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

Productivity of Assets and Working Capital.
a) Assets. Year-end 2008 total assets were $38,821 compared to $45,986 in 2007. The decrease was due primarily to a $6,347 decrease in cash and investments. In 2008, UTMD used its cash to repurchase 320,900 of its shares for $7,792 and pay $4,329 in dividends to shareholders As a result, the 2008 productivity of total assets (= average total asset turns; total sales divided by average total assets for the year) was about 4% higher than in 2007. In both years productivity was diluted by UTMD's substantial cash-equivalent balances. Year-end 2008 and 2007 cash and investment balances were $16,025 and $22,372, representing 42% and 49% of total assets, respectively. UTMD also used its cash generated in Ireland in 2008 to reduce the principle on the Ireland loan by $2,020. Excluding average cash and investment balances, average total asset turns were 1.2 in both 2008 and 2007. In 2009, total assets excluding cash and investment balances will continue to be substantially less than annual sales, which benefits return on average shareholders equity (ROE). Other asset changes which aided the decline in total assets included a $479 decrease in the net book value of property and equipment due to depreciation, and a $388 decrease in receivables due to lower sales and better A/R collections performance.

Property, plant and equipment (PP&E) assets are comprised of Utah, Oregon and Ireland manufacturing molds, production tooling and equipment, test equipment, computer/communications equipment and software, and the Utah and Ireland facilities. UTMD leases the Oregon facility as a result of the 1997 CMI acquisition, and a portion of its Midvale, Utah parking lot. In 2008, net consolidated PP&E (depreciated book value of all fixed assets) decreased $479 as a result of $544 in depreciation, capital expenditures of $274 and the effect of currency exchange rates on equipment in Ireland. The net book value of PP&E in the U.S. decreased $168, and in Ireland decreased $311. The year-end 2008 net book value (after accumulated depreciation) of consolidated PP&E was 32% of actual acquisition cost. Since UTMD's PP&E is in good working order and capable of supporting increased sales activity, the continued productivity of fixed assets will remain a source of future profitability. In 2009, depreciation of fixed assets should again equal or exceed new PP&E purchases required to sustain current operations.

Average 2008 inventory turns were 4.0 despite lower sales, and continued to meet management's objective. Net (after allowance for doubtful accounts) year-end trade accounts receivable (A/R) balances decreased $360 or about 10% while 2008 sales activity decreased 3%. The resulting average days in A/R on December 31, 2008 of 46 days, based on 4Q 2008 shipments, improved from 47 days at the end of 2007. This performance remained well within management's continuing objective of 55 days. A/R over 90 days from invoice date at year-end 2008 were 3% of total A/R, down significantly from 10% at the end of 2007. The Company believes the older A/R will be collected or are within its reserve balances for uncollectible accounts.

Working capital at year-end 2008 was $21,511 compared to $26,767 at year-end 2007. Both of those amounts exceed UTMD's working capital needs for internally financing growth in normal operations. UTMD's current ratio (current assets divided current liabilities) increased to 13.2 from 9.5 due to a $1,397 (44%) decline in the denominator. Accrued liabilities, a subset of current liabilities (C/L), declined $1,263 because of lower accrued management bonuses and the fact that in 2008 the 4Q08 shareholder dividend was paid at the end of December instead of early January, as in prior years. The current portion of the Ireland note, which is also included in C/L, declined by $158. UTMD expects to be able to maintain a very healthy current ratio in 2009.

Net (after accumulated amortization) intangible assets, which are comprised of goodwill resulting from acquisitions and the costs of obtaining patents and other intellectual property including technology rights, were $7,414 at the end of 2008 compared to $7,449 at the end of 2007. UTMD's goodwill balance is $7,191. Under current GAAP, goodwill is not expensed unless and until the market value of the acquired entity becomes impaired. The three acquisitions of 1997, 1998 and 2004 continue to be viable parts of UTMD's overall business, representing 35% of total sales in 2008. UTMD does not expect the current intangible value of goodwill associated with the acquisitions to become impaired in 2009. Purchases of other intangibles of $13 in 2008 were offset by $47 in amortization expense. Net intangible assets at the end of 2008 represented 19% of total assets compared to 16% at the end of 2007.

b) Liabilities. In 2008, UTMD's total liabilities decreased $3,181 from the end of 2007. The resulting 2008-ending total debt ratio was 10% of total assets, down from a total debt ratio of 16% at the end of 2007. Current liabilities declined primarily because of the decrease in accrued expenses and the current portion of the Ireland loan, as noted above. The Ireland note payable as a whole, denominated in Euros, declined $2,019 in USD book value compared to actual principal payments of $1,917. The difference results from currency exchange in the value of the USD compared to the Euro. In thousand Euro, the note declined 47% from €2,791 at the beginning of 2008 to €1,485 at the end of 2008. As a reminder to shareholders, the note was initiated in December 2005 to finance repatriation of profits achieved in Ireland since 1996 through 2005 under The American Jobs Creation Act of 2004. UTMD Ltd. plans to repay this note from profits generated in Ireland over the next two to three years. In addition to liabilities on the balance sheet, UTMD has operating lease and purchase obligations described in note 7.

Results of Operations.
a) Revenues. Global consolidated sales in 2008 were $27,782, compared to $28,502 in 2007 and $28,753 in 2006.

Domestic sales were $19,113 in 2008, compared to $19,926 in 2007 and $21,363 in 2006. UTMD divides its domestic sales into two distribution channels: "direct sales" which are sales to end user customers by UTMD's direct sales force, independent commissioned sales reps, specialty distributors and national hospital distribution companies, and "OEM sales" which are component sales to other companies where products are packaged and resold as part of another company's finished product offerings. As a percentage of total domestic sales, direct domestic sales were 92% in 2008, and 94% in both 2007 and 2006. Therefore, domestic OEM sales were 8% of total domestic sales in 2008, and 6% of sales in both 2007 and 2006. Domestic direct sales represented 63% of global consolidated sales in 2008, compared to 66% in 2007 and 70% in 2006.

International (foreign) sales in 2008 were $8,668 compared to $8,576 in 2007 and $7,390 in 2006. International sales grew to 31% of global consolidated sales in 2008, compared to 30% in 2007 and 26% in 2006. Of the 2008 international sales, 55% were to customers in Europe compared to 55% in 2007 and 53% in 2006. Ireland operations (UTMD Ltd.) shipped 46% of international sales (in USD terms) in 2008, compared to 51% in 2007 and 52% in 2006. UTMD Ltd. trade shipments were down 17% in Euro terms, and down 10% in USD terms, in 2008 compared to 2007.

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

Global revenues by product category:

                           2008          %          2007          %          2006          %
Obstetrics               $   7,054         25     $   8,473         30     $   9,371         33
Gynecology/
Electrosurgery/
Urology                      6,157         22         6,143         21         6,106         21
Neonatal                     7,334         27         7,062         25         7,073         25
Blood Pressure
Monitoring and
Accessories*                 7,236         26         6,824         24         6,203         21

*includes molded components sold to OEM customers.

International revenues by product category:

                           2008          %          2007           %          2006          %
Obstetrics               $     572         7      $     881         10      $     764         10
Gynecology/
Electrosurgery/
Urology                      2,193         25         1,944         23          1,820         25
Neonatal                       847         10           761           9           525          7
Blood Pressure
Monitoring and
Accessories*                 5,056         58         4,990         58          4,281         58

*includes molded components sold to OEM customers.

As a summary explanation of revenues in the above tables,

1. Obstetrics. The $1,419 decline in total obstetrics (L&D) device sales in 2008 was primarily the result of the restrictive effects of U.S. GPO administrative agreements. For example, GPO restrictions included a sole source contract consummated by HealthTrust Purchasing Group (HPG) with a UTMD competitor for IUPCs and VADS which took effect on September 1, 2007. These specialty catheters and surgical tools are clearly in the category of "clinician preference products." The HPG sole source agreement violates the mandate by the U.S. Senate Judiciary Antitrust Subcommittee in April 2002 that GPOs only allow multi-source contracting for clinician-preference products, as well as the ensuing "Healthcare Group Purchasing Industry Initiative" code of ethics, of which HPG was a founding member. It also represented a violation of HPG's own code of ethics, which states in Section HPG.008, "No GPO should come between hospital administration and their physicians when it comes to the choice of medical devices needed to treat the patient. To this end, HealthTrust offers a complete line of contracts in these areas [clinician-preference products] that provides substantial choice to our members and their physicians." In the U.S., 2008 sales of Intran Plus intrauterine pressure catheters (IUPCs) declined $1,016 and sales of CMI vacuum-assisted delivery systems (VADS) declined $112. About 10% of the IUPC decline resulted from lower prices. The silver lining of this decline is that the Company's reliance on a single product is much less concentrated; i.e., in 2008, U.S. IUPC sales were 17% of total sales compared to 2004 when U.S. IUPC sales were 31% of total sales. The $1,129 decline in U.S. IUPC and VADS sales but only $720 decline in total sales indicates that UTMD's sales of its other devices and its international business are expanding.

2. International gynecology/ electrosurgery/ urology (ES/gyn) product sales increased $248 (13%), while U.S. ES/gyn sales declined $235 (6%). As a result of the 2007 American Society for Colposcopy and Cervical Pathology (ASCCP) revised guidelines for the treatment of CIN, which advised greater monitoring of lower grade lesions in lieu of surgical treatment, UTMD observed approximately a 10% decline in use of LETZ electrodes from a consistent gynecology customer base. The effect of the new guidelines now seems to have stabilized.

3. Neonatal critical care device (NICU) sales increased $186 (3%) in the U.S. and $86 (11%) internationally. In the U.S., because products in this category are sold to hospitals, sales are affected by GPO restrictions. However, because NICU devices are more diverse and lower volume than in L&D, and because of the special nature of the patients, UTMD believes that clinicians remain more heavily involved in product selection. Therefore, U.S. GPO administrative deals are less of a challenge in supplying specialty NICU devices than for L&D. UTMD expects that NICU devices will lead its sales growth in 2009.

4. Blood pressure monitoring and accessories (BPM). U.S. BPM sales increased $347 (19%), while international BPM sales increased $66 (1%). Virtually all of UTMD's domestic OEM sales were included in the BPM category in 2008. Domestic OEM sales increased $274 (22%) compared to 2007. The category includes molded components (some of which are not related to medical devices) sold to other companies for use in their products. In contrast to the other product categories, international sales of BPM devices comprise most (70% in 2008 and 73% in 2007) of UTMD's BPM sales. UTMD's BPM sales depend heavily on successful marketing by international distributors and OEMs. Due to a stronger US Dollar and a general economic downturn, UTMD experienced substantial slowing of international distributor orders for BPM products in 2H08, and expects that it will continue into 2009. In early 2009, UTMD learned that its largest international customer located in Germany and third largest international customer located in South Africa, combined representing $2,327 (27%) of 2008 international sales, would not be purchasing UTMD products at least for the first quarter of 2009.

Looking forward to 2009, UTMD's improvement in domestic direct sales depends on its ability to obtain medical staff involvement in purchasing decisions for UTMD's "physician-preference" products used in U.S. hospitals where administrators are making the product decisions through the use of GPOs contracts awarded on bases which may not adequately take into consideration the total cost of patient care, which includes complication rates and longer term health outcomes. An important factor in UTMD's ability to compete in this administratively cumbersome environment is its continuing ability to develop devices that are clearly differentiated on the basis of patient safety and better health outcomes. Despite the apparent weakness in international sales entering the year, and excluding the possibility of acquisition of a new product line with established sales, management projects overall revenues in 2009 about the same as in 2008. This assumes continued increases in domestic NICU and ES/Gyn sales of about 5% and resumption of international customer purchases in 2Q 09.

b) Gross Profit. UTMD's 2008 gross profit, the surplus after subtracting costs of manufacturing, inspecting, packaging, sterilizing and shipping products (CGS) from net revenues, was $15,018 compared to $15,788 in 2007 and $16,147 in 2006. Gross profit margins (GPMs), gross profits expressed as a percentage of net sales, were 54.1% in 2008 compared to 55.4% in 2007 and 56.2% in 2006. The GPM in 2008 was lower for several reasons:
1) Because many of UTMD's manufacturing overhead expenses are fixed in order to preserve capabilities, the lower consolidated sales activity in 2008 had a higher overhead content. UTMD retains facilities and other manufacturing infrastructure well in excess of its current needs, which will help GPM when sales expand.
2) Because of competition and a number of long term fixed pricing agreements, UTMD had a limited ability to increase product prices in 2008, at the same time direct labor and direct materials costs were increasing fairly substantially.
3) In 2008, UTMD reduced domestic prices of its IUPCs by 3%. This represented 11% of the obstetrics sales decline and 20% of the decline in total gross profits. Management doesn't expect any significant price decreases in 2009.
4) UTMD conducted an IUPC recall in 2008 due to potentially defective packaging, for which it estimates a marginal cost, after applying its warranty reserve, of about a half percentage point in total GPM. The recall was completed successfully without any indication of a risk of patient injury, and with no interruption to the supply of IUPCs needed by hospital customers.
5) The distribution mix helped lower the average GPM since domestic OEM and international sales increased while domestic direct sales decreased. GPMs on domestic direct sales must be higher in order to support sales and marketing expenses that are not associated with domestic OEM and international sales.

UTMD expects 2009 GPM to again be under pressure as a result of higher direct labor, direct materials and overhead costs with about the same projected sales.

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

c) Operating Income. Operating income is the surplus after operating expenses are subtracted from gross profits. Operating expenses include sales and marketing (S&M) expenses, product development (R&D) expenses and general and administrative (G&A) expenses. Combined operating expenses were $4,629 in 2008, compared to $5,032 in 2007 and $5,312 in 2006. The lower operating expenses were primarily due to $268 lower accrued management bonuses and $74 lower GPO fees.

                                                  2008        2007        2006
R&D expenses                                     $   359     $   382     $   316
S&M expenses                                       1,816       2,075       2,272
G&A - a) litigation expense provision                 80         127         230
G&A - b) corporate legal expenses                     48          15          21
G&A - c) stock option compensation expense           120          95         140
G&A - d) management bonus accrual                    148         378         380
G&A - e) outside accounting audit/tax expenses       167         134         100
G&A - f) all other expenses                        1,891       1,826       1,854
G&A expenses - total                               2,454       2,575       2,725
Total operating expenses                         $ 4,629     $ 5,032     $ 5,312

Operating income in 2008 was $10,389 compared to $10,756 in 2007, and $10,835 in 2006. UTMD's operating profit margin (operating income divided by total sales) was 37.4% in 2008, compared to 37.7% in both 2007 and 2006. Looking forward to 2009, UTMD expects an operating margin of about 36%, as it plans to increase expenses in all three areas of S&M, R&D and G&A with about the same volume of sales as in 2008.

i) S&M expenses: S&M expenses are the costs of communicating UTMD's differences and product advantages, providing training and other customer service in support of the use of UTMD's solutions, attending clinical meetings and medical trade shows, processing orders and funding GPO fees. Because UTMD sells internationally through third party distributors, its S&M expenses are predominantly for U.S. business activity where it sells directly to clinical users. The largest component of S&M expenses is the cost of directly employing representatives that solicit product sales and provide customer support across the U.S. The decline in S&M expenses primarily reflects fewer direct sales representatives. As a percent of total sales, S&M operating expenses were 6.5% in 2008, 7.3% in 2007 and 7.9% in 2006. In 2009, UTMD intends to increase S&M expenses, but hold the ratio to total sales to about 7%.

ii) R&D expenses: R&D expenses include the costs of investigating clinical needs, developing innovative concepts, testing concepts for viability, validating methods of manufacture, completing premarketing regulatory documentation and other activities required for design control, responding to customer requests for product enhancements, and assisting manufacturing engineering on an ongoing basis in developing new processes or improving existing processes. As a percent of sales, R&D expenses were 1.3% in 2008 compared to 1.3% in 2007 and 1.1% in 2006. UTMD will continue to opportunistically invest in R&D in order to reinvigorate its product development pipeline. In 2009, R&D expenses should remain in the range of 1-2% of sales.

iii) G&A expenses: G&A expenses include the functional costs of executive management, finance and accounting, corporate information systems, human resources, shareholder relations, risk management, protection of intellectual property, and legal costs. Aggregate G&A expenses as a percent of sales were 8.8% in 2008, 9.0% in 2007 and 9.5% in 2006. Except for the categories of G&A expenses isolated in the table above, UTMD's G&A expenses have remained fairly consistent over the last three years. The following lettered items refer to the same G&A subcategories in the table above:

a) If no currently unforeseen litigation arises, UTMD expects litigation expenses in 2009 to continue to decline.

b) The increase in 2008 corporate legal expenses was essentially due to the legal costs associated with the filing of SEC Form S-3, Registration Statement Under the Securities Act of 1933, in 3Q 2008. In 2009, UTMD expects a return to expenses more consistent with those in 2007 and 2006.

c) Stock option expense in 2008 was calculated using a Black-Scholes pricing model for unvested options. Please see Note 9 to "Notes to Consolidated Financial Statements" for further explanation. In 2009, UTMD expects option expense about the same as in 2007.

d) The difference in 2008 management bonus compared to the two earlier years was due to the fact that UTMD's CEO did not receive a 2008 management bonus. Accrued bonuses in 2009 will continue to depend both on UTMD's overall performance and each individual's performance.

e) UTMD's personnel, fundamental business activities, internal control systems and financial reporting mechanisms have remained relatively unchanged over the last several years. Nevertheless, due to the "Accountants' Full Employment Act of 2002", also known as "The Sarbanes-Oxley Act of 2002", outside auditor and tax consultant costs have grown rapidly. Still, UTMD's costs remain below these expenses incurred by most companies. Management expects 2009 accounting/financial controls audit costs will remain about the same as in 2008.

d) Non-operating Income, Non-operating Expense and EBT. Non-operating income (NOI) includes royalties from licensing UTMD's technology, rent from leasing underutilized property to others, income earned from investing the Company's excess cash and gains or losses from the sale of assets, offset by non-operating expenses which include interest on the Ireland bank loan, bank service fees and excise taxes. NOI was $388 in 2008, compared to $1,283 in 2007 and $1,582 in 2006.

1) Investment of excess cash. Investment income (including gains and losses on sales) in 2008 was $115, compared to $1,022 in 2007 and $1,383 in 2006. In 2008, average interest rates were substantially lower and the Company realized an investment loss of $718 due just to the failure of Washington Mutual (WM) savings and loan. UTMD recognized capital gains and corporate dividends of $306 on other common stock investments which helped offset the loss. The WM holding represented about 3.5% of UTMD's investment portfolio at cost. Capital gains (or losses) and dividends from investments in common stocks were ($407) in 2008, $20 in 2007 and $593 in 2006. The capital gains in the two earlier years allowed the loss in 2008 to be fully tax-deductible. The Company also holds investments in CitiCorp (C) and General Electric (GE) common stock which together were about $405 below their aggregate purchase price at the end of 2008. When purchased, these holdings at cost represented less than 3% of UTMD's total investment portfolio. Unless one or both of the companies fail, as was the case with WM, UTMD will not sell the holdings at current prices, expecting that they will recover in value, and therefore will not have an associated NOI loss which impacts earnings. Currently, 99% of UTMD's cash investments are being held in interest bearing money market securities yielding only about 1.0%.

2) Royalties. Annual royalties received in all three years were $450, which came from the license of patents which expired during 2008. Presently, there are no other patents under which UTMD is receiving royalties from other parties.

3) Interest Expense. In 2008, UTMD paid $198 in interest expense on the Ireland loan, compared to $270 in 2007 and $255 in 2006. The interest expense results from borrowing €4.5 million ($5,336) in December 2005 to allow the repatriation of profits generated by UTMD's Ireland subsidiary since 1996 through 2005. Due to a lower loan balance as well as lower expected interest rates, UTMD estimates that its interest expense will be less than $80 in 2009, resulting in about $120 less interest cost in 2009 compared to 2008.

4) Other NOI. Income received from renting underutilized warehouse space in Ireland and parking lot space in Utah for a cell phone tower, offset by bank fees and excise taxes, was $21 in 2008, $80 in 2007 and $5 in 2006. UTMD expects other NOI in 2009 will be about ($18) because of expected lack of Ireland warehouse space rent in a soft economic period of time.

UTMD expects total 2009 NOI will be approximately $200. That estimate does not include the possibility of a failure of Citibank that would require recognition of a capital loss of approximately $494. The estimated 2009 NOI may also be lower if UTMD utilizes its invested cash for an acquisition, unexpected litigation costs or substantial share repurchases.

Earnings before income taxes (EBT) result from adding UTMD's non-operating income to its operating income. EBT was $10,777 in 2008, compared to $12,038 in 2007 and $12,418 in 2006. EBT margin is EBT divided by total sales. UTMD's EBT margin was 38.8% in 2008, 42.2% in 2007 and 43.2% in 2006. UTMD is targeting 2009 EBT of about $10,500, in the range of 36-37% of sales.

e) Net Income, EPS and ROE. Net income is EBT minus income taxes, often called . . .