UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission File Number: 000-11178

UTAH MEDICAL PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

Utah	87-0342734
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
7043 S 300 W, Midvale Utah	84047
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code:	Telephone (801) 566-1200
	Facsimile (801) 566-2062
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
None	None

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

Common Stock, $0.01Par Value

Preferred Stock Purchase Rights

(Title of Class)

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

Yes oNo x

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

Yes oNo x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes xNo o

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

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

Large accelerated filer o Accelerated filer x Non-accelerated filer o

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. As of June 30, 2005, the aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the registrant was $77,400,000.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of March 10, 2006, common shares outstanding were 3,961,000.

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

INDEX TO FORM 10-K

			PAGE
PART I
	Item 1	Business	1
	Item 1A	Risk Factors	11
	Item 1B	Unresolved Staff Comments	11
	Item 2	Properties	11
	Item 3	Legal Proceedings	12
	Item 4	Submission of Matters to a Vote of Security Holders	12
PART II
	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
	Item 6	Selected Financial Data	14
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	23
	Item 8	Financial Statements and Supplementary Data	24
	Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	44
	Item 9A	Controls and Procedures	44
	Item 9B	Other Information	44
PART III
	Item 10	Directors and Executive Officers of the Registrant	45
	Item 11	Executive Compensation	45
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	45
	Item 13	Certain Relationships and Related Transactions	45
	Item 14	Principal Accounting Fees and Services	45
PART IV
	Item 15	Exhibits, Financial Statement Schedules	46
		Signatures	48

PART I

ITEM 1 - BUSINESS

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

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

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

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

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

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

UTMD’s products are sold directly to end users in the U.S. domestic market by the Company’s own direct sales representatives and independent manufacturers’ representatives. In addition, some of UTMD’s products are sold through specialty distributors, national hospital distribution companies and other medical device manufacturers. Internationally, products are sold through other medical device companies and through independent medical products distributors. UTMD has representation in all major developed countries through approximately 100 international distributors.

UTMD was formed as a Utah corporation in 1978. UTMD publicly raised equity capital one time in 1982. In 1994, UTMD acquired all of the tangible and intangible assets of OB Tech, Inc, a Huntington Beach, CA company, the original owner of the Cordguard® concept. In 1995, Utah Medical Products Ltd., a wholly-owned subsidiary located in Ireland, was formed to establish an international manufacturing capability. In 1997, UTMD purchased Columbia Medical, Inc. (CMI), a Redmond, Oregon company specializing in silicone injection molding, assembly and marketing vacuum-assisted obstetrical delivery systems. In 1998, UTMD acquired the neonatal product line of Gesco International, a subsidiary of Bard Access Systems and C.R. Bard, Inc. On March 8, 2000, UTMD returned to the Nasdaq Stock Market after trading on the New York Stock Exchange for about 3 years. The Company was previously listed on Nasdaq for 14 years. In 2004, UTMD acquired Abcorp, Inc., its supplier of fetal monitoring belts. The Company's corporate offices are located at 7043 South 300 West, Midvale, Utah 84047 USA. The corporate telephone number is (801) 566-1200. Ireland operations are located at Athlone Business and Technology Park, Athlone, County Westmeath, Ireland. The telephone number in Ireland is 353 (90) 647-3932. CMI’s mailing address is 1830 S.E. 1st, Redmond, Oregon 97756. The phone number in Oregon is (541) 548-7738.

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PRODUCTS

Labor and Delivery/ Obstetrics:

Fetal Monitoring Accessories.

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

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

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

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

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

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

Vacuum-Assisted Delivery Systems (VAD).

UTMD’s VAD Systems include CMI® patented soft silicone bell-shaped birthing cups and patented hand-held vacuum pumps which UTMD believes are the safest products available for use in vacuum-assisted operative deliveries. UTMD’s patented soft silicone cup is a bell-shaped cup design should be preferred for fetal well-being in low or outlet fetal stations with occiput anterior presentations, which represent more than 90% of the cases where VAD is indicated. Operative vaginal deliveries using forceps or vacuum-assisted delivery systems provide knowledgeable physicians with a trial vaginal operative delivery prior to a more invasive C-section intervention. Although there are risks associated with vaginal operative deliveries which may represent about 10-15% of all U.S. hospital births, the procedures are generally regarded as safer for the mother, and at least as safe for the fetus, as abdominal (Cesarean) delivery in comparable clinical situations. UTMD estimates that the VAD operative approach is used for about 7-9% of all U.S. births, with forceps continuing to lose ground as the alternative. UTMD’s patented bell-shaped soft silicone TENDER TOUCH® cups enjoy a low reported complication rate compared to other vacuum cup designs, as evidenced by the FDA Medical Device Reporting System which reports specific names of products used in hospitals.

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Other Obstetrical Tools.

AROM-COT™ is a finger cover with a patented prong design to rupture maternal membranes with less patient pain and anxiety. MUC-X is an aspiration device used immediately after birth to clear neonatal respiratory passages and reduce exposure to potential infections. CORDGUARD® is a patented product which unifies the multiple steps of clamping the neonate’s cord close to the umbilicus, severing the cord without splattering blood, drawing a clean cord blood sample, and assisting in the removal of the placenta. CORDGUARD’s sharpless, closed system reduces the risk of exposure to potentially infected blood, and consequently reduces the high cost of exposure treatment under OSHA and CDC guidelines. In addition, CORDGUARD facilitates obtaining neonatal blood that is otherwise hard to obtain safely and cleanly. Abcorp belts and straps for fetal monitoring by an external tocodynamometer are provided in latex free form in several configurations.

Neonatal Intensive Care:

DISPOSA-HOOD™

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

DELTRAN® PLUS

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

GESCO®

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

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

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

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The soft, biocompatible silicone catheter concept had important advantages in other applications including peripherally inserted central venous catheters (PICC lines), enteral feeding tubes, urinary drainage catheters, and chest drainage tubes. GESCO developed and marketed initial versions of all of these neonatal products. In order to keep pace with the trend of caring for smaller babies, UTMD has added smaller diameter versions of its URI-CATH® and NUTRI-CATH® products. In 2000, UTMD gained FDA premarketing clearance of a new PICC family of products specifically designed to minimize trauma to the critically ill neonate, named PICC-NATE®. The PICC-NATE product line was designed with the input of experienced neonatal nurse practitioners for use as a long-term indwelling catheter system for single-use, therapeutic central venous infusion of drug solutions, blood products or other fluids and for blood sampling. The soft, strong silicone PICC-Nate comes in two diameter sizes, two types of venipuncture introducers, and two hub configurations. In early 2003, UTMD added a Tecoflex polyurethane version that offers many of the flexibility and biocompatibility advantages of silicone after insertion, with the greater rigidity of polyurethane preferred by many clinicians for insertion.

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

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

In 2006, UTMD will continue to improve and expand its neonatal product line, seeking to reinforce a reputation as having the most developmentally-friendly NICU specialty products in the medical device industry. In addition to products already offered and being developed internally, UTMD will look to expand sales through international distribution arrangements, and through selective complementary product acquisitions.

Gynecology /Urology /Electrosurgery:

LETZ® System

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

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

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

UTMD has FDA clearance to market its electrosurgical system and tools for use in general surgery applications, including dermatology, plastic surgery and otolaryngology. In 2002, UTMD introduced a product line of ultra-fine tipped microdissection needles, called OptiMicro™ Needles. These electrosurgical needles are particularly useful in plastic and reconstructive surgery applications. FILTRESSE is a stand-alone surgical smoke filtration system that combines high filtration efficiency, low cost and convenient use in a surgical office setting. Other electrosurgery tools and accessories include disposable electrosurgical pens, dispersive pads, footswitches, filter packs, speculums, retractors, forceps, tenacula and hooks. UTMD acquired the distribution rights to a unique reusable four-way expander system which facilitates access to, and visualization of, the cervix, eliminating the need for less effective specula and lateral retractors.

EPITOME®

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

LIBERTY® System

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

PATHFINDER PLUS™

PATHFINDER PLUS is a proprietary endoscopic irrigation device that allows a uro/gyn surgeon to precisely irrigate with the same hand that controls the endoscope, eliminating the need for a separate assistant to irrigate without visualization.

ENDOCURETTE™

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

LUMIN®

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

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Blood Pressure Monitoring:

DELTRAN® Disposable Pressure Transducer (DPT)

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

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

Pressure Monitoring Accessories, Components and Other Molded Parts.

Components included in blood pressure monitoring kit configurations include flush devices, stopcocks, fluid administration sets, caps, pressure tubing, interface cables and organizers. The Company sells similar components designed for other medical device company applications which incorporate UTMD’s technologies and designs. DELTA-CAL™ is a calibration device used to check proper functioning of an arterial pressure system. In addition, UTMD sells plastic molded parts on a subcontract basis to a number of medical and non-medical device companies. UTMD believes that this practice helps better utilize its investment in fixed plant and equipment.

MARKETING

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

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

For U.S. hospitals, which represent about 60% of UTMD’s device sales, marketing efforts are complicated and fragmented. Although UTMD’s focus is with clinicians who take responsibility for obtaining optimal patient care outcomes, other people who are primarily administrative are often responsible for hospital purchasing decisions.

DISTRIBUTION

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

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

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In the United States, UTMD sells its products through its own directly employed sales force and through selective independent manufacturer representatives. The direct representatives concentrate on applications for UTMD products where customer training and support are important. As of February 2006, the direct sales force is comprised both of “outside” representatives operating remotely in specific geographic areas, and “inside” representatives who operate by telephone from corporate offices. Direct representatives are trained to understand the medical procedures being performed within UTMD’s clinical focus. Through the use of its one-on-one contacts with physicians and other clinical practitioners directly involved in patient care, the direct sales force positions UTMD to gain market leadership with solutions to clinical problems. In addition to its direct representatives, UTMD utilizes third party consulting clinical specialists to augment its customer training programs.

When hospital customers request it, UTMD provides its products through national distribution companies, also known as Med/Surg distributors. Sales to Med/Surg distributors currently comprise less than 8% of total domestic sales. In contrast, ten years ago, national distributors and independent stocking distributors in the U.S. represented more than 65% of UTMD’s direct domestic Ob/Gyn business.

In addition to the above traditional sales approaches, UTMD encourages customers to take advantage of fast and easy direct online ordering at www.order.utahmed.com. UTMD’s website provides all the convenience of e-commerce demonstrated on other sites. UTMD’s experience to date with third party Internet-based exchanges suggests that they do not warrant a significant investment of UTMD resources until customers show more interest in their use.

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

Internationally, the Company sells its products through about 100 regional distributors and OEMs (other medical device manufacturers). The international business is driven by the initiative and resourcefulness of those independent distributors. UTMD’s Internet website www.utahmed.com is a frequent conduit for international customer inquiries.

NEW PRODUCT DEVELOPMENT

New product development has been a key to UTMD’s market identity as an innovator. Product development takes three interrelated forms: 1) improvements, enhancements and extensions of current product lines in response to clinical needs or clinician requests, 2) invention of devices that allow significantly different methods of performing medical procedures, representing a quantum improvement in safety, efficacy and/or cost of care, and 3) acquisitions of products or technology from others.

Because of UTMD’s reputation as a successful innovator, its financial strength and its established clinician user base, it enjoys a substantial inflow of new product ideas. Internal development, joint development, product acquisitions and licensing arrangements are all included as viable options in the investigation of opportunities. Only a small percentage of ideas survive feasibility screening. For internal development purposes, projects are assigned to a project manager who assembles an interdisciplinary, cross-functional development team. The team’s objective is to have a clinically proven, manufacturable and FDA released product ready for marketing by a specific date. Approximately ten projects on the average, depending on the level of resources required, are underway at UTMD at any given time. More than 50% of assigned projects do not succeed in attaining a product that meets all of the Company’s criteria. In particular, this includes a product that is highly reliable, easy to use, cost-effective, safe, useful and differentiated from the competition. Once a product is developed, tooled, fully tested and cleared for marketing by the FDA, there remains a reasonable probability it cannot be successfully marketed for any number of reasons, not the least of which is being beaten to the market by a competitor with a better solution, or not having access to users because of limitations in marketing and distribution resources or exclusionary contracts of GPOs. In recent years since 2001, UTMD’s new product development initiatives have been foreclosed by the FDA’s unfounded attempts to shut the Company down.

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UTMD’s current product development projects are in three areas of focus: 1) obstetrics/ fetal monitoring, 2) neonatal intensive care, and 3) specialized procedures for the assessment and treatment of cervical/uterine disease. Internal product development expenses are expected to be in the range of 1-2% of sales in 2006. In 2005, UTMD spent $320 on internal product development activities, or 1.2% of sales. In 2004 and 2003, internal new product development expenses were $292 (1.1% of sales) and $288 (1.1% of sales), respectively.

EMPLOYEES

At December 31, 2005, the Company had 209 employees, and an additional six contract employees. The contract employees represent UTMD’s desire to utilize handicapped persons where possible, hired through the Utah state-supported Work Activity Center. The average tenure of UTMD’s employees is about nine years, which conveys an important benefit due to the level of training required to produce consistent high quality medical devices. The Company's continued success will depend to a large extent upon its ability to retain skilled employees. No assurances can be given that the Company will be able to retain or attract such employees in the future, although management is committed to providing an attractive environment in which reliable, creative and high achieving people wish to work.

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

PATENTS AND TECHNOLOGY LICENSES

The Company owns or exclusively licenses thirty-one unexpired patents, and is the licensee of certain other technology. There can be no assurance, however, that patents will be issued with respect to any pending applications, that marketable products will result from the patents or that issued patents can be successfully defended in a patent infringement situation.

The ability of the Company to achieve critical mass in the marketplace depends in part on the protection afforded by its patents. In cases where competitors introduce products that may infringe on UTMD’s technology, the Company has an obligation to its shareholders to defend its intangible property to the extent that it can afford to do so.

In January 2002, a jury in the U.S. Federal District Court for the District of Utah rendered a verdict in favor of UTMD that the Tyco/Kendall•LTP Softrans 4000 Intrauterine Pressure Catheter literally infringes UTMD’s Patent No. 4,785,822 for inventions relating to a “Disposable Intracompartmental Pressure Transducer.” UTMD markets the Intran® Plus which practices this patent. The patent infringement lawsuit had been filed in early 1997. In September 2002, the US Federal District Court issued a formal judgment awarding UTMD approximately $23 million in damages and accrued interest. Additional damages for infringing product sold by Tyco after the January verdict were to be determined by the Court at a later date. In addition, the Court issued a permanent injunction against Tyco prohibiting the manufacturing, marketing, selling and/or otherwise distributing of the 4000 Softrans IUPC for the duration of UTMD’s patent. Tyco/Kendall filed an appeal to the decision. In December 2003, the United States Court of Appeals for the Federal Circuit upheld in entirety the District Court’s judgment. In January 2004, UTMD received $31 million from Tyco/Kendall, including post judgment augmented damages and interest.

As a matter of policy, UTMD has acquired and will continue to acquire the use of technology from third parties that can be synergistically combined with UTMD proprietary product ideas. During 2005, ongoing royalties included in cost of goods sold were $3. Other royalties have been previously paid as a lump sum, or are incorporated into the cost of supplied components which practice certain patents of third parties. Also as a matter of policy, UTMD licenses its proprietary technology to others in circumstances where licensing does not directly compete with UTMD's own marketing initiatives. During 2005, the Company received $450 in royalty income, the same as in 2004 and 2003. UTMD’s future financial performance also depends on the marketing ability of other companies that license UTMD’s technology.

8

GOVERNMENT REGULATION

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

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

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

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

In 1994, UTMD received certification of its quality system under the ISO 9001/EN 46001 standards (“ISO” stands for “International Organization of Standardization”) which it maintained until December 2003. In October 2003, UTMD’s Utah facility was certified under the more stringent ISO 13485 standard for medical devices, which it currently maintains. UTMD’s Ireland facility is certified under the concomitant ISO 13488 standard. The U.S. FDA QSR was developed in harmony with the ISO standards. UTMD remains on a continuous periodic audit schedule by its independent notified body in order to stay current with international regulatory standards, and retain its certification. The most recent audit was conducted in February 2006. UTMD has received formal product certifications allowing the use of the CE Mark (demonstrates proof of compliance with the European Community’s ISO standards) for essentially all of its products.

SOURCES AND AVAILABILITY OF RAW MATERIALS

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

EXPORTS

Revenues from customers outside the U.S. in 2005 were $6,391 (23% of total sales), compared to $6,029 (23% of total sales) in 2004 and $5,872 (22% of total sales) in 2003. Blood pressure monitoring products represented 66% of international sales in 2005, compared to 67% in both 2004 and 2003. International Ob/Gyn and neonatal product sales were $2,191 in 2005, compared to $2,019 in 2004 and $1,930 in 2003. For financial information by geographical area, please see Notes 1, 4 and 9 to the Consolidated Financial Statements.

UTMD regards the international marketplace as an important element of its growth strategy. UTMD is keenly aware that not only are international markets different from the U.S. market, but also that each country has its own set of driving influences that affects the dynamics of the nature of care given and medical devices used. In 1996 UTMD completed construction of a manufacturing facility in Athlone, County Westmeath, Ireland. The facility offers a number of advantages: 1) from a marketing point of view, better response to European Union customers, including a better understanding of customized needs, less costly distribution and duty-free access to over 350 million patients; 2) from a regulatory point of view, faster new product introductions; and 3) from a manufacturing point of view, reduced dependence on one manufacturing site and increased capacity for existing U.S. facilities.

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BACKLOG

As a supplier of primarily disposable hospital products, the nature of UTMD’s business necessitates being very responsive to customer orders and delivering products quickly. Virtually all direct shipments to end users are accomplished within one week of receipt of customer purchase order. Backlog shippable in less than 90 days was $653 as of January 1, 2005 and $910 as of January 1, 2006.

SEASONAL ASPECTS

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

PRODUCT LIABILITY RISK MANAGEMENT

The risk of product liability lawsuits is a negative factor in UTMD’s business because UTMD’s products are frequently used in inherently life threatening situations to help physicians achieve a more positive outcome than what might otherwise be the case. In any lawsuit against a company where an individual plaintiff suffers a permanent physical injury, a possibility of a large award for damages exists whether or not a causal relationship exists. However, no such damages have been awarded against UTMD in its 27 year history.

UTMD is self-insured for product liability risk and reserves funds against its current performance on an ongoing basis to provide for its defense should any lawsuits be filed. The best defense the Company believes that it has is the consistent conformance to specifications of its proven safe and effective products. In the last thirteen years, UTMD has been named as a defendant, along with each attending physician and hospital, in four product liability lawsuits. All four were related to operative vaginal deliveries where a UTMD VAD birthing cup or hand pump was used by the surgeon. The VADS products in all four cases did conform to specifications. UTMD was ultimately dismissed as a defendant in the lawsuits, and legal costs were not material to performance. During the same thirteen year period of time, in which more than 16 million UTMD finished devices were used, no other UTMD product was the subject of a product liability lawsuit. There are currently no product liability lawsuits in which UTMD is a defendant.

FORWARD LOOKING INFORMATION

This report contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by management based on information currently available. When used in this document, the words “anticipate,” “believe,” “project,” “estimate,” “expect,” “intend” and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Such statements reflect the current view of the Company respecting future events and are subject to certain risks, uncertainties and assumptions, including the risks and uncertainties stated throughout the document and in Item 1A. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause the forward statement not to come true as anticipated, believed, projected, expected, or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those described herein as anticipated, believed, projected, estimated, expected or intended.

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ITEM 1A - RISK FACTORS

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

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

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

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

Additional risk factors that may affect non-operating income include: the continuing viability of the Company’s technology license agreements; actual cash and investment balances; asset dispositions; and acquisition activities that may require external funding.

ITEM 1B - UNRESOLVED STAFF COMMENTS

None

ITEM 2 - PROPERTIES

Office and Manufacturing Facilities.

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

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

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ITEM 3 - LEGAL PROCEEDINGS

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

On August 9, 2004, the United States of America filed a lawsuit in The United States District Court, Central District of Utah v. UTMD, Kevin L. Cornwell, Chairman & CEO, and Ben D. Shirley, Vice President, Product Development & Quality Assurance. The government (FDA) sought a permanent injunction from alleged deviations of the Quality System Regulation (QSR). The relief sought was to enjoin the Company from manufacturing and shipping products until it conforms with the QSR in a manner that is acceptable to the FDA. The trial occurred September 26, 2005 to October 4, 2005, with Judge Bruce R. Jenkins presiding.

On October 21, 2005, the Court issued an order finding UTMD has been and currently is in compliance with the QSR, dismissing all FDA allegations. The judge said in his order, among other things,

“It makes no sense for the Court to order Utah Medical to do something they are already doing.”

The government decided that it would not appeal the decision.

In February 2005, after formal discovery in the lawsuit brought by the FDA confirmed UTMD’s suspicions, UTMD asserted a counterclaim against the FDA for abuse of process. On June 30, 2005, in response to the government’s motion to dismiss, the Court dismissed UTMD’s counterclaim without prejudice, indicating that the counterclaim was not timely. As a result, on July 15, 2005, UTMD filed an administrative claim under the Federal Tort Claims Act with the U.S. Department of Health and Human Services, requesting restitution of litigation costs and lost profits as damages. This was done as a matter of procedure to satisfy the Court. On February 10, 2006, the government denied the administrative claim. UTMD now has until August 9, 2006 to file a request for reconsideration, or a lawsuit.

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

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

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PART II

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

Market Information.

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

	2005				2004
	High		Low		High		Low
1st Quarter	$	22.80	$	20.06	$	26.45	$	23.52
2nd Quarter		23.50		20.20		27.19		23.80
3rd Quarter		24.88		22.80		27.00		16.02
4th Quarter		32.80		24.50		23.45		17.50

Stockholders.

The approximate number of beneficial stockholders of UTMD’s common stock as of March 10, 2006 was 2,800.

Dividends.

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

Record Date	Payable Date	Per Share Amount
June 16, 2004	July 5, 2004	$   0.15
September 16, 2004	October 5, 2004	0.15
December 16, 2004	January 5, 2005	0.15
March 16, 2005	April 5, 2005	0.15
June 17, 2005	July 5, 2005	$   0.155
September 16, 2005	October 5, 2005	0.155
December 16, 2005	January 5, 2006	0.17
March 16, 2006	April 5, 2006	0.18
2004 total paid		$   0.30
2005 total paid		$   0.61

Issuer Purchases of Equity Securities.

The following table details purchases by UTMD of its own securities during fourth quarter 2005.

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number (or Approximate Dollar Value) of Shares that May be Purchased Under the Plans or Programs (1)
10/01/05 - 10/31/05	19,711	$ 28.21	19,711
11/01/05 - 11/30/05	23,832	28.82	23,832
12/01/05 - 12/31/05	29,957	28.65	29,957
Total	73,500	$ 28.58	73,500

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(1) In fourth quarter 2005 UTMD repurchased an aggregate of 73,500 shares of its common stock at an average cost of $28.58 per share pursuant to a continued open market repurchase program instituted in August 1992. Since 1992 through 2005, the Company has repurchased 6,352,391 shares at an average cost of $11.43 per share including broker commissions and fees in open market transactions. In addition, the Company conducted tender offer transactions in which it purchased an additional 2,775,742 shares at an average cost of $9.76 per share including fees and administrative costs. In total, UTMD has repurchased over 9.1 million of its shares at an average price of $10.92 per share since 1992. To complete the picture relating to current shares outstanding, since 1992 the Company’s employees and directors have exercised and purchased 1.6 million option shares at an average price of $6.96 per share. All options were awarded at the market value of the stock on the date of the award.

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

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

ITEM 6 - SELECTED FINANCIAL DATA

Dollar amounts are in thousands, except per share data.

The following selected consolidated financial data of UTMD and its subsidiaries for the five years ended December 31, 2005, are derived from the audited financial statements and notes of UTMD and its subsidiaries, certain of which are included in this report. The selected consolidated financial data should be read in conjunction with UTMD’s Consolidated Financial Statements and the Notes included elsewhere in this report.

Year Ended December 31

	2005		2004		2003		2002		2001
Net Sales	$	27,692	$	26,485	$	27,137	$	27,361	$	26,954
Net Income		7,547		10,220		20,761		7,165		5,934
Earnings Per Common Share (Diluted)		1.80		2.19		4.25		1.36		1.14
Total Assets		41,642		41,262		49,694		23,387		23,572
Working Capital		22,683		20,194		21,405		5,437		5,400
Long-term Debt		5,336		-		-		4,956		2,501
Cash Dividends Per Common Share		0.61		0.30		None		None		None

Quarterly Data for 2005

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

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Quarterly Data for 2004

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Net Sales	$	6,616	$	6,827	$	6,670	$	6,372
Gross Profit		3,850		3,934		3,779		3,503
Net Income		5,175		1,841		1,807		1,397
Earnings Per Common Share (Diluted)		1.07		.38		.39		.32

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

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

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

Productivity of Assets and Working Capital.

a) Assets. Year-end 2005 total assets were $41,642, compared to $41,262 in 2004. Cash (and investments of cash) balances were $17,453 and $16,928, 42% and 41% of total assets, at year-end 2005 and 2004, respectively. Year-end cash balances increased, even though UTMD paid $2,445 in dividends, $8,604 in share repurchases and $2,933 in litigation costs in 2005, because of continuing excellent cash generated from operations (before litigation costs) of $9,384 and a $5,336 loan taken out by UTMD’s Ireland subsidiary. Excluding cash and investment balances, average total asset turns in 2005 were 1.14, consistent with years prior to 2003. Year-end assets since 2003 were substantially higher than in prior years due to Tyco patent infringement damages awarded to UTMD. In 2006, total assets excluding cash balances will continue to be less than annual sales. Improvement in total asset turns will depend on reduction of excess cash and investment balances.

Property, plant and equipment (PP&E) assets are comprised of Utah, Oregon and Ireland manufacturing molds, production tooling and equipment, test equipment, computer/ communications equipment and software, and the Utah and Ireland facilities. UTMD leases the Oregon facility as part of the 1997 CMI acquisition, and a portion of its Midvale, Utah parking lot. In 2005, net PP&E declined $898 because depreciation of $626 exceeded new purchases of $345, while Ireland assets decreased $605 in dollar-value as a result of a weaker U.S. dollar (USD). The lower consolidated PP&E balances combined with higher sales resulted in substantially higher PP&E turns. The current book value of consolidated PP&E is 35% of acquisition cost. Management believes that PP&E is in good working order and capable of supporting increased sales activity. In 2006, depreciation of fixed assets is expected to again exceed new PP&E purchases required to sustain current operations. Combining this with expected higher 2006 sales suggests that PP&E asset turns will again improve in 2006, unless offset by a strengthening of the Euro relative to the USD, inflating the dollar value of Ireland PP&E.

Average inventory turns in 2005 increased to 3.9 from 3.7 in 2004, despite a $446 increase in ending inventories, primarily as a result of the 5% increase in 2005 sales activity. Management has set this level of 3.9 turns for its objective in 2006. Net (after allowance for doubtful accounts) year-end accounts receivable (A/R) balances decreased $90 at the same time that 2005 sales activity increased, yielding lower average days in A/R on December 31, 2005 of 45 days, based on 4Q 2005 shipment activity. This was well within management’s continuing objective of 55 days. A/R over 90 days from invoice date of about 5% of total A/R at year-end were about the same as at the end of the prior year. The Company believes the older A/R are collectible or within its reserve balances for uncollectible accounts.

Working capital at year-end 2005 was $22,683 compared to $20,194 at year-end 2004. Both of these amounts substantially exceed working capital needs for normal operations. UTMD’s current ratio increased to 8.1 from 5.7, due to a substantial decrease in UTMD’s litigation reserve (part of accrued expenses) reflecting the dismissal and conclusion of the FDA lawsuit filed in August 2004, as well as a substantial decrease in income tax payable resulting from the one-time tax holiday from the American Jobs Creation Act of 2004. Since the large majority of the working capital balance is excess cash (and cash investments), the current ratio going forward in 2006 will depend primarily upon the timing and extent of use of existing cash and investment balances. The other current asset and current liability components of working capital are expected to remain consistent with 2005 and within management targets, given an increase in 2006 sales.

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Intangible assets, which are comprised of goodwill resulting from acquisitions and the costs of obtaining patents and other technology rights, were $7,624 at the end of 2005 compared to $7,674 sat the end of 2004. The goodwill balance of $7,191, reduced 24% from time of acquisition, is the result of three acquisitions in 1997, 1998 and 2004 which were made in cash at conservative valuations. The reduction was goodwill amortization as a result of UTMD using previous GAAP through 2001 for the purchase method of acquisition accounting. Under current GAAP, goodwill will not be expensed unless and until the market value of the acquired entity becomes impaired. The three acquisitions continue to be viable parts of UTMD’s overall business activities, representing 33% of total sales in 2005. UTMD does not expect the goodwill value of the acquisitions to become impaired in 2006. Other intangible assets decreased $50 in 2005 as a result of amortization. Total net intangible assets at the end of 2005 represented 18% of total assets.

Liabilities. Although UTMD’s current liabilities decreased from the end of 2004 to the end of 2005 by $1,161, total liabilities increased $3,680, yielding a 2005-ending total debt ratio of 21%, up from 12% at the end of 2004. Current liabilities declined primarily because the ending litigation reserve (accrued liabilities) was $1,135 lower. However, the long term note payable initiated in Ireland in December, which had a balance of $5,336 at the end of 2005, more than offset the reductions in other liabilities. The purpose of the note payable was to finance the repatriation of profits achieved in Ireland since 1996, under The American Jobs Creation Act of 2004. UTMD Ltd. plans to repay this note from profits generated over the next five years. Deferred income taxes declined in 2005 due mainly to reversing previously accrued deferred income taxes for undistributed earnings from UTMD’s foreign subsidiary.

Results of Operations.

a) Revenues. Global consolidated sales increased 5% in 2005 compared to 2004. Foreign (international) sales increased 6%. U.S. (domestic) sales increased 4%. Sales increased despite customers being negatively affected by the August 10, 2004 FDA press release that announced that the FDA had filed a lawsuit against UTMD alleging lack of compliance with the Quality System Regulation (QSR). In October 2005, a Federal Court ruled that UTMD has been and is complying with the QSR, and dismissed the FDA allegations in entirety. The FDA did not appeal. International revenues also continued to be negatively affected in 2005 because of the FDA’s refusal from early 2003 until late November 2005 to provide Certificates to Foreign Governments (CFGs), certifying UTMD’s compliance with the QSR for the benefit of countries outside the U.S. which depend on the FDA’s regulatory lead.

UTMD divides its domestic sales into two primary distribution channels: “direct sales” which are sales to end user customers by UTMD’s direct sales force, independent commissioned sales reps, specialty distributors and national hospital distribution companies, and “OEM sales” which are component sales to other companies where products are packaged and resold as part of another company’s finished product offerings. As a percentage of total domestic sales, direct sales were 94% of domestic sales in 2005, and 93% in both 2004 and 2003. The remaining sales were OEM sales, e.g. 6% of domestic sales in 2005 were domestic OEM sales. Domestic direct sales represented 72% of global consolidated sales in both 2005 and 2004, compared to 73% in 2003.

Domestic direct sales which appeared least affected by the FDA announcement were sales where clinicians make the purchase decision. Consequently, the least affected sales were sales to physician offices and clinics. Hospital labor and delivery (L&D) department sales where administrators determine what products are purchased appeared to be the most affected. Hospital NICU sales were less affected than L&D because clinical practitioners still have major discretion in determining what products are purchased. In order to help offset hospital administrators’ concern over the August 10, 2004 FDA press release, UTMD employed a special “loyalty discount” which lasted for about three months in late 2004 . The amount of the discount which affected only 2004 sales was $374.

International sales in 2005 were 23% of global consolidated sales compared to 23% and 22% in years 2004 and 2003, respectively. Of the 2005 international sales, 55%were for customers in Europe, compared to 60% in 2004 and 58% in 2003. Ireland operations (UTMD Ltd.) shipped 57% of international sales (in USD terms) in 2005, compared to 59% in 2004 and 63% in 2003. UTMD Ltd. 2005 shipments, including intercompany sales to Midvale, were up 5% in euro terms and up 4% in USD terms compared to 2004.

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

Global revenues by product category:

	2005		%		2004		%		2003		%
Obstetrics	$	9,774		36	$	10,918		41	$	11,435		42
Gynecology/ Electrosurgery/ Urology		5,397		19		5,142		19		5,324		20
Neonatal		6,475		23		4,134		16		4,142		15
Blood Pressure Monitoring and Accessories*		6,046		22		6,292		24		6,236		23
Total:	$	27,692		100	$	26,485		100	$	27,137		100
*includes molded components sold to OEM customers.

International revenues by product category:

	2005		%		2004		%		2003		%
Obstetrics	$	593		9	$	774		13	$	665		11
Gynecology/ Electrosurgery/ Urology		1,199		19		966		16		1,064		18
Neonatal		400		6		278		5		200		4
Blood Pressure Monitoring and Accessories*		4,200		66		4,010		66		3,942		67
Total:	$	6,392		100	$	6,028		100	$	5,871		100
*includes molded components sold to OEM customers.

As a brief explanation of revenues in the above tables:

1. Of the $1,144 decline in total obstetrics sales in 2005, $76 was from lower sales of vacuum-assisted delivery systems (VADS), a 6% decline, and $902 from lower Intran Plus (IUPC) sales, an 11% decline. The lower IUPC and VADS sales resulted primarily from concerns of hospital administrators related to the FDA press release of August 10, 2004. Other contributing factors included a trend in obstetrics practice that favors abdominal operative deliveries over vaginal operative deliveries because of medical malpractice litigation risk, and increased competition including effects of product bundling agreements. Cheaper priced, less clinically-effective products represent significant competition where hospital administrators are constrained by GPO contracts or may not take the total cost of care into consideration, including increased risk of complications and utilization rates.

2. Gynecology/ electrosurgery/ urology product sales which had been negatively affected by the 2003 FDA refusal to provide CFGs for foreign customers, and the 2004 FDA press release which caused concern among domestic customers, rebounded in 2005.

3. Consolidated global neonatal product sales increased 57% in 2005. The closing and move to Mexico of the San Antonio manufacturing operations of UTMD’s competitor, NeoCare, a subsidiary of Arrow International, was a positive factor for UTMD’s 2005 neonatal product sales.

4. International blood pressure monitoring and accessories (BPM) sales increased 5%, but domestic BPM sales decreased 19%. Domestic BPM sales were negatively affected by the August 2004 FDA press release.

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Looking forward to 2006, UTMD’s improvement in sales depends on UTMD’s continued recapture of lost sales due to the unnecessary concern caused by the August 10, 2004 FDA press release, continued expansion in clinical acceptance of newer specialty products, release of new products after FDA concurrence with premarketing submissions and continued development of UTMD’s international distribution channels. Management targets a 5% revenue increase again in 2006, relative to the prior year.

b) Gross Profit. UTMD’s average 2005 gross profit margin (GPM), the surplus after costs of manufacturing, inspecting, packaging, sterilizing and shipping products (CGS) are subtracted from net revenues, was 56.9%, the same as in 2004. The GPM in 2003 was a Company record 58.6%. In 2005, UTMD experienced higher materials costs, particularly for plastics, along with increased labor costs, including particularly costs of medical care coverage for employees. The Company continues to maintain facilities and other manufacturing overheads far in excess of its needs. As a result, it projects that the dilution of fixed overhead costs that will occur with increased sales in 2006 will offset the continuing increase in incremental direct material and labor costs, together with some competitive pressure on prices, yielding a GPM in 2006 comparable to 2005.

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

c)Operating Profit. Operating profit, or income from operations, is the surplus after operating expenses are subtracted from gross profits. In 2004 and 2003, operating profit includes other operating income resulting from UTMD’s patent infringement victory over Tyco, net of associated expenses. That added income resulted in a net contribution to income from operating income (expense) in those two years, an unusual result. Operating expenses include sales and marketing (S&M) expenses, research and development (R&D) expenses and general and administrative (G&A) expenses. Combined operating expenses were $6,516 in 2005, compared to $5,807 in 2004 and $6,486 in 2003. Litigation expenses are included as part of G&A expenses. Substantial litigation expenses associated with the dispute with the FDA are included 2003, 2004 and 2005 G&A expenses. In order to help clarify operating expenses, we provide the table below:

	2005		2004		2003
R&D expenses	$	320	$	292	$	289
S&M expenses		2,214		2,253		2,364
G&A - FDA litigation expenses		1,527		850		1,316
G&A - all other expenses		2,454		2,412		2,517
G&A expenses - total		3,981		3,262		3,833
Total operating expenses	$	6,516	$	5,807	$	6,486

UTMD’s operating profit margin (operating profits divided by total sales) was 33.4% in 2005, compared to 57.8% in 2004 and 123.1% in 2003, which does not correlate to sales since there were substantial expenses and/or other income in all three periods unrelated to sales. Excluding the other operating income related to patent infringement damages and FDA litigation expenses, operating profits would have been $10,764, $10,109 and $10,722, and operating profit margins would have been 38.9%, 38.2% and 39.5% in 2005, 2004 and 2003, respectively, which management believes is a better measure of operating profits relative to sales activity. Looking forward to 2006, UTMD expects to control operating expenses, excluding consideration for any remaining required FDA litigation expenses, at a level below 19% of sales, yielding a 2006 operating profit margin about 38%.

i) S&M expenses: S&M expenses are the costs of communicating UTMD’s differences and product advantages, providing training and other customer service in support of the use of UTMD’s solutions, processing orders and funding GPO fees. Because UTMD sells internationally through third party distributors, its S&M expenses are predominantly employed for U.S. business activity where it sells directly to clinical users. The largest component of S&M expenses is the cost of directly employing representatives that provide coverage across the U.S. As a percent of total sales, S&M operating expenses were 8.0% in 2005, 8.5% in 2004 and 8.7% in 2003. In 2006, UTMD intends to substantially expand its direct sales force, but intends to manage S&M expenses to less than 9% of total sales.

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ii) R&D expenses: R&D expenses include the costs of investigating clinical needs, developing innovative concepts, testing concepts for viability, validating methods of manufacture, completing regulatory documentation and other activities required for design control, responding to customer requests for product enhancements, and assisting manufacturing engineering on an ongoing basis in developing new processes or improving existing processes. As a percent of sales, 2005 R&D expenses were 1.2% compared to 1.1% in both 2004 and 2003. In addition to new products still being developed, a number of existing products were enhanced or updated in 2005. In 2006, UTMD plans to increase R&D spending modestly as a percentage of sales in order to reinvigorate its product development pipeline.

iii) G&A expenses: G&A expenses include the “front office” functional costs of executive management, finance and accounting, corporate information systems, human resources, shareholder relations, risk management, protection of intellectual property, and legal costs. In addition to employing the personnel required to coordinate or manage those functions, G&A expenses include outside director costs, outside legal counsel and litigation experts, independent accounting audit fees, 401(k) administration, NASDAQ exchange fees, write-offs of uncollectible receivables, business insurance costs and corporate contributions to charitable organizations. Aggregate G&A expenses as a percent of sales were 14.4% in 2005, 12.3% in 2004 and 14.1% in 2003. G&A expenses excluding the FDA litigation expenses were 8.9%, 9.1% and 9.3% of sales in 2005, 2004 and 2003, respectively, which management believes is a better indicator of G&A expenses related to sales. Excluding any remaining required FDA litigation expenses, UTMD plans to hold G&A expenses at a level about 9% of 2006 sales.

iv) Other operating income: Other operating income in both 2004 and 2003 resulted from UTMD’s patent infringement victory over Tyco. In January 2004, the Company received a payment of $30,944 in damages and interest resulting from a 2002 District Federal Court judgment, and a post judgment settlement. The Company recognized operating income from that payment of $6,060 in first quarter 2004 and $23,992 in fourth quarter 2003. Expenses related to the judgment of $892 reduced the net other operating income recognized in 2003.

d) Non-operating Income, Non-operating Expense and EBT. Non-operating income, or other income, includes royalties from licensing UTMD’s technology to other companies, rent from leasing underutilized property to others, income earned from investing the Company’s excess cash and gains or losses from the sale of assets, offset by non-operating expenses which include interest expenses and bank fees. In prior SEC Form 10-Ks, UTMD reported the Tyco patent infringement damages as part of non-operating income, instead as part of operating income (expense). After the change in allocating Tyco patent infringement damages to operating expenses, non-operating income was $977 in 2005, $798 in 2004 and $454 in 2003. In 2005 and 2004, the increases in investment income resulted from higher average cash and investment balances during the applicable years. Royalties received were $450 in all three years. Future royalties may vary depending on the success of other companies in selling products licensed by UTMD, and the remaining life of the applicable patents. In 2005, UTMD paid $10 for interest expense after it borrowed €4.5 million ($5,336) in December to facilitate the repatriation of profits generated by its Ireland operations since 1996. In 2004 and 2003, interest expense was $0 and $47, respectively. UTMD expects interest expense of about $230 in 2006, as a result of the Ireland note payable. However, management still expects 2006 non-operating income (after subtracting the interest expense) to be about the same as in 2005 because of projected higher investment balances and higher interest rates in the U.S. The actual amount of 2006 non-operating income may be lower if UTMD utilizes its excess cash for an acquisition, continued litigation with the FDA seeking to recover damages or substantial share repurchases. Non-operating income may be higher if investment balances are higher because the FDA or a Federal Court honors UTMD’s claims for damages.

Earnings before income taxes (EBT) result from adding UTMD’s non-operating income to its operating profits. EBT margin is EBT divided by sales. UTMD’s EBT margin was 36.9%, 60.9% and 124.7% in 2005, 2004 and 2003, respectively. Excluding the Tyco and FDA items in the table above, UTMD’s EBT margin would have been 42%, 41% and 41% of sales in 2005, 2004 and 2003, respectively, which management believes is a better indicator of past EBT related to sales. Given the 2006 projections previously noted, management is targeting 2006 EBT of about $11,800, or an EBT margin of 41% of sales.

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e) Net Income, EPS and ROE . Net income is EBT minus income taxes, often called the “bottom line”. Net income was $7,547, $10,220 and $20,761 in 2005, 2004 and 2003, respectively. The effective income tax rate was 26.1%, 36.6% and 38.7% respectively. The significantly lower income tax provision in 2005 was a result of The American Jobs Creation Act of 2004 (the Act) enacted in October 2004 which allows a temporary tax deduction on repatriated foreign earnings, which must be accomplished in 2005. UTMD previously included a deferred tax liability in reported results, anticipating that profits generated by its Ireland facility would eventually be repatriated, triggering additional U.S. income taxes. Also, UTMD recorded a favorable deferred tax liability adjustment after the conclusion of a formal IRS audit in 3Q 2005. These were non-recurring tax benefits limited to the year 2005. Other year to year fluctuations in the tax rate have resulted from: 1) differences in distribution of state income taxes; 2) variations in profits of the Ireland subsidiary which is taxed at a 10% rate on exported manufactured products; 3) extraterritorial income exclusions; 4) higher marginal tax rates for EBT above $10 million; and 5) other factors such as R&D tax credits. Management expects that UTMD’s 2006 consolidated income tax rate will be around 34%, but this is difficult to predict.

UTMD’s net income expressed as a percentage of sales was 27.3%, 38.6% and 76.5% for years 2005, 2004 and 2003, respectively. Excluding the Tyco and FDA items identified in the table in operating expenses, UTMD’s bottom line was $7,714, $7,166 and $7,335, or 28%, 27% and 27% of sales, in 2005, 2004 and 2003, respectively. UTMD’s profitability has consistently ranked in the top performance tier of all U.S. publicly-traded companies, and has been a primary driver for UTMD’s past excellent returns on shareholders’ equity (ROE).

Earnings per share (EPS) is net income divided by the number of shares of stock outstanding (diluted to take into consideration stock option awards which are “in the money,” i.e., have exercise prices below the current period’s weighted average market value). Diluted EPS were $1.80, $2.19 and $4.25 in 2005, 2004 and 2003, respectively. Excluding the Tyco and FDA items, EPS would have been $1.82, $1.53 and $1.50 in 2005, 2004 and 2003, respectively. UTMD’s EPS has grown at a compounded rate of 17% per year since 1997.

The end of 2005 weighted average number of diluted common shares (the number used to calculate diluted EPS) were 4,192 (in thousands) compared to 4,675 shares in 2004 and 4,885 shares in 2003. Dilution for “in the money” unexercised options for the year 2005 was 230 (in thousands) shares compared to 276 in 2004 and 359 in 2003. The total number of options outstanding at year-end 2005 declined 27% from year-end 2004, following no decline in the prior year. Dilution decreased in 2005 from 2004 because the average number of options outstanding decreased substantially, even though a higher average share price in the stock market increased the dilution effect of each option. Actual outstanding common shares as of December 31, 2005 were 3,856,000.

Return on shareholders’ equity (ROE) is the portion of net income retained by UTMD (after payment of dividends) to internally finance its growth, divided by the average accumulated shareholders’ equity during the applicable time period. ROE includes balance sheet measures as well as income statement measures. ROE in 2005 was 15% (22% before dividends). ROE was negatively affected by FDA litigation costs, but enhanced by share repurchases which were helped because of a lower share price than probably would have existed without the FDA lawsuit. ROE in 2004 and 2003, which was aided by Tyco patent infringement damages, was 24% (28% before dividends) and 79%, respectively. UTMD’s ROE (before dividends) has averaged 33% per year over the last 20 years. This ratio determines how fast the Company can afford to grow without adding external financing that would dilute shareholder interests. For example, a 30% ROE will financially support 30% annual growth in revenues without issuing more stock.

The lower ROE in 2005, despite a continued excellent net profit margin, was due to payment of dividends to shareholders which reduced retained profits, much higher average cash and investment balances which reduced total asset turns, and a low debt ratio. Looking forward, unless UTMD utilizes its cash to make an acquisition or repurchase shares, 2006 ROE will be lower than 2005 even though net profits are projected to increase, because average shareholders’ equity will increase faster on a percentage basis than net profits.

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Liquidity and Capital Resources.

Cash Flows.

Net cash provided by operating activities, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital and the tax benefit attributable to exercise of employee incentive stock options, totaled $6,451 in 2005 compared to $27,459 in 2004 and $8,335 in 2003. The major changes in operating assets and liabilities in both 2004 and 2003 were related to the accrual and receipt of about $31 million from Tyco International for patent infringement, and taxes on that income. Cash provided by operating activities in 2005 includes continued excellent net income performance, aided by a $936 tax benefit attributable to exercise of employee options, compared to $446 in 2004 and $1,108 in 2003.

The Company’s use of cash for investing activities was primarily as a result of purchases of liquid investments, in an effort to maximize returns on excess cash balances while maintaining liquidity. UTMD expended $10,600 in 2005 on such purchases, compared to $22,103 in 2004 and $737 in 2003. In 2005, UTMD received $9,045 from selling short-term investments, compared to $8,202 in 2004 and $98 in 2003. No acquisitions were made in 2005 or 2003. UTMD invested $1,012 in second quarter 2004 to acquire Abcorp, Inc., its vendor for fetal monitoring belts. Please see the table under Supplemental Disclosure of Cash Flow Information for more detail of the Abcorp assets purchased.

In 2005, UTMD received $858 and issued 123,478 shares of stock upon the exercise of employee and director stock options. Employees and directors exercised a total of 207,133 option shares in 2005, with 83,655 shares immediately being retired as a result of the individuals trading the shares in payment of the exercise price of the options and related tax withholding. UTMD paid $833 in 2005 to meet tax withholding requirements on options exercised. UTMD repurchased 372,599 shares of stock in the open market at a cost of $8,604 during 2005. Option exercises in 2005 were at an average price of $11.69 per share. Share repurchases in the open market were at an average cost of $23.09 per share, including commissions and fees. In 2004, the Company received $1,111 from issuing 117,482 shares of stock on the exercise of employee and director stock options, including 5,426 shares retired upon employees trading those shares in payment of the stock option exercise price.

In December 2005, UTMD’s foreign subsidiary borrowed €4.5 million ($5,336) to finance repatriation (from Ireland to the U.S.) of profits achieved since 1996 under The American Jobs Creation Act of 2004. UTMD did not borrow during 2004. In 2004, UTMD made repayments of $4,956 on its note payable, which eliminated the line of credit balance remaining at the end of 2003, while receiving $0 in proceeds from the line of credit. The previous loan was undertaken to finance repurchase of shares. Although UTMD has not borrowed under its revolving line of credit since it paid off the balance in 2004, the line of credit is used to guarantee the current Ireland loan in order to achieve the most favorable credit terms.

Management believes that future income from operations and effective management of working capital will provide the liquidity needed to finance internal growth plans. Planned 2006 capital expenditures are expected to be approximately $500 to keep facilities, equipment and tooling in good working order. In addition, UTMD may use cash in 2006 for selective infusions of technological, marketing or product manufacturing rights to broaden the Company's product offerings; for continued share repurchases if the price of the stock remains undervalued; and if available for a reasonable price, acquisitions that may strategically fit UTMD’s business and are accretive to performance. The revolving line of credit will continue to be available for liquidity when the timing of acquisitions or repurchases of stock require a large amount of cash in a short period of time not otherwise available from existing cash and investment balances.

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

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Contractual Obligations and Contingent Liabilities and Commitments

The following is a summary of UTMD’s significant contractual obligations and commitments as of December 31, 2005:

Contractual Obligations and Commitments	Total		2006		2007- 2008		2009- 2010		2011 and thereafter
Long-term debt obligations	$	6,333	$	633	$	1,266	$	1,266	$	3,168
Operating lease obligations		985		66		74		74		771
Purchase obligations		1,752		1,752		-		-		-
Total	$	9,070	$	2,451	$	1,340	$	1,340	$	3,939

Additional information regarding the Company’s contractual obligations and commitments may be found in Notes 5 and 6 of the Company’s Notes to Consolidated Financial Statements.

Critical Accounting Policies and Estimates

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

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

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

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

Management's Outlook.

In summary, in 2006 UTMD plans to

1) increase efforts to regain business lost as a result of the FDA’s August 10, 2004 press release;

2) reinvigorate internal new product development;

3) continue outstanding operating performance;

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

5) utilize current cash balances in shareholders’ best long-term interest.

Item 3 of this report describes the legal proceedings regarding UTMD’s dispute with the FDA. The U.S. Court determined that UTMD has been and is in compliance with the provisions of the Quality System Regulation. The Company remains proud of its long term record of compliance with all government regulations.

The reliability and performance of UTMD’s products is high and represents significant clinical benefits while providing minimum total cost of care. Physicians do care about the well-being of their patients, but their time is limited to evaluate choices, and they have hospital administrators to deal with who often look at the initial price of a product without understanding the total cost of care which includes risk of unwanted complications and unnecessary utilization.

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In the U.S., UTMD will continue to leverage its reputation as an innovator which will responsively take on challenges to work with physicians who use its products in specialty hospital areas, or outside the hospital in their office practices. Internationally, where UTMD must depend on the knowledge, focus, relationships and energy of independent distributors, management will continue to closely monitor performance and recruit needed business partners.

UTMD will continue to focus on differentiating itself, especially from commodity-oriented competitors. UTMD is small, but its employees are experienced and diligent in their work. Our passion is in providing innovative clinical solutions that will help reduce health risks for women and their babies. The Company has a defined focus and does not seek revenue growth as its primary motivation. We fundamentally seek to do an excellent job in meeting our customers’ and their patients’ needs, and provide our shareholders with excellent returns.

Looking back five years from the end of 2005 to the end of 2000, UTMD’s EPS have more than doubled, and its year-ending share price has more than quadrupled (up 326%). In comparison, the NASDAQ Composite, S&P 500 Index and DJIA indices were all down: 11%, 5% and down 1%, respectively, over that same five year time span.

In 2005, UTMD again demonstrated a high positive cash flow, managing working capital effectively and keeping new capital expenditures below its rate of depreciation of existing assets. UTMD’s balance sheet is strong enough to finance an acquisition in 2006 without issuing stock. In considering acquisitions, UTMD looks to acquire successful companies that will enhance its specialist focus. When UTMD acquires a company, it probably will be for cash and with the idea that it will be able to retain key resources that helped make the acquired entity successful.

Accounting Policy Changes.

In December 2004, the FASB issued SFAS 123 (revised 2004), “Accounting for Stock Based Compensation.” This statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This revised statement establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods and services, including the grant of stock options to employees and directors. The Statement is effective for periods beginning after December 15, 2005, and will require the Company to recognize compensation cost based on the grant date fair value of the equity instruments it awards. The Company currently accounts for those instruments under the recognition and measurement principles of APB Opinion 25, including the disclosure-only provisions of the original SFAS 123. Accordingly, no compensation cost from issuing equity instruments has been recognized in the Company’s financial statements. The Company estimates that the required adoption of SFAS 123 (R) in first quarter 2006 will have a negative impact on its consolidated financial statements. Please see note 1, starting on page F-12 for an estimate of the impact this Statement would have had on the Company’s net income for the periods covered by this report. The Company estimates that adoption of this Statement will result in about $130 additional compensation expense during the year 2006 related to options outstanding on the date of this report. The Company intends to continue granting stock options or other equity instruments, although at a lower level than in the past, which will increase the amount of stock based compensation in 2006 and beyond. The Board of Director’s action on May 6, 2005 to accelerate the vesting of under water options reduced the financial statement impact of this accounting policy change.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company had manufacturing operations, including related assets, in Ireland denominated in the EURO, and sold products under agreements denominated in various Western European currencies. The EURO and other currencies have been and are subject to exchange rate fluctuations that are beyond the control of UTMD. The exchange rate for the EURO was .8433, .7335 and .7958 per U.S. Dollar as of December 31, 2005, 2004 and 2003, respectively. Please see Note 1 in Item, 8, below under “Translation of Foreign Currencies” for more information. UTMD manages its foreign currency risk without separate hedging transactions by converting currencies as transactions occur.

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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

TABLE OF CONTENTS

Management’s Report on Internal Control Over Financial Reporting	25
Report of Independent Registered Public Accounting Firm on Management’s Assessment on Internal Control Over Financial Reporting	26
Report of Independent Registered Public Accounting Firm on Financial Statements	27
Consolidated Balance Sheet	28
Consolidated Statement of Income and Comprehensive Income	29
Consolidated Statement of Cash Flow	30
Consolidated Statement of Stockholders’ Equity	32
Notes to Consolidated Financial Statements	33

24

MANAGEMENT’S REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING

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

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

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

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

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

As required by Section 404 of the Sarbanes-Oxley Act of 2002, management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2005.

The Company's independent registered public accounting firm, Jones Simkins, P.C., has audited management's assessment of the Company's internal control over financial reporting as of December 31, 2005, and their report is shown on the next page.

By:    /s/ Kevin L. Cornwell                                           

Kevin L. Cornwell

Chief Executive Officer

By:   /s/ Greg A. LeClaire                                              

Greg A. LeClaire

Chief Financial Officer

25

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited management's assessment, included in the accompanying report titled Management’s Report On Internal Control Over Financial Reporting, that Utah Medical Products, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Utah Medical Products, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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

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

In our opinion, management's assessment that Utah Medical Products, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). Also in our opinion, Utah Medical Products, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the December 31, 2005 consolidated balance sheets and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows of Utah Medical Products, Inc., and our report dated January 17, 2006 expressed an unqualified opinion.

/s/ Jones Simkins, P.C.

JONES SIMKINS, P.C.

Logan, Utah

January 17, 2006

26

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Utah Medical Products, Inc.

We have audited the accompanying consolidated balance sheets of Utah Medical Products, Inc. as of December 31, 2005 and 2004 and the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for the years ended December 31, 2005, 2004 and 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Utah Medical Products, Inc. as of December 31, 2005 and 2004 and the results of its operations and its cash flows for the years ended December 31, 2005, 2004 and 2003 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Utah Medical Products, Inc. internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated January 17, 2006 expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.

/s/ Jones Simkins, P.C.

JONES SIMKINS, P.C.

Logan, Utah

January 17, 2006

27

UTAH MEDICAL PRODUCTS, INC.

CONSOLIDATED BALANCE SHEET

December 31, 2005 and 2004

(In thousands)

ASSETS	2005			2004
Current assets:
Cash	$	703		$	1,818
Investments, available-for-sale (note 3)		16,750			15,110
Accounts and other receivables, net (note 2)		4,418			3,730
Inventories (note 2)		3,305			2,859
Prepaid expenses and other current assets		280			263
Deferred income taxes (note 7)		402			750
Total current assets		25,858			24,530
Property and equipment, net (note 4)		8,160			9,058
Goodwill		7,191			7,191
Other intangible assets - net (note 2)		433			483
Total assets	$	41,642		$	41,262
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	757		$	698
Accrued expenses (note 2)		2,418			3,638
Total current liabilities		3,175			4,336
Note payable (note 5)		5,336			-
Deferred income taxes (note 7)		274			769
Total liabilities		8,785			5,105
Commitments and contingencies (notes 6 and 10)		-			-
Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $.01 par value; 50,000 shares authorized, issued 3,856 shares in 2005 and 4,105 shares in 2004		39			41
Accumulated other comprehensive income		(495	)		226
Retained earnings		33,314			35,890
Total stockholders' equity		32,857			36,157
Total liabilities and stockholders' equity	$	41,642		$	41,262

See accompanying notes to financial statements.

28

UTAH MEDICAL PRODUCTS, INC.

CONSOLIDATED STATEMENT OF INCOME

AND COMPREHENSIVE INCOME

Years ended December 31, 2005, 2004 and 2003

(In thousands, except per share amounts)

	2005			2004			2003
Sales, net (notes 9 and 10)	$	27,692		$	26,485		$	27,137
Cost of goods sold (notes 9 and 10)		11,939			11,419			11,245
Gross margin		15,753			15,066			15,892
Operating income (expense):
Sales and marketing expense		(2,214	)		(2,253	)		(2,364	)
Research and development expense		(320	)		(292	)		(288	)
General and administrative expense		(3,981	)		(3,262	)		(3,834	)
Other operating income (note 11)		-			6,060			23,992
Operating income		9,237			15,320			33,398
Other income (expense):
Dividend and interest income		398			238			5
Royalty income		450			450			450
Interest expense		(10	)		-			(47	)
Other, net		139			110			46
Income before provision for income taxes		10,214			16,117			33,852
Provison for income taxes (note 7)		2,667			5,897			13,091
Net income	$	7,547		$	10,220		$	20,761
Earnings per common share (basic) (notes 1 and 2):	$	1.91		$	2.32		$	4.59
Earnings per common share (diluted) (notes 1 and 2):	$	1.80		$	2.19		$	4.25
Other comprehensive income:
Foreign currency translation net of taxes of $(153), $107 and $288	$	(502	)	$	222			548
Unrealized gain (loss) on investments net of taxes of $(42), $100 and $12		(65	)		157			19
Total comprehensive income	$	6,980		$	10,599		$	21,328

See accompanying notes to financial statements.

29

UTAH MEDICAL PRODUCTS, INC.

CONSOLIDATED STATEMENT OF CASH FLOW

Years Ended December 31, 2005, 2004 and 2003

(In thousands)

	2005			2004			2003
Cash flows from operating activities:
Net income	$	7,547		$	10,220		$	20,761
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		676			809			984
Gain on investments		(70	)		(52	)		(11	)
Provision for (recovery of) losses on accounts receivable		(4	)		3			(93	)
(Gain) Loss on disposal of assets		(5	)		5			4
Deferred income taxes		(129	)		75			(47	)
Tax benefit attributable to exercise of stock options		936			446			1,108
(Increase) decrease in:
Accounts receivable		(51	)		(226	)		36
Accrued interest and other receivables		(770	)		(191	)		257
Inventories		(573	)		437			174
Prepaid expenses and other current assets		(13	)		(43	)		(32	)
Litigation receivable		-			24,884			(24,884	)
Increase (decrease) in:
Accounts payable		81			312			(291	)
Accrued expenses		(1,175	)		(9,220	)		10,369
Net cash provided by operating activities		6,451			27,459			8,335
Cash flows from investing activities:
Capital expenditures for:
Property and equipment		(345	)		(411	)		(272	)
Intangible assets		-			(10	)		(122	)
Purchases of investments		(10,600	)		(22,103	)		(737	)
Proceeds from the sale of:
Investments		9,045			8,202			98
Property and equipment		5			-			-
Net cash paid in acquisition		-			(1,012	)		-
Net cash used in investing activities		(1,895	)		(15,334	)		(1,033	)
Cash flows from financing activities:
Proceeds from issuance of common stock - options		858			1,111			882
Common stock purchased and retired		(8,604	)		(10,692	)		(2,240	)
Common stock purchased and retired - options		(833	)		(6	)		(555	)
Proceeds from note payable		5,336			-			-
Repayments of note payable		-			-			(4,956	)
Dividends paid		(2,445	)		(1,331	)		-
Net cash used in financing activities		(5,687	)		(10,918	)		(6,869	)
Effect of exchange rate changes on cash		16			(151	)		44
Net increase (decrease) in cash and cash equivalents		(1,116	)		1,056			477
Cash at beginning of year		1,818			762			285
Cash at end of year	$	703		$	1,818		$	762

See accompanying notes to financial statements.

30

UTAH MEDICAL PRODUCTS, INC.

CONSOLIDATED STATEMENT OF CASH FLOW

Years Ended December 31, 2005, 2004 and 2003

(In thousands)

Continued

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	2005		2004			2003
Cash paid during the year for:
Income taxes	$	2,915	$	14,294		$	2,628
Interest		10		-			47
During 2004, the Company purchased all of the oustanding stock of Abcorp Medical, Inc. The Company paid cash and recorded net assets from the acquisition as follows:
Cash			$	11
Accounts receivable				127
Inventory				25
Prepaid insurance				19
Equipment, net				16
Accounts payable				(96	)
Accrued expenses				(25	)
Goodwill				946
Total cash paid				1,023
Less cash received				(11	)
Net cash investment			$	1,012

See accompanying notes to financial statements.

31

UTAH MEDICAL PRODUCTS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Years Ended December 31, 2005, 2004 and 2003

(In thousands)

										Accumulated
							Additional			Other						Total
	Common Stock						Paid-in			Comprehensive			Retained			Stockholders'
	Shares			Amount			Capital			Income			Earnings			Equity
Balance at December 31, 2002		4,443		$	44		$	-		$	(1,115	)	$	16,793		$	15,722
Shares issued upon exercise of employee stock options for cash		299			3			2,465			-			-			2,468
Shares received and retired upon exercise of stock options		(101	)		(1	)		(2,141	)		-			-			(2,142	)
Tax benefit attributable to appreciation of stock options		-			-			1,108			-			-			1,108
Common stock purchased and retired		(97	)		(1	)		(1,432	)		-			(807	)		(2,240	)
Foreign currency translation adjustment		-			-			-			836			-			836
Unrealized holding gain from investments, available-for-sale, net of taxes		-			-			-			19			-			19
Net income		-			-			-			-			20,761			20,761
Balance at December 31, 2003		4,544		$	45		$	-		$	(260	)	$	36,747		$	36,532
Shares issued upon exercise of employee stock options for cash		123			1			1,234			-			-			1,235
Shares received and retired upon exercise of stock options		(5	)		(0	)		(124	)		-			-			(124	)
Tax benefit attributable to appreciation of stock options		-			-			446			-			-			446
Common stock purchased and retired		(557	)		(5	)		(1,556	)		-			(9,130	)		(10,691	)
Foreign currency translation adjustment		-			-			-			329			-			329
Unrealized holding gain from investments, available-for-sale, net of taxes		-			-			-			157			-			157
Common stock dividends		-			-			-			-			(1,947	)		(1,947	)
Net income		-			-			-			-			10,220			10,220
Balance at December 31, 2004		4,105		$	41		$	-		$	226		$	35,890		$	36,157
Shares issued upon exercise of employee stock options for cash		207			2			2.420			-			-			2.422
Shares received and retired upon exercise of stock options		(84	)		(1	)		(2,395	)		-			-			(2,396	)
Tax benefit attributable to appreciation of stock options		-			-			936			-			-			936
Common stock purchased and retired		(373	)		(4	)		(960	)		-			(7,640	)		(8,604	)
Foreign currency translation adjustment		-			-			-			(654	)		-			(654	)
Unrealized holding gain from investments, available-for-sale, net of taxes		-			-			-			(67	)		-			(67	)
Common stock dividends		-			-			-			-			(2,484	)		(2,484	)
Net income		-			-			-			-			7,547			7,547
Balance at December 31, 2005		3,856		$	39		$	-		$	(495	)	$	33,314		$	32,857

See accompanying notes to financial statements.

32

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

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

Note 1 - Summary of Significant Accounting Policies

Organization

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

Use of Estimates in the Preparation of Financial Statements

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

Principles of Consolidation

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

Cash and Cash Equivalents

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

Investments

The Company classifies its investments as “available for sale.” Securities classified as “available for sale” are carried in the financial statements at fair value. Realized gains and losses, determined using the specific identification method, are included in operations; unrealized holding gains and losses are reported as a separate component of accumulated other comprehensive income. Declines in fair value below cost that are other than temporary are included in operations.

Concentration of Credit Risk

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

The Company's customer base consists of hospitals, medical product distributors, physician practices and others directly related to healthcare providers, as well as other manufacturing companies. Although the Company is affected by the well-being of the global healthcare industry, management does not believe significant trade receivable credit risk exists at December 31, 2005.

The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits in addition to Fidelity Investments accounts. The Company has not experienced any losses in such accounts and believes it is not exposed to a significant credit risk on cash and cash equivalent balances.

Accounts Receivable

Accounts receivable are amounts due on product sales and are unsecured. Accounts receivable are carried at their estimated collectible amounts. Credit is generally extended on a short-term basis; thus accounts receivable do not bear interest although a finance charge may be applied to such receivables that are past the due date. Accounts receivable are periodically evaluated for collectiblity based on past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions (see Note 2).

33

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies (continued)

Inventories

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

Property and Equipment

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

Building and improvements	30-40 years
Furniture, equipment and tooling	3-10 years

Long-Lived Assets

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

Intangible Assets

Costs associated with the acquisition of patents, trademarks, license rights and non-compete agreements are capitalized and are being amortized using the straight-line method over periods ranging from 5 to 17 years. UTMD’s goodwill is tested for impairment annually, in the fourth quarter of each year, using a fair value measurement test, in accordance with SFAS 142. UTMD would also perform an impairment test, between annual tests, if circumstances changed that would more than likely reduce the fair value of goodwill below its net book value. If UTMD determined that its goodwill were impaired, a second step would be completed to measure the amount of the impairment loss. UTMD does not expect its goodwill to become impaired in the foreseeable future (see Note 2).

Loans to Related Parties

The Company has not made loans to related entities including employees, directors, shareholders, suppliers or customers, nor does it guarantee the debt of related entities.

Revenue Recognition

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

Income Taxes

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

34

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies (continued)

Legal Costs

The Company has been involved in lawsuits which are an expected consequence of its operations and in the ordinary course of business. The Company maintains a reserve for legal costs which are probable and estimated based on its previous experience. The reserve for legal costs at December 31, 2005 and 2004 was $125 and $1,260, respectively (see Note 2).

Earnings per Share

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

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

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

	2005		2004		2003
Weighted average number of shares outstanding - basic		3,962		4,399		4,526
Dilutive effect of stock options		230		276		359
Weighted average number of shares outstanding, assuming dilution		4,192		4,675		4,885

Stock-Based Compensation

At December 31, 2005, the Company has stock-based employee compensation plans, which are described more fully in Note 8. The Company accounts for those plans under the recognition and measurement principles of APB Opinion 25, “Accounting for Stock Issued to Employees,” and related Interpretations, and has adopted the disclosure-only provisions of SFAS 123, “Accounting for Stock-Based Compensation.” Accordingly, no compensation cost has been recognized in the financial statements, as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant.

Starting January 1, 2006, in accordance with SFAS 123 (revised 2004), the Company will be required to begin recognizing compensation cost related to its stock option plans. Please see note 15, below.

Had compensation cost for the Company’s stock option plans been determined based on the fair value at the grant date consistent with the provisions of SFAS 123, the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:

	Years ended December 31,
	2005			2004			2003
Net income as reported	$	7,547		$	10,220		$	20,761
Deduct:
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(869	)		(388	)		(178	)
Net income pro forma	$	6,678		$	9,832		$	20,583
Earnings per share:
Basic - as reported	$	1.91		$	2.32		$	4.59
Basic - pro forma	$	1.69		$	2.24		$	4.55
Diluted - as reported	$	1.80		$	2.19		$	4.25
Diluted - pro forma	$	1.59		$	2.10		$	4.21

35

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies (continued)

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

Options to purchase 124,800 shares become fully exercisable on December 1, 2005 as a result of the vesting acceleration. Exercise prices of the options accelerated are $24.02 and $25.59 per share. These options previously became fully vested on October 1, 2007 and January 1, 2008.

The Company took this action to avoid an accounting charge (as compensation expense) for these options starting in the quarter ending March 31, 2006, as required by FAS 123(R). The increase in proforma compensation expense in 2005, as shown above, is a result of the vesting acceleration.

Translation of Foreign Currencies

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

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

Note 2 - Detail of Certain Balance Sheet Accounts

	December 31,
	2005			2004
Accounts and other receivables:
Accounts receivable	$	3,542		$	3,636
Income tax receivable		783			-
Accrued interest and other		166			171
Less allowance for doubtful accounts		(73	)		(77	)
	$	4,418		$	3,730

Inventories:
Finished products	$	1,058		$	932
Work-in-process		657			640
Raw materials		1,590			1,287
	$	3,305		$	2,859
Other intangible assets:
Patents		2,025			2,025
License rights		293			293
Trademarks		224			224
Non-compete agreements		175			175
		2,717			2,717
Accumulated amortization		(2,284	)		(2,234	)
	$	433		$	483

Accrued expenses:
Income taxes payable	$	45	$	384
Payroll and payroll taxes		949		963
Reserve for litigation costs		125		1,260
Dividends payable		658		616
Other		641		415
	$	2,418	$	3,638

36

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

Note 3 - Investments

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

	December 31,
	2005			2004
Investments, at cost	$	16,571		$	14,822
Equity Securities:
-Unrealized holding gains		298			295
-Unrealized holding (losses)		(119	)		(7	)
Investments, at fair value	$	16,750		$	15,110

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

	December 31,
	2005			2004
Balance, beginning of year	$	176		$	19
Gross unrealized holding gains, net of (losses), in equity securities		(110	)		257
Deferred income taxes on unrealized holding gain		43			(100	)
Balance, end of year	$	109		$	176

UTMD held available-for-sale investments in municipal debt securities with the following maturities and amounts:

	December 31,
	2005		2004
Maturity less than 1 year	$	-	$	9,081
Maturity greater than 10 years		-		1,475

During 2005, 2004 and 2003, UTMD had proceeds from sales of available-for-sale securities of $9,045, $8,202 and $98 respectively, and associated realized gains of $70, $52 and $11, respectively. UTMD uses the specific identification method to calculate its realized gains.

37

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

Note 4 - Property and Equipment

Property and equipment consists of the following:

	December 31,
	2005			2004
Land	$	1,028		$	1,089
Buildings and improvements		8,631			9,283
Furniture, equipment and tooling		13,781			13,763
Construction-in-progress		179			41
		23,619			24,176
Accumulated depreciation and amortization		(15,459	)		(15,118	)
	$	8,160		$	9,058

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

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

	December 31, 2004
	Utah			Oregon			Ireland			Total
Land	$	621		$	-		$	468		$	1,089
Building and improvements		4,234			32			5,017			9,283
Furniture, equipment and tooling		11,627			1,245			891			13,763
Construction-in-progress		41			-			-			41
Total		16,523			1,277			6,376			24,176
Accumulated depreciation and amortization		(12,224	)		(1,271	)		(1,623	)		(15,118	)
Property and equipment, net	$	4,299		$	6		$	4,753		$	9,058

Note 5 - Note Payable

In December 2005 the Company borrowed €4.5 million ($5,336) from the Bank of Ireland to finance repatriation of profits achieved since 1996 under The American Jobs Creation Act of 2004. The loan term is 10-years at an interest rate of 0.70% plus the bank’s money market rate, which is a total of the bank’s cost of funds and cost of liquidity.

The Company has an unsecured bank line-of-credit agreement with U.S. Bank which allows the Company to borrow up to a fixed maximum amount of $8,000 at an interest rate equal to the bank's one-month LIBOR rate plus 1.25%. The line-of-credit-balance matures on May 31, 2006 and had an outstanding balance of $0 at both December 31, 2005 and 2004. The principal financial loan covenants are a restriction on the total amount available for borrowing to 1.25 times the last twelve months’ EBITDA, and a requirement to maintain a net worth in excess of $18.5 million, which at the end of 2005 and 2004 was $32,857 and $36,157, respectively. U.S. Bank also guarantees the Bank of Ireland loan through a letter of credit arrangement at an interest rate of 1.25%.

38

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

Note 6 - Commitments and Contingencies

Operating Leases

The Company has a lease agreement for land adjoining its Utah facility for a term of forty years commencing on September 1, 1991. On September 1, 2001 and subsequent to each fifth lease year, the basic rental was and will be adjusted for published changes in a price index. The Company also leases its CMI building in Oregon under a two-year non-cancelable operating lease. Rent expense charged to operations under these operating lease agreements was approximately $107, $107 and $105 for the years ended December 31, 2005, 2004 and 2003, respectively.

Future minimum lease payments under its lease obligations as of December 31, 2005 were as follows:

Years ending December 31:	Amount
2006	$	66
2007		37
2008		37
2009		37
2010		37
Thereafter		771
Total future minimum lease payments	$	985

Purchase Obligations

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

Product Liability

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

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

Warranty Reserve

UTMD maintains a warranty reserve to provide for estimated costs which are likely to occur. The amount of this reserve is adjusted, as required, to reflect its historical experience. The following table summarizes changes to UTMD’s warranty reserve during 2005:

Beginning balance, January 1, 2005	$	60
Changes in warranty reserve during 2005:
Aggregate reductions for warranty repairs		(3	)
Aggregate changes for warranties issued during reporting period		21
Aggregate changes in reserve related to preexisting warranties		(18	)
Ending balance, December 31, 2005	$	60

Litigation

The Company has been involved in lawsuits which are an expected consequence of its operations and in the ordinary course of business. There are no such lawsuits currently pending. The Company applies its accounting policy to accrue legal costs that can be reasonably estimated. The significant decrease in the litigation reserve during 2005, from $1,260 to $125 reflects the conclusion of the FDA lawsuit.

39

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

Note 6 - Commitments and Contingencies (continued)

Irish Development Agency

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

Note 7 - Income Taxes

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

	December 31,
	2005					2004
	Current		Long-term			Current		Long-term
Inventory write-downs and differences due to UNICAP	$	84	$	-		$	73	$	-
Allowance for doubtful accounts		28		-			30		-
Accrued liabilities and reserves		290		(63	)		641		23
Other		-		(53	)		6		70
Depreciation and amortization		-		(89	)		-		161
Unrealized investment gains		-		(70	)		-		(112	)
Earnings from subsidiary		-		-			-		(911	)
Deferred income taxes, net	$	402	$	(274	)	$	750	$	(769	)

The components of income tax expense are as follows:

	Years ended December 31,
	2005		2004		2003
Current	$	2,519	$	5,822	$	13,138
Deferred		148		75		(47	)
Total	$	2,667	$	5,897	$	13,091

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

	Years ended December 31,
	2005			2004			2003
Federal income tax expense at the statutory rate	$	3,473		$	5,480		$	11,510
State income taxes		337			806			1,693
ETI, foreign sales corporation and tax credits		(172	)		(164	)		(68	)
Reversal of deferred tax for foreign subsidiary earnings, net of repatriation tax		(434	)		-			-
Other		(537	)		(225	)		(44	)
Total	$	2,667		$	5,897		$	13,091

40

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

Note 8 - Options

The Company has stock option plans which authorize the grant of stock options to eligible employees, directors and other individuals to purchase up to an aggregate of 895,208 shares of common stock, of which 548,621 are outstanding as of December 31, 2005. All options granted under the plans are granted at current market value at date of grant, and may be exercised between six months and ten years following the date of grant. The plans are intended to advance the interest of the Company by attracting and ensuring retention of competent directors, employees and executive personnel, and to provide incentives to those individuals to devote their utmost efforts to the advancement of the Company. Changes in stock options were as follows:

	Shares		Price Range Per Share
2005
Granted		27,900	$	21.68	-	$	21.68
Expired or canceled		27,672		9.13	-		25.59
Exercised		207,133		6.50	-		25.59
Total outstanding at December 31		548,621		6.50	-		25.59
Total exercisable at December 31		491,070		6.50	-		25.59
2004
Granted		164,100	$	18.00	-	$	25.59
Expired or canceled		44,767		6.75	-		25.59
Exercised		122,908		6.50	-		17.71
Total outstanding at December 31		755,526		6.50	-		25.59
Total exercisable at December 31		554,727		6.50	-		24.02
2003
Granted		82,200	$	17.71	-	$	24.02
Expired or canceled		12,562		6.75	-		17.71
Exercised		298,852		6.50	-		15.01
Total outstanding at December 31		759,101		6.50	-		24.02
Total exercisable at December 31		625,859		6.50	-		14.60

For the years ended December 31, 2005, 2004 and 2003, the Company reduced current income taxes payable and increased additional paid-in capital by $936, $446 and $1,108, respectively, for the income tax benefit attributable to sale by optionees of common stock received upon the exercise of stock options.

Stock-Based Compensation

The Company has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” as described in Note 1.

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

	Years ended December 31,
	2005			2004			2003
Expected dividend yield		2.9	%		0.7	%		-
Expected stock price volatility		39.7	%		39.0	%		40.5	%
Risk-free interest rate (weighted average)		4.1	%		3.7	%		3.5	%
Expected life of options		5.1 years			6.2 years			5.9 years

The per-share weighted average fair value of options granted during 2005, 2004 and 2003 is $6.88, $10.07 and $8.89, respectively.

41

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

Note 8 - Options (continued)

Stock-Based Compensation (continued)

The following table summarizes information about stock options outstanding at December 31, 2005:

	Options Outstanding						Options Exercisable
			Weighted
			Average
			Remaining		Weighted				Weighted
Range of			Contractual		Average				Average
Exercise	Number		Life		Exercise		Number		Exercise
Prices	Outstanding		(Years)		Price		Exercisable		Price
$   6.50    -    7.25		209,686		2.63	$	6.87		209,686	$	6.87
9.125  -  15.01		145,799		2.62		12.00		140,767		11.89
17.71    -  25.59		193,136		8.18		22.93		140,617		24.19
$   6.50    -  25.59		548,621		4.58	$	13.89		491,070	$	13.27

Note 9 - Geographic Sales Information

The Company had sales in the following geographic areas:

	United States		Europe		Other
2005	$	21,301	$	3,501	$	2,890
2004		20,452		3,639		2,394
2003		21,266		3,376		2,495

Note 10 - Revenues by Product Category

The Company had revenues in the following product categories:

Product Category	2005		2004		2003
Obstetrics	$	9,774	$	10,918	$	11,435
Gynecology/Electrosurgery/Urology		5,397		5,142		5,324
Neonatal		6,475		4,134		4,142
Blood Pressure Monitoring and Accessories		6,046		6,292		6,236

Note 11 - Other Operating Income

In January 2004, the Company received a payment of $30,944 in damages and interest resulting from a 2002 District Federal Court judgment and ensuing post judgment settlement relating to Tyco/Kendall•LTP ’s patent infringement. The Company recognized other operating income from that payment of $6,060 in first quarter 2004 and $23,992 in fourth quarter 2003. Related expenses of $892 reduced the amount recognized in 2003 from $24,884.

Note 12 - Product Sale and Purchase Commitments

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

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

42

UTAH MEDICAL PRODUCTS, INC.

Notes to Consolidated Financial Statements

Note 13 - Employee Benefit Plan

The Company has a contributory 401(k) savings plan for employees, who are at least 21 years of age, work 30 hours or more each week, and have a minimum of one year of service with the Company. The Company’s contribution is determined annually by the board of directors. Company contributions were approximately $92, $92 and $95 for the years ended December 31, 2005, 2004 and 2003, respectively.

Note 14 - Fair Value Financial Instruments

None of the Company’s financial instruments, which are current assets and liabilities that could be readily traded, are held for trading purposes, except investments. Detail on investments is provided in note 3, above. The Company estimates that the fair value of all financial instruments at December 31, 2005, does not differ materially from the aggregate carrying value of its financial instruments recorded in the accompanying consolidated balance sheet.

Note 15 - Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS 123 (revised 2004), “Accounting for Stock-Based Compensation.” This statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This revised statement establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods and services, including the grant of stock options to employees and directors. The statement is effective for periods beginning after December 15, 2005, and will require the Company to recognize compensation cost based on the grant date fair value of the equity instruments it awards. The Company currently accounts for those instruments under the recognition and measurement principles of APB Opinion 25, including the disclosure-only provisions of the original SFAS 123. Accordingly, no compensation cost from issuing equity instruments has been recognized in the Company’s financial statements. The Company estimates that the required adoption of SFAS 123 (R) in first quarter 2006 will have a negative impact on its consolidated financial statements. Please see note 1 for an estimate of the impact this statement would have had on the Company’s net income for the periods covered by this report. The Company estimates that adoption of this Statement will result in about $130 additional compensation expense during the year 2006 related to options outstanding on the date of this report. The Company intends to continue granting stock options or other equity instruments, although at a lower level than in the past, which will increase the amount of stock-based compensation in 2006 and beyond. The Board of Director’s action on May 6, 2005 to accelerate the vesting of underwater options reduced the financial statement impact of this accounting policy change.

43

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

None.

ITEM 9A - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

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

During 2005, UTMD evaluated the effectiveness of the design and operation of its disclosure controls and procedures. Based on that evaluation, UTMD’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2005, its disclosure controls and procedures were effective.

Management’s Report on Internal Control Over Financial Reporting.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company has included, as part of this Form 10-K, a report of management's assessment of the effectiveness of its internal controls as of December 31, 2005. Jones Simkins, P.C., the independent registered public accounting firm of the Company, has audited management's assessment of, and the effectiveness of, the Company's internal control over financial reporting. Management's report, and the report of Jones Simkins, P.C. appear on pages F-2 and F-3 of this Form 10-K under the captions "Management's Report on Internal Control Over Financial Reporting" and "Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting" and are incorporated herein by reference.

Changes in Internal Control Over Financial Reporting.

There have been no changes in UTMD’s internal control over financial reporting that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting during the fourth quarter of the fiscal year ended December 31, 2005, and there were no significant deficiencies or material weaknesses.

ITEM 9B - OTHER INFORMATION

None.

44

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information from the definitive proxy statement of the registrant under the caption, “PROPOSAL NO. 1. ELECTION OF DIRECTORS: General,” “Directors and Nominees,” “Executive Officers,” and “Compliance with Exchange Act Requirements,” is incorporated herein by reference, expressly excluding the material set forth under the subcaptions “Report of the Compensation and Option Committee” and “Stock Performance Chart.”

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

ITEM 11 - EXECUTIVE COMPENSATION

The information from the definitive proxy statement of the registrant under the caption, “PROPOSAL NO. 1. ELECTION OF DIRECTORS: Executive Compensation,” “Compensation and Option Committee Interlocks and Insider Participation,” “Employment Agreements, Termination of Employment, and Change in Control,” and “Director’s Compensation” is incorporated herein by reference, expressly excluding the material set forth under the subcaptions “Report of the Compensation and Option Committee” and “Stock Performance Chart.”

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

The information from the definitive proxy statement of the registrant under the caption, “PROPOSAL NO. 1. ELECTION OF DIRECTORS: Security Ownership of Management and Certain Persons” is incorporated herein by reference.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

The information from the definitive proxy statement for the 2006 annual meeting of stockholders under the caption “Independent Public Accountants” is incorporated herein by reference.

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PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

1. Financial Statements.

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

2. Supplemental Schedule.

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

3. Exhibits.

Exhibit #	SEC Reference #	Title of Document	Location
1	3	Articles of Restatement of the Articles of Incorporation	See Original Filing
2	3	Articles of Correction to the Restated Articles of Incorporation	See Original Filing
3	3	Bylaws	Incorporated by Reference (1)
4	4	Rights Agreement dated as of July 30, 2004, between Utah Medical Products, Inc., and Registrar and Transfer Company	Incorporated by Reference (2)
5	4	Designation of Rights, Privileges, and Preferences of Series “A” Preferred Stock	Incorporated by Reference (1)
6	10	Employment Agreement dated December 21, 1992 with Kevin L. Cornwell*	Incorporated by Reference (3)
7	10	Amendment, effective May 15, 1998, to Employment Agreement dated December 21, 1992 with Kevin L. Cornwell*	Incorporated by Reference (3)
8	10	Utah Medical Products, Inc., 2003 Employees’ and Directors’ Incentive Plan*	Incorporated by Reference (4)
9	10	Loan Agreement, dated 3 July, 2002 between Utah Medical Products, Inc and U.S. Bank National Association	Incorporated by Reference (5)
10	10	Revolving Promissory Note, dated July 3, 2002 by Utah Medical Products, Inc. to U.S. Bank National Association	Incorporated by Reference (5)
11	10	Second Amendment to Loan Agreement, dated 30 August 2004 between Utah Medical Products, Inc. and U.S. Bank National Association	Incorporated by Reference (6)
12	10	Third Amendment to Loan Agreement, dated December 6, 2005 between Utah Medical Products, Inc. and U.S. Bank National Association	Incorporated by Reference (7)
13	10	Amended and Restated Revolving Promissory Note, dated December 6, 2005 by Utah Medical Products, Inc. to U.S. Bank National Association	Incorporated by Reference (7)
14	10	Loan Agreement, signed 6-December-2005 between Utah Medical Products Limited and Bank of Ireland	Incorporated by Reference (7)
15	10	Summary of Officer and Director Compensation	This Filing

46

Exhibit #	SEC Reference #	Title of Document	Location
16	21	Subsidiaries of Utah Medical Products, Inc.	Incorporated by Reference (8)
17	23	Consent of Jones Simkins, P.C., Company’s independent auditors for the years ended December 31, 2005, December 31, 2004 and December 31, 2003	This Filing
18	31	Certification of CEO pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	This Filing
19	31	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	This Filing
20	32	Certification of CEO pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	This Filing
21	32	Certification of Principal Financial Officer pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	This Filing

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

(1) Incorporated by reference from the Company’s registration statement on form S-8 filed with the Commission effective February 10, 1995.

(2) Incorporated by reference from the Company’s report on form 8-K filed with the Commission on October 1, 2004.

(3) Incorporated by reference from the Company’s annual report on form 10-K filed with the Commission for the year ended December 31, 2003.

(4) Incorporated by reference from the Company’s annual report on form 10-K filed with the Commission for the year ended December 31, 2002.

(5) Incorporated by reference from the Company’s quarterly report on form 10-Q filed with the Commission for the quarter ended June 30, 2002.

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

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

(8) Incorporated by reference from the Company’s annual report on form 10-K filed with the Commission for the year ended December 31, 1999.

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned this 15th day of March, 2006.

UTAH MEDICAL PRODUCTS, INC.

By:	/s/ Kevin L. Cornwell
	Kevin L. Cornwell
	Chief Executive Officer
By:	/s/ Greg A. LeClaire
	Greg A. LeClaire
	Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 15th day of March, 2006.

By:	/s/ Stephen W. Bennett
	Stephen W. Bennett, Director
By:	/s/ Kevin L. Cornwell
	Kevin L. Cornwell, Director
By:	/s/ Ernst G. Hoyer
	Ernst G. Hoyer, Director
By:	/s/ Barbara A. Payne
	Barbara A. Payne, Director
By:	/s/ Paul O. Richins
	Paul O. Richins, Director

 48