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, including the timing of revenue recognition.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 SeptemberJune 30, 2017:2018:

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 thirdsecond calendar quarter (3Q)(2Q) and first nine months (9M)half (1H) of 2017,2018, UTMD achieved results which confirmreflect that the Company is very likelyremains on target to significantly exceed its previously announcedachieve beginning of year goals for 2017.2018.

Income statement results in 3Q2Q and 9M 20171H 2018 compared to the same periods of 20162017 were as follows:

In contrast to prior calendar quarters, UTMD's relative 3Q performance was enhanced by a weaker USD.  Because 32% of 1H 2018 consolidated sales and 53% of 1H 2018 consolidated operating expenses are in foreign currencies, the initial large impactvolatility of BREXIT on the value of the GBP occurred in late 2Q 2016, the change in relative value of the USD to the GBP in 3Q 2017 compared to 3Q 2016 was minimal.  Revenues in 3Q 2017 would have been $71 lower using the same foreign currency exchange (FX) rates as infor sales and expenses outside the prior year ("constant dollars"), but because of the effect of BREXIT in first half (1H) 2017 comparedU.S. (OUS) continued to 1H 2016, revenues in 9M 2017 would have been $235 higher in constant dollars. UTMD'san impact on period-to-period relative financial results. FX rates for income statement purposes are transaction-weighted averages. The average rates from the applicable foreign currency to USD during 3Q 20172Q 2018 and 9M 20171H 2018 compared to the same periods in 20162017 follow:

UTMD's revenues invoiced in the above foreign currencies represented 27.3%31.3% of total consolidated USD sales in 3Q 20172Q 2018 and 24.9%32.2% in 9M 2017.   UTMD's revenues invoiced in foreign currencies including CAD represented 34.0% of total consolidated USD sales in 3Q 2017, and 32.0% in 9M 2017.   The weighted average FX rate for CAD was 0.800 USD/CAD in 3Q 2017, and 0.764 USD/CAD in 9M 2017.  UTMD did not invoice customers in CAD in 2016.1H 2018.

The weighted average positive FX impact on GBP, EUR, AUD and AUDCAD currency revenues in 3Q 20172Q 2018 compared to 3Q 20162Q 2017 was 2.6%5.4%, increasing reported USD sales by $71.$177.  The weighted average negative FXpositive impact on GBP, EUR, AUD and AUDCAD currency sales in 9M 20171H 2018 compared to 9M 20161H 2017 was 2.9%7.9%, reducingincreasing reported USD sales by $235. Total$518. With the same FX rates as in 2017 (constant currency terms), total consolidated 3Q 2017 constant currency2Q 2018 sales were down 0.4%, and 1H 2018 sales were up 4.1%, and 9M 2017 constant currency sales were up 3.3%, compared to the same periods in 2016.1.2%.

UTMD's consolidated Gross Profit Margin (GPM), Gross Profit (GP) divided by sales, improved to 64.2% in 3Q 2017 compared to 59.8% in 3Q 2016, and 63.8% in 9M 2017 compared to 59.9% in 9M 2016, primarily due towas consistent with the 2017 conversion from distributor sales to direct end-user sales of the Filshie Clip System in France and Canada.prior year's periods. Consolidated Operating Expenses (OE) were $19 lower$69 higher in 3Q 20172Q 2018 compared to 3Q 2016,2Q 2017, and $196 lower$210 higher in 9M 20171H 2018 compared to 9M 2016.  Included1H 2017.  Eighty-three percent of the increase in G&A2Q 2018 OE the UK amortization of Identifiable Intangible Assets (IIA) expense was about the same in 3Q 2017 but $145 lower in 9M 2017 due to the weaker GBPchange in first half 2017 compared to first half 2016, accounting for mostFX rates.  Seventy-eight percent of the 9M lower OE.increase in 1H 2018 OE was due to the change in FX rates.  The combination of lower3.6% higher revenues, the same GPM but higher OE and higher GPM spurredresulted in a 15%2.7% increase in 9M 20171H 2018 Operating Income (OI) with just a 3% increase in revenues.. The 17%13.4% higher UTMD Net Income (NI) in 9M 20171H 2018 was primarily a result of the 15% higher OI plus 1) non-operating income from the sale of a reductionno longer needed storage facility in the corporate income tax rate in the UK starting in 2Q 2017,Utah, and 2) a lower U.S. income tax provision in the UK and Ireland based on translation of USD cash balances in those sovereignties when converted to their respective native currencies.

Earnings Per Diluted Share (EPS) in 9M 20171H 2018 were up 18% as a result ofonly 12.8% compared to the 17%13.4% higher NI, together with the benefitbecause of 50,000 shares repurchased in 4Q 2016.  employee option exercises and a higher dilution calculation resulting from a higher share market price.

EPS for the most recent twelve months (TTM) were $3.68.$2.53 per U.S. GAAP.  This includes the 4Q 2017 recognition of a $6,288 one-time U.S. and Utah repatriation tax (REPAT) on foreign subsidiary cash and cumulative earnings (E&P) resulting from the "Tax Cuts and Jobs Act" enacted in December 2017.  Excluding the REPAT tax, TTM EPS were $4.15.

In summary, comparing the profit margins in 2018 time periods with 2017 periods, GPM were about the same, OIM were squeezed by higher FX rates on foreign OE, the EBTM benefited from the gain from one-time sale of unneeded assets, and 9M 2016 follow:the NIM  benefited from the higher EBTM combined with lower U.S. income tax rates.

UTMD's Balance Sheet continued to strengthen. SeptemberJune 30, 20172018 ending Cash and Investments were up $11.2$5.9 million and Stockholders' Equity was up $12.0$5.2 million 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 currenciescurrency to USD for assets and liabilities at the end of September 2017June 2018 and the end of September 2016December 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.

Total 3Q 20172Q 2018 consolidated sales were $471 (4.9%$136 (1.3%) higher than in 3Q 2016,2Q 2017, and in 9M 20171H 2018 were $768 (2.5%$764 (3.6%) higher than in 9M 2016.1H 2017.  Comparing 3Q2Q 2018 to 2Q 2017, to 3Q 2016, total U.S. domestic sales were about the same4% higher and USD sales outside the U.S. (OUS sales) were 10% higher.1% lower. Comparing 9M1H 2018 to 1H 2017, to 9M 2016, total U.S. domestic sales were 3%2% higher and OUS sales were 2%5% higher.

U.S. domestic sales, including direct sales to U.S. clinical facilities, OEM sales of components and finished devices to other companies, and sales of the Filshie Clip System to UTMD's exclusive U.S. distributor, CSI, were 0% ($8)overall 4% (+$186) and 2% (+$221) higher in 3Q2Q 2018 and 1H 2018, respectively, compared to 2Q 2017 than in 3Q 2016, and 3% ($443) higher in 9M 2017 than in 9M 2016.  Domestic1H 2017.  U.S. domestic sales are obviously not affected by FX rate fluctuations.   U.S. domestic sales were 49%50% of total consolidated sales in 3Q2Q 2018 compared to 49% in 2Q 2017, and 51% in 3Q 2016, and 49% in both 9M 2017 and 9M 2016.1H 2018 compared to 50% in 1H 2017. Sales of Femcare's Filshie Clip System to CooperSurgical Inc. (CSI) for distribution in the U.S. were $264$14 higher in 3Q 20172Q 2018 compared to 3Q 2016,2Q 2017, and $594 higher$38 lower in 9M 20171H 2018 compared to 9M 2016.  CSI purchases included, for the first time, $159 in 3Q 2017 and $244 in 9M 2017 of Filshie Sterishot kits which incorporate single use applicators approved by the FDA in December 2016.1H 2017.  Femcare's sales to CSI were 13%22% of total domestic sales in 3Q 20172Q 2018 compared to 8%23% in 3Q 2016,2Q 2017, and 20%22% in 9M 20171H 2018 compared to 16%23% in 9M 2016.1H 2017. Domestic OEM sales were $3226% (+$193) higher in 3Q 20172Q 2018 compared to 3Q 2016,2Q 2017, and $9521% (+$324) higher in 9M 20171H 2018 compared to 9M 2016.1H 2017. Direct sales to U.S. user facilities were $2871% ($22) lower in 3Q 20172Q 2018 compared to 3Q 2016,2Q 2017, and $246also 1% ($64) lower in 9M 20171H 2018 compared to 9M 2016. All of the1H 2017.

The 1% lower domestic direct2Q 2018 OUS sales werewas due to a weaker third quartervariation in order pattern from U.S. hospitals in all product categories, partly due to one less shipping day, partly from the effects of hurricanes in the U.S., partly resulting from an end of 3Q 2017 delivery glitch by UTMD's sterilizer, and partly relatedChina distributor of BPM kits.  Shipments to a larger volume of late orders that didn't ship until the beginning of October (resultingChina distributor were $337 lower in a larger than normal 4Q 2017 beginning backlog).

Trade sales are sales to third parties, excluding sales from one UTMD entity to another (intercompany sales).  UKIreland subsidiary USD-denominated OUS trade sales including direct sales to France clinical facilities, were 25%22% of total OUS sales in 3Q 20172Q 2018 compared to 24% in 3Q 2016, and 24% in both 9M 2017 and 9M 2016. Australia subsidiary USD sales were 11%26% of total OUS sales in both 3Q 2017 and 9M 2017 compared to 12% in 3Q 2016 and 11% in 9M 2016.2Q 2017.  Ireland subsidiary USD trade sales were 26%22% of total OUS sales in 3Q 20171H 2018 compared to 37% in 3Q 2016, and 25% in 9M 2017 compared to 36% in 9M 2016. Canada subsidiary USD sales were 13% of total OUS sales in 3Q 2017 and 14% in 9M 2017 compared to 0% in 2016.

Trade sales by UTMD's UK subsidiary, Femcare-Nikomed Ltd. (Femcare UK), were 27% of OUS sales in both 2Q and France distributors1H 2018 compared to 24% of OUS sales in 2016 (trade sales) to selling to other UTMD subsidiaries (Utah Medical Products Canada, Incboth 2Q and Femcare Ltd) for direct distribution into Canada and France (intercompany sales) in1H 2017.  Included in the Femcare UK sales were the direct sales to end users in France which comprised 7%8% of OUS sales in 3Q 20172Q 2018 and 6%9% of OUS sales in 9M1H 2018.

Sales by UTMD's Canada subsidiary direct to Canada end user facilities were 13% of OUS sales in both 2Q 2018 and 1H 2018 compared to 15% of OUS sales in both 2Q 2017 and 1H 2017.  Canada Filshie Clip System sales were also weak, down 14% in 2Q 2018 and 9% in 1H 2018, compared to the same periods in 2017.

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

Looking forward, CSI current forecasts indicate $424 lower 2H 2018 purchases than in 2H 2017, and UTMD's China distributor for BPM devices, which placed an annual fixed order, has no shipments scheduled in 4Q 2016; 4)2018, resulting in 2H 2018 sales another $402 lower than in 2H 2017.  Trump administration trade policies may have negative consequences as direct exports from Utah represent about 14% of total sales, which could be lost if receiving countries increase tariffs on U.S. goods.  Further, possible increased tariffs in Ireland, the UK, Australia and Canada on components and finished devices manufactured in Utah and sold on an intercompany basis could substantially increase subsidiary costs and reduce OUS sales made by UTMD's subsidiaries. While the USD was weaker in 1H 2018 than in 1H 2017, which benefited 1H 2018 sales in USD terms on a continued weaker USDcomparative basis, it presently is expected tostronger than the average foreign FX rates in 2H 2017, which, if it persists, would have a favorable impactnegative effect on foreign currency consolidated sales; and 5) Bayer has announced that the Essure, the Filshie Clip System's chief competing surgical permanent contraception device, will no longer be sold OUS.2H 2018 USD sales on a comparative basis.

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 of 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 consolidated GPGPM remained consistent in 3Q 2017 was $7212Q 2018 despite noticeable increases in variable manufacturing costs – direct labor and materials. Just the expectation of tariffs on metals, for example, caused aluminum and stainless steel component vendors to substantially increase prices for parts used in UTMD's electrosurgical generators and specialty electrodes.  The higher variable costs were offset by better absorption of overheads and improved productivity.  Higher variable costs in combination with projected lower sales in 2H 2018, leading to lower absorption of manufacturing overheads, leads management to expect GPMs in 2H 2018 will be lower than in 3Q 2016, while sales were only $471 higher. UTMD's 9M 2017 GP was $1,675 higher than in 9M 2016, while sales were only $768 higher. The higher GPMs in 2017 resulted essentially from direct sales in Canada and France at retail prices which replaced distributor sales at wholesale prices in the prior year.2H 2017.

OI is GP minus OE.  Due to higher GP and lower OE OI in 3Q and 9M 2017 was $4,679 and $14,438 respectively, compared to $3,939 and $12,566 in 3Q and 9M 2016 respectively. UTMD's 3Q and 9M 2017 continued excellent OIM was 46.2% and 46.3% respectively, compared to 40.8% and 41.3% in the same periods of 2016.

OI for 9Min 2Q 2018 and 1H 2018 was $5,056 and $10,027 respectively, compared to $5,034 and $9,758 in 2Q 2017 and 1H 2017 respectively. Because of consistent GPMs and continuing tightly controlled OE, UTMD's 2Q and 1H 2018 excellent but slightly FX rate diluted OIM was 46.1% and 45.9% respectively, compared to 46.5% and 46.3% in the same periods of 2017.

Consolidated S&M expenses in 3Q 20172Q 2018 were $364 (3.6%$430 (3.9% of sales) compared to $408 (4.2%$409 (3.8% of sales) in 3Q 2016,2Q 2017, and were $1,154 (3.7%$839 (3.8% of sales) in 9M 20171H 2018 compared to $1,270 (4.2%$790 (3.8% of sales) in 9M 2016.  Consolidated S&M expenses declined despite an increase in S&M expenses for the new Canada subsidiary of $17 in 3Q 2017 and $48 in 9M1H 2017.  The lower overall S&M expenses resulted from not replacing a few sales employees as quickly as planned, and increased operating efficiencies in customer service and marketing.  In 2017, UTMD was able to begin marketing directly to medical facility end users in France without expanding preexisting UK S&M personnel.

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 employed 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 2Q 2018 were $103 (1.0% of sales) in 3Q 2017$117 compared to $135 (1.4% of revenues)$119 in 3Q 2016. In 9M2Q 2017 R&D expenses were $341 (1.1% of revenues)sales in both periods), and were $230 in 1H 2018 compared to $364 (1.2%$238 in 1H 2017 (1.1% of revenues)sales in 9M 2016. Variations in R&D expenses result from costs of projects, including engineering time, in different stages of completion.  At UTMD, R&D engineers also devote much of their time to manufacturing process improvements.both periods).

Consolidated G&A expenses were $1,350 (13.3%$1,382 (12.6% of sales) in 3Q 20172Q 2018 compared to $1,293 (13.4%$1,330 (12.3% of sales) in 3Q 2016,2Q 2017, and were $3,993 (12.8%$2,810 (12.9% of sales) in 9M 20171H 2018 compared to $4,050 (13.3%$2,643 (12.5% of sales) in 9M 2016. A weaker GBP in the first half of the year helped lower 9M 2017 amortization of IIA resulting from the Femcare acquisition, which are part of G&A expenses, by $145. To be more clear, consolidated1H 2017. Consolidated G&A expenses included non-cash expense from the amortization of IIA resulting from the Femcare acquisition of $522 (5.2% of consolidated revenues) in 3Q 2017 and $1,526$542 (4.9% of consolidated revenues) in 9M 2017, compared to $524 (5.4%2Q 2018 and $1,097 (5.0% of consolidated revenues) in 3Q 2016 and $1,671 (5.5%1H 2018, compared to $510 (4.7% of consolidated revenues) in 9M 2016.2Q 2017 and $1,004 (4.8% of consolidated revenues) in 1H 2017. The period to period differences in USD-denominated IIA amortization expense increases were almost all FX-relatedonly due to FX rate changes, since the IIA amortization expense was £1,196£399 in 9Mboth 2Q 2018 and 2Q 2017, compared to £1,201and £798 in 9M 2016.  G&A expenses excluding the noncash IIA amortization expense were $828 (8.2% of revenues) in 3Q 2017 compared to $770 (8.0% of revenues) in 3Q 2016.  The increase in 3Q 2017 was due to $44 in G&A expense for the new Canada subsidiaryboth 1H 2018 and a stronger EUR which increased Ireland G&A expenses in USD terms.  G&A expenses excluding the noncash IIA amortization expense were $2,467 (7.9% of revenues) in 9M 2017 compared to $2,379 (7.8% of revenues) in 9M 2016.  Again, the increase was due to G&A expenses for the new Canada subsidiary, which added $142 to consolidated G&A expenses in 9M1H 2017.

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 $30$11 in 3Q 20172Q 2018 compared to $20$33 in 3Q 2016,2Q 2017, and $99$42 in 9M 20171H 2018 compared to $62$69 in 9M 2016.1H 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 3Q 20172Q 2018 was $17$501 compared to $41$23 NOI in 3Q 2016.2Q 2017. Net NOI in 9M 20171H 2018 was $65$538 compared to $206$49 NOI in 9M 2016.  A1H 2017. Included in the 2Q 2018 NOI was a one-time $418 gain on the sale of a storage facility in Utah that is no longer needed, and a $32 gain on the sale of other investments.  The gain on remeasured foreign currency balances in 3Q 20172Q 2018 was $4$10 compared to a loss/gain of $18$0 in 3Q 2016.2Q 2017.  In 9M 2017, a1H 2018, the gain on remeasured foreign currency balances was $5$8 compared to a gain of $129$1 in 9M 2016.1H 2017.  Royalties received were $23$19 in 3Q 20172Q 2018 compared to $22$19 in 3Q 2016,2Q 2017, and $65$41 in 9M 20171H 2018 compared to $67$42 in 9M 2016.1H 2017.

Consolidated EBT results from subtracting net NOE or adding NOI from or to, as applicable, consolidated OI.  Consolidated 3Q 20172Q 2018 EBT was $4,696 (46.4%$5,556 (50.7% of sales) compared to $3,980 (41.2%$5,057 (46.7% of sales) in 3Q 2016.2Q 2017. Consolidated 9M 20171H 2018 EBT was $14,503 (46.5%$10,565 (48.3% of sales) compared to $12,772 (42.0%$9,807 (46.5% of sales) in 9M 2016.1H 2017.   Although not directly related to sales, 2018 EBTMs were enhanced by the one-time NOI gain from sale of assets.

The EBT of Utah Medical Products, Inc. (U.S. only)) was $2,331$2,885 in 3Q 20172Q 2018 compared to $2,347$2,233 in 3Q 2016,2Q 2017, and $6,815$5,136 in 9M 20171H 2018 compared to $6,750$4,484 in 9M 2016.1H 2017. The EBT of Utah Medical Products, Ltd (Ireland) was EUR 717943 in 3Q 20172Q 2018 compared to EUR 855875 in 3Q 2016,2Q 2017, and EUR 2,2291,740 in 9M 20171H 2018 compared to EUR 2,4551,512 in 9M 20161H 2017 . The lower 2017 EBT in Ireland was due to Ireland selling its manufactured Filshie Sterishot kits on a discounted intercompany basis to UTMD Canada and UTMD UK for distribution directly into France, instead of selling on a wholesale trade basis to external distributors distributing Filshie devices in Canada and France.  The trade-off to lower Ireland EBT was higher UK subsidiary trade revenues and profits, and new revenues and profits by UTMD Canada. The EBT of Femcare Group Ltd (Femcare-Nikomed, Ltd., UK and Femcare Australia) was GBP 8351,117 in 3Q 20172Q 2018 compared to GBP 5661,146 in 3Q 2016,2Q 2017, and GBP 3,1412,180 in 9M 20171H 2018 compared to GBP 2,3742,306 in 9M 2016.1H 2017.  The 3Q 2017 and 9M 20172Q 2018 EBT of Utah Medical Products Canada, Inc. was CAD 435446 compared to CAD 567 in 2Q 2017, and CAD 1,497, respectively,917 in 1H 2018 compared to zeroCAD 1,062 in 2016.1H 2017.

Excluding the noncash effects of depreciation, amortization of intangible assets and stock option expense, 3Q 20172Q 2018 consolidated EBT excluding the remeasured bank balance currency gain or loss and interest expense (adjusted consolidated EBITDA) were $5,417 (53.5%$6,312 (57.6% of sales) compared to $4,670 (48.4%$5,779 (53.4% of sales) in 3Q 2016.2Q 2017. Adjusted consolidated EBITDA in 9M 20171H 2018 were $16,653 (53.4%$12,122 (55.5% of sales) compared to $14,871 (48.8%$11,236 (53.3% of sales) in 9M 2016. Based on this 9M performance, management now projects approximately $21.5 million1H 2017.  The increases in adjusted consolidated EBITDA forwere largely due to the 2017 year.one-time 2Q 2018 asset sales. TTM adjusted consolidated EBITDA were $21,000.$22,864.

NI is EBT minus a provision for income taxes.  In addition to the increase in EBT, NI in 3Q 20172018 was further leveraged by lower tax provisions in the U.S. (both federal and state). NI in 2Q 2018 of $3,622 (35.8% of sales)$4,308 was $686$438 (+23.4%11.3%) higher than the NI of $2,935 (30.4% of sales)$3,870 in 3Q 2016.  In addition to the 18.0% growth in EBT, NI in 3Q 2017 was further leveraged by a lower accrued income tax provision.2Q 2017.  The consolidated income tax provision rate in 3Q 20172Q 2018 was 22.9%22.5% compared to 26.3%23.5% for 3Q 2016.2Q 2017.  NI in 9M 20171H 2018 of $11,027 (35.3% of sales)$8,400 was $1,616$995 (+17.2%13.4%) higher than the NI of $9,411 (30.9% of sales)$7,405 in 9M 2016.1H 2017. The consolidated income tax provision rates were 24.0%20.5% in 9M 20171H 2018 and 26.3%24.5% in 9M 2016.  On April 1, 2017, the corporate1H 2017.  The combined U.S. federal and Utah state income tax raterates were 25.95% in the UK was lowered from 20%1H 2018 compared to 19%.39% in 1H 2017.  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. AsIn 1H 2017, UTMD held about $19$16 million in cash in USD currency in Ireland and UK subsidiary bank accounts, as of September 30, 2017, and the USD weakened relative to the applicable native currency, the resulting in a translation loss for each subsidiary that created a significant 2017 tax credit for those subsidiaries. In summary, although there wassubsidiaries in their applicable native currencies. This did not a corresponding translation loss for consolidated UTMD EBT results,recur in 1H 2018, which are obviously expressedoffset the benefit of the reduction in USD, there was an incomethe U.S. tax provision benefit.rates.

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 3Q 20172Q 2018 were $0.969$1.148 compared to $0.777$1.037 in 3Q 2016.2Q 2017.  In 9M 2017, diluted1H 2018, EPS were $2.953$2.239 compared to $2.493$1.985 in 9M 2016.1H 2017.  With some helphindrance from lowerhigher diluted shares outstanding, 3Q 20172Q 2018 EPS increased 24.7% (19.210.7% (11.1 cents) compared to 3Q 2016,2Q 2017, and 9M 20171H 2018 EPS increased 18.5% (46.012.8% (25.4 cents) compared to 9M 2016.1H 2017. Looking forward, management is now projecting 2018 EPS greater than $4.00.

Diluted shares outstanding used to calculate 3Q 20172Q 2018 EPS were 3,738,1903,753,608 compared to 3,777,5373,731,859 in 3Q 2016.2Q 2017.  The number of shares added as a dilution factor in 3Q 20172Q 2018 was 19,30023,084 compared to 16,83715,686 in 3Q 2016.2Q 2017. Diluted shares outstanding used to calculate 9M 20171H 2018 EPS were 3,734,1023,751,072 compared to 3,775,1663,730,478 in 9M 2016.1H 2017.  The number of shares added as a dilution factor in 9M 20171H 2018 was 17,64723,326 compared to 17,88515,253 in 9M 2016. Although 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 reduced outstanding shares in 9M 2017 compared to 9M 2016.1H 2017.

Outstanding shares at the end of 3Q 20172Q 2018 were 3,719,3283,731,920 which included 9M 20171H 2018 employee and outside director option exercises of 6,40912,927 shares.  The number of shares used for calculating earnings per share was higher than ending shares because of a time-weighted calculation of average outstanding shares plus dilution from unexercised employee and director options.  The total number of outstanding unexercised employee and outside director options at SeptemberJune 30, 20172018 was 57,01941,413 shares at an average exercise price of $45.35/$45.89/ share, including shares awarded but not vested. This compares to 49,39862,324 unexercised option shares outstanding at SeptemberJune 30, 2016,2017 at an average exercise price of $39.55/$46.15/ share. No option shares have been awarded to date in 2017.2018.  Despite the lower number of outstanding option shares, the dilution factor in 2018 was higher primarily because of a higher share market price.

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 in 9M 2017 was 14% compared to 12% in 9M 2016.  Annualized ROE (before stockholder dividends) in 9M 20171H 2018 was 20%21% compared to 18% in 9M 2016.1H 2017.  The higher ROE in 9M 20171H 2018 was due to the increase in NI.  Targeting a high ROE of 20% (before dividends) 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.

Net cash provided by operating activities, including adjustments for depreciation and amortization and other non-cash expenses along with changes in working capital, totaled $12,323$7,747 in 9M 20171H 2018 compared to $11,143$7,743 in 9M 2016.1H 2017.  The most significant differences in the two periods were the $1,616$995 increase in net income, a $831$165 benefit to cash from a smaller increase in 1H 2018 trade accounts receivable compared to 1H 2017, a $798 benefit to cash from an increase in accrued expenses in 1H 2018 resulting from the REPAT tax following a decrease in 1H 2017, and a $449 use of cash from a larger increasegain on investments and disposal of assets 1H 2018 that did not occur in 9M 2017 trade accounts receivable compared to 9M 2016, and a $575 benefit to cash from an larger increasethe same period in accrued expenses in 9M 2017 compared to 9M 2016.2017.

Capital expenditures for property and equipment (PP&E) were $174$201 in 9M 20171H 2018 compared to $237$114 in 9M 2016. Capital expenditures of approximately $1.5 million for the fit-out of the UK facility will occur in 4Q1H 2017.  Depreciation of PP&E was $489$395 in 9M 20171H 2018 compared to $452$330 in 9M 2016.1H 2017.  The difference in depreciation was due primarily to the new facility in the UK put in service in 4Q 2017.

UTMD made cash dividend payments of $1,969$2,011 in 9M 20171H 2018 compared to $1,954$984 in 9M1H 2017.  The difference was due to the fact that the 2017 year-end dividend was paid in January 2018, whereas the 2016 year-end dividend was paid in December 2016. The Company did not use cash to repurchase any of its own shares during either 9M 20171H 2018 or 9M 2016.1H 2017.

In 9M 2017,1H 2018, UTMD received $224$347 and issued 6,19810,488 shares of its stock upon the exercise of employee and director stock options, net of 2112,439 shares retired upon employees trading those shares in payment of the stock option exercise price. Option exercises in 9M 20171H 2018 were at an average price of $37.39$44.23 per share. In comparison, in 9M 20161H 2017 the Company received $306$168 and issued 10,0624,860 shares of stock on the exercise of employee and director stock options, net of 861 shares retired upon optionees trading those shares in payment of the stock option exercise price.options. Option exercises in 9M 20161H 2017 were at an average price of $33.12$34.67 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.

SeptemberJune 30, 20172018 total consolidated assets were $90,675,$97,045, an increase of $14,091$4,300 from December 31, 2016.2017. The increase was due mainly to a $11,156$5,918 increase in cash and investments. Other significant changes in assets included a $1,519$909 increase in consolidated net trade receivables, a $500 increase in consolidated inventories, and a $496 increase$1,656 decrease in net intangible assets.assets, a $852 decrease in the current USD value of net property and equipment, a $617 decrease in L/T taxes payable due to payment of the first installment of the REPAT tax, and a $275 decrease in the current USD value of the deferred tax liability associated with the amortization of acquired Femcare identifiable intangible assets (IIA). UTMD's Ireland subsidiary EUR-denominated assets and liabilities were translated into USD at an FX rate 11.9% higher (stronger2.9% lower (weaker 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 8.6% higher (stronger2.4% lower (weaker GBP) than the FX rate at the end of 2016.2017.  UTMD's Australia subsidiary AUD-denominated assets were translated into USD at an FX rate 8.4% higher (stronger5.3% lower (weaker AUD) than the FX rate at the end of 2016.2017.  UTMD's Canada subsidiary CAD-denominated assets were translated into USD at an FX rate 4.7% lower (weaker CAD) than the FX rate at the end of 2017.  The net book value of consolidated property, plant and equipment increased $441decreased $852 at SeptemberJune 30, 20172018 from the end of 20162017 due to period-ending changed FX rates, $174$201 in new asset purchases and $489$395 in depreciation.

SeptemberJune 30, 20172018 intangible assets (goodwill plus other intangible assets) increased $496decreased $1,656 from the end of 2016.2017. The increasedecrease was due to the higherlower FX rate (stronger USD) for GBP Femcare intangibles as of SeptemberJune 30, 2017,2018 compared to year-end 2016, offset somewhat by2017, plus the $1,526 9M 2017$1,097 1H 2018 amortization of Femcare IIA.  At SeptemberJune 30, 2017,2018, net intangible assets including goodwill declined to 36%31% of total consolidated assets compared to 41%34% at both year-end 20162017, and September37% at June 30, 2016.

The deferred tax liability balance for Femcare IIA ($9,084 on the date of the acquisition), was $3,176$2,827 at SeptemberJune 30, 2017,2018 compared to $3,209$3,102 at December 31, 2016,2017 and $3,612$3,178 at SeptemberJune 30, 2016.2017. Reduction of the deferred tax liability occurs as the book/tax difference of IIA amortization is eliminated over the remaining useful life of the Femcare IIA. IIA, i.e. as Femcare pays its taxes in the UK without the benefit of a deduction for IIA amortization expense.

UTMD's total debt ratio (total liabilities/ total assets) as of SeptemberJune 30, 2017 and December 31, 20162018 was 10%.14% compared to 16% at the end of 2017. UTMD's total debt ratio as of SeptemberJune 30, 20162017 was 12%only 10% because it did not include a REPAT tax liability enacted in December 2017.  Excluding the REPAT liability for comparison purposes, the June 30, 2018 debt ratio was 8% and the December 31, 2017 debt ratio was 9%.

Generally, the Company continues to effectively execute its plan as outlined above.  Based on results of 9M 2017,1H 2018, management expects to exceed the financial objectives for the full year of 20172018 as stated in the Form SEC 10-K at the beginning of the year.

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 .8465, .9474.8564, .8319 and .8897.8763 EUR per USD as of SeptemberJune 30, 2017,2018, December 31, 20162017 and SeptemberJune 30, 2016,2017, respectively.  Exchange rates were .7463, .8105.7578, .7395 and .7685.7696 GBP per USD as of SeptemberJune 30, 2017,2018, December 31, 20162017 and SeptemberJune 30, 2016,2017, respectively.  Exchange rates were 1.2756, 1.38291.3515, 1.2796 and 1.30441.3028 AUD per USD on SeptemberJune 30, 2017,2018, December 31, 2016,2017 and SeptemberJune 30, 2016,2017, respectively.  Exchange rates were 1.25131.3141, 1.2519, and 1.2982 CAD per USD on SeptemberJune 30, 2017.2018, December 31, 2017 and June 30, 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 SeptemberJune 30, 2017.2018. Based on this evaluation, the Chief Executive Officer and Principal Financial Officer concluded that, as of SeptemberJune 30, 2017,2018, 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 ninesix months ended SeptemberJune 30, 2017,2018, 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 the outcome of which is expected to be material to 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 two years of 2016 and 2017.through 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.

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.