(1)  The unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States.  These statements should be read in conjunction with the financial statements and notes included in the Utah Medical Products, Inc. ("UTMD" or "the Company") annual report on Form 10‑K for the year ended December 31, 2018.  In the opinion of management, the accompanying financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company's financial position and results of operations.  Currency amounts are in thousands except per-share amounts and where noted.

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.  UTMD adopted this new standard on January 1, 2018, using a modified retrospective approach. 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 ASU 2014-09 did not have an impact on UTMD’s financial statements.  In accordance with this adoption disaggregated revenue is presented in Note 6.

(5)  Warranty Reserve.  The Company’s published warranty is: “UTMD warrants its products to conform in all material respects to all published product specifications in effect on the date of shipment, and to be free from defects in material and workmanship for a period of thirty (30) days for supplies, or twenty-four (24) months for equipment, from date of shipment.  During the warranty period UTMD shall, at its option, replace any products shown to UTMD's reasonable satisfaction to be defective at no expense to the Purchaser or refund the purchase price.”

UTMD maintains a warranty reserve to provide for estimated costs which are likely to occur. The amount of this reserve is adjusted, as required, to reflect its actual experience. Based on its analysis of historical warranty claims and its estimate that existing warranty obligations were immaterial, no warranty reserve was made at December 31, 2018 or March 31,June 30, 2019.

(6)  Global 2Q 2019 revenues (USD) by product category:

UTMD has operating leases for a portion of its parking lot at its Midvale facility and an automobile at its Ireland facility.  The remaining lease term on the parking lot is 12 years and on the automobile it is 3 years.30 months.  There are no options to extend or terminate the leases.  UTMD has no other leases yet to commence.  As neither lease contains implicit rates, UTMD’s incremental borrowing rate, based on information available at adoption date, was used to determine the present value of the leases.

(9) Earnings Per Share. Basic earnings per share is calculated by dividing net income attributable to the common stockholders of the company by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is calculated by assuming the exercise of stock options at the closing price of stock at the end of 2^nd quarter 2019.

(10)  Subsequent Events.  UTMD has evaluated subsequent events through the date the financial statements were issued, and concluded there were no other events or transactions during this period that required recognition or disclosure in its financial statements.

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, 2018 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.

Financial results in 1Q2Q 2019 werecontinued to be hampered on the top line by a stronger USD, on the operating income line by the new intangible asset amortization expense from UTMD’s February 2019  Filshie Clip System (Filshie device) U.S. exclusive distribution rights acquisition, and on the bottom line by a higher consolidated income tax provision rate than in 1Q 2018.  Profit marginsNet income was also lower because UTMD had realized $450 in 1Q 2019 compared to 1Qnon-operating income from one-time sales of unneeded assets in 2Q 2018 follow:which did not repeat in 2Q 2019.

Because 30%29% of 1H 2019 consolidated sales and 39% of consolidated operating expenses arewere in foreign currencies, the change involatility of foreign currency exchange (FX) rates for sales and expenses outside the U.S. (OUS) hadcontinued to have an impact on period-to-period relative financial results. FX rates for income statement purposes are transaction-weighted averages. The average FX rates from the applicable foreign currency to USD during 1Q2Q 2019 and 1Q1H 2019 compared to the same periods in 2018 follow:

UTMD’s revenues invoiced in the above foreign currencies represented 28.6% of total consolidated USD sales in 2Q 2019 and 29.2% in 1H 2019. The weighted average negative impact on all foreign currency sales from the change in FX rates was 7.2%,5.6% in 2Q 2019 and 6.1% in 1H 2019, reducing reported USD sales in 2Q 2019 by $237$194 relative to the same foreign currency salesFX rates in 1Q2Q 2018 and by $431 in 1H 2019 relative to the same FX rates in 1H 2018.  In constant currency terms, i.e. using the same FX rates as in 1Qthe applicable periods in 2018, total consolidated 1Q2Q 2019 sales were up $83$1,075 (+1%9.8%), and 1H 2019 total consolidated constant currency sales were up $1,158 (5.3%).

Other significant revenue changes in 1Q2Q and 1H 2019 compared to 1Qthe same periods in 2018 had to do with the change in distribution of the Filshie Clip Systemdevices in the U.S., which is described later in this report,report; a 54%substantial increase in 1H 2019 U.S. OEM sales; a solid increase in direct sales to U.S. domestic medical facilities; and a pause in U.S. neonatal device exports due to regulatory re-registrations by UTMD’sthird party distributors in China, Brazil and China.Mexico.

UTMD’s 1Q 2019 Gross Profit Margin did(GPM) has not benefitbenefited yet from the mid-quarterearly 2019 acquisition of distribution rights of its Filshie Clip System (Filshie)devices in the U.S. from CooperSurgical Inc (CSI), because UTMD  soldof the substantial remaining CSI Filshie inventory which was repurchased by UTMD at CSI’s cost. Although UTMD has picked up the distributor margin on higher U.S. Filshie device sales, which has allowed UTMD’s total consolidated GPM to not be diluted, it had acquired athas not realized any GP contribution from Femcare sales of Filshie devices to the same price CSI had paid Femcare for it.  In other words, GP resulting from CSI’s price minus the cost of manufacturing had been realized in prior periods. About halfU.S. yet.  Another way to explain this is that 71% of the 2018 GP generated by Femcare sales of Filshie devices to the U.S. (to third party distributor CSI) was recorded in 1H 2018, whereas in 1H 2019 Femcare’s GP contribution from sales of Filshie devices to the U.S. (to intercompany distributor UTMD) has been zero.  Profit in inventory from intercompany sales is eliminated when consolidating financial results (i.e. not recognized until the devices are sold to a third party).  UTMD estimates the remaining CSI repurchased inventory will likely last well into 4Q 2019.   The slightly lower consolidated GPM was due primarily to an unfavorable quarter for expenses under UTMD’s Health Care Plan for itsa disproportionate increase in U.S. employees, underOEM sales which UTMD self-insures.  The remaining small reduction in GPM was due to tariffs and higher raw material costs including tariffs promulgated by Trump economic policies. The productivity of UTMD’s direct labor and manufacturing overhead expenses, despite recent cost of living increases, were consistent with the prior year.are at a lower average GPM.

On the other hand, UTMD’s Operating Income Margin (OIM) was substantially reduced by a $7371H $1,842 expense from straight-line amortization of the $21,000 purchase price that UTMD paid CSI to acquire the remaining 4.75 years’ exclusive U.S. Filshie device distribution rights.  The purchase price of CSI’s remaining exclusive distribution rights was recognized as an identifiable intangible asset (IIA).  Because the IIA amortization isbegan on February 1 and expensed on a straight-line basis over 4.75 years, and the expected improved GP expectedGPM from the acquisition will ramp up after the CSI inventory has been consumed management believes thatand as UTMD is able to grow Filshie device sales in the negative comparison of UTMD’s OIM relative to prior periods was at its maximum in 1Q 2019.U.S.  IIA amortization expense in total, including that remaining from the 2011 Femcare Group acquisition, which comprisecomprises a significant portion of General & Administrative (G&A) operating expenses, was 11.7%13.7% of 2Q 2019 consolidated sales and 12.7% of 1H 2019 consolidated sales.  In other words, UTMD’s OIM excluding Femcare-related IIA amortization expense was about 50%51% in 1Qboth 2Q and 1H 2019.

A comparisonOn top of 1Qthe period-to-period differences in OI, additional differences in Income Before Tax (EBT) was consistent withwere due mainly to the OI comparison between 1Q 2019$450 non-operating income (NOI) whichfrom sale of unneeded assets in 2Q 2018 that did not repeat in 2Q 2019.  Net NOI was $36$85 in 2Q 2019 compared to $37 NOI$501 in 1Q2Q 2018, and $120 in 1H 2019 compared to $538 in 1H 2018.

UTMD’s Net Income Margin (NIM) in 1Q2Q and 1H 2019 was substantiallyincrementally lower than in 1Qthe same periods of 2018 not only because of the impact of new IIA amortization expense,EBT differences, but also due to a combined entity income tax provision raterates that were 22.8% in 1Q2Q 2019 that was 24.1% compared to only 18.3%22.5% of EBT in 1Q2Q 2018, and 23.4% in 1H 2019 compared to 20.5% in 1H 2018. The reasons for the higher estimated provision rate were three: 1) a redistributiondifferent mix of subsidiary EBT 2)(with varying tax rates) and a higher U.S. income tax provision rate as a result of the GILTI tax slipped into the U.S. Tax Cuts and Jobs Act (TCJA), enacted in December 2017, and 3) substantial tax deductionswhich was not in 1Q 2018 that did not recurthe estimated provision of UTMD in 1Q 2019 for Ireland and the UK as a result of native currency translation losses in ending USD cash balances. USD translation losses or gains in Ireland and the UK do not affect UTMD’s consolidated income statement except in accrued taxes.1H 2018.

Beginning on January 1, 2018, the Company adopted 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 in 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 revenue upon shipping a physical product to a customer, which 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 physical product is immaterial, management believes the Company’s practices in recognizing that revenue is also in accordance with ASU 2014-09.

Terms of sale are established in advance of UTMD’s acceptance of customer orders.  In the U.S., Ireland, UK and Australia prior to 2017, UTMD generally accepted orders directly from and shipped directly to end user clinical facilities, as well as third party medical/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 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 of Sale to end user facilities are substantially the same in the U.S., Canada, Ireland, UK, France and Australia.

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. Prices 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 that the selling price is fixed prior to the acceptance of a specific customer order.

Total consolidated 1Q2Q 2019 UTMD sales were $154 (1.4%$881 (+8.0%) lowerhigher than in 1Q2Q 2018. Constant currency sales were $83$1,075 (+0.8%9.8%) higher. Total consolidated 1H 2019 UTMD sales were $727 (+3.3%) higher than in 1H 2018.  Constant currency sales in 1H 2019 were $1,158 (+5.3%) higher than in 1H 2018.

In 2Q 2019 compared to 2Q 2018, U.S. domestic sales were 10%28% higher and outside the U.S. (OUS) sales were 12% lower.  Because of the relatively short span of time, results for any given three month period in comparison with a previous three month period may not be indicative of comparative results for the year as a whole.  In 1H 2019 compared to 1H 2018, U.S. domestic sales were 19% higher and outside the U.S. (OUS) sales were 12% lower than in 1H 2018.

Domestic sales in 1Q2Q 2019 were $5,794$6,997 compared to $5,254$5,481 in 1Q2Q 2018.  Domestic sales in 1H 2019 were $12,791 compared to $10,736 in 1H 2018.  The components of domestic sales include 1) “direct sales” of UTMD’s medical devices to user facilities (and med/surg stocking distributors for hospitals), excluding Filshie sales,  2) “OEM sales” of components and other products manufactured by UTMD for other medical device and non-medical device companies, and  3) “Filshie sales”, which in 1Q 2018 were by UTMD’s UK subsidiary, Femcare Ltd (Femcare), to CSI for distribution in the U.S., and in 1Q 2019 were by UTMD direct to U.S. clinical users after February 1.  DirectDomestic direct sales in 2Q 2019 excluding Filshie devices, representing 60%51% of total domestic sales, were $260$256 (+8%) higher in 1Q 2019 than in 1Q2Q 2018.  OEMDomestic direct sales in 1H 2019 excluding Filshie devices, representing 24%55% of total domestic sales, were $484$517 (+54%8%) higher. However, Filshiehigher than in 1H 2018.  OEM sales in 2Q 2019, representing 20% of total domestic sales, were $204 (18%$487 (+52%) lowerhigher than in 1Q2Q 2018. OEM sales in 1H 2019, representing 22% of total domestic sales, were $971 (+53%) higher than in 1H 2018.  Filshie device sales direct to U.S. domestic end-user facilities were $772 (+64%) higher in 2Q 2019 compared to 1QFilshie device sales to CSI in 2Q 2018.  Filshie device sales direct to U.S. domestic end-user facilities were $568 (+24%) higher in 1H 2019 compared to Filshie device sales to CSI in 1H 2018.  Filshie device sales by Femcare to CSI in 1Q1H 2018 represented over 4 months’ worth71% of total 2018 U.S. Filshie sales at a “wholesale” distributor price, whereas Filshie sales by UTMD in 1Q 2019 represented less than six weeks of demand at a “retail” end-user price due to a start-up conversion of customers to UTMD and CSI dumping of inventory in January.  UTMD expects this comparison will flip in the other direction for the remaining three quarters in 2019, with total 2019 domestic Filshie sales more than double 2018 domestic Filshiedevice sales.

OUS sales in 1Q2Q 2019 were $4,938$4,850 compared to $5,633$5,484 in 1Q2Q 2018. OUS sales in 1H 2019 were $9,788 compared to $11,116 in 1H 2018. OUS sales invoiced in GBP, EUR, AUD and CAD currencies were $237$194 lower in 2Q 2019 and $431 lower in 1H 2019 as a result of changes in FX rates.  In other words, 34%31% of the lower 2Q 2019 OUS sales wasand 32% of the lower 1H 2019 OUS sales were due to a stronger USD. The foreign currency OUS sales in 1Q2Q 2019 were $3,206,$3,385, which was 65%70% of all OUS sales and 30%29% of total consolidated sales.  In comparison, foreign currency OUS sales in 2Q 2018 were $3,429, which was 63% of all OUS sales and 31% of total consolidated sales.  The foreign currency OUS sales in 1H 2019 were $6,590, which was 67% of all OUS sales and 29% of total consolidated sales.  Foreign currency OUS sales in 1Q1H 2018 were $3,614,$7,042, which was 64%63% of all OUS sales and 33%32% of total consolidated sales. U.S. export sales in USD of neonatal devices (not affected by FX rates)(invoiced in USD) were $418$408 lower in 1Q2Q 2019 compared to 1Q2Q 2018, and $826 lower in 1H 2019 compared to 1H 2018, as a result of a pause in orders from UTMD’sUTMD distributors in China, Brazil and BrazilMexico, presumably while obtaining regulatory device re-registrations.

Trade sales are sales to third parties, excluding sales from one UTMD entity to another. another (intercompany sales).  USD-denominated OUS trade sales are affected by the change in FX rates. FX rates were down 4-8% relative to the USD, depending on the time period and sovereignty per the table above.

Ireland subsidiary 1Q 2019USD-denominated trade sales were $51 higher than33% of OUS sales in 1Q 2018 despite the almost 8% weaker EUR.2Q 2019 compared to 22% of OUS sales in 2Q 2018.  Ireland EURsubsidiary USD-denominated trade sales were €130 higher. Trade30% of OUS sales in 1H 2019 compared to 22% of OUS sales in 1H 2018.  The higher portion of OUS sales by Ireland was due to the transfer of manufacture for some devices sold to European customers previously manufactured in the U.S., and a strong quarter for international distributor demand, which varies from quarter-to-quarter due to larger purchase quantities.

USD-denominated trade sales by UTMD’s UK subsidiary, Femcare-Nikomed Ltd. (Femcare UK), were 26% of OUS sales in 2Q 19 and 27% in 1H 2019, compared to 27% of OUS sales in both 2Q and 1H 2018.  Included in the Femcare Ltd, were $1,311 lower, while in GBP terms, UK trade sales were £874 lower.  Femcare Ltd trade sales suffered not only because of a 6% weaker GBP, but also because Femcare “traded” the tradedirect sales to its third party U.S. distributor, CSI,end users in 1Q 2018 for intercompanyFrance which comprised 9% of OUS sales (not trade) to its parent U.S. distributor, UTMD, in 1Q2Q 2019 and 10% of OUS sales in 1H 2019.  Trade

USD-denominated sales by UTMD’s Australia subsidiary to AustralianAustralia end user facilities were 9% of OUS sales in 1Qboth 2Q 2019 were $74 lower thanand 1H 2019, compared to 9% of OUS sales in 1Qboth 2Q 2018 as the AUD was more than 9% weaker.  Tradeand 1H 2018.

USD-denominated sales by UTMD’s Canada subsidiary direct to CanadianCanada end user facilities were 12% of OUS sales in 1Qboth 2Q 2019 were $132 lower thanand 1H 2019, compared to 13% of OUS sales in 1Qboth 2Q 2018 both as a result of a 5% weaker CAD and 14% lower native currency sales. Because of the relatively short span of time, sales results for any given three month period in comparison with a previous three month period may not be indicative of comparative results for the year as a whole.1H 2018.

The following table provides USDUSD-denominated sales amounts divided into general product categories for total salesrevenues and the subset of OUS sales:revenues:

GP results from subtracting the costs of manufacturing and shipping products to customers. UTMD’s GP was $149 (2.2%$516 (+7.4%) lowerhigher in 1Q2Q 2019 than in 1Q2Q 2018, and $366 (+2.6%) higher in 1H 2019 than in 1H 2018, roughly consistent with the decreaseincrease in revenues. UTMD did not get a GPM benefitincrease from the mid-quarterFebruary beginning of Filshie device sales direct to U.S. end-users because of selling remaining CSI inventory which it acquired at the same price CSI had previously paid Femcare. In other words, GP resulting from CSI’s price minus the Femcare cost of manufacturing had been realized in prior periods. In other words, UTMD’s GP from U.S. Filshie sales2018, leaving only the distributor margin to-date in 1Q 2019 was limited to the CSI distributor margin. In addition, Femcare Ltd (UK subsidiary) did not make a GP contribution in 1Q 2019 from sales of Filshie devices to CSI which it had made in 1Q 2018.2019. Because UTMD estimates that the remaining CSI inventory may not be depleted until at least 4Q 2019, the end of 3Q 2019, itCompany does not expect a significant improvement in GPM until 4Q 2019. In addition, about half of the half percentage point lower GPMnext year 2020. To date in 1Q 2019, was due to an unfavorable experience in U.S. employee medical costs, for which UTMD self-insures. Otherwise, the Company maintainedhas been able to maintain the productivity of its direct labor and manufacturing overhead costs consistent with the prior 1Q 2018 period.year’s periods.

OI results from subtracting Operating Expenses (OE) from GP. OE, comprised of G&A expenses, S&Msales and marketing (S&M) expenses and product development (R&D) expenses, were $2,671$3,019 in 1Q2Q 2019 (24.9%(25.5% of sales) compared to $1,952$1,928 in 1Q2Q 2018 (17.9%(17.6% of sales). OE were $5,691 in 1H 2019 (25.2% of sales) compared to $3,880 in 1H 2018 (17.8% of sales).

Ignoring the new CSI (USD) IIA amortization expense (from purchasing the CSI distribution agreement) which was not present in 2018, 1Q2Q 2019 OE expenses were $1,935 (18.0%$1,914 (16.2% of sales), and 1H 2019 OE expenses were $3,849 (17.0% of sales).  AIn 2Q 2019 compared to 2Q 2018, a stronger USD in this instance helped OI performance by reducingreduced OUS OE excluding Femcare IIA amortization expense in USD terms by $75, reducing$26.  The £399 Femcare IIA amortization expense in both 2Q 2019 and 2Q 2018 was reduced by $35 and all other$30.  In 1H 2019 compared to 1H 2018, a stronger USD reduced OUS OE excluding Femcare IIA amortization expense in USD terms by $40.$64.  The constant £798 Femcare IIA amortization expense was reduced by $65.

Consolidated G&A expenses were $2,140 (19.9%$2,440 (20.6% of sales) in 1Q2Q 2019 compared to $1,429 (13.1%$1,382 (12.6% of sales) in 1Q2Q 2018. The G&A expenses in 1Q2Q 2019 included $520 (4.8%$512 (4.3% of sales) of non-cash expense from the amortization of IIA resulting from the 2011 Femcare acquisition, which were $555 (5.1%$542 (4.9% of sales) in 1Q2Q 2018.  The lower USD amortization expense was the result of the stronger USD, as the Femcare amortization expense in GBP was £399 in both periods. In addition, 1Q2Q 2019 G&A expenses included a new $737 (6.9%$1,105 (9.3% of sales) IIA amortization expense resulting from the purchase of the CSI remaining U.S. exclusive Filshie devices distribution rights.  Excluding the Filshie-related non-cash IIA amortization expenses, G&A expenses were $883 (8.2%$823 (6.9% of sales) in 1Q2Q 2019 compared to $874 (8.0%$839 (7.7% of sales) in 1Q2Q 2018.  The change in FX rates reduced 1Q2Q 2019 OUS G&A expenses excluding IIA amortization expense by $31. The higher 1Q 2019 constant currency$18.

Consolidated G&A expenses were due$4,580 (20.3% of sales) in 1H 2019 compared to TGA regulatory$2,810 (12.9% of sales) in 1H 2018. The G&A expenses in Australia.  1H 2019 included $1,032 (4.6% of sales) of non-cash expense from the amortization of IIA resulting from the 2011 Femcare acquisition, which were $1,097 (5.0% of sales) in 1H 2018.  The lower USD amortization expense was the result of the stronger USD, as the Femcare amortization expense in GBP was £798 in both periods.

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 $28 in 1Q2Q 2019 compared to $30$11 in 1Q2Q 2018, and $56 in 1H 2019 compared to $42 in 1H 2018.  The change was due to options awarded to employees in December 2018.

The change in FX rates reduced 1Q2Q 2019 OUS S&M expenses by $9.$9, and 1H 2019 OUS S&M expenses by $18. The higher constant currency 1Q 2019 S&M expenses were due to incremental marketing expenses associated with beginning to market Filshie devices directly in the U.S.

R&D expenses in 1Q2Q 2019 were $115 (1.1%$113 (1.0% of sales) compared to $113$117 (1.1% of sales) in 2Q 2018. R&D expenses in 1H 2019 were $228 (1.0% of sales) compared to $230 (1.1% of sales) in 1Q1H 2018. Since almost all R&D is being carried out in the U.S., therethe FX impact was negligible FX impact.negligible.

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 1Q2Q 2019 was $36$85 compared to $37$501 NOI in 1Q2Q 2018.  Net NOI in 1H 2019 was $120 compared to $538 NOI in 1H 2018. 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.

Income before income taxes (EBT)Consolidated EBT results from subtracting net non‑operating expense (NOE) or adding NOI from or to, as applicable, OI.  Consolidated 1Q2Q 2019 EBT was $4,137$4,565 (38.5% of sales) compared to $5,008 (46.0%$5,556 (50.7% of sales) in 1Q2Q 2018.  The $871 (17.4%) lower 1QConsolidated 1H 2019 EBT was $8,702 (38.5% of sales) compared to 1Q$10,565 (48.3% of sales) in 1H 2018.

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 2019 was $85 compared to $501 NOI in 2Q 2018.  In 2Q 2018, UTMD realized $450 NOI from the sale of unneeded assets which did not repeat in 2Q 2019.  Net NOI in 1H 2019 was consistent with the lower OI.$120 compared to $538 NOI in 1H 2018.

The EBT of Utah Medical Products, Inc. in the U.S. was $2,628$5,515 in 1Q1H 2019 compared to $2,252$5,136 in 1Q1H 2018. The EBT of Utah Medical Products, Ltd (Ireland) was EUR 8141,479 in 1Q1H 2019 compared to EUR 7971,740 in 1Q1H 2018. The EBT of Femcare Group Ltd (Femcare Ltd., UK and Femcare Australia Pty Ltd) was GBP 5851,172 in 1Q1H 2019 compared to GBP 1,0632,180 in 1Q1H 2018. The 1Q1H 2019 EBT of Utah Medical Products Canada, Inc. (dba Femcare Canada) was CAD 355732 in 1Q1H 2019 compared to CAD 471917 in 1Q1H 2018.  EBT of subsidiaries varies as a result of intercompany shipments. The lower Femcare Group EBT was primarily the result of nothe lack of any UK shipments of Filshie devices to CSI in 1Q 2019, compared to $1,129 in 1Q 2018 shipments.2019. The lower Femcare Canada EBT was due to lower sales activity.

Excluding the noncash effects of depreciation, amortization of intangible assets and stock option expense, 1Q2Q 2019 consolidated EBT excluding the remeasured bank balance currency gain or loss and interest expense (“adjusted consolidated EBITDA”) were $5,665$6,397 compared to $5,810$6,312 in 1Q2Q 2018.  1H 2019 adjusted consolidated EBITDA were $12,062 compared to $12,122 in 1H 2018 which included a $450 gain from sale of assets which did not recur in 2019.  Management believes that the 1Q1H 2019 performance has set up conditions for a substantial improvement in adjusted consolidated EBITDA in 2H 2019 compared to 2H 2018. 1H 2019 operating performance provides a start that iswas consistent with achieving itsUTMD’s overall financial objectives for the year 2019, as previously provided in its 2018 SEC 10-K Report.

NI is EBT minus a provision for income taxes.  NI in 1Q2Q 2019 of $3,139$3,525 was 23.3%18.2% lower than the NI of $4,092$4,308 in 1Q2Q 2018. UTMD’s NIM, NI divided by consolidated sales, was 29.2%29.8% in 1Q2Q 2019 and 37.6%39.3% in 1Q 2018. The average consolidated income tax provisions (as a % of EBT) in 1Q2Q 2019 and 1Q2Q 2018 were 24.1%22.8% and 18.3%22.5%, respectively.

NI in 1H 2019 of $6,664 was 20.7% lower than the NI of $8,400 in 1H 2018. UTMD’s NIM was 29.5% in 1H 2019 and 38.4% in 1H 2018. The average consolidated income tax provision for 1Qprovisions (as a % of EBT) in 1H 2019 was higher by $241 than it would have beenand 1H 2018 were 23.4% and 20.5%, respectively.

The differences in period-to-period NI were consistent with the 1Q 2018 provisiondifferences in EBT leveraged by a slightly higher estimated consolidated income tax rate. The higher provision resulted from

EPS are consolidated NI divided by the weighted average 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 of $.944 in 1Q2Q 2019 were 23.1%17.8% lower than $1.148 in 1Q 2018, and EPS of $1.783 in IH 2019 were 20.4% lower than $2.239 in 1H 2018, which was consistent with the changechanges in NI becauseattenuated by slightly lower diluted shares used to calculate EPS were only slightly lower.shares.  Diluted shares were 3,738,3733,735,070 in 1Q2Q 2019 compared to 3,747,7803,753,608 in 1Q2Q 2018, and 3,736,872 in 1H 2019 compared to 3,751,072 in 1H 2018.  The lower diluted shares in 1Q 2019 were the combined result of 15,000 shares repurchased in 4Q 2018 plus 5,000 shares repurchased in 2Q 2019, employee option exercises, a new option award in December 2018 and a lower dilution factor for unexercised options due to a lower share price.

Outstanding shares at the end of 1Q2Q 2019 were 3,722,7003,719,100 compared to 3,719,700 at the end of calendar year 2018. The difference was due to employee option exercises of 4,391 during 1Q 2019.1H 2019 offset by 5,000 shares repurchased in the open market. Outstanding shares were 3,727,6003,731,900 at the end of 1Q2Q 2018. The number of shares used for calculating EPS 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 March 31,June 30, 2019 was 57,35055,308 at an average exercise price of $57.90, including shares awarded but not yet vested.  This compares to 61,020 unexercised option shares at the end of 2018 at an average exercise price of $56.78/ share, including shares awarded but not vested.

The number of shares added as a dilution factor in 1Q2Q 2019 was 16,33014,180 compared to 22,84023,080 in 1Q2Q 2018. The number of shares added as a dilution factor in 1H 2019 was 15,400 compared to 23,330 in 1H 2018. In December 2018, 22,400 option shares were awarded to 45 employees at an exercise price of $74.64 per share. No other options were awarded in 2018, and no options were awarded in 1Q1H 2019.

UTMD paid $1,027$1,028 ($0.275/share) in dividends to stockholders in 1Q2Q 2019 compared to $1,005$1,006 ($0.270/ share) paid in 1Q2Q 2018. Dividends paid to stockholders during 1Q2Q 2019 were 33%29% of NI.  UTMD paid $2,055 ($0.275/share) in dividends to stockholders in 1H 2019 compared to $2,011 ($0.270/ share) paid in 1H 2018. Dividends paid to stockholders during 1H 2019 were 31% of NI.

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 1Q1H 2019 was 17% and15% compared to 21% in 1Q 20181H 2018.  The lower ROE in 1H 2019 was 20%.due to the lower NI resulting from the new IIA amortization expense resulting from the $21 million purchase of the remaining life of the exclusive U.S. Filshie device distribution rights from CSI.  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.

Net cash provided by operating activities, including adjustments for depreciation and amortization and other non-cash expenses along with changes in working capital, totaled $3,360$5,043 in 1Q1H 2019 compared to $3,766$7,747 in 1Q1H 2018.  The most significant differences in cash provided during the two periods were the $953 lower$1,736 decrease in net income which was offset by $700 highera $1,774 increase in amortization expense, andno gain from sale of assets compared to a $1,952$418 gain in 1H 2018, a $264 reduction in cash from a higher increase in inventories offset by1H 2019 trade accounts receivable compared to 1H 2018, a $1,726 higher increase$417 reduction in accounts payable. Another differencecash from a decrease in accrued expenses in 1H 2019 resulting primarily from income tax payments, and a $2,278 greater use of cash wasfrom investment in higher inventories, primarily as a $380 higher increase in accounts receivable.  Cash benefitedresult of the purchase of remaining Filshie device inventories from a $505 difference in change of accrued expenses.CSI.

Capital expenditures for property and equipment (PP&E) were $12$130 in 1Q1H 2019 compared to $173$201 in 1Q1H 2018.  Depreciation of PP&E was $179$355 in 1Q1H 2019 compared to $200$395 in 1Q 2018.  Both capital expenditures and depreciation are expected to increase during the balance of 2019 as the Company plans to invest in certain equipment for further developing its in-house Utah processing capabilities.

In 1Q1H 2019, UTMD received $97$170 and issued 2,9914,391 shares of its stock upon the exercise of employee and director stock options. Option exercises in 1Q1H 2019 were at an average price of $32.33$38.83 per share. In comparison, in 1Q1H 2018, the CompanyUTMD received $147$347 and issued 8,62010,488 shares of its stock onupon the exercise of employee and director stock options, net of 2,439 shares retired upon employees trading those shares in payment of the stock option exercise price. Option exercises in 1Q1H 2018 were at an average price of $43.17$44.23 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. As it did in 1Q 2019, theThe 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; 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.

March 31,June 30, 2019 total consolidated assets increased $5,283were $103,361, an increase of $3,593 from December 31, 2018 to $105,051.2018. The increase was essentially due to a $20,197the combination of an $18,063 increase in net intangible assets offset by(net of 1H 2019 amortization) together with a $15,234$2,299 increase in inventories and $1,280 increase in trade accounts receivable, minus an $18,232 decrease in current assets. Significantcash and investments, essentially associated with the purchase of the Filshie device exclusive U.S. distribution rights and inventory from CSI.  Other significant changes in current assets from the end of 2018liabilities included a $953 increase$121 reduction in consolidated net trade receivables, a $2,235 increaseaccounts payable, an $801 decrease in consolidated inventoriesL/T taxes payable and a $18,447$202 decrease in cash.the deferred tax liability associated with the UK amortization of acquired Femcare identifiable intangible assets (IIA) in 2011. UTMD’s Ireland subsidiary EUR-denominated assets and liabilities were translated into USD at an FX rate 2.0%0.6% lower (weaker EUR) than the FX rate at the end of 2018. On the other hand, UTMD’s UK subsidiary GBP-denominated assets were translated into USD at an FX rate 2.1% higher (stronger0.4% lower (weaker GBP) than the FX rate at the end of 2018.  UTMD’s Australia subsidiary AUD-denominated assets were translated into USD at an FX rate 0.8% higher (stronger0.5% lower (weaker AUD) than the FX rate at the end of 2018.  UTMD’s Canada subsidiary CAD-denominated assets were translated into USD at an FX rate 2.1%4.3% higher (stronger CAD) than the FX rate at the end of 2018.  ConsolidatedThe net book value of consolidated property, plant and equipment increased $320$207 at March 31,June 30, 2019 from December 31,the end of 2018 due to the change in endingnet effect of period-ending changed FX rates, $442 added for$130 in new asset purchases minus $355 in depreciation, and the adoption of right of use assets created with the adoption of the new lease standard, $12 in new asset purchases and $179 in depreciation.totaling $433 (which were zero at December 31, 2018).

Working capital (current assets minus current liabilities) was $38,625$42,405 at March 31,June 30, 2019 compared to $55,643 at December 31, 2018. CurrentCash balances were $32,880 of the working capital.  A current asset decline of $14,678 was led by the $18,232 decrease in cash and investments. In addition to the CSI use of cash, current liabilities increased $1,784, with a $1,939 increase in accounts payable (A/P) including a $2,048 payable to CSI for its inventory, which was paid in April.were $1,439 lower than at the end of 2018. UTMD management believes that its working capital remains sufficient to meet normal operating needs, new capital investmentsexpenditures and projected cash dividend payments to stockholders.

The deferred tax liability balance for the Femcare Ltd IIA ($9,084 on the date of the 2011 acquisition), was $2,496$2,339 at March 31,June 30, 2019 compared to $2,541 at December 31, 2018 and $3,111$2,827 at March 31,June 30, 2018. Reduction of the deferred tax liability occurs as the book/tax difference of amortization is eliminated over the remaining useful life of the Femcare Ltd 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 March 31,June 30, 2019 was 12%9% compared to 11% asat the end of December 31, 2018 as a result of the short term A/P due CSI for its Filshie inventory.2018. UTMD’s total debt ratio as of March 31,June 30, 2018 was 15%.14% because it included a REPAT tax liability estimate  from the TCJA enacted in December 2017 that was $3.2 million too high, which was corrected in 3Q 2018.

As outlined in its December 31, 2018 SEC 10-K report, UTMD’s plan for 2019 is to

Although 1QGenerally, the Company continues to effectively execute its plan as outlined above.  Based on results of 1H 2019, financial results were negative when comparedmanagement expects to 1Q 2018, management believes that it is on track to accomplish its previously statedsubstantially achieve the financial objectives for the full year of 2019.2019 as stated in the Form SEC 10-K at the beginning of the year.