**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 ended **December 31, 2006**
  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) 566-1200****Facsimile
                  (801) 566-2062**Securities
                  registered pursuant to Section 12(b) of the Act:Title
                  of each class
              Name
                  of each exchange on which registered**Common
                  Stock, $.01 Par Value**
              **The
                  NASDAQ Global Market****Preferred
                  Stock Purchase Rights**
 
 Securities
        registered pursuant to Section 12(g) of the Act:
 (Title
        of
        Class)
 **None**
  Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act.
 Yes o No **x**
  Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or 15(d) of the Act.
 Yes o No **x**
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
        months
        (or for such shorter period that the registrant was required to file such
        reports), and (2) has been subject to such filing requirements for the past
        90
        days.     Yes **x** No o
  Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K (Section 229.405 of this chapter) is not contained herein,
        and
        will not be contained, to the best of registrant’s knowledge, in definitive
        proxy or information statements incorporated by reference in Part III of
        this
        Form 10-K or any amendment to this Form 10-K. **x**
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
 Large
                  accelerated filero
              Accelerated
                  filer**x**
              Non-accelerated
                  filero
  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, 2006, the aggregate market value of the voting and nonvoting
        common
        equity held by nonaffiliates of the registrant was** **$104,900,000** **.**
  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 10, 2007, common shares outstanding were 3,946,000.**
  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
            11Item
                2
            Properties
            11Item
                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
            44Item
                9A
            Controls
                and Procedures
            44Item
                9B
            Other
                Information
            44PART
                IIIItem
                10
            Directors,
                Executive Officers and Corporate Governance
            45Item
                11
            Executive
                Compensation
            45Item
                12
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            45Item
                13
            Certain
                Relationships and Related Transactions, and Director Independence
            45Item
                14
            Principal
                Accounting Fees and Services
            46PART
                IVItem
                15
            Exhibits,
                Financial Statement Schedules
            47SIGNATURES
            
            49








**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 2006.





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





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, a core 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 represent 10-15% 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 7-9% 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 CO 2 (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
      FIO 2 (fractional inspired oxygen) control, minimizes convective heat loss from the
      head and provides optimum flows for elimination of CO 2 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. 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
      2007,
      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 expand sales
      through international distribution arrangements, and through selective
      complementary product acquisitions.





Gynecology
      /Urology /Electrosurgery :


LETZ®
      System


The
      LETZ
      System 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 advancement 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.





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.





EPITOME®


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





LIBERTY®
      System


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





PATHFINDER
      PLUSTM


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








5


ENDOCURETTETM


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





LUMIN®


LUMIN®
is
      a patented tool developed by UTMD for reliably and safely manipulating the
      uterus in gynecological 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.





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 assure 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 represent about 60% 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.





6


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 2007, 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, ten years ago, national distributors and independent stocking
      distributors in the U.S. represented more than 65% of UTMD’s direct domestic
      Ob/Gyn 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 .
      In
      2006, UTMD introduced this advanced “portal” website. 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.





Additionally,
      UTMD sells component parts to other medical 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.





7


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 2007.
      In 2006, UTMD spent $316 on internal product development activities, or 1.1%
      of
      sales. In 2005 and 2004, internal new product development expenses were $320
      (1.2% of sales) and $292 (1.1% of sales), respectively.





EMPLOYEES





At
      December 31, 2006, the Company had 204 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 nine
      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.





To
      the
      best of the Company's knowledge, 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.





PATENTS,
      TRADEMARKS AND TECHNOLOGY LICENSES





The
      Company owns or exclusively licenses twenty-nine 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, we believe 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.





8


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 2006, ongoing royalties included in cost
      of
      goods sold were $2. Other royalties have been previously paid as a lump sum,
      or
      are incorporated into the price of acquisitions, or into the cost of purchased
      components which practice certain patents of third parties. Also as a matter
      of
      policy, UTMD licenses its proprietary technology to others in circumstances
      where licensing does not directly compete with UTMD's own marketing initiatives.
      During 2006, the Company received $450 in royalty income, the same as in 2005
      and 2004. Based on the expiration dates of the patents for which the current
      royalty income is being received, UTMD expects royalties of $450, $391, $184
      and
      $92 in 2007, 2008, 2009 and 2010, respectively. As a result of receiving
      royalties on its patents, UTMD’s future financial performance may depend 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 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).





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.





9


EXPORTS





Revenues
      from customers outside the U.S. in 2006 were $7,390 (26% of total sales),
      compared to $6,392 (23% of total sales) in 2005 and $6,028 (23% of total sales)
      in 2004. Blood pressure monitoring products represented 58% of international
      sales in 2006, compared to 66% in 2005 and 67% 2004. International Ob/Gyn and
      neonatal product sales were $3,109 in 2006, compared to $2,191 in 2005 and
      $2,019 in 2004. For financial information by geographical area, please see
      Notes
      1, 4 and 10 to the Consolidated Financial Statements.





UTMD
      regards 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 $906 as of January 1, 2007, $910 as of January 1, 2006 and
      $653
      as of January 1, 2005.





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 28 year history.





UTMD
      is
      self-insured for product liability risk and reserves funds against its current
      performance on an ongoing basis to provide for its defense should any lawsuits
      be filed. The best defense the Company believes that it has is the consistent
      conformance to specifications of its proven safe and effective products. In
      the
      last fourteen 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
      fourteen year period of time, in which more than 17 million UTMD finished
      devices were used, no other UTMD product was the subject of a product liability
      lawsuit. There are currently no product liability lawsuits in which UTMD is
      a
      defendant, and there have been no product liability lawsuits during the last
      three years.





10


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
      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 present unreasonable burdens.





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





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








**ITEM
      1B - UNRESOLVED STAFF COMMENTS**





None








**ITEM
      2 - PROPERTIES**





Office
      and Manufacturing Facilities.


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





11


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.




Notwithstanding
      the foregoing statement, the Company has been involved since 2005, and remains
      involved, as a defendant in a patent infringement lawsuit with Clinical
      Innovations Associates (CIA), founded by W. Dean Wallace, formerly President
      and
      CEO of UTMD from 1987 to 1992. CIA alleges that a version of Intran Plus with
      a
      clear portion of its catheter body infringes U.S. Patent No. 6,231,524, with
      filing date of May 11, 1999. Intran Plus was first marketed in 1991 under the
      supervision of Dr. Wallace while he was employed by UTMD, predating organization
      of, and any patent application by, CIA. The only difference between the original
      Intran Plus version and the alleged infringing version is a clear catheter
      body.
      UTMD believes that clear catheters are obvious in the art in medical device
      industry. An example of prior art is UTMD’s IUP-075, a dual lumen IUPC with a
      clear body, which was released for marketing by Dr. Wallace while employed
      by
      UTMD. UTMD believes the case is without merit, but needs to protect its
      reputation from unwarranted claims of a direct competitor. Although the outcome
      of the lawsuit is not expected to be material to financial results because
      the
      number of Intran Plus catheters with clear bodies has been relatively small,
      the
      prosecution of the case through discovery and a trial may have some dilutive
      effect on 2007 financial performance. In 2006, UTMD had $154 in litigation
      expenses related to this lawsuit which were part of G&A expenses. The trial
      is currently scheduled for September 2007. If the court rules in UTMD’s favor
      and agrees that the lawsuit is frivolous, UTMD may be entitled to reimbursement
      of its legal expenses.








**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 NASADQ Global Market (symbol:UTMD). The following
      table sets forth the high and low sales price information as reported by NASDAQ
      for the periods indicated:








2006
            
            2005High
            
            Low
            
            High
            
            Low1st
                Quarter
            
            $
            33.50
            
            $
            28.33
            
            $
            22.80
            
            $
            20.062nd
                Quarter
            
            
            32.10
            
            
            29.50
            
            
            23.50
            
            
            20.203rd
                Quarter
            
            
            33.10
            
            
            28.25
            
            
            24.88
            
            
            22.804th
                Quarter
            
            
            34.96
            
            
            31.51
            
            
            32.80
            
            
            24.50





Stockholders.


The
      approximate number of beneficial stockholders of UTMD’s common stock as of March
      10, 2007 was 2,800.





Dividends.


On
      May
      10, 2004, UTMD announced that it would resume paying a quarterly cash dividend.
      The following sets forth cash dividends declared since May 10,
      2004:





Record
                Date
            
            Payable
                Date
            
            Per
                Share AmountJune
                16, 2004
            
            July
                5, 2004
            
            $  
                0.15September
                16, 2004
            
            October
                5, 2004
            
            0.15December
                16, 2004
            
            January
                5, 2005
            
            0.15March
                16, 2005
            
            April
                5, 2005
            
            0.15June
                17, 2005
            
            July
                5, 2005
            
            $  
                0.155September
                16, 2005
            
            October
                5, 2005
            
            0.155December
                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
            
            0.212004
                total paid
            
            
            
            $  
                0.302005
                total paid
            
            
            
            $  
                0.612006
                total paid
            
            
            
            $  
                0.74





Issuer
      Purchases of Equity Securities.


The
      following table details purchases by UTMD of its own securities during fourth
      quarter 2006.


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)10/01/06
                  - 10/31/06
              
              -
              
              $    
                       -
              
              -
              
              see
                  (1) below11/01/06
                  - 11/30/06
              
              -
              
              -
              
              -12/01/06
                  - 12/31/06
              
              9,801
              
              32.81
              
              9,801Total
              
              9,801
              
              $  
                  32.81
              
              9,801





13


(1) 
      In fourth quarter 2006 UTMD repurchased an aggregate of 9,081 shares of its
      common stock at an average cost of $32.81 per share pursuant to a continued
      open
      market repurchase program instituted in August 1992. Since 1993 through 2006,
      the Company has repurchased 6,327,356 shares at an average cost of $11.65 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 $11.07 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 $8.88 per share. All options were awarded at the market
      value of the stock on the date of the award.





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, 2006, 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 312006
            
            2005
            
            2004
            
            2003
            
            2002Net
                Sales
            
            $
            28,753
            
            $
            27,692
            
            $
            26,485
            
            $
            27,137
            
            $
            27,361Net
                Income
            
            
            8,168
            
            
            7,547
            
            
            10,220
            
            
            20,761
            
            
            7,165Earnings
                Per Common Share (Diluted)
            
            
            2.02
            
            
            1.80
            
            
            2.19
            
            
            4.25
            
            
            1.36Total
                Assets
            
            
            44,187
            
            
            41,642
            
            
            41,262
            
            
            49,694
            
            
            23,387Working
                Capital
            
            
            25,471
            
            
            22,683
            
            
            20,194
            
            
            21,405
            
            
            5,437Long-term
                Debt
            
            
            4,824
            
            
            5,336
            
            
            -
            
            
            -
            
            
            4,956Cash
                Dividends Per Common Share
            
            
            0.74
            
            
            0.61
            
            
            0.30
            
            
            None
            
            
            None





Quarterly
                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





Quarterly
                Data for 2005First
                Quarter
            
            Second
                Quarter
            
            Third
                Quarter
            
            Fourth
                QuarterNet
                Sales
            
            $
            6,652
            
            $
            7,028
            
            $
            7,001
            
            $
            7,011Gross
                Profit
            
            
            3,734
            
            
            4,022
            
            
            4,014
            
            
            3,983Net
                Income
            
            
            1,969
            
            
            1,887
            
            
            1,789
            
            
            1,903Earnings
                Per Common Share (Diluted)
            
            
            .46
            
            
            .45
            
            
            .44
            
            
            .46


14


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


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





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





Productivity
      of Assets and Working Capital.


a) Assets .
      Year-end 2006 total assets were $44,187, compared to $41,642 in 2005. The
      increase was due essentially to an increase in cash and investment balances
      allowed by a substantial decrease in inventories and receivables coupled with
      continued excellent operating profitability. The 2006 productivity of total
      assets (= average total asset turns; total sales divided by average total assets
      for the year) was consistent with 2005, with both years’ productivity diluted by
      the large cash-equivalent balances. Year-end 2006 and 2005 cash and investment
      balances were $21,049 and $17,453 respectively, representing 48% and 42% of
      total assets. Year-end cash and investment balances increased $3,596 after
      UTMD
      paid $2,902 in shareholder dividends, $2,094 in share repurchases, $2,700 to
      meet optionee tax withholding requirements on options exercised in return for
      option shares, and $1,057 in principal repayments for the Ireland loan.
      Excluding average cash and investment balances, average total asset turns in
      2006 and 2005 were 1.22 and 1.14 respectively. In 2007, 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 2006, net PP&E (depreciated
      book value) increased $171 despite the fact that actual depreciation of assets
      exceeded new capital expenditures by $251. The increase in net PP&E was due
      to currency exchange translation of book value of Ireland assets which
      appreciated in U.S. dollar value terms because of a weaker USD compared to
      the
      Euro. Even with the weaker USD, consolidated PP&E balances increased at a
      slower rate than the increase in sales, resulting in significantly higher
      PP&E turns. The current book value of consolidated PP&E is 34% of actual
      acquisition cost, which means that the continued productivity of the company’s
      fixed assets will remain a source of future profitability, given that PP&E
      is in good working order and capable of supporting increased sales activity.
      In
      2007, depreciation of fixed assets should again equal or exceed new PP&E
      purchases required to sustain current operations.





Average
      inventory turns in 2006 increased to 4.0 from 3.9 in 2005, meeting management’s
      continuing objective for inventory turns for the first time since losing the
      Baxter OEM supply business ten years ago. The improved turns were the result
      of
      a combination of 4% higher sales and 8% lower inventories compared to the end
      of
      2005. Net (after allowance for doubtful accounts) year-end trade accounts
      receivable (A/R) balances increased $37 or about 1% at the same time that 2006
      sales activity increased 4%, improving average days in A/R on December 31,
      2006
      to 43 days, based on 4Q 2006 shipments, compared to 45 days at the end of 2005.
      This performance remained well within management’s continuing objective of 55
      days. A/R over 90 days from invoice date at year-end 2006 were 6% of A/R, up
      from 5% 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 2006 was $25,030 compared to $22,230 at year-end 2005.
      Both
      of these amounts exceed working capital needs for growth in normal operations.
      UTMD’s current ratio increased to 8.4 from 7.1, mainly due to increases in cash
      and investments. Since the large majority of the working capital balance is
      excess cash (and cash investments), the current ratio going forward in 2007
      will
      depend primarily upon the timing and extent of use of existing cash and
      investment balances. The other current asset and current liability components
      of
      working capital are expected to remain within management objectives, consistent
      with 2006 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 $7,445 at the
      end
      of 2006 compared to $7,624 sat the end of 2005. The goodwill balance of $7,191,
      reduced 24% from time of acquisition, is the result of three acquisitions in
      1997, 1998 and 2004 which were made in cash at conservative valuations. The
      reduction was goodwill amortization 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 continue to be viable parts
      of
      UTMD’s overall business, representing 33% of total sales in 2006. UTMD does not
      expect the goodwill value of the acquisitions to become impaired in 2007. Other
      intangible assets decreased $179 in 2006. Of that decline, $130 resulted from
      sale of intellectual property rights, which had no impact on the income
      statement. The remaining $49 decrease was the result of amortization expense.
      Net intangible assets at the end of 2006 represented 17% of total assets
      compared to 18% at the end of 2005.





Liabilities .
      UTMD’s
      current liabilities decreased $235, and total liabilities decreased $713, from
      the end of 2005 to the end of 2006. The resulting 2006-ending total debt ratio
      was 18% of total assets, down from a total debt ratio of 21% at the end of
      2005.
      Current liabilities declined because of a normal fluctuation in timing of
      payments of accounts payable and accrued liabilities. The long term Ireland
      note
      payable, which is denominated in Euros, declined just $512 in book value despite
      actual principal payments of $1,057 because of the decline in the value of
      the
      USD. In Euros, the note declined from €4,500 at the beginning of 2006 to €3,672
      at the end of 2006. 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 about the next four years. In addition
      to
      liabilities, UTMD has operating lease and purchase obligations described in
      note
      7.





Results
      of Operations.


a) Revenues .
      Global
      consolidated sales increased 4% in 2006 compared to the prior year. Foreign
      (international) sales increased 16%. Increases and decreases in U.S. (domestic)
      sales categories essentially offset each other.





Domestic
      sales were $21,363 in 2006 compared to $21,301 in 2005 and $20,456 in 2004.
      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
      sales in 2006 were 94% of domestic sales compared to 94% in 2005 and 93% in
      2004. Therefore domestic OEM sales were 6% of domestic sales in both 2006 and
      2005, and 7% of domestic sales in 2004. 2006 domestic OEM sales were up 6%
      at
      $1,342 in 2006, compared to $1,268 in 2005 and $1,491 in 2004. Domestic direct
      sales in 2006 were essentially the same as in 2005, and represented 70% of
      global consolidated sales in 2006 compared to 72% in both 2005 and 2004.





International
      sales were $7,390 in 2006 compared to $6,392 in 2005 and $6,028 in 2004, and
      were 26% of global consolidated sales in 2006 compared to 23% in both 2005
      and
      2004. Of the 2006 international sales, 53%  were
      distributed to customers in Europe, compared to 55% in 2005 and 60% in 2004.
      Ireland operations (UTMD Ltd.) shipped 52% of international sales (in USD terms)
      in 2006, compared to 57% in 2005 and 59% in 2004. UTMD Ltd. 2006 shipments,
      including intercompany sales of subassemblies to Midvale, were up 12% in Euro
      terms and up 13% in USD terms compared to 2005.





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, 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, 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 often
      enjoy a dominant market share and may have differentiated product features
      protected by patents.





16


Global
      revenues by product category:


2006
            
            %
            
            2005
            
            %
            
            2004
            
            %Obstetrics
            
            $
            9,371
            
            
            33
            
            $
            9,774
            
            
            36
            
            $
            10,918
            
            
            41Gynecology/
                Electrosurgery/ Urology
            
            
            6,106
            
            
            21
            
            
            5,397
            
            
            19
            
            
            5,142
            
            
            19Neonatal
            
            
            7,073
            
            
            25
            
            
            6,475
            
            
            23
            
            
            4,134
            
            
            16Blood
                Pressure Monitoring and Accessories*
            
            
            6,203
            
            
            21
            
            
            6,046
            
            
            22
            
            
            6,292
            
            
            24Total:
            
            $
            28,753
            
            
            100
            
            $
            27,692
            
            
            100
            
            $
            26,485
            
            
            100*includes
                molded components sold to OEM customers.





International
      revenues by product category:


2006
            
            %
            
            2005
            
            %
            
            2004
            
            %Obstetrics
            
            $
            764
            
            
            10
            
            $
            593
            
            
            9
            
            $
            774
            
            
            13Gynecology/
                Electrosurgery/ Urology
            
            
            1,820
            
            
            25
            
            
            1,199
            
            
            19
            
            
            966
            
            
            16Neonatal
            
            
            525
            
            
            7
            
            
            400
            
            
            6
            
            
            278
            
            
            5Blood
                Pressure Monitoring and Accessories*
            
            
            4,281
            
            
            58
            
            
            4,200
            
            
            66
            
            
            4,010
            
            
            66Total:
            
            $
            7,390
            
            
            100
            
            $
            6,392
            
            
            100
            
            $
            6,028
            
            
            100*includes
                molded components sold to OEM customers.





As
      a
      brief explanation of revenues in the above tables,


1.
       Of the $403 decline in total obstetrics sales in 2006, $108 was from lower
      sales of vacuum-assisted delivery systems (VADS), a 9% decline, and $320 from
      lower IUPC sales, a 4% decline. The lower VADS and IUPC sales resulted primarily
      from a trend in obstetrics practice that favors abdominal operative deliveries
      over vaginal operative deliveries because of medical malpractice litigation
      risk, and increased competition including effects of GPO product bundling
      agreements. Cheaper priced, less clinically-effective products represent
      significant competition where hospital administrators are constrained by GPO
      contracts or may not take the total cost of care into consideration, including
      increased risk of complications and utilization rates.





2.
       Gynecology/ electrosurgery/ urology product sales increased $711 or 13%,
      with 80% of the increase coming from higher electrosurgical generator and
      electrode sales.





3.
       Consolidated global neonatal product sales increased $598 or 9% in 2006.
      The international portion of neonatal product sales grew 31%, and represented
      21% of the increase.




4.
       Domestic blood pressure monitoring and accessories (BPM) sales increased
      4%, while international BPM sales increased 2%.





Looking
      forward to 2007, UTMD’s improvement in sales depends on its continued ability to
      maintain medical staff involvement in purchasing decisions for UTMD’s
“physician-preference” products used in U.S. hospitals where administrators are
      increasingly making the product decisions through the use of anticompetitive
      GPOs contracts, continued expansion in clinical acceptance of its newer
      specialty products, release of new products after FDA concurrence with
      premarketing submissions and continued development of UTMD’s international
      distribution channels. Excluding the possibility of addition of a product line
      with established sales, management projects a 3% overall revenue increase in
      2007.





b) Gross
      Profit .
      UTMD’s
      2006 gross profit, the surplus after subtracting costs of manufacturing,
      inspecting, packaging, sterilizing and shipping products (CGS) from net
      revenues, was $16,147 compared to $15,753 in 2005 and $15,066 in 2004. Gross
      profit margins (GPMs), gross profits expressed as a percentage of net sales,
      were 56.2% in 2006 compared to 56.9% in both 2005 and 2004. The lower GPM in
      2006 reflects inflation in wages and raw material cost, particularly in Ireland
      where at the same time costs increased, unit sales prices declined in USD terms
      because of a weaker Dollar. In addition, from a sales channel mix perspective,
      the 2006 increase in sales came predominantly from international sales at
      relatively lower than average unit selling prices. UTMD continues to retain
      facilities and other manufacturing capabilities in excess of its needs. As
      a
      result, it projects that the dilution of fixed overhead costs that will occur
      with increased sales in 2007 will help mitigate a continuing expected increase
      in incremental direct material and labor costs together with some competitive
      pressure on prices. Also, the company will move much of the intercompany work
      performed in Ireland during the last few years back to the U.S. and offset
      the
      loss of that work in Ireland with expected continued increases in international
      trade sales, yielding an overall GPM in 2007 comparable to 2006.


17





OEM
      sales
      are sales of UTMD components and subassemblies that are marketed by other
      companies as part of their product offerings. 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
      Profit .
      Operating profit, or income from operations, 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 $5,312
      in 2006, compared to $6,516 in 2005 and $5,807 in 2004. In 2004, operating
      profit includes other operating income, net of associated expenses, resulting
      from UTMD’s patent infringement victory over Tyco. Litigation expenses are
      included as part of G&A expenses. The decline in total operating expenses in
      2006 was due primarily to the favorable conclusion of the FDA litigation in
      late
      2005, as noted in the table below:





2006
            
            2005
            
            2004R&D
                expenses
            
            $
            316
            
            $
            320
            
            $
            292S&M
                expenses
            
            
            2,272
            
            
            2,214
            
            
            2,253G&A
                - FDA litigation expenses
            
            
            -
            
            
            1,527
            
            
            850G&A
                - stock option expense
            
            
            140
            
            
            -
            
            
            -G&A
                - all other expenses
            
            
            2,585
            
            
            2,454
            
            
            2,412G&A
                expenses - total
            
            
            2,725
            
            
            3,981
            
            
            3,262Total
                operating expenses
            
            $
            5,312
            
            $
            6,516
            
            $
            5,807





Operating
      profits in 2006 were $10,835. UTMD’s operating profit margin (operating profits
      divided by total sales) was 37.7% in 2006, compared to 33.4% in 2005 and 57.8%
      in 2004. The 2005 and 2004 margins do not correlate to sales since there were
      substantial expenses and/or other income in those two years that were unrelated
      to sales. Excluding the other operating income related to patent infringement
      damages and FDA litigation expenses, operating profits would have been $10,764
      and $10,109, and operating profit margins would have been 38.9% and 38.2%,
      in
      2005 and 2004 respectively, which management believes is a better measure of
      operating profits relative to sales activity in the prior two years. Looking
      forward to 2007, UTMD expects to control operating expenses, excluding
      consideration for litigation expenses which are less predictable, at a level
      below 19% of sales, yielding a 2007 operating profit margin consistent with
      2006.





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 provide customer support coverage across the
      U.S.
      As a percent of total sales, S&M operating expenses were 7.9% in 2006, 8.0%
      in 2005 and 8.5% in 2004. In 2007, UTMD intends to continue to manage S&M
      expenses to less than 9% of total sales.





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 1.1% in 2006
      compared to 1.2% in 2005 and 1.1% in 2004. In 2007, UTMD will opportunistically
      invest in R&D in order to reinvigorate its product development
      pipeline.





18


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 $140, as
      required by new accounting rules. In addition to employing the personnel
      required to coordinate or manage those “front office” functions, G&A
      expenses include outside director fees and costs, 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 9.5% in 2006, 14.4% in 2005 and 12.3% in 2004.
      G&A expenses excluding all litigation expenses were 8.7%, 8.4% and 9.1% of
      sales in 2006, 2005 and 2004, respectively, which may provide a clearer
      comparison of G&A expense ratios. Total litigation expenses in the three
      years of 2004-2006 were $2,728, of which the expenses associated with the
      unwarranted FDA lawsuit were $2,453. The $275 balance was due to expenses
      associated with defense or prosecution of patent infringement claims. There
      were
      no litigation expenses during the three years related to product liability.
      UTMD
      plans to hold G&A expenses at a level about 9% of 2007 sales, excluding any
      currently unexpected significant litigation costs.





iv)
       Other operating income: Other operating income in 2004 resulted from
      UTMD’s patent infringement victory over Tyco. In January 2004, the Company
      received a payment of $30,944 in damages and interest resulting from a 2002
      District Federal Court judgment, and a post judgment settlement. The Company
      recognized other operating income of $6,060 in first quarter 2004 and $23,992
      (net of expenses) in fourth quarter 2003. In 2007, an unexpected favorable
      result would occur if the government does the right thing and accepts UTMD’s
      claims for damages for the FDA’s abuse of process in 2001-2005.





d) Non-operating
      Income, Non-operating Expense and EBT .
      Non-operating income includes royalties from licensing UTMD’s technology to
      other companies, 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 expenses
      and bank fees. Non-operating income was $1,582 in 2006, $977 in 2005 and $798
      in
      2004. The significant increase in 2006 resulted from capital gains, corporate
      dividends and interest from UTMD investing its excess cash which exceeded 2005.
      Royalties received were $450 in all three years, which came from one source.
      The
      licensed patents for which the royalties were received are due to expire in
      mid-2008. In 2006, UTMD paid $255 for interest compared to $10 in 2005 and
      none
      in 2004. The interest in 2006 and 2005 resulted from borrowing €4.5 million
      ($5,336) in December 2005 to facilitate the repatriation in 2005 of profits
      generated by UTMD’s Ireland operations since 1996. UTMD expects interest expense
      of about $258 in 2007 as a result of the Ireland note payable. Although average
      loan balances will be lower in 2007, the interest rate will be higher and UTMD
      expects the average conversion rate of the USD from the Euro will be weaker
      than
      in 2006, resulting in about the same amount of USD interest. Management expects
      2007 non-operating income will be about $360 lower in 2007 than in 2006 because
      the Company’s cash is now invested solely in short-term money market
      instruments. In 2006, UTMD realized $520 in capital gains when liquidating
      its
      investments in equities. The actual amount of 2007 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 profits. EBT was $12,418 in 2006 compared to $10,214 in 2005 and
      $16,117 in 2004. EBT margin is EBT divided by total sales. UTMD’s EBT margin was
      43.2%, 36.9% and 60.9% in 2006, 2005 and 2004, respectively. Excluding the
      Tyco
      income, the 2004 EBT margin would have been 38.0%, which management believes
      is
      a better indicator of EBT in that year. Given 2007 projections as previously
      noted, management is targeting 2007 EBT about the same as 2006, as the expected
      lower non-operating income will be offset by higher consolidated operating
      profits.





e) Net
      Income, EPS and ROE .
      Net
      income is EBT minus income taxes, often called the “bottom line”. Net income was
      $8,168, $7,547 and $10,220 in 2006, 2005 and 2004, respectively. The effective
      income tax rate was 34.2%, 26.1% and 36.6% 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) extraterritorial income (ETI) exclusions; 3) higher marginal
      tax rates for EBT above $10 million; and 4) other factors such as R&D tax
      credits. Management expects the consolidated income tax rate to increase in
      2007
      because the ETI exclusion has been repealed. **





19


UTMD’s
      net income expressed as a percentage of sales was 28.4%, 27.3% and 38.6% for
      years 2006, 2005 and 2004, respectively. UTMD’s profitability has consistently
      ranked 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 $2.02, $1.80 and $2.19 in
      2006,
      2005 and 2004, respectively. UTMD’s EPS has grown at an annually compounded rate
      of 17% per year during the nine years since 1997.





The
      end
      of 2006 weighted average number of diluted common shares (the number used to
      calculate diluted EPS) were 4,043 (in thousands) compared to 4,192 shares in
      2005 and 4,675 shares in 2004. Dilution for “in the money” unexercised options
      for the year 2006 was 100 (in thousands) shares compared to 230 in 2005 and
      276
      in 2004. The total number of options outstanding at year-end 2006 declined
      58%
      from year-end 2005. Dilution decreased in 2006 from 2005 because the average
      number of options outstanding decreased substantially, even though a higher
      average share price in the stock market increased the dilution effect of each
      option. Actual outstanding common shares as of December 31, 2006 were 3,944,000.





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 in 2006 was
      15%
      (24% before dividends), the same as in 2005. Compared to 2005 and 2004, ROE
      in
      2006 was helped by lower litigation costs. A higher net profit margin in 2006
      was offset by higher dividends to shareholders and lower financial leverage.
      Asset turns remained about the same. ROE in 2005 was 15% (22% before dividends)
      and 24% (28% before dividends) in 2004. The 2004 ROE was aided by Tyco patent
      infringement damages. UTMD’s ROE (before dividends) has averaged 32% per year
      over the last 21 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 issuing more stock.





Looking
      forward, unless UTMD utilizes its cash to make an acquisition or repurchase
      shares, 2007 ROE will be lower than 2006 because net profitability is projected
      to remain about the same while average shareholders’ equity and dividends
      increase and 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 $10,853 in 2006 compared to $6,451 in 2005 and $27,459 in 2004. Compared
      to 2005, net cash provided by operating activities was enhanced in 2006 by
      an
      increase of $621 in net profits, a substantial tax benefit of $2,450 from the
      exercise of employee options (compared to $936 in 2005 and $446 in 2004) and
      excellent balance sheet management by decreasing inventories, receivables and
      other current assets in the presence of higher sales activity. In 2004, the
      major contributor was a receivable of about $25 million from Tyco International
      for patent infringement.





20


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 $6,600 in 2006
      on
      such purchases, compared to $10,600 in 2005 and $22,103 in 2004. In 2006, UTMD
      received $4,306 from selling short-term investments, compared to $9,045 in
      2005
      and $8,202 in 2004. No cash acquisitions were made in 2006 or 2005. UTMD
      invested $1,012 in second quarter 2004 to acquire Abcorp, Inc., its vendor
      for
      fetal monitoring belts. Please see the table under Supplemental Disclosure
      of
      Cash Flow Information for more detail of the Abcorp assets purchased.





In
      2006,
      UTMD received $627 and issued 155,823 shares of stock upon the exercise of
      employee and director stock options. Employees and directors exercised a total
      of 324,548 option shares in 2006, with 168,725 shares immediately being retired
      as a result of the individuals trading the shares in payment of the exercise
      price of the options and related tax withholding subject to statutory
      limitations. UTMD paid $2,700 in 2006 to meet tax withholding requirements
      on
      options exercised. UTMD repurchased 68,565 shares of stock in the open market
      at
      a cost of $2,094 during 2006. Option exercises in 2006 were at an average price
      of $10.50 per share. Share repurchases in the open market were at an average
      cost of $31.00 per share, including commissions and fees. In comparison, in
      2005
      UTMD 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 and directors trading those shares in payment of the stock option
      exercise price and related tax withholding. In 2004, the Company received $1,111
      from issuing 117,482 shares of stock on the exercise of employee and director
      stock options, including 5,426 shares retired upon employees trading those
      shares in payment of the stock option exercise price.





In
      December 2005, UTMD’s foreign subsidiary borrowed €4.5 million ($5,336) to
      finance repatriation (from Ireland to the U.S.) of profits achieved since 1996
      under The American Jobs Creation Act of 2004. UTMD did not borrow during 2006
      or
      2004. In 2006, UTMD made repayments of $1,057 on the Ireland note. 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 the most favorable credit terms.





Management
      believes that future income from operations and effective management of working
      capital will provide the liquidity needed to finance internal growth plans.
      Planned 2007 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 2007 for selective infusions of technological, marketing or product
      manufacturing rights to broaden the Company's product offerings; for continued
      share repurchases if the price of the stock becomes undervalued; and if
      available for a reasonable price, acquisitions that may strategically fit UTMD’s
      business and are accretive to performance. The 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 2007 UTMD plans to


1)
            retain
                the significant U.S. market shares of key products, and continue
                growth of
                newer products;


2)
            add
                proprietary products helpful to clinicians through internal new product
                development;


3)
            continue
                to disproportionately increase international
                sales;


4)
            make
                effective adjustments to intracompany manufacturing operations to
                minimize
                consolidated manufacturing costs;


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.





The
      reliability and performance of UTMD’s products is 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.





21


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. Our 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. We
      fundamentally seek to do an excellent job in meeting our customers’ and their
      patients’ needs, and provide our shareholders with excellent returns.





Looking
      back five years from the end of 2006 to the end of 2001, UTMD’s EPS have
      increased 77% while the year-ending share price has more than doubled (up 142%).
      In comparison, the NASDAQ Composite, S&P 500 Index and DJIA indices were all
      up only about 24% over that same time span. Over the most recent five year
      period, UTMD’s share price appreciated six times the rate of increase of the
      major indices, providing long term shareholders with excellent
      returns.





In
      2006,
      while the year ending share price only increased 3%, UTMD increased
      dividends/share paid to shareholders by 21%, and decreased outstanding
      unexercised options by 58%. Diluted shares outstanding declined about 4%. This
      was achieved in 2006 by UTMD again demonstrating a high positive cash flow
      by
      meeting its operational 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 2007 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.








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.





22


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 provisions of FIN 48
      will be effective for UTMD starting in First Quarter 2007, with the cumulative
      effect of the change, if material, recorded as an adjustment to opening retained
      earnings. Management is currently evaluating the impact of FIN 48 on the
      consolidated financial statements.








**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 .7611, .8433 and .7335 per U.S. Dollar as
      of
      December 31, 2006, 2005 and 2004, 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 Management’s
                Assessment on 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
            32Notes
                to Consolidated Financial Statements
            33













































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, 2006. 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, 2006.




The
      Company's independent registered public accounting firm, Jones Simkins, P.C.,
      has audited management's assessment of the Company's internal control over
      financial reporting as of December 31, 2006, and their report is shown on the
      next page.













By:
            /s/
                Kevin L.
                CornwellKevin
                L. CornwellChief
                Executive OfficerBy:
            /s/
                Paul O. RichinsPaul
                O. RichinsPrincipal
                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 management's assessment, included in the accompanying report titled *Management’s
      Report on Internal Control Over Financial Reporting* ,
      that
      Utah Medical Products, Inc. maintained effective internal control over financial
      reporting as of December 31, 2006, 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. Our
      responsibility is to express an opinion on management's assessment and an
      opinion on the effectiveness of 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 included obtaining an understanding of internal control
      over
      financial reporting, evaluating management's assessment, testing and evaluating
      the design and operating effectiveness of internal control, and 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, management's assessment that Utah Medical Products, Inc. maintained
      effective internal control over financial reporting as of December 31, 2006,
      is
      fairly stated, in all material respects, based on criteria established in *Internal
      Control-Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Also in our opinion, Utah Medical Products, Inc. maintained, in all material
      respects, effective internal control over financial reporting as of December
      31,
      2006, 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
      March 8, 2007 expressed an unqualified opinion.






/s/
      Jones Simkins, P.C.





JONES
      SIMKINS, P.C.


Logan,
      Utah


March
      8,
      2007


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, 2006 and 2005, 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, 2006. These
      financial statements are the responsibility of the company’s management. 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, 2006 and 2005, and the results of its operations and its cash
      flows
      for each of the years in the three-year period ended December 31, 2006 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), the effectiveness of Utah Medical Products,
      Inc.’s internal control over financial reporting as of December 31, 2006, based
      on criteria established in *Internal
      Control-Integrated Framework* issued
      by
      the ** Committee
      of Sponsoring Organizations of the Treadway Commission (COSO), and our report
      dated March 8, 2007 expressed an unqualified opinion on management’s assessment
      of internal control over financial reporting and an unqualified opinion on
      the
      effectiveness of internal control over financial reporting.








/s/
      Jones Simkins, P.C.




JONES
      SIMKINS, P.C.


Logan,
      Utah


March
      8,
      2007























27





UTAH
      MEDICAL PRODUCTS, INC.


CONSOLIDATED
      BALANCE SHEET


December
      31, 2006 and 2005


(In
      thousands)




ASSETS
            
            2006
            
            2005Current
                assets:Cash
            
            $
            610
            
            $
            703Investments,
                available-for-sale (note 3)
            
            
            20,439
            
            
            16,750Accounts
                and other receivables, net (note 2)
            
            
            3,746
            
            
            4,418Inventories
                (note 2)
            
            
            3,037
            
            
            3,305Prepaid
                expenses and other current assets
            
            
            274
            
            
            280Deferred
                income taxes (note 8)
            
            
            305
            
            
            402Total
                current assets
            
            
            28,411
            
            
            25,858Property
                and equipment, net (note 4)
            
            
            8,331
            
            
            8,160Goodwill
            
            
            7,191
            
            
            7,191Other
                intangible assets - net (note 2)
            
            
            254
            
            
            433Total
                assets
            
            $
            44,187
            
            $
            41,642LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                liabilities:Accounts
                payable
            
            $
            599
            
            $
            757Accrued
                expenses (note 2)
            
            
            2,341
            
            
            2,418Current
                portion of note payable (note 5)
            
            
            441
            
            
            453Total
                current liabilities
            
            
            3,381
            
            
            3,628Note
                payable (note 6)
            
            
            4,383
            
            
            4,883Deferred
                income taxes (note 8)
            
            
            308
            
            
            274Total
                liabilities
            
            
            8,072
            
            
            8,785Commitments
                and contingencies (notes 7 and 11)
            
            
            -
            
            
            -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 3,944 shares
                in
                2006 and 3,856 shares in 2005
            
            
            39
            
            
            39Accumulated
                other comprehensive income
            
            
            (720
            )
            
            (495
            )Retained
                earnings
            
            
            36,796
            
            
            33,314Total
                stockholders' equity
            
            
            36,115
            
            
            32,857Total
                liabilities and stockholders' equity
            
            $
            44,187
            
            $
            41,642




See
      accompanying notes to financial statements


28





UTAH
      MEDICAL PRODUCTS, INC.


CONSOLIDATED
      STATEMENT OF INCOME


AND
      COMPREHENSIVE INCOME


Years
      ended December 31, 2006, 2005 and 2004


(In
      thousands, except per share amounts)




2006
            
            2005
            
            2004Sales,
                net (notes 10 and 11)
            
            $
            28,753
            
            $
            27,692
            
            $
            26,485Cost
                of goods sold (notes 10 and 11)
            
            
            12,606
            
            
            11,939
            
            
            11,419Gross
                margin
            
            
            16,147
            
            
            15,753
            
            
            15,066Operating
                income (expense):Sales
                and marketing expense
            
            
            (2,272
            )
            
            (2,214
            )
            
            (2,253
            )Research
                and development expense
            
            
            (316
            )
            
            (320
            )
            
            (292
            )General
                and administrative expense
            
            
            (2,725
            )
            
            (3,981
            )
            
            (3,262
            )Other
                operating income (note 12)
            
            
            -
            
            
            -
            
            
            6,060Operating
                income
            
            
            10,835
            
            
            9,237
            
            
            15,320Other
                income (expense):Dividend
                and interest income
            
            
            862
            
            
            398
            
            
            238Royalty
                income
            
            
            450
            
            
            450
            
            
            450Interest
                expense
            
            
            (255
            )
            
            (10
            )
            
            -Other,
                net
            
            
            525
            
            
            139
            
            
            110Income
                before provision for income taxes
            
            
            12,418
            
            
            10,214
            
            
            16,117Provison
                for income taxes (note 8)
            
            
            4,250
            
            
            2,667
            
            
            5,897Net
                income
            
            $
            8,168
            
            $
            7,547
            
            $
            10,220Earnings
                per common share (basic) (notes 1 and 2):
            
            $
            2.07
            
            $
            1.91
            
            $
            2.32Earnings
                per common share (diluted) (notes 1 and 2):
            
            $
            2.02
            
            $
            1.80
            
            $
            2.19Other
                comprehensive income:Foreign
                currency translation net of taxes of $(36), $(153) and $107
            
            $
            (75
            )
            $
            (502
            )
            $
            222Unrealized
                gain (loss) on investments net of taxes of $(69), $(42) and
                $100
            
            
            (109
            )
            
            (65
            )
            
            157Total
                comprehensive income
            
            $
            7,984
            
            $
            6,980
            
            $
            10,599




See
      accompanying notes to financial statements.


29





UTAH
      MEDICAL PRODUCTS, INC.


CONSOLIDATED
      STATEMENT OF CASH FLOW


Years
      Ended December 31, 2006, 2005 and 2004


(In
      thousands)




2006
            
            2005
            
            2004Cash
                flows from operating activities:Net
                income
            
            $
            8,168
            
            $
            7,547
            
            $
            10,220Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            634
            
            
            676
            
            
            809Gain
                on investments
            
            
            (1,375
            )
            
            (70
            )
            
            (52
            )Provision
                for (recovery of) losses on accounts receivable
            
            
            29
            
            
            (4
            )
            
            3(Gain)
                Loss on disposal of assets
            
            
            -
            
            
            (5
            )
            
            5Deferred
                income taxes
            
            
            118
            
            
            (129
            )
            
            75Stock-based
                compensation expense
            
            
            140
            
            
            -
            
            
            -Tax
                benefit attributable to exercise of stock options
            
            
            2,450
            
            
            936
            
            
            446(Increase)
                decrease in:Accounts
                receivable
            
            
            (37
            )
            
            (51
            )
            
            (226
            )Accrued
                interest and other receivables
            
            
            709
            
            
            (770
            )
            
            (191
            )Inventories
            
            
            35
            
            
            (573
            )
            
            437Prepaid
                expenses and other current assets
            
            
            1
            
            
            (13
            )
            
            (43
            )Litigation
                receivable
            
            
            -
            
            
            -
            
            
            24,884Increase
                (decrease) in:Accounts
                payable
            
            
            74
            
            
            81
            
            
            312Accrued
                expenses
            
            
            (92
            )
            
            (1,175
            )
            
            (9,220
            )Net
                cash provided by operating activities
            
            
            10,853
            
            
            6,451
            
            
            27,459Cash
                flows from investing activities:Capital
                expenditures for:Property
                and equipment
            
            
            (334
            )
            
            (345
            )
            
            (411
            )Intangible
                assets
            
            
            -
            
            
            -
            
            
            (10
            )Purchases
                of investments
            
            
            (6,600
            )
            
            (10,600
            )
            
            (22,103
            )Proceeds
                from the sale of:Investments
            
            
            4,306
            
            
            9,045
            
            
            8,202Property
                and equipment
            
            
            -
            
            
            5
            
            
            -Net
                cash paid in acquisition
            
            
            -
            
            
            -
            
            
            (1,012
            )Net
                cash used in investing activities
            
            
            (2,628
            )
            
            (1,895
            )
            
            (15,334
            )Cash
                flows from financing activities:Proceeds
                from issuance of common stock - options
            
            
            627
            
            
            858
            
            
            1,111Common
                stock purchased and retired
            
            
            (2,094
            )
            
            (8,604
            )
            
            (10,692
            )Common
                stock purchased and retired - options
            
            
            (2,700
            )
            
            (833
            )
            
            (6
            )Proceeds
                from note payable
            
            
            -
            
            
            5,336
            
            
            -Repayments
                of note payable
            
            
            (1,057
            )
            
            -
            
            
            -Dividends
                paid
            
            
            (2,902
            )
            
            (2,445
            )
            
            (1,331
            )Net
                cash used in financing activities
            
            
            (8,126
            )
            
            (5,687
            )
            
            (10,918
            )Effect
                of exchange rate changes on cash
            
            
            (191
            )
            
            16
            
            
            (151
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            (92
            )
            
            (1,116
            )
            
            1,056Cash
                at beginning of year
            
            
            703
            
            
            1,818
            
            
            762Cash
                at end of year
            
            $
            610
            
            $
            703
            
            $
            1,818




See
      accompanying notes to financial statements.


30





UTAH
      MEDICAL PRODUCTS, INC.


CONSOLIDATED
      STATEMENT OF CASH FLOW


Years
      Ended December 31, 2006, 2005 and 2004


(In
      thousands)


*Continued*




SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:2006
            
            2005
            
            2004Cash
                paid during the year for:Income
                taxes
            
            $
            1,866
            
            $
            2,915
            
            $
            14,294Interest
            
            
            255
            
            
            10
            
            
            -During
                2004, the Company purchased all of the oustanding stock of Abcorp
                Medical,
                Inc. The Company paid cash and recorded net assets from the acquisition
                as
                follows:Cash
            
            
            
            
            
            
            
            $
            11Accounts
                receivable
            
            
            
            
            
            
            
            
            127Inventory
            
            
            
            
            
            
            
            
            25Prepaid
                insurance
            
            
            
            
            
            
            
            
            19Equipment,
                net
            
            
            
            
            
            
            
            
            16Accounts
                payable
            
            
            
            
            
            
            
            
            (96
            )Accrued
                expenses
            
            
            
            
            
            
            
            
            (25
            )Goodwill
            
            
            
            
            
            
            
            
            946Total
                cash paid
            
            
            
            
            
            
            
            
            1,023Less
                cash received
            
            
            
            
            
            
            
            
            (11
            )Net
                cash investment
            
            
            
            
            
            
            
            $
            1,012






















See
      accompanying notes to financial statements.


31





UTAH
      MEDICAL PRODUCTS, INC.


CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY


Years
      Ended December 31, 2006, 2005 and 2004


(In
      thousands)




AccumulatedAdditional
            
            Other
            
            
            
            TotalCommon
                Stock
            
            Paid-in
            
            Comprehensive
            
            Retained
            
            Stockholders'Shares
            
            Amount
            
            Capital
            
            Income
            
            Earnings
            
            EquityBalance
                at December 31, 2003
            
            
            4,544
            
            $
            45
            
            $
            -
            
            $
            (260
            )
            $
            36,747
            
            $
            36,532Shares
                issued upon exercise of employeestock
                options for cash
            
            
            123
            
            
            1
            
            
            1,234
            
            
            -
            
            
            -
            
            
            1,235Shares
                received and retired upon exerciseof
                stock options
            
            
            (5
            )
            
            (0
            )
            
            (124
            )
            
            -
            
            
            -
            
            
            (124
            )Tax
                benefit attributable to appreciationof
                stock options
            
            
            -
            
            
            -
            
            
            446
            
            
            -
            
            
            -
            
            
            446Common
                stock purchased and retired
            
            
            (557
            )
            
            (5
            )
            
            (1,556
            )
            
            -
            
            
            (9,130
            )
            
            (10,691
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            329
            
            
            -
            
            
            329Unrealized
                holding gain from investments,available-for-sale,
                net of taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            157
            
            
            -
            
            
            157Common
                stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,947
            )
            
            (1,947
            )Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10,220
            
            
            10,220Balance
                at December 31, 2004
            
            
            4,105
            
            $
            41
            
            $
            -
            
            $
            226
            
            $
            35,890
            
            $
            36,157Shares
                issued upon exercise of employeestock
                options for cash
            
            
            207
            
            
            2
            
            
            2,420
            
            
            -
            
            
            -
            
            
            2,422Shares
                received and retired upon exerciseof
                stock options
            
            
            (84
            )
            
            (1
            )
            
            (2,395
            )
            
            -
            
            
            -
            
            
            (2,396
            )Tax
                benefit attributable to appreciationof
                stock options
            
            
            -
            
            
            -
            
            
            936
            
            
            -
            
            
            -
            
            
            936Common
                stock purchased and retired
            
            
            (373
            )
            
            (4
            )
            
            (960
            )
            
            -
            
            
            (7,640
            )
            
            (8,604
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            (654
            )
            
            -
            
            
            (654
            )Unrealized
                holding loss 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 employeestock
                options for cash
            
            
            325
            
            
            3
            
            
            3,406
            
            
            -
            
            
            -
            
            
            3,409Shares
                received and retired upon exerciseof
                stock options
            
            
            (169
            )
            
            (2
            )
            
            (5,481
            )
            
            -
            
            
            -
            
            
            (5,483
            )Tax
                benefit attributable to appreciationof
                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
            
            $
            36,115










See
      accompanying notes to financial statements.





32


UTAH
      MEDICAL PRODUCTS, INC.


Notes
      to
      Consolidated Financial Statements






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





Note
      1
      - Summary of Significant Accounting Policies





Organization





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





Use
      of
      Estimates in the Preparation of Financial Statements





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Although actual results could differ from those
      estimates, management believes it has considered and disclosed all relevant
      information in making its estimates that materially affect reported performance
      and current values.





Principles
      of Consolidation





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





Cash
      and Cash Equivalents





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





Investments





The
      Company classifies its investments as “available for sale.” Securities
      classified as “available for sale” are carried in the financial statements at
      fair value. Realized gains and losses, determined using the specific
      identification method, are included in operations; unrealized holding gains
      and
      losses are reported as a separate component of accumulated other comprehensive
      income. Declines in fair value below cost that are other than temporary are
      included in operations. As of December 31, 2006 all of the Company’s investments
      are held in Fidelity Cash Reserves (FDRXX).





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,
      2006.





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
      collectiblity based on past credit history with clients. Provisions for losses
      on accounts receivable are determined on the basis of loss experience, known
      and
      inherent risk in the account balance and current economic conditions (see Note
      2).








33


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.


34


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, 2006 and 2005 was $66
      and $125, 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:




2006
            
            2005
            
            2004Weighted
                average number of shares outstanding - basic
            
            3,943
            
            3,962
            
            4,399Dilutive
                effect of stock options
            
            100
            
            230
            
            276Weighted
                average number of shares outstanding, assuming dilution
            
            4,043
            
            4,192
            
            4,675





Stock-Based
      Compensation


At
      December 31, 2006, 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 (SFAS) 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 2006, the Company recognized $140 in
      compensation cost 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 and 2004, including effects of expensing stock options, follows.





Years
                ended December 31,2006
            
            2005
            
            2004Net
                income, as reported
            
            $
            8,168
            
            $
            7,547
            
            $
            10,220Earnings
                per share, as reportedBasic
            
            
            2.07
            
            
            1.91
            
            
            2.32Diluted
            
            
            2.02
            
            
            1.80
            
            
            2.19Stock
                option expense included in calculation of net income
            
            
            140
            
            
            -
            
            
            -**Pro
                forma effects**Stock
                option expense not included in net income, net of related tax
                effects
            
            
            
            
            $
            869
            
            $
            388Net
                income on a pro forma basis
            
            
            
            
            
            6,678
            
            
            9,832Earnings
                per share on a pro forma basisBasic
            
            
            
            
            
            1.69
            
            
            2.24Diluted
            
            
            
            
            
            1.59
            
            
            2.10


35


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 increase in 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 $453 from note payable to current portion of note payable
      on
      the balance sheet at December 31, 2005 to reflect minimum required principal
      payments on the note during 2006.








Note
      2
      - Detail of Certain Balance Sheet Accounts




December
                31,2006
            
            2005Accounts
                and other receivables:Accounts
                receivable
            
            $
            3,607
            
            $
            3,542Income
                tax receivable
            
            
            212
            
            
            783Accrued
                interest and other
            
            
            28
            
            
            166Less
                allowance for doubtful accounts
            
            
            (101
            )
            
            (73
            )$
            3,746
            
            $
            4,418Inventories:Finished
                products
            
            $
            1,002
            
            $
            1,058Work-in-process
            
            
            984
            
            
            657Raw
                materials
            
            
            1,051
            
            
            1,590$
            3,037
            
            $
            3,305Other
                intangible assets:Patents
            
            $
            1,896
            
            $
            2,025License
                rights
            
            
            293
            
            
            293Trademarks
            
            
            224
            
            
            224Non-compete
                agreements
            
            
            175
            
            
            1752,588
            
            
            2,717Accumulated
                amortization
            
            
            (2,334
            )
            
            (2,284
            )$
            254
            
            $
            433





36


UTAH
      MEDICAL PRODUCTS, INC.


Notes
      to
      Consolidated Financial Statements






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





December
                31,2006
            
            2005Accrued
                expenses:Income
                taxes payable
            
            $
            36
            
            $
            45Payroll
                and payroll taxes
            
            
            948
            
            
            949Reserve
                for litigation costs
            
            
            66
            
            
            125Dividends
                payable
            
            
            829
            
            
            658Other
            
            
            462
            
            
            641$
            2,341
            
            $
            2,418








Note
      3
      - Investments





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





December
                31,2006
            
            2005Investments,
                at cost
            
            $
            20,439
            
            $
            16,571Equity
                securities:-Unrealized
                holding gains
            
            
            -
            
            
            298-Unrealized
                holding (losses)
            
            
            -
            
            
            (119
            )Investments,
                at fair value
            
            $
            20,439
            
            $
            16,750




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
                31,2006
            
            2005Balance,
                beginning of year
            
            $
            109
            
            $
            176Gross
                unrealized holding gains, net of (losses), in equity
                securities
            
            
            (179
            )
            
            (110
            )Deferred
                income taxes on unrealized holding gain
            
            
            70
            
            
            43Balance,
                end of year
            
            $
            -
            
            $
            109





During
      2006, 2005 and 2004, UTMD had proceeds from sales of available-for-sale
      securities of $4,306, $9,045 and $8,202, respectively and associated realized
      gains of $1,375, $70 and $52, 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
                31,2006
            
            2005Land
            
            $
            1,072
            
            $
            1,028Buildings
                and improvements
            
            
            9,216
            
            
            8,631Furniture,
                equipment and tooling
            
            
            14,141
            
            
            13,781Construction-in-progress
            
            
            115
            
            
            17924,544
            
            
            23,619Accumulated
                depreciation and amortization
            
            
            (16,213
            )
            
            (15,459
            )$
            8,331
            
            $
            8,160


37


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, 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
            
            $
            8,331December
                31, 2005Utah
            
            Oregon
            
            Ireland
            
            TotalLand
            
            $
            621
            
            $
            -
            
            $
            407
            
            $
            1,028Building
                and improvements
            
            
            4,236
            
            
            32
            
            
            4,363
            
            
            8,631Furniture,
                equipment and tooling
            
            
            11,750
            
            
            1,251
            
            
            781
            
            
            13,782Construction-in-progress
            
            
            179
            
            
            -
            
            
            -
            
            
            179Total
            
            
            16,786
            
            
            1,283
            
            
            5,551
            
            
            23,619Accumulated
                depreciation
            
            
            (12,672
            )
            
            (1,274
            )
            
            (1,513
            )
            
            (15,459
            )Property
                and equipment, net
            
            $
            4,114
            
            $
            9
            
            $
            4,038
            
            $
            8,160








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,
      2006 was $4,824 (€3,672).





The
      following table shows estimated minimum required amortization of the note during
      the next five years using the current interest rate of 4.71%, starting with
      a
      December 31, 2006 balance of $4,824:




Year
            
            Payments
            
            Interest
            
            Principal
            
            Ending
              Balance2007
            
            $
            659
            
            $
            219
            
            $
            441
            
            $
            4,3842008
            
            
            659
            
            
            197
            
            
            462
            
            
            3,9222009
            
            
            659
            
            
            175
            
            
            484
            
            
            3,4382010
            
            
            659
            
            
            152
            
            
            508
            
            
            2,9302011
            
            
            659
            
            
            127
            
            
            532
            
            
            2,398Thereafter
            
            
            2,637
            
            
            239
            
            
            2,398
            
            
            -Total
            
            
            5,933
            
            
            1,109
            
            
            4,824








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, 2006 and 2005. 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 2006 and 2005 was $36,115 and
      $32,857, respectively. U.S. Bank also guarantees the Bank of Ireland loan
      through a letter of credit arrangement at an interest rate of
      1.25%.


38


UTAH
      MEDICAL PRODUCTS, INC.


Notes
      to
      Consolidated Financial Statements






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, 2006:




Contractual
                Obligations andCommitments
            
            Total
            
            2007
            
            2008-
              2009
            
            2010-
              2011
            
            2012
                and
              thereafterLong-term
                debt obligations
            
            $
            5,966
            
            $
            663
            
            $
            1,326
            
            $
            1,326
            
            $
            2,651Operating
                lease obligations
            
            
            952
            
            
            68
            
            
            75
            
            
            75
            
            
            734Purchase
                obligations
            
            
            1,293
            
            
            1,293
            
            
            -
            
            
            -
            
            
            -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, 2006, 2005 and 2004,
      respectively.





Future
      minimum lease payments under its lease obligations as of December 31, 2006
      were
      as follows:





Years
                ending December 31:
            
            Amount2007
            
            $
            682008
            
            
            372009
            
            
            382010
            
            
            372011
            
            
            38Thereafter
            
            
            734Total
                future minimum lease payments
            
            $
            952





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.





39


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 2006:





Beginning
                balance, January 1, 2006
            
            $
            60Changes
                in warranty reserve during 2006:Aggregate
                reductions for warranty repairs
            
            
            (3
            )Aggregate
                changes for warranties issued during reporting period
            
            
            16Aggregate
                changes in reserve related to preexisting warranties
            
            
            (13
            )Ending
                balance, December 31, 2006
            
            $
            60





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
                31,2006
            
            2005Current
            
            Long-term
            
            Current
            
            Long-termInventory
                write-downs and differences due to UNICAP
            
            $
            88
            
            $
            -
            
            $
            84
            
            $
            -Allowance
                for doubtful accounts
            
            
            29
            
            
            -
            
            
            28
            
            
            -Accrued
                liabilities and reserves
            
            
            188
            
            
            24
            
            
            290
            
            
            (63
            )Other
            
            
            -
            
            
            (216
            )
            
            -
            
            
            (53
            )Depreciation
                and amortization
            
            
            -
            
            
            (116
            )
            
            -
            
            
            (89
            )Unrealized
                investment gains
            
            
            -
            
            
            -
            
            
            -
            
            
            (70
            )Earnings
                from subsidiary
            
            
            -
            
            
            -
            
            
            -
            
            
            -Deferred
                income taxes, net
            
            $
            305
            
            $
            (308
            )
            $
            402
            
            $
            (274
            )





The
      components of income tax expense are as follows:





Years
                ended December 31,2006
            
            2005
            
            2004Current
            
            $
            4,049
            
            $
            2,519
            
            $
            5,822Deferred
            
            
            201
            
            
            148
            
            
            75Total
            
            $
            4,250
            
            $
            2,667
            
            $
            5,897








40


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 31,2006
            
            2005
            
            2004Federal
                income tax expense at the statutory rate
            
            $
            4,222
            
            $
            3,473
            
            $
            5,480State
                income taxes
            
            
            410
            
            
            337
            
            
            806ETI,
                foreign sales corporation and tax credits
            
            
            (154
            )
            
            (172
            )
            
            (164
            )Reversal
                of deferred tax for foreign subsidiary earnings, net of repatriation
                tax
            
            
            -
            
            
            (434
            )
            
            -Other
            
            
            (228
            )
            
            (537
            )
            
            (225
            )Total
            
            $
            4,250
            
            $
            2,667
            
            $
            5,897








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 666,558 shares of common stock, of which 227,944 are outstanding
      as
      of December 31, 2006. 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:





Shares
            
            Price
                Range
              Per
                Share**2006**Granted
            
            
            14,600
            
            $
            29.86
                -
            
            $
            29.86Expired
                or canceled
            
            
            10,729
            
            
            14.60
                -
            
            
            29.86Exercised
            
            
            324,548
            
            
            6.50
                -
            
            
            25.59Total
                outstanding at December 31
            
            
            227,944
            
            
            6.50
                -
            
            
            29.86Total
                exercisable at December 31
            
            
            191,010
            
            
            6.50
                -
            
            
            25.59**2005**Granted
            
            
            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**2004**Granted
            
            
            164,100
            
            $
            18.00
                -
            
            $
            25.59Expired
                or canceled
            
            
            44,767
            
            
            6.75
                -
            
            
            25.59Exercised
            
            
            122,908
            
            
            6.50
                -
            
            
            17.71Total
                outstanding at December 31
            
            
            755,526
            
            
            6.50
                -
            
            
            25.59Total
                exercisable at December 31
            
            
            554,727
            
            
            6.50
                -
            
            
            24.02





For
      the
      years ended December 31, 2006, 2005 and 2004, the Company reduced current
      income taxes payable and increased additional paid-in capital by $2,450, $936
      and $446, respectively, for the income tax benefit attributable to sale by
      optionees of common stock received upon the exercise of stock
      options.





41


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 (SFAS) 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 2006, the Company recognized $140 in
      compensation cost 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.





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 31,2006
            
            2005
            
            2004Expected
                dividend amount per quarter/annual yield
            
            $0.2521
            
            2.9%
            
            0.7%Expected
                stock price volatility
            
            28.1%
            
            39.7%
            
            39.0%Risk-free
                interest rate (weighted average)
            
            5.0%
            
            4.1%
            
            3.7%Expected
                life of options
            
            5.3
                years
            
            5.1
                years
            
            6.2
                years





The
      per-share weighted average fair value of options granted during 2006, 2005
      and
      2004 is $7.29, $6.88 and $10.07, respectively.





The
      following table summarizes information about stock options outstanding at
      December 31, 2006:





Options
                Outstanding
            
            Options
                ExercisableRange
                of
              ExercisePrices
            
            Number
              Outstanding
            
            Weighted
                Average Remaining
              Contractual
                Life
              (Years)
            
            Weighted
              Average
              Exercise
              Price
            
            Number
              Exercisable
            
            Weighted
              Average
              Exercise
              Price$
                6.50-15.01
            
            68,650
            
            3.08
            
            $
                 9.40
            
            68,650
            
            $ 
                 9.4017.71-24.02
            
            70,032
            
            7.28
            
            20.50
            
            46,498
            
            20.9525.59-29.86
            
            89,262
            
            7.42
            
            26.23
            
            75,862
            
            25.59$6.50-29.86
            
            227,944
            
            6.07
            
            $19.40
            
            191,010
            
            $18.64








Note
      10 - Geographic Sales Information





The
      Company had sales in the following geographic areas:





United
                States
            
            Europe
            
            Other2006
            
            $
            21,363
            
            $
            3,888
            
            $
            3,5022005
            
            
            21,301
            
            
            3,501
            
            
            2,8912004
            
            
            20,452
            
            
            3,636
            
            
            2,392





42


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
            
            2006
            
            2005
            
            2004Obstetrics
            
            $
            9,371
            
            $
            9,774
            
            $
            10,918Gynecology/Electrosurgery/Urology
            
            
            6,106
            
            
            5,397
            
            
            5,142Neonatal
            
            
            7,073
            
            
            6,475
            
            
            4,134Blood
                Pressure Monitoring and Accessories
            
            
            6,203
            
            
            6,046
            
            
            6,292








Note
      12 - Other Operating Income





In
      January 2004, the Company received a payment of $30,944 in damages and interest
      resulting from a 2002 District Federal Court judgment and ensuing post judgment
      settlement relating to Tyco/Kendall•LTP ’s patent infringement. The Company
      recognized other operating income from that payment of $6,060 in first quarter
      2004 and $23,992 in fourth quarter 2003.








Note
      13 - 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
      14 - Employee Benefit Plan





The
      Company has a contributory 401(k) savings plan for employees, who are at least
      21 years of age, work 1,000 hours a year, and have a minimum of one year of
      service with the Company. The Company’s contribution is determined annually by
      the board of directors. Company contributions were approximately $91, $92 and
      $92 for the years ended December 31, 2006, 2005 and 2004,
      respectively.








Note
      15 - 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, 2006, does not
      differ materially from the aggregate carrying value of its financial instruments
      recorded in the accompanying consolidated balance sheet.








Note
      16 - 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 provisions of FIN 48
      will be effective for UTMD starting in First Quarter 2007, with the cumulative
      effect of the change, if material, recorded as an adjustment to opening retained
      earnings. Management is currently evaluating the impact of FIN 48 on the
      consolidated financial statements.





43


**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
      2006, 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, 2006, 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, 2006. Jones
      Simkins, P.C., the independent registered public accounting firm of the Company,
      has audited management's assessment of, and 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, 2006, and there were no significant
      deficiencies or material weaknesses.








**ITEM
      9B - OTHER INFORMATION**





None.


























44


**PART
      III**





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





The
      information from the definitive proxy statement of the registrant for the 2007
      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: 2006 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 2007
      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 2007
      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
        2007
        annual meeting of shareholders under the captions,
 
 ·
              “CERTAIN
                  RELATIONSHIPS AND RELATED
                  TRANSACTIONS”





45




·
            “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 2007
      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 2007
      annual meeting of shareholders under the caption “Independent Public
      Accountants” is incorporated herein by reference.










































46


**PART
      IV**





**ITEM
      15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES**





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





1.
            Financial
                Statements.


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





2.
            Supplemental
                Schedule.


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





3.
            Exhibits.




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)





47





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, 2006, December 31, 2005 and December 31, 2004
            
            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.








48


**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 15th day of March, 2007.





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 15th day of March, 2007.








By:
            (new
                director in 2007 - did not sign)James
                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























49