UNITED STATES
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                       SECURITIES AND EXCHANGE COMMISSION
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                             Washington, D.C.  20549

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                                    FORM 10-Q
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                  Quarterly Report Under Section 13 or 15(d) of
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                       The Securities Exchange Act of 1934



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For quarter ended: September  30, 1999March 31, 2000                    Commission File No. 1-12575
                                                                       --------0-11178
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                           UTAH MEDICAL PRODUCTS, INC.
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             (Exact name of Registrant as specified in its charter)


           UTAH                                                 87-0342734
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(State  or  other  jurisdiction  of                         (I.R.S.  Employer
 incorporation  or  organization)                          Identification  No.)


                               7043 South 300 West
                              Midvale, Utah  84047
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                     Address of principal executive offices


Registrant's  telephone  number:     (801)  566-1200
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     Indicate  by  check  mark  whether the registrant (1) has filed all reports
required  to  be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934  during  the  preceding  12  months  (or  for  such shorter period that the
registrant  was required to file such reports) and; (2) has been subject to such
filing  requirements  for  the  past  90  days.      Yes  X     No
                                                          -

  The  number  of  shares outstanding of the registrant's common stock as of November  11,  1999:  6,453,000May
10,  2000:  6,390,011
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                           UTAH MEDICAL PRODUCTS, INC.
                           ---------------------------

                               INDEX TO FORM 10-Q
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PART  I  -  FINANCIAL  INFORMATION                                        PAGE
                                                                          ----

  Item  1.  Financial  Statements

     Consolidated  Condensed  Balance  Sheets  as  of
     September  30,  1999March  31,  2000  and  December  31,  19981999                             1

     Consolidated  Condensed  Statements  of  Income  for  the
     three  and  nine  months  ended  September  30,March  31,  2000  and  March  31,  1999 and
     September 30, 1998          2

     Consolidated  Condensed  Statements  of  Cash  Flows  for  the
     ninethree  months  ended  September 30,March  31,  2000  and  March  31,  1999 and September 30, 1998          3

     Notes  to  Consolidated  Condensed  Financial  Statements              4


  Item  2.  Management's  Discussion  and  Analysis  of
             Financial  Condition  and  Results  of  Operations             6

PART  II  -  OTHER  INFORMATION

  Item  6.  Exhibits  and  Reports  on  Form  8-K                           119


SIGNATURES                                                                  119



                        PART I  -  FINANCIAL INFORMATION

ITEM  1.  FINANCIAL  STATEMENTS


                  UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES
                  --------------------------------------------
                   CONSOLIDATED CONDENSED BALANCE SHEETS AS OF
                   -------------------------------------------
                      SEPTEMBER 30, 1999MARCH 31, 2000 AND DECEMBER 31, 1998
                    ----------------------------------------1999
                      ------------------------------------
                           (in thousands - unaudited)
MARCH 31, 2000 DECEMBER 31, 1999 - ---------------------------------------------------- ---------------- ------------------- ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . SEPTEMBER 30, 1999 DECEMBER 31, 1998ASSETS - --------------------------------------------------------- -------------------- ----------------------------------------------------------------------- CURRENT ASSETS: Cash. . .Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 569976 $ 1,367647 Accounts receivable - netnet. . . . . . . . . . . . . . . . . 4,441 4,531 Inventories3,824 4,077 Inventories. . . . . . . . . . . . . . . . . . . . . . . . 3,344 4,0483,566 3,190 Other current assets.assets . . . . . . . . . . . . . . . . . . 641 597 ------- -------705 624 ------------------- Total current assets.assets . . . . . . . . . . . . . . . . . . 8,995 10,5439,071 8,538 PROPERTY AND EQUIPMENT - NET . . . . . . . . . . . . 10,550 11,013 INTANGIBLE ASSETS - NET. . . . . . . . . . . . . . . 11,494 12,489 INTANGIBLE ASSETS - NET . . . . . . . . . . . . . . . . . 8,418 8,936 --------------------8,087 8,205 ---------------- ------------------- TOTAL . . .TOTAL. . . . . . . . . . . . . . . . . . . . . . . . $ 28,90727,708 $ 31,968 ====================27,756 ================ =================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES: Accounts payable.payable . . . . . . . . . . . . . . . . . . $ 674 $ 544 Accrued expenses . . . . . . . . . . . . . . . . . . 2,165 2,117 Total current liabilities. . . . . . . . . . . . . . 2,839 2,661 NOTES PAYABLE. . . . . . . . . . . . . . . . . . . . 4,841 5,934 DEFERRED INCOME TAXES. . $ 560 $ 525 Accrued expenses.. . . . . . . . . . . . . . 354 372 ---------------- ------------------- Total liabilities. . . . . . . . . . . . . . . . . . . . . 1,810 1,886 Deferred revenue. . . . . . . . . . . . . . . . . . . . . 0 2 -------------------- ------------------- Total current liabilities . . . . . . . . . . . . . . . . 2,370 2,413 NOTES PAYABLE . . . . . . . . . . . . . . . . . . . . . . 8,538 3,098 DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . 356 440 -------------------- ------------------- Total liabilities . . . . . . . . . . . . . . . . . . . . 11,264 5,951 --------------------8,034 8,967 ---------------- ------------------- STOCKHOLDERS' EQUITY: Preferred stock - $.01 par value; authorized - 5,000 shares; no shares issued or outstanding Common stock - $.01 par value; authorized - 50,000 shares; issued - September 30, 1999, 6,453March 31, 2000, 6,442 shares December 31, 1998, 8,046 shares1999, 6,453 shares. . . . . . . . . . . . . 65 8064 64 Cumulative foreign currency translation adjustment.adjustment . . . (973) (509)(1,513) (1,250) Retained earningsearnings. . . . . . . . . . . . . . . . . . . . . 18,551 26,44621,123 19,975 Total stockholders' equity.equity . . . . . . . . . . . . . . . 17,643 26,017 --------------------19,674 18,789 ---------------- ------------------- TOTAL . . .TOTAL. . . . . . . . . . . . . . . . . . . . . . . . $ 28,90727,708 $ 31,968 ====================27,756 ================ ===================
see notes to consolidated condensed financial statements -1- UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES -------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONSINCOME FOR THE ---------------------------------------------------------------------------------------------------------- THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2000 AND MARCH 31, 1999 AND SEPTEMBER 30, 1998 ------------------------------------------------------------------------------------------------------------------------- (in thousands, - unaudited)except per share amounts) (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- -------------MARCH 31, --------- 2000 1999 1998 1999 1998 ------ ------ ------- ------- NET SALES.SALES . . . . . . . . . . . . . $6,666 $7,018 COST OF SALES . . . . . . . . . . . 2,995 3,331 ------ ------ GROSS MARGIN. . . . . . . . . . . . 3,671 3,687 ------ ------ EXPENSES: Selling, general and administrative 1,644 1,712 Research & development. . . . . . . 149 222 ------ ------ Total . . . . . . . . . . . . . . . 1,793 1,934 ------ ------ INCOME FROM OPERATIONS. . . . . . . 1,878 1,753 OTHER INCOME. . . . . . . . . $7,568 $7,150 $21,905 $20,311 COST OF SALES.. . . 38 115 ------ ------ INCOME BEFORE INCOME TAX EXPENSE. . 1,916 1,868 INCOME TAX EXPENSE. . . . . . . . . 690 668 ------ ------ NET INCOME. . . . . . . . . . . . . . . . . . . . . . 3,464 3,430 10,244 9,983 ------ ------ ------- ------- GROSS MARGIN . . . . . . . . . . . . . . . . . . . . . . 4,104 3,720 11,661 10,328 ------ ------ ------- ------- EXPENSES: Selling, general and administrative. . . . . . . . . . . 1,658 1,707 5,092 4,918 Research & development . . . . . . . . . . . . . . . . . 194 231 556 697 ------ ------ ------- ------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . 1,852 1,938 5,648 5,615 ------ ------ ------- ------- INCOME FROM OPERATIONS . . . . . . . . . . . . . . . . . 2,252 1,782 6,013 4,713 OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . 71 209 293 836 ------ ------ ------- ------- INCOME BEFORE INCOME TAX EXPENSE . . . . . . . . . . . . 2,323 1,991 6,305 5,549 INCOME TAX EXPENSE . . . . . . . . . . . . . . . . . . . 836 701 2,270 1,973 ------ ------ ------- ------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $1,486 $1,290 $ 4,035 $ 3,576$1,226 $1,200 ====== ====== ======= ======= BASIC EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE . . . . . . . . . . .$ 0.19 $ 0.15 ====== ====== EARNINGS PER COMMON SHARE ASSUMING FULL DILUTION. . . . . . $ 0.220.19 $ 0.16 $ 0.54 $ 0.430.15 ====== ====== ======= ======= DILUTED EARNINGS PER SHARESHARES OUTSTANDING - BASIC. . . . . 6,447 7,939 ====== ====== SHARES OUTSTANDING - DILUTED. . . . . . . . . . . . $ 0.22 $ 0.16 $ 0.54 $ 0.43 ======6,469 7,939 ====== ======= ======= SHARES OUTSTANDING - BASIC . . . . . . . . . . . . . . . 6,727 8,297 7,435 8,305 ====== ====== ======= ======= SHARES OUTSTANDING - DILUTED . . . . . . . . . . . . . . 6,774 8,317 7,448 8,320 ====== ====== ======= =============
see notes to consolidated condensed financial statements -2- UTAH MEDICAL PRODUCTS, INC. AND SUBSIDIARIES -------------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ----------------------------------------------- FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2000 AND MARCH 31, 1999 AND SEPTEMBER 30, 1998 ------------------------------------------------------------------------------------------------------------------------------- (in thousands - unaudited)
SEPTEMBER 30, -------------MARCH 31, --------- 2000 1999 1998 ----------------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,0351,226 $ 3,576 ---------1,200 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . 1,615 1,518 571 526 (Recovery of)/Provision for (recovery of) losses on accounts receivable (20) 264 (3) (Gain)/Loss on disposal of assets . . . . . . . . . . . . (1) 4391 Deferred income taxes . . . . . . . . . . . . . . . . . . (94) (24) Tax benefit attributable to exercise and disposition of incentive stock options and stock purchase rights. . 1 0(34) (39) Changes in operating assets and liabilities: Accounts receivable - trade . . . . . . . . . . . . . . . (312) 256405 (142) Accrued interest and other receivables. . . . . . . . . . 370 (727)(191) 216 Inventories . . . . . . . . . . . . . . . . . . . . . . . 754 1,717(371) 291 Prepaid expenses. . . . . . . . . . . . . . . . . . . . . (34) (3)(65) (63) Accounts payable. . . . . . . . . . . . . . . . . . . . . 35 (94)138 108 Accrued expenses. . . . . . . . . . . . . . . . . . . . . (88) 16357 164 Deferred revenue. . . . . . . . . . . . . . . . . . . . . 0 (2) (64) ----------------- -------- Total adjustments . . . . . . . . . . . . . . . . . . . . . . 2,224 3,207 ---------514 1,057 -------- -------- Net cash provided by operating activities . . . . . . . . . . 6,259 6,783 ---------1,739 2,257 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for: Property and equipment. . . . . . . . . . . . . . . . . . (535) (337)(125) (178) Intangible assets . . . . . . . . . . . . . . . . . . . . (2) (289)(100) (1) Proceeds from sale of property and equipment. . . . . . . . . 1 11 Net cash paid in acquisition. . . . . . . . . . . . . . . . . (4,188) ---------0 0 -------- -------- Net cash used in investing activities . . . . . . . . . . . . (536) (4,803) ---------(225) (179) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock. . . . . . . . . . . . 98 58 Common stock purchased and retired. . . . . . . . . . . . . . (12,058) (448) Increase(78) (1,455) Decrease in note payable. . . . . . . . . . . . . . . . . . . 5,444 49 ---------(1,093) (1,384) -------- -------- Net cash used in financing activities . . . . . . . . . . . . (6,516) (341) ---------(1,171) (2,839) -------- -------- Effect of exchange rate changes on cash . . . . . . . . . . . (4) 42(14) (11) NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . (798) 1,681329 (772) CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . 647 1,367 951 ----------------- -------- CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . . $ 569976 $ 2,632 =========595 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for income taxes. . . . . . . . $ 2,247463 $ 1,606375 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . $ 16796 $ 24340
see notes to consolidated condensed financial statements -3- -3- UTAH MEDICAL PRODUCTS, INC. ------------------------------------------------------- NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ---------------------------------------------------- (unaudited) (1) The unaudited financial statements presented herein 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 generally accepted accounting principles. These statements should be read in conjunction with the financial statements and notes included in the Utah Medical Products, Inc. ("UM"UTMD" or "the Company") annual report on form 10-K for the year ended December 31, 1998.1999. Although the accompanying financial statements have not been examined by independent accountants in accordance with generally accepted auditing standards, in the opinion of management, such financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company's financial position and results of operations. (2) Inventories at September 30, 1999March 31, 2000 and December 31, 19981999 (in thousands) consisted of the following: September 30,March 31, December 31, 2000 1999 1998 ----------------- --------- Finished goods $ 8991,170 $ 1,041846 Work-in-process 868 7711,000 962 Raw materials 1,577 2,236 ------1,396 1,382 ----- ----- Total $3,344 $4,048$3,566 $3,190 ====== ====== (3) In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and requires recognition of all derivatives as assets or liabilities in the statement of financial position and measurement of those instruments at fair value. The statement is effective for fiscal years beginning after June 15, 2000. UM believes that the adoption of SFAS 133 will not have a material effect on the financial statements of the Company. (4) On August 9, 1999, UM reported final results of its tender offer announced May 26, 1999. A total of 1,273,322 shares were validly tendered and not withdrawn, and 1,153,945 of those shares were purchased by the Company at a price of $8.00 per share. The shares purchased represent about 15% of shares outstanding prior to the tender offer. (5) The Company has adopted SFAS No. 130, "Reporting Comprehensive Income." This standard requires companies to disclose certain changes in equity not represented in net income such as foreign currency translation adjustments and unrealized gains/losses on available-for-sale securities. These items are components of other comprehensive income which, when added to net income, represent total comprehensive income. The Company translates the currency of its Ireland subsidiary which comprises the only element of other comprehensive income. Total comprehensive income for the quarter and nine months ending September 30, 1999March 31, 2000 was respectively (in thousands) $1,684$962. (4) In June 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative Instruments and $3,585. (6)Hedging Activities- Deferral of the Effective Date of FASB Statement No. 133." SFAS 133 establishes accounting and reporting standards for derivative instruments and requires recognition of all derivatives as assets or liabilities in the statement of financial position and measurement of those instruments at fair value. SFAS 133 is now effective for fiscal years beginning after June 15, 2000. UTMD believes that the adoption of SFAS 133 will not have a material effect on the financial statements of the Company. (5) 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, and information currently available to, management. When used in this document, the words "anticipate," "believe," "should," "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 noted 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. General risk factors that may impact the Company's revenues include the market acceptance of competitive products, obsolescence caused by new technologies, the possible introduction by competitors of new products that claim to have many of the advantages of UM'sUTMD's products at lower prices, the timing and market acceptance of UM'sUTMD's own new product introductions, UM'sUTMD's ability to efficiently manufacture its products, including the reliability of -4- suppliers, year 2000 problems, success in gaining access to important global distribution channels, marketing success of UM'sUTMD's distribution and sales partners, budgetary constraints, the timing of regulatory approvals for newly introduced products, third party reimbursement, and access to U.S. hospital customers, as that access is increasingly constrained by group purchasing decisions. Risk factors, in addition to the risks outlined in the previous paragraph that may impact the Company's assets and liabilities, as well as cash flows, include risks inherent to companies manufacturing products used in health care including claims resulting from the improper use of devices and other product liability claims, defense of the Company's intellectual property, productive use of assets in generating revenues, management of working capital including inventory levels required to meet delivery commitments at a minimum cost, and timely collection of accounts receivable. Additional risk factors that may affect non-operating income include the continuing viability of the Company's technology license agreements, actual cash and investment balances, asset dispositions, and acquisition activities that may require external funding. (6) Events subsequent to March 31, 2000 On April 14, 2000, UTMD entered into a new unsecured revolving line-of-credit agreement with Key Bank N.A. which replaces its prior line-of-credit. Under the agreement, the Company may borrow up to $14,500,000 at a floating interest rate tied to Prime Rate or LIBOR, at UTMD's election. Significant financial covenants under the line require the Company to maintain minimum Current and Total Funded Debt to EBITDA ratios. -5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AnalysisGeneral UTMD manufactures and markets a well-established range of Resultsspecialty medical devices. The general characteristics of OperationsUTMD's business have not materially changed over the last several reporting periods. The Company's Form 10-K Annual Report for the year ended December 31, 1999 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 month period in comparison with a previous three month period may not be indicative of comparative results for the year as a whole. Dollar amounts in the report are expressed in thousands, except per-share amounts and where otherwise noted. Analysis of Results of Operations a) First Quarter (1Q) Overview All key measures of UM's financial performance were positive in 3Q 1999 compared to 3Q 1998. Sales in 3Q1Q 2000 declined 5% from 1Q 1999, increased 6% from 3Q 1998. Grossdue to lower sales of obstetrics products in the U.S., and lower sales of OEM products worldwide. Despite the lower sales, operating profits improved 7% due to record gross profit margins set a new UM record at 54.2% of sales. Further leverage was achieved inand tightly controlled operating margins as operating expenses declined 4% in 3Q 1999 from 3Q 1998.expenses. Earnings per share (EPS) increased 41% in 3Q 1999were up 25% compared to 3Q 1998. Over the same period, EPS grew faster than operating profits, because there were 1,543,000 fewer diluted shares outstanding in 3Q 1999. Results for the first nine months (9M) of1Q 1999 compared to 9M 1998 in a similar way. Other income declined $543 in 9M 1999 compared to 9M 1998, mainly due to UM's receipt of payments for use ofshare repurchases. With its technology in 1Q and 3Q 1998, neither of which recurred in 9M 1999. Sales from UM's 1998 acquisition of the neonatal product line of Gesco International Inc. and Bard Access Systems, Inc. were included in UM's results for the first time in third quarter 1998. With a strong cash flow, UM'sUTMD was able to reduce its long term debt balance increased by just $5.4$1.1 million, in 9M 1999, despiteallow finished goods inventories to increase by $0.4 million during a period of softer than expected demand, and repurchase of 1,606,000another 11,300 shares of its stock for $12.1 million during that time.in 1Q 2000. b) Revenues FollowingIn 1Q 2000, sales to customers outside the acquisitionU.S. grew 24% while domestic sales, excluding component sales to Baxter, declined 9%. Sales of components to Baxter declined 79% to $32 in 1Q 2000 from $148 in 1Q 1999. In the GescoU.S., obstetrics product sales decreased 12% due to end of millennium overstocking and increased competition, while electro surgery/ gynecology/ urology product sales and neonatal product line from CR Bardsales remained about the same. Blood pressure monitoring components excluding sales to Baxter/ OEM molding products declined 20% as a result of fluctuation in third quarter 1998, UM divides its sales into four product-line categories: 1) obstetrics, comprising labor and delivery management toolscustomer ordering patterns, for monitoring fetal and maternal well-being, for improving clinician safety and for ease in performing delivery procedures; 2) gynecology/electrosurgery/urology, consisting of tools for gynecological office/clinician practices, including LETZ, endometrial sampling, diagnostic laparoscopy, and other MIS procedures; specialty excision and incision tools; conservative urinary incontinence therapy devices; and urology tools; 3) neonatal, comprising devices for gaining vascular access, administering vital fluids, maintaining a neutral thermal environment, and other specialized tools used in the care of critically-ill infants; and 4) blood pressure monitoring/accessories/other, consisting of transducer systems for invasively monitoring blood pressure on a continuous basis, along with products sold on an OEM basis to other companies. UM's primary revenue contributors generally enjoy a dominant market share and typically have important product features protected by patents. Sales in the obstetrics product category were $3,614 in 3Q 1999, compared to $3,880 in 3Q 1998. First nine months 1999no apparent reasons. Foreign sales of obstetrics products, electro surgery/ gynecology products, neonatal products and blood pressure monitoring (BPM) components and accessories increased 17%, 92%, 117% and 14% respectively. Global obstetrics product sales which decreased 11% in 1Q 2000 represented 46% of total sales. Obstetrics sales were $10,442$3,041 in 1Q 2000, compared to $10,911$3,402 in 9M 1998. The decline was due mainly to weakness in vacuum-assisted delivery system (VADS) sales. In April 1999, UM introduced a mushroom shaped soft rubber cup, the Secure Cup , designed to provide a balance between holding power and safety. In September 1999, UM announced that Novation LLC, the supply company of VHA Inc. and the University HealthSystem Consortium, has awarded a sole source supply agreement to UM for the Intran Plus family of products. Members of Novation deliver about one-third of births in the U.S. UM believes the new partnership of its direct sales resources with the excellent Novation marketing team will help create opportunities for UM to engage in effective communications with clinicians that it otherwise might not enjoy. Novation has a history of considering the needs of its Members' clinicians, and establishing supply agreements based on quality, reliability and other clinical considerations in addition to financial considerations. As a result of the agreement, UM expects to increase unit sales of its IUPCs to Novation Members. Gynecology/electrosurgery/1Q 1999. Global gynecology/ electro surgery/ urology product sales were up 4%which grew 9% in 3Q 1999 over 3Q 1998, and1Q 2000 represented 15%17% of total revenues. SalesGyn/ES/Uro sales were $1,125 in this category were $1,111 in 3Q 1999,1Q 2000, compared to $1,072$1,036 in 3Q 1998. Comparing 9M 1999 to 9M 1998, gynecology/electrosurgery/urology sales were $3,229 and $3,154, respectively. Gains in sales of Liberty , Pathfinder , Epitome and loop electrodes were offset somewhat by lower sales of OEM vacuum erection pumps. Marketing this group of products requires multiple sales call points and extensive clinical training and familiarization time with users, among other economic challenges. In late July 1998, a significant UM initiative was the acquisition of the neonatal product line of Gesco International. Because of the acceptance of the renowned Gesco products and their growth potential, UM now separates neonatal1Q 1999. Neonatal product sales and BPM productwhich grew 6% represented 13% of total sales. Compared to 3Q 1998 and 9M 1998, UM's 3Q 1999 and 9M 1999 neonatal product sales grew 59% and 173%, respectively. Neonatal product sales were $1,009$872 in 3Q 1999,1Q 2000, compared to $636$826 in 3Q 1998, and represented 13% of total revenues in 3Q1Q 1999. Sales in this product category were $2,774 in 9M 1999, compared to $1,015 in 9M 1998. UM's growth throughout 1999 has been primarily driven by the neonatal product line. BPM and accessories sales including sales to Baxter which declined 7% represented 24% of 3Q 1999 sales, increasing 2% from the same quarter of the prior year.global consolidated 1Q 2000 sales. Sales of BPM and accessories products in 3Q 19991Q 2000 were $1,834,$1,629, compared to $1,563$1,753 in 3Q 1998, and were $5,460 in 9M 1999 compared to $5,231 in 9M 1998. In this category, UM depends heavily on the marketing efforts of other medical device companies (the OEM channel), both in the U.S. and overseas. Global OEM sales increased 5% in 3Q 1999 from 3Q 1998 and decreased 3% in 9M 1999 compared to the same period of 1998. Global OEM sales in both 3Q 1999 and 1998 were 14% of total sales, and were 14% of 9M 1999 sales compared to 16% of 9M 1998 sales. UM projects demand for its BPM products will remain stable for the foreseeable future. Foreign sales were $1,386 and $3,958 in 3Q and 9M 1999, respectively, compared to $1,084 and $3,561 in 3Q and 9M 1998, respectively. Foreign sales represented 18% of global sales in 3Q 1999 compared to 15% in the same quarter of 1998. The increase is due to higher direct foreign sales, across all four product categories. Ob/Gyn and neonatal foreign sales increased 20% to $332 in 3Q 1999 compared to $276 in 3Q 1998. Ob/Gyn and neonatal product sales were 24% of 3Q 1999 foreign sales, compared to 25% in 3Q 1998. UM expects to continue to increase foreign sales as it recruits effective international distributors.1Q 1999. c) Gross Profit TheUTMD's gross profit margin (GPM), the surplus remaining after subtracting costs in 1Q 2000 was 55.1% compared to 52.5% in 1Q 1999. Gross margin improvements were led by control of manufacturing overhead costs and lower direct materials costs. During the rest of 2000, offsetting influences are expected to result in GPM of about 54%. Expected favorable influences include growth in sales activity without a similar increase in overhead expenses and a continued emphasis on reengineering products from net revenues, in 3Qto reduce costs. Unfavorable influences are expected to be continued competitive pressure on pricing and 9M 1999 was 54%higher wage rates and 53%, respectively, compared to 52% and 51% in 3Q and 9M of 1998, respectively. Manufacturing operations in all locations (Ireland, Oregon and Utah) continued to perform well in 3Q 1999. UMother benefits costs for production employees. UTMD management believes that consistently achieving an average GPM above 50% is necessarycrucial to successfully coversupport the significant sales and marketing, research and development, and administrative expenses associated with a growthan innovative medical device company in a highly complex and competitive marketplace. The improving average GPM trend is explained by observing that UM has become less dependent on lower margin OEM sales, has developed its own direct sales forced) Operating Profit 1Q 2000 operating profits increased 7% to replace lower margin sales through distributors, and has increased revenues without a comparable increase$1,878 from $1,753 in manufacturing overhead. d) Income from Operations Operating profit, or income from operations, is the surplus remaining after subtracting1Q 1999. Total operating expenses, from gross profits. Operatingincluding sales and marketing (S&M) expenses, are subdivided into sales, general and administrative expenses (SG&A) and research and development expenses (R&D). UM further divides SG&A into the two categories of sales and marketing expenses (S&M) and general and administrative expenses (G&A). Operating profits increased 26% and 28% in 3Q and 9M 1999, respectively, each more than three times the growth rate in sales for both periods, and more than two times the growth rate in gross profits over the same periods. Total operating expenses, were 24.4% and 25.8%$1,793 or 26.9% of sales in 3Q and 9M 1999, respectively,1Q 2000 compared to 27.1% and 27.7%$1,934 or 27.6% -6- of sales in 3Q and 9M 1998, respectively. SG&A1Q 1999. Reducing operating expenses as a percentage of sales with lower sales is a significant achievement for the quarter. S&M expenses in 3Q 1999 improved to 21.9%1Q 2000 were $877 or 13.2% of revenues from 23.9% of 3Q 1998 revenues, and were 23.2% of 9M 1999 revenuessales compared to 24.2%$973 or 13.9% of 9M 1998 revenue. The G&A expenses portion increased to $736sales in 3Q 1999 from $712 in 3Q 1998, and to $2,233 in 9M 1999 from $2,011 in 9M 1998, due essentially to increased expenses from goodwill amortization (GWA) associated with recent acquisitions. GWA was $427 in 9M 1999, compared to $290 in 9M 1998. Since the result of the acquisitions were marketable new products for UM, these expenses can be regarded as a surrogate to R&D expenses although they are captured in G&A.1Q 1999. S&M expenses are dominated by the costs of promoting, selling and providing customer support of UM's products. AlthoughUTMD's direct sales and GPMs improve when sales are made through directly employed sales representativesof products in lieu of independent distributors or OEM customers, S&M operating expenses increase as an offset. Global sales in 3Q and 9M 1999 increased 6% and 8%, respectively, from the same periods of 1998, while S&M expenses decreased 7% and 2% in 3Q and 9M 1999, respectively, improving the productivity of S&M resources. The majority of UM's S&M expenses pertain to the U.S. "direct sales" portionAlthough total 1Q 2000 sales decreased 5%, including OEM and overseas sales where third parties underwrite significant S&M costs of its business.selling UTMD's products, the U.S. direct sales increased 8%portion decreased 9%. Total S&M expenses were reduced 10% in 9M 1999 fromconjunction with managing expenses relative to the same periodactual performance of 1998. Recruiting and training sales professionals who can effectively implement UM's solutions-oriented approach is a key to UM's success.UTMD's domestic direct S&M resources. R&D expenses in 3Q and 9M 19991Q 2000 were 2.6% and 2.5%$148 or 2.2% of sales respectively, compared to $222 or 3.2% and 3.4% of sales in 3Q and 9M 1998, respectively. Internal development1Q 1999. The mid-year 1999 termination of UM'sinternal efforts committed to UTMD's fetal tissue pH monitoring project, which had consumed overrepresented about half of R&D expenses sincespending in 1H 1999, was responsible for the end of 1997, was scaled back considerably in second and third quarter 1999. UM has not achieved some important milestones relating to the calibration of the device in living tissue. Other keydecline. Current R&D projects receiving funding include continuing development of the Fowler Endocurette, enhancements to both CMI VADS andthe Gesco neonatal product lines,line, and continuing improvements to Liberty, Deltran Plus and Cordguard. A number of importantUTMD's other established products. R&D improvements in materials and configuration of components have been achievedwas evident in 1999 which will reduce manufacturing costs and/or increase product quality.UTMD's improved GPMs. At UM,UTMD, R&D resources are kept involved in the direct support of manufacturing, processes, as UMUTMD finds it makes long termlong-term sense to keep its most technical people involved with products and the processes for making them throughout their life cycles. G&A expenses in 1Q 2000 were $767 or 11.5% of sales compared to $739 or 10.5% of 1Q 1999 sales. Year 2000 G&A expenses are expected to be consistent with 1999, and in 1Q 2000 were within expected limits of normal quarterly fluctuation. e) Non-operating (Other) income. Non-operating income includes primarily royaltiesRoyalty income from licensing UM'sUTMD's technology to other companies but also interest and capital gains from investing the Company's cashwas partially offset by interest expenses and bank fees on the revolving line of credit, and gains or losses from the sale of assets.line-of-credit in 1Q 2000. Non-operating income in 3Q 19991Q 2000 was $71,$38, compared to $209$115 in 3Q 1998. For 9M 1999, non-operating income was $293 compared to $836 in 9M 1998. In both 1Q and 3Q 1998, UM enjoyed one-time payment from others' use of its pressure monitoring technology.1999. Royalties received in 3Q 19991Q 2000 were $18$44 less than in 3Q 1998, and were $98 less in 9M 1999 than in 9M 1998.the prior year's quarter. Interest expenses and bank fees associated with the line of creditline-of-credit were $93$98 in 3Q 19991Q 2000 compared to $89$43 in 3Q 1998. Royalties received vary from period1Q 1999. Assuming a minimal change in current interest rates and no new borrowing to period depending onfinance an extraordinary capital requirement, net non-operating income will increase in each successive quarter in 2000 as the desire and/or success of other companies in selling products licensed by UM, and the remaining life of UM's patents.line-of-credit balance declines. f) Earnings Before Income Taxes Earnings1Q 2000 earnings before income taxes (EBT) result from adding UM's non-operating income to its operating profits. Third quarter and first nine months 1999 EBT, as a percentagewere 28.7% of sales were 30.7% and 28.8%, respectively, compared to 27.8% and 27.3%26.6% in 3Q and 9M 1998, respectively. These profits are comparable1Q 1999. UTMD was able to profits generated by well-performing companies with twice or more the sales of UM.increase EBT in 3Q and 9M 1999 were up 16.7% and 13.6%, respectively,3% relative to the same periods1Q 1999 even though sales were down 5% because of 1998.improvement accomplished in gross margin combined with tight control of operating expenses. If sales activity increases, UTMD expects it can increase EBT at a faster rate. g) Net Income and EPS Net Income is EBT minusUTMD's after tax net income taxes. UM's Net Income expressed as a percentage of sales rankswas 18.4% for 1Q 2000 compared to 17.1% for 1Q 1999. Net income expressed in the top tier of all U.S. publicly-traded companiesdollars was up 2% at 18% for 9M of both 1999 and 1998. Net Income$1,226, compared to $1,200 in 3Q 1999 increased 15% from 3Q 1998.1Q 1999. The effective income tax rate in 3Q 19991Q 2000 was 36.0% compared to 35.2%35.8% in 3Q 1998. The first nine months 1999 tax rate was 36.0%1Q 1999. Diluted 1Q 2000 earnings per share (EPS) were up 25% to $.19 compared to 35.6%$.15 in 9M 1998. Fluctuations in the tax rate result from 1) the use of a foreign sales corporation, 2) differences in distribution of state income taxes, 3) differences in profitability of the Ireland subsidiary which is taxed at a 10% rate on manufactured products, 4) changes in the amount of nondeductible goodwill expense resulting from a new acquisition, and 5) other factors such as R&D tax credits and actual litigation costs versus accrued expenses. The amortization of goodwill associated with the 1997 Columbia Medical, Inc. acquisition is not tax deductible. Earnings per share is Net Income divided by the1Q 1999. 1Q 2000 weighted average number of shares of stock outstanding (diluted to take effect for stock options awarded which have exercise prices below the current market value). Diluted 3Q 1999 EPS were up 41% compared to 3Q 1998, and 9M 1999 EPS increased 26% compared to the same period of 1998. Third quarter 1999 weighted average diluted common shares (the number used to calculate diluted EPS) were down 19%6,469 compared to 3Q 1998. First nine months 1999 diluted7,939 shares decreased 10% from 9M 1998.in 1Q 1999. Actual outstanding common shares as of September 30, 1999 (in thousands)the end of 1Q 2000 were 6,453, compared to 8,229 shares at September 30, 1998. In 3Q 1999, UM completed a tender offer under which it purchased 1.15 million shares, about 15%6,442. UTMD's trailing twelve months' EPS were $.81, up 35% from the prior twelve month period of shares then outstanding. Future EPS can be increased by investing current Net Income to increase future net profits through expanded product offerings and profitable business operations, or by repurchasing stock, thereby reducing the number of outstanding shares. UM believes that shareholder value is improved by consistently increasing EPS.time. h) Return on shareholders' equity (ROE). Return on Shareholders' Equity (ROE) is the portion of net income retained by UM to internally finance its growth, divided by average accumulated shareholders' equity during the period. This ratio determines how fast the Company can afford to grow without external equity financing that would dilute shareholder interests. For example, a 20% ROE will support 20% growth in revenues. Achieving growth in revenues and EPS without diluting shareholder interests maximizes shareholders' value. ROE in 3Q 19991Q 2000 was 28%,22% compared to 20%19% in 3Q 1998. First nine months 1999 ROE was 25% compared to 20% in 9M 1998.1Q 1999. i) Cash Flowsflows EBITDA (EBT, adjusted for non-cash depreciation and amortization expenses, asset dispositions, and interest expense and bank fees associated with the line of credit) is a measure of UM'sUTMD's ability to generate cash. It may also be a better performance comparison measure when comparing to companies who have made acquisitions using "Pooling of Interests." First nine monthsquarter 2000 EBITDA was $2,584, up from $2,438 in 1Q 1999, EBITDA were $8,095, compared to $7,749 in 9M 1998. Asor as a ratio of sales, 39% in 1Q 2000 compared to 35% in 1Q 1999. UTMD used EBITDA was 37%to allow purchase of $125 worth of assets to sustain facilities, equipment and tooling in 9M 1999 and 38%good working order, investment of $100 in 9M 1998. EBITDA has averaged 35%new intangible assets, repurchase $78 worth of sales over the last five years. The extraordinarily strong cash generation performance resulted fromit shares, as well as a combination of excellent operating earnings, depreciation of existing assets greatly exceeding replacement assets, and receipt of payments for the use of UM's technology. Because of EBITDA performance, UM was able to limit the increasedecrease in its long term debt to just $5,440 despite paying $12,058 to repurchase more than 1.6 million shares of its stock in 9M 1999. Cash (and equivalent) balances were $569 at the end of 9M 1999, a reduction of $798 from December 31, 1998. The decrease was primarily due to the exercise and expiration of put contracts which required UM to set aside the full purchase price of the stock under contract, along with lower cash balances in Ireland. UM effectively maintains zero-balance "sweep" cash account balances that minimize the line of creditbank revolving line-of-credit balance except for amounts held to meet operating requirements in Ireland and separate physical reserves set aside for litigation expenses.by $1,093 during 1Q 2000. -7- Net cash provided by operating activities, including adjustments for depreciation and other non-cash operating expenses, along with changes in working capital, was $524 lowertotaled $1,739 in 9M 1999 than1Q 2000, compared to $2,257 in 9M 1998.1Q 1999. Net working capital changes provided $723used $28 in 1Q 2000 cash compared to 9Mproviding $572 in 1Q 1999, cash, with the largest contributionschange (adjusted for exchange rate changes) beingcoming from higher finished goods inventories, which UTMD increased in lieu of cutting production rates in order to maintain production efficiencies during a $754 reduction in inventories and a $370 decrease in accrued interest and other receivables, offset partially by a $312 increase in trade accounts receivable. Much larger decreases in inventories during 9M 1998 explain the higher net cash provided by operating activities in that period compared to 9M 1999. Investing activities in 9M 1999 were comprised almost entirely in improvements to property and equipment.of temporary soft demand. Financing activities in 9M 19991Q 2000 used cash of $6,516, including $12,058$1,093 to purchase 1,606,000reduce the bank line-of-credit. In addition, 11,300 shares of UM stock offset by an increasewere repurchased at a total cost of $5,444$78. No stock was issued in the first quarter of either 2000 or 1999. On April 14, 2000, UTMD entered into a new unsecured revolving line-of-credit agreement with Key Bank N.A. which replaces its prior line-of-credit. Under the agreement, the Company may borrow up to $14,500,000 at a floating interest rate tied to Prime Rate or LIBOR, at UTMD's election. Covenants under the line of credit. UM received $98include maintaining minimum Current and Total Funded Debt to EBITDA ratios. Management believes that capital spending in 9M 1999 compared1Q 2000 was at a sufficient rate to $58 in 9M 1999 from issuing stock (on exercise of employee options). Planned future 1999 capital expenditures will keep facilities, equipment and tooling in good working order.sustain current operations. In addition to thesustaining capital expenditures, UM plansUTMD expects to use cash during the rest of 2000 for selective infusions of technological, marketing or product manufacturing rights to broaden the Company's product offerings, for continued share repurchases whilewhen the price of the stock remains extremely undervalued, and, if available for a reasonable price, acquisitions that strategically fit UM'sUTMD's business and are accretive to performance. The revolving credit line will continue to be used for liquidity when the timing of acquisitions or repurchases of stock require a large amount of cash in a short period of time. j) Assets and Liabilities First nine months-ending1Q 2000 ending total assets were lower primarilyessentially the same as at December 31, 1999. Current assets increased as a result of higher inventory and cash balances while net fixed assets declined because depreciation exceeded replacement purchases. Net intangible assets declined because amortization of stock repurchases, from reductionsgoodwill and intellectual property exceeded new acquisitions. 1Q 2000 ending net intangible assets represent 29% of total assets. Average inventory turns decreased in inventories and other current assets, and because purchases of new property and equipment and intangibles were just one-third depreciation and amortization amounts. Inventory turns increased1Q 2000 to 4.13.5 times, compared to 3.8 times in 3Q 1999, from 2.7 in 3Q 1998 due to lower sales and higher finished goods inventories. Inventories were allowed to increase $376 during 1Q 2000 based on UTMD's belief that the sales together with lowerdecrease was temporary. If sales increase during the remainder of 2000, management expects to be able to achieve its target of 4.0 inventory levels.turns. March 31, 2000 accounts receivable (A/R) balances declined 6%, slightly more than sales. Calculated days in receivables at 49 for 1Q 2000 did not change from year-end 1999. The working capital declineincrease of $1,505$355 was essentially due to the increase in 9M 1999 was primarilyfinished goods inventory. At the resultend of reductions in cash and inventories. Through its excellent profitability, UM expects to internally finance any working capital growth that is needed to support growth in sales activity. In 3Q 1999, UM's1Q 2000, UTMD's total debt ratio increaseddecreased to 39%29% of total assets from 19%32% at the end of 1998,1999, due mainly to increasesthe reduction in the line of credit.line-of-credit balance. k) Management's Outlook UMOutlook. UTMD has built and continues to successfully defend a dominant medical device market franchise in the most special areas of hospitals caring for mothers and their babies, with innovative and highly effective products. UTMD's small but effective direct U.S. sales team continues to evolve as a key resource for achieving UTMD's objectives to help identify clinician needs, responsively provide excellent solutions for those needs, and assure timely support for customers' use of UTMD's solutions. In the remaining part of 2000, UTMD will investigate ways to expand its U.S. sales coverage through improving its relationships with national distributors who can access customers in ways not available to UTMD's direct sales force, through partnering with other manufacturers where a broader product offering can leverage marketing efforts and through initiatives to effectively employ Internet technology. Internationally, UTMD will continue to place emphasisbuild on improving its U.S. direct sales effectiveness. An experienced National Sales Manager, hired in mid 1999, is directing an extensive initiative to track communications and commitments throughout the sales cycle, and to see that every sales person understands the clinical value of every UM product. Access to U.S. hospital customers is increasingly constrained by group purchasing decisions. To be successful in its marketing programs, UM must provide clinicians with the information they need to make important judgments about using certain products in obtaining optimal clinical outcomes, which include minimizing risk of complications. UM must also be able to provide support for physicians to explain those needs to hospital administrators who are primarily focused on reducing current operating costs. UM's growing number of gynecology practice tools are intended to leverage UM's activity with physicians outside the hospital. The niche markets for which UM's gynecology/electrosurgery/urology products are targeted have proven to require many and varied marketing initiatives. They require individual user training together with clear evidence of improved outcomes. UM's financial strength and stability allow it to patiently investigate economic ways to increase the rate of adoptionsuccess of its newer products. UMeffective distribution partners. Consistent with its view of the nature of the medical device industry as a whole, UTMD believes it can achieve significant top line growth through selective acquisitions, and plans to do so without diluting shareholder interest. In UTMD's case, management does not intend to achieve top line growth at the expense of bottom line growth. Internal R&D will continue to maintain a long-term perspectivebe used primarily to improve and seek to strengthen its disease management focus with physicians who it believes are ultimately responsible for their patients' well-being. YEAR 2000 State of Readiness - -------------------- UM believes it will experience no material adverse consequences from the "Year 2000 (Y2K) Problem," and is taking appropriate actions to see that it is prepared in all of its operations globally. UM has developed a Y2K plan it is using to identify and solve potential Y2K problems. The Company has determined that all of the products it sells are Y2K compliant since none useaugment existing or process dates. An inventory of all known internal systems, along with testing of those systems has been completed. Following upgrade or replacement, along with subsequent testing of systems initially identified as noncompliant, UM believes its internal systems are Y2K compliant. UM has surveyed those outside vendors it considers critical to its business, including utilities and other providers of auxiliary systems, regarding their Y2K readiness. Response assessment and implementation of appropriate remedial actions are expected to continue throughout 1999. Costs - ----- UM does not expect its Y2K costs to be material. All significant replacements or upgrades to internal systems are complete. Total cost is expected to be less than (in thousands) $75. Risks - ----- As UM's products do not incorporate date codes, Y2K risks based on its products are minor. The risk of major internal systems failing is low based on testing and vendor assurances. However, although considered unlikely, it is possible that a major Y2K problem might be identified. UM has competent employees who it believes can find solutions to problems identified. Perhaps the greatest internal risk would be from a Y2K issue that remains hidden despite diligent testing. If such a problem developed either shortly before or after January 1, 2000, UM could face delays and costs that might be material to its business. UM believes external Y2K problems constitute a higher magnitude of risk to its business. If mission critical vendors do not timely and accurately report to UM their Y2K readiness, or adequately solve Y2K problems as anticipated, the Company's business could be materially impacted. If alternate vendors cannot be identified and qualified in time to replace vendors who are not Y2K compliant, UM's business could be negatively impacted. The failure of communications, financial and transportation systems could have a major negative impact on UM, as would the failure of local utilities to deliver water, natural gas, and electricity. Contingency Plans - ------------------ Execution of the Company's Y2K plan is UM's most important contingency plan. It not only helps identify what Y2K risks UM faces, but provides a framework for how to solve them. For example, UM is prepared to switch vendors and stock excess raw material and finished goods inventory to mitigate Y2K risks. UM employs skilled individuals who have the technical know-how to solve most challenges likely to be presented by the Y2K problem. UM believes that the most likely worst-case scenario would involve business interruptions of up to one or two weeks. UM believes it could solve such problems before they became major risks to its business. UM does not believe it can develop contingency plans to deal adequately with major external infrastructure failures such as in communications, transportation, or utilities. However, such failures would likely not impact UM any more than it would other businesses.acquired product lines. -8- PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: SEC Exhibit # Reference # Title of Document - ---------- ------------ ------------------------------------------ 1 10 Business Loan Agreement, dated April 14, 2000 Between Utah Medical Products, Inc. and Key Bank National Association 2 27 Financial data schedule b) Reports on Form 8-K: During the quarter ended September 30, 1999,March 31, 2000, the Company filed no reports on Form 8-K. SIGNATURES Pursuant to the requirements of the Securities Exchanges Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UTAH MEDICAL PRODUCTS, INC. --------------------------------------------------------- REGISTRANT Date: 11/11/99 By: /s/ Kevin L. Cornwell ------------- ------------------------------ Kevin L. Cornwell CEO and CFO -9-