---

# UNITED STATESSECURITIES
AND EXCHANGE COMMISSION Washington, DC 20549FORM 10-Q

| | (Mark One)
| | ----------

|[X] | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
          of 1934
|--- | -------------------------------------------------------------------------------------------------

| | For
the quarterly period ended June 30, 2003 or
| | -----------------------------------------------

|[   ] | Transition  Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
                              Act of 1934
|----- | ------------------------------------------------------------------------------------------------------------------------

| | For
the transition period from ___________ to ___________
| | ---------------------------------------------------------

Commission File Number:      
                  
                  
        

1-10207
                  
                  
                  
______________________________________________

|                                                                                   |                                     
|---------------------------------------------------------------------------------- | ------------------------------------
|ALARIS MEDICAL SYSTEMS, INC.                                                      
|                                                                                  
|(Exact name of registrant as specified in its charter)                            
|Delaware                                                                           | 13-3492624                          
|                                                                                  
|(State or other jurisdiction of incorporation or organization)                     | (I.R.S. Employer Identification No.)
|10221 Wateridge Circle, San Diego, CA 92121                                        |                                     
|                                                                                  
|(Address of principal executive offices)
               (Zip Code)                 |                                     
|(858) 458-7000                                                                    
|                                                                                  
|(Registrant's telephone number, including area code)                              
|ALARIS MEDICAL, INC.                                                              
|                                                                                  
|(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark  whether  the  registrant:
  (1) has filed all  reports  required to be filed by Section 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 registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes [|X|] No [  ]

As of  July 14, 2003, the registrant had 70,550,029 shares of Common Stock outstanding.

Page 1 of 35

---

# ALARIS MEDICAL
SYSTEMS, INC.

---

|INDEX                                                                                                                                                                             |     
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|
|Item 1 - Financial Statements:                                                                                                                                                    |     
|                                                                                                                                                                                  | Page
|Condensed consolidated statement of operations for the       
           three and six months ended June 30, 2003 and 2002 (unaudited)                                            | 3   
|                                                                                                                                                                                 
|Condensed consolidated balance sheet at       
           June 30, 2003 (unaudited) and December 31, 2002                                                                         | 4   
|                                                                                                                                                                                 
|Condensed consolidated statement of cash flows for the
         six months ended June 30, 2003 and 2002 (unaudited)                                                               | 5   
|                                                                                                                                                                                 
|Condensed consolidated statement of changes         
in stockholders' equity and comprehensive income for the period         
from December 31, 2002 to June 30, 2003 (unaudited) | 6   
|                                                                                                                                                                                 
|Notes to the condensed consolidated financial statements (unaudited)                                                                                                              | 7   
|                                                                                                                                                                                 
|Item 2 - Management's Discussion and Analysis of Financial
           Condition and Results of Operations                                                                         | 17  
|                                                                                                                                                                                 
|Item 3 - Quantitative and Qualitative Disclosures About Market Risk                                                                                                               | 29  
|                                                                                                                                                                                 
|Item 4 - Controls and Procedures                                                                                                                                                  | 30  

|PART II. OTHER INFORMATION                                   |   
|------------------------------------------------------------ | --
|                                                            
|Item 1 - Legal Proceedings                                   | 31
|                                                            
|Item 4 - Submission of Matters to a Vote of Security Holders | 32
|                                                            
|Item 6 - Exhibits and Reports on Form 8-K                    | 33

---

We
have registered, applied to register or are using the following trademarks referred to in
this document: ALARIS®, ALARIS Medical Systems®, Guardrails®, Medication
Safety at the Point of Care, Medley, and SmartSite®

---

|FORM 10Q
PART 1-ITEM 1FINANCIAL STATEMENTS
ALARIS MEDICAL SYSTEMS, INC.CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)(Dollar and share amounts in thousands, except per share data)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                

|                                                        | Three Months Ended June 30, | Six Months Ended June 30, |   |        
|------------------------------------------------------- | --------------------------- | ------------------------- | - | -------
|
|Sales                                                   |                             |                           | $ | 127,765
|                                                        |                             |                           |   |        
|Cost of sales                                           |                             |                           |   | 59,160 
|                                                        |                             |                           |   |        
|Gross profit                                            |                             |                           |   | 68,605 
|                                                        |                             |                           |   |        
|Selling and marketing expenses                          |                             |                           |   | 25,535 
|General and administrative expenses                     |                             |                           |   | 12,185 
|Research and development expenses                       |                             |                           |   | 9,501  
|Restructuring and other non-recurring items             |                             |                           |   | -      
|                                                        |                             |                           |   |        
|Total operating expenses                                |                             |                           |   | 47,221 
|                                                        |                             |                           |   |        
|Interest income from sales-type                         |                             |                          
|capital leases                                          |                             |                           |   | 877    
|                                                        |                             |                           |   |        
|Income from operations                                  |                             |                           |   | 22,261 
|                                                        |                             |                           |   |        
|Other income (expenses):                                |                             |                          
|Interest income                                         |                             |                           |   | 291    
|Interest expense                                        |                             |                           |   | (14,103
|Recapitalization expenses                               |                             |                           |   | (66,150
|Other, net                                              |                             |                           |   | (711   
|                                                        |                             |                           |   |        
|Total other expense                                     |                             |                           |   | (80,673
|                                                        |                             |                           |   |        
|(Loss) income before income taxes                       |                             |                           |   | (58,412
|(Benefit from) provision for income taxes               |                             |                           |   | (22,536
|                                                        |                             |                           |   |        
|Net (loss) income                                       |                             |                           | $ | (35,876
|                                                        |                             |                           |   |        
|Net (loss) income per common share, basic               |                             |                           | $ | (.59   
|                                                        |                             |                           |   |        
|Net (loss) income per common share, diluted             |                             |                           | $ | (.59   
|                                                        |                             |                           |   |        
|Weighted average common shares
    outstanding, basic   |                             |                           |   | 60,543 
|                                                        |                             |                           |   |        
|Weighted average common shares
    outstanding, diluted |                             |                           |   | 60,543 
|                                                        |                             |                           |   |        

The
accompanying notes are an integral part of these condensed consolidated financial
statements

---

|ALARIS MEDICAL
SYSTEMS, INC. CONDENSED CONSOLIDATED
BALANCE SHEET(Dollar and share
amounts in thousands, except per share data)
|-------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                               

|ASSETS                                                           
|-----------------------------------------------------------------
|
|                                                                 
|Current assets:                                                  
|Cash and cash equivalents                                        
|                                                                 
|Receivables, net                                                 
|Inventories                                                      
|Deferred tax assets, net, current                                
|Prepaid expenses and other current assets                        
|                                                                 
|Total current assets                                             
|                                                                 
|Net investment in sales-type capital leases, less current portion
|Property, plant and equipment, net                               
|Other non-current assets                                         
|Goodwill                                                         
|Intangible assets, net                                           
|                                                                 
|                                                                 
|                                                                 

LIABILITIES AND STOCKHOLDERS' EQUITY

|                                                             |  | 
|------------------------------------------------------------ |  | 
|
|Current liabilities:                                         |  | 
|Current portion of long-term debt                            |  | 
|                                                             |  | 
|Accounts payable                                             |  | 
|Accrued expenses and other current liabilities               |  | 
|                                                             |  | 
|Total current liabilities                                    |  | 
|                                                             |  | 
|Long-term debt                                               |  | 
|Other non-current liabilities                                |  | 
|                                                             |  | 
|Total non-current liabilities                                |  | 
|                                                             |  | 
|Contingent liabilities and commitments (Note 9)              |  | 
|Stockholders' equity:                                        |  | 
|Non-redeemable preferred stock, authorized 9,000 shares,     |  | 
|issued and outstanding: none                                 |  | 
|Common stock, authorized 85,000 shares at $.01 par value;    |  | 
|issued 69,727 and 60,045 shares at June 30, 2003             |  | 
|and December 31, 2002, respectively                          |  | 
|Capital in excess of par value                               |  | 
|Accumulated deficit                                          |  | 
|Treasury stock, at cost, 453 shares issued at  June 30, 2003 |  | 
|and December 31, 2002                                        |  | 
|Accumulated other comprehensive loss                         |  | 
|                                                             |  | 
|Total stockholders' equity                                   |  | 
|                                                             |  | 
|                                                             |  | 
|                                                             |  | 
|                                                             |  | 

The
accompanying notes are an integral part of these condensed consolidated financial
statements

---

|ALARIS MEDICAL
SYSTEMS, INC. CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS (Unaudited)(Dollars in
thousands)
|-------------------------------------------------------------------------------------------------------------
|                                                                                                             

|                                                                 | Six Months Ended June 30, | 
|---------------------------------------------------------------- | ------------------------- | 
|
|Cash flows from operating activities:                            |                           | 
|Net (loss) income                                                |                           | 
|                                                                 |                           | 
|Adjustments to reconcile net income to net cash                  |                           | 
|provided by operating activities:                                |                           | 
|Depreciation and amortization                                    |                           | 
|Stock options granted to non-employees for service               |                           | 
|Net loss on disposal of property, plant and equipment            |                           | 
|Debt discount and issue costs amortization                       |                           | 
|Accretion of bond interest                                       |                           | 
|Recapitalization expenses                                        |                           | 
|(Increase) decrease in assets:                                   |                           | 
|Receivables, net                                                 |                           | 
|Inventories                                                      |                           | 
|Prepaid expenses and other current assets                        |                           | 
|Deferred tax assets, net, current                                |                           | 
|Net investment in sales-type capital leases, non-current portion |                           | 
|Other non-current assets                                         |                           | 
|Increase (decrease) in liabilities:                              |                           | 
|Accounts payable                                                 |                           | 
|Accrued expenses and other current liabilities                   |                           | 
|Other non-current liabilities                                    |                           | 
|                                                                 |                           | 
|Net cash provided by operating activities                        |                           | 
|                                                                 |                           | 
|Cash flows from investing activities:                            |                           | 
|Capital expenditures                                             |                           | 
|Patents, trademarks and other                                    |                           | 
|                                                                 |                           | 
|Net cash used in investing activities                            |                           | 
|                                                                 |                           | 
|Cash flows from financing activities:                            |                           | 
|Repurchase of debt and related costs                             |                           | 
|Principal payments on long-term debt                             |                           | 
|Proceeds from term loan borrowing                                |                           | 
|Proceeds from issuance of long-term debt                         |                           | 
|Proceeds from exercise of stock options                          |                           | 
|Proceeds from sale of common stock                               |                           | 
|Equity issuance costs                                            |                           | 
|Debt issuance costs                                              |                           | 
|                                                                 |                           | 
|Net cash used in financing activities                            |                           | 
|                                                                 |                           | 
|Effect of exchange rate changes on cash                          |                           | 
|                                                                 |                           | 
|Net decrease in cash                                             |                           | 
|Cash and cash equivalents at beginning of period                 |                           | 
|                                                                 |                           | 
|Cash and cash equivalents at end of period                       |                           | 
|                                                                 |                           | 

The
accompanying notes are an integral part of these condensed consolidated financial
statements

---

|ALARIS MEDICAL
SYSTEMS, INC. CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS
EQUITY AND COMPREHENSIVE INCOME (Unaudited)(Dollar and share
amounts in thousands)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                            



|                                     | Common StockShares   Amount | Capital in
Excess ofPar Value | AccumulatedDeficit | Treasury StockShares   Amount | Accumulated
Other
Compre-
hensiveLoss | Total
Stock-
holdersEquity | Compre-
hensiveLoss |  |  
|------------------------------------ | --------------------------- | ----------------------------- | ------------------ | ----------------------------- | ------------------------------------- | --------------------------- | ------------------- |  | -
|
|Balance at December 31, 2002         |                             |                               |                    | 60,045                        |                                       | $                           | 600                 |  | $
|                                     |                             |                               |                    |                               |                                       |                             |                     |  |  
|Comprehensive income:                |                             |                              
|Net loss for the period              |                             |                               |                    |                               |                                       |                             |                     |  |  
|Equity adjustment from foreign       |                             |                              
|currency translation                 |                             |                               |                    |                               |                                       |                             |                     |  |  
|Effects of cash flow hedges included |                             |                              
|in other comprehensive loss          |                             |                              
|(net of tax expense of $213)         |                             |                               |                    |                               |                                       |                             |                     |  |  
|                                     |                             |                               |                    |                               |                                       |                             |                     |  |  
|Comprehensive loss                   |                             |                               |                    |                               |                                       |                             |                     |  |  
|                                     |                             |                               |                    |                               |                                       |                             |                     |  |  
|Sale of common stock                 |                             |                               |                    | 9,100                         |                                       |                             | 91                  |  |  
|Exercise of stock options            |                             |                               |                    | 582                           |                                       |                             | 6                   |  |  
|Tax benefit from exercise of         |                             |                              
|stock options                        |                             |                               |                    |                               |                                       |                             |                     |  |  
|                                     |                             |                               |                    |                               |                                       |                             |                     |  |  
|Balance at June 30, 2003             |                             |                               |                    | 69,727                        |                                       | $                           | 697                 |  | $
|                                     |                             |                               |                    |                               |                                       |                             |                     |  |  

---

|ALARIS MEDICAL
SYSTEMS, INC. NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Dollars and share
amounts in thousands, except per share data)
|------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                            

# NOTE 1  BUSINESS
AND STATEMENT OF ACCOUNTING POLICY

# The Company:

ALARIS
Medical Systems, Inc. was originally incorporated under the name Advanced Medical
Technologies, Inc. on September 28, 1988. On November 26, 1996, IMED Corporation, the
Companys operating subsidiary, and IVAC Medical Systems, Inc., two pioneers in
infusion systems, merged to create ALARIS Medical Systems, Inc. (Former AMS),
and the Company changed its name to ALARIS Medical, Inc. (AMI). On June 30,
2003, AMI and Former AMS completed a recapitalization which is further discussed in Note
2. In connection with the recapitalization, Former AMS merged with and into AMI, which
changed its name to ALARIS Medical Systems, Inc. ALARIS Medical Systems, Inc. and its
subsidiaries are collectively referred to as the Company or ALARIS
Medical Systems.

# Statement of accounting
policy:

The
accompanying Condensed Consolidated Financial Statements have been prepared by the Company
without audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to those rules and regulations, although the Company
believes that the disclosures herein are adequate.

In
the opinion of the Company, the accompanying Condensed Consolidated Financial Statements
contain all adjustments, consisting of normal recurring adjustments, necessary for a fair
statement of the Companys financial position as of June 30, 2003, the results of its
operations for the three and six months ended June 30, 2003 and 2002, and its cash flows
for the six months ended June 30, 2003 and 2002.

# Use of estimates:

The
preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of revenues, costs, and expenses, assets, liabilities and related disclosure of
contingent amounts. While we believe our estimates and assumptions are reasonable, the
inherent nature of estimates is that actual results will likely be different from the
estimates made.

# Collateral deposit:

The Company was required at June 30, 2003 to maintain $5,209 in  collateralized  deposit  accounts with commercial banks as
security  against open foreign exchange  contracts,  primarily  forward  contracts.
Such amounts are classified as cash and cash equivalents in the Companys Condensed Consolidated Balance Sheet.
This collateral  amount was reduced by
approximately  $1,400 in July 2003 and will  continue to be reduced as the current open foreign  exchange  contracts  are
settled  throughout 2003 and the first quarter of 2004. Under the new credit  agreement  (discussed in Note 5), the Company
has the ability to enter into  similar  foreign  exchange  contracts  with  lenders who will not  require  restricted  cash
balances to be maintained.

-7-

---

# NOTE 1  BUSINESS
AND STATEMENT OF ACCOUNTING POLICY (Continued)

# Shipping and handling
costs:

Shipping
and handling costs for customer sales are classified as a selling and marketing expense.
Shipping and handling costs for customer sales, for the three and six months ended June
30, 2003, were $2,228 and $4,168, respectively. Shipping and handling costs for customer
sales, for the three and six months ended June 30, 2002, were $1,917 and $3,790,
respectively.

# Product warranties and deferred
service revenues:

Generally,
the Companys standard warranty for infusion instruments is a one or two year
warranty (based on the specific product) that covers both parts and labor. In some
instances, a customer may elect to have parts-only warranty coverage, which adds a year to
the coverage period. Patient monitoring products generally have a three year parts and
labor warranty. For patient monitoring products the Company sells that are manufactured by
a third party, the Company passes on to the customer the warranty provided by the
manufacturer. The Company provides for the estimated cost of product warranties at the
time revenue is recognized. Product warranties are recorded in other current and other
non-current liabilities.

The
Companys product warranty liability reflects managements best estimate of
probable liability under its product warranties. Management estimates the liability based
on the Companys stated warranty policies and practices, the historical frequency of
claims, and the cost to replace or repair its products under warranty.

The
Company also engages in the sale of technical services for which revenue
is deferred and recognized upon completion of the service. Additionally, the Company sells
service programs for which revenue is deferred and recognized over the service period.
Deferred service revenue is recorded in other non-current liabilities.

Changes
in the liability for product warranty and deferred revenue associated with these service
programs for the period ended June 30, 2003 was as follows:

|                                                 | 
|------------------------------------------------ | 
|
|Product warranties:                              | 
|Balance at December 31, 2002                     | 
|Accruals for warranties issued during the period | 
|Settlements made during the period               | 
|                                                 | 
|Balance at June 30, 2003                         | 
|                                                 | 
|Deferred service revenues:                       | 
|Balance at December 31, 2002                     | 
|Amounts added to deferred revenue                | 
|Amounts recorded as revenue during
the period    | 
|                                                 | 
|Balance at June 30, 2003                         | 
|                                                 | 

-8-

---

# NOTE 1 BUSINESS
AND STATEMENT OF ACCOUNTING POLICY (Continued)

# Net income per common
share:

Basic
and diluted net income per common share has been computed in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share (FAS
128), using the weighted-average number of shares of common stock outstanding and
common stock equivalents during the period.

As
the Company experienced net losses during the three and six months ended June 30, 2003,
basic and diluted net loss per share are the same. If the Company had earnings during the
three and six months ended June 30, 2003, common stock equivalents of 4,405 and 4,269,
respectively, would have been added to the weighted shares outstanding for the respective
periods. Weighted average common shares used in the calculation of diluted earnings per
share for the three and six months ended June 30, 2002 includes common stock
equivalents of 2,973 and 2,249, respectively. For the three and six months ended June 30,
2003, options to purchase 106 and 114 shares of common stock, respectively, were excluded
from the calculation of common stock equivalents because the options have an exercise
price greater than or equal to the average market value of ALARIS Medical Systems
common stock during the period. For the three and six months ended June 30, 2002, options
to purchase 211 and 380 shares of common stock, respectively, were excluded from the
calculation of common stock equivalents because the options have an exercise price greater
than or equal to the average market value of ALARIS Medical Systems common stock
during the period.

# Stock-based compensation:

The
Company measures compensation expense for ALARIS Medical Systems stock-based
employee compensation plans using the intrinsic value method and provides pro forma
disclosures of net income as if the fair value-based method had been applied in measuring
compensation expense.

ALARIS
Medical Systems has stock-based compensation plans from which incentive stock options may
be granted to key employees of the Company and non-qualified stock options may be granted
to key employees, directors, officers, independent contractors, and consultants. The
Company accounts for options issued to employees, directors, and officers under those
plans pursuant to the recognition and measurement principles of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and Related Interpretations.
No stock-based employee compensation cost is reflected in net income, as all options
granted under those plans have an exercise price equal to the market value of the
underlying common stock on the date of grant. Stock options issued to independent
contractors and consultants under those plans are accounted for using a fair value method
and are re-measured to fair value at each period end until the earlier of the date that
performance by the counter party is complete or a performance commitment has been reached.

-9-

---

# NOTE 1  BUSINESS
AND STATEMENT OF ACCOUNTING POLICY (Continued)

The
following table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee
compensation, assuming such standard had been adopted January 1, 1995.

|                                                      | Three Months Ended | Six Months Ended |   |        
|----------------------------------------------------- | ------------------ | ---------------- | - | -------
|
|Net (loss) income, as reported                        |                    |                  | $ | (35,876
|Deduct:  Total stock-based employee compensation      |                    |                 
|expense determined under fair value based method      |                    |                 
|for all awards, net of related tax effects            |                    |                  |   | (497   
|                                                      |                    |                  |   |        
|Pro forma net (loss) income                           |                    |                  | $ | (36,373
|                                                      |                    |                  |   |        
|Earnings per share:                                   |                    |                 
|Net (loss) income per common share, basic             |                    |                  | $ | (.59   
|                                                      |                    |                  |   |        
|Net (loss) income per common share, diluted           |                    |                  | $ | (.59   
|                                                      |                    |                  |   |        
|Net (loss) income per common share, pro forma basic   |                    |                  | $ | (.60   
|                                                      |                    |                  |   |        
|Net (loss) income per common share, pro forma diluted |                    |                  | $ | (.60   
|                                                      |                    |                  |   |        

These
pro forma amounts may not be representative of future costs since the estimated fair value
of stock options is amortized to expense over the vesting period and additional options
may be granted in future years. The fair value for these options was estimated at the date
of grant using the Black-Scholes option pricing model with the following weighted average
assumptions for the three and six months ended June 30, 2003 and 2002  dividend
yields of 0%, expected volatility of 50% and 75%, respectively, and expected lives of 7
years. Weighted average risk free interest rates of 3.0% and 3.3% were used for the three
and six months ended June 30, 2003, respectively. The weighted average risk free interest
rate of 3.4% was used for both the three and six months ended June 30, 2002.

The
Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions including the
expected stock price volatility. Because ALARIS Medical Systems employee stock
options have characteristics significantly different from those of traded options, and
because changes in subjective input assumptions can materially affect the fair value
estimates, in managements opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock based compensation plans.
To comply with disclosure requirements, the Company has valued its options using the
Black-Scholes option valuation model but plans to assess other valuation models and
assumptions that may more accurately reflect the value of these stock options.

-10-

---

# NOTE 2 
RECAPITALIZATION EXPENSES

In
February 2003, AMI repurchased in a private transaction $25,000 principal amount at
maturity of its 11-1/8% Senior Discount Notes due 2008 (Senior Discount Notes)
at a total cost of $25,000, representing a premium of $1,171 or 4.7% over the then
accreted carrying value. Such premium, along with a write-off of unamortized debt issuance
costs related to the purchased Senior Discount Notes, was recorded as a charge of $1,545
in the Companys first quarter 2003 operating results.

In
April 2003, Former AMS repurchased $2,500 principal amount of its 11-5/8% Senior Secured
Notes due 2006 (Senior Secured Notes), at a total cost of $2,925, representing
a premium of 17% over such principal amount. Such premium, along with a write-off of
unamortized debt issuance costs related to the purchased Senior Secured Notes was recorded
as a charge of $503 in the Companys second quarter 2003 operating results.

In
April 2003, AMI filed a universal shelf registration statement with the
Securities and Exchange Commission (SEC) registering $550 million of equity and/or debt
securities. In May 2003, AMI commenced a cash tender offer for any and all of its
outstanding Senior Discount Notes, and Former AMS commenced cash tender offers for any and
all of its outstanding Senior Secured Notes and 9-3/4% Senior Subordinated Notes due 2006
(Senior Subordinated Notes). On June 30, 2003, ALARIS Medical Systems sold in
underwritten public offerings pursuant to the registration statement $175,000 of 7-1/4%
senior subordinated notes due 2011 (the Notes) and 9,100 shares of its common
stock at an offering price of $12.50 per share. Proceeds received from the sale of the
Notes were $170,625, net of the underwriting discount of $4,375. Proceeds received from
the stock offering were $106,882, net of the underwriting discount and other expenses of
$6,868. Also on June 30, 2003, the Company established a new credit facility with a group
of banks and other lenders providing for a six-year $245,000 term loan and a five-year
$30,000 revolving credit facility. (See Note 5  Long-term Debt)

The
Company used the net proceeds from the sale of the Notes and the common stock, borrowings
under the $245,000 bank term loan and approximately $51,000 of its existing cash: (i) to
repurchase, pursuant to the tender offers described above: (a) all outstanding Senior
Discount Notes at a price of 105.375% of the principal amount thereof at maturity, (b) all
outstanding Senior Secured Notes at a price of 122% of principal amount thereof, plus
accrued interest and (c) all (except $25, which was not tendered) Senior Subordinated
Notes at a price of 103.75% of principal amount thereof, plus accrued interest;
and (ii) to pay related fees and expenses. In July 2003, ALARIS Medical Systems
called for redemption of all the $25 Senior Subordinated Notes which remain outstanding.

On
July 2, 2003, the underwriters of the common stock offering exercised their over-allotment
option to purchase an additional 1,350 shares at $12.50 per share, which consisted of 900
shares purchased from ALARIS Medical Systems and 450 shares purchased from the
Companys executive officers. ALARIS Medical Systems received net proceeds from the
sale of these 900 shares of $10,659, net of the underwriting discount of $591,
and will be recorded in the Company's stockholders' equity during the third quarter.

The sale of the Notes and common stock, the borrowings under the bank credit facility, the
repurchase of indebtedness pursuant to the tender offers, other debt repurchases made in 2003 and the merger of Former AMS into
AMI described in Note 1 are collectively referred to as the
Recapitalization.

-11-

---

# NOTE 2 
RECAPITALIZATION EXPENSES (Continued)

Premiums
(representing the excess of tender offer purchase prices over principal amounts of the
purchased indebtedness) and consent fees in connection with the tender offers and consent
solicitations, representing a total of $53,854, along with a write-off of unamortized debt
issuance costs of $9,833 and other costs of $1,960 were recorded in other
expenses as a total charge of $65,647 in the quarter ended June 30, 2003. These
charges are in addition to the $503 charge related to the $2,500 repurchase of Senior
Secured Notes during the second quarter of 2003 and the $1,545 charge related to the
$25,000 repurchase of Senior Discount Notes during the first quarter of 2003. As a result,
the Company recorded total pre-tax charges related to the recapitalization for the three
months and six months ended June 30, 2003 of $66,150 and $67,695, respectively.

# NOTE 3  GOODWILL
AND OTHER INTANGIBLE ASSETS

Acquired
other intangible assets were as follows:

|                                           | June 30, 2003 | December 31, 2002 |  |              
|------------------------------------------ | ------------- | ----------------- |  | -------------
|
|Patents                                    |               | $      29,021     |  | $      18,933
|Distribution rights and license agreements |               | 8,462             |  | 4,327        
|                                           |               |                   |  |              
|Subtotal other intangible assets, net      |               |                   | 
|(subject to amortization)                  |               | 37,483            |  | 23,260       
|Acquired other intangible assets           |              
|(not subject to amortization):             |              
|IVAC trade name                            |               | 74,750            |  | -            
|                                           |               |                   |  |              
|Other intangible assets, net               |               | $      112,233    |  | $      23,260
|                                           |               |                   |  |              

For
the quarter ended June 30, 2003 and 2002, amortization expense for other intangible
assets, net was $550 and $580, respectively. For the six months ended June 30, 2003 and
2002, amortization expense for other intangible assets, net was $1,101 and $1,169,
respectively. The estimated future annual amortization expense for other intangible
assets, net is as follows:

|            |           
|----------- | ----------
|
|Fiscal Year |           
|2003 (A)    | $    1,080
|2004        | 2,182     
|2005        | 2,182     
|2006        | 2,130     
|2007        | 1,774     

(A)
Amount represents remaining estimated amortization expense for 2003.

-12-

---

# NOTE 4  INVENTORIES

Inventories
comprise the following:

|                | June 30,
2003 | December 31,
2002
|--------------- | ------------- | -----------------
|Raw materials   |               |                  
|Work-in-process |               |                  
|Finished goods  |               |                  
|                |               |                  
|                |               |                  
|                |               |                  
|                |               |                  

# NOTE 5  LONG-TERM
DEBT

Long-term
debt consists of the following:

|                                                | June 30,
2003 | December 31,
2002
|----------------------------------------------- | ------------- | -----------------
|Bank credit facility, total term loans due 2009 |               |                  
|7-1/4% senior subordinated notes due 2011       |               |                  
|9-3/4% senior subordinated notes due 2006       |               |                  
|11-5/8% senior secured notes due 2006           |               |                  
|11-1/8% senior discount notes due 2008          |               |                  
|                                                |               |                  
|                                                |               |                  
|Current portion                                 |               |                  
|                                                |               |                  
|Long-term debt                                  |               |                  
|                                                |               |                  
|                                                |               |                  

# Bank credit facility:

As
part of the recapitalization described in Note 2, on June 30, 2003, the Company
established a $275,000 bank credit facility (the Credit Facility) consisting
of a six-year $245,000 term loan and a five-year $30,000 revolving credit facility. The
Company has not borrowed any portion of the revolving credit facility. The term loan bears
interest at an annual rate equal to current LIBOR (or, at the Companys option, a
fluctuating base rate), plus 2.75%. The Company can elect to use either a one-, two-,
three-, or six-month LIBOR rate. The Company has initially made a one month
election (1.12% plus the margin of 2.75%), resulting in an interest rate at June 30, 2003 of
3.87% per annum. Payments of 0.25% of the original principal balance on the term loan
plus accrued interest are due each quarter, with any unpaid principal balance due at
maturity. The Company is required to pay a quarterly commitment fee at an annual rate of
0.5% on the unused portion of the revolving credit facility. As a result of the
Companys receipt of proceeds from the sale of 900 additional shares of common stock
on July 2, 2003, in connection with the exercise by the underwriters of their
over-allotment option to purchase common stock, on July 10, 2003, the Company made a $10,000 prepayment of
principal under the term loan.

-13-

---

# NOTE 5  LONG-TERM
DEBT (Continued)

The Company is also required,  under terms agreeable to lenders under the Credit Facility,  to effectively fix the variable
interest  rate  exposure  of 50% of its total  outstanding  debt.  This was  accomplished  by fixing our LIBOR rate for the
remainder  of 2003 and entering  into an interest  rate swap  agreement  in July 2003  whereby  $30,000 of the term loan is
effectively  converted  to a fixed rate of 5.0%  (2.25%  plus the  current  margin of 2.75%),  and is  effective  beginning
January 1, 2004 through December 31, 2005.

The
Credit Facility contains various operating, financial and reporting covenants. As of June
30, 2003, the Company was in compliance with all such covenants.

# Senior subordinated
notes:

As
part of the recapitalization described in Note 2, ALARIS Medical Systems sold $175,000
principal amount of its senior subordinated notes due 2011 (the Notes). The
Notes bear interest at an annual rate of 7-1/4%, which is payable semi-annually in arrears
on July 1 and January 1 of each year, commencing January 1, 2004, and
mature on July 1, 2011. The Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after July 1, 2007 at an initial redemption price of 103.625%,
plus accrued and unpaid interest, if any, to the date of redemption, with the redemption
price declining annually thereafter. In addition, subject to certain limitations, the
Company may redeem up to 35% of the Notes on or before July 1, 2006 with the net cash
proceeds of one or more equity offerings, at a price of 107.25%, plus accrued and unpaid
interest, if any, to the date of redemption. In the event of a change of control, as
defined in the indenture governing the Notes, holders may require the Company to purchase
their Notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase. The Notes are subject to certain restrictive and reporting
covenants. As of June 30, 2003, the Company was in compliance with all such covenants.

# NOTE 6 
RESTRUCTURING AND OTHER NON-RECURRING ITEMS

During
the first quarter of 2002, the Company recorded a non-recurring benefit of $1,125 for an
insurance settlement. The settlement related to damages and losses incurred at one of the
Companys disposable products manufacturing plants in Mexico in 1993 as a result of
flooding. The contingency related to the insurance settlement was resolved in the first
quarter of 2002, when the Company received proceeds of $1,000 and notification of an
additional payment due of $125, which was received during April 2002.

Also
during the first quarter of 2002, the Company initiated a plan to restructure its
technical services operations in Central Europe. In this connection, the Company recorded
a charge of $540 which included $400 for severance costs for 21 positions affected by the
relocation of the German operation and $140 related to lease termination expenses. As of
June 30, 2003, all severance payments have been made to the identified employees and $21
in lease termination payments have been made.

-14-

---

# NOTE 7  SEGMENT
INFORMATION

The
Company is organized primarily based on geographic location with the United States and
Canada drug infusion and patient monitoring business, and Mexico manufacturing activities,
representing the North America segment. All other international operations, including
Europe, Asia, Australia, Latin America, and Africa represent the International segment.

The
accounting policies of the segments are the same as those described in the Consolidated
Financial Statements included in the Companys Annual Report on Form 10-K for the
year ended December 31, 2002. The geographical data does not include intersegment
revenues. All expenses associated with corporate headquarters are included in the North
America segment. The Company evaluates the performance of its segments based on sales and
operating income.

The
table below presents information about reported segments for the:

Three
months ended June 30:

|                       | North
America | International | Total
|---------------------- | ------------- | ------------- | -----
|2003                   |               |               |      
|Sales                  |               |               | $    
|Income from operations |               |               |      
|2002                   |               |               |      
|Sales                  |               |               | $    
|Income from operations |               |               |      

Six
months ended June 30:

|                       | North
America | International | Total
|---------------------- | ------------- | ------------- | -----
|2003                   |               |               |      
|Sales                  |               |               | $    
|Income from operations |               |               |      
|2002                   |               |               |      
|Sales                  |               |               | $    
|Income from operations |               |               |      

# NOTE 8  CASH FLOW
INFORMATION

For
the six months ended June 30, 2003 and 2002, federal, state and foreign income taxes paid,
net of tax refunds, totaled $2,207 and $3,827, respectively. Interest paid during the six
months ended June 30, 2003 and 2002 totaled $21,598 and $21,706, respectively.

-15-

---

# NOTE 9 
CONTINGENCIES AND LITIGATION

# Litigation:

In May 2003, the Company  purchased from  Filtertek,  Inc. a worldwide,  unrestricted  patent license  related to needle-free
valve products.  The purchase price of the license of $7,300 has been  capitalized  and is included in the Companys  balance
sheet under the caption Other non-current  assetsand is being amortized on a straight-line  basis over a 10 year estimated
useful life. All remaining claims in a patent  litigation  relating to needle-free  systems between Filtertek and the Company
(and one of its customers),  as discussed in note 14 to our Consolidated  Financial Statements contained in our Annual Report
on Form 10-K (filed under our former name ALARIS  Medical,  Inc.) for the year ended December 31, 2002, have been dismissed
by the United States District Court for the District of Northern Illinois.

The
Company is also a defendant in various actions, claims, and legal proceedings arising from
its normal business operations. Management believes the Company has meritorious defenses
to these cases and intends to defend itself vigorously. As the ultimate outcome of these
matters is uncertain, no contingent liabilities or provisions have been recorded in the
accompanying financial statements for such matters.However, in managements
opinion, based on discussions with legal counsel, liabilities arising from such matters,
if any, will not have a material adverse effect on the business, financial condition,
results of operations or cash flows of the Company.

# Other Matters:

During
 the years 1988 through 1995, Cal Pacifico  acted as the Companys  United States customs broker and importer of record
with respect to the  importation  into the United States of finished  products  assembled at the  Companys  two  maquiladora
assembly  plants in Tijuana,  Mexico.  Cal Pacifico  received a pre-penalty  notice of intent from the United States  Customs
Service  (Customs) to assess  additional  duties and penalties  against Cal Pacifico for its alleged failure to comply with
certain  documentary  requirements  regarding the importation of goods on behalf of its clients,  including the Company.  The
Company  believes  that it is unlikely  that  Customs will assess any portion of the  disputed  amounts  against the Company.
Customs has not  initiated  any  proceedings  against  the  Company in respect of such  matters.  Nonetheless,  Cal  Pacifico
advised  the Company  that it may seek  recovery  from the  Company,  through  arbitration,  for any portion of the  disputed
amounts which it is required to pay to Customs.  The ultimate  outcome of such  proceeding  cannot be  predicted,  nor is the
Company able to estimate the possible loss resulting from such  proceeding,  should one occur.  The Company  believes that it
has  meritorious  defenses to claims Cal Pacifico might raise against the Company.  Although  management  does not believe it
is probable that the Cal Pacifico  dispute will result in a material  claim against the Company,  it will continue to monitor
the matter.

-16-

---

|PART I  ITEM 2
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
|-----------------------------------------------------------------------------------------------------
|                                                                                                     

# 

# 

# FORWARD-LOOKING
STATEMENTS

Certain
of the matters discussed in this report, including, without limitation, matters discussed
under this Item 2, Managements Discussion and Analysis of Financial Condition
and Results of Operations, may constitute forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Certain of
these forward-looking statements can be identified by the use of forward-looking
terminology such as believes, expects, may,
will, should, seeks, approximately,
intends, plans, estimates, or anticipates
or the negative of these terms or other comparable terminology, or by discussions of
strategy, plans or intentions. Statements contained in this report that are not historical
facts are forward-looking statements. Without limiting the generality of the preceding
statement, all statements in this report concerning or relating to estimated and projected
earnings, margins, costs, expenditures, cash flows, growth rates and financial results are
forward-looking statements. In addition, through our senior management, from time to time
we make forward-looking statements concerning our expected future operations and
performance and other developments. Such forward-looking statements are necessarily
estimates reflecting our best judgment based upon current information and involve a number
of risks and uncertainties. Other factors may affect the accuracy of these forward-looking
statements and our actual results may differ materially from the results anticipated in
these forward-looking statements. While it is impossible to identify all such factors,
factors that could cause actual results to differ materially from those estimated by us
include, but are not limited to, those factors or conditions described under this Item 2,
Managements Discussion and Analysis of Financial Condition and Results of
Operations in this report and under Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations  Critical Accounting
Policies and Estimates and Factors That Could Affect Future Financial
Condition and Results in our Annual Report on Form 10-K (filed under our former name
ALARIS Medical, Inc.) for the year ended December 31, 2002, and general
conditions in the economy and capital markets.

# The Company:

ALARIS
Medical Systems, Inc. was originally incorporated under the name Advanced Medical
Technologies, Inc. on September 28, 1988. On November 26, 1996, IMED Corporation, the
Companys operating subsidiary, and IVAC Medical Systems, Inc., two pioneers in
infusion systems, merged to create ALARIS Medical Systems, Inc. (Former AMS),
and the Company changed its name to ALARIS Medical, Inc. (AMI). On June 30,
2003, AMI and Former AMS completed a recapitalization. In connection with the
recapitalization, Former AMS merged with and into AMI, which changed its name to ALARIS
Medical Systems, Inc. ALARIS Medical Systems, Inc. and its subsidiaries are collectively
referred to as the Company or ALARIS Medical Systems.

# Overview:

We
develop and provide practical solutions for medication safety. We are a global leader in
the design, manufacture and marketing of intravenous (IV) medication safety systems and
infusion therapy devices, needle-free disposables and related monitoring equipment. Our IV
infusion systems are used to deliver to patients one or more fluids, primarily
pharmaceuticals or nutritionals, and consist of medication safety systems, single and
multi-channel large volume infusion pumps, syringe pumps and dedicated and non-dedicated
disposable administration sets. Our medication safety systems, such as our Medley
Medication Safety System with our proprietary Guardrails Safety Software, and our other
smart technologies and smart services, help to reduce the risks
and costs of medication errors, help to safeguard patients and clinicians and gather and
record clinical information for transcription, analysis and review.

-17-

---

We
have one of the largest installed bases of large volume pump delivery lines in the U.S.
hospital market, which we believe to be approximately 32% of such lines. We also believe
that we have the number one or number two market position in the large volume pump segment
or the syringe pump segment, or both segments, in eight Western European countries, as
well as in Australia, Canada, New Zealand and South Africa. We sell our products primarily
to the hospital market through a worldwide direct sales force of over 200 salespersons and
more than 100 distributors to over 5,000 hospitals in more than 120 countries. We also
have long-term contracts with most major hospital group purchasing organizations (GPOs) in
the United States, which enhance our ability to sell our products to individual member
hospitals. We generate approximately two-thirds of our revenues from our North America
business unit and approximately one-third of our revenues from our International business
unit.

# Critical Accounting
Policies and Estimates:

Our
discussion and analysis of our operating results and financial condition is based upon our
unaudited Condensed Consolidated Financial Statements, which have been prepared in
accordance with United States generally accepted accounting principles.

Critical
accounting policies are those that involve subjective or complex judgments, often as a
result of the need to make estimates. The following areas all require the use of judgments
and estimates: inventory valuation, allowances for uncollectible accounts receivable and
estimated rebates, cost of field corrective actions, deferred tax asset valuation and
carrying value of intangible assets. Estimates in each of these areas are based on
historical experience and various judgments and assumptions that we believe are
appropriate. However, the inherent nature of estimates is that actual results will likely
be different from these estimates. Our accounting practices are discussed in more detail
in Item 7, Managements Discussion and Analysis of Financial Condition and
Results of Operations and note 2 to our Consolidated Financial Statements contained
in our Annual Report on Form 10-K (filed under our former name
ALARIS Medical, Inc.)for the year ended December 31, 2002.

# Results of Operations:

The
following table sets forth, for the periods indicated, selected financial information
expressed as a percentage of sales:

|                                               | Three Months Ended
June 30, | Six Months Ended
June 30, |    |      
|---------------------------------------------- | --------------------------- | ------------------------- | -- | -----
|
|Sales                                          |                             | 100.0                     | %  | 100.0
|Cost of sales                                  |                             | 46.3                      |    | 50.1 
|                                               |                             |                           |    |      
|Gross margin                                   |                             | 53.7                      |    | 49.9 
|Selling and marketing expenses                 |                             | (20.0                     | )  | (19.4
|General and administrative expenses            |                             | (9.5                      | )  | (9.7 
|Research and development expenses              |                             | (7.5                      | )  | (7.0 
|Restructuring and other non-recurring items    |                             | -                         |    | -    
|Interest income from sales-type capital leases |                             | 0.7                       |    | 1.0  
|                                               |                             |                           |    |      
|Income from operations                         |                             | 17.4                      |    | 14.8 
|Interest expense, net                          |                             | (10.8                     | )  | (13.1
|Recapitalization expenses                      |                             | (51.8                     | )  | -    
|Other, net                                     |                             | (0.5                      | )  | 0.2  
|                                               |                             |                           |    |      
|(Loss) income before income taxes              |                             | (45.7                     | )  | 1.9  
|Benefit from (provision for) income taxes      |                             | 17.6                      |    | (0.8 
|                                               |                             |                           |    |      
|Net (loss) income                              |                             | (28.1                     | )% | 1.1  
|                                               |                             |                           |    |      

-18-

---

We
report our sales results consistent with our two geographical  segments:  North America
and  International.  The following table summarizes sales to customers by each segment.

|                              | Three Months Ended
June 30, | Six Months Ended
June 30, |    |           |    |    
|----------------------------- | --------------------------- | ------------------------- | -- | --------- | -- | ---
|
|
|North America                 |                             |                           |    |           |    |    
|Infusion Instruments          |                             | $      24                 | .8 | $      18 | .3 | 36 
|Dedicated Disposables         |                             | 36                        | .9 | 34        | .6 | 7  
|Other Disposables and Service |                             | 19                        | .9 | 18        | .0 | 11 
|                              |                             |                           |    |           |    |    
|Subtotal                      |                             | 81                        | .6 | 70        | .9 | 15 
|                             
|Patient Monitoring            |                             | 6                         | .3 | 6         | .6 | (5 
|                              |                             |                           |    |           |    |    
|North America Total           |                             | $      87                 | .9 | $      77 | .5 | 13 
|                              |                             |                           |    |           |    |    
|International                 |                            
|Infusion Instruments          |                             | $      10                 | .1 | $       7 | .4 | 36 
|Dedicated Disposables         |                             | 21                        | .7 | 17        | .5 | 24 
|Other Disposables and Service |                             | 6                         | .9 | 4         | .5 | 53 
|                              |                             |                           |    |           |    |    
|Subtotal                      |                             | 38                        | .7 | 29        | .4 | 32 
|                             
|Patient Monitoring            |                             | 1                         | .2 | 1         | .6 | (25
|                              |                             |                           |    |           |    |    
|International Total           |                             | $      39                 | .9 | $      31 | .0 | 29 
|                              |                             |                           |    |           |    |    
|ALARIS Medical Systems Total  |                             | $    127                  | .8 | $    108  | .5 | 18 
|                              |                             |                           |    |           |    |    

# Three Months Ended June
30, 2003 Compared with Three Months Ended June 30, 2002

Sales.          For
the three months ended June 30, 2003, sales were $127.8 million, an increase of
$19.2 million, or 18%, over the same period in the prior year. If currency
          exchange rates for the second quarter of 2003 had prevailed during the second
          quarter of 2002, sales would have been $114.3 million for the second quarter of
          2002. Thus, excluding the effects of currency changes, the increase in sales
for           the second quarter of 2003 was $13.5 million, or 12%, over the second
quarter of           2002.

Higher
volumes of both drug infusion instruments and disposable administration sets were the
primary factors leading to the increase in North America sales of $10.4 million, or 13%,
over the prior year. The increase in infusion instruments was primarily due to sales of
the Medley Medication Safety System and our proprietary Guardrails Safety Software. We believe  the
increase in sales of dedicated disposables was due to an increase in our installed base of
infusion devices.  The increase in other disposables and service was due to approximately
$2.2 million in additional sales of SmartSite Needle-Free systems over the second quarter
2002. The increase in sales of drug infusion products in North America was partially
offset by lower volumes of patient monitoring instruments and  associated disposables compared with
the prior year.

International
sales for the second quarter of 2003 increased $8.9 million, or 29% compared with the same
period in the prior year. Excluding the effects of currency changes, International sales
for the second quarter of 2003 increased 9% over the second quarter of 2002. This increase
was due to higher volumes of, and revenues from, large volume pumps, syringe pumps,
dedicated disposable administration sets, SmartSiteNeedle-Free systems and
service.

-19-

---

Gross
Profit. Gross profit increased $14.5 million, or 27%, for the quarter ended
June 30, 2003, compared with the same quarter in the prior year. The gross margin
percentage increased to 53.7% for the second quarter of 2003, from 49.9% for the second
quarter of 2002. Excluding the effects of currency changes, gross profit for the second
quarter of 2003 would have increased $10.4 million from the second quarter of 2002 and the
gross margin percentage for the second quarter of 2002 would have been 50.9%. In both
North America and International, the improved margin percentage was due to increased
volume of products manufactured and sold, an increased percentage of revenues from sales
of software products that carry a higher margin than equipment and disposables, and
generally lower product costs resulting from improved manufacturing efficiencies.

Selling
and Marketing Expenses. Selling and marketing expenses increased $4.5
million, or 21%, for the quarter ended June 30, 2003, compared with the same period in
2002, primarily due to increased selling costs associated with higher sales volume in the
second quarter of 2003 compared with the second quarter of 2002 and to higher sales and marketing
costs related to increased personnel, consulting and related activities supporting the
continued deployment of our medication safety strategy. As a percentage of sales, selling
and marketing expenses increased to 20.0% for the second quarter of 2003 from 19.4% for
the second quarter of 2002. Excluding the effects of currency changes, the increase in
selling and marketing expenses for the second quarter of 2003 would have been $3.3
million, or 15%, compared with the second quarter of 2002.

General
and Administrative Expenses. General and administrative expenses increased
$1.6 million, or 16%, for the quarter ended June 30, 2003, compared with the same period
in the prior year. As a percentage of sales, general and administrative expenses decreased
to 9.5% for the second quarter of 2003, from 9.7% for the second quarter of 2002.
Excluding the effects of currency changes, the increase in general and administrative
expenses for the second quarter of 2003 would have been $1.2 million, or 11%, compared
with the second quarter of 2002. Increases in administrative expenses were largely due to
higher depreciation, legal and other professional services, and medical insurance expense over the
same period in the prior year.

Research
and Development Expenses. Research and development expenses increased
approximately $1.9 million, or 25%, for the quarter ended June 30, 2003, compared with the
same period in the prior year. The increase was due to spending associated with new
product development primarily related to our medication safety strategy, including increased
spending on new products for the international market. This higher spending was primarily
in the form of increased salaries and benefits and outside consulting. Research and
development expenses increased to 7.4% of sales for the second quarter of 2003, compared
with 7.0% of sales for the second quarter of 2002.

Restructuring
and Other Non-Recurring Items. In the first quarter of 2002, we recorded a non-recurring benefit of $1.1
million for an insurance settlement. The settlement
related to damages and losses incurred at one of our disposable products manufacturing
plants in Mexico in 1993 as a result of flooding. The contingency related to the insurance
settlement was resolved in the first quarter of 2002, when we received proceeds of $1.0
million and notification of an additional payment due of $.1 million, which we received
during April 2002.

During
the first quarter of 2002, we initiated a plan to restructure our Central European
technical services. In connection with this plan, we recorded a charge of $.5 million
which included $.4 million for severance costs for 21 positions affected by the relocation
of our German operations and $.1 million related to lease termination payments. As of June
30, 2003, all severance payments had been made to the identified employees.

Interest
Income from Sales-Type Capital Leases.Interest income from sales-type
capital leases decreased $.2 million, or 22%, for the quarter ended June 30, 2003,
compared with the same quarter in 2002 due to a decrease in the contract portfolio as more
customers have utilized third party financing.

-20-

---

Interest
Income.Interest income was constant for the quarter ended June 30, 2003,
compared with the same quarter in 2002. While the average cash balance was higher than the
same period in 2002, the yield earned on such balances was lower due to lower interest
rates during the second quarter of 2003.

Interest
Expense.Interest expense decreased $.4 million, or 2%, for the quarter
ended June 30, 2003, compared with the same period in the prior year, primarily as a result of the
repurchase in February 2003 of $25 million of Senior Discount Notes.

Recapitalization
Expenses. In connection with the recapitalization discussed in Note 2 to the
unaudited Condensed Consolidated Financial Statements, we recorded a pretax charge
of $66.2 million ($40.5 million, net of tax, or $.67 per share) for the quarter
ended June 30, 2003. This charge includes premiums (representing the excess of
tender offer purchase prices over principal amounts of purchased indebtedness) and
consent payments in connection with the tender offers and consent solicitations of
$54.3 million, the write-off of related unamortized debt issuance costs of $9.9
million and other related costs of $2.0 million.

Excluding
 this charge,  net income for the quarter would have been $4.6 million and net income per
common share,  on a fully diluted basis,  would have been $.07. On a pro forma basis,
 assuming the  recapitalization  had occurred on January 1, 2003, and excluding the
charge  relating to  recapitalization  expenses that we recorded in the second  quarter of
2003,  net income for the three  months  ended June 30,  2003 would have been $9.5
 million  and net income per common  share,  on a fully  diluted basis, would have been
$.13.

[We refer the reader to "Supplemental  Schedule Reconciling GAAP Data to Pro Forma Non-GAAP Data"
on page 24 for a reconciliation  of net income and net
income per common share to this pro forma data, which are non-GAAP financial  measures,
 as well as a discussion of the reasons that management  believes the presentation of
such information is useful for investors.]

Other,
Net.Other, net expenses increased $.9 million for the quarter ended June
30, 2003, compared with the same quarter in 2002 primarily due to higher charges incurred
to settle foreign currency contracts and premium costs for currency option
contracts.

# Six Months Ended June
30, 2003 Compared with Six Months Ended June 30, 2002

Sales.
          For the six months ended June 30, 2003, sales were $248.9 million, an increase
          of $36.0 million, or 17%, over the same period in the prior year. If currency
          exchange rates for the six months ended June 30, 2003 had prevailed during the
          same period 2002, sales would have been $224.4 million for the six months ended
          June 30, 2002. Thus, excluding the effects of currency changes, the increase in
          sales for the six months ended June 30, 2003 was $24.5 million, or 11%, over the
          same period in 2002.

Higher
volumes of both drug infusion instruments and disposable administration sets were the
primary factors leading to the increase in North America sales of $21.0 million, or 14%,
over the prior year. The increase in infusion instruments was primarily due to sales of
the Medley Medication Safety System and our proprietary Guardrails Safety Software. We believe that the
increase in dedicated disposables was due to an increase in our installed base of infusion
devices.  The increase in other disposables and service was due to approximately $4.9
million in additional sales of SmartSite Needle-Free systems. The increase in sales of
drug infusion products in North America was partially offset by lower volumes of patient
monitoring instruments and associated disposables compared with the prior year.

International
sales for the six months ended June 30, 2003 increased $15.0 million, or 23% compared with
the same period in the prior year. Excluding the effects of currency changes,
International sales for the six months ended June 30, 2003 increased 5% over the same
period in 2002. This increase was due to higher volumes of, and revenues from, large
volume pumps, syringe pumps, dedicated disposable administration sets, SmartSiteNeedle-Free systems and services compared with the same period in the prior year.

-21-

---

Gross
Profit. Gross profit increased $25.9 million, or 25%, for the six months
ended June 30, 2003, compared with the same period in the prior year. The gross margin
percentage increased to 52.9% for the first half of 2003, from 49.7% for the first half of
2002. Excluding the effects of currency changes, gross profit for the six months ended
June 30, 2003 would have increased $17.5 million from the same period in 2002 and the
gross margin percentage for the six months ended June 30, 2002 would have been 50.9%. In
both North America and International, the improved margin percentage was due to increased
volume of products manufactured and sold, an increased percentage of revenues from sales
of software products that carry a higher margin than equipment and disposables, and
generally lower product costs resulting from improved manufacturing efficiencies.

Selling
and Marketing Expenses. Selling and marketing expenses increased $7.3
million, or 17%, for the six months ended June 30, 2003, compared with the same period in
2002, primarily due to increased selling costs associated with higher sales volume in the
second quarter of 2003 compared with the prior year and to higher sales and marketing
costs related to increased personnel, consulting and related activities supporting the
continued deployment of our medication safety strategy. As a percentage of sales, selling
and marketing expenses remained constant at 20.0%. Excluding the effects of currency
changes, the increase in selling and marketing expenses for the six months ended June 30,
2003 would have been $4.8 million, or 11%, compared with the same period in 2002.

General
and Administrative Expenses. General and administrative expenses increased
$3.1 million, or 15%, for the six months ended June 30, 2003, compared with the same
period in the prior year. As a percentage of sales, general and administrative expenses
decreased to 9.4% for the six months ended June 30, 2003, from 9.5% for the same period in
2002. Excluding the effects of currency changes, the increase in general and
administrative expenses for the second quarter of 2003 would have been $2.6 million, or
13%, compared with the second quarter of 2002. Increases in administrative expenses were
largely due to higher depreciation, legal and other professional services, and medical insurance
expense over the same period in the prior year.

Research
and Development Expenses. Research and development expenses increased
approximately $4.5 million, or 33%, for the six months ended June 30, 2003, compared with
the same period in the prior year. The increase was due to spending associated with new
product development primarily related to our medication safety strategy, including increased
spending on new products for the international market. This higher spending was primarily
in the form of increased salaries and benefits and outside consulting. Research and development expenses
increased to 7.4% of sales for the first half of 2003, compared with 6.5% of sales for the
same period in 2002.

Restructuring
and Other Non-Recurring Items. We recorded a non-recurring benefit of $1.1 million
during the first quarter of 2002 for an insurance settlement. The settlement related to
damages and losses incurred at one of our disposable products manufacturing plants in
Mexico in 1993 as a result of flooding. The contingency related to the insurance
settlement was resolved in the first quarter of 2002, when we received proceeds of $1.0
million and notification of an additional payment due of $.1 million, which we received
during April 2002.

-22-

---

During
the first quarter of 2002, we initiated a plan to restructure our Central European
technical services. In connection with this plan, we recorded a charge of $.5 million
which included $.4 million for severance costs for 21 positions affected by the relocation
of our German operations and $.1 million related to lease termination payments. As of June
30, 2003, all severance payments had been made to the identified employees.

Interest
Income from Sales-Type Capital Leases.Interest income from sales-type
capital leases decreased $.6 million, or 24%, for the six months ended June 30, 2003,
compared with the same period in 2002 due to a decrease in the contract portfolio as more
customers have utilized third party financing.

Interest
Income.Interest income was constant for the six months ended June 30,
2003, compared with the same period in 2002. While the average cash balances were higher
than the same period in 2002, the yield earned on such cash balances was lower due to
lower interest rates during the first half of 2003.

Interest
Expense.Interest expense decreased $.2 million, or 1%, for the six months
ended June 30, 2003, compared with the same period in the prior year, primarily as a result of the
repurchase in February 2003 of $25 million of Senior Discount Notes.

Recapitalization
Expenses.In connection with the recapitalization discussed in Note 2 to the
unaudited Condensed Consolidated Financial Statements, we recorded a pre-tax charge
of $67.7 million ($41.4 million, net of tax, or $.69 per share) for the six months
ended June 30, 2003. This charge includes premiums (representing the excess of
tender offer purchase prices over principal amounts of purchased indebtedness) and
consent payments in connection with the tender offers and consent solicitations of
$55.4 million, the write-off of related unamortized debt issuance costs of $10.3
million and other related costs of $2.0 million.

Excluding
 this charge,  net income would have been $8.1 million and net income per common share,
 on a fully diluted  basis, would have been $.13.  On a pro forma basis,  assuming the
 recapitalization  had occurred on January 1, 2003,  and excluding the charge relating to
 recapitalization  expenses that we recorded in the first half of 2003, net income for the six
months ended June 30, 2003 would have been $17.9  million  and net income per common
 share,  on a fully  diluted  basis,  would have been $.24.

[We refer the reader to "Supplemental  Schedule Reconciling GAAP Data to Pro Forma Non-GAAP Data"
on page 24 for a reconciliation  of net income and net
income per common share to this pro forma data, which are non-GAAP financial  measures,
 as well as a discussion of the reasons that management  believes the presentation of
such information is useful for investors.]

Other,
Net.Other, net expenses increased $.2 million for the six months ended
June 30, 2003, compared with the same period in 2002 primarily due to higher charges
incurred to settle foreign currency contracts and premium costs for currency
option contracts.

-23-

---

# Supplemental Schedule Reconciling GAAP Data to
Pro Forma Non-GAAP Data

The following  table sets forth a  reconciliation  of our reported net loss and net loss per common share for the three and six
months ended June 30, 2003 to our net income and net income per share on a pro forma basis as if the recapitalization  and the
sale on July 2, 2003 of the  additional  900,000  shares of common stock  had occurred on
January 1, 2003,  which pro forma amounts are  non-GAAP  financial  measures.  The pro forma data  exclude the effect of the  pre-tax  charges of
$66.2 million and $67.7 million we recorded for the three and six months ended June 30, 2003, respectively.

The pro forma data assume that the following  transactions  occurred on January 1, 2003: (i) the sale of 10 million shares of
common stock; (ii) the sale of $175 million aggregate  principal amount of ALARIS Medical Systems' new 7-1/4% senior
subordinated notes due 2011;  (iii) borrowings of a $245 million term loan
under the  Credit  Facility  at an annual  interest  rate of 4.05%;   (iv) the
repurchase of all of our outstanding  indebtedness  pursuant to tender offers as described in Note 2 to the unaudited Condensed
Consolidated Financial Statements; and (v) other debt repurchases made in 2003.

The pro forma  data is being  presented  to give  management  and  investors  an  enhanced  understanding  of the effect of the
recapitalization  on our operating  results.  Management  believes that the significant  reduction in future  interest  expense
resulting  from the  recapitalization  is material to an  understanding  of our business and will have a significant  impact on
cash flow and  earnings.  We have  excluded the effect of the  recapitalization  expenses  from the pro forma data because such
expenses  will not have a continuing  impact on the Company.  The pro forma data is not  necessarily  indicative of the results
of  operations  that would have been  achieved had the  transactions  reflected  therein been  consummated  prior to the period
presented.

|                                                                 | Three Months
Ended
June 30, 2003 | Six Months
Ended
June 30, 2003
|---------------------------------------------------------------- | -------------------------------- | ------------------------------
|
|Net loss, as reported                                            |                                  |                               
|Adjustments to exclude recapitalization:                         |                                  |                               
|Recapitalization expenses                                        |                                  |                               
|Income tax benefit                                               |                                  |                               
|                                                                 |                                  |                               
|Net income, excluding recapitalization                           |                                  |                               
|                                                                 |                                  |                               
|Pro forma adjustments:                                           |                                  |                               
|Interest expense                                                 |                                  |                               
|Other, net                                                       |                                  |                               
|Provision for taxes                                              |                                  |                               
|                                                                 |                                  |                               
|Net income, pro forma                                            |                                  |                               
|                                                                 |                                  |                               
|                                                                 |                                  |                               
|Net loss per common share, diluted, as reported                  |                                  |                               
|                                                                 |                                  |                               
|Net income per common share, diluted, excluding recapitalization |                                  |                               
|                                                                 |                                  |                               
|Net income per common share, diluted, pro forma                  |                                  |                               
|                                                                 |                                  |                               
|Weighted average common shares outstanding, as reported          |                                  |                               
|Dilutive common stock equivalents                                |                                  |                               
|                                                                 |                                  |                               
|Weighted average common shares                                   |                                  |                               
|outstanding, diluted, assuming net income for period             |                                  |                               
|Pro forma adjustment:                                            |                                  |                               
|Weighted average effect of sale of common stock                  |                                  |                               
|                                                                 |                                  |                               
|Weighted average common shares                                   |                                  |                               
|outstanding diluted, pro forma                                   |                                  |                               
|                                                                 |                                  |                               
|                                                                 |                                  |                               

-24-

---

# Liquidity and Capital
Resources

We expect to meet our short-term liquidity needs, including capital expenditure requirements,  with cash flow from
operations and cash on hand. In addition,  due to the  introduction  of pre-payable  bank debt into our capital  structure,
we expect to operate with lower cash  balances  than has been the case during the past  several  years.  Therefore,  we may
also from time to time borrow under our new revolving  credit  facility.  We will  continue to use our funds  primarily for
operating  expenses,  including  planned  expenditures  for new research and development  programs,  minor  acquisitions of
intellectual property or to supplement our manufacturing strategies,  capital expenditures,  scheduled interest payments on
outstanding indebtedness, and reductions of our indebtedness through principal payments on our bank debt.

The
Company was required at June 30, 2003 to maintain $5.2 million in collateralized deposit
accounts with commercial banks as security against open foreign exchange contracts,
primarily forward contracts.

As
part of the recapitalization discussed in Note 2 to the Condensed Consolidated Financial
Statements, we established a new $275 million credit facility with a group of banks and
other lenders (the Credit Facility) providing for a six-year $245 million term
loan and a five-year $30 million revolving credit facility. We also sold $175 million
aggregate principal amount of 7-1/4% Senior Subordinated Notes due 2011 (the
Notes) and 9.1 million shares of common stock. We received proceeds from the
stock sale of $106.9 million, net of the underwriting discount and other expenses of $6.9
million. We used the net proceeds from the Notes and common stock offerings, borrowings
under the term loan portion of the Credit Facility and a portion of our existing cash on
hand to repurchase pursuant to tender offers and consent solicitations which we commenced
in May 2003 with respect to substantially all outstanding indebtedness of ALARIS Medical
Systems and Former AMS. On July 2, 2003, the underwriters of the common stock offering
exercised their over-allotment option to purchase an additional 1.35 million shares at
$12.50 per share, which consisted of 0.9 million shares purchased from the Company and
0.45 million shares purchased from the Companys executive officers. The Company
received proceeds from the sale of the 0.9 million shares, of $10.7 million, net of the
underwriting discount and other fees of $0.6 million. The recapitalization, along with
earlier repurchases of debt during 2003, reduced our indebtedness by
$107 million since the year end 2002, reduced our projected annual interest expense by
approximately $33 million, when compared with our full year 2002 interest expense, and simplified and added greater flexibility to our capital
structure through the introduction of pre-payable bank debt.

The
Credit Facility contains various operating, financial and reporting covenants. As of June
30, 2003, the Company was in compliance with all such covenants. At June 30, 2003, we had
$420.0 million of outstanding indebtedness composed of a $245.0 million term loan under
the Credit Facility and $175.0 million of the Notes. The Company has not borrowed any
portion of the revolving credit facility. As a result of the Companys receipt of
proceeds from sale of 0.9 million additional shares of common stock on July 2, 2003 in
connection with the exercise by the common stock underwriters their over-allotment option,
on July 10, 2003, the Company made a $10 million prepayment of principal under the term
loan. The term loan bears interest at an annual rate equal to current LIBOR or a
fluctuating base rate, plus 2.75%. The Company can elect to use either a one-, two-,
three-, or six-month LIBOR rate. The Company has initially made a one-month
election (presently 1.12% plus the margin of 2.75%), resulting in an interest rate at June 30,
2003 of 3.87% per annum. Payments of 0.25% of the original principal balance on the
term loan plus accrued interest are due each quarter, with any unpaid principal balance
due at maturity. The Company is required to pay a quarterly commitment fee at the rate of
0.5% per annum on the unused portion of the revolving credit facility.

Pursuant to the terms of the Credit Facility,  the Company has effectively  fixed the variable  interest rate exposure on 50%
of our total  outstanding  debt.  This was  accomplished by fixing our LIBOR rate for the remainder of 2003 and entering into
an interest rate swap  agreement in July 2003 whereby $30 million of the term loan is  effectively  converted to a fixed rate
of 5.0% (2.25% plus the current  margin of 2.75%),  and is effective  beginning  January 1, 2004  through  December 31, 2005.
Management  will continue to evaluate its short term and long term  strategies  related to the interest rate risk  associated
with its variable rate debt.  See Item 3  Quantitative and Qualitative Disclosures about Market Risks.

-25-

---

The
Notes bear interest at an annual rate of 7-1/4%, which is payable semi-annually in arrears
on July 1 and January 1 of each year, commencing January 1, 2004, and
mature on July 1, 2011. The Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after July 1, 2007 at an initial redemption price of 103.625%,
plus accrued and unpaid interest, if any, to the date of redemption, with the redemption
price declining annually thereafter. In addition, subject to certain limitations, we may
redeem up to 35% principal amount of the Notes on or before July 1, 2006 with the net cash
proceeds of one or more equity offerings, at a price of 107.25%, plus accrued and unpaid
interest, if any, to the date of redemption. In the event of a change of control, as
defined in the indenture governing the Notes, holders of the Notes may require the Company
to purchase their Notes in cash in an amount equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.

Both
the Credit Facility and the Notes contain various operating, financial and reporting
covenants. As of June 30, 2003, the Company was in compliance with all such covenants.

After
giving effect to the $10 million pre-payment of the term loan under the Credit Facility,
we are required during the next twelve months (through June 30, 2004) to make quarterly
interest payments on the term loan totaling $9.7 million (assuming current interest rates)
and principal amortization payments totaling $2.5 million. In addition, our first
semi-annual interest payment on the Notes in the amount of $6.4 million is due on January
1, 2004.

Our
ability to make principal and interest payments on our indebtedness, and to fund planned
capital expenditures and research and development efforts will depend on our ability to
generate cash in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are beyond our
control. Based on our forecasts, we believe
our cash flow from operations, together with our available cash and availability under our
revolving credit facility, will be adequate to meet our liquidity needs for at least the
next twelve months. We may need to refinance all or a portion of our indebtedness at
maturity.

In
response to customer requests to finance their payments related to equipment purchases
over time, we refer customers to an unrelated third party financing company. In recent
years, $16 million to $30 million annually of drug infusion equipment sales to North
American customers have been financed by this third party. If such third party financing
source were no longer available to our customers, it could require us to find another
party or to finance such customer purchases and require use of our cash. Additionally, our
operating results could also be affected, as it is possible that customers could look to
make their purchases from our competitors who might be able to finance such purchases at a
lower cost of funds.

In
December 2002, we filed for a tax accounting change with the Internal Revenue Service
(IRS) seeking approval of a more favorable income tax treatment for certain
sales to third party distributors. We anticipate this tax accounting change will be
approved by the IRS, and, accordingly have reflected the benefit as a reduction in our
estimated current income tax liability for 2002. This change resulted in an $8 million
cash tax savings in 2002 with an anticipated refund for income taxes previously paid in
2002 of an additional $4 million. This change affects only cash flow and does not impact the amount of the income tax
expense included in the Condensed Consolidated Statement of Operations. Although
management anticipates obtaining the requested approval from the IRS during 2003, there
can be no assurances that the IRS will approve our request. Should the tax treatment not
be approved by the IRS, we would be required to make tax payments, which we would have
otherwise been able to defer indefinitely, of approximately $12 million plus interest.
Such payment would not affect our Statement of Operations.

-26-

---

Net
cash provided by operating activities for the six months ended June 30, 2003, was $57.1
million compared with $17.5 million provided by operating activities in 2002. Net cash
used in investing activities for the six months ended June 30, 2003 and 2002, was $21.6
million and $7.1 million, respectively. Cash used in investing activities also includes
$13.7 million and $6.4 million in capital expenditures for the six months ended
June 30, 2003 and 2002, respectively. Current year capital spending includes $4.2 million
for our new enterprise-wide information system. We anticipate making capital expenditures
of approximately $20 million during the remainder of 2003. Spending from investing
activities also includes $7.3 million for the purchase of an unrestricted patent license
for certain needle-free technology. Net cash used in financing activities for the six
months ended June 30, 2003 was $75.0 million. This was primarily composed of repurchases
of debt of $25.0 million in the first quarter and $566.8 million in the second quarter,
offset by cash received in connection with the recapitalization, including net debt
proceeds of $407.8 million and net proceeds from the sale of common stock of $106.9
million. Net cash used in financing activities for the six months ended June 30, 2002 was
$14.4 million, and was primarily composed of principal payments on long-term debt in 2002.
During the six months ended June 30, 2003, federal, state and foreign taxes paid (net of
refunds) were $2.2 million.

Due
to the charges we recorded during the second quarter of 2003 in connection with the
recapitalization and resulting payment of accreted interest on the Senior Discount notes,
the Company anticipates generating substantial tax net operating losses (NOL)
for 2003. The Company expects that such losses will effectively eliminate Federal income
taxes payable for 2003 and allow the Company to carryback and recover income taxes paid in
previous years. The Company currently estimates that it can recover approximately $8.5
million in income taxes paid in respect of previous years. As of June 30, 2003 the
Companys estimated NOL, before any amounts are carried forward or carried back, was
approximately $127.1 million. As a result, the tax-effected value of such NOL is estimated
to be approximately $50.9 million and is included in current deferred tax assets, net on
the Condensed Consolidated Balance Sheet as of June 30, 2003.

The
following schedule summarizes our contractual obligations and commitments to make future
payments as of June 30, 2003:

|                                   | Contractual Obligations & Commitments |  |   |    
|---------------------------------- | ------------------------------------- |  | - | ---
|
|
|
|
|2003 (A)                           |                                       |  | $ | 1  
|2004                               |                                       |  |   | 2  
|2005                               |                                       |  |   | 2  
|2006                               |                                       |  |   | 2  
|2007                               |                                       |  |   | 2  
|Thereafter                         |                                       |  |   | 408
|                                   |                                       |  |   |    
|Total Contractual Cash Obligations |                                       |  | $ | 420
|                                   |                                       |  |   |    
|                                   |                                       |  |   |    

| | (A) | Amount represents remaining contractual obligation during 2003.
| | --- | ---------------------------------------------------------------

| | (B) | Operating leases for the remaining quarters in 2003 include $0.2 million for
               obligations under the lease of a manufacturing facility in Tijuana, Mexico after
               which we will temporarily occupy that and one other facility in Mexico through
               2004 under open term leases. On July 2, 2003, we executed a 10 year lease
               agreement for a 190,000 square foot manufacturing facility in Tijuana, Mexico.
               Commencing July 1, 2004, we will begin making lease payments of $0.9 million per
               year, with a 3% annual rent escalation each following year.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (C) | We
entered into an interest rate swap agreement in July 2003 to effectively fix the rate to
5% for $30 million of the term debt under our Credit Facility. Based on our initial interest rate
at June 30, 2003 of 3.87% per annum, interest payments shown for 2004 and 2005 would each
increase by $0.3 million.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-27-

---

# Seasonality

Infusion
instrument sales are typically highest in the fourth quarter due to sales compensation
plans that reward the achievement of annual quotas and the seasonal characteristics of the
industry, including hospital purchasing patterns. We anticipate that this trend will
continue but are unable to predict the effect, if any, from potential healthcare reform
and increased competitive pressures. Approximately 36% of our 2002 sales of drug infusion
instruments occurred during the fourth quarter of 2002.

# Backlog

The
amount of unfilled orders, believed to be firm, at June 30, 2003 and 2002, was $9.9
million and $9.2 million, respectively.

# Foreign Operations and
Currency Exchange Rates

We
have significant foreign operations and, as a result, are subject to various risks arising
therefrom, including foreign currency risks. This risk did not materially change during
the second quarter of 2003. For the six months ended June 30, 2003 and 2002, approximately
35% and 33%, respectively, of our sales were denominated in currencies other than the U.S.
dollar. For the six months ended June 30, 2003 and 2002, approximately 33% and 30%,
respectively, of our operating expenses were denominated in currencies other than the U.S.
dollar. These foreign currencies are primarily those of Western Europe, Canada, Mexico,
Australia and South Africa. Additionally, substantially all of the receivables and
payables of our foreign subsidiaries are denominated in currencies other than the U.S.
dollar.

We
address certain financial exposures through a controlled program of risk management that
includes the use of derivative financial instruments. At June 30, 2003, we recorded a
liability in our Condensed Consolidated Balance Sheet of $.3 million for foreign currency
forward contracts. As of December 31, 2002, forward contracts valued at $.1 million were
recorded as a current asset in the Companys Consolidated Balance Sheet.

For
the six months ended June 30, 2003 and 2002, we recognized net charges related to the
designated cash flow hedges of forecasted foreign currency exchange transactions in the
amounts of $1.3 million and $.2 million, respectively, in other expense, which consisted
primarily of losses incurred to settle currency option contracts and premium costs for
currency option contacts. Such costs were recorded in other, net in the Condensed
Consolidated Statement of Operations. At June 30, 2003, $.8 million ($.5 million after
tax) was included in accumulated other comprehensive loss. This represents the remaining
option premium costs net of the fair value of the open option contracts that are
designated as cash flow hedges. This loss is expected to be charged to earnings during
2003 as the hedged transactions occur.

Due
to changes in foreign currency exchange rates during 2003 and 2002, primarily a weakening
of the U.S. dollar against many European currencies, we recognized foreign currency
transaction gains of $.3 million and less than $.1 million during 2003 and 2002,
respectively. Such gains were recorded in other, net in the Condensed Consolidated
Statement of Operations.

-28-

---

# ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

# Foreign Exchange Risk
Management

As
part of our risk management strategy, we put in place a hedging program beginning in 2001
under which we enter into forward foreign exchange and currency option contracts to hedge
a portion of forecasted cash receipts and payments denominated in currencies other than
the U.S. dollar. We categorize these instruments as entered into for purposes other than
trading. We do not utilize derivative instruments for trading or speculative purposes.
These contracts are entered into to reduce the risk that our earnings and cash flows,
resulting from certain forecasted transactions, will be affected by changes in foreign
currency exchange rates. However, we may be impacted by changes in foreign exchange rates
related to the unhedged portion of the forecasted transactions. The success of the hedging
program depends, in part, on forecasts of our transactions in various currencies
(primarily the Euro). Hedges are placed for periods consistent with identified exposures,
but generally no longer than the end of the year for which we have substantially completed
our annual business plan. We may experience unanticipated foreign currency exchange gains
or losses to the extent that there are timing differences between forecasted and actual
activity during periods of currency volatility. However, since the critical terms of
contracts designated as cash flow hedges are the same as the underlying forecasted
transaction, changes in fair value of contracts should be highly effective in offsetting
the present value of changes in the expected cash flows from the forecasted transaction.
The ineffective portion of any changes in the fair value of option contracts designated as
hedges, if any, is recognized immediately in earnings. We did not recognize material gains
or losses resulting from either hedge ineffectiveness or changes in forecasted
transactions during the six months ended June 30, 2003 or the year ended December 31,
2002.

As
a matter of policy, we will only enter into currency contracts with counterparties that
have at least an investment grade or equivalent credit rating from a major rating agency.
The counterparties to these contracts are major financial institutions. We do not have
significant exposure to any one counterparty. We believe the risk of loss related to
counterparty default is remote and would only consist of the net market value gain (if
any) of the underlying instrument. The contracts have varying maturities with none
exceeding eighteen months. Costs associated with entering into contracts are not expected
to be material to our financial results. (See Item 2, Managements Discussion
and Analysis of Financial Condition and Results of OperationsForeign Operations and
Currency Exchange Rates.)

# Interest Rate Risk

ALARIS
Medical  Systems is  exposed to market  risk from  changes in  interest  rates,  which  could  impact its  results of
operations and financial  condition.  The term debt under the Credit Facility bears interest at a variable rate tied to LIBOR
or other index at our option.  Consistent  with our risk  management  policy to reduce the effect of interest rate volatility
and stabilize cash flows, and as required under the Credit  Facility,  we have fixed our LIBOR rate for the remainder of 2003
and entered into an interest rate swap agreement in July 2003 whereby $30 million of the term loan is  effectively  converted
to a fixed rate and is effective  beginning  January 1, 2004 through  December 31, 2005.  Absent such swap, a one  percentage
point change in the interest rate on such term debt would result in an  approximate  $2.35 million  annual change in interest
expense, after giving effect to the $10 million pre-payment of the term loan in July 2003.

-29-

---

# ITEM 4. CONTROLS AND
PROCEDURES

Evaluation
of Disclosure Controls and Procedures

As
of June 30, 2003, an evaluation was performed under the supervision and with the
participation of the Companys management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in the Securities Exchange
Act of 1934 Rule 13a-14). Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures were effective as of June 30, 2003, to
ensure that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Commissions rules and forms.

Changes in Internal
Controls

There
have been no significant changes (including corrective actions with regard to significant
deficiencies or material weaknesses) in our internal controls or in other factors that
could significantly affect internal controls subsequent to June 30, 2003.

-30-

---

# PART II

# OTHER INFORMATION

# ITEM 1 LEGAL
PROCEEDINGS

| | (a) | In
May 2003, the Company  purchased from  Filtertek,  Inc. a worldwide,  unrestricted
 license  related to needle-free  valve products.  The purchase  price of the license was
$7.3  million.  All  remaining  claims in a patent  litigation  relating to needle-free
 systems  between  Filtertek  and  the  Company  (and  one of its  customers),  as
 discussed  in  note 14 to our Consolidated  Financial  Statements contained in our
Annual Report on Form 10-K (filed under our former name ALARIS Medical, Inc.)
for the year ended  December 31, 2002,  have been  dismissed by the United States
 District  Court for the District of Northern Illinois.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-31-

---

# ITEM 4  SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)    
          The Annual Meeting of Stockholders of ALARIS Medical, Inc. was held on April 30,
          2003.

(b)    
          The following resolutions were voted upon and the results of the voting were as
          follows:

|1. | Election
of directors
|-- | ---------------------

|                       | Votes
For  | Votes
Withheld
|---------------------- | ---------- | --------------
|Hank Brown             | 56,383,148 | 972,735       
|Norman M. Dean         | 56,382,648 | 973,235       
|Henry Green            | 55,173,788 | 2,182,095     
|David L. Schlotterbeck | 56,383,148 | 972,735       
|Barry D. Shalov        | 56,383,048 | 972,835       
|William T. Tumber      | 56,382,848 | 973,035       

|2. | Approval
of the restatement and further amendment of current Restated Certificate
of Incorporation to eliminate the prohibition against stockholder action
by written consent
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Votes
For  | Votes
Against | Abstain | Broker
Non-Votes | 
| | ---------- | ------------- | ------- | ---------------- | 
| | 53,055,538 | 489,268       | 62,098  | 3,748,979       

|3. | Approval
of the restatement and further amendment of current Restated                Certificate
of Incorporation to consolidate authorized shares of preferred stock                into
one class of preferred stock
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Votes
For  | Votes
Against | Abstain | Broker
Non-Votes | 
| | ---------- | ------------- | ------- | ---------------- | 
| | 52,596,244 | 976,116       | 35,544  | 3,748,979       

|4. | Approval
of the restatement and further amendment of current Restated                Certificate
of Incorporation to increase the number of authorized shares of                common
stock from 75 million to 85 million
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Votes
For  | Votes
Against | Abstain | Broker
Non-Votes | 
| | ---------- | ------------- | ------- | ---------------- | 
| | 56,986,142 | 344,481       | 25,260  | 0               

|5. | Approval
of an amendment to 1996 Stock Option Plan
|-- | --------------------------------------------------

| | Votes
For  | Votes
Against | Abstain | Broker
Non-Votes | 
| | ---------- | ------------- | ------- | ---------------- | 
| | 55,360,197 | 1,917,872     | 77,814  | 0               

|6. | Ratification
of appointment of PricewaterhouseCoopers LLP as independent           accountants
|-- | ----------------------------------------------------------------------------------------------

| | Votes
For  | Votes
Against | Abstain | Broker
Non-Votes | 
| | ---------- | ------------- | ------- | ---------------- | 
| | 57,207,289 | 128,812       | 19,782  | 0               

-32-

---

# ITEM 6. EXHIBITS AND
REPORTS ON FORM 8-K

| | (a)
    Exhibits
| | ----------------

|Exhibit No. | Description of Exhibit                                                                                                                                                                                                                                                                                      | Status of Filing                                                                        
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|1.1         | Underwriting  agreement,  dated June 25, 2003, between ALARIS Medical,
 Inc. and Bear, Stearns & Co. Inc.,  Citigroup Global Markets Inc., UBS
 Securities  LLC,  CIBC World Markets  Corp.,  and Jefferies & Company, Inc.                                                                                 | Incorporated  by reference to
  Exhibit  1.1 to the  Form 8-K
  filed July 14, 2003.    
|1.2         | Underwriting agreement, dated June 25, 2003, between ALARIS Medical,
Inc. and Bear, Stearns & Co. Inc., CIBC World Markets Corp., UBS
 Securities LLC and the selling stockholders named therein.                                                                                                           | Incorporated  by reference to
  Exhibit   1.2  the  Form  8-K
  filed July 14, 2003.    
|3.1         | Restated Certificate of Incorporation of ALARIS Medical, Inc.                                                                                                                                                                                                                                               | Incorporated  by reference to
  Exhibit   3.1  to  the   Form
  8-A/A filed May 9, 2003.
|3.2         | Certificate  of Ownership and Merger of ALARIS Medical  Systems,  Inc.
 into ALARIS Medical, Inc.                                                                                                                                                                                                           | Incorporated  by reference to
 Exhibit  3.1 to the  Form 8-K
 filed July 14, 2003.      
|4.1         | Supplemental  Indenture  dated  as of June  30,  2003  between  ALARIS
Medical Systems, Inc. and The Bank of New York, as trustee.                                                                                                                                                                          | Incorporated  by reference to
Exhibit  4.1 to the  Form 8-K filed July 14, 2003.        
|10.1        | Credit  Agreement,  dated as of June 30, 2003,  among  ALARIS  Medical
Systems,  Inc.,  various Lenders and Issuers,  Citicorp North America,
Inc., UBS Securities  LLC, Bear Stearns  Corporate  Lending Inc., CIBC
World  Markets   Corp.,   Citigroup   Global  Markets  Inc.,  and  UBS
Securities LLC. | Filed herewith                                                                          
|10.2        | Pledge And  Security  Agreement,  dated as of June 30,  2003,  between
ALARIS  Medical  Systems,  Inc. and Citicorp  North  America,  Inc. as
administrative  agent for the secured parties listed within the Credit
Facility Agreement.                                                                    | Filed herewith                                                                          
|10.3        | Guaranty,  dated as of June 30, 2003, by ALARIS Release Corp.,  ALARIS
Consent Corp., River Medical,  Inc., and IVAC Overseas Holdings,  Inc.
for  Citicorp  North  America,  Inc. as  administrative  agent for the secured parties listed within the Credit Facility Agreement.                           | Filed herewith                                                                          
|31.1        | Certification  by  David  L.  Schlotterbeck   Pursuant  to  Securities
 Exchange Act Rule 13a-15.                                                                                                                                                                                                           | Filed herewith                                                                          
|31.2        | Certification  by William C. Bopp Pursuant to Securities  Exchange Act
Rule 13a-15.                                                                                                                                                                                                                         | Filed herewith                                                                          
|32.1        | Certification by David L. Schlotterbeck  Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of
2002.                                                                                                                                                         | Filed herewith                                                                          
|32.2        | Certification  by William C. Bopp Pursuant to 18 U.S.C.  Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                | Filed herewith                                                                          

-33-

---

| | (b)            Reports
on Form 8-K
| | ----------------------------------

| | The
Company filed the following Current Reports on 8-K during the quarter ended June 30,
2003:
| | ----------------------------------------------------------------------------------------------

| | 1. | April
30, 2003, discussing under Item 12 an earnings press release dated April
               30, 2003 reporting its results for the three months ended March 31, 2003.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | May
13, 2003, discussing under Item 5 a press released dated May 13, 2003
               announcing the receipt of a patent license relating to needle-free valve
               products and the related settlement of a patent lawsuit with Filtertek
Inc.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | May
23, 2003, discussing under Item 5 a press released dated May 23, 2003
               announcing the cash tender offer and consent solicitation for all of its
               outstanding bonds in connection with a proposed recapitalization of ALARIS
               Medical, Inc. and its subsidiary ALARIS Medical Systems, Inc.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | May
30, 2003, discussing under Item 5 a press released dated May 30, 2003
               announcing an increase to the purchase price with respect to the tender
offer                and consent solicitation for ALARIS Medical Systems, Inc. 11-5/8%
senior secured                notes.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | June
6, 2003, discussing under Item 5 a press released dated June 6, 2003
               announcing the receipt of consents of more than 96% in the aggregate in
its                tender offers and consent solicitations. The Company also announced
that it had                extended the date of the tender offer.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | June
11, 2003, discussing under Item 5 a press released dated June 11, 2003
               announcing the intent to offer and sell common stock and senior
subordinated                notes as part of the previously announced recapitalization.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7. | June
23, 2003, discussing under Item 5 a press released dated June 23, 2003
               announcing the extended expiration date of its cash tender offers for all
               outstanding indebtedness.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 8. | June
26, 2003, discussing under Item 5 a press released dated June 26, 2003
               announcing the pricing of its public offering of common stock and 71⁄4%
               senior subordinated notes due July 1, 2011 and the intent to
establish a                $245 million bank term loan and $30 million revolving credit
facility.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-34-

---

SIGNATURES

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

|Date:   July 30, 2003 |  | ALARIS MEDICAL SYSTEMS, INC.
(Registrant)By: /s/ WILLIAM C. BOPP 
William C. Bopp Senior Vice President and Chief Financial Officer(Principal Financial Officer)
By: /s/ ROBERT F. MATHEWS
Robert F. Mathews Vice President - Finance and Treasurer(Principal Accounting Officer)
|--------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-35-