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,
2007




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 incorporation or organization)
            (I.R.S.
      Employer 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) 566-2062Securities
      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 oNo 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 xNo 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 xNon-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, 2007, the aggregate market value of the voting and nonvoting common equity
held by nonaffiliates of the registrant was$112,144,000.




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, 2008, common shares
outstanding were 3,884,000.




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
              
              23Item
      8
              Financial
      Statements and Supplementary Data
              
              24Item
      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
              
              44Item
      14
              Principal
      Accounting Fees and Services
              
              45PART
      IVItem
      15
              Exhibits,
      Financial Statement Schedules
              
              46SIGNATURES
              
              
              48









PART I








ITEM
1 – BUSINESS





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 136 international distributors, each of which purchased at
least five thousand dollars in UTMD products during 2007.





UTMD was
formed as a Utah corporation in 1978.  UTMD publicly raised equity
capital one time in 1982.  In 1994, UTMD acquired all of the tangible
and intangible assets of OB Tech, Inc, a Huntington Beach, CA company, the
original owner of the Cordguard® concept.  In 1995, Utah Medical
Products Ltd., a wholly-owned subsidiary located in Ireland, was formed to
establish an international manufacturing capability. 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.  On March 8, 2000, UTMD returned to the Nasdaq Stock Market after
trading on the New York Stock Exchange for about 3 years.  The Company
was previously listed on Nasdaq for 14 years.  In 2004, UTMD acquired
Abcorp, Inc., its supplier of fetal monitoring belts.  The Company's
corporate offices are located at 7043 South 300 West, Midvale, Utah 84047
USA.  The corporate telephone number is (801)
566-1200.  Ireland operations are located at Athlone Business and
Technology Park, Athlone, County Westmeath, Ireland.  The telephone
number in Ireland is 353 (90) 647-3932.  CMI’s mailing address is 1830
S.E. 1st, Redmond, Oregon  97756.  The phone number in
Oregon is (541) 548-7738.


1


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





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, as an area of product
development focus.





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 6-10% 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 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 patented 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.  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 patented 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 an important safety risk in the NICU – inadvertent
delivery of enteral feeding intravenously.  Named Nutri-Lok, the
adapter ensures a secure connection to the enteral feeding catheter (Nutri-Cath)
and will not mate with an IV line connector.  Nutri-Lok 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.  UTMD has applied for a patent on its Nutri-Lok design. Also
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®.  In 2006, UTMD introduced a second configuration of
Dialy-Nate with uncoiled tubing to facilitate clinician use of a fluid/blood
warmer.





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 2008,
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.





In
mid-2006, the FDA licensed the first vaccine for HPV, which has gained
widespread media attention.  Such an advance is welcome as an
effective preventive measure for 70% of higher level CIN lesions which may
progress into cervical cancer. UTMD believes there will be a significant time
lag, however, before the new vaccine affects the approximately 500,000 current
annual CIN removal procedures based on several factors: the adoption rate of the
vaccine, the evolution of the disease in patients already infected and the fact
that a portion of CIN-types are unaffected by the vaccine.  In early
2007, the American Society for Colposcopy and Cervical Pathology (ASCCP)
published revised guidelines for the treatment of cervical intraepithelial
neoplasia (CIN) which advised greater monitoring of lower grade lesions in lieu
of surgical treatment, which includes LETZ.


4





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.





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 and filed for a patent on its
design for OptiSpec, 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.





5





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.





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-Cath


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 nearly twenty years ago,
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.  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 be substantially higher, 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 2008, the direct sales force is comprised
both of “outside” representatives operating remotely in specific geographic
areas, and “inside” representatives who operate 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 less than 8% of total domestic
sales.  In contrast, eleven 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
2008.  In 2007, UTMD spent $382 on internal product development
activities, or 1.3% of sales.  In 2006 and 2005, internal new product
development expenses were $316 (1.1% of sales) and $320 (1.2% of sales),
respectively.





EMPLOYEES





At
December 31, 2007, the Company had 193 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 ten 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
management bonus program.  All employees participate in
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-eight unexpired patents, 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 2007, ongoing royalties included in
cost of goods sold were $3.  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.  During 2007, the Company
received $450 in royalty income, the same as in 2006 and 2005.  Based
on the expiration dates of the patents for which the current royalty income is
being received and the $450 annual maximum, UTMD expects royalties of at least
$450, $450 and $310 in 2008, 2009 and 2010, respectively.  UTMD’s
future financial performance also depends on the marketing ability of other
companies that license UTMD’s technology.





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.  The listing must be updated
annually.  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 ISO 9001/EN 46001
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 ISO 13485 standard for medical
devices. UTMD’s Ireland facility was certified under the concomitant ISO 13488
standard.  In July 2006, both facility ISO certifications were
upgraded to the even more stringent ISO 13485:2003 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 February 2007. 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





Revenues
from customers outside the U.S. in 2007 were $8,576 (30% of total sales),
compared to $7,390 (26% of total sales) in 2006 and $6,392 (23% of total sales)
in 2005.  Blood pressure monitoring products represented 58% of
international sales in 2007, compared to 58% in 2006 and 66% in
2005.  International Ob/Gyn and neonatal product sales were $3,586 in
2007, compared to $3,109 in 2006 and $2,191 in 2005.  For financial
information by geographical area, please see notes 1, 4 and 10 to the
Consolidated Financial Statements.





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 over 350 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.





BACKLOG





As a
supplier of primarily disposable hospital products, the nature of UTMD’s
business necessitates being very responsive to customer orders and delivering
products quickly.  Virtually all direct shipments to end users are
accomplished within one week of receipt of customer purchase
order.  Backlog shippable in less than 90 days
was   $823 as of January 1, 2008, $906 as of January 1, 2007 and
$910 as of January 1, 2006.





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 products are frequently used in inherently life threatening
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 permanent 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 29 year history.


10




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 fifteen years, UTMD has been
named as a defendant, along with each attending physician and hospital, in four
product liability lawsuits.  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 fifteen year period of time, in which more than 18 million UTMD
finished devices were used, no other UTMD product was the subject of a product
liability lawsuit.  There have been no product liability lawsuits
during the last four years.





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 distribution partners, and loss of
key personnel.





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.


11





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.





In 3Q 2007,the
patent infringement lawsuit filed by Clinical Innovations Associates (CIA) in
2005 was resolved in favor of UTMD, including repayment of UTMD’s court
costs.  CIA did not appeal the U.S. District Court’s summary judgment
confirming UTMD’s non-infringement.








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:





2007
            
            
            2006High
            
            
            Low
            
            
            High
            
            
            Low1st
      Quarter
            
            $
            34.88
            
            
            $
            31.24
            
            
            $
            33.50
            
            
            $
            28.332nd
      Quarter
            
            
            34.59
            
            
            
            29.30
            
            
            
            32.10
            
            
            
            29.503rd
      Quarter
            
            
            32.84
            
            
            
            29.50
            
            
            
            33.10
            
            
            
            28.254th
      Quarter
            
            
            31.99
            
            
            
            29.27
            
            
            
            34.96
            
            
            
            31.51





Stockholders.


The
approximate number of beneficial stockholders of UTMD’s common stock as of March
5, 2008 was 2,700.





Dividends.


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





Record
      Date
            
            Payable
      Date
            
            Per Share AmountDecember
      16, 2005
            
            January
      5, 2006
            
            $
            0.17March
      16, 2006
            
            April
      5, 2006
            
            
            0.18June
      16, 2006
            
            July
      5, 2006
            
            
            0.19September 15, 2006
            
            October 4, 2006
            
            
            0.20December
      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
            
            
            0.2252006
      total paid
            
            
            
            $
            0.742007
      total paid
            
            
            
            $
            0.87





Issuer
Purchases of Equity Securities.


The
following table details purchases by UTMD of its own securities during fourth
quarter 2007.





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)10/01/07
      – 10/31/07
            
            
            
            -
            
            
            $
            -
            
            
            
            -
            
            
            see
      (1) below11/01/07
      – 11/30/07
            
            
            
            8,730
            
            
            
            30.09
            
            
            
            8,73012/01/07
      – 12/31/07
            
            
            
            6,405
            
            
            
            29.75
            
            
            
            6,405Total
            
            
            
            15,135
            
            
            $
            29.95
            
            
            
            15,135




(1)  In
fourth quarter 2007 UTMD repurchased an aggregate of 15,135 shares of its common
stock at an average cost of $29.95 per share pursuant to a continued open market
repurchase program instituted in August 1992.  Since 1993 through
2007, the Company has repurchased 6,393,176 shares at an average cost of $11.85
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 2,775,742 shares at an average
cost of $9.76 per share including fees and administrative costs.  In
total, UTMD has repurchased over 9.1 million of its shares at an average price
of $11.85 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
$8.96 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 open market share repurchases depends 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, 2007, 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
      312007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Net
      Sales
            
            $
            28,502
            
            
            $
            28,753
            
            
            $
            27,692
            
            
            $
            26,485
            
            
            $
            27,137Net
      Income
            
            
            7,905
            
            
            
            8,168
            
            
            
            7,547
            
            
            
            10,220
            
            
            
            20,761Earnings
      Per Common Share (Diluted)
            
            
            1.98
            
            
            
            2.02
            
            
            
            1.80
            
            
            
            2.19
            
            
            
            4.25Total
      Assets
            
            
            45,986
            
            
            
            44,187
            
            
            
            41,262
            
            
            
            41,262
            
            
            
            49,694Working
      Capital
            
            
            26,767
            
            
            
            25,030
            
            
            
            22,230
            
            
            
            20,194
            
            
            
            21,405Long-term
      Debt
            
            
            3,689
            
            
            
            4,383
            
            
            
            4,883
            
            
            
            -
            
            
            
            -Cash
      Dividends Per Common Share
            
            
            0.87
            
            
            
            0.74
            
            
            
            0.61
            
            
            
            0.30
            
            
            NoneQuarterly 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
            
            
            
            .49Quarterly Data for
      2006First Quarter
            
            
            Second Quarter
            
            
            Third Quarter
            
            
            Fourth QuarterNet
      Sales
            
            
            
            
            
            $
            7,104
            
            
            $
            7,293
            
            
            $
            7,001
            
            
            $
            7,355Gross
      Profit
            
            
            
            
            
            
            4,007
            
            
            
            4,077
            
            
            
            3,971
            
            
            
            4,092Net
      Income
            
            
            
            
            
            
            2,036
            
            
            
            2,059
            
            
            
            2,003
            
            
            
            2,070Earnings
      Per Common Share (Diluted)
            
            
            
            
            
            
            .50
            
            
            
            .51
            
            
            
            .50
            
            
            
            .51





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




Productivity
of Assets and Working Capital.


a)  Assets.  Year-end
2007 total assets were $45,986, compared to $44,187 in 2006. The increase was
due mostly to an increase in cash and investments resulting from continued
excellent operating profitability, but also to a weakening U.S. Dollar (USD)
which increased the net book value of Ireland fixed assets (which were down by
2% in Euro terms) by $411 or 10% in USD terms. The 2007 productivity of total
assets (= average total asset turns; total sales divided by average total assets
for the year) was lower than in 2006 because sales were lower and ending total
assets higher.  Both years’ productivity was diluted by UTMD’s large
cash-equivalent balances. Year-end 2007 and 2006 cash and investment balances
were $22,372 and $21,049, representing 49% and 48% of total assets,
respectively.  Year-end cash and investment balances increased $1,323
despite UTMD paying $3,423 in shareholder dividends, $2,023 in share
repurchases, and $1,239 in principal repayments on the Ireland loan. Excluding
average cash and investment balances, average total asset turns were 1.22 in
both 2007 and 2006.  In 2008, total assets excluding cash and
investment balances will continue to be substantially less than annual sales,
which benefits return on average shareholders equity
(ROE).  Improvement in total asset turns (including cash and
investments) will depend on the timing of deployment of excess cash and
investment balances.





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
2007, net consolidated PP&E (depreciated book value of all fixed assets)
increased $275 despite the fact that actual depreciation of assets exceeded new
capital expenditures by $241.  As noted above, the increase in net
PP&E was due to currency exchange translation of preexisting Ireland assets
which appreciated 10% in USD terms.  The net book value of U.S.
PP&E assets decreased $136.  The increase in 2007 consolidated
PP&E while sales decreased resulted in lower PP&E turns. The year-end
net book value (after accumulated depreciation) of consolidated PP&E is 34%
of actual acquisition cost.  Since current PP&E is in good working
order and capable of supporting increased sales activity, the continued
productivity of the Company’s fixed assets will remain a source of future
profitability.  In 2008, depreciation of fixed assets should again
equal or exceed new PP&E purchases required to sustain current
operations.





Average
inventory turns in 2007 increased to 4.1 from 4.0 in 2006, continuing to meet
management’s objective for inventory turns, despite lower sales. This continued
the trend of more efficient use of inventories since 2003.  Net (after
allowance for doubtful accounts) year-end trade accounts receivable (A/R)
balances increased $159 or about 4% at the same time that 2007 sales activity
decreased 1%, increasing average days in A/R on December 31, 2007 to 47 days,
based on 4Q 2007 shipments, compared to 43 days at the end of
2006.  This performance remained well within management’s continuing
objective of 55 days.  A/R over 90 days from invoice date at year-end
2007 were 10% of A/R, up from 6% at the end of the prior year.  The
Company believes the older A/R will be collected or are within its reserve
balances for uncollectible accounts.





Working
capital at year-end 2007 was $26,767 compared to $25,030 at year-end
2006.  Both of these amounts exceed working capital needs for
internally financing growth in normal operations. UTMD’s current ratio increased
to 9.5 from 8.4, mainly due to increases in cash and investments, but also
helped by a significant decrease in year-end A/P balances.  The
progression in the current ratio since 2003 indicates a continued strengthening
of UTMD’s financial position.  Since the large majority of the working
capital balance is excess cash (and cash investments), the current ratio going
forward in 2008 will depend primarily upon the timing and extent of use of
existing cash and investment balances for other than normal operating
needs.  The other current asset and current liability components of
working capital are expected to remain within management objectives, consistent
with 2007 and earlier years.


15





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 $7,449 at the end
of 2007 compared to $7,445 at the end of 2006. The goodwill net balance of
$7,191, has been reduced by 24% from acquisition cost as a result of UTMD using
previous GAAP through 2001 for the purchase method of acquisition
accounting.  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 2001 continue to be viable parts of UTMD’s
overall business, representing 34% of total sales in 2007.  UTMD does
not expect the goodwill value of the acquisitions to become impaired in
2008.  Purchases of other intangibles of $53 in 2007 were offset by
$49 in amortization expense. Net intangible assets at the end of 2007
represented 16% of total assets compared to 17% at the end of 2006.





Liabilities.  In
2007, UTMD’s current liabilities decreased $216, and total liabilities decreased
$875, from the end of 2006.  The resulting 2007-ending total debt
ratio was 16% of total assets, down from a total debt ratio of 18% at the end of
2006. Current liabilities declined because of a normal fluctuation in timing of
payments of accounts payable and accrued expenses.  The Ireland note
payable, denominated in Euros, declined just $712 in USD book value despite
actual principal payments of $1,239 because the decline in the value of the USD
increased the remaining Euro balance in USD terms by 10%. In Euros, the note
declined 24% from €3,672 at the beginning of 2007 to €2,791 (both in thousands)
at the end of 2007.  As a reminder to shareholders, the note was
initiated in December 2005 to finance repatriation of profits achieved in
Ireland since 1996 under The American Jobs Creation Act of 2004.  UTMD
Ltd. plans to repay this note from profits generated in Ireland over the next
three to four 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 decreased from $28,753 in 2006 to $28,502 in 2007 (about
1%).  Global consolidated sales in 2005 were $27,692.





Domestic
sales decreased from $21,363 in 2006 to $19,926 in 2007 (about 7%). In 2005,
domestic sales were $21,301. 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 94% in all three years of
2007, 2006 and 2005.  Therefore, domestic OEM sales were 6% of total
domestic sales in all three years.  Domestic direct sales in 2007
represented 66% of global consolidated sales in 2007 compared to 70% in 2006,
and 72% in 2005.





International
(foreign) sales increased from $7,390 in 2006 to $8,576 in 2007 (about
16%).  In 2005, international sales were
$6,392.  International sales grew to 30% of global consolidated sales
in 2007 compared to 26% in 2006, and 23% in 2005.  Of the 2007
international sales, 55% were distributed to customers in Europe, compared
to 53% in 2006 and 55% in 2005.  Ireland operations (UTMD Ltd.)
shipped 51% of international sales (in USD terms) in 2007, compared to 52% in
2006 and 57% in 2005.  UTMD Ltd. 2007 trade shipments were up 5% in
Euro terms and up 15% in USD terms compared to 2006.





UTMD
groups its sales into four general product-line 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 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.





16




Global
revenues by product category:


2007
            
            
            %
            
            
            2006
            
            
            %
            
            
            2005
            
            
            %Obstetrics
            
            $
            8,473
            
            
            
            30
            
            
            $
            9,371
            
            
            
            33
            
            
            $
            9,774
            
            
            
            36Gynecology/
      Electrosurgery/ Urology
            
            
            6,143
            
            
            
            21
            
            
            
            6,106
            
            
            
            21
            
            
            
            5,397
            
            
            
            19Neonatal
            
            
            7,062
            
            
            
            25
            
            
            
            7,073
            
            
            
            25
            
            
            
            6,475
            
            
            
            23Blood
      Pressure Monitoring and Accessories*
            
            
            6,824
            
            
            
            24
            
            
            
            6,203
            
            
            
            21
            
            
            
            6,046
            
            
            
            22Total:
            
            $
            28,502
            
            
            
            100
            
            
            $
            28,753
            
            
            
            100
            
            
            $
            27,692
            
            
            
            100*includes
      molded components sold to OEM
customers.





International
revenues by product category:


2007
            
            
            %
            
            
            2006
            
            
            %
            
            
            2005
            
            
            %Obstetrics
            
            $
            881
            
            
            
            10
            
            
            $
            764
            
            
            
            10
            
            
            $
            593
            
            
            
            9Gynecology/
      Electrosurgery/ Urology
            
            
            1,944
            
            
            
            23
            
            
            
            1,820
            
            
            
            25
            
            
            
            1,199
            
            
            
            19Neonatal
            
            
            761
            
            
            
            9
            
            
            
            525
            
            
            
            7
            
            
            
            400
            
            
            
            6Blood
      Pressure Monitoring and Accessories*
            
            
            4,990
            
            
            
            58
            
            
            
            4,281
            
            
            
            58
            
            
            
            4,200
            
            
            
            66Total:
            
            $
            8,576
            
            
            
            100
            
            
            $
            7,390
            
            
            
            100
            
            
            $
            6,392
            
            
            
            100*includes
      molded components sold to OEM
customers.





As a
summary explanation of revenues in the above tables,


1.  The
$898 decline in total obstetrics (L&D) device sales in 2007 was primarily
the result of the restrictive effects of U.S. GPO administrative
agreements.  For example, 2007 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., 2007 sales of intrauterine
pressure catheters (IUPCs) declined $926 and sales of vacuum-assisted delivery
systems (VADS) declined $152, a total U.S. IUPC and VADS decline of
$1,078.  The silver lining of this decline is that the Company’s
reliance on a single product is much less concentrated; i.e., in 2007, U.S. IUPC
sales were 21% of total sales compared to 2004 when U.S. IUPC sales were 31% of
total sales ($2.3 million higher).  The $1,078 decline in U.S. IUPC
and VADS sales but only $250 decline in total sales suggests that UTMD’s sales
of its other products and its international business are
expanding.  In 2007, other U.S. L&D product sales (excluding IUPC
and VADS) increased $63, and sales of all L&D products internationally
increased $117 (15%).





2.  International
gynecology/ electrosurgery/ urology (ES/gyn) product sales increased $124 (7%),
while U.S. ES/gyn sales declined $87.  The decline in U.S. ES/gyn
sales resulted from lower sales of LETZ electrodes of $104.  In the
U.S., the American Society for Colposcopy and Cervical Pathology (ASCCP)
published revised guidelines for the treatment of cervical intraepithelial
neoplasia (CIN) which advised greater monitoring of lower grade lesions in lieu
of surgical treatment, which includes LETZ (loop excision of the transformation
zone).





3.  International
neonatal product (NICU) sales increased $236 (45%) in 2007, while U.S. NICU
sales declined $247.  The international sales continue a trend of
increasing acceptance of UTMD’s NICU devices in foreign
countries.   In the U.S., because products in this category are
sold to hospitals, sales are also affected by GPO
restrictions.  Because the NICU devices are 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, and
therefore U.S. GPO administrative deals are less of a challenge in this NICU
category than for L&D.





17





4.  International
blood pressure monitoring and accessories (BPM) sales increased $709 (17%),
while domestic BPM sales decreased $88.  This category includes molded
components (some of which are not related to medical devices) sold to other
companies for use in their products (OEM sales).  In contrast to the
other product categories, international sales comprise most (73% in 2007 and 69%
in 2006) of BPM sales.  UTMD depends on successful sales and marketing
by other companies internationally, too.  Sales to UTMD’s largest
foreign OEM customer, Pulsion Medical Systems AG, in Germany, increased
approximately $300 in 2007.  The decline in U.S. BPM sales in 2007
compared to 2006 is primarily a function of the timing of domestic OEM orders,
which are generally for larger quantities of components and are ordered
infrequently.  Virtually all of UTMD’s domestic OEM sales were
included in the BPM category in 2007.





Looking
forward to 2008, 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.  Internationally, UTMD expects continued expansion in
clinical acceptance of its specialty products, particularly where the standard
of living is increasing in lesser developed countries.  Excluding the
possibility of acquisition of a new product line with established sales,
management projects a 2% overall revenue increase in 2008.  This
assumes a 2% increase in domestic sales from new products despite a projected
continued decline in U.S. IUPC sales, and a 3% increase in international sales,
which is conservative compared to recent experience.





b)  Gross
Profit.  UTMD’s 2007 gross profit, the surplus after
subtracting costs of manufacturing, inspecting, packaging, sterilizing and
shipping products (CGS) from net revenues, was $15,788 compared to $16,147 in
2006 and $15,753 in 2005.  Gross profit margins (GPMs), gross profits
expressed as a percentage of net sales, were 55.4% in 2007 compared to 56.2% in
2006 and 56.9% in 2005. Because of competition and a number of long term fixed
pricing agreements, UTMD had a limited ability to increase product prices in
2007 at the same time that direct labor and direct materials costs were
increasing fairly substantially. Beginning in September 2007, UTMD offered its
HPG customers a 10% IUPC price reduction to encourage them to ignore the sole
source GPO contract with a competitor. This accounted for about 20% of the gross
profit decline in 4Q 2007. Also, because of the disparity in profitability of
UTMD’s domestic sales compared to international sales, the sales mix by
distribution channel had an unfavorable impact on the overall average margin
compared to the prior two years.  In Ireland, where manufacturing
costs in Euro terms increased, the gross margin was further reduced by a number
of fixed pricing agreements established in USD terms, since the value of the USD
declined by about 10% relative to the Euro. UTMD possesses facilities and other
manufacturing infrastructure well in excess of its current needs.  As
a result, it projects that dilution of fixed overhead costs from higher 2008
sales will help offset anticipated continued direct labor and materials cost
increases in 2008.  The Company believes that it can continue to meet
its GPM objective of 55% in 2008.





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 $5,032 in 2007 compared to $5,312 in 2006, and $6,516 in
2005.  Litigation expenses and stock option compensation expense
estimated by using a Black-Scholes pricing model are included as part of G&A
expenses.  All other G&A expenses remained very consistent for the
three years 2005-2007.  Both lawsuits noted below, in which UTMD
prevailed on all counts, have been concluded:


18





2007
            
            
            2006
            
            
            2005R&D
      expenses
            
            $
            382
            
            
            $
            316
            
            
            $
            320S&M
      expenses
            
            
            2,075
            
            
            
            2,272
            
            
            
            2,214G&A
      – FDA litigation expenses
            
            
            -
            
            
            
            44
            
            
            
            1,563G&A
      – CIA litigation expenses
            
            
            120
            
            
            
            184
            
            
            
            76G&A
      – stock option compensation expense
            
            
            95
            
            
            
            140
            
            
            
            n/aG&A
      – all other expenses
            
            
            2,360
            
            
            
            2,357
            
            
            
            2,342G&A
      expenses – total
            
            
            2,575
            
            
            
            2,725
            
            
            
            3,981Total
      operating expenses
            
            $
            5,032
            
            
            $
            5,312
            
            
            $
            6,516





Operating
income in 2007 was $10,756 compared to $10,835 in 2006, and $9,237 in
2005.  UTMD’s operating profit margin (operating income divided by
total sales) was 37.7% in 2007 compared to 37.7% in 2006, and 33.4% in
2005.  The 2005 margin is substantially lower since there were
litigation expenses in that year that were unrelated to sales
activity.  Looking forward to 2008, UTMD expects to control operating
expenses to achieve operating income consistent with 2007.





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.  As a percent of total sales, S&M
operating expenses were 7.3% in 2007, 7.9% in 2006 and 8.0% in
2005.  In 2008 UTMD intends to increase S&M expenses to a level
closer to S&M expenses in 2005 and 2006, but hold the ratio to total sales
to about 8%.





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 2007 compared to 1.1% in 2006, and 1.2% in 2005.  In 2008, UTMD
will opportunistically invest in R&D in order to reinvigorate its product
development pipeline.  R&D expenses are expected to increase
marginally.





iii) G&A
expenses:  G&A expenses include the “front office” functional
costs of executive management, finance and accounting, corporate information
systems, human resources, shareholder relations, risk management, protection of
intellectual property, and legal costs.  Starting in 2006, G&A
expenses also included estimated stock option compensation expense, which was
$95 in 2007 and $140 in 2006.  In addition to employing the personnel
required to coordinate or manage those “front office” functions, G&A
expenses include outside director fees and expenses, outside legal counsels’ and
litigation experts’ fees, independent accounting audit fees including auditing
for internal controls under SOX 404, 401(k) Plan administration, NASDAQ exchange
fees, write-offs of uncollectible receivables, general business insurance and
corporate contributions to charitable organizations.  Aggregate
G&A expenses as a percent of sales were 9.0% in 2007, 9.5% in 2006 and 14.4%
in 2005.  G&A expenses excluding litigation expenses were 8.6%,
8.7% and 8.5% of sales in 2007, 2006 and 2005, respectively, which may provide a
clearer indication of G&A expenses free of disputes that require
litigation.  Total litigation expenses in the three years of 2005-2007
were $1,957, plus a reduction of UTMD’s litigation reserve of
$1,228.  UTMD’s out-of-pocket costs of the 2001-2005 dispute with the
FDA which culminated in an unwarranted lawsuit were $4,033. The out-of-pocket
costs associated with UTMD’s 2005-2007 defense of a meritless patent
infringement claim by CIA were $416.  There were no litigation
expenses during the three years 2005-2007 related to product
liability.  In 2008, UTMD plans to hold G&A expenses excluding any
litigation expenses at a ratio of sales consistent with the prior three
years.  There are no current lawsuits which UTMD expects will result
in significant litigation costs.


19





d)  Non-operating Income,
Non-operating Expense and EBT.  Non-operating income 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 and bank service
fees.  Non-operating income was $1,283 in 2007, $1,582 in 2006 and
$977 in 2005.  The higher 2006 income resulted from capital gains from
investments realized in that year.  Royalties received were $450 in
all three years, which came from one source. The licensed patents for which the
royalties have been received are due to expire starting in August 2008, with the
last one expiring in August 2010.  Annual royalty payments due UTMD
under the license agreement were capped at $450. The royalty rate of each
unexpired patent will continue to achieve the maximum royalty until August 2010,
based on the current sales volume of applicable products subject to the license
of UTMD patents.  In 2007, UTMD paid $270 in interest compared to $255
in 2006 and $10 in 2005.  The interest resulted from borrowing €4.5
million ($5,336) in December 2005 to allow the repatriation in 2005 of profits
generated by UTMD’s Ireland subsidiary since 1996.  UTMD expects
interest expense of about $240 in 2008 as a result of the Ireland note
payable.  Although average loan balances will be lower in 2008, UTMD
expects the average conversion rate of the USD from the Euro will be higher than
in 2007 (weaker dollar on the average), offsetting some of the lower interest
when converting the expense into USD terms.  UTMD expects its 2008
non-operating income will be about $200 lower than in 2007 because of projected
lower interest rates in the U.S.  The actual amount of 2008
non-operating income may be even lower if UTMD utilizes excess 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 $12,038 in 2007 compared to $12,418 in 2006, and
$10,214 in 2005.  EBT margin is EBT divided by total
sales.  UTMD’s EBT margin was 42.2%, 43.2% and 36.9% in 2007, 2006 and
2005, respectively.  UTMD is targeting 2008 EBT of about $11,800, as
operating income is projected to be about the same and non-operating income is
projected to be about $200 lower than in 2007.





e)  Net Income, EPS and
ROE.  Net income is EBT minus income taxes, often called the
“bottom line”.  Net income was $7,905, $8,168 and $7,547 in 2007, 2006
and 2005 respectively.   The effective consolidated corporate
income tax provision rate was 34.3%, 34.2% and 26.1%
respectively.  The significantly lower income tax provision in 2005
was a result of The American Jobs Creation Act of 2004 (the Act) enacted in
October 2004 which allowed a temporary tax deduction on repatriated foreign
earnings accomplished in 2005.  Prior to 2005, UTMD included a
deferred tax liability in reported results, anticipating that profits generated
by its Ireland facility would eventually be repatriated, triggering U.S. income
taxes.  Also, UTMD recorded a favorable deferred tax liability
adjustment after the conclusion of an IRS audit in 3Q 2005.  These
were non-recurring tax benefits limited to the year 2005 which provided the much
lower tax provision in that year.  Other 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 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 2008 consolidated income tax provision rate to remain about the same
as in the prior year.





UTMD’s
net income expressed as a percentage of sales was 27.7%, 28.4% and 27.3% for
years 2007, 2006 and 2005, respectively.  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 $1.982, $2.020 and
$1.800 in 2007, 2006 and 2005, respectively. UTMD’s EPS has grown at an annually
compounded rate of 15% per year during the ten years since 1997.





The end
of 2007 weighted average number of diluted common shares (the number used to
calculate diluted EPS) were 3,989 (in thousands) compared to 4,043 shares in
2006, and 4,192 shares in 2005.  Dilution for “in the money”
unexercised options for the year 2007 was 62 (in thousands) shares compared to
100 in 2006 and 230 in 2005.  The total number of options outstanding
at year-end 2007 declined 7% from year-end 2006.  Dilution decreased
in 2007 from 2006 because the average number of options outstanding decreased,
even though a slightly higher average share price in the stock market increased
the dilutive effect of each option.  Actual outstanding common shares
as of December 31, 2007 were 3,905,297.


20





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
2007 was 12% (21% before dividends) compared to 15% (24% before dividends) in
2006, and 15% (22% before dividends) in 2005.  UTMD’s ROE is primarily
driven by its high net profit margin, which in 2007 remained consistent with
prior years.  ROE was diluted by lower total asset turns as UTMD
continued to grow its cash balances, and by a lower debt ratio as UTMD continued
to repay its bank loan in Ireland without increasing other
liabilities.  UTMD’s ROE (before dividends) has averaged 33% per year
over the last 20 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 more actively
repurchase shares, 2008 ROE will be lower than 2007 because net profitability is
projected to be slightly lower while average shareholders’ equity and dividends
increase, and total asset turns and financial leverage
decrease.  Retaining a high cash balance which returns only about 5%
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 $7,474 in 2007 compared to $8,403 in 2006, and $5,515 in
2005.  Compared to 2006, net cash provided by operating activities in
2007 was lower due to a decrease of $263 in net profits, and a $645 smaller
increase in accrued interest and other receivables, among other changes that
were generally consistent with excellent balance sheet management in the
presence of slightly lower sales activity





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 $2,000
in 2007 on such purchases compared to $6,600 in 2006, and $10,600 in
2005.  In 2007, UTMD received $2,023 from selling short-term
investments compared to $4,306 in 2006, and $9,045 in 2005. No acquisitions
requiring investment of cash were made in 2007 or 2006.





In 2007,
UTMD received $180 and issued 27,519 shares of stock upon the exercise of
employee stock options.  Employees exercised a total of 35,062 option
shares in 2007, with 7,543 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 $60 tax benefit from option exercises
in 2007.  UTMD repurchased 65,820 shares of stock in the open market
at a cost of $2,023 during 2007.  Option exercises in 2007 were at an
average price of $12.30 per share.  Share repurchases in the open
market were at an average cost of $30.73 per share, including commissions and
fees.  In comparison, in 2006 UTMD 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.  In 2005, the Company received $858 from issuing
123,478 shares of stock on the exercise of employee and director stock options,
including 83,655 shares retired upon employees trading those shares in payment
of the stock option exercise price.





UTMD did
not borrow during 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.  In 2007, UTMD made repayments of $1,239 on the Ireland note,
compared to $1,057 in 2006. Although UTMD has not borrowed under its revolving
line of credit since it paid off the balance in 2003, the line of credit is used
to guarantee the current Ireland loan in order to achieve favorable credit
terms.


21


Management
believes that future income from operations and effective management of working
capital will provide the liquidity needed to finance internal growth
plans.  Planned 2008 capital expenditures are expected to be less than
$600 to keep facilities, equipment and tooling in good working
order.  In addition, UTMD may use cash in 2008 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.  The U.S. revolving line of credit will continue to be
available for liquidity when the timing of acquisitions or repurchases of stock
require a large amount of cash in a short period of time not otherwise available
from existing cash and investment balances.





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 2008 UTMD plans to


1)  fight
to retain its significant U.S. market shares of established key specialty
products,


2)  accelerate
revenue growth of newer products;


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


4)  continue
to disproportionately increase international sales;


5)  continue
outstanding overall financial operating performance;


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


7)  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.  Physicians do care about the well-being of their patients, but
their time is limited to evaluate choices, and they have hospital administrators
to deal with who often look at the initial price of a product without
understanding the total cost of care which includes risk of unwanted
complications and unnecessary utilization.





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.





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 defined focus and does not seek revenue
growth as its primary motivation.  Its fundamental focus is to do an
excellent job in meeting customers’ and patients’ needs, while providing
shareholders with excellent returns.





Looking
back seven years to the end of 2000 from the end of 2007, UTMD’s EPS have more
than doubled (up 120%) while the year-ending share price has increased almost
four times (up 296%), providing long term shareholders with excellent
returns.  In comparison, the NASDAQ Composite, S&P 500 Index and
DJIA indices were up 7%, 11% and 23%, respectively, over that same time
span.





In 2007,
while the year ending share price decreased 10%, UTMD increased dividends/share
actually paid to shareholders by 18% (from $.74 in 2006 to $.87 in 2007),
decreased diluted shares outstanding by 1% and decreased outstanding unexercised
options by 7%.  This was accomplished in 2007 by UTMD again achieving
a high positive cash flow by meeting its profitability goals, managing working
capital effectively and keeping new capital expenditures below the rate of
depreciation of existing assets.  UTMD’s balance sheet is strong
enough to be able to finance a substantial acquisition in 2008 without issuing
stock, should an attractive one 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.


22




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.


·
            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
2003.  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 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 along with penalties in operating
expenses.  During the years ended December 31, 2007, 2006 and 2005,
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, 2007, 2006 or 2005.








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 .6786, .7611 and
..8433 per U.S. Dollar as of December 31, 2007, 2006 and 2005,
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.





23


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
            25Report
      of Independent Registered Public Accounting Firm on the Company’s Internal
      Control Over Financial Reporting
            26Report
      of Independent Registered Public Accounting Firm on Financial
      Statements
            27Consolidated
      Balance Sheet
            28Consolidated
      Statement of Income and Comprehensive Income
            29Consolidated
      Statement of Cash Flow
            30Consolidated
      Statement of Stockholders’ Equity
            31Notes
      to Consolidated Financial Statements
            32

































24


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, 2007. 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
our assessment and those criteria, management believes that the Company
maintained effective internal control over financial reporting as of
December 31, 2007.




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, 2007, and their report is shown on the next page.










By: /s/ Kevin L. Cornwell


Kevin L.
Cornwell


Chief
Executive Officer











By:  /s/ Paul O. Richins


Paul O.
Richins


Principal
Financial Officer









25


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, 2007, 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, 2007,
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 20, 2008 expressed an unqualified opinion.




/s/ Jones Simkins, P.C.





JONES
SIMKINS, P.C.


Logan,
Utah


February
20, 2008




26


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, 2007 and 2006, 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, 2007. 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, 2007 and 2006, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2007 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, 2007, based on criteria established
in Internal Control-Integrated
Frameworkissued by theCommittee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February
20, 2008 expressed an unqualified opinion.





/s/ Jones Simkins, P.C.


JONES
SIMKINS, P.C.


Logan,
Utah


February
20, 2008


27





UTAH MEDICAL PRODUCTS,
INC


CONSOLIDATED BALANCE
SHEET


December 31, 2007 and
2006


(In
thousands)





ASSETS
            
            2007
            
            
            2006Current
      assets:Cash
            
            $
            1,251
            
            
            $
            610Investments,
      available-for-sale (note 3)
            
            
            21,121
            
            
            
            20,439Accounts
      and other receivables, net (note 2)
            
            
            3,905
            
            
            
            3,746Inventories
      (note 2)
            
            
            3,153
            
            
            
            3,037Prepaid
      expenses and other current assets
            
            
            282
            
            
            
            274Deferred
      income taxes (note 8)
            
            
            220
            
            
            
            305Total
      current assets
            
            
            29,931
            
            
            
            28,411Property
      and equipment, net (note 4)
            
            
            8,606
            
            
            
            8,331Goodwill
            
            
            7,191
            
            
            
            7,191Other
      intangible assets - net (note 2)
            
            
            258
            
            
            
            254Total
      assets
            
            $
            45,986
            
            
            $
            44,187LIABILITIES AND
      STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            393
            
            
            $
            599Accrued
      expenses (note 2)
            
            
            2,349
            
            
            
            2,341Current
      portion of note payable (note 5)
            
            
            423
            
            
            
            441Total
      current liabilities
            
            
            3,165
            
            
            
            3,381Note
      payable (note 5)
            
            
            3,689
            
            
            
            4,383Deferred
      income taxes (note 8)
            
            
            343
            
            
            
            308Total
      liabilities
            
            
            7,197
            
            
            
            8,072Commitments
      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 3,905 shares in
      2007 and 3,944 shares in 2006
            
            
            39
            
            
            
            39Accumulated
      other comprehensive income
            
            
            (789
            )
            
            
            (720
            )Retained
      earnings
            
            
            39,539
            
            
            
            36,796Total
      stockholders' equity
            
            
            38,789
            
            
            
            36,115Total
      liabilities and stockholders' equity
            
            $
            45,986
            
            
            $
            44,187








See  accompanying
notes to financial statements.


28


UTAH
MEDICAL PRODUCTS, INC.


CONSOLIDATED STATEMENT OF
INCOME


AND COMPREHENSIVE
INCOME


Years ended December 31,
2007, 2006 and 2005


(In
thousands, except per share amounts)





2007
            
            
            2006
            
            
            2005Sales,
      net (notes 10 and 11)
            
            $
            28,502
            
            
            $
            28,753
            
            
            $
            27,692Cost
      of goods sold (notes 10 and 11)
            
            
            12,714
            
            
            
            12,606
            
            
            
            11,939Gross
      profit
            
            
            15,788
            
            
            
            16,147
            
            
            
            15,753Operating
      income (expense):Sales
      and marketing expense
            
            
            (2,075
            )
            
            
            (2,272
            )
            
            
            (2,214
            )Research
      and development expense
            
            
            (382
            )
            
            
            (316
            )
            
            
            (320
            )General
      and administrative expense
            
            
            (2,575
            )
            
            
            (2,725
            )
            
            
            (3,981
            )Operating
      income
            
            
            10,756
            
            
            
            10,835
            
            
            
            9,237Other
      income (expense):Dividend
      and interest income
            
            
            1,003
            
            
            
            862
            
            
            
            398Royalty
      income
            
            
            450
            
            
            
            450
            
            
            
            450Interest
      expense
            
            
            (270
            )
            
            
            (255
            )
            
            
            (10
            )Other,
      net
            
            
            100
            
            
            
            525
            
            
            
            139Income
      before provision for income taxes
            
            
            12,038
            
            
            
            12,418
            
            
            
            10,214Provison
      for income taxes (note 8)
            
            
            4,134
            
            
            
            4,250
            
            
            
            2,667Net
      income
            
            $
            7,905
            
            
            $
            8,168
            
            
            $
            7,547Earnings
      per common share (basic) (note 1):
            
            $
            2.01
            
            
            $
            2.07
            
            
            $
            1.91Earnings
      per common share (diluted) (note 1):
            
            $
            1.98
            
            
            $
            2.02
            
            
            $
            1.80Other
      comprehensive income:Foreign
      currency translation net of taxes of $29, $(41) and $(153)
            
            $
            58
            
            
            $
            (75
            )
            
            $
            (502
            )Unrealized
      gain (loss) on investments net of taxes of $(100), $(69) and
      $(42)
            
            
            (156
            )
            
            
            (109
            )
            
            
            (65
            )Total
      comprehensive income
            
            $
            7,807
            
            
            $
            7,984
            
            
            $
            6,980








See  accompanying
notes to financial statements.


29


UTAH MEDICAL PRODUCTS,
INC


CONSOLIDATED STATEMENT OF
CASH FLOW


Years Ended December 31,
2007, 2006 and 2005


(In
thousands)





2007
            
            
            2006
            
            
            2005Cash flows from
      operating activities:Net
      income
            
            $
            7,905
            
            
            $
            8,168
            
            
            $
            7,547Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            597
            
            
            
            634
            
            
            
            676Gain
      on investments
            
            
            (992
            )
            
            
            (1,375
            )
            
            
            (70
            )Provision
      for (recovery of) losses on accounts receivable
            
            
            (30
            )
            
            
            29
            
            
            
            (4
            )(Gain)
      loss on disposal of assets
            
            
            3
            
            
            
            -
            
            
            
            (5
            )Deferred
      income taxes
            
            
            93
            
            
            
            118
            
            
            
            (129
            )Stock-based
      compensation expense
            
            
            95
            
            
            
            140
            
            
            
            -(Increase)
      decrease in:Accounts
      receivable
            
            
            (117
            )
            
            
            (37
            )
            
            
            (51
            )Accrued
      interest and other receivables
            
            
            64
            
            
            
            709
            
            
            
            (770
            )Inventories
            
            
            (80
            )
            
            
            35
            
            
            
            (573
            )Prepaid
      expenses and other current assets
            
            
            (11
            )
            
            
            1
            
            
            
            (13
            )Increase
      (decrease) in:Accounts
      payable
            
            
            (207
            )
            
            
            74
            
            
            
            81Accrued
      expenses
            
            
            154
            
            
            
            (92
            )
            
            
            (1,175
            )Net
      cash provided by operating activities
            
            
            7,474
            
            
            
            8,403
            
            
            
            5,515Cash flows from
      investing activities:Capital
      expenditures for:Property
      and equipment
            
            
            (307
            )
            
            
            (334
            )
            
            
            (345
            )Intangible
      assets
            
            
            (53
            )
            
            
            -
            
            
            
            -Purchases
      of investments
            
            
            (2,000
            )
            
            
            (6,600
            )
            
            
            (10,600
            )Proceeds
      from the sale of:Investments
            
            
            2,023
            
            
            
            4,306
            
            
            
            9,045Property
      and equipment
            
            
            -
            
            
            
            -
            
            
            
            5Net
      cash used in investing activities
            
            
            (337
            )
            
            
            (2,628
            )
            
            
            (1,895
            )Cash flows from
      financing activities:Proceeds
      from issuance of common stock - options
            
            
            180
            
            
            
            627
            
            
            
            858Common
      stock purchased and retired
            
            
            (2,023
            )
            
            
            (2,094
            )
            
            
            (8,604
            )Common
      stock purchased and retired - options
            
            
            -
            
            
            
            (2,700
            )
            
            
            (833
            )Tax
      benefit attributable to exercise of stock options
            
            
            60
            
            
            
            2,450
            
            
            
            936Proceeds
      from note payable
            
            
            -
            
            
            
            -
            
            
            
            5,336Repayments
      of note payable
            
            
            (1,239
            )
            
            
            (1,057
            )
            
            
            -Dividends
      paid
            
            
            (3,423
            )
            
            
            (2,902
            )
            
            
            (2,445
            )Net
      cash used in financing activities
            
            
            (6,445
            )
            
            
            (5,676
            )
            
            
            (4,751
            )Effect
      of exchange rate changes on cash
            
            
            (52
            )
            
            
            (191
            )
            
            
            16Net
      increase (decrease) in cash and cash equivalents
            
            
            640
            
            
            
            (92
            )
            
            
            (1,116
            )Cash
      at beginning of year
            
            
            610
            
            
            
            703
            
            
            
            1,818Cash
      at end of year
            
            $
            1,251
            
            
            $
            610
            
            
            $
            703SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the year for:Income
      taxes
            
            $
            2,827
            
            
            $
            1,866
            
            
            $
            2,915Interest
            
            
            203
            
            
            
            255
            
            
            
            10




See
accompanying notes to financial statements.


30


UTAH
MEDICAL PRODUCTS, INC.


CONSOLIDATED STATEMENT OF
STOCKHOLDERS' EQUITY


Years Ended December 31,
2007, 2006 and 2005


(In
thousands)





AccumulatedAdditional
            
            
            Other
            
            
            
            
            
            TotalCommon
      Stock
            
            
            Paid-in
            
            
            Comprehensive
            
            
            Retained
            
            
            Stockholders'Shares
            
            
            Amount
            
            
            Capital
            
            
            Income
            
            
            Earnings
            
            
            EquityBalance
      at December 31, 2004
            
            
            4,105
            
            
            $
            41
            
            
            $
            -
            
            
            $
            226
            
            
            $
            35,890
            
            
            $
            36,157Shares
      issued upon exercise of employee stock options for cash
            
            
            207
            
            
            
            2
            
            
            
            2,420
            
            
            
            -
            
            
            
            -
            
            
            
            2,422Shares
      received and retired upon exercise of stock options
            
            
            (84
            )
            
            
            (1
            )
            
            
            (2,395
            )
            
            
            -
            
            
            
            -
            
            
            
            (2,396
            )Tax
      benefit attributable to appreciation of stock options
            
            
            -
            
            
            
            -
            
            
            
            936
            
            
            
            -
            
            
            
            -
            
            
            
            936Common
      stock purchased and retired
            
            
            (373
            )
            
            
            (4
            )
            
            
            (960
            )
            
            
            -
            
            
            
            (7,640
            )
            
            
            (8,604
            )Foreign
      currency translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (654
            )
            
            
            -
            
            
            
            (654
            )Unrealized
      holding gain from investments, available-for-sale, net of
      taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (67
            )
            
            
            -
            
            
            
            (67
            )Common
      stock dividends
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,484
            )
            
            
            (2,484
            )Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            7,547
            
            
            
            7,547Balance
      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
            
            
            $
            38,789








See
accompanying notes to financial statements


31


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, 2007 the Company’s investments are in Fidelity Instl Treas Port Cl
I (FISXX), Citigroup (C) and Washington Mutual (WM).





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,
2007.





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.





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 losseson
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).


32


UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements




Note 1 – Summary of
Significant Accounting Policies (continued)




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
            30-40
      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 17 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.





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.





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.


33





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 1 – Summary of
Significant Accounting Policies (continued)





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,
2007 and 2006 was $32 and $66, 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:




2007
            
            
            2006
            
            
            2005Weighted
      average number of shares outstanding – basic
            
            
            3,927
            
            
            
            3,943
            
            
            
            3,962Dilutive
      effect of stock options
            
            
            62
            
            
            
            100
            
            
            
            230Weighted
      average number of shares outstanding, assuming dilution
            
            
            3,989
            
            
            
            4,043
            
            
            
            4,192





Stock-Based
Compensation





At
December 31, 2007, the Company has stock-based employee compensation plans,
which are described more fully in note 9.  Effective January 1, 2006,
the Company adopted Statement of Financial Accounting Standards 123R, Share-Based Payment, using
the modified prospective method.  This statement requires the Company
to recognize compensation cost based on the grant date fair value of options
granted to employees and directors.  In 2007, the Company recognized
$95 in compensation cost compared to $140 in 2006, related to adoption of the
statement.  Prior to December 31, 2005, the Company accounted for its
stock-based employee compensation plans under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations, and had adopted the
disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation.  Accordingly, no compensation cost was recognized
in the financial statements prior to 2006, as all options granted under those
plans had exercise prices equal to or greater than the market value of the
underlying common stock on the date of grant.





A
comparison of reported net income for the last three years, and pro forma net
income for 2005, including effects of expensing stock options,
follows.





Years ended December 31,2007
            
            
            2006
            
            
            2005Net
      income, as reported
            
            $
            7,905
            
            
            $
            8,168
            
            
            $
            7,547Earnings
      per share, as reportedBasic
            
            
            2.01
            
            
            
            2.07
            
            
            
            1.91Diluted
            
            
            1.98
            
            
            
            2.02
            
            
            
            1.80Stock
      option expense included in calculation of net income
            
            
            95
            
            
            
            140
            
            
            
            -




Pro forma
    effectsStock
      option expense not included in net income, net of related tax
      effects
            
            $
            869Net
      income on a pro forma basis
            
            
            6,678Earnings
      per share on a pro forma basisBasic
            
            
            1.69Diluted
            
            
            1.59






34


UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 1 – Summary of
Significant Accounting Policies(continued)





On May 6,
2005 the Compensation and Option Committee of the Board accelerated the vesting
of certain unvested stock options awarded to employees, officers and directors
under the Company’s stock option plans, which had exercise prices that were
under water as of market close May 5, 2005.





Options
to purchase 124,800 shares become fully exercisable on December 1, 2005 as a
result of the vesting acceleration.  Exercise prices of the options
accelerated are $24.02 and $25.59 per share. These options previously became
fully vested on October 1, 2007 and January 1, 2008.  The Company took
this action to avoid an accounting charge (as compensation expense) for these
options starting in 2006, as required by FAS 123R.  The relatively
high pro forma compensation expense in 2005, as shown above, is a result of the
vesting acceleration.





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.





Reclassifications





This
report reclassifies tax benefit attributable to exercise of stock options of
$2,450 in 2006 and $936 in 2005 from cash flows from operating activities to
cash flows from financing activities on the Statement of Cash Flow in order to
conform to current year presentation.








Note 2 – Detail of Certain
Balance Sheet Accounts





December 31,2007
            
            
            2006Accounts
      and other receivables:Accounts
      receivable
            
            $
            3,804
            
            
            $
            3,607Income
      tax receivable
            
            
            150
            
            
            
            212Accrued
      interest and other
            
            
            26
            
            
            
            28Less
      allowance for doubtful accounts
            
            
            (75
            )
            
            
            (101
            )$
            3,905
            
            
            $
            3,746Inventories:Finished
      products
            
            $
            1,245
            
            
            $
            1,002Work-in-process
            
            
            694
            
            
            
            984Raw
      materials
            
            
            1,214
            
            
            
            1,051$
            3,153
            
            
            $
            3,037Other
      intangible assets:Patents
            
            $
            1,948
            
            
            $
            1,896License
      rights
            
            
            293
            
            
            
            293Trademarks
            
            
            224
            
            
            
            224Non-compete
      agreements
            
            
            175
            
            
            
            1752,640
            
            
            
            2,588Accumulated
      amortization
            
            
            (2,382
            )
            
            
            (2,334
            )$
            258
            
            
            $
            254






35




UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements




Note 2 – Detail of Certain
Balance Sheet Accounts (continued)





December 31,2007
            
            
            2006Accrued
      expenses:Income
      taxes payable
            
            $
            10
            
            
            $
            36Payroll
      and payroll taxes
            
            
            962
            
            
            
            948Reserve
      for litigation costs
            
            
            32
            
            
            
            66Dividends
      payable
            
            
            880
            
            
            
            829Other
            
            
            465
            
            
            
            462$
            2,349
            
            
            $
            2,341




Note 3 –
Investments





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





December 31,2007
            
            
            2006Investments,
      at cost
            
            $
            21,377
            
            
            $
            20,439Equity
      securities:-Unrealized
      holding gains
            
            
            -
            
            
            
            --Unrealized
      holding (losses)
            
            
            (256
            )
            
            
            -Investments,
      at fair value
            
            $
            21,121
            
            
            $
            20,439.





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 31,2007
            
            
            2006Balance,
      beginning of year
            
            $
            -
            
            
            $
            109Gross
      unrealized holding gains(losses), in equity securities
            
            
            (256
            )
            
            
            (179
            )Deferred
      income taxes onunrealized holding loss
            
            
            100
            
            
            
            70Balance,
      end of year
            
            $
            (156
            )
            
            $
            -





During
2007, 2006 and 2005, UTMD had proceeds from sales of available-for-sale
securities of $2,023, $4,306 and $9,045, respectively and associated realized
gains of $992, $1,375 and $70, respectively. UTMD uses the specific
identification method to calculate its realized gains.





Note 4 – Property and
Equipment





Property
and equipment consists of the following:


December 31,2007
            
            
            2006Land
            
            $
            1,127
            
            
            $
            1,072Buildings
      and improvements
            
            
            9,820
            
            
            
            9,216Furniture,
      equipment and tooling
            
            
            14,432
            
            
            
            14,141Construction-in-progress
            
            
            119
            
            
            
            11525,498
            
            
            
            24,544Accumulated
      depreciation and amortization
            
            
            (16,892
            )
            
            
            (16,213
            )$
            8,606
            
            
            $
            8,331


36





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 4 – Property and
Equipment (continued)





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, 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
            
            
            $
            8,606December 31, 2006Utah
            
            
            Oregon
            
            
            Ireland
            
            
            TotalLand
            
            $
            621
            
            
            $
            -
            
            
            $
            451
            
            
            $
            1,072Building
      and improvements
            
            
            4,431
            
            
            
            32
            
            
            
            4,753
            
            
            
            9,216Furniture,
      equipment and tooling
            
            
            11,994
            
            
            
            1,261
            
            
            
            886
            
            
            
            14,141Construction-in-progress
            
            
            112
            
            
            
            3
            
            
            
            -
            
            
            
            115Total
            
            
            17,158
            
            
            
            1,296
            
            
            
            6,090
            
            
            
            24,544Accumulated
      depreciation
            
            
            (13,147
            )
            
            
            (1,277
            )
            
            
            (1,789
            )
            
            
            (16,213
            )Property
      and equipment, net
            
            $
            4,011
            
            
            $
            19
            
            
            $
            4,301
            
            
            $
            8,331






Note 5 – 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 0.70% 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, 2007 was $4,112 (€2,791).





The
following table shows estimated minimum required amortization of the note during
the next five years using the December 31, 2007 interest rate of 5.37%, starting
with a December 31, 2007 balance of $4,112:





Year
            
            Payments
            
            
            Interest
            
            
            Principal
            
            
            Ending 
      Balance2008
            
            $
            633
            
            
            $
            211
            
            
            $
            423
            
            
            $
            3,6892009
            
            
            633
            
            
            
            187
            
            
            
            446
            
            
            
            3,2432010
            
            
            633
            
            
            
            163
            
            
            
            471
            
            
            
            2,7722011
            
            
            633
            
            
            
            137
            
            
            
            497
            
            
            
            2,2762012
            
            
            633
            
            
            
            109
            
            
            
            524
            
            
            
            1,752Thereafter
            
            
            1,900
            
            
            
            149
            
            
            
            1,752
            
            
            
            -Total
            
            $
            5,068
            
            
            $
            956
            
            
            $
            4,112





37


UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements




Note 6 – Line of
Credit


The
Company has an unsecured bank line-of-credit agreement with U.S. Bank which
allows the Company to borrow up to a fixed maximum amount of $8,000 at an
interest rate equal to the bank's one-month LIBOR rate plus
1.25%.  The line-of-credit-balance matures on May 31, 2008 and had an
outstanding balance of $0 at both December 31, 2007 and 2006.  The
principal financial loan covenants are a restriction on the total amount
available for borrowing to 1.25
times the last twelve months’ EBITDA, and a requirement to maintain a net worth
in excess of $18.5 million, which at the end of 2007 and 2006 was $38,789 and
$36,115, respectively.  In 2007 and 2006, U.S. Bank also guaranteed
the Bank of Ireland loan through a letter of credit arrangement at an interest
rate of 1.25%.





Note
7 – Commitments and Contingencies





Contractual
Obligations and Contingent Liabilities and Commitments


The
following is a summary of UTMD’s significant contractual obligations and
commitments as of December 31, 2007:




Contractual
      Obligations and Commitments
            
            
            Total
            
            
            2008
            
            
            
            2009-2010
            
            
            
            2011-
      2012
            
            
            2013
      and
              thereafterLong-term
      debt obligations
            
            
            $
            5,068
            
            
            $
            633
            
            
            $
            1,266
            
            
            $
            1,266
            
            
            $
            1,900Operating
      lease obligations
            
            
            
            986
            
            
            
            72
            
            
            
            80
            
            
            
            80
            
            
            
            754Purchase
      obligations
            
            
            
            1,312
            
            
            
            1,312
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            
            $
            8,211
            
            
            $
            2,024
            
            
            $
            1,401
            
            
            $
            1,401
            
            
            $
            3,385





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, 2007, 2006 and 2005, respectively.





Future
minimum lease payments under its lease obligations as of December 31, 2007 were
as follows:





Years ending December
      31:
            
            Amount2008
            
            $
            722009
            
            
            402010
            
            
            402011
            
            
            402012
            
            
            40Thereafter
            
            
            754Total
      future minimum lease payments
            
            $
            986





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 2007:





Beginning
      balance, January 1, 2007
            
            $
            60Changes in warranty
      reserve during 2007:Aggregate
      reductions for warranty repairs
            
            
            (20
            )Aggregate
      changes for warranties issued during reporting period
            
            
            -Aggregate
      changes in reserve related to preexisting warranties
            
            
            -Ending
      balance, December 31, 2007
            
            $
            40





Litigation





The
Company has been involved in lawsuits which are an expected consequence of its
operations and in the ordinary course of business.  There are two such
lawsuits 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 31,2007
            
            
            2006Current
            
            
            Long-term
            
            
            Current
            
            
            Long-termInventory
      write-downs and differences due to UNICAP
            
            $
            89
            
            
            $
            -
            
            
            $
            88
            
            
            $
            -Allowance
      for doubtful accounts
            
            
            23
            
            
            
            -
            
            
            
            29
            
            
            
            -Accrued
      liabilities and reserves
            
            
            108
            
            
            
            16
            
            
            
            188
            
            
            
            24Other
            
            
            -
            
            
            
            (248
            )
            
            
            -
            
            
            
            (216
            )Depreciation
      and amortization
            
            
            -
            
            
            
            (211
            )
            
            
            -
            
            
            
            (116
            )Unrealized
      investment gains
            
            
            -
            
            
            
            100
            
            
            
            -
            
            
            
            -Deferred
      income taxes, net
            
            $
            220
            
            
            $
            (343
            )
            
            $
            305
            
            
            $
            (308
            )





The
components of income tax expense are as follows:





Years ended December 31,2007
            
            
            2006
            
            
            2005Current
            
            $
            3,194
            
            
            $
            4,049
            
            
            $
            2,519Deferred
            
            
            220
            
            
            
            201
            
            
            
            148Total
            
            $
            4,134
            
            
            $
            4,250
            
            
            $
            2,667








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 31,2007
            
            
            2006
            
            
            2005Federal
      income tax expense at the statutory rate
            
            $
            4,093
            
            
            $
            4,222
            
            
            $
            3,473State
      income taxes
            
            
            397
            
            
            
            410
            
            
            
            337ETI,
      manufacturing deduction and tax credits
            
            
            (203
            )
            
            
            (154
            )
            
            
            (172
            )Reversal
      of deferred tax for foreign subsidiary earnings, net of repatriation
      tax
            
            
            -
            
            
            
            -
            
            
            
            (434
            )Other
            
            
            (153
            )
            
            
            (228
            )
            
            
            (537
            )Total
            
            $
            4,134
            
            
            $
            4,250
            
            
            $
            2,667








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 737,508 shares of common stock, of which 212,245 are outstanding as
of December 31, 2007.  All options granted under the plans are granted
at current market value at 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 Share2007Granted
            
            
            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
            -
            
            
            25.592005Granted
            
            
            27,900
            
            
            
            $
            21.68
            -
            
            $
            21.68Expired
      or canceled
            
            
            27,672
            
            
            
            
            9.13
            -
            
            
            25.59Exercised
            
            
            207,133
            
            
            
            
            6.50
            -
            
            
            25.59Total
      outstanding at December 31
            
            
            548,621
            
            
            
            
            6.50
            -
            
            
            25.59Total
      exercisable at December 31
            
            
            491,070
            
            
            
            
            6.50
            -
            
            
            25.59





For the
years ended December 31, 2007, 2006 and 2005, the Company reduced current
income taxes payable and increased additional paid-in capital by $60, $2,450 and
$936, respectively, for the income tax benefit attributable to sale by optionees
of common stock received upon the exercise of stock options.





40


UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 9 – Options
(continued)





Stock-Based
Compensation





As
described in note 1, effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards 123R, Share-Based Payment, using
the modified prospective method.  This statement requires the Company
to recognize compensation cost based on the grant date fair value of options
granted to employees and directors.  In 2007, the Company recognized
$95 in equity compensation cost, compared to $140 in 2006.  Prior to
December 31, 2005, the Company accounted for its stock-based employee
compensation plans under the recognition and measurement principles of APB
Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations, and had adopted
the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation.  Accordingly, no compensation cost was recognized
in the financial statements prior to 2006, as all options granted under those
plans had exercise prices equal to or greater than the market value of the
underlying common stock on the date of grant.





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 31,2007
            
            
            2006
            
            
            2005Expected
      dividend amount per quarter/annual yield
            
            $
            0.2638
            
            
            $
            0.2521
            
            
            
            2.9%Expected
      stock price volatility
            
            
            17.9%
            
            
            
            28.1%
            
            
            
            39.7%Risk-free
      interest rate
            
            
            4.56%
            
            
            
            5.%
            
            
            
            4.1%Expected
      life of options
            
            5.6
      years
            
            
            5.3
      years
            
            
            5.1
      years





The per
share weighted average fair value of options granted during 2007, 2006 and 2005
is $5.10, $7.29 and $6.88, respectively.





The
following table summarizes information about stock options outstanding at
December 31, 2007:





Options Outstanding
            
            
            Options ExercisableWeightedAverageRemaining
            
            
            Weighted
            
            
            
            
            
            WeightedRange
      of
            
            
            
            
            
            Contractual
            
            
            Average
            
            
            
            
            
            AverageExercise
            
            
            Number
            
            
            Life
            
            
            Exercise
            
            
            Number
            
            
            ExercisePrices
            
            
            Outstanding
            
            
            (Years)
            
            
            Price
            
            
            Exercisable
            
            
            Price$
            6.50
            -
            
            15.01
            
            
            
            43,864
            
            
            
            2.58
            
            
            $
            9.81
            
            
            
            43,864
            
            
            $
            9.8117.71
            -
            
            24.02
            
            
            
            62,944
            
            
            
            6.28
            
            
            
            20.71
            
            
            
            51,061
            
            
            
            20.9025.59
            -
            
            31.33
            
            
            
            105,437
            
            
            
            7.00
            
            
            
            27.23
            
            
            
            76,693
            
            
            
            25.83$
            6.50
            -
            
            31.33
            
            
            
            212,245
            
            
            $
            5.87
            
            
            
            21.70
            
            
            
            171,618
            
            
            $
            20.27





Note 10 – Geographic Sales
Information





The
Company had sales in the following geographic areas:





United States
            
            
            Europe
            
            
            Other2007
            
            $
            19,926
            
            
            $
            4,754
            
            
            $
            3,8222006
            
            
            21,363
            
            
            
            3,888
            
            
            
            3,5022005
            
            
            21,301
            
            
            
            3,501
            
            
            
            2,891







41





UTAH
MEDICAL PRODUCTS, INC.


Notes to
Consolidated Financial Statements





Note 11 – Revenues by
Product Category





The
Company had revenues in the following product categories:





Product
      Category
            
            2007
            
            
            2006
            
            
            2005Obstetrics
            
            $
            8,473
            
            
            $
            9,371
            
            
            $
            9,774Gynecology/Electrosurgery/Urology
            
            
            6,143
            
            
            
            6,106
            
            
            
            5,397Neonatal
            
            
            7,062
            
            
            
            7,073
            
            
            
            6,475Blood
      Pressure Monitoring and Accessories
            
            
            6,824
            
            
            
            6,203
            
            
            
            6,046








Note 12 - Product Sale and
Purchase Commitments





The
Company has 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 has in the past received and continues to receive royalties as a result
of license agreements with unrelated companies that allow exclusive or
nonexclusive rights to the Company’s technology.








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 $107, $103 and
$105 for the years ended December 31, 2007, 2006 and 2005,
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, 2007, 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
2003.  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 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 along with penalties in operating
expenses.  During the years ended December 31, 2007, 2006 and 2005,
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, 2007, 2006 or 2005.







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
2007, 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, 2007, 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,
2007.  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 25 and 26 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, 2007, 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 2008
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 2008
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 2008
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.








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





The
information from the definitive proxy statement of the registrant for the 2008
annual meeting of shareholders under the captions,





·
            “CERTAIN
      RELATIONSHIPS AND RELATED
TRANSACTIONS”




44




·
            “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 2008
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 2008
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 isotherwise included in the accompanying Financial
      Statements and the notes
thereto.


3.
            Exhibits




Exhibit #
            
            SEC
              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, dated 3 July, 2002 between Utah Medical Products, Inc and U.S.
      Bank National Association
            
            Incorporated
      by Reference (6)10
            
            10
            
            Revolving
      Promissory Note, dated July 3, 2002 by Utah Medical Products, Inc. to U.S.
      Bank National Association
            
            Incorporated
      by Reference (6)11
            
            10
            
            Second
      Amendment to Loan Agreement, dated 30 August 2004 between Utah Medical
      Products, Inc. and U.S. Bank National Association
            
            Incorporated
      by Reference (7)12
            
            10
            
            Third
      Amendment to Loan Agreement, dated December 6, 2005 between Utah Medical
      Products, Inc. and U.S. Bank National Association
            
            Incorporated
      by Reference (8)13
            
            10
            
            Amended
      and Restated Revolving Promissory Note, dated December 6, 2005 by Utah
      Medical Products, Inc. to U.S. Bank National Association
            
            Incorporated
      by Reference (8)14
            
            10
            
            Loan
      Agreement, signed 6-December-2005 between Utah Medical Products Limited
      and Bank of Ireland
            
            Incorporated
      by Reference (8)15
            
            10
            
            Fourth
      Amendment to Loan Agreement, dated 31 May 2006 between Utah Medical
      Products, Inc. and U.S. Bank National Association
            
            Incorporated
      by Reference (9)







46


Exhibit #
            
            SEC
              Reference #
            
            Title of Document
            
            Location16
            
            10
            
            Summary
      of Officer and Director Compensation
            
            This
      Filing17
            
            21
            
            Subsidiaries
      of Utah Medical Products, Inc.
            
            Incorporated
      by Reference (10)18
            
            23
            
            Consent
      of Jones Simkins, P.C., Company’s independent auditors for the years ended
      December 31, 2007, December 31, 2006 and December 31, 2005
            
            This
      Filing19
            
            31
            
            Certification
      of CEO pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002
            
            This
      Filing20
            
            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
      Filing21
            
            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
      Filing22
            
            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 quarterly report on form 10-Q filed with
      the Commission for the quarter ended June 30,
  2002.





(7)
            Incorporated
      by reference from the Company’s quarterly report on form 10-Q filed with
      the Commission for the quarter ended September 30,
  2004.





(8)
            Incorporated
      by reference from the Company’s report on form 8-K filed with the
      Commission on December 12, 2005.





(9)
            Incorporated
      by reference from the Company’s report on form 8-K filed with the
      Commission on June 5, 2006.





(10)
            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, 2008.





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, 2008.








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