                                                    
                                                    
                                                    (992
                                                    )
                                                    
                                                    
                                                    (1,375
                                                    )Provision
      for (recovery of) losses on accounts receivable
                                                    
                                                    
                                                    (42
                                                    )
                                                    
                                                    
                                                    (30
                                                    )
                                                    
                                                    
                                                    29(Gain)
      loss on disposal of assets
                                                    
                                                    
                                                    0
                                                    
                                                    
                                                    
                                                    3
                                                    
                                                    
                                                    
                                                    -Deferred
      income taxes
                                                    
                                                    
                                                    (46
                                                    )
                                                    
                                                    
                                                    93
                                                    
                                                    
                                                    
                                                    118Stock-based
      compensation expense
                                                    
                                                    
                                                    120
                                                    
                                                    
                                                    
                                                    95
                                                    
                                                    
                                                    
                                                    140(Increase)
      decrease in:Accounts
      receivable
                                                    
                                                    
                                                    365
                                                    
                                                    
                                                    
                                                    (117
                                                    )
                                                    
                                                    
                                                    (37
                                                    )Accrued
      interest and other receivables
                                                    
                                                    
                                                    27
                                                    
                                                    
                                                    
                                                    64
                                                    
                                                    
                                                    
                                                    709Inventories
                                                    
                                                    
                                                    (70
                                                    )
                                                    
                                                    
                                                    (80
                                                    )
                                                    
                                                    
                                                    35Prepaid
      expenses and other current assets
                                                    
                                                    
                                                    60
                                                    
                                                    
                                                    
                                                    (11
                                                    )
                                                    
                                                    
                                                    1Increase
      (decrease) in:Accounts
      payable
                                                    
                                                    
                                                    25
                                                    
                                                    
                                                    
                                                    (207
                                                    )
                                                    
                                                    
                                                    74Accrued
      expenses
                                                    
                                                    
                                                    (380
                                                    )
                                                    
                                                    
                                                    154
                                                    
                                                    
                                                    
                                                    (92
                                                    )Net
      cash provided by operating activities
                                                    
                                                    
                                                    7,762
                                                    
                                                    
                                                    
                                                    7,474
                                                    
                                                    
                                                    
                                                    8,403Cash flows from investing
      activities:Capital
      expenditures for:Property
      and equipment
                                                    
                                                    
                                                    (274
                                                    )
                                                    
                                                    
                                                    (307
                                                    )
                                                    
                                                    
                                                    (334
                                                    )Intangible
      assets
                                                    
                                                    
                                                    (13
                                                    )
                                                    
                                                    
                                                    (53
                                                    )
                                                    
                                                    
                                                    -Purchases
      of investments
                                                    
                                                    
                                                    (2,650
                                                    )
                                                    
                                                    
                                                    (2,000
                                                    )
                                                    
                                                    
                                                    (6,600
                                                    )Proceeds
      from the sale of:Investments
                                                    
                                                    
                                                    7,792
                                                    
                                                    
                                                    
                                                    2,023
                                                    
                                                    
                                                    
                                                    4,306Net
      cash used in investing activities
                                                    
                                                    
                                                    4,856
                                                    
                                                    
                                                    
                                                    (337
                                                    )
                                                    
                                                    
                                                    (2,628
                                                    )Cash flows from financing
      activities:Proceeds
      from issuance of common stock - options
                                                    
                                                    
                                                    224
                                                    
                                                    
                                                    
                                                    180
                                                    
                                                    
                                                    
                                                    627Common
      stock purchased and retired
                                                    
                                                    
                                                    (7,792
                                                    )
                                                    
                                                    
                                                    (2,023
                                                    )
                                                    
                                                    
                                                    (2,094
                                                    )Common
      stock purchased and retired - options
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (2,700
                                                    )Tax
      benefit attributable to exercise of stock options
                                                    
                                                    
                                                    42
                                                    
                                                    
                                                    
                                                    60
                                                    
                                                    
                                                    
                                                    2,450Repayments
      of note payable
                                                    
                                                    
                                                    (1,917
                                                    )
                                                    
                                                    
                                                    (1,239
                                                    )
                                                    
                                                    
                                                    (1,057
                                                    )Dividends
      paid
                                                    
                                                    
                                                    (4,329
                                                    )
                                                    
                                                    
                                                    (3,423
                                                    )
                                                    
                                                    
                                                    (2,902
                                                    )Net
      cash used in financing activities
                                                    
                                                    
                                                    (13,772
                                                    )
                                                    
                                                    
                                                    (6,445
                                                    )
                                                    
                                                    
                                                    (5,676
                                                    )Effect
      of exchange rate changes on cash
                                                    
                                                    
                                                    1
                                                    
                                                    
                                                    
                                                    (52
                                                    )
                                                    
                                                    
                                                    (191
                                                    )Net
      increase (decrease) in cash and cash equivalents
                                                    
                                                    
                                                    (1,153
                                                    )
                                                    
                                                    
                                                    640
                                                    
                                                    
                                                    
                                                    (92
                                                    )Cash
      at beginning of year
                                                    
                                                    
                                                    1,251
                                                    
                                                    
                                                    
                                                    610
                                                    
                                                    
                                                    
                                                    703Cash
      at end of year
                                                    
                                                    $
                                                    97
                                                    
                                                    
                                                    $
                                                    1,251
                                                    
                                                    
                                                    $
                                                    610SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the year for:Income
      taxes
                                                    
                                                    $
                                                    3,360
                                                    
                                                    
                                                    $
                                                    3,757
                                                    
                                                    
                                                    $
                                                    1,866Interest
                                                    
                                                    
                                                    198
                                                    
                                                    
                                                    
                                                    270
                                                    
                                                    
                                                    
                                                    255


See
accompanying notes to financial statements.





31




UTAH MEDICAL PRODUCTS, INC.CONSOLIDATED STATEMENT OF STOCKHOLDERS'
      EQUITYYears Ended December 31, 2008, 2007 and
      2006(In
      thousands)AccumulatedAdditional
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Other
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              TotalCommon
      Stock
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Paid-in
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Comprehensive
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Retained
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Stockholders'Shares
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Amount
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Capital
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Income
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              Earnings
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              EquityBalance
      at December 31, 2005
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,856
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              39
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              (495
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              33,314
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              32,857Shares
      issued upon exercise of employee
                                                                                                                                                                stock
      options for cash
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              325
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,406
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,409Shares
      received and retired upon exercise
                                                                                                                                                                of
      stock options
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (169
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (2
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (5,481
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (5,483
                                                                                                                                                              )Tax
      benefit attributable to appreciation
                                                                                                                                                                of
      stock options
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,450
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              2,450Stock
      option compensation expense
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              140
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              140Common
      stock purchased and retired
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (69
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (1
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (515
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (1,610
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (2,125
                                                                                                                                                              )Foreign
      currency translation adjustment
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (116
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (116
                                                                                                                                                              )Unrealized
      holding loss from investments,
                                                                                                                                                                available-for-sale,
      net of taxes
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (109
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (109
                                                                                                                                                              )Common
      stock dividends
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (3,076
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (3,076
                                                                                                                                                              )Net
      income
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              8,168
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              8,168Balance
      at December 31, 2006
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,944
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              39
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              (720
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              36,796
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              36,115Shares
      issued upon exercise of employee
                                                                                                                                                                stock
      options for cash
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              35
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              0
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              431
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              431Shares
      received and retired upon exercise
                                                                                                                                                                of
      stock options
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (8
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (0
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (251
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (252
                                                                                                                                                              )Tax
      benefit attributable to appreciation
                                                                                                                                                                of
      stock options
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              60
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              60Stock
      option compensation expense
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              95
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              95Common
      stock purchased and retired
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (66
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (1
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (335
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (1,688
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (2,023
                                                                                                                                                              )Foreign
      currency translation adjustment
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              87
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              87Unrealized
      holding loss from investments,
                                                                                                                                                                available-for-sale,
      net of taxes
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (156
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (156
                                                                                                                                                              )Common
      stock dividends
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (3,474
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (3,474
                                                                                                                                                              )Net
      income
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              7,905
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              7,905Balance
      at December 31, 2007
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,905
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              39
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              (789
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              39,539
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              38,789Shares
      issued upon exercise of employee
                                                                                                                                                                stock
      options for cash
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              20
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              0
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              278
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              278Shares
      received and retired upon exercise
                                                                                                                                                                of
      stock options
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (2
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (0
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (54
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (54
                                                                                                                                                              )Tax
      benefit attributable to appreciation
                                                                                                                                                                of
      stock options
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              42
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              42Stock
      option compensation expense
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              120
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              120Common
      stock purchased and retired
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (321
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (3
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (386
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (7,404
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (7,792
                                                                                                                                                              )Foreign
      currency translation adjustment
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (239
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (239
                                                                                                                                                              )Unrealized
      holding loss from investments,
                                                                                                                                                                available-for-sale,
      net of taxes
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (94
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (94
                                                                                                                                                              )Common
      stock dividends
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (3,449
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              (3,449
                                                                                                                                                              )Net
      income
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              7,205
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              7,205Balance
      at December 31, 2008
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              3,603
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              36
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              -
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              (1,122
                                                                                                                                                              )
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              35,891
                                                                                                                                                              
                                                                                                                                                              
                                                                                                                                                              $
                                                                                                                                                              34,805


See
accompanying notes to financial statements.





32





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Dollar
amounts are in thousands except per-share amounts and where noted.





Note 1 – Summary of
Significant Accounting Policies





Organization





Utah
Medical Products, Inc. and its wholly owned subsidiaries, principally Utah
Medical Products Ltd., which operates a manufacturing facility in Ireland, and
Columbia Medical, Inc., (the Company) are in the business of producing
specialized devices for the healthcare industry.  The Company’s broad
range of products includes those used in critical care areas and the labor and
delivery departments of hospitals, as well as outpatient clinics and physicians’
offices.  Products are sold in both domestic U.S. and international
markets.





Use of Estimates in the
Preparation of Financial Statements





The
preparation of 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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Although actual results could differ
from those estimates, management believes it has considered and disclosed all
relevant information in making its estimates that materially affect reported
performance and current values.





Principles of
Consolidation





The
consolidated financial statements include those of the Company and its
subsidiaries.  All intercompany accounts and transactions have been
eliminated in consolidation.





Cash and Cash
Equivalents





For
purposes of the consolidated statement of cash flows, the Company considers cash
on deposit and short-term investments with original maturities of three months
or less to be cash and cash equivalents.





Investments





The
Company classifies its investments as “available for
sale.”  Securities classified as “available for sale” are carried in
the financial statements at fair value.  Realized gains and losses,
determined using the specific identification method, are included in operations;
unrealized holding gains and losses are reported as a separate component of
accumulated other comprehensive income.  Declines in fair value below
cost that are other than temporary are included in operations.  As of
December 31, 2008 the Company’s investments are in Fidelity Cash Reserves
(FDRXX), General Electric (GE), Citigroup (C) and the surviving remnant of
Washington Mutual (WAMUQ).





Concentration of Credit
Risk





The
primary concentration of credit risk consists of trade
receivables.  In the normal course of business, the Company provides
credit terms to its customers.  Accordingly, the Company performs
ongoing credit evaluations of its customers and maintains allowances for
possible losses which, when realized, have been within the range of management's
expectations as reflected by its reserves.





The
Company's customer base consists of hospitals, medical product distributors,
physician practices and others directly related to healthcare providers, as well
as other manufacturing companies.  Although the Company is affected by
the well-being of the global healthcare industry, management does not believe
significant trade receivable credit risk exists at December 31, 2008 except
under an extreme global financial crisis.





The
Company maintains its cash in bank deposit accounts in addition to Fidelity
Investments accounts.  The Company has not experienced any losses in
such accounts and believes it is not exposed to a significant credit risk on
cash and cash equivalent balances unless FDRXX is at risk of “breaking the buck”
and the Federal Reserve does not provide support to prevent that from happening,
as they currently are.





33





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 1 – Summary of
Significant Accounting Policies (continued)





Accounts
Receivable





Accounts
receivable are amounts due on product sales and are
unsecured.  Accounts receivable are carried at their estimated
collectible amounts.  Credit is generally extended on a short-term
basis; thus accounts receivable do not bear interest although a finance charge
may be applied to such receivables that are past the due
date.  Accounts receivable are periodically evaluated for
collectibility based on past credit history with clients.  Provisions
for losses


on
accounts receivable are determined on the basis of loss experience, known and
inherent risk in the account balance and current economic conditions (see note
2).





Inventories





Finished
products, work-in-process, raw materials and supplies inventories are stated at
the lower of cost (computed on a first-in, first-out method) or market (see note
2).





Property and
Equipment





Property
and equipment are stated at cost.  Depreciation and amortization are
computed using the straight-line and units-of-production methods over estimated
useful lives as follows:


Building
      and improvements
                  15-40
      yearsFurniture,
      equipment and tooling
                  3-10
      years





Long-Lived
Assets





The
Company evaluates its long-lived assets in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment of
Long-Lived Assets.”  Long-lived assets held and used by the Company
are reviewed for impairment whenever events or changes in circumstances indicate
that their net book value may not be recoverable.  When such factors
and circumstances exist, the Company compares the projected undiscounted future
cash flows associated with the related asset or group of assets over their
estimated useful lives against their respective carrying
amounts.  Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets and is recorded in the period in
which the determination was made.





Intangible
Assets





Costs
associated with the acquisition of patents, trademarks, license rights and
non-compete agreements are capitalized and are being amortized using the
straight-line method over periods ranging from 5 to 20 years. UTMD’s goodwill is
tested for impairment annually, in the fourth quarter of each year, using a fair
value measurement test, in accordance with SFAS 142. UTMD would also perform an
impairment test, between annual tests, if circumstances changed that would more
than likely reduce the fair value of goodwill below its net book
value.  If UTMD determined that its goodwill were impaired, a second
step would be completed to measure the amount of the impairment loss. UTMD does
not expect its goodwill to become impaired in the foreseeable future (see note
2).





Loans to Related
Parties





The
Company has not made loans to related entities including employees, directors,
shareholders, suppliers or customers, nor does it guarantee the debt of related
entities, except to the extent that UTMD might extend accounts receivable terms
to its customers on an interim basis.





Revenue
Recognition





The
Company recognizes revenue at the time of shipment as title generally passes to
the customer at the time of shipment. Revenue recognized by UTMD is based upon
documented arrangements and fixed contracts in which the selling price is fixed
prior to completion of an order. Revenue from product and service sales is
generally recognized at the time the product is shipped or service completed and
invoiced, and collectibility is reasonably assured.  There are
circumstances under which revenue may be recognized when product is not shipped,
which meet the criteria of SAB 104: the Company provides engineering services,
for example, design and production of manufacturing tooling that may be used in
subsequent UTMD manufacturing of custom components for other
companies.  This revenue is recognized when UTMD’s service has been
completed according to a fixed contractual agreement.





34





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 1 – Summary of
Significant Accounting Policies (continued)





Income
Taxes





The
Company accounts for income taxes under SFAS No. 109, “Accounting for Income
Taxes,” whereby deferred taxes are computed under the asset and liability
method.





Legal
Costs





The
Company has been involved in lawsuits which are an expected consequence of its
operations and in the ordinary course of business.  The Company
maintains a reserve for legal costs which are probable and estimated based on
its previous experience.  The reserve for legal costs at December 31,
2008 and 2007 was $80 and $32, respectively (see note 2).





Earnings per
Share





The
computation of basic earnings per common share is based on the weighted average
number of shares outstanding during each year.





The
computation of earnings per common share assuming dilution is based on the
weighted average number of shares outstanding during the year plus the weighted
average common stock equivalents which would arise from the exercise of stock
options outstanding using the treasury stock method and the average market price
per share during the year.





The
shares (in thousands) used in the computation of the Company’s basic and diluted
earnings per share are reconciled as follows:




2008
                      
                      
                      2007
                      
                      
                      2006Weighted
      average number of shares outstanding – basic
                      
                      
                      3,843
                      
                      
                      
                      3,927
                      
                      
                      
                      3,943Dilutive
      effect of stock options
                      
                      
                      35
                      
                      
                      
                      62
                      
                      
                      
                      100Weighted
      average number of shares outstanding, assuming dilution
                      
                      
                      3,878
                      
                      
                      
                      3,989
                      
                      
                      
                      4,043





Stock-Based
Compensation





At
December 31, 2008, the Company has stock-based employee compensation plans,
which are described more fully in note 9.  The Company accounts for
stock compensation under Statement of Financial Accounting Standards 123R, Share-Based
Payment.  This statement requires the Company to recognize
compensation cost based on the grant date fair value of options granted to
employees and directors.  In 2008, the Company recognized $120 in
compensation cost compared to $95 in 2007 and $140 in 2006.





Translation of Foreign
Currencies





Assets
and liabilities of the Company’s foreign subsidiary are translated into U.S.
dollars at the applicable exchange rates at year-end.  Net gains or
losses resulting from the translation of the Company’s assets and liabilities
are reflected as a separate component of stockholders’ equity.  A
negative translation impact on stockholders’ equity reflects a current relative
U.S. Dollar value higher than at the point in time that assets were actually
acquired in a foreign currency.  A positive translation impact would
result from a U.S. dollar weaker in value than at the point in time foreign
assets were acquired.





Income
and expense items are translated at the weighted average rate of exchange (based
on when transactions actually occurred) during the year.





35





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 2 – Detail of Certain
Balance Sheet Accounts





December 31,2008
                              
                              
                              2007Accounts
      and other receivables:Accounts
      receivable
                              
                              $
                              3,403
                              
                              
                              $
                              3,804Income
      tax receivable
                              
                              
                              139
                              
                              
                              
                              150Accrued
      interest and other
                              
                              
                              9
                              
                              
                              
                              26Less
      allowance for doubtful accounts
                              
                              
                              (34
                              )
                              
                              
                              (75
                              )$
                              3,517
                              
                              
                              $
                              3,905Inventories:Finished
      products
                              
                              $
                              1,353
                              
                              
                              $
                              1,245Work-in-process
                              
                              
                              817
                              
                              
                              
                              694Raw
      materials
                              
                              
                              1,105
                              
                              
                              
                              1,214$
                              3,275
                              
                              
                              $
                              3,153Other
      intangible assets:Patents
                              
                              $
                              1,961
                              
                              
                              $
                              1,948License
      rights
                              
                              
                              293
                              
                              
                              
                              293Trademarks
                              
                              
                              224
                              
                              
                              
                              224Non-compete
      agreements
                              
                              
                              175
                              
                              
                              
                              1752,653
                              
                              
                              
                              2,640Accumulated
      amortization
                              
                              
                              (2,430
                              )
                              
                              
                              (2,382
                              )$
                              223
                              
                              
                              $
                              258Accrued
      expenses:Income
      taxes payable
                              
                              $
                              23
                              
                              
                              $
                              10Payroll
      and payroll taxes
                              
                              
                              765
                              
                              
                              
                              962Reserve
      for litigation costs
                              
                              
                              80
                              
                              
                              
                              32Dividends
      payable
                              
                              
                              -
                              
                              
                              
                              880Other
                              
                              
                              218
                              
                              
                              
                              465$
                              1,086
                              
                              
                              $
                              2,349





Note 3 –
Investments





The
Company’s investments, classified as available-for-sale consist of the
following:





December 31,2008
                    
                    
                    2007Investments,
      at cost
                    
                    $
                    16,337
                    
                    
                    $
                    21,377Equity
      securities:-Unrealized
      holding gains
                    
                    
                    -
                    
                    
                    
                    --Unrealized
      holding (losses)
                    
                    
                    (410
                    )
                    
                    
                    (256
                    )Investments,
      at fair value
                    
                    $
                    15,927
                    
                    
                    $
                    21,121





Changes
in the unrealized holding gain on investment securities available-for-sale and
reported as a separate component of accumulated other comprehensive income are
as follows:





December 31,2008
                  
                  
                  2007Balance,
      beginning of year
                  
                  $
                  (156
                  )
                  
                  $
                  -Realized
      loss from securities included in beginning balance
                  
                  
                  186
                  
                  
                  
                  -Gross
      unrealized holding gains (losses) in equity securities
                  
                  
                  (340
                  )
                  
                  
                  (256
                  )Deferred
      income taxes on unrealized holding loss
                  
                  
                  60
                  
                  
                  
                  100Balance,
      end of year
                  
                  $
                  (250
                  )
                  
                  $
                  (156
                  )





During
2008, 2007 and 2006, UTMD had proceeds from sales of available-for-sale
securities of $7,792, $2,023 and $4,306, respectively.





36





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 4 – Fair Value
Measurements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157 “Fair
Value Measurements.”   This statement defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements.  SFAS 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years.  UTMD adopted the requirements of SFAS 157 on January 1,
2008.





The
following table provides financial assets carried at fair value measured as of
December 31, 2008:




Fair
      Value Measurements UsingDescription
                                        
                                        Total Fair Value at
    12/31/2008
                                        
                                        Quoted
      Prices in Active Markets for Identical Assets
                                          (Level 1)
                                        
                                        Significant
      Other Observable Inputs
                                          (Level 2)
                                        
                                        Significant
      Unobservable Inputs
                                          (Level 3 )Available-for-sale
      securities
                                        
                                        $
      15,927
                                        
                                        $
      15,927
                                        
                                        $  0
                                        
                                        $  0








Note 5 – Property and
Equipment





Property
and equipment consists of the following:


December 31,2008
                  
                  
                  2007Land
                  
                  $
                  1,105
                  
                  
                  $
                  1,127Buildings
      and improvements
                  
                  
                  9,644
                  
                  
                  
                  9,820Furniture,
      equipment and tooling
                  
                  
                  14,549
                  
                  
                  
                  14,432Construction-in-progress
                  
                  
                  78
                  
                  
                  
                  11925,376
                  
                  
                  
                  25,498Accumulated
      depreciation and amortization
                  
                  
                  (17,249
                  )
                  
                  
                  (16,892
                  )$
                  8,127
                  
                  
                  $
                  8,606





Included
in the Company’s consolidated balance sheet are the assets of its manufacturing
facilities in Utah, Oregon and Ireland.  Property and equipment, by
location, are as follows:





December 31, 2008Utah
                    
                    
                    Oregon
                    
                    
                    Ireland
                    
                    
                    TotalLand
                    
                    $
                    621
                    
                    
                    $
                    -
                    
                    
                    $
                    484
                    
                    
                    $
                    1,105Building
      and improvements
                    
                    
                    4,502
                    
                    
                    
                    32
                    
                    
                    
                    5,109
                    
                    
                    
                    9,644Furniture,
      equipment and tooling
                    
                    
                    12,312
                    
                    
                    
                    1,287
                    
                    
                    
                    950
                    
                    
                    
                    14,549Construction-in-progress
                    
                    
                    78
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    78Total
                    
                    
                    17,513
                    
                    
                    
                    1,319
                    
                    
                    
                    6,543
                    
                    
                    
                    25,376Accumulated
      depreciation
                    
                    
                    (13,819
                    )
                    
                    
                    (1,288
                    )
                    
                    
                    (2,142
                    )
                    
                    
                    (17,249
                    )Property
      and equipment, net
                    
                    $
                    3,695
                    
                    
                    $
                    31
                    
                    
                    $
                    4,401
                    
                    
                    $
                    8,127December 31, 2007Utah
                    
                    
                    Oregon
                    
                    
                    Ireland
                    
                    
                    TotalLand
                    
                    $
                    621
                    
                    
                    $
                    -
                    
                    
                    $
                    506
                    
                    
                    $
                    1,127Building
      and improvements
                    
                    
                    4,452
                    
                    
                    
                    32
                    
                    
                    
                    5,336
                    
                    
                    
                    9,820Furniture,
      equipment and tooling
                    
                    
                    12,169
                    
                    
                    
                    1,264
                    
                    
                    
                    999
                    
                    
                    
                    14,432Construction-in-progress
                    
                    
                    119
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    119Total
                    
                    
                    17,361
                    
                    
                    
                    1,296
                    
                    
                    
                    6,841
                    
                    
                    
                    25,498Accumulated
      depreciation
                    
                    
                    (13,486
                    )
                    
                    
                    (1,277
                    )
                    
                    
                    (2,129
                    )
                    
                    
                    (16,892
                    )Property
      and equipment, net
                    
                    $
                    3,875
                    
                    
                    $
                    19
                    
                    
                    $
                    4,712
                    
                    
                    $
                    8,606








37





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 6 – Long-term
Debt





In
December 2005 the Company borrowed €4.5 million ($5,336) from the Bank of
Ireland to finance repatriation of profits achieved since 1996 under The
American Jobs Creation Act of 2004.  The loan term is 10-years at an
interest rate of 1.10% plus the bank’s money market rate, which is a total of
the bank’s cost of funds and cost of liquidity.  The balance on the
note at December 31, 2008 was $2,093 (€1,485).





The
following table shows estimated minimum required amortization of the note during
the next five years using the December 31, 2008 interest rate of 3.95%, starting
with a December 31, 2008 balance of $2,093:





EndingYear
                            
                            Payments
                            
                            
                            Interest
                            
                            
                            Principal
                            
                            
                            Balance2009
                            
                            $
                            343
                            
                            
                            $
                            78
                            
                            
                            $
                            265
                            
                            
                            $
                            1,8282010
                            
                            
                            343
                            
                            
                            
                            67
                            
                            
                            
                            275
                            
                            
                            
                            1,5522011
                            
                            
                            343
                            
                            
                            
                            56
                            
                            
                            
                            286
                            
                            
                            
                            1,2662012
                            
                            
                            343
                            
                            
                            
                            45
                            
                            
                            
                            298
                            
                            
                            
                            9682013
                            
                            
                            343
                            
                            
                            
                            33
                            
                            
                            
                            310
                            
                            
                            
                            658Thereafter
                            
                            
                            685
                            
                            
                            
                            27
                            
                            
                            
                            658
                            
                            
                            
                            -Total
                            
                            $
                            2,399
                            
                            
                            $
                            306
                            
                            
                            $
                            2,093








Note 7 – Commitments and
Contingencies





Operating
Leases





The
Company has a lease agreement for land adjoining its Utah facility for a term of
forty years commencing on September 1, 1991.  On September 1, 2001 and
subsequent to each fifth lease year, the basic rental was and will be adjusted
for published changes in a price index.  The Company also leases its
CMI building in Oregon under a one-year non-cancelable operating
lease.  Rent expense charged to operations under these operating lease
agreements was approximately $107, $107 and $107 for the years ended
December 31, 2008, 2007 and 2006, respectively.





Future
minimum lease payments under its lease obligations as of December 31, 2008 were
as follows:





Years ending December 31:
                          
                          Amount2009
                          
                          $
                          732010
                          
                          
                          402011
                          
                          
                          402012
                          
                          
                          402013
                          
                          
                          40Thereafter
                          
                          
                          714Total
      future minimum lease payments
                          
                          $
                          947





Purchase
Obligations





The
Company has obligations to purchase raw materials for use in its manufacturing
operations.  The Company has the right to make changes in, among other
things, purchase quantities, delivery schedules and order
acceptance.





Product
Liability





The
Company is self-insured for product liability risk. “Product liability” is an
insurance industry term for the cost of legal defense and possible damages
awarded as a result of use of a company’s product during a procedure which
results in an injury of a patient.  The Company maintains a reserve
for product liability litigation and damages consistent with its previous
long-term experience.  Actual product liability litigation costs and
damages during the last three reporting years have been immaterial, which is
consistent with the Company’s overall history.





The
Company absorbs the costs of clinical training and trouble-shooting in its
on-going operating expenses.





38





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 7 – Commitments and
Contingencies (continued)





Warranty
Reserve





UTMD
maintains a warranty reserve to provide for estimated costs which are likely to
occur. The amount of this reserve is adjusted, as required, to reflect its
historical experience. The following table summarizes changes to UTMD’s warranty
reserve during 2008:





Beginning
      balance, January 1, 2008
                    
                    $
                    40Changes in warranty reserve during
      2008:Aggregate
      reductions for warranty repairs
                    
                    
                    -Aggregate
      changes for warranties issued during reporting period
                    
                    
                    40Aggregate
      changes in reserve related to preexisting warranties
                    
                    
                    (80
                    )Ending
      balance, December 31, 2008
                    
                    $
                    0





Litigation





The
Company has been involved in lawsuits which are an expected consequence of its
operations and in the ordinary course of business.  There is one such
lawsuit currently pending.  The Company applies its accounting policy
to accrue legal costs that can be reasonably estimated.





Irish Development
Agency





In order
to satisfy requirements of the Irish Development Agency in assisting the
start-up of its Ireland subsidiary, the Company agreed to invest certain amounts
and maintain a certain capital structure in its Ireland
subsidiary.  The effect of these financial relationships and
commitments are reflected in the consolidated financial statements and do not
represent any significant credit risk that would affect future
liquidity.







Note 8 – Income
Taxes





Deferred
tax assets (liabilities) consist of the following temporary
differences:





December 31,2008
                
                
                2007Current
                
                
                Long-term
                
                
                Current
                
                
                Long-termInventory
      write-downs and differences due to UNICAP
                
                $
                75
                
                
                $
                -
                
                
                $
                89
                
                
                $
                -Allowance
      for doubtful accounts
                
                
                10
                
                
                
                -
                
                
                
                23
                
                
                
                -Accrued
      liabilities and reserves
                
                
                163
                
                
                
                -
                
                
                
                108
                
                
                
                16Other
                
                
                -
                
                
                
                (224
                )
                
                
                -
                
                
                
                (248
                )Depreciation
      and amortization
                
                
                -
                
                
                
                (356
                )
                
                
                -
                
                
                
                (211
                )Unrealized
      investment gains
                
                
                -
                
                
                
                160
                
                
                
                -
                
                
                
                100Deferred
      income taxes, net
                
                $
                248
                
                
                $
                (420
                )
                
                $
                220
                
                
                $
                (343
                )





The
components of income tax expense are as follows:





Years ended December 31,2008
                          
                          
                          2007
                          
                          
                          2006Current
                          
                          $
                          3,463
                          
                          
                          $
                          3,194
                          
                          
                          $
                          4,049Deferred
                          
                          
                          109
                          
                          
                          
                          220
                          
                          
                          
                          201Total
                          
                          $
                          3,572
                          
                          
                          $
                          4,134
                          
                          
                          $
                          4,250




39





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 8 – Income Taxes
(continued)





Income
tax expense differed from amounts computed by applying the statutory federal
rate to pretax income as follows:





Years ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006Federal
      income tax expense at the statutory rate
                      
                      $
                      3,664
                      
                      
                      $
                      4,093
                      
                      
                      $
                      4,222State
      income taxes
                      
                      
                      323
                      
                      
                      
                      397
                      
                      
                      
                      410ETI,
      manufacturing deduction and tax credits
                      
                      
                      (206
                      )
                      
                      
                      (203
                      )
                      
                      
                      (154
                      )Other
                      
                      
                      (209
                      )
                      
                      
                      (153
                      )
                      
                      
                      (228
                      )Total
                      
                      $
                      3,572
                      
                      
                      $
                      4,134
                      
                      
                      $
                      4,250








Note 9 –
Options





The
Company has stock option plans which authorize the grant of stock options to
eligible employees, directors and other individuals to purchase up to an
aggregate of 819,161 shares of common stock, of which 208,257 are outstanding as
of December 31, 2008.  All options granted under the plans are granted
at current market value at the date of grant, and may be exercised between six
months and ten years following the date of grant.  The plans are
intended to advance the interest of the Company by attracting and ensuring
retention of competent directors, employees and executive personnel, and to
provide incentives to those individuals to devote their utmost efforts to the
advancement of the Company.  Changes in stock options were as
follows:





Price
      RangeShares
                    
                    
                    Per Share2008Granted
                    
                    
                    26,100
                    
                    
                    $
                    28.13
                    -
                    
                    $
                    29.41Expired
      or canceled
                    
                    
                    9,919
                    
                    
                    
                    18.00
                    -
                    
                    
                    31.33Exercised
                    
                    
                    20,169
                    
                    
                    
                    6.75
                    -
                    
                    
                    25.59Total
      outstanding at December 31
                    
                    
                    208,257
                    
                    
                    
                    6.50
                    -
                    
                    
                    31.33Total
      exercisable at December 31
                    
                    
                    168,457
                    
                    
                    
                    6.50
                    -
                    
                    
                    31.332007Granted
                    
                    
                    23,600
                    
                    
                    $
                    31.33
                    -
                    
                    $
                    31.33Expired
      or canceled
                    
                    
                    4,237
                    
                    
                    
                    18.00
                    -
                    
                    
                    31.33Exercised
                    
                    
                    35,062
                    
                    
                    
                    6.50
                    -
                    
                    
                    29.86Total
      outstanding at December 31
                    
                    
                    212,245
                    
                    
                    
                    6.50
                    -
                    
                    
                    31.33Total
      exercisable at December 31
                    
                    
                    171,618
                    
                    
                    
                    6.50
                    -
                    
                    
                    29.862006Granted
                    
                    
                    14,600
                    
                    
                    $
                    29.86
                    -
                    
                    $
                    29.86Expired
      or canceled
                    
                    
                    10,729
                    
                    
                    
                    14.60
                    -
                    
                    
                    29.86Exercised
                    
                    
                    324,548
                    
                    
                    
                    6.50
                    -
                    
                    
                    25.59Total
      outstanding at December 31
                    
                    
                    227,944
                    
                    
                    
                    6.50
                    -
                    
                    
                    29.86Total
      exercisable at December 31
                    
                    
                    191,010
                    
                    
                    
                    6.50
                    -
                    
                    
                    25.59





For the
years ended December 31, 2008, 2007 and 2006, the Company reduced current
income taxes payable and increased additional paid-in capital by $42, $60 and
$2,450, respectively, for the income tax benefit attributable to sale by
optionees of common stock received upon the exercise of stock
options.





Stock-Based
Compensation





In 2008,
the Company recognized $120 in equity compensation cost, compared to $95 in 2007
and $140 in 2006.








40





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 9 – Options
(continued)


Stock Based
Compensation (continued)





The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:




Years ended December 31,2008
                                        
                                        2007
                                        
                                        2006Expected
      dividend amount per quarter
                                        $0.2737
                                        
                                        $0.2638
                                        
                                        $0.2521Expected
      stock price volatility
                                        16.3%
                                        
                                        17.9%
                                        
                                        28.1%Risk-free
      interest rate
                                        2.92%
                                        
                                        4.56%
                                        
                                        5.0%Expected
      life of options
                                        5.3
      years
                                        
                                        5.6
      years
                                        
                                        5.3
      years





The per
share weighted average fair value of options granted during 2008, 2007 and 2006
is $2.91, $5.10 and $7.29, respectively.





The
following table summarizes information about stock options outstanding at
December 31, 2008:





Options Outstanding
                
                
                Options ExercisableWeightedAverageRemaining
                
                
                Weighted
                
                
                
                
                
                WeightedRange
      of
                
                
                
                
                
                Contractual
                
                
                Average
                
                
                
                
                
                AverageExercise
                
                
                Number
                
                
                Life
                
                
                Exercise
                
                
                Number
                
                
                ExercisePrices
                
                
                Outstanding
                
                
                (Years)
                
                
                Price
                
                
                Exercisable
                
                
                Price$
                6.50 - 15.01
                
                
                
                32,889
                
                
                
                1.96
                
                
                $
                10.16
                
                
                
                32,889
                
                
                $
                10.1617.71 - 24.02
                
                
                
                53,781
                
                
                
                5.24
                
                
                
                21.04
                
                
                
                52,010
                
                
                
                21.0225.59 - 31.33
                
                
                
                121,587
                
                
                
                6.54
                
                
                
                27.39
                
                
                
                83,558
                
                
                
                26.37$
                6.50 - 31.33
                
                
                
                208,257
                
                
                
                5.48
                
                
                $
                23.03
                
                
                
                168,457
                
                
                $
                21.55








Note 10 – Geographic Sales
Information





The
Company had sales in the following geographic areas:





United States
                  
                  
                  Europe
                  
                  
                  Other2008
                  
                  $
                  19,114
                  
                  
                  $
                  4,779
                  
                  
                  $
                  3,8892007
                  
                  
                  19,926
                  
                  
                  
                  4,754
                  
                  
                  
                  3,8222006
                  
                  
                  21,363
                  
                  
                  
                  3,888
                  
                  
                  
                  3,502








Note 11 – Revenues by
Product Category





The
Company had revenues in the following product categories:





Product Category
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Obstetrics
                  
                  $
                  7,054
                  
                  
                  $
                  8,473
                  
                  
                  $
                  9,371Gynecology/Electrosurgery/Urology
                  
                  
                  6,157
                  
                  
                  
                  6,143
                  
                  
                  
                  6,106Neonatal
                  
                  
                  7,408
                  
                  
                  
                  7,062
                  
                  
                  
                  7,073Blood
      Pressure Monitoring and Accessories
                  
                  
                  7,163
                  
                  
                  
                  6,824
                  
                  
                  
                  6,203




41





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 12 - Product Sale and
Purchase Commitments





The
Company has had license agreements for the rights to develop and market certain
products or technologies owned by unrelated parties.  The confidential
terms of such agreements are unique and varied, depending on many factors
relating to the value and stage of development of the technology
licensed.  Royalties on future product sales are a normal component of
such agreements and are included in the Company’s cost of goods sold on an
ongoing basis.





The
Company received royalties as a result of a license agreement with an unrelated
company that allowed rights to the Company’s technology through the life of the
applicable patents.  At the start of 2009 there are no patents under
which UTMD is receiving royalties from other parties.








Note 13 – Employee Benefit
Plan





The
Company sponsors a contributory 401(k) savings plan for U.S. employees, and a
contributory retirement plan for Irish employees.  The Company’s
matching contribution is determined annually by the board of
directors.  Company contributions were approximately $115, $107 and
$103 for the years ended December 31, 2008, 2007 and 2006,
respectively.








Note 14 – Fair Value
Financial Instruments





None of
the Company’s financial instruments, which are current assets and liabilities
that could be readily traded, are held for trading purposes, except
investments.  Detail on investments is provided in note 3,
above.  The Company estimates that the fair value of all financial
instruments at December 31, 2008 does not differ materially from the aggregate
carrying value of its financial instruments recorded in the accompanying
consolidated balance sheet.








Note 15 – Recent Accounting
Pronouncements





In
June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an
interpretation of FASB Statement No. 109.”  This statement
clarifies the accounting for uncertainty in income tax positions.  The
Company or one of its subsidiaries files or has filed income tax returns in the
U.S. federal jurisdiction, in various states and in Ireland.  With few
exceptions, UTMD is no longer subject to U.S. federal, state and local, or
non-U.S. income tax examinations by tax authorities for years before
2007.  In 2005, the Internal Revenue Service examined the Company’s
federal income tax returns for 2002 – 2004 and suggested one immaterial
adjustment which the Company made.  The Company’s income tax return
for 2005 is presently being audited by the IRS.





The
Company adopted the provisions of FIN 48 on January 1, 2007.  UTMD did
not make any adjustment to opening retained earnings as a result of the
implementation.  The Company recognizes interest accrued related to
unrecognized tax benefits in interest expenses and any related penalties in
income taxes.  During the years ended December 31, 2008, 2007 and
2006, the Company did not recognize any interest or penalties relating to income
taxes.  UTMD did not have any accrual for the payment of interest or
penalties at December 31, 2008, 2007 or 2006.





42





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





None.








ITEM
9A – CONTROLS AND PROCEDURES





Evaluation
of Disclosure Controls and Procedures.


UTMD Management is responsible for
establishing and maintaining adequate internal control over financial reporting,
as defined in the Securities Exchange Act of 1934 Rule
13a-15(e).  UTMD’s Board of Directors, operating through its audit
committee, provides oversight to its financial reporting process.





During 2008, UTMD evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures. Based on that evaluation, UTMD’s Chief Executive Officer and
Principal Financial Officer concluded that, as of December 31, 2008, its
disclosure controls and procedures were effective.





Management’s
Report on Internal Control Over Financial Reporting.


Pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, the Company has included, as part of this
Form 10-K, a report of management's assessment of the effectiveness of its
internal controls as of December 31, 2008.  Jones Simkins, P.C.,
the independent registered public accounting firm of the Company, has audited
the effectiveness of the Company's internal control over financial reporting.
Management's report, and the report of Jones Simkins, P.C. appear on
pages 26 and 27 of this Form 10-K under the captions
"Management's Report on Internal Control Over Financial Reporting" and "Report
of Independent Registered Public Accounting Firm" and are incorporated herein by
reference.





Changes
in Internal Control Over Financial Reporting.


There have been no changes in UTMD’s
internal control over financial reporting that materially affected, or were
reasonably likely to materially affect, the Company’s internal control over
financial reporting during the fourth quarter of the fiscal year ended December
31, 2008, and there were no material weaknesses.








ITEM
9B – OTHER INFORMATION





None.








43





PART III





ITEM
10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





The information from the definitive
proxy statement of the registrant for the 2009 annual meeting of shareholders
under the captions,





·
            “PROPOSAL
      NO. 1. ELECTION OF DIRECTORS: General,” and “Directors and
      Nominees,”




·
            “SECURITY
      OWNERSHIP OF MANAGEMENT AND CERTAIN PERSONS,”
  and




·
            “EXECUTIVE
      OFFICER COMPENSATION: 2007 Director
  Compensation,”





is
incorporated herein by reference.





UTMD adopted a Code of Ethics for its
executive officers, including the Chief Executive Officer and outside directors,
in October 2003.  The Code of Ethics, along with UTMD’s Code of
Conduct, which covers all exempt employees (including all officers and outside
directors) and certain non-exempt employees, is posted on UTMD’s web site at
www.utahmed.com.  UTMD
intends to post on its website any waivers of or amendments to its Code of
Ethics.








ITEM
11 - EXECUTIVE COMPENSATION





The information from the definitive
proxy statement of the registrant for the 2009 annual meeting of shareholders
under the captions,





·
            “EXECUTIVE
      OFFICER COMPENSATION,”




·
            COMPENSATION
      DISCUSSION AND ANALYSIS,” and




·
            BOARD
      OF DIRECTORS AND OTHER BOARD COMMITTEE REPORTS: Compensation and Option
      Committee Interlocks and Insider Participation,” specifically excluding
      the “Report of the Compensation
Committee”





is
incorporated herein by reference.








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





The information from the definitive
proxy statement of the registrant for the 2009 annual meeting of shareholders
under the captions,





·
            “SECURITY
      OWNERSHIP OF MANAGEMENT AND CERTAIN PERSONS”
and




·
            “DISCLOSURE
      RESPECTING THE COMPANY’S EQUITY COMPENSATION
  PLANS”





is
incorporated herein by reference.





44





ITEM 13 - CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





The information from the definitive
proxy statement of the registrant for the 2009 annual meeting of shareholders
under the captions,





·
            “CERTAIN
      RELATIONSHIPS AND RELATED
TRANSACTIONS”




·
            “BOARD
      OF DIRECTORS AND OTHER BOARD COMMITTEE REPORTS: Director
      Independence”





is
incorporated herein by reference.





The information from the definitive
proxy statement of the registrant for the 2009 annual meeting of shareholders in
the first paragraph under the caption, “Report of the Audit Committee” is
incorporated herein by reference.








ITEM
14 – PRINCIPAL ACCOUNTING FEES AND SERVICES





The information from the definitive
proxy statement of the registrant for the 2009 annual meeting of shareholders
under the caption “Independent Public Accountants” is incorporated herein by
reference.

















45





PART IV





ITEM
15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES





(a)  The following documents
are filed as part of this report or incorporated herein by
reference.





1.     Financial
Statements.


(See Table of Contents
to Item 8, above.)





2.     Supplemental
Schedule.


Financial Statement
Schedules are omitted because they are inapplicable or the required information
is otherwise included in the accompanying Financial Statements and the notes
thereto.





3.     Exhibits.


SECExhibit #
                  Reference#
                  Title of Document
                  Location1
                  3
                  Articles
      of Restatement of the Articles of Incorporation
                  Incorporated
      by Reference (1)2
                  3
                  Articles
      of Correction to the Restated Articles of Incorporation
                  Incorporated
      by Reference (1)3
                  3
                  Bylaws
                  Incorporated
      by Reference (2)4
                  4
                  Rights
      Agreement dated as of July 30, 2004, between Utah Medical Products, Inc.,
      and Registrar and Transfer Company
                  Incorporated
      by Reference (3)5
                  4
                  Designation
      of Rights, Privileges, and Preferences of Series “A” Preferred
      Stock
                  Incorporated
      by Reference (2)6
                  10
                  Employment
      Agreement dated December 21, 1992 with Kevin L. Cornwell*
                  Incorporated
      by Reference (4)7
                  10
                  Amendment,
      effective May 15, 1998, to Employment Agreement dated December 21, 1992
      with Kevin L. Cornwell*
                  Incorporated
      by Reference (4)8
                  10
                  Utah
      Medical Products, Inc., 2003 Employees’ and Directors’ Incentive
      Plan*
                  Incorporated
      by Reference (5)9
                  10
                  Loan
      Agreement, signed 6-December-2005 between Utah Medical Products Limited
      and Bank of Ireland
                  Incorporated
      by Reference (6)10
                  10
                  Amendment
      to Loan Agreement, dated 12-March-2008 between Utah Medical Products
      Limited and Bank of Ireland
                  This
      Filing11
                  10
                  Guarantee
      and Indemnity, dated 13-June-2008, by Utah Medical Products, Inc. to Bank
      of Ireland
                  This
      Filing12
                  10
                  Summary
      of Officer and Director Compensation
                  This
      Filing13
                  21
                  Subsidiaries
      of Utah Medical Products, Inc.
                  Incorporated
      by Reference (7)14
                  23
                  Consent
      of Jones Simkins, P.C., Company’s independent auditors for the years ended
      December 31, 2008, December 31, 2007 and December 31, 2006
                  This
      Filing15
                  31
                  Certification
      of CEO pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
                  This
      Filing16
                  31
                  Certification
      of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
                  This
      Filing




46




SECExhibit #
                  Reference #
                  Title of Document
                  Location17
                  32
                  Certification
      of CEO pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002
                  This
      Filing18
                  32
                  Certification
      of Principal Financial Officer pursuant to 18 U.S.C. §1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                  This
      Filing





*
Management contract of compensatory plan or arrangement required to be filed
pursuant to Item 14(c).





(1)
              Incorporated
      by reference from the Company’s annual report on form 10-K filed with the
      Commission for the year ended December 31, 2004.(2)
              Incorporated
      by reference from the Company’s registration statement on form S-8 filed
      with the Commission effective February 10, 1995.(3)
              Incorporated
      by reference from the Company’s report on form 8-K filed with the
      Commission on October 1, 2004.(4)
              Incorporated
      by reference from the Company’s annual report on form 10-K filed with the
      Commission for the year ended December 31, 2003.(5)
              Incorporated
      by reference from the Company’s annual report on form 10-K filed with the
      Commission for the year ended December 31, 2002.(6)
              Incorporated
      by reference from the Company’s report on form 8-K filed with the
      Commission on December 12, 2005.(7)
              Incorporated
      by reference from the Company’s annual report on form 10-K filed with the
      Commission for the year ended December 31,
1999.











47





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 this 6th day of
March, 2009.





UTAH
MEDICAL PRODUCTS, INC.








By:
                /s/ Kevin L.
      CornwellKevin
      L. CornwellChief
      Executive OfficerBy:
                /s/ Paul O.
    RichinsPaul
      O. RichinsPrincipal
      Financial and Accounting
Officer








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 indicated on
this 6th day of March, 2009.








By:
                /s/ James H.
    BeesonJames
      H. Beeson, DirectorBy:
                /s/ Kevin L.
      CornwellKevin
      L. Cornwell, DirectorBy:
                /s/ Ernst G.
    HoyerErnst
      G. Hoyer, DirectorBy:
                /s/ Barbara A.
      PayneBarbara
      A. Payne, DirectorBy:
                /s/ Paul O.
    RichinsPaul
      O. Richins, Director







48