EXHIBIT 13

                            BALLARD MEDICAL PRODUCTS

                                  ANNUAL REPORT

                                      1996


                                ABOUT THE COMPANY

               Ballard Medical Products ("Ballard") is  a manufacturer
          and marketer of specialized  medical products.  Our strategy
          for maintaining  the Company's growth continues  to focus on
          the following four objectives:

               -    Developing  innovative  products through  internal
                    research and development and through acquisitions.

               -    Maintaining  the  highest   quality  possible   on
                    products.

               -    Increasing  sales through a  superior sales force,
                    through strategic accounts and  national contracts
                    with hospital buying groups, and through expansion
                    in the international marketplace.

               -    Reducing costs through production efficiencies.

               Ballard  has  six  wholly-owned  subsidiaries,  MEDICAL
          INNOVATIONS   CORPORATION   ("MIC"),  BALLARD   REAL  ESTATE
          HOLDINGS, INC. ("BREH"), BALLARD INTERNATIONAL, INC. ("BI"),
          BALLARD MEDICAL PRODUCTS (CANADA) INC. dba PREFERRED MEDICAL
          PRODUCTS ("PMP"),  MIST  ASSIST, INC.  ("Mist Assist"),  and
          PLASTIC ENGINEERED PRODUCTS COMPANY  ("PEPCO").  (As used in
          this report,  the term  "Company" refers to  Ballard Medical
          Products and its subsidiaries.)

               The Company's headquarters and  principal manufacturing
          plant (276,000 square feet) is located in Draper, Utah.  The
          Company  is  now  also  operating  out  of  a  manufacturing
          facility (104,000 square feet) in Pocatello, Idaho.  Product
          lines moved this year to  the Pocatello plant include SAFETY
          DRAIN, READY  CARE, our  DOUBLE SCRUB brush  line, EASI-LAV,
          and our HMEs.  MIC has manufacturing facilities in Milpitas,
          California;  however  the   Company  intends  to  move   its
          California operations to the  Pocatello facility during  the
          coming fiscal year.  

               The Company's  products are  sold in 47  countries, and
          the  customers purchasing  our  products  include more  than
          16,000   hospitals  and   other   medical  care   facilities
          worldwide.     At  September  30,  1996,   Ballard  and  its  
          subsidiaries employed over 987 people in 7 countries.  

               The Company's  common stock is  traded on the  New York
          Stock Exchange under the symbol BMP.

                                 1996 IN REVIEW

               Fiscal  year 1996 was  the best  year in  the Company's
          history.   Our net  sales  for the  year were  $103,525,263,
          compared  to  $84,152,967   for  fiscal  year   1995,  which
          represents  a  23.0%  increase  for   the  year.    Just  as
          impressive  was  our  22.3%   growth  in  net  income,  from
          $20,942,616  in fiscal  year 1995  to $25,603,039  in fiscal
          year 1996.  Earnings per share for the year were 88.4 cents,
          up 19.6% over 73.9 cents for fiscal year  1995.  Our results
          for  the   year  were  particularly  satisfying   given  the
          increasing pricing and competitive  pressures on many of our
          products.

               During  fiscal  year 1996,  sales  of  Ballard and  MIC
          products   worldwide   increased   by   15.2%   and   56.6%,
          respectively,  while  international  sales  of  all  Company
          products  grew by 27.5%.  We now have 10 international sales
          representatives    and   approximately    53   international
          distributors  and  continue  to  look to  the  international
          markets  as an important,  exciting frontier for  all of the
          Company's products.

               This  was an active acquisition year for us.  The chart
          below summarizes the acquisitions we made:

          DATE                ACQUISITION

          November, 1995   Purchased   a   19.5%   preferred    equity
                           interest in Neuro Navigational  Corporation
                           in Costa Mesa, California  ("NNC"), plus  a
                           two-year  option  to  acquire  all  of  the
                           assets of NNC.  The purchase price  for the
                           preferred   shares   and  the   option  was
                           $2,500,000.

          April, 1996      Purchased   for   approximately  $1,220,000
                           cash substantially  all of  the assets  and
                           business   of  Endovations,  Inc.  (out  of
                           Pennsylvania),  a  wholly-owned  subsidiary
                           of Arrow Precision Products, Inc.

          July, 1996       Purchased for  approximately $673,600  cash
                           (plus  future payments which are contingent
                           on net sales targets being met) all  of the
                           outstanding  shares  of  capital  stock  of
                           Mist   Assist,  Inc.   (out  of  Camarillo,
                           California).    

          August, 1996     Purchased  for  $3,604,440 cash  (through a
                           newly formed  Canadian subsidiary,  Ballard
                           Medical  Products  (Canada), Inc.)  all  of
                           the outstanding shares  of capital stock of
                           691555   Ontario  Limited   (operating   as
                           Preferred   Medical  Products),   and   for
                           approximately   $875,000   PMP's   Thorold,
                           Canada manufacturing plant.

          September, 1996  Acquired,  in  exchange for  238,727 shares
                           of Ballard common stock (fair  market value
                           of  approximately  $4,500,000), all  of the
                           outstanding  shares  of  capital  stock  of
                           Plastic    Engineered   Products    Company
                           ("PEPCO"),  located in  Canal Fulton, Ohio.
                           The combination  was  accounted  for  as  a
                           pooling of interests.

          The  products  obtained   through  these  acquisitions   are
          described below in "New Products".

               1996  was also a banner year for the Company in another
          respect.  In August and September, 1996 after many months of
          hard work  and refinement,  Ballard in Draper,  Utah and  in
          Milpitas,  California  received   the  important  ISO   9001
          certification, followed  by receipt  in September of  the CE
          marking of conformity at  Draper.  Management believes these
          key certifications  will  enhance the  Company's ability  to
          market and sell its products in Europe.  

               This  past summer,  we  completed  construction of  the
          first phase  (104,000 square feet) of  our new manufacturing
          facility in Pocatello,  Idaho.  The Company intends  to move
          its California operations (in  Milpitas, California) to  our
          Pocatello facility sometime within the current  fiscal year,
          and construction is underway on  phase two of our  Pocatello
          facility (approximately 103,000 square feet).

               The   Company   recently  secured   several  additional
          strategic  agreements, whereby certain of Ballard's products
          will  be sole-source  products  for  large  hospital  buying
          groups.    Securing  national  contracts  with key  hospital
          groups has become a priority to the Company.  This is due to
          mergers of health care providers  that have taken place over
          the last 18 months  or so, with resulting larger  and larger
          groups.  The Company has a team of employees who concentrate
          on  this   ever-changing  area   of  health  care.     These
          individuals analyze the opportunities available  within each
          group, submit  proposals based on that  analysis and respond
          to  numerous requests  for proposals  throughout the  United
          States.
            
                                  NEW PRODUCTS  

               During fiscal  year 1996, our new  product acquisitions
          and  releases included  the  following (for  definitions  of
          various  terms,  see  "GLOSSARY  OF  TECHNICAL  AND  MEDICAL
          TERMS"):

          ACQUIRED FROM ENDOVATIONS, INC.:

               *    CAN-OPT Disposable  Dual-Lumen ERCP Catheter  - An
          endoscopic   accessory   used   to   detect   gallstones  by
          cannulating and  injecting contrast  media into  the biliary
          duct.

               *    CAN-OPT Disposable Needle-Knife  Papillotome -  An
          endoscopic accessory used to  remove gall stones by incising
          stenosed papillas.

               *    Keen Edge Disposable Biopsy Forcep - An endoscopic
          device    used   to   obtain   tissue   samples   from   the
          gastrointestinal  system.   This  differs from  our "Thermal
          Option"   coagulating/   biopsy   forcep  in   that   it  is
          noncoagulating  and   allows   us  to   provide  a   low-end
          competitive  product  without  sacrificing  margins  on  the
          "Thermal Option".

               *    Disposable Injection/Washing-Injection Needle - An
          endoscopic accessory used to deliver fluid to specific sites
          in the gastrointestinal system.  Particular procedures are:

                    (a)  Sclerotherapy  - The  injection of medication
          into the  varix to reduce or  eliminate potential esophageal
          bleeds; especially prevalent in alcoholics.

                    (b)  Lesion  Injection  -  Direct  injection of  a
          medication into a  lesion to promote  healing within the  GI
          tract.

                    (c)  Hemostasis -  Direct injection of a coagulant
          (epinephrine) into a bleeding site.

                    (d)  Tattooing -  Injection  of  dye  to  specific
          sites prior to a surgical resection of the GI tract.

                    (e)  Saline  Assisted  Polypectomy -  Injection of
          saline into base of polyp to raise polyp off mucosal floor -
          reduces chance of bowel perforation.

               *    Disposable   Irrigation   Catheter  -   Endoscopic
          accessory  that  delivers  concentrated stream  of  fluid to
          specific sites,  usually  employed to  remove  adhesions  or
          residual  fecal  material  from   colon  to  enhance  visual
          examination of underlying mucosa.

               *    Endo-Guard  Disposable  Bite  Block  -  Endoscopic
          accessory  placed  between  a  patient's  teeth  to  protect  
          physician's fingers, patient's  teeth and endoscope,  during
          gastroscopies,  ERCP  procedures,  or mechanical  esophageal
          dilations.  

          ACQUIRED THROUGH PURCHASE OF MIST ASSIST:

               *    The MIST ASSIST  breathing exerciser  (inspiratory
          flow control  device), which combines  inspiratory breathing
          exercises,  medication delivery via  inhalers or nebulizers,
          and  expiratory breathing  exercises.   This combination  of
          therapies into  one  device  can  provide  significant  cost
          savings to hospitals.

          ACQUIRED THROUGH PURCHASE OF PMP:

               *    Single  Shot Epidural  Trays -  Trays specifically
          designed for  steroid injections in chronic  pain management
          clinics.   Specialty needles,  and  custom packaging  reduce
          waste and lower costs.

               *    Specialty  Needles  -  Specially designed  needles
          allow the physician to utilize the smallest needles feasible
          in  order to minimize pain and  complications such as spinal
          headache.

               *    Pediatric   Trays  and   Mini-Kits  -   Allow  the
          physician  to select special  products specifically designed
          for the pediatric population.

               *    Epidural Catheters, Trays and Mini-Kits  - Provide
          a choice of configuration to insure  the most cost effective
          choices for the physician based on patient needs.

          ACQUIRED THROUGH ACQUISITION OF PEPCO:

               *    An array of sponge-tipped,  oral swabs which allow
          for  routine oral  care  in patients  admitted to  oncology,
          critical care, surgery, and alternate care sites.  The swabs
          are  used  to  clean and  refreshen  the  mouth  as well  as
          stimulate the gums,  oral mucosa  and tongue.   Proper  oral
          care is a cornerstone to preventing nosocomial pneumonia.

          OTHER

               In April,  1996, we introduced a  combination HME (heat
          and moisture exchanger) and filter (manufactured for Ballard
          by   Datex-Engstrom   AB)    to   provide   both   effective
          humidification   and   patient   protection  from   airborne
          bacteria.

                               CONTINUING PRODUCTS

               The  Company's  strong   commitment  to   acquisitions,
          research  and  development,  and  product  enhancements  has  
          enabled the  Company to continue to be  a significant player
          in certain  domestic markets, such as  the closed suctioning
          market and the chronic enteral  feeding market.  In addition
          to  the new  product releases  described above,  the Company
          continues to sell the following products (for definitions of
          various  terms,  see  "GLOSSARY  OF  TECHNICAL  AND  MEDICAL
          TERMS"):

          TRACH CARE

               *    The   TRACH   CARE  closed   endotracheal  suction
          catheter  system  continues  to  be the  Company's  flagship
          product  in  the intensive  care/critical  care  arena.   It
          enables patients with endotracheal tubes, on ventilators, to
          have  their airways  suctioned while  maintaining ventilator
          support, thus improving patient care.  Further, this product
          reduces infection risks due  to its "closed" design, keeping
          both  users  and  the  environment  from  contaminating  the
          suction catheter and from being contaminated.

               The TRACH CARE system is available in sizes, from adult
          to  neonatal, as well as  in several variations  such as WET
          PAK and DOUBLE LUMEN.  This family of products also includes
          a  line of accessories used to complement TRACH CARE such as
          METERED DOSE INHALER adapters, BALLARD UNIT DOSE, START KIT,
          etc.  These accessories are designed to allow the TRACH CARE
          catheter  to be used, among other things, as a drug delivery
          system or to adapt it to specific patient needs.

               *    The  NEONATAL  "Y"  TRACH  CARE  catheter  is   an
          improved   suction   catheter,   engineered   for   use   on
          sophisticated  neonatal  ventilators.   It  provides a  side
          stream  catheter  approach,  which  not only  gives  greater
          patient flexibility,  but also  couples closed suction  with
          high frequency oscillators,  high frequency jet ventilators,
          and volume and physiologic monitors.  
            
               *    The TRACH CARE DOUBLE SWIVEL ELBOW is a calibrated
          closed suction  catheter which has low  dead space, provides
          more  patient  comfort   and  flexibility,  and  gives   the
          clinician a  better "feel" for  the catheter inside  the new
          envelope material.  

               *    The SAFETY DRAIN  closed drain provides clinicians
          with  a way to  empty the  ventilator circuit  of condensate
          without  opening it.  Users are thereby able to complete the
          closed  system started  with the  TRACH CARE  catheter, thus
          providing additional safety for both clinician and patient.

               *    HMEs  have  been  offered  by  the  Company  since
          December,  1993.   The  HMEs  (manufactured  for Ballard  by
          Datex-  Engstrom  AB) provide  a  means  of humidifying  the
          patient's airways  during ventilation and are  sold with our
          TRACH CARE  catheter.   The Company is  Engstrom's exclusive  
          HME distributor in the United States and Canada.

          MIC PRODUCTS

               The  chronic  enteral  feeding market  is  experiencing
          rapid growth  due to the aging of  the population.  There is
          also  an  emerging  physician  consensus  that  early  post-
          operative enteral  support benefits  the high  risk surgical
          patient   by   decreasing   septic  morbidity,   maintaining
          immunocompetence, and improving  wound healing and  recovery
          time.   MIC's full range  of specialty feeding  tubes places
          the  Company firmly in a  position to take  advantage of the
          growing enteral feeding market.  

               *    The  MIC  GASTROSTOMY  TUBE   is  the  first  tube
          specifically designed  for the gastrostomy  procedure.   The
          MIC   GASTROSTOMY   TUBE   can  be   placed   by   surgeons,
          gastroenterologists,    interventional   radiologists    and
          replaced by  qualified registered  nurses at bedside  in the
          hospital, and in home care and alternate care settings.  The
          unique design of the MIC  GASTROSTOMY TUBE becomes a problem
          solver for the  physician and  other care givers.   The  MIC
          GASTROSTOMY  TUBE  virtually  eliminates   inadvertent  tube
          dislodgement, controls  gastric leakage, and is  provided in
          several  sizes and versions, to  accommodate a wide range of
          patient needs.

               *    The  successful  MIC-KEY  SKIN  LEVEL  GASTROSTOMY
          FEEDING KIT continues to  be the gastrostomy tube of  choice
          for the  pediatric patient, because of  its unique aesthetic
          appearance and its ease of insertion and removal.

               *    A  pediatric  version  of  the   MIC  TRANSGASTRIC
          JEJUNAL TUBE allows  for simultaneous gastric  decompression
          and jejunal  feeding.   The prior,  adult version  has shown
          strong growth in the adult arena.

               *    The MIC-PEG  (percutaneous endoscopic gastrostomy)
          feeding  tube  allows for  greater  formula  flow rates  and
          minimizes  the  possibility of  clogging,  a  common problem
          encountered with smaller feeding tubes.

               *    The   CB-X1/X2  disposable  cleaning  brush  is  a
          versatile device that offers maximum channel scrubbing power
          and the ability to scrub endoscope components.

               *    The  THERMAL OPTION  disposable biopsy/coagulating
          forcep is a unique dual-purpose device enabling endoscopists
          to obtain precision cut tissue samples  as well as providing
          "on demand"  coagulating capability  for patient  safety and
          cost efficiency.

               *    The  disposable  CYTOLOGY  BRUSH   incorporates  a
          unique  barium loaded "cap" at  the distal end  of the brush  
          that  enables  an  endoscopist  to  obtain  "site  specific"
          cytological samples while maximizing cell retention.

               *    The  BASICS  endoscopy  system   incorporates  the
          benefits of disposable  and reusable instrumentation into  a
          "reposable"  system  of  reusable  handles  with  attachable
          disposable patient-contact components,  thus addressing  the
          issues of cross-contamination and cost-efficiency.

          FOAM CARE

               *    FOAM CARE foamers  and solutions are designed  for
          use throughout the hospital  and are the Company's principal
          product in  the operating  room.   FOAM CARE  is one of  our
          franchise products, affording us unique opportunities in the
          operating  room, and  providing  additional avenues  for the
          sale of  MIC products. FOAM  CARE foamers utilize  a unique,
          patented, foaming  device that turns the  soap solution into
          rich foam lather.

               FOAM CARE products provide users with cost savings when
          compared to common  liquid soaps.   FOAM  CARE products  are
          gentle  on  the  hands  and,  in  the  operating  room,  are
          complemented by our DOUBLE  SCRUB brush, a soft-on-the-hands
          surgical scrub brush.

          OTHER

               *    The  EASI-LAV gastric  lavage system  is a  closed
          gastric lavage system.   It is used to clean out the stomach
          in drug  overdose patients  or those with  gastric bleeding.
          It  makes  the  lavage  process  cleaner,  faster  and  more
          effective while providing  additional clinician  protection.
          This  product is  used in  the hospital  emergency  room and
          gastrointestinal labs.

               *    The CHAR FLO activated charcoal system is a unique
          charcoal delivery system designed  for use with our EASI-LAV
          system  in  over-dose patients.    It  enables faster,  more
          accurate and environmentally clean charcoal delivery.

               *    The  BAL  CATH  catheter  product  is designed  to
          obtain  bronchoalveolar  lavage  samples   for  use  in  the
          diagnosis  of  nosocomial   and  opportunistic   respiratory
          infections.  Because it is  used without a bronchoscope,  it
          is much more cost effective for the hospital.

                              CAPITAL EXPENDITURES

               As   noted  above,   the  Company's   first  phase   of
          construction in  Pocatello, Idaho (104,000  square feet) was
          completed this past  summer (at a total construction cost of
          approximately  $7,243,000),  and  construction of  a  second
          phase (at  an estimated construction cost  of $5,200,000) is  
          now  under  way.   Also during  this  past fiscal  year, the
          Company's  Ventura,  California  operation was  consolidated
          into our MIC operations in Milpitas, California.

               Also during  fiscal year 1996 the  Company continued to
          upgrade   and   improve   its    manufacturing   operations.
          Expenditures in this area included the following (at a total
          cost of approximately $1,700,000):

               *    9  new automated  assembly machines  (designed and
          constructed at  our Draper, Utah facility),  targeted (1) to
          assist  in  labor-intensive assembly  areas; (2)  to improve
          product quality; and/or (3) to improve ergonomics.

               *    22   TRACH   CARE   manifold  assembly   machines,
          constructed to address ergonomic issues.

               *    A new  packaging machine for our  FOAM CARE DOUBLE
          SCRUB brush line.

               *    A   new  CNC  lathe,   intended  to  make  certain
          manufacturing processes more efficient.

               *    New  Cad/Cam software, which  enables designers to
          improve   manufacturing   processes  in   several  important
          respects.

               *    Extrusion  equipment,  as  a vertical  integration
          measure,  intended to  enable us  to extrude our  own smooth
          bore and corrugated popoid tubing.

               *    New molding equipment, including  molding presses,
          resin dryers, grinders, conveyor separators, a sprue picker,
          and an overhead crane.

                               FOREIGN OPERATIONS

               The  following table  sets forth  the dollar  amount of
          sales by  the Company internationally during  the last three
          fiscal  years.   All  sales  shown are  denominated  in U.S.
          dollars and all payments  are received in U.S. dollars.   No
          foreign  currency is received by the Company.  The amount of
          export sales  to unaffiliated customers does  not exceed 10%
          of the Company's domestic consolidated net sales.

                    FISCAL YEAR            INTERNATIONAL SALES

                      9/30/96                   $7,871,946    

                      9/30/95                   $6,172,904    

                      9/30/94                   $4,672,611      

                                  COMMON STOCK

          TRADING

               The Company's  common stock is  traded on the  New York
          Stock Exchange  ("NYSE").   The following table  sets forth,
          for the respective periods indicated, the high and low sales
          prices  for  the Company's  common  stock,  as reported  and
          summarized by the NYSE for fiscal years 1996 and 1995:

<TABLE>
<CAPTION>
                                FISCAL YEAR 1996    FISCAL YEAR 1995

           QUARTER                  HIGH     LOW       HIGH       LOW

           <S>                    <C>     <C>        <C>       <C>

           First Quarter          18 1/8  15 3/8     11 1/8     9    

           Second Quarter         18 5/8  15 1/8     12 7/8    10 1/8

           Third Quarter          20 5/8  18         13 5/8    10 3/4

           Fourth Quarter         19 1/2  16 1/4     17 1/2    12 5/8
</TABLE>

               On  November 20,  1996, the  closing quotation  for the
          Company's  Common  Stock, as  reported  by  the WALL  STREET
          JOURNAL, was 16 3/4 high and 16 3/8 low.  As of November 20,
          1996,  there  were   approximately  1,291  holders  of   the
          Company's  Common Stock  (based  upon the  number of  record
          holders  and including  individual participants  in security
          position listings).  

          DIVIDENDS

               Ballard has paid  the following  cash dividends  during
          the two most recent fiscal years:

                                                      DIVIDEND 
           RECORD DATE             PAYMENT DATE       PER SHARE

           December 12, 1994       December 28, 1994  $.0600

           December 18, 1995       January 3, 1996    $.0800

                              FINANCIAL HIGHLIGHTS

          SELECTED CONSOLIDATED FINANCIAL DATA (1)(2)

<TABLE>
<CAPTION>
                     1996          1995         1994         1993         1992

<S>          <C>            <C>          <C>          <C>          <C>

Net Sales    $103,525,263   $84,152,967  $67,051,628  $66,532,017  $50,914,956

Other
Income,
Net             5,308,873     4,101,037    3,518,832    3,711,891    2,487,703  

Net Income     25,603,039    20,942,616   16,594,198   18,906,755   13,659,533

Net Income
Per Common
Share (3)             .88           .74          .55          .69          .48

Total
Assets        142,465,088   113,702,547   93,243,187   80,764,500   59,122,109

Cash
Dividends
Declared 
Per Share
(4)                  .095          .074         .060         .045         .035

</TABLE>

          (1)  The  consolidated financial  data shown  above includes
               the   accounts   of   Ballard  and   its   wholly-owned
               subsidiaries,  MIC, BREH,  BI,  PMP, Mist  Assist,  and
               PEPCO.  The accounts  of PMP are included as  of August
               28,  1996 and the accounts of  Mist Assist are included
               as  of July  19, 1996,  which reflect  their respective
               acquisition dates.

          (2)  The combination of Ballard  and PEPCO was accounted for
               as a  pooling of interests.   The selected consolidated
               financial  data have  been prepared  as if  Ballard and
               PEPCO had been combined for all periods presented.

          (3)  Does  not include the cumulative effect  of a change in
               accounting for income taxes in fiscal year 1994.

          (4)  Includes dividends paid by PEPCO.

          SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (1)(2)
          (UNAUDITED)
<TABLE>
<CAPTION>
        FISCAL YEAR 1996      9/30/96      6/30/96      3/31/96     12/31/95
        QUARTERS ENDED:

        <S>               <C>          <C>          <C>          <C>
    
        Net Sales         $27,201,315  $26,845,811  $25,807,593  $23,670,544

        Gross Margin       17,627,601   17,609,148   16,988,822   15,565,514

        Net Income          6,764,594    6,676,160    6,445,696    5,716,589

        Net Income Per 
        Common Share             .236         .232         .225         .200

        FISCAL YEAR 1995
        QUARTERS ENDED:       9/30/95      6/30/95      3/31/95     12/31/94

        Net Sales         $22,417,272  $21,979,398  $20,683,206  $19,073,091

        Gross Margin       15,106,576   14,645,937   13,770,825   12,559,279

        Net Income          5,717,378    5,452,310    5,167,721    4,605,207  

        Net Income Per
        Common Share             .201         .195         .185         .167
           
</TABLE>
          (1)  See additional analysis of  net sales, margins, and net
               income  in  "Management's  Discussion  and  Analysis of
               Financial Condition and Results of Operations."

          (2)  See  footnote  explanations  to "Selected  Consolidated
               Financial Data."

                          INDEPENDENT AUDITORS' REPORT

          To  the  Board  of  Directors and  Stockholders  of  Ballard
          Medical Products:

               We have  audited the accompanying  consolidated balance
          sheets of  Ballard Medical  Products and subsidiaries  as of
          September 30,  1996 and  1995, and the  related consolidated
          statements  of operations,  stockholders'  equity, and  cash
          flows  for each  of  the three  years  in the  period  ended
          September  30, 1996.    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 generally
          accepted auditing  standards.  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, such consolidated  financial statements
          present fairly,  in  all material  respects,  the  financial
          position of Ballard Medical  Products and subsidiaries as of
          September  30,  1996 and  1995,  and  the results  of  their
          operations  and their cash flows for each of the three years
          in the  period ended September  30, 1996 in  conformity with
          generally accepted accounting principles.

               As  discussed in  Notes  1 and  2  to the  consolidated
          financial statements, effective October  1, 1994 the Company
          changed its  method of accounting  for investment securities
          to conform with Statement  of Financial Accounting Standards
          No. 115.   As discussed in Notes 1 and 4 to the consolidated
          financial  statements,  the Company  changed  its  method of
          accounting for  income taxes, effective October  1, 1993, to  
          conform with Statement of Financial Accounting Standards No.
          109.

          Deloitte & Touche LLP
          Salt Lake City, Utah
          November 8, 1996

          CONSOLIDATED BALANCE SHEETS
          SEPTEMBER 30, 1996 AND 1995

<TABLE>
<CAPTION>
        ASSETS                                          1996            1995

        <S>                                    <C>             <C>              

        CURRENT ASSETS:
        Cash and cash equivalents (Note 1)      $14,164,103     $27,555,330 

        Investments (Notes 1 and 2)              26,662,598      18,357,304 

        Accounts receivable - trade
        (less allowance for doubtful
        accounts:  1996 - $182,000, 
        1995 - $125,000; and allowance
        for sales returns:  1996 -
        $805,000, 1995 - $500,000)               19,944,055      13,773,277 

        Royalties receivable                      1,351,885         447,282 

        Other receivables                           636,291       1,223,871 

        Inventories (Note 1):

           Raw materials                          7,171,048       3,825,405 

           Work-in-process                        3,913,804       2,291,374 

           Finished goods                         2,760,008       5,245,852 

        Deferred income taxes (Notes 1 and 4)     1,057,303         593,313 

        Income tax refund receivable
        (Notes 1 and 4)                           3,274,000       2,103,570 

        Prepaid expenses                            169,431         232,315 

           Total current assets                  81,104,526      75,648,893 

        PROPERTY AND EQUIPMENT
        (Notes 1 and 6):

        Land                                      3,944,701       1,849,511 

        Buildings                                20,131,728      11,886,512 

        Molds                                     3,608,228       2,539,615 

        Machinery and equipment                   9,192,269       8,306,448 

        Vehicles                                  1,039,175         535,547 

        Furniture and fixtures                    2,081,200       1,436,563   

        Leasehold improvements                      302,394         258,488 

        Construction in process                   3,053,296       1,234,998 

           Total                                 43,352,991      28,047,682 

        Less accumulated depreciation            (8,058,401)     (6,035,636)

           Property and equipment - net          35,294,590      22,012,046 

        INTANGIBLE ASSETS: 
        Cost in excess of purchase price
        (less accumulated amortization:
        1996 - $3,212,520; 1995 -
        $2,161,887) (Notes 1 and 8)              15,644,651      11,655,058 

        Patents and other intangibles
        (less accumulated amortization:
        1996 - $711,431; 1995 -
        $495,889)                                 5,012,157       3,452,543 

            Total intangible assets              20,656,808      15,107,601 

        OTHER ASSETS (Note 8)                     5,409,164         934,007 

        TOTAL                                  $142,465,088    $113,702,547 
</TABLE>

<TABLE>
<CAPTION>

        LIABILITIES AND STOCKHOLDERS' EQUITY            1996            1995
        CURRENT LIABILITIES:

        <S>                                    <C>             <C>

        Accounts payable                         $2,273,674      $1,152,790 

        Accrued liabilities:
           Employee compensation                  1,985,135       2,314,504 

           Royalties                                326,492         344,712 

           Other                                    845,183         465,926 

           Total current liabilities              5,430,484       4,277,932 

        DEFERRED INCOME TAXES (Notes 1 and 4)     1,110,764         223,757 

           Total liabilities                      6,541,248       4,501,689 

        COMMITMENTS AND CONTINGENT
        LIABILITIES (Notes 6 and 8)

        STOCKHOLDERS' EQUITY (Notes 1, 5, and
        8):  Common stock - $.10 par value;
        75,000,000 shares authorized;
        issued and outstanding:
        1996 - 27,702,323 shares,  
        1995 - 26,800,014 shares                  2,770,232       2,680,002 

        Additional paid-in capital               38,935,892      29,209,774 

        Unrealized losses on investments 
        (Notes 1 and 2)                            (156,564)       (142,728)  

        Retained earnings                        94,374,280      77,453,810 

           Total stockholders' equity           135,923,840     109,200,858 

        TOTAL                                  $142,465,088    $113,702,547 

</TABLE>

          See notes to consolidated financial statements.

          CONSOLIDATED STATEMENTS OF OPERATIONS
          FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>

                                                          1995          1994
                                                      (Notes 1      (Notes 1
                                           1996         and 8)        and 8)
          
        <S>                        <C>             <C>           <C>

        NET SALES 
        (Notes 1, 8, and 9)        $103,525,263    $84,152,967   $67,051,628

        COST OF PRODUCTS SOLD        35,734,178     28,070,350    22,193,542

        GROSS MARGIN                 67,791,085     56,082,617    44,858,086
        OPERATING EXPENSES:

        Selling, general and 
        administrative               28,286,793     24,429,181    21,696,098

        Research and development      2,903,805      2,177,117     1,638,475

        Royalties (Note 6)            1,539,200      1,385,841     1,404,681

           Total operating
           expenses                  32,729,798     27,992,139    24,739,254

        OPERATING INCOME             35,061,287     28,090,478    20,118,832

        OTHER INCOME:

        Interest income               1,917,925      1,923,257       772,645

        Royalty income                2,400,000      2,147,620     2,204,347

        Other                           990,948         30,160       541,840

           Total other income         5,308,873      4,101,037     3,518,832

        INCOME BEFORE 
        INCOME TAX EXPENSE           40,370,160     32,191,515    23,637,664

        INCOME TAX EXPENSE
        (Notes 1 and 4)              14,767,121     11,248,899     8,446,698

        INCOME BEFORE CUMULATIVE
        EFFECT OF CHANGE IN 
        ACCOUNTING PRINCIPLE         25,603,039     20,942,616    15,190,966  

        CUMULATIVE EFFECT OF
        CHANGE IN ACCOUNTING
        PRINCIPLE (Notes 1 
        and 4)                                                     1,403,232

        NET INCOME (Note 8)         $25,603,039    $20,942,616   $16,594,198
        INCOME PER SHARE BEFORE
        CUMULATIVE EFFECT OF
        CHANGE IN ACCOUNTING
        PRINCIPLE (Note 1):
        Common and common
        equivalent share                 $0.895         $0.752        $0.555

        Common share assuming
        full dilution                    $0.884         $0.739        $0.553

        CUMULATIVE EFFECT OF
        CHANGE IN ACCOUNTING
        PRINCIPLE PER SHARE
        (Note 1): 
        Common and common 
        equivalent share                   None           None        $0.051

        Common share assuming
        full dilution                      None           None        $0.051

        NET INCOME PER SHARE
        (Note 1):
        Common and common
        equivalent share                 $0.895         $0.752        $0.606

        Common share assuming
        full dilution                    $0.884         $0.739        $0.604

        WEIGHTED AVERAGE NUMBER 
        OF SHARES OUTSTANDING
        (Note 1):
        Common and common
        equivalent share             28,614,136     27,844,111    27,371,540

        Common share assuming
        full dilution                28,968,855     28,339,946    27,462,702
</TABLE>

       See notes to consolidated financial statements.

          BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
          FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994  

<TABLE>
<CAPTION>
                                                     Unrealized
                                        Additional    Losses on
                   Common                  Paid-in      Invest-     Retained
                   Shares      Amount      Capital        ments     Earnings
   
   <S>        <C>         <C>         <C>           <C>         <C>     

   BALANCE
   OCTOBER
   1, 1993
   (as pre-
   viously
   reported)  26,114,250  $2,611,425  $24,983,195               $44,871,841 

   Pooling
   of
   interest
   combina-
   tion
   (Notes 1
   and 8)        238,727      23,873       (3,873)                  324,647 

   BALANCE
   OCTOBER
   1, 1993
   (as
   restated)  26,352,977   2,635,298   24,979,322                45,196,488 

   Net
   income                                                        16,594,198 

   Cash
   divi-
   dends
   paid                                                          (1,590,083)

   Common
   stock
   issued
   from
   exercise
   of stock
   options
   (Note 5)      361,612      36,161    1,511,520 

   Acqui-
   sition
   and
   retire-
   ment of
   treasury
   stock
   (Note 5)      (20,000)     (2,000)                              (241,081)  

   Tax
   benefit
   attri-
   butable
   to appre-
   ciation
   in value
   of stock
   issued in
   conjunc-
   tion with
   the exer-
   cise and
   disquali-
   fying
   dispo-
   sitions
   of incen-
   tive
   stock
   options                              1,796,546 

   BALANCE
   SEPTEM-
   BER 30,
   1994       26,694,589   2,669,459   28,287,388                59,959,522 
   Net
   income                                                        20,942,616 

   Cash
   divi
   dends
   paid                                                          (1,983,343)

   Common
   stock
   issued
   from
   exer-
   cise
   of stock
   options
   (Note 5)      205,425     20,543       432,869   

   Acqui-
   sition
   and 
   retire-
   ment
   of 
   trea-
   sury
   stock
   (Note 5)     (100,000)    (10,000)                            (1,464,985)

   Tax
   benefit
   attri-
   butable
   to appre-
   ciation
   in value
   of stock
   issued in
   conjunc-
   tion with
   the exer-
   cise and
   dis-
   quali-
   fying
   dispo-
   sitions
   of incen-
   tive
   stock
   options                               489,517  

   Unre-
   alized
   losses on
   invest-
   ments
   (Notes 1
   and 2)                                            $(142,728)

   BALANCE
   SEPTEM-
   BER 30,
   1995       26,800,014   2,680,002   29,209,774     (142,728)  77,453,810 

   Net
   income                                                        25,603,039   

   Cash 
   divi-
   dends
   paid                                                          (2,556,148)

   Common
   stock 
   issued
   from
   exer-
   cise
   of stock
   options
   (Note 5)    1,252,309     125,230     9,689,509

   Acqui-
   sition
   and 
   retire-
   ment of
   trea-
   sury
   stock
   (Note 5)     (350,000)    (35,000)                            (6,126,421)

   Tax
   benefit
   attri-
   butable
   to appre-
   ciation
   in value
   of
   stock 
   issued
   in con-
   junc-
   tion 
   with the
   exercise
   and
   dis-
   qual-
   ifying
   dispo-
   sitions
   of incen-
   tive
   stock
   options                                36,609  
                                                   
   Unre-
   alized
   losses
   on 
   invest-
   ments
   (Notes 1
   and 2)                                              (13,836)

   BALANCE
   SEPTEM-
   BER 30,
   1996        27,702,323  $2,770,232 $38,935,892    $(156,564) $94,374,280 

</TABLE>

     See notes to consolidated financial statements.

     BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES

     CONSOLIDATED STATEMENTS OF CASH FLOWS
     FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994

<TABLE>
<CAPTION>
                                   1996              1995               1994

   <S>                     <C>               <C>                <C>            

   CASH FLOWS FROM
   OPERATING
   ACTIVITIES:

   Net income              $25,603,039       $20,942,616        $16,594,198 
   Adjustments to
   reconcile net
   income to net
   cash provided by
   operating
   activities:

   Depreciation and
   amortization              3,932,373         3,116,862          2,477,007 
   (Gain) loss on
   disposal of
   property                   (446,320)            7,044            110,479 

   Tax benefit from
   disqualifying
   dispositions of
   incentive stock
   options                      36,609           489,517          1,796,546 

   Provision for
   losses on
   accounts
   receivable -
   trade and sales
   returns                     355,000           225,000            200,000   

   Cumulative effect
   of change in
   accounting
   principle (Note                                               (1,403,232)
   1)

   Deferred income
   taxes                       442,122           373,655            828,489 

   Changes in
   operating assets
   and liabilities-
   net of effects
   from purchase of
   subsidiaries in
   1996 and 1995:

   Accounts
   receivable -
   trade                    (6,150,608)          (29,707)         2,686,146 

   Royalties and
   other receivables          (167,553)           52,484           (757,909)

   Inventories              (1,323,492)       (1,398,153)        (2,051,813)

   Income tax refund
   receivable               <1,170,430>          897,815            929,232 

   Prepaid expenses            105,898          (196,526)          (430,813)

   Accounts payable            807,483           156,861         (1,525,061)

   Accrued
   liabilities                  19,180         1,126,009         (3,707,205)

      Total
      adjustments           (3,559,738)        4,820,861           (848,134)

      Net cash
      provided by
      operating
      activities            22,043,301        25,763,477         15,746,064 

   CASH FLOWS FROM
   INVESTING
   ACTIVITIES:

   Capital
   expenditures for
   property and
   equipment               (15,292,194)       (2,769,625)        (6,366,900)

   Proceeds from
   sales of property
   and equipment               564,418            45,250              5,899 

   Purchases of
   investments             (30,569,641)      (38,534,828)       (29,744,216)  

   Investment in
   and advances to
   affiliates
   (Note 8)                 (4,462,625)         (800,000)

   Proceeds from
   maturities of
   investments              22,231,406        36,288,627         20,485,633 

   Purchases of
   intangible assets        (2,854,344)       (1,330,188)          (245,801)

   Purchases of
   other assets                (12,532)         (109,579)

   Payments for
   purchase of
   subsidiaries,
   net of cash
   acquired                 (5,618,432)       (3,283,650)          (500,000)

      Net cash used
      in investing
      activities           (36,013,944)      (10,493,993)       (16,365,385)

   CASH FLOWS FROM
   FINANCING
   ACTIVITIES:
   Cash dividends
   paid                     (2,556,148)       (1,983,343)        (1,590,083)

   Proceeds from
   issuance of
   common stock and
   exercise of
   options                   9,814,739           453,412          1,547,681 

   Purchase of
   treasury stock           (6,161,421)       (1,474,985)          (243,081)

   Repayment of
   long-term debt
   assumed in
   acquisitions               (517,754)          (18,446)           (50,308)

      Net cash
      provided by  
      (used in)
      financing 
      activities               579,416        (3,023,362)          (335,791)

   NET INCREASE
   (DECREASE) IN
   CASH AND CASH
   EQUIVALENTS             (13,391,227)       12,246,122           (955,112)  

   CASH AND CASH
   EQUIVALENTS,
   BEGINNING OF YEAR        27,555,330        15,309,208         16,264,320 

   CASH AND CASH
   EQUIVALENTS, END
   OF YEAR                 $14,164,103       $27,555,330        $15,309,208 

   SUPPLEMENTAL
   DISCLOSURE OF
   CASH FLOW
   INFORMATION - 
   Cash paid during
   the year for
   income taxes            $15,458,820        $9,487,912         $7,571,800 
</TABLE>

          See notes to consolidated financial statements.

          SUPPLEMENTAL DISCLOSURES OF  NONCASH INVESTING AND FINANCING
          ACTIVITIES:

               On  September  27, 1996,  the  Company  entered into  a
          business  combination  with   Plastic  Engineered   Products
          Corporation in exchange for  238,727 shares of the Company's
          common stock.   This transaction  has been accounted  for by
          the  Company  as a  "pooling"  and  as  such, the  Company's
          accompanying   consolidated   financial  statements   as  of
          September 30, 1996 and 1995 and  for the three years in  the
          period  ended September 30,  1996 have  been restated  as if
          this  transaction had  occurred  on  October  1, 1993.    In
          addition,  during the  year  ended September  30, 1996,  the
          Company   entered   into   three  acquisition   transactions
          accounted for as purchases as follows (see Note 8):

          *    On April 19,  1996, the Company  acquired substantially
               all   of   the   assets   of  Endovations,   Inc,   for
               approximately  $1,220,000 cash.    In conjunction  with
               this   purchase,  the  Company   recorded  goodwill  of
               approximately  $400,000 and  the fair  market value  of
               assets acquired approximately $820,000.

          *    On  July  19, 1996,  the Company  purchased all  of the
               outstanding  capital  stock of  Mist  Assist,  Inc. for
               approximately $673,600 cash.   In conjunction with  the
               acquisition, liabilities were assumed as follows:
           
                    Fair value of assets acquired
                    (including goodwill of $680,000)     $800,000

                    Cash paid                             673,600

                    Liabilities assumed                  $126,400

          *    On August 28,  1996, the Company  purchased all of  the  
               outstanding capital stock of Preferred Medical Products
               for  approximately $3,600,000  cash (see  Note 8).   In
               conjunction  with  the  acquisition,  liabilities  were
               assumed as follows:

                    Fair value of assets acquired 
                    (including goodwill of $2,900,000) $4,320,970

                    Cash paid                           3,604,440
                
                    Liabilities assumed                  $716,530

               On May 2, 1995,  the Company acquired substantially all
          of  the net  assets  of Cox  Medical  Enterprises, Inc.  for
          approximately $3,313,000 cash (see  Note 8).  In conjunction
          with the acquisition, liabilities were assumed as follows:

                    Fair value of assets acquired
                    (including goodwill)               $4,000,000

                    Cash paid                           3,313,310

                    Liabilities assumed                  $686,690

               During the years ended September 30, 1996 and 1995, the
          Company  in  conjunction  with  its  adoption  of  Financial
          Accounting  Standards No. 115  (see Note 1),  wrote down its
          short-term investments  in  total by  $32,941 and  $219,582,
          respectively.   The  effect of  this adjustment in  1996 and
          1995 was a decrease in stockholders' equity in the amount of
          $13,836  and $142,728  and an  increase in  current deferred
          income  taxes in the amount  of $19,105 and  $76,854 for the
          years ended September 30, 1996 and 1995, respectively.

          See notes to consolidated financial statements.

          BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES

          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

               ORGANIZATION - Ballard  Medical Products (Ballard)  and
          its   subsidiaries   develop,   manufacture,    and   market
          specialized medical products.

               BASIS  OF  PRESENTATION  - The  consolidated  financial
          statements include  the accounts of Ballard  and its wholly-
          owned subsidiaries, Medical  Innovations Corporation  (MIC),
          Ballard Real Estate  Holdings (BREH), Ballard International,
          Inc.  (BI),  Plastic  Engineered  Products  Company (PEPCO),
          Ballard Medical Products (Canada) Inc. dba Preferred Medical
          Products (PMP),  and Mist  Assist, Inc.  (MAI) (see  Note 8)
          (collectively, the "Company").  All significant intercompany  
          accounts   and  transactions   have   been   eliminated   in
          consolidation.

               During the  year ended September 30,  1996, the Company
          entered into a business  combination with PEPCO, in exchange
          for  238,727 shares  of the  Company's  common stock.   This
          transaction  has  been accounted  for  by the  Company  as a
          "pooling",   and  as   such,   the  Company's   accompanying
          consolidated financial  statements as of  September 30, 1996
          and  1995  and  for the  three  years  in  the period  ended
          September 30, 1996 have been restated as if this transaction
          had occurred on October 1, 1993 (see Note 8).

               USE  OF ESTIMATES IN  PREPARING FINANCIAL  STATEMENTS -
          The preparation  of financial statements in  conformity with
          generally accepted accounting principles 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.   Actual results
          could differ from those estimates.

               INVESTMENTS - Investments consist of tax free municipal
          bonds.   Investments are recorded  at fair market value (see
          Note 2).   Effective  October 1,  1994, the  Company adopted
          Statement of  Financial Accounting Standards (SFAS) No. 115,
          "Accounting  for  Certain  Investments  in  Debt and  Equity
          Securities."   SFAS No.  115 requires the  classification of
          investment securities as either held-to-maturity securities,
          trading  securities, or available-for-sale securities.  Upon
          adoption of  SFAS 115, the  Company reclassified all  of its
          investments as available-for-sale.  The adoption of SFAS 115
          had  no   material  effect  on  the  consolidated  financial
          statements.

               INVENTORIES -  Inventories are  stated at the  lower of
          cost (on a first-in, first-out basis) or market.

               PROPERTY  AND  EQUIPMENT -  Property and  equipment are
          stated  at cost.  Depreciation is  computed on the straight-
          line method over the estimated useful lives as follows:

                    Buildings                30 to 40 years
                    Molds                           5 years
                    Machinery and equipment   5 to 10 years
                    Vehicles                   3 to 5 years
                    Furniture and fixtures     3 to 5 years
                    Leasehold improvements     3 to 5 years
                    
               INTANGIBLE ASSETS - Intangible assets include goodwill,
          patent rights, and  license costs which  are stated at  cost
          and are being amortized  using the straight-line method over
          their estimated lives, which range from four to seventeen 
          years.  

               REVENUE RECOGNITION - Revenues  are recognized when the
          related  product  is  shipped.     The  Company  records  an
          allowance for estimated sales returns.

               INCOME TAXES  - Effective October 1,  1993, the Company
          adopted the  provisions of Statement of Financial Accounting
          Standards  No. 109 (the  Statement), "Accounting  for Income
          Taxes."    The Statement  requires  an  asset and  liability
          approach for  financial accounting and  reporting for income
          taxes.    The cumulative  effect in  1994  of the  change in
          accounting principle of $1,403,232  is reflected in the 1994
          consolidated statement  of operations.  The  adoption of the
          Statement  had   no  effect  on  the   pre-tax  income  from
          continuing operations.

               INCOME  PER SHARE - Income per share is computed on the
          basis of  the weighted average number  of shares outstanding
          plus the common stock equivalents which would arise from the
          exercise of stock options.  

               Such  income per  share  amounts are  adjusted to  give
          retroactive  effect  for  all   periods  presented  for  the
          acquisition by the Company of PEPCO in 1996 (see Note 8).

               STATEMENTS  OF  CASH  FLOWS   -  For  purposes  of  the
          consolidated statements of cash flows, the Company considers
          cash  and   interest   bearing  securities   with   original
          maturities of less than three months to be cash equivalents.

               OTHER - Certain reclassifications have been made to the
          prior    year   financial    statements   to    conform   to
          classifications adopted in the current year.

          2.  INVESTMENTS

               Investments at  September 30, 1996 and  1995 consist of
          municipal bonds.

               The  amortized cost  and fair  value of  investments at
          September 30,  1996 and  1995, classified as  available-for-
          sale, is as follows:

                                             1996                1995

           Amortized cost            $26,915,121         $18,576,886 
           Gross unrealized
           gains                             None                None

           Gross unrealized
           losses                       (252,523)           (219,582)

           Fair value                $26,662,598         $18,357,304   

               As of September 30, 1996 and 1995, all municipal  bonds
          had a  contractual maturity of one year or less.  During the
          year  ended September 30, 1996 and 1995, there were no gross
          realized  gains  or  gross  realized losses  from  sales  of
          investments classified as available-for-sale.

          3.  LINE OF CREDIT

               At  September  30, 1996,  the  Company  had an  unused,
          unsecured  line of  credit with  a bank  totaling $5,000,000
          which expires February 15,  1997.  The line, if  drawn upon,
          bears interest at  the bank's base rate  (8.25% at September
          30,  1996).  No compensating cash balances are required.  As
          of  September 30, 1996 and during the year then ended, there
          were no borrowings under the line of credit.

          4.  INCOME TAXES

               The Company has  recorded current  deferred tax  assets
          and net long-term deferred  tax liabilities at September 30,
          1996 and 1995 as follows:

<TABLE>
<CAPTION>
                                          1996                    1995

                                  Current    Long-Term     Current  Long-Term

           <S>                 <C>        <C>             <C>      <C> 
           Deferred income
           tax assets          $1,057,303     $99,562     $593,313  $452,323 

           Deferred income
           tax liabilities                 (1,210,326)              (676,080)

           Net                 $1,057,303 $(1,110,764)    $593,313 $(223,757)

</TABLE>

               Net  deferred  income  tax assets  and  liabilities  at
          September  30,  1996 and  1995  consisted  of the  following
          temporary differences and carryforward items:

<TABLE>
<CAPTION>
                                           1996                    1995

                                    Current   Long-Term    Current  Long-Term

           <S>                    <C>      <C>              <C>      <C>             

           Deferred income tax
           assets:

           Allowance for
           uncollectible
           accounts receivable      $69,121                  $47,513

           Allowance for                                            
           sales returns and
           allowances               305,729                  190,050 
 
           Allowance for
           obsolete inventory       185,277                   49,585

           Accrued expenses         168,549                  214,506

           Unrealized losses on
           investments               95,959                   76,854

           Net operating loss
           carryforwards of
           acquired                 121,442      $99,562      14,805  $341,097 
           subsidiaries

           Research and
           development credits      111,226                            111,226 
                                  1,057,303       99,562     593,313   452,323 

           Deferred income tax
           liabilities -
           differences between
           tax basis and
           financial reporting
           basis of property
           and equipment                      (1,210,326)             (676,080)

              Total              $1,057,303  $(1,110,764)   $593,313 $(223,757)

</TABLE>
            
               The  components of  income  tax expense  for the  years
          ended September  30, 1996, 1995, and 1994  are summarized as
          follows:
<TABLE>
<CAPTION>
                                     1996              1995             1994

        <S>                   <C>               <C>               <C>          

        Current:
        Federal               $12,421,679        $9,425,942       $6,685,047

        State                   1,903,320         1,449,302          933,162

                               14,324,999        10,875,244        7,618,209

        Deferred:
        Federal                   402,473           323,859          727,007

        State                      39,649            49,796          101,482

                                  442,122           373,655          828,489

        Total                 $14,767,121       $11,248,899       $8,446,698
  
</TABLE>

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

<TABLE>
<CAPTION>
                                   1996           1995           1994  

        <S>             <C>            <C>             <C>                       

        Computed
        Federal income
        tax expense at
        statutory rate  $14,129,556    $11,082,432     $8,128,345 

        State income
        tax expense,
        net of federal
        benefit           1,317,054        990,493        661,806 

        Environmental
        tax                  16,614         30,000         25,000 

        Tax exempt
        income             (553,876)      (624,750)      (210,000)

        Foreign sales
        corporation        (236,250)      (121,756)      (126,000)

        Amortization
        of goodwill         335,763        316,969        278,773 

        Other              (241,740)      (424,489)      (311,226)

        Total           $14,767,121    $11,248,899     $8,446,698 

               As a result of the Company's acquisitions (see Note 8),
          the Company has net operating loss carryforwards for Federal
          income  tax purposes  of approximately  $578,000, which  can
          only be  used to  offset future  taxable income  of acquired
          subsidiaries.  The utilization of the tax loss carryforwards
          is  subject  to  certain limitations  and  the carryforwards
          expire through the year 2007.

          5.  COMMON STOCK AND STOCK OPTIONS

               During the  years ended  September 30, 1996,  1995, and
          1994, the Company  repurchased 350,000, 100,000, and  20,000
          shares  of its  outstanding  common  stock  for  $6,161,421,
          $1,474,985, and $243,081, respectively.  In  accordance with
          Utah  State law,  this treasury stock  was accounted  for as
          retired common stock.

               The  Company has adopted several incentive stock option
          plans for key employees and reserved shares of  common stock
          totaling approximately 2,926,400 and 3,483,000  at September
          30,  1996 and  1995,  respectively, for  issuance under  the
          plans.   Options are granted  at a  price not less  than the
          fair market value on the  date of grant, become  exercisable
          between  one to two years  following the date  of grant, and
          expire in ten years.

               Changes in stock options  are as follows for  the years
          ended September 30:  


</TABLE>
<TABLE>
<CAPTION>

        <S>                             <C>             <C>
                                                          Price Range
        1996                               Shares           Per Share

           Granted                        516,900       $15.25-$17.25

           Expired                         78,200        $8.63-$17.25

           Exercised                    1,252,309        $1.46-$11.63

           Outstanding at
           September 30                 2,517,553        $1.46-$16.75

           Exercisable                  1,799,351        $1.46-$16.75

        1995

           Granted                        740,000      $9.38 - $14.25

           Expired                        101,666      $8.63 - $13.50

           Exercised                      205,425      $1.46 - $11.00

           Outstanding at
           September 30                 3,331,162      $1.46 - $14.25

           Exercisable                  2,410,490      $1.46 - $14.25

        1994

           Granted                      3,747,340      $8.63 - $16.50

           Expired                      2,582,256     $11.00 - $19.79

           Exercised                      361,612       $.67 - $11.00

           Outstanding at
           September 30                 2,898,253      $1.46 - $13.50

           Exercisable                    766,486      $1.46 - $13.50
           
</TABLE>

          6.  COMMITMENTS AND CONTINGENT LIABILITIES

               The Company leases office and production facilities and
          office equipment under long-term operating lease agreements.
          Rent expense on the above operating leases was approximately
          $671,010,  $456,990,  and  $316,469  for  the   years  ended
          September  30,  1996, 1995,  and  1994,  respectively.   The
          following  represents the Company's future commitments under
          such leases:

                     1997                          $495,798

                     1998                           335,406

                     1999                            95,480

                     2000                            85,200  

                     2001                            86,560

                     Thereafter                     499,140

                     Total                       $1,597,584

               The  Company  has  agreements  with  the  inventors  of
          certain of  its products  which provide  for the payment  of
          royalties ranging from 2% to 6.5% of defined net sales or  a
          fixed rate per unit sold of the related products.

               The Company  is involved in certain  litigation matters
          in  the normal course of  business which, in  the opinion of
          management, will not result  in any material adverse effects
          on the Company.

               In October,  1995 the Company began  construction of an
          additional manufacturing facility in Pocatello, Idaho.   The
          first phase of construction was completed during fiscal year
          1996  at  a total  cost  of approximately  $7,200,000.   The
          second phase of construction  began in August, 1996 with  an
          anticipated    cost    of   construction    of   $5,200,000.
          Construction  of  the  second  phase is  anticipated  to  be
          completed in May, 1997.

          7.  PROFIT SHARING PLAN

               The Company sponsors an Employee Retirement and Savings
          Plan (the Plan) under Section 401(k) of the Internal Revenue
          Code.  The Plan is designed to allow participating employees
          to  accumulate savings  for  retirement  or other  purposes.
          Under the Plan, all  employees, who have completed  at least
          one year of service and have reached age 21, are eligible to
          participate.     The   Plan   allows   employees   to   make
          contributions to the plan  from salary reductions each year,
          up  to   a  maximum  of   15%  of  a   participant's  annual
          compensation.   Under the Plan, the Company matches up to 4%
          of  a participant's  contribution.  The  Company may,  if it
          desires, make additional contributions to the 401(k) Plan on
          behalf  of its employees.  For the years ended September 30,
          1996, 1995,  and 1994,  the  Company expensed  approximately
          $621,000, $545,000, and  $372,000, respectively, as matching
          contributions  to  the Plan.    Employees  are always  fully
          vested in their own contributions and become fully vested in
          any contributions  made by  the Company  after six  years of
          service.  Employees are allowed to direct  the investment of
          their  Plan  contributions  within  a  group  of  designated
          investment funds.

          8.  BUSINESS COMBINATIONS

               On  September  27,  1996, the  Company  issued  238,727
          shares  of its  common  stock in  exchange  for all  of  the  
          outstanding common  stock of  PEPCO, a medical  research and
          manufacturing company incorporated in 1987 and headquartered
          in  Canal Fulton, Ohio.  The assets and liabilities of PEPCO
          at the  date of combination were  approximately $684,000 and
          $88,000 respectively.  The  combination was accounted for as
          a  pooling of  interests.    The  accompanying  consolidated
          financial statements  have been  prepared as if  Ballard and
          PEPCO had  been combined for  all periods presented.   There
          were no intercompany transactions between Ballard and  PEPCO
          prior to the date of merger.  Net sales, net income, and net
          income  per  share   amounts  of  the   previously  separate
          companies for the years ended September 30, 1995 and 1994 as
          previously reported and combined are as follows:

                            The Company
                          as Previously
           1995                Reported          PEPCO    As Restated

           Net sales        $81,762,142     $2,390,825    $84,152,967

           Net income        20,415,191        527,425     20,942,616

           Net income
           per share               0.73           0.09          0.739

           1994

           Net sales        $65,062,801     $1,988,827    $67,051,628

           Net income        16,180,377        413,821     16,594,198

           Net income
           per share               0.59          0.014          0.604

               On April  19, 1996, the Company  acquired substantially
          all of  the assets of Endovations,  Inc. ("Endovations") for
          approximately $1,220,000 in cash.   The acquisition has been
          accounted for  using the  purchase method of  accounting; as
          such, Endovations' results of operations have  been included
          in the accompanying  consolidated financial statements  from
          the  date   of  acquisition.    In   conjunction  with  this
          acquisition, the Company recorded goodwill  of approximately
          $400,000, which is being  amortized on a straight-line basis
          over 10 years.

               Effective July  19, 1996,  the Company acquired  all of
          the  issued   and  outstanding  common  stock   of  MAI  for
          approximately  $673,600  in  cash  and  the  assumption   of
          liabilities totally approximately $126,400.  The acquisition
          has  been  accounted  for   using  the  purchase  method  of
          accounting;  as  such,  results  of   operations  have  been
          included   in   the   accompanying  consolidated   financial
          statements  from the  date of  acquisition.   In conjunction
          with  the  acquisition,  the Company  recorded  goodwill  of
          approximately  $680,000,  which  is  being  amortized  on  a  
          straight-line basis over 15 years.

               On August  28, 1996,  the Company  acquired all  of the
          issued  and  outstanding  common   stock  of  PMP  for  cash
          approximately   $3,600,000.     The  acquisition   has  been
          accounted for  using the  purchase method of  accounting; as
          such,  results  of  operations  have been  included  in  the
          accompanying consolidated financial statements from the date
          of acquisition.   In  conjunction with the  acquisition, the
          Company  recorded goodwill of approximately $2,900,000 which
          is being amortized on a straight-line basis over 15 years.

               The pro forma results of operations  of the Company for
          the years  ended September 30,  1996 and 1995  (assuming the
          acquisitions  of Endovations, MAI and PMP had occurred as of
          October 1, 1994) are as follows:

                                               1996              1995

           Net sales                   $107,510,270       $87,881,669

           Net income                   $26,400,040       $21,842,691

           Net income per share              $0.911            $0.771

               On May 2, 1995,  the Company acquired substantially all
          of  the assets  of Cox  for a  purchase price  of $4,000,000
          consisting  of  $3,313,310 in  cash  and  the assumption  of
          liabilities   in  the  amount   of  $686,690.     Cox  is  a
          manufacturer   of  disposable   endoscopic  devices.     The
          acquisition has been accounted for using the purchase method
          of  accounting; as  such, Cox's  results of  operations have
          been  included  in the  accompanying  consolidated financial
          statements from the date  of acquisition.  The cost  of this
          acquisition  exceeded   the  estimated  fair  value  of  the
          acquired  net assets  by $423,000  which is  being amortized
          over 10 years.

               On  November 14,  1995,  the  Company acquired  200,000
          shares  of  the   preferred  stock  of   Neuro  Navigational
          Corporation (Neuro) representing a 19.5%  equity interest in
          Neuro for $2,000,000.  As of September 30, 1995, the Company
          had made interest-bearing advances to Neuro in the amount of
          $800,000.   These advances are included  in the accompanying
          consolidated balance sheet as of September 30, 1995 and were
          subsequently credited towards  the $2,000,000 purchase price
          on November 14, 1996.

               During the  year ended September 30,  1996, the Company
          made advances  to  Neuro in  the  form of  promissory  notes
          totaling  $2,492,110.    Interest   accrues  on  the  unpaid
          principal balance  at a rate of  10% per annum.   The entire
          unpaid principal  balance and accrued, but  unpaid, interest  
          are due on  January 19, 1997.  In  addition, on November 14,
          1995,  the Company  paid  Neuro $500,000  for  an option  to
          purchase  all of  the assets  of Neuro  during the  first 12
          months of the option  period for $9,500,000.  If  the option
          is exercised  during the remainder  of the option  term, the
          purchase price  will be equal to two  times the net sales of
          Neuro for  the 12 months immediately  preceding the exercise
          of the option.   In either event, the $500,000  option price
          will  be credited towards  the purchase  price.   The option
          term  expires two  years following the  closing date  of the
          preferred  stock purchase  by the  Company.   The $2,000,000
          purchase price of  the preferred stock, the  advances in the
          amount of $2,492,110  and the $500,000  paid for the  option
          are  included   in  the   caption  "Other  Assets"   in  the
          accompanying consolidated balance sheet  as of September 30,
          1996.

          9.  SALES

               During the  years ended  September 30, 1996,  1995, and
          1994, the Company had  foreign export sales of approximately
          $7,900,000, $6,200,000, and $4,700,000, respectively.

          10.     EFFECT  OF  RECENTLY  ISSUED   FINANCIAL  ACCOUNTING
          STANDARDS

               In  October, 1995,  the Financial  Accounting Standards
          Board  issued SFAS  No.  123.   "Accounting for  Stock-Based
          Compensation."   SFAS No.  123 defines  a  fair value  based
          method of  accounting for  an employee  stock option.   Fair
          value of the stock  option is determined considering factors
          such as the exercise price, the expected life of the option,
          the  current   price  of   the  underlying  stock   and  its
          volatility, expected  dividends on the stock,  and the risk-
          free  interest rate  for the  expected term  of the  option.
          Under  the fair  value  based method,  compensation cost  is
          measured at  the grant date based  on the fair value  of the
          award  and is recognized over the service period.  A company
          may  elect  to  adopt SFAS  No.  123  or  elect to  continue
          accounting  for its  stock option  or similar  equity awards
          using  the intrinsic  method,  where  compensation  cost  is
          measured at  the date of  grant based  on the excess  of the
          market  value  of the  underlying  stock  over the  exercise
          price.  If a company elects  not to adopt SFAS No. 123, then
          it must  provide  pro forma  disclosure  of net  income  and
          earnings  per share, as if  the fair value  based method had
          been applied.

               SFAS No. 123 is effective for transactions entered into
          for  fiscal years that begin  after December 15,  1995.  Pro
          forma  disclosures for  entities that  elect to  continue to
          measure compensation cost under  the old method must include
          the effects of all awards granted in fiscal years that begin
          after December 15, 1995.   It is currently anticipated  that  
          the  Company  will  continue   to  account  for  stock-based
          compensation plans under the intrinsic method and therefore,
          SFAS  No.  123   will  have  no  effect   on  the  Company's
          consolidated financial statements.

               In  March   1995,  the   FASB  issued  SFAS   No.  121,
          "Accounting for the Impairment  of Long-Lived Assets and for
          Long-Lived  Assets  to  be  Disposed Of".    This  statement
          addresses the  accounting for the  impairment of  long-lived
          assets, such  as premises, furniture and  equipment, certain
          identifiable  intangibles  and  goodwill  related  to  those
          assets.     Long-lived   assets  and   certain  identifiable
          intangibles  are to  be  reviewed  for  impairment  whenever
          events  or  changes  in  circumstances  indicate   that  the
          carrying  amount of  an asset  may not  be recoverable.   An
          impairment loss  is recognized  when the  sum of the  future
          cash  flows  (undiscounted   and  without  interest  charges
          expected  from  the  use  of  the  asset  and  its  eventual
          disposition) is less than the carrying amount of the  asset.
          The  statement also  requires  that  long-lived  assets  and
          identifiable   intangibles,   except   for   assets   of   a
          discontinued operation  held for disposal, be  accounted for
          at the lower of cost or fair value less cost  to sell.  SFAS
          No.  121  is  effective  for fiscal  years  beginning  after
          December  15,  1995.   The impact  of  SFAS No.  121  on the
          Company  is not expected to  be material in  relation to the
          consolidated financial statements.

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

               This analysis of  the Company's operations encompassing
          the fiscal years  ended September 30, 1996, 1995,  and 1994,
          should be  considered in  conjunction with the  consolidated
          balance sheets, statements of operations, and  statements of
          cash flows.

               All of the figures  discussed herein have been adjusted
          to  reflect  the  combination   (treated  as  a  pooling  of
          interests) with PEPCO on September 27, 1996, the purchase of
          100% of the outstanding stock of PMP on August 28, 1996, the
          purchase  of 100% of the outstanding stock of Mist Assist on
          July  19, 1996, the purchase of the assets of Endovations on
          April  19, 1996,  and  the purchase  of  the assets  of  Cox
          Medical Products, Inc. on May 1, 1995.

          SUMMARY

               Fiscal  year  1996 was  a another  record year  for the
          Company in terms  of sales and  net income.  Net  sales were
          $103.5  million,  representing  an  increase  of  23.0% over
          fiscal 1995.  Net income and net income per share were $25.6
          million  and $.88, respectively, increasing 22.3% and 19.6%,
          respectively, over  fiscal  year 1995.   The  growth is  the  
          result   of  an  aggressive  acquisition  program,  internal
          development of new products, expansion in the  international
          marketplace, and the overall efforts of an outstanding sales
          force.

               It  was an active acquisition year for the Company.  In
          April 1996, the Company  acquired the assets of Endovations,
          Inc., which included a line of products used in the hospital
          GI environment.  In  July 1996, the Company acquired  all of
          the outstanding stock of Mist Assist, a manufacturer of  the
          MIST  ASSIST  inspiratory flow  control  device.   Effective
          August   1996,   the  Company   acquired  PMP,   a  Canadian
          manufacturer of  disposable pain  therapy products.   And in
          September  1996  the  Company  combined  (in  a  pooling  of
          interests)  with  PEPCO,  a  manufacturer  of  oral  hygiene
          products for critically ill patients.

               The  Company generally  reports internally  and focuses
          its sales efforts on two separate business units:  (1) TRACH
          CARE/EASI-LAV ("TRACH CARE") which  includes the TRACH  CARE
          and  EASI-LAV  families  of  products as  well  as  the  new
          additions from  the acquisitions  of Mist  Assist, Preferred
          Medical  and  PEPCO; and  (2)  MIC/FOAM  CARE ("MIC")  which
          includes  the MIC, FOAM CARE and Cox families of products as
          well  as  the  new  product  line  additions  acquired  from
          Endovations.

          RESULTS OF OPERATIONS

               SALES  -  For  the   year  ended  September  30,  1996,
          consolidated net sales increased $19,372,296, or 23.0%, over
          fiscal  year 1995.  For  the year ended  September 30, 1995,
          consolidated net sales increased $17,101,339  or 25.5%, over
          fiscal  year  1994.    The  solid  growth  in  1996  is  due
          principally  to  increases  in  volume,  although prices  on
          isolated  TRACH  CARE  and   MIC  products  and  accessories
          increased  from  3% to  5%.   Despite  these  isolated price
          increases,  pricing  for  other  products  during  1996  was
          reduced in  order to  meet competition and  price reductions
          required by hospitals and large buying  groups.  The Company
          is receiving  particular pricing pressure on  its TRACH CARE
          product line.

               The Company's MIC enteral feeding catheters and related
          products contributed significantly to  the overall growth in
          net sales,  as did expansion of  the Company's international
          operations.  Net sales within the MIC product line increased
          37.1% in  fiscal 1996  over fiscal 1995  while international
          net  sales (all  products) increased  27.5% during  the same
          period.

               The following table summarizes  sales by product family
          as a percentage of net sales:  

          Year ended September 30,           1996      1995      1994

          Trach Care                         64.8%     68.5%     70.8%

          MIC                                35.2%     31.5%     29.2%

               All sales of  the Company and  related receipts are  in
          U.S. dollars.   Export sales to  unaffiliated customers from
          the Company's domestic operations did not exceed ten percent
          (10%) of  the Company's domestic consolidated  net sales for
          either of the years ended September 30, 1996 or 1995.

               COST OF PRODUCTS  SOLD - For  the year ended  September
          30,  1996,  consolidated  cost  of  products   sold  totaled
          $35,734,178, compared with $28,070,350  for fiscal year 1995
          and $22,193,542 for fiscal year 1994, increases of 27.3% and
          26.5%, respectively.  For the year ended September 30, 1996,
          the  increased costs are  principally a  result of  start up
          manufacturing costs associated with the  Company's new Idaho
          manufacturing facility, the impact  of the combination  with
          PEPCO and other acquisitions with lower initial margins, and
          continued increases  in material  and labor costs.   Margins
          continue to be impacted by the health market's focus on cost
          restraints  and competitive  pricing resulting  in increased
          product rebates and  price reductions.  The increase in cost
          of products sold for  the year ended September 30,  1995 was
          proportionate to the increase in net sales.

               During  the year  the Company  continued to  refine and
          automate its  manufacturing processes as well  as expand its
          injection molding capacity.   Gross margins will continue to
          be  impacted by pricing pressures, new product acquisitions,
          and  increases in labor and materials.  Margins will also be
          impacted  in fiscal year 1997  by the Company's planned move
          of its MIC operations to Pocatello, Idaho.

               OPERATING  EXPENSES -  Operating  expenses  consist  of
          selling, general, and  administrative expenses, research and
          development expenses,  and  royalties.   Total  consolidated
          operating  expenses for  the year  ended September  30, 1996
          were $32,729,798,  compared with $27,992,139 for fiscal year
          1995 and $24,739,254 for fiscal year 1994.  The following is
          a summary of  operating expenses by category as a percentage
          of net sales:

          Year ended September 30,           1996      1995      1994

          Selling, general, and
               administrative                27.3%     29.0%     32.4%

          Research and development            2.8%      2.6%      2.4%

          Royalties                           1.5%      1.6%      2.1%  

               Selling,  general, and  administrative  expenses  as  a
          percentage of net sales decreased each of the last two years
          due to increased product sales and efforts to control costs.
          Consolidated  expenses related  to research  and development
          and royalties, as a percentage of consolidated net sales for
          fiscal  years   1996,  1995,   and  1994,  remained   fairly
          consistent.

               OTHER  INCOME -  Other  income consists  principally of
          interest  income from short-term investments, royalty income
          from the  licensing of the TRACH CARE closed suction system,
          and the netting  of insignificant gains and  losses from the
          sale or retirement of property and  equipment.  In addition,
          effective September  30, 1996,  the Company sold  its SAFETY
          SHIELD product line  to Tecnol Medical Products, Inc.  for a
          cash sales price of approximately $602,000.

               For  the  year ended  September  30, 1996  consolidated
          other  income totaled  $5,308,873, compared  with $4,101,037
          for fiscal  year 1995 and  $3,518,832 for fiscal  year 1994.
          The  increase  each period  is  primarily  due to  increased
          interest income earned from  the Company's investment of its
          excess cash  reserves.  Royalty  income remained  relatively
          consistent  between the  periods at  $2,400,000, $2,147,620,
          and $2,204,347 for 1996, 1995, and 1994, respectively.

               NET INCOME  - Consolidated  net income from  operations
          for the  year ended September 30,  1996 totaled $25,603,039,
          an increase of 22.3%  over fiscal year 1995.   The following
          table reflects net income as a percent of net sales for each
          of the reporting periods:

          Year ended September 30, 1996      1995      1994

          Net Income               24.7%     24.9%     24.7%

               The  overall  increase in  net  income  over the  prior
          period and the outstanding after-tax net income reflects the
          increased  sales  volume,  continued  strong   margins,  and
          management's efforts to  control the costs of  manufacturing
          products and other operating costs.
           
               INFLATION    - Inflation  can  be expected  to  have an
          effect  on  most  of   the  Company's  operating  costs  and
          expenses.   The extent to which  inflationary cost increases
          can be offset by price increases depends on competition  and
          other   factors.     The  effect   of  inflation   has  been
          insignificant during the periods reported herein.

          LIQUIDITY AND CAPITAL RESOURCES

               The Consolidated Balance  Sheet presents the  Company's
          financial position at the end of each of the last two years.
          The statement lists  the Company's  assets and  liabilities,  
          and  the equity of its  stockholders.  Major  changes in the
          Company's   financial  position   are   summarized  in   the
          Consolidated  Statement  of  Cash  Flows.    This  statement
          summarizes  the  changes  in  the Company's  cash  and  cash
          equivalents balance  for each of  the last  three years  and
          helps to show the relationship between operations (presented
          in  the Consolidated Statement  of Operations) and liquidity
          and  financial  resources  (presented  in  the  Consolidated
          Balance Sheets).

               For  the year  ended September  30, 1996  the Company's
          operating activities provided  $22,043,301 in cash and  cash
          equivalents, comparable to  the $25,763,477 provided  during
          fiscal year  1995.  At  September 30, 1996,  working capital
          totaled  $75,674,042 compared with  $71,370,961 at September
          30,  1995.  The  Company's current  ratio was  14.9 to  1 at
          September 30, 1996 compared with 17.7 at September 30, 1995.
          Available cash, which includes cash and cash equivalents and
          investments  available-for-sale,  at   September  30,   1996
          totaled $40,826,701  compared with $45,912,634  at September
          30,  1995.  In addition  to its strong  liquid position, the
          Company does not have any long-term debt nor does management
          intend to  utilize  debt  to  fund future  expansion.    The
          Company maintains a $5,000,000 unsecured line of credit with
          its bank but has not drawn on this line during either of the
          years ended September 30, 1996 or 1995.

               Continued  growth in cash  and investments provides the
          Company financial stability and  flexibility to fund current
          operations,  acquisitions, future growth  and expansion, and
          to continue its dividend payment policy.

               During the  year ended September 30,  1996, the Company
          completed the  first phase of its  manufacturing facility in
          Pocatello, Idaho.    See discussion  of  Pocatello  facility
          under "1996 in Review".   Total development and construction
          costs   of  the   first  phase   of  the   facility  totaled
          approximately  $7,243,000.   The internal  build-out of  the
          first phase  of the  Pocatello facility should  be completed
          during  the  second  quarter  of  fiscal  year  1997  at  an
          estimated construction  cost of $800,000.   The second phase
          of  construction of the  Idaho facility is  expected to cost
          approximately $5,200,000  and should also be  completed near
          the  end  of  the  second   quarter  of  fiscal  year  1997.
          Additionally, the Company expended  approximately $8,049,000
          million  during  fiscal  year  1996 to  expand  and  upgrade
          existing  facilities and  operations  in order  to meet  the
          growing needs of present  and new business.  Other  than the
          construction  projects  mentioned above,  no  other material
          commitments for capital expenditures existed as of September
          30, 1996.

               Cash  outlays for  acquisitions, net of  cash acquired,
          included approximately $673,600 for Mist  Assist, $5,200,000  
          for PMP  and the purchase of related  assets, and $1,220,000
          for  Endovations.   During 1996,  the Company  completed the
          acquisition  of  a  19.5%  equity interest  in  NNC  by  the
          purchase of stock for $2,000,000.   In addition, the Company
          acquired,  for $500,000,  an  option to  acquire all  of the
          assets  of NNC.   Throughout the year,  the Company advanced
          $2,880,000 (an additional $800,000 had been  advanced during
          fiscal  year 1995)  to NNC  to help  fund NNC's  operations.
          This  sum was advanced as a secured loan, in bi-weekly draws
          ranging between  $25,000 and $150,000.  As  of September 30,
          1996 $1,275,000  plus accrued interest (at 10% per annum) of
          $20,637 had been repaid to the Company.  The balance owed by
          NNC  to  the Company  at September  30, 1996  was $2,492,110
          ($2,405,000 principal plus $87,100 in accrued interest).

               A valuation allowance has not been provided on deferred
          tax asset balances due to the Company's projection of future
          taxable income in excess of such tax assets.

               In  addition to  capital and  acquisition expenditures,
          other  items which  affected cash  flows during  fiscal year
          1996 included the  purchase of the  Company's own stock  for
          $6.2 million, the payment of dividends of $2.6  million, and
          net  purchases  of  investments  available-for-sale  net  of
          maturities of $8.3 million. 

          GLOSSARY OF TECHNICAL AND MEDICAL TERMS

           1.  Bronchoalveolar  lavage  is  a  medical  procedure  for
               obtaining samples from smaller airways in the lungs.  A
               catheter is wedged  into the bronchus.   Then a  lavage
               fluid  is injected into the airways.  A fluid sample is
               withdrawn to determine whether infectious organisms are
               present in the airways or air sacs.

           2.  Biopsy is an excision of a small piece of living tissue
               for microscopic examination.

           3.  Cannulate   is  to   introduce  a  cannula   through  a
               passageway.

           4.  Catheter is a  flexible tube that is inserted  into the
               body to deliver or remove fluid or  act as a conduit to
               pass other devices.

           5.  Closed suction  catheter is a sleeved  catheter used to
               suction the endotracheal  tube of  a patient  receiving
               mechanical ventilation.  The catheter keeps the patient
               oxygenated because the  ventilator is not  disconnected
               during the suctioning procedure.

           6.  Coagulate  means to  solidify  or change  from a  fluid
               state to a semisolid mass.  

           7.  Cytology brush is a brush used to collect cell  samples
               from the gastrointestinal or pulmonary tract.

           8.  Endoscope  is an  instrument consisting  of a  tube and
               optical  system used  in  the examination  of a  hollow
               organ or cavity.

           9.  Endoscopic refers to a  procedure performed by means of
               an endoscope.

          10.  Endoscopy is  an examination  of organs or  cavities by
               use of an endoscope.

          11.  Endotracheal tube is a tube inserted into the patient's
               upper airway allowing medical ventilatory support.

          12.  Enteral  feeding catheter  is a  catheter used  for the
               delivery of nutritional liquids into the stomach of the
               patient.

          13.  ERCP  is  an  endoscopic  technique   for  fluoroscopic
               examination of the biliary and/or pancreatic ducts.

          14.  Exogenous means originating outside an organ or part.

          15.  Fluoroscopy  is the  use of  a fluoroscope  for medical
               diagnosis or  for testing various materials by roentgen
               rays.

          16.  Gastric means pertaining to the stomach.

          17.  Gastrointestinal  means pertaining  to the  stomach and
               intestine.

          18.  Gastrostomy  is  an  examination  of  the  stomach  and
               abdominal cavity by use of a gastroscope.

          19.  Jejunal  means pertaining  to the  jejunum, the  second
               portion of  the  small  intestine  extending  from  the
               duodenum to the ileum.

          20.  Jejunostomy  is  a  surgical  creation  of a  permanent
               opening through the skin into the jejunum.

          21.  Lesion  is  a  circumscribed  area   of  pathologically
               altered tissue.

          22.  Mucosa is  a mucus membrane  or the moist  tissue layer
               that lines a hollow organ or body cavity.

          23.  Nebulizer is an apparatus for producing a fine spray or
               mist.

          24.  Nosocomial infection is  an infection acquired while  a  
               patient is in a hospital.

          25.  Papilla   is  a  small,   nipple-like  protuberance  or
               elevation.

          26.  Percutaneous Endoscopic Gastrostomy (PEG) catheter is a
               flexible  tube inserted  through the  mouth, esophagus,
               and stomach to  the outside of the body with the aid of
               an endoscope.   Name refers to  the placement procedure
               and is a variation of a gastrostomy tube.

          27.  Polyp means a tumor with a pedicle.

          28.  Polypectomy  is  a  medical  procedure  for removal  of
               polyps (growths).

          29.  Resection means a  partial excision of a  bone or other
               structure.

          30.  Stenosed means constricted.

          31.  Septic  means pertaining  to  pathogenic  organisms  or
               their toxins, i.e., putrid, rotten or decayed.

          32.  A surfactant is an agent that lowers surface tension.

          33.  Transgastric  pertains to  a  bypass  of  the  stomach.
               Transgastric tubes are placed through the skin and into
               the  stomach, with  the distal  tip terminating  in the
               jejunum, or elsewhere in the digestive system.

          34.  Varix means an enlarged and tortuous vein or artery.

          35.  A ventilator is  a life support  device used to  assist
               breathing.

                                    DIRECTORS

          NAME                     TITLE

          Dale H. Ballard          Chairman   of   the  Board,   Chief
                                   Executive Officer, and President of
                                   Ballard Medical Products

          John I. Bloomberg        General    Partner    of     J.I.B.
                                   Associates,   Bricoleur   Partners,
                                   Olympic   Growth  Fund,   and  Utah
                                   Capital Corp., all private 
                                   investment companies

          J. Dallas VanWagoner     Practicing    Physician,   Clinical
                                   Instructor  at  the  University  of
                                   Utah School of Medicine  

          Robert V. Petersen       Professor Emeritus of Pharmaceutics
                                   at the University of Utah

          E. Martin Chamberlain    Vice   President   of    Regulatory
                                   Affairs and  Corporate Secretary of
                                   Ballard Medical Products

          Dale H. Ballard, Jr.     Owner of his own financial planning
                                   business called Stratco

          Paul W. Hess             General Counsel  of Ballard Medical
                                   Products

                                    OFFICERS

          NAME                     TITLE

          Dale H. Ballard          President, Chief Executive Officer,
                                   and Chairman of the Board.

          Harold R. ("Butch")      Executive Vice President and 
          Wolcott                  General Manager

          E. Martin Chamberlain    Vice   President   of    Regulatory
                                   Affairs and Corporate Secretary

          Bradford D. Bell         Vice   President   of   Sales   and
                                   Marketing

          Kenneth R. Sorenson      Treasurer   and   Chief   Financial
          Officer

          Paul W. Hess             General Counsel

                             SHAREHOLDER INFORMATION

          CORPORATE HEADQUARTERS

               Ballard Medical Products
               12050 Lone Peak Parkway
               Draper, Utah 84020
               (801) 572-6800
               (801) 572-6869

          TRANSFER AGENT

               First Security Bank, N.A.
               79 South Main
               Salt Lake City, Utah 84111

          ANNUAL MEETINGS  

               The Annual  Meeting of Stockholders of  Ballard Medical
          Products  will be  held  Monday, January  27,  1997, at  the
          Company's  executive  offices,  12050  Lone   Peak  Parkway,
          Draper, Utah,  beginning at  11:00  a.m., Mountain  Standard
          Time.   Shareholders  of  record on  November  20, 1996  are
          entitled to  notice of and to vote at the meeting.  A notice
          of meeting and  proxy statement are enclosed with the Annual
          Report.

          FORM 10-K

               Any  shareholder who  sends  a written  request to  the
          Company's  Secretary,  E.  Martin  Chamberlain,  at  Ballard
          Medical Products,  12050  Lone Peak  Parkway,  Draper,  Utah
          84020, may  obtain without  charge a copy  of the  Company's
          Form  10-K for  fiscal  year 1996,  including the  financial
          statements and the financial schedules.

          SHAREHOLDER/ANALYST INQUIRIES

               Shareholders, analysts, and others  seeking information
          about  the  Company are  encouraged  to  contact Kenneth  R.
          Sorenson, Chief Financial Officer, Ballard Medical Products,
          12050  Lone  Peak  Parkway,  Draper, Utah  84020,  with  any
          questions or comments.

          RESEARCH COVERAGE

               The following firms currently provide research coverage
          of Ballard Medical Products:

               AG Edwards - St. Louis, Missouri
               Barrett & Company - Providence, Rhode Island
               Bear Stearns - New York, New York
               D.A. Davidson - Great Falls, Montana
               Olde Discount - Detroit, Michigan
               Piper Jaffray - Minneapolis, Minnesota
               Rodman & Renshaw - Boston, Massachusetts

          AUDITORS 

               Deloitte & Touche LLP
               50 South Main Street, Suite 1800
               Salt Lake City, Utah 84144