In May 2014, new accounting guidance (ASU 2014-09) was issued that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The guidance is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract.  Entities have the option ofUTMD adopted this new standard on January 1, 2018, using either a full retrospective or a modified retrospective approachapproach. In accordance with ASU 2014-09, UTMD's revenue recognition is based on standard terms & conditions of sale for like customers in addition to contracts and the performance obligations identified in them. With very insignificant and limited exceptions, the Company's performance obligation is met when it ships a physical product to a customer. The basis on which UTMD recognizes revenue was updated on January 1, 2018, but it did not result in a change to the process and timing of revenue recognition, because the previous revenue recognition method complies with ASU 2014-09.  Therefore, the adoption of the new standard.  This guidance becomes effective for annual reporting periods beginning after December 15, 2017 and earlyASU 2014-09 did not have an impact on UTMD's financial statements.  In accordance with this adoption is permitted for periods beginning after December 15, 2016. Because the vast majority of itsdisaggregated revenue is recognized when a physical product is shipped, UTMD expects that the 2018 adoption of this standard will have an insignificant impact on its consolidated financial statements.presented in Note 7.

In February 2016, new accounting guidance was issued which requires recording most leases on the balance sheet. The new lease standard requires disclosure of key information about lease arrangements and aligns many of the underlying principles of this new model with those in the new revenue recognition standard noted above. This guidance becomes effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. UTMD has yet to assess the impact that this standard will have on its consolidated financial statements when it is adopted. The only significant lease the Company anticipates it will have at that time is for the parking lot at its Utah facility.

(6)   Fair Value Measurements.  The Company follows ASC 820, Fair Value Measurement to determine fair value of its financial assets.  The following table provides financial assets carried at fair value measured as of June 30, 2017:March 31, 2018:

Utah Medical Products, Inc. (UTMD) manufactures and markets a well-established range of specialty medical devices.  The Company's Form 10-K Annual Report for the year ended December 31, 20162017 provides a detailed description of products, technologies, markets, regulatory issues, business initiatives, resources and business risks, among other details, and should be read in conjunction with this report.  Because of the relatively short span of time, results for any given three or six month period in comparison with a previous three or six month period may not be indicative of comparative results for the year as a whole.  Currency amounts in the report are in thousands, except per share amounts or where otherwise noted.  Currencies in this report are denoted as $ or USD = U.S. Dollars; A$ or AUD = Australia Dollars; £ or GBP = UK Pound Sterling; C$ or CAD = Canadian Dollars; and € or EUR = Euros.

In the secondfirst calendar quarter (2Q) and first half (1H)(1Q) of 2017,2018, UTMD achievedattained results which suggest the Company may significantly exceedconsistent with achieving its previously announced goals for 2017.year 2018.

Income statement results in 2Q and 1H 20171Q 2018 compared to the same periods of 20161Q 2017 were as follows:

The changeBecause 33% of consolidated sales were in valueforeign currencies, the volatility of the USD had a somewhat greater negative impact on 2Q and 1H 2017 Net Sales (revenues or sales) results as it did in the same periods in 2016 due primarily to the impact of BREXIT on the value of the GBP starting in late 2Q 2016. Revenues in 2Q 2017 and 1H 2017 would each have been about another 2% higher using the same foreign currency exchange (FX) rates as infor sales outside the prior year (constant currency). UTMD'sU.S. (OUS) continued to have an impact on period-to-period financial results. FX rates for income statement purposes are transaction-weighted averages. The average FX rates from the applicable foreign currency to USD during 2Q1Q 2018 and 1Q 2017 and 1H 2017 compared to the same periods in 2016 follow:

The weighted average negativepositive impact on GBP, EUR and AUDall foreign currency revenues in 2Q 2017 compared to 2Q 2016sales was 5.0%12.5%, reducingincreasing reported USD sales by $132.  The weighted average negative impact on GBP, EUR and AUD$340 relative to the same foreign currency sales in 1Hat 1Q 2017 compared to 1H 2016 was 5.7%, reducing reported USD sales by $301.FX rates (constant currency sales).  In constant currency terms, total consolidated 2Q 20171Q 2018 sales were up 4.5%, and 1H 2017 sales were up 2.9%$288 (+3%).

Despite experiencing inflationary pressures on manufacturing costs, UTMD was able to maintain its GPM. Because 54% of consolidated operating expenses are in 1H 2017 compared to 1H 2016.  Included in G&A OE,foreign currencies, UTMD's Operating Income Margin (OIM) was squeezed by the UK amortization ofweaker USD.  For example, Identifiable Intangible AssetsAsset (IIA) amortization expense from the Femcare acquisition, which comprises a significant portion of General & Administrative (G&A) operating expenses, was $62 lowerthe same in 2Q1Q 2018 GBP as in 1Q 2017, and $138 lowerbut $61 higher in 1H 2017 due to the weaker GBP, accounting for most of the change. The combination of lower OE and higher GPM spurred a 13% increase in 1H 2017 Operating Income (OI) with just a 1% increase in revenues. The 14% higher UTMD Net Income (NI) in 1H 2017 was a result of the 13% higher OI plus 1) a change in the income tax rate in the UK during 2Q 2017, and 2) a lower tax provision in the UK and Ireland based on translation of USD cash balances in those sovereignties when converted to their respective native currencies.1Q 2018 USD.

UTMD's Balance Sheet, in the absence of debt, continued to strengthen. June 30, 2017March 31, 2018 ending Cash and Investments were up $7.4$3.0 million and Stockholders' Equity was up $8.0$4.6 million in the three month period from December 31, 2016.2017.  FX rates for Balance Sheet purposes are the applicable rates at the end of each reporting period. The FX rates from the applicable foreign currency to USD for assets and liabilities at the end of June 20171Q 2018 and the end of December 20161Q 2017 follow:

TheBeginning on January 1, 2018, the Company believesadopted ASU 2014-09, the new revenue recognition accounting standard.  Management completed an extensive assessment and implementation of the standard, including UTMD's various contracts with customers and associated performance obligations and the Company's conclusions regarding its revenue recognition practices and procedures. Other items like commissions and rights of return were also evaluated by the Company. Management is confident that the Company has properly evaluated the standard's requirements and has arrived at appropriate conclusions in recognizing revenue should bein accordance with the new standard.  Those practices and procedures the Company will use to recognize revenue under the new standard are not significantly different than the methods used previously since UTMD has traditionally recognized at the time of shipment as title generally passes to the customer at the time of shipment, or completion of services performed under contract.  Revenue recognized by UTMD is basedrevenue upon documented arrangements and fixed contracts in which the selling price is fixed prior to acceptance and completion of an order.  Revenue from product or service sales is generally recognized at the time the product is shipped or service completed and invoiced, and collectibility is reasonably assured.  Over 99% of UTMD's revenue is recognized at the time UTMD shipsshipping a physical medical deviceproduct to a customer, orwhich is also when the Company has met its performance obligations under contracts it has with its customers that represent over 99% of its revenue. While the Company's revenue not associated with shipping a customer's designated inventory location, where the selling price for the item shipped was agreed prior to UTMD's acceptance and completion of the customer order. There are no post-shipment obligations which have been or are expected to be material to financial results.

Terms of sale are established in advance of UTMD's acceptance of customer orders.  In the U.S., Canada, Ireland, UK France and Australia prior to 2017, UTMD generally acceptsaccepted orders directly from and shipsshipped directly to end user clinical facilities, as well as third party med/surgmedical/surgical distributors, under UTMD's Standard Terms and Conditions (T&C) of Sale. The same was true in 2017 with the addition of direct shipments to end user facilities in Canada and France. About 14% of UTMD's U.S. domestic end user sales, excluding Femcare's Filshie Clip System sales to its exclusive U.S. distributor, CooperSurgical Inc. (CSI), go through third party med/surg distributors which contract separately with clinical facilities to provide purchasing, storage and scheduled delivery functions for the applicable facility.  UTMD's T&C ofof Sale to end user facilities are substantially the same in the U.S., Canada, Ireland, UK, France and Australia.  In other geographic regions, UTMD sells its devices to third party distributors which then distribute the devices to medical facilities within their designated territories. UTMD's T&C of Sale for its international distributors are substantially the same.

UTMD may have separate discounted pricing agreements with a specific clinical facility or group of affiliated facilities based on volume of purchases.  Pricing agreements which are documented arrangements with clinical facilities, or groups of affiliated facilities, if applicable, are established in advance of orders accepted or shipments made. For existing customers, past actual shipment volumes typically determine the fixed price by part number for the next agreement period of one year. For new customers, the customer's best estimate of volume is usually accepted by UTMD for determining the ensuing fixed prices for the agreement period. Except on rare occasions such as when customers do not meet prepayment agreements, pricesPrices are not adjusted after an order is accepted. For the sake of clarity, the separate pricing agreements with clinical facilities based on volume of purchases disclosure is not inconsistent with UTMD's disclosure above that the selling price is fixed prior to the acceptance of a specific customer order.

Domestic sales in 1Q 2018 were $5,254 compared to 1H 2016, total U.S.$5,218 in 1Q 2017.  The components of domestic sales were 4% higher and OUS sales were 1% lower.

OUS sales in 1Q 2018 were $5,633 compared to 17%$5,041 in 2Q 2016,1Q 2017. OUS sales invoiced in GBP, EUR, AUD and 23% in 1H 2017 compared to 20% in 1H 2016. Domestic OEM salesCAD currencies were $59$340 (+8%12.5%) higher as a result of changes in 2Q 2017 compared to 2Q 2016, and $63 (+4%) higher in 1H 2017 compared to 1H 2016. Direct sales to U.S. user facilities were $85 (+3%) higher in 2Q 2017 compared to 2Q 2016, and $41 (+1%) higher in 1H 2017 compared to 1H 2016.

Trade sales are sales to third parties, excluding sales from one UTMD entity to another (intercompany sales).another. Ireland subsidiary 1Q 2018 trade sales were 26% of OUS sales$94 higher than in 2Q1Q 2017 compareddue to 36% of OUS sales in 2Q 2016.the stronger EUR.  Ireland subsidiary tradeEUR sales were 25% of OUS sales in 1H 2017 compared to 35% of OUS sales in 1H 2016.  The lower portion of OUS sales by Ireland was due primarily to the conversion from Ireland selling Filshie Sterishot kits to Canada and France distributors in 2016 (trade sales) to selling to other UTMD subsidiaries for direct distribution into Canada and France (intercompany sales) in 2017.

The following table provides USD sales amounts divided into general product categories for total sales and the subset of OUS sales:

Global revenues (USD) by product category:

GPGross Profit (GP) results from subtracting the cost of manufacturing and shipping products to customers (direct materials, direct labor, manufacturing overhead and shipping costs), or the purchase price of distributed finished products manufactured by other companies, from revenues.  At UTMD, manufacturing overhead costs fully absorb indirect costs including depreciation ofon manufacturing equipment and facilities, quality assurance, materials requirements planning and purchasing, manufacturing engineering, production supervision, shipping, royalties paid to other entities and health plan benefits for both direct and indirect manufacturing personnel.  UTMD's consolidatedGP margin (GPM) is GP as a percentage of revenues. GP in 2Q 20171Q 2018 was $641$6,922 (63.6% GPM) compared to $6,535 (63.7% GPM) in 1Q 2017.  Variable cost increases in direct labor and materials were offset by better absorption of manufacturing overhead as a result of higher than in 2Q 2016 while sales were only $339 higher.  UTMD's 1H 2017 GP was $954 higher than in 1H 2016 while sales were only $297 higher.   Manufacturing productivity was consistent with the prior year while direct sales in Canada and France at retail prices replaced distributor sales at wholesale prices in the prior year.sales.

OIOperating income (OI) is GP minusthe profit remaining after subtracting operating expenses (OE) from GP. OE comprised ofinclude sales and marketing (S&M) expenses, product development (R&D) expenses and general and administrative (G&A), expenses. UTMD's operating income margin (OIM) is OI divided by revenues. OI income was up only 5.2% with a 6.1% increase in sales because the 1Q 2018 OIM was squeezed by the stronger EUR and marketing (S&M) and product development (R&D) expenses.GBP compared to 1Q 2017.

OI in 1Q 2018 was $4,971 (45.7% OIM) compared to $4,725 (46.1% OIM) in 1Q 2017.  Consolidated USD-denominated1Q 2018 USD OE were $1,859 in 2Q 2017 (17.2%$1,952 (17.9% of consolidated revenues)sales) compared to $1,937$1,811 (17.7% of sales) in 2Q 2016 (18.5% of consolidated revenues). Consolidated OE were $3,670 in 1H 2017 (17.4% of revenues) compared to $3,847 in 1H 2016 (18.5% of revenues).  In contrast to revenues, in the case of OE, lower FX rates were accretive to financial results.1Q 2017. The 1Q 2018 OE of UTMD's foreign subsidiaries in the aggregate in 2Q 2017 and 1H 2017 would have been $90 and $200 higher, respectively, in constant currency.

Consolidated S&M expenses in 2Q 20171Q 2018 were $409 (3.8% of sales) compared to $457 (4.4%$381 (3.7% of sales) in 2Q 2016, and were $790 (3.8% of sales) in 1H 2017 compared to $862 (4.1% of sales) in 1H 2016.  1Q 2017.

S&M expenses include all customer support costs including training. In general, training is not required for UTMD's products since they are well-established and have been clinically widely used. Written "Instructions For Use" are packaged with all finished devices. Although UTMD does not have any explicit contracts with customers to provide training, it does have agreements in the U.S. and UK under which it agrees to provide hospital members inservice and clinical training as required and reasonably requested.

UTMD promises prospective customers that it will provide, at no charge in reasonable quantities, copies of instruction materials developed for the use of its products. UTMD provides customer support from offices in the U.S., Canada, the UK, Ireland and Australia by telephone, and employedretained representatives on a geographically dispersed basis, to answer user questions and help troubleshoot any user issues. Occasionally, on a case-by-case basis, UTMD may utilize the services of an independent practitioner to provide educational assistance to clinicians.  All inservice and training expenses are routinely expensed as they occur.  All of these services are allocated from S&M overhead costs included in OE.  Historically, marginal consulting costs have been immaterial to financial results.

R&D expenses in both 2Q 2017 and 2Q 20161Q 2018 were $119 (1.1%$113 (1.0% of sales in both periods), and were $238 (1.1%sales) compared to $118 (1.2% of sales) in 1H 2017 compared to $229 (1.1% of sales) in 1H 2016.1Q 2017.

Consolidated G&A expenses were $1,330 (12.3%$1,429 (13.1% of sales) in 2Q 20171Q 2018 compared to $1,361 (13.0%$1,312 (12.8% of sales) in 2Q 2016, and were $2,643 (12.5%1Q 2017. The G&A expenses in 1Q 2018 included $555 (5.1% of sales) in 1H 2017 compared to $2,757 (13.3% of sales) in 1H 2016. Consolidated G&A expenses included non-cash expense from the amortization of IIAidentifiable intangible assets resulting from the Femcare acquisition, of $510 (4.7% of consolidated revenues) in 2Q 2017 and $1,004which were $494 (4.8% of consolidated revenues)sales) in 1H 2017, compared to $572 (5.4% of consolidated revenues) in 2Q 2016 and $1,148 (5.5% of consolidated revenues) in 1H 2016.1Q 2017.  The period to period differences in USD-denominated IIA amortization expense were predominantly FX-related since the IIAhigher USD amortization expense was the result of the stronger GBP, 798as the amortization expense in 1H 2017 compared to GBP 802was £399 in 1H 2016.

G&A expenses include the cost of outside financial auditors and corporate governance activities related to the implementation of SEC rules resulting from the Sarbanes-Oxley Act of 2002, as well as estimated stock-based compensation cost, a noncash expense. Option compensation expense included in G&A expenses was $33$30 in 2Q 20171Q 2018 compared to $21$36 in 2Q 2016, and $69 in 1H 2017 compared to $42 in 1H 2016.1Q 2017.

NOE/NOI includes the combination of 1) expenses from loan interest and bank fees; 2) expenses or income from losses or gains from remeasuring the value of EUR cash bank balances in the UK, and GBP cash balances in Ireland, in USD terms; and 3) income from rent of underutilized property, investment income and royalties received from licensing the Company's technology. Negative NOE is NOI.  Net NOI in 2Q 20171Q 2018 was $23$37 compared to $64$26 NOI in 2Q 2016. Net1Q 2017. The higher NOI in 1H 20171Q 2018 was $49 compareddue to $165 NOI in 1H 2016. The loss/gainhigher interest on remeasured foreign currency balances in 2Q 2017 was $0 compared to a gain of $38 in 2Q 2016.  In 1H 2017, the gain on remeasured foreign currency balances was $1 compared to a gain of $111 in 1H 2016.savings accounts.  Royalties received were $19$22 and $23 in 2Q1Q 2018 and 1Q 2017 compared to $22 in 2Q 2016, and $42 in 1H 2017 compared to $45 in 1H 2016.respectively.

Consolidated EBT results from subtracting net NOE or adding NOI from or to, as applicable, Consolidated OI.  Consolidated 2Q 20171Q 2018 EBT was $5,057 (46.7%$5,008 (46.0% of sales) compared to $4,379 (41.7%$4,750 (46.3% of sales) in 2Q 2016. Consolidated 1H 20171Q 2017.  With slightly higher NOI, the 5.4% increase in EBT was $9,807 (46.5% of sales) compared to $8,792 (42.3% of sales)slightly higher than the increase in 1H 2016.OI.

The EBT of Utah Medical Products, Inc. (U.S.) was $2,233$2,252 in 2Q 20171Q 2018 compared to $2,144$2,251 in 2Q 2016, and $4,484 in 1H 2017 compared to $4,403 in 1H 2016.1Q 2017. The EBT of Utah Medical Products, Ltd (Ireland) was EUR 875797 in 2Q 20171Q 2018 compared to EUR 931637 in 2Q 2016, and EUR 1,512 in 1H 2017 compared to EUR 1,600 in 1H 2016 .1Q 2017. The EBT of Femcare Group Ltd (Femcare-Nikomed, Ltd., UK and Femcare Australia) was GBP 1,1461,063 in 2Q 20171Q 2018 compared to GBP 8171,161 in 2Q 2016, and GBP 2,306 in 1H 2017 compared to GBP 1,808 in 1H 2016.1Q 2017.  The 2Q 2017 and 1H 20171Q 2018 EBT of Utah Medical Products Canada, Inc. (dba Femcare Canada) was CAD 567 and471 compared to CAD 1,062, respectively.496 in 1Q 2017.

Excluding the noncash effects of depreciation, amortization of intangible assets and stock option expense, 2Q 20171Q 2018 consolidated EBT excluding the remeasured bank balance currency gain or loss and interest expense (adjustedgains ("adjusted consolidated EBITDA)EBITDA") were $5,779 (53.4% of sales)$5,810 compared to $5,098 (48.6% of sales)$5,458 in 2Q 2016. Adjusted consolidated EBITDA in 1H1Q 2017, were $11,236 (53.3% of sales) compareda 6.5% increase. Management believes that the 1Q 2018 pre-tax operating performance provides a solid start to $10,200 (49.1% of sales) in 1H 2016. Based on this performance, management now expects more than a $2 million increase in adjusted EBITDAachieving its financial objectives for the year 2018, as previously described in its 2017 year.  TTM adjusted EBITDA were $20,254.SEC 10-K Report.

NI is EBT minus a provision for income taxes.  In addition to the growth in EBT, NI in 20171Q 2018 of $4,092 (37.6% of sales) was further leveraged by lower tax provisions. NI in 2Q 2017 of $3,870 was $611 (+19%)15.7% higher than the NI of $3,259$3,536 (34.5% of sales) in 2Q 2016.1Q 2017.  The average consolidated income tax provisions (as a % of EBT) in 1Q 2018 and 1Q 2017 were 18.3% and 25.6%, respectively.

The primary reasons for the lower 2018 provision rate were two: 1) the lower U.S. Federal Income Tax rate, reduced to 21% from 34% as a result of the U.S. Tax Cuts and Jobs Act enacted in 2QDecember 2017, and 2) substantial tax deductions in Ireland and the UK as a result of native currency translation losses on 1Q 2018 ending USD cash balances.

The total tax savings as a result of the lower tax provision rate was 23.5% compared to 25.6% for 2Q 2016.  NI$366.  Approximately $221, or about 60% of the lower provision, resulted from a lower corporate income tax rate in 1H 2017 of $7,405 was $930 (+14%) higher than the NI of $6,476 in 1H 2016.U.S. The consolidatedremaining lower income tax provision rates were 24.5%emanated primarily as a result of lower valued USD cash balances in 1H 2017the UK and 26.3%Ireland when expressed in 1H 2016.   On April 1, 2017,their native currencies, which results in a tax deduction in those sovereignties. According to U.S. GAAP, the USD translation losses in Ireland and the UK do not affect UTMD's consolidated income statement except in accrued taxes.  Also helping was a lower corporate income tax rate in the UK was lowered fromin 1Q 2018 compared to 1Q 2017 (19% instead of 20% to 19%). For foreign subsidiaries, the tax provision booked in consolidated results is based on taxable income in the applicable sovereignty, not based on U.S. GAAP EBT.  As UTMD held about $16 million in cash in USD currency in Ireland and UK subsidiary bank accounts as of June 30, 2017, and the USD weakened relative to the applicable native currency, the resulting translation loss for each subsidiary created a tax credit for those subsidiaries in their applicable native currencies. In summary, although there was not a corresponding translation loss for consolidated UTMD results, which are obviously expressed in USD, there was a tax provision benefit.

EPS are consolidated NI divided by the number of shares of stock outstanding (diluted to take into consideration stock option awards which are "in the money," i.e., have exercise prices below the applicable period's weighted average market value). Diluted EPS in 2Q1Q 2018 were $1.092, which was 15.1% higher than EPS of $0.948 in 1Q 2017 were $1.037 compared to $0.863 in 2Q 2016.  In 1H 2017, EPS were $1.985 compared to $1.716 in 1H 2016.  With some help from lower diluted shares outstanding, 2Q 2017 EPS increased 20% (17.4 cents) compared to 2Q 2016, and 1H 2017 EPS increased 16% (26.9 cents) compared to 1H 2016. Looking forward, management is now projecting 2017 EPS greater than $3.60.

Diluted shares outstanding used to calculate 2Q 2017 EPS were 3,731,8593,747,800 in 1Q 2018 compared to 3,776,3043,728,000 in 2Q 2016.1Q 2017 as a result of employee option exercises as well as a higher dilution factor for unexercised options due to a higher share price. No new options were awarded in 2017 or 2018 to-date. The number of shares added as a dilution factor in 2Q 20171Q 2018 was 15,68622,800 compared to 17,90613,700 in 2Q 2016. Diluted shares outstanding used to calculate 1H 2017 EPS were 3,730,478 compared to 3,773,453 in 1H 2016.  The number of shares added as a dilution factor in 1H 2017 was 15,253 compared to 17,899 in 1H 2016. UTMD has not to date in 2017 repurchased any of its shares in the open market.  In 4Q 2016, UTMD repurchased 50,000 shares which accounts for the lower outstanding shares in 2Q 2017 and 1H 2017 compared to 2Q 2016 and 1H 2016.1Q 2017.

ROE is the portion of NI retained by UTMD to internally finance its growth, divided by the average accumulated stockholders' equity for the applicable time period.  Annualized ROE (before stockholder dividends) in 1Hboth 1Q 2018 and 1Q 2017 was 20% compared to 18% in 1H 2016.  The higher ROE in 1H 2017 was due to the increase in NI..  Targeting a high ROE of 20% remains a key financial objective for UTMD management.  ROE can be increased by increasing NI, or by reducing stockholders' equity by paying cash dividends to stockholders or by repurchasing shares.

Liquidity and Capital Resources

Net cash provided by operating activities, including adjustments for depreciation and amortization and other non-cash expenses along with changes in working capital, totaled $7,742$3,766 in 1H 20171Q 2018 compared to $7,764$4,307 in 1H 2016.1Q 2017.  The most significant differences in cash provided during the two periods were the $930$556 increase in net income and a $707$374 lower decrease in trade A/R. The largest difference in use of cash fromwas a $1,496 larger increase in 1H 2017 trade accounts receivable compared to 1H 2016, a $426 benefit to cash from an increasedecrease in accrued expenses in 1H 2017 following a decrease in 1H 2016, and a $360 use of cash from a smaller increase in accounts payable in 1H 20171Q 2018 compared to the same period in 2016.1Q 2017.

Capital expenditures for property and equipment (PP&E) were $114$173 in 1H 20171Q 2018 compared to $90$65 in 1H 2016.1Q 2017.  Depreciation of PP&E was $330$200 in 1H 20171Q 2018 compared to $298$166 in 1H 2016.

UTMD made cashits payment of the 4Q 2017 stockholder dividend paymentsin the amount of $984$1,005 in 1HJanuary 2018.  There was no dividend payment in 1Q 2017, compared to $976because the 4Q 2016 dividend was paid in 1H 2016.  The Company did not use cash to repurchase anyDecember 2016 instead of its own shares during either 1H 2017 or 1H 2016.January 2017.

In 1H 2017,1Q 2018, UTMD received $168$147 and issued 4,8608,620 shares of its stock upon the exercise of employee and director stock options.  Option exercises in 1H 2017 were at an average price of $34.67 per share.  In comparison, in 1H 2016 the Company received $257 and issued 8,485 shares of stock on the exercise of employee and director stock options, net of 5002,439 shares retired upon employees trading those shares in payment of the stock option exercise price.  Option exercises in 1Q 20162018 were at an average price of $32.06$43.17 per share.  In comparison, in 1Q 2017 the Company received $53 from issuing 1,860 shares of stock on the exercise of employee stock options. Option exercises in 1Q 2017 were at an average price of $28.75 per share.

Management believes that current cash balances, income from operations and effective management of working capital will provide the liquidity needed to finance internal growth plans. The Company may utilize cash not needed to support normal operations in one or a combination of the following:  1) in general, to continue to invest at an opportune time in ways that will enhance future profitability, for example, to fit-out a UK facility and property purchased in late 2016 specific to UTMD's needs;profitability; 2) to make additional investments in new technology and/or processes; and/or 3) to acquire a product line or company that will augment revenue and EPS growth and better utilize UTMD's existing infrastructure.  If there are no better strategic uses for UTMD's cash, the Company will continue to return cash to stockholders in the form of dividends and share repurchases when the stock appears undervalued.

June 30, 2017March 31, 2018 total consolidated assets were $85,945, an increase of $9,361increased $4,444 from December 31, 2016.2017 to $97,188. The increase was predominantly due mainly to a $7,450$2,971 increase in cash and investments. Other significant changes in assets from the end of 2017 included a $1,259$585 increase in consolidated net trade receivables, a $257$315 increase in consolidated inventories and a $260$352 increase in net intangible assets.  UTMD's Ireland subsidiary EUR-denominated assets and liabilities were translated into USD at an FX rate 8.1%2.5% higher (stronger EUR) than the FX rate at the end of 2016.2017. UTMD's UK subsidiary GBP-denominated assets were translated into USD at an FX rate 5.3%3.7% higher (stronger GBP) than the FX rate at the end of 2016.2017.  This was responsible for the increase in intangible assets as the Femcare intangibles are in GBP. UTMD's Australia subsidiary AUD-denominated assets were translated into USD at an FX rate 6.2% higher (stronger1.6% lower (weaker AUD) than the FX rate at the end of 2016.  The2017. Canada subsidiary CAD-denominated assets were translated into USD at an FX rate 2.9% lower (weaker CAD) than the FX rate at the end of 2017.  Consolidated net book value of consolidated property, plant and equipment increased $179$161 at June 30, 2017March 31, 2018 from the end of 20162017 due to period-ending changedthe changing FX rates, $114$173 in new asset purchases and $330$200 in depreciation.

Working capital (current assets minus current liabilities) was $39,395$47,998 at June 30, 2017March 31, 2018 compared to $31,845$43,909 at December 31, 2016.  A current asset increase of $8,922 was led by the $7,450 increase in cash and investments.2017.  Current liabilities increased $1,372,declined $159, including a $1,294 increase$309 decline in accrued liabilities. The accrued liabilities increasedecrease was mainly due primarily to the $985 2Qpayment of the accrued 2017 annual profit-sharing management bonus (MB) in 1Q 2018. The $558 decline in accrued MB was partially offset by the U.S. quarterly dividendincome tax payment to stockholdersschedule, which delays the 1Q 2018 estimated payment until 15 April 2018, while the 4Q 2017 payment was due 15 December 2017.  The 1Q delay in tax payment increased accrued but not paid until July 6, whereas the $984 4Q 2016 dividend was paid before the end of December 2016.liabilities by $204.  UTMD management believes that its working capital remains sufficient to meet normal operating needs, new capital expendituresinvestments and projected cash dividend payments to stockholders.

June 30, 2017March 31, 2018 intangible assets (goodwill plus other intangible assets) increased $260$352 from the end of 2016.2017.  The increase was due to the higher GBP FX rate for GBP Femcare intangibles as of June 30, 2017March 31, 2018 compared to year-end 2016,2017, offset somewhatin part by the $1,004 1H 2017$555 1Q 2018 amortization of identifiable intangible Femcare IIA.assets. At June 30, 2017,March 31, 2018, net intangible assets including goodwill declined to 37%were 33% of total consolidated assets compared to 41%34% at year-end 2016,2017, and 43%39% at June 30, 2016.March 31, 2017.

The deferred tax liability balance for Femcare IIAidentifiable intangible assets ($9,084 on the date of the acquisition), was $3,178$3,111 at June 30, 2017March 31, 2018 compared to $3,209$3,102 at December 31, 20162017 and $3,784$3,160 at June 30, 2016.March 31, 2017.  Reduction of the deferred tax liability occurs as the book/tax difference of amortization is eliminated over the remaining useful life of the Femcare IIA.identifiable intangible assets. UTMD's total debt ratio (total liabilities/total assets) as of June 30, 2017 was 10%, the sameMarch 31, 2018 declined to 15% from 16% as atof December 31, 2016.2017 as a result of the decline in accrued liabilities described above and higher total assets.  UTMD's total debt ratio as of June 30, 2016March 31, 2017 was 12%.  This year-ago lower ratio was because the $6,288 repatriation tax on cumulative foreign subsidiary earnings, of which none has been paid as of March 31, 2018, was accrued after enactment in 4Q 2017.

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

UTMD has manufacturing and trading operations, including related assets, in the U.S. denominated in the U.S. Dollar (USD), in Ireland denominated in the Euro (EUR), in England denominated in the British Pound (GBP), in Australia denominated in the Australia Dollar (AUD), and, starting in 2017, in Canada denominated in the Canadian Dollar (CAD).  The currencies are subject to exchange rate fluctuations that are beyond the control of UTMD.  The exchange rates were .8763, .9474.8119, .8319 and .9028.9348 EUR per USD as of June 30, 2017,March 31, 2018, December 31, 20162017 and June 30, 2016,March 31, 2017, respectively.  Exchange rates were .7696, .8105.7130, .7395 and .7545.7978 GBP per USD as of June 30, 2017,March 31, 2018, December 31, 20162017 and June 30, 2016,March 31, 2017, respectively.  Exchange rates were 1.3028, 1.38291.3008, 1.2796 and 1.34331.3093 AUD per USD on June 30, 2017,March 31, 2018, December 31, 20162017 and June 30, 2016,March 31, 2017, respectively.  Exchange rates were 1.29821.2895, 1.2519, and 1.3320 CAD per USD on June 30, 2017.March 31, 2018, December 31, 2017, and March 31, 2017 respectively. UTMD manages its foreign currency risk without separate hedging transactions by either invoicing customers in the local currency where costs of production were incurred, by converting currencies as transactions occur, and by optimizing global account structures through liquidity management accounts.

The Company's management, under the supervision and with the participation of the Chief Executive Officer and the Principal Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2017.March 31, 2018. Based on this evaluation, the Chief Executive Officer and Principal Financial Officer concluded that, as of June 30, 2017,March 31, 2018, the Company's disclosure controls and procedures were effective.

There were no changes in the Company's internal controls over financial reporting that occurred during the six monthsquarter ended June 30, 2017,March 31, 2018, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

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 of which is expected tomay be material to its financial results.

The voluminous Acts, administrative rules to enforce the Acts and promised efforts to reform the Acts, make the U.S. medical device marketplace unpredictable, particularly for the thousands of small medical device manufacturers including UTMD that do not have the overhead structure that the larger medical device companies can afford.  Fortunately, the U.S. Congress has suspended the MDET for twothe years of 2016 and 2017.2016-2019. To the extent that the Acts will in the future continue to place additional burdens on small medical device companies in the form of the excise tax on medical device sales, additional oversight of marketing and sales activities and new reporting requirements, the result is likely to continue to be negative for UTMD's ability to effectively compete and support continued investments in new product development and marketing of specialty devices in the U.S.

The Company's experience in 2001-2005, when the FDA improperly sought to shut it down, highlights the ongoing risk of being subject to a regulatory environment which can be arbitrary and capricious. The risks associated with such a circumstance relate not only to the substantial costs of litigation in millions of dollars, but also loss of business, the diversion of attention of key employees for an extended period of time, including new product development and routine quality control management activities, and a tremendous psychological and emotional toll on dedicated and diligent employees.

Since the FDA reserves to itself the interpretation of which vague industry standards comprise law at any point in time, it is impossible for any medical device manufacturer to ever be confident that it is operating within the Agency's version of the law.  The unconstitutional result is that all companies, including UTMD, are considered guilty prior to proving their innocence.

Premarketing submission administrative burdens and substantial increases in "user fees" increase product development costs and result in delays to revenues from new or improved devices.  It recently took two and a half years to gain FDA approval of the use of a clearly safer single use Filshie Clip applicator, which had been in use for over seven years OUS, in lieu of a reused applicator approved in the U.S. since 1996, made of substantially equivalent materials for the same intended use applying the same implanted clip.

GPOs, theoretically acting as bargaining agents for member hospitals, but actually collecting revenues from the companies that they are negotiating with, have made a concerted effort to turn medical devices that convey special patient safety advantages and better health outcomes, like UTMD's, into undifferentiated commodities. GPOs have been granted an antitrust exemption by the U.S. Congress. Otherwise, their business model based on "kickbacks" would be a violation of law.  These bureaucratic entities do not recognize or understand the overall cost of care as it relates to safety and effectiveness of devices, and they create a substantial administrative burden that is primarily related to collection of their administrative fees.

As the level of complexity and uncertainty in the medical device industry increases, evidenced, for example, by the unpredictable regulatory environment, the Company's views of the future and product/ market strategy may not yield financial results consistent with the past.

An aging population is placing greater burdens on healthcare systems, particularly hospitals. The length of time and number of administrative steps required in adopting new products for use in hospitals has grown substantially in recent years.  Smaller companies like UTMD typically do not have the administrative resources to deal with broad new administrative requirements, resulting in either loss of revenue or increased costs.  As UTMD introduces new products it believes are safer and more effective, it may find itself excluded from certain clinical users because of the existence of long term supply agreements for preexisting products, particularly from competitors which offer hospitals a broader range of products and services.  Restrictions used by hospital administrators to limit clinician involvement in device purchasing decisions makes communicating UTMD's clinical advantages much more difficult.

UTMD's devices are frequently used in inherently risky situations to help physicians achieve a more positive outcome than what might otherwise be the case.  In any lawsuit where an individual plaintiff suffers permanent physical injury, the possibility of a large award for damages exists whether or not a causal relationship exists.

UTMD's distributors have varying expertise in marketing and selling specialty medical devices.  They also sell other devices that may result in less focus on the Company's products.  In some countries, notably China, Pakistan and India not subject to similarly rigorous standards, by copying, a distributor of UTMD's products may eventually become a competitor with a cheaper but lower quality version of UTMD's devices.

In a small company with limited resources, the distraction or loss of key personnel at any point in time may be disruptive to performance.  The Company's benefits programs are key to recruiting and retaining talented employees.  An increase in UTMD's employee healthcare plan costs, for example, may cause the Company to have to reduce coverages which in turn represents a risk to retaining key employees.

Since a significant portion of UTMD's sales are invoiced in foreign currencies and consolidated financial results are reported in USD terms, a stronger USD can have negative revenue effects. Conversely, a weaker USD would increase foreign subsidiary operating costs in USD terms. For the portion of sales to foreign entities made in fixed USD terms, a stronger USD makes the devices more expensive and weakens demand.  For the portion invoiced in a foreign currency, not only USD-denominated sales are reduced, but also gross profits may be reduced because finished distributed products and/or U.S. made raw materials and components are likely being purchased in fixed USD.

Pursuant to the requirements of the Securities Exchanges Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.