<PAGE>
                                     UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, DC  20549
                                      FORM 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 SEPTEMBER 30, 1997 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:             33-26398
                       --------------------------------


                               ALARIS MEDICAL, INC.
------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Delaware                                     13-3492624
-------------------------------           ------------------------------------
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
incorporation or organization)                        

                  10221 Wateridge Circle, San Diego, CA     92121
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      (Address of principal executive offices)            (Zip Code)

                                (619) 566-0426
------------------------------------------------------------------------------
           (Registrant's telephone number, including area code)

------------------------------------------------------------------------------
          (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      
                                                      ------     ------

On November 4, 1997, 59,063,034 shares of Registrant's Common Stock were 
outstanding.

                                 Page 1 of 25
<PAGE>
                      ALARIS MEDICAL, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------

                                       INDEX


PART I.  FINANCIAL INFORMATION

    Item 1 - Financial Statements:
                                                                      PAGE
         Condensed consolidated balance sheet at
         December 31, 1996 and September 30, 1997....................   3

         Condensed consolidated statement of operations for the
         three and nine months ended September 30, 1996 and 1997.....   4

         Condensed consolidated statement of cash flows for the
         nine months ended September 30, 1996 and 1997...............   5

         Condensed consolidated statement of changes in
         stockholders' equity for the period from
         December 31, 1996 to September 30, 1997.....................   6

         Notes to the condensed consolidated financial statements....   7

    Item 2 - Management's Discussion and Analysis of Financial
         Condition and Results of Operations.........................  12

PART II. OTHER INFORMATION

    Item 1 - Legal Proceedings.......................................  21

    Item 6 - Exhibits and Reports on Form 8-K........................  22

                                     - 2 -
<PAGE>
                                  FORM 10 - Q
                                PART 1 - ITEM 1
                             FINANCIAL INFORMATION

                     ALARIS MEDICAL, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEET
        (DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                    ASSETS
                                                                                DECEMBER 31,  SEPTEMBER 30,
                                                                                    1996          1997
                                                                               ------------   ------------
                                                                                               (Unaudited)
<S>                                                                            <C>            <C>
Current assets:
    Cash....................................................................     $ 12,084      $  5,028
    Restricted cash and investment securities...............................        2,332            --
    Receivables, net........................................................       87,880        79,312
    Inventories.............................................................       58,976        73,201
    Prepaid expenses and other current assets...............................       21,582        20,617
                                                                                 --------      --------
       Total current assets.................................................      182,854       178,158
                                                                                           
Net investment in sales-type leases, less current portion...................       27,276        28,970
Property, plant and equipment, net..........................................       56,628        55,879
Other non-current assets....................................................       18,107        17,256
Intangible assets, net......................................................      308,517       292,108
                                                                                 --------      --------

                                                                                 $593,382      $572,371
                                                                                 --------      --------
                                                                                 --------      --------

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Current portion of long-term debt.......................................     $  3,963      $ 11,912
    Accounts payable........................................................       25,812        24,743
    Accrued expenses and other current liabilities..........................       50,196        56,825
    Accrued restructuring...................................................       15,098         5,938
                                                                                 --------      --------
       Total current liabilities............................................       95,069        99,418
                                                                                 --------      --------
Long-term debt..............................................................      436,130       435,733
Other non-current liabilities...............................................       16,130         5,648
                                                                                 --------      --------
       Total non-current liabilities........................................      452,260       441,381
                                                                                 --------      --------

Contingent liabilities and commitments (Notes 4 and 5)

Common stock and other stockholders' equity:
    Common stock, authorized 75,000 shares at $.01 par value; issued and
       outstanding  - 58,977 shares and 59,065 shares at December 31, 1996
       and September 30, 1997, respectively................................           589           592
    Capital in excess of par value.........................................       147,840       148,005
    Accumulated deficit....................................................      (101,704)     (111,927)
    Treasury stock.........................................................          (734)       (2,027)
    Other equity...........................................................            62        (3,071)
                                                                                 --------      --------
       Total common stock and other stockholders' equity...................        46,053        31,572
                                                                                 --------      --------
                                                                             
                                                                                 $593,382      $572,371
                                                                                 --------      --------
                                                                                 --------      --------
</TABLE>
                THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE 
                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
                                    
                                  - 3 -
<PAGE>
                     ALARIS MEDICAL, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
         (DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED    NINE MONTHS ENDED
                                                                                  SEPTEMBER 30,         SEPTEMBER 30,
                                                                               ------------------    -----------------
                                                                                1996       1997       1996      1997 
                                                                               -------    -------    -------   -------   
 <S>                                                                           <C>        <C>        <C>       <C>
Sales........................................................................  $27,679    $ 86,830   $81,770   $256,897
Cost of sales................................................................   15,080      42,400    44,731    136,731
                                                                               -------    --------   --------  --------   

    Gross margin.............................................................   12,599      44,430    37,039    120,166
                                                                               -------    --------   --------  --------

Selling and marketing expense................................................    4,305      15,896    13,167     47,805
General and administrative expense...........................................    2,908       9,273     8,453     28,208
Research and development expense.............................................    1,984       4,534     5,773     12,725
Integration and other non-recurring expense..................................       --       1,693        --     17,592
                                                                               -------    --------   --------  --------

    Total operating expense..................................................    9,197      31,396    27,393    106,330
                                                                               -------    --------   --------  --------

Lease interest income........................................................      600       1,226     1,800      3,417
                                                                               -------    --------   --------  --------

    Income from operations...................................................    4,002      14,260    11,446     17,253
                                                                               -------    --------   --------  --------

Other income (expense):
    Interest income..........................................................      298          57     1,012        442
    Interest expense.........................................................   (2,308)    (11,277)   (6,707)   (32,972)
    Other, net...............................................................      (51)        (46)      255       (446)
                                                                               -------    --------   --------  --------

    Total other expense......................................................   (2,061)    (11,266)   (5,440)   (32,976)
                                                                               -------    --------   --------  --------

Income (loss) before income taxes............................................    1,941       2,994     6,006    (15,723)
Provision for (benefit from) income taxes....................................    1,162       1,900     3,218     (5,500)
                                                                               -------    --------   --------  --------

Net income (loss)............................................................      779       1,094     2,788    (10,223)
Dividends on mandatorily redeemable preferred stock..........................      162          --       487         --
                                                                               -------    --------   --------  --------

    Net income (loss) attributable to common stock...........................  $   617    $  1,094   $ 2,301   $(10,223)
                                                                               -------    --------   --------  --------
                                                                               -------    --------   --------  --------

    Net income (loss) per common share assuming no dilution..................  $   .04    $    .02   $   .14   $   (.17)
                                                                               -------    --------   --------  --------
                                                                               -------    --------   --------  --------

    Net income (loss) per common share assuming full dilution................  $   .02    $    .02   $   .08   $   (.17)
                                                                               -------    --------   --------  --------
                                                                               -------    --------   --------  --------

Weighted average common shares outstanding assuming no dilution..............   16,494      59,246    16,453     58,645
                                                                               -------    --------   --------  --------
                                                                               -------    --------   --------  --------

Weighted average common shares outstanding assuming full dilution............   42,602      59,760    42,600     58,645
                                                                               -------    --------   --------  --------
                                                                               -------    --------   --------  --------
</TABLE>
                THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE 
                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                    - 4  -
<PAGE>
                  ALARIS MEDICAL, INC. AND SUBSIDIARIES
       CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
                         (DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                 NINE MONTHS ENDED
                                                                    SEPTEMBER 30,
                                                                --------------------
                                                                   1996       1997
                                                                ---------  ---------
<S>                                                             <C>        <C>
Net cash provided by operating activities....................    $  7,979   $    776
                                                                ---------  ---------

Cash flows from investing activities:
    Net decrease in restricted cash and investments..........      12,429      2,332
    Net capital expenditures.................................      (3,912)   (15,107)
    Payments for product distribution rights.................      (1,503)        --
    Proceeds from sale of investments........................       1,145         --
    Purchase of European distribution rights.................     (11,053)        --
    Return of capital by investee............................          --        148
                                                                ---------  ---------

Net cash used in investing activities........................      (2,894)   (12,627)
                                                                ---------  ---------

Cash flows from financing activities:
    Net borrowings under former credit facilities  ..........       8,801         --
    Principal payments on long-term debt.....................        (322)    (3,935)
    Purchase of IMED common stock warrants...................     (12,500)        --
    Purchase of treasury stock...............................          --     (1,293)
    Proceeds under revolving credit facility.................          --     18,800
    Repayments under revolving credit facility...............          --     (7,500)
    Debt issue costs.........................................          --       (662)
    Proceeds from exercise of stock options..................          17        168
                                                                ---------  ---------

Net cash (used in) provided by financing activities..........      (4,004)     5,578
                                                                ---------  ---------

Effect of exchange rate changes on cash......................          28       (783)
                                                                ---------  ---------

Net increase (decrease) in cash..............................       1,109     (7,056)
Cash at beginning of period..................................       1,862     12,084
                                                                ---------  ---------

Cash at end of period........................................    $  2,971   $  5,028
                                                                ---------  ---------
                                                                ---------  ---------
</TABLE>
                THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE 
                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                    - 5 -
<PAGE>
                    ALARIS MEDICAL, INC. AND SUBSIDIARIES

               CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
                       STOCKHOLDERS' EQUITY (UNAUDITED)
                   (DOLLAR AND SHARE AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>

                                    COMMON STOCK      CAPITAL IN                 TREASURY   STOCK  
                                  -----------------    EXCESS OF   ACCUMULATED   ------------------   OTHER
                                  SHARES     AMOUNT    PAR VALUE     DEFICIT      SHARES    AMOUNT    EQUITY    TOTAL
                                  ------    -------    ---------   -----------   --------- --------   -------   --------
<S>                               <C>        <C>       <C>         <C>           <C>       <C>       <C>       <C>
Balance at December 31, 1996      58,977    $    589    $147,840   $(101,704)        83    $  (734)  $     62   $ 46,053
Exercise of stock options             88           3         165                                                     168
Purchase of treasury stock                                                          370     (1,293)               (1,293)
Translation adjustment                                                                                 (3,133)    (3,133)
Net loss for the period                                              (10,223)                                    (10,223)
                                  ------    -------     --------   ---------       ----    --------   -------   --------
Balance at September 30, 1997     59,065    $    592    $148,005   $(111,927)       453    $(2,027)  $ (3,071)  $ 31,572
                                  ------    -------     --------   ---------       ----    --------   -------   --------
                                  ------    -------     --------   ---------       ----    --------   -------   --------
</TABLE>
                THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE 
                   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                    - 6 -
<PAGE>
                    ALARIS MEDICAL, INC. AND SUBSIDIARIES

      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, Inc., formerly Advanced Medical, Inc. ("ALARIS Medical"), 
operating through its consolidated subsidiaries, designs, manufactures, 
distributes and services intravenous infusion therapy and vital signs 
measurement instruments and related disposables and accessories.  On November 
26, 1996, IMED Corporation ("IMED"), then a wholly-owned subsidiary of 
Advanced Medical, Inc. ("Advanced Medical") acquired all of the outstanding 
stock of IVAC Holdings, Inc. ("IVAC Holdings") and its subsidiaries including 
IVAC Medical Systems, Inc. (Note 2).  In connection with the acquisition, 
IMED and IVAC Medical Systems, Inc. were merged into IVAC Holdings (the 
"Merger"), which then changed its name to ALARIS Medical Systems, Inc. 
("ALARIS Medical Systems").  ALARIS Medical and its subsidiaries are 
collectively referred to as the "Company."  The acquisition was accounted for 
as a purchase. Accordingly, the interim 1996 operating results and cash flows 
exclude those of the acquired company and are not comparable to the interim 
1997 operating results and cash flows.

STATEMENT OF ACCOUNTING POLICY:

The accompanying 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 to make the information not misleading.

In the opinion of the Company, the accompanying financial statements contain 
all adjustments, consisting of normal recurring adjustments, necessary for a 
fair statement of the Company's financial position as of September 30, 1997, 
and the results of its operations and its cash flows for the nine months 
ended September 30, 1996 and 1997.

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 assets and liabilities at the date of the 
financial statements and the reported amounts of revenues and expenses during 
the period. Actual results could differ from those estimates.

NET INCOME (LOSS) PER COMMON SHARE:

The Company's net income (loss) per common share assuming no dilution is 
computed using the weighted average number of common shares outstanding and 
dilutive common stock equivalents using the treasury stock method. The 
Company's net income (loss) per common share assuming full dilution is 
computed using the weighted average number of common shares outstanding plus 
dilutive common stock equivalents using the treasury stock method at the 
higher of the average or ending market price during the reporting period and 
non-common stock equivalents. The Company's non-common stock equivalents for 
the three months ended September 30, 1996 consisted of convertible promissory 
notes issued to Decisions Incorporated ("Decisions"), a corporation wholly 
owned by the Company's principal stockholder. Since conversion was assumed 
from the beginning of the period or date of issuance, if later, net income 
attributable to common stock for the three months and nine months ended 
September 30, 1996 has been increased by $417 and $1,241, respectively, for 
the interest expense (net of tax) on

                                    - 7 -
<PAGE>

the convertible promissory notes.  The convertible promissory notes issued to 
Decisions were all converted to common stock in connection with the Merger 
(Note 2). Net loss per common share assuming no dilution and full dilution is 
the same for the nine months ended September 30, 1997, as the Company 
experienced a net loss during this period. 

In March 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards (SFAS) No. 128 "Earnings per Share."  SFAS No. 
128 will be adopted by the Company as required in the fourth quarter of 
fiscal 1997.  Upon adoption of SFAS No. 128, the Company will present basic 
earnings per share and diluted earnings per share.  Basic earnings per share 
will be computed based on the weighted average number of shares outstanding 
during the period.  Diluted earnings per share will be computed based on the 
weighted average number of shares outstanding during the period increased by 
the effect of all dilutive potential common shares, computed using the 
treasury stock method, that were outstanding during the period.  Using this 
standard, basic and diluted earnings per share would be the same as primary 
and fully diluted earnings per share for the three months and nine months 
ended September 30, 1996 and 1997.

NOTE 2 - THE MERGER

On November 26, 1996, IMED acquired all of the outstanding stock of IVAC 
Holdings and its subsidiaries including IVAC Medical Systems, Inc., in 
exchange for $390,000 plus acquired cash of $7,225 less total debt assumed 
aggregating $173,314 plus related expenses. The Merger was financed with 
$204,200 in bank debt and $200,000 in senior subordinated notes. Subsequent 
to the acquisition, IVAC Medical Systems, Inc. and IMED were merged into IVAC 
Holdings. 

In connection with the Merger, ALARIS Medical contributed $19,588 to IMED 
(the "Capital Contribution"). The Capital Contribution was funded in part 
through the sale to Decisions by ALARIS Medical of 13,333 shares of its 
common stock for aggregate proceeds of $40,000 (the "Decisions 
Contribution"). The balance of the Capital Contribution was funded with 
existing cash balances of ALARIS Medical. The portion of the net proceeds of 
the Decisions Contribution not applied to make the Capital Contribution was 
used by ALARIS Medical to redeem $21,924 principal amount of its 15% 
subordinated debentures due 1999 and fund the redemption of ALARIS Medical's 
outstanding preferred stock. In connection with the Decisions Contribution, 
Decisions exchanged an aggregate of $37,500 in principal amount of 
convertible promissory notes previously issued by ALARIS Medical for 29,416 
shares of ALARIS Medical common stock, including 3,333 shares issued as an 
inducement to convert. 

The acquisition was accounted for as a purchase, whereby the purchase price, 
including related expenses, was allocated to identified assets, including 
intangible assets, purchased research and development and liabilities based 
upon their respective fair values. The excess of the purchase price over the 
value of identified assets and liabilities, in the amount of $132,482, was 
recorded as goodwill and is being amortized over its estimated life of thirty 
years.

NOTE 3 - INVENTORIES 

Inventories comprise the following:

                                        DECEMBER 31,    SEPTEMBER 30,
                                            1996            1997
                                        ------------    -------------

     Raw materials......................  $24,711         $35,068
     Work-in-process....................    9,622          12,477
     Finished goods.....................   24,643          25,656
                                          -------         -------
                                          $58,976         $73,201
                                          -------         -------
                                          -------         -------

                                    - 8 -
<PAGE>

NOTE 4 - CONTRACT SETTLEMENT

MAQUILADORA CONTRACT DISPUTE.  On June 26, 1997, the Company entered into a 
settlement agreement which resolved its contract dispute with Cal Pacifico of 
California and affiliated entities (collectively, "Cal Pacifico"), the 
operator of the Company's two maquiladora assembly plants in Tijuana, Mexico. 
 For over eight years, the Company has assembled disposable administration 
sets at these two plants, which utilized more than 1,200 workers employed by 
Cal Pacifico, under a contract with Cal Pacifico.  The dispute originated in 
April 1997 when the Company, in accordance with the terms of such contract, 
informed Cal Pacifico that it would be terminating its contractual 
arrangements effective August 1, 1997. Cal Pacifico objected to such 
notification and proposed the systematic termination of the work force.  In 
response to such objection, the Company on June 6, 1997 hired substantially 
all of the workers at the plants directly.  On June 11, 1997, Cal Pacifico 
locked the Company's administrative personnel and production employees out of 
the plants and would not allow the Company access to its production equipment 
or inventory.  As a result of the settlement agreement, the assembly plants 
resumed full operations on June 27, 1997 and Cal Pacifico provided the 
Company with assistance as it transitioned into the direct operation of such 
plants.  The Company began  operating these plants directly during the third 
quarter of 1997.

The Company recorded a non-recurring charge of $4.1 million during the 
quarter ended June 30, 1997 relating to this settlement and the legal fees 
and other costs associated therewith.  The individual costs included within 
such non-recurring charge consist of approximately $2.7 million of settlement 
and legal fees and approximately $1.4 million of idle labor costs and 
start-up costs incurred in connection with the implementation of the interim 
assembly plans discussed below.

As a result of the manufacturing shutdown, sales of the Company's disposable 
administration sets during June 1997 were approximately $1.5 million below 
that of previous months and new orders for infusion pumps were not filled, 
resulting in a North American infusion pump sales backlog of approximately 
$5.5 million at June 30, 1997.  During the contract dispute, the Company 
implemented interim assembly plans for disposable administration sets at its 
facilities in Creedmoor, North Carolina and San Diego, California. The 
Company utilized these facilities through the third quarter of 1997 in order 
to replenish its inventory.  While production costs of disposable 
administration sets at these facilities were greater than in Mexico, the 
incremental volume of disposable administration sets produced outside of 
Mexico has not had a significant impact on the Company's gross margins.

UNITED STATES CUSTOMS SERVICE LIABILITY.  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 ("Finished Products") assembled at the Company's two maquiladora 
assembly plants in Tijuana, Mexico.  In May 1995, Cal Pacifico received a 
pre-penalty notice from the United States Customs Service ("Customs") to the 
effect that Customs intended to assess additional duties and substantial 
penalties against Cal Pacifico for its alleged failure, during the years 1988 
through 1992, to comply with certain documentary requirements regarding the 
importation of goods on behalf of its clients, including the Company.  
Customs recently assessed additional duties with respect to Cal Pacifico's 
importation of goods on behalf of its clients, including the importation of 
the Company's Finished Products, for the years 1993 and 1994, and it is 
anticipated that Customs will issue a pre-penalty notice to Cal Pacifico in 
respect of these years as well (collectively with the amounts referred to in 
the immediately preceding sentence, the "Disputed Amounts").  The Company has 
been advised by its special Customs counsel that, under applicable law, no 
person, by fraud, gross negligence or negligence, may (i) import merchandise 
into the commerce of the United States by means of any material and false 
document, statement or act, or any material omission, or (ii) aid or abet any 
other person to import merchandise in such manner.  No proceeding has been 
initiated by Customs against the Company in respect of the matters which are 
the subject of the proceeding against Cal Pacifico.  Since Cal Pacifico was 
the Company's United States customs broker and importer of record during each 
of the

                                    - 9 -
<PAGE>

foregoing years, the Company believes that it is unlikely that Customs will 
assess against the Company any portion of the Disputed Amounts.

Cal Pacifico is contesting Customs' assessment of the Disputed Amounts.  Cal 
Pacifico's challenge to the assessment of the Disputed Amounts is in its 
preliminary stages.  Given the present posture of Cal Pacifico's challenge, 
and the inherent uncertainty of contested matters such as this, it is not 
possible for the Company to express an opinion as to the likelihood that Cal 
Pacifico will prevail on its challenge.  The Company has not been informed by 
Cal Pacifico or Customs as to the specific amount of the Disputed Amounts.

Cal Pacifico has advised the Company that, should Cal Pacifico's challenge to 
the assessment of the Disputed Amounts prove to be unsuccessful, it will seek 
recovery from the Company, through arbitration, for any portion of the 
Disputed Amounts which it is required to pay to Customs.  As part of the 
settlement agreement which resolved the Company's contract dispute with Cal 
Pacifico, the Company paid Cal Pacifico $550, which is to be applied toward 
Cal Pacifico's payment of Disputed Amounts.  The $550 payment by the Company 
is to be credited toward any portion of the Disputed Amounts which the 
arbitrator determines the Company owes to Cal Pacifico.  The actual amount so 
determined by the arbitrator may be less or greater than $550.  Although the 
ultimate outcome of such an arbitration proceeding cannot be guaranteed, the 
Company believes that it has meritorious defenses to claims with respect to 
Disputed Amounts which Cal Pacifico might raise against the Company.  These 
defenses would be based, among other factors, on the contractual relationship 
between the Company and Cal Pacifico (including a defense with respect to the 
availability of indemnification under the agreements between Cal Pacifico and 
the Company), the conduct of Cal Pacifico with respect to both the Company 
and Customs, and the compliance obligations of Cal Pacifico under applicable 
customs laws.  Inasmuch as Cal Pacifico's challenge before Customs is still 
pending and any claim against the Company for indemnification would be based 
on Cal Pacifico's ultimate lack of success in that challenge, and inasmuch as 
any arbitration proceeding by which Cal Pacifico might seek indemnification 
has not been filed nor has Cal Pacifico committed itself to the theories 
under which it might seek indemnification or the recovery of damages from the 
Company, it is not possible for the Company to express an opinion at this 
time as to the likelihood of an unfavorable outcome in such a proceeding.

NOTE 5 - CONTINGENCIES AND LITIGATION

FIELD CORRECTION

The Company will initiate a voluntary field correction of approximately 
50,000 of its Gemini model PC-1 and PC-2 infusion pumps because failure of 
specific electrical components on the power regulator printed circuit board 
may result in improper regulation of the battery charge voltage, which can 
cause the battery to overheat.  Such overheating could result in product 
failure and discharge of hydrogen gas which may accumulate within the 
instrument's case.  As an interim measure, the Company has advised its 
customers of simple precautions that can be taken to minimize the potential 
for an adverse incident pending completion of the field correction. The 
Company is not aware of any injuries sustained in known battery overcharging 
incidents.

As a result of this decision,  the Company recorded a charge of $2.5 million 
to cost of sales during the first quarter of 1997. Based on management's 
current understanding of these incidents, the Company believes it has 
adequately accrued for this matter. However, since the Company's analysis of 
this matter is preliminary, there can be no assurances that it can be 
resolved for an amount consistent with management's estimated cost.   

LITIGATION

The Company is a defendant in a lawsuit which alleges infringement of two 
patents by reason of certain activities including the sale of disposable 
probe covers for use with tympanic thermometers. The lawsuit seeks injunctive 
relief, treble damages and the recovery of costs and attorney fees. The 
discovery phase of the

                                    - 10 -
<PAGE>

lawsuit has recently commenced. The Company is currently unable to quantify 
its exposure to the lawsuit; however, the Company believes it has sufficient 
defenses to all claims, including the defenses of noninfringement and 
invalidity. However, there can be no assurance that the Company will 
successfully defend all claims and the failure of the Company to successfully 
prevail in this lawsuit could have a material adverse effect on the Company's 
operations, financial condition and cash flows. 

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 and intends to vigorously defend against 
all allegations and claims. 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 consolidated 
financial position, results of operations or cash flows.

                                    - 11 -
<PAGE>
                                PART I - ITEM 2
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
                       CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------------------------

GENERAL

ALARIS Medical is a holding company for ALARIS Medical Systems. ALARIS 
Medical also identifies and evaluates potential acquisitions and investments, 
and performs various corporate functions. As a holding company, ALARIS 
Medical currently has no revenues to fund its operating and interest expense 
and relies on its existing cash and cash generated from operations of ALARIS 
Medical Systems, external borrowings and other external sources of funds to 
meet its obligations.   Capitalized terms used but not defined herein have 
the meaning ascribed to them in the Notes to the Condensed Consolidated 
Financial Statements.

As a result of the Merger on November 26, 1996, the operating results 
reported for the three and nine months ended September 30, 1997 are not 
comparable to 1996.  The 1996 operating results and cash flows represent 
those of Advanced Medical and IMED.

The Company sells and services infusion systems primarily in the United 
States, Western Europe, Canada, Australia, Latin America and the Middle East. 
The Company generates revenues from the sale and/or lease of infusion pumps 
and sales of associated proprietary disposable administration sets.  
Additionally, as a result of the Merger, the Company now generates revenue 
from the sale of vital signs measurement products.

In recent years, the Company's results of operations have been affected by 
the cost containment pressures applicable to health care providers. In 
particular, in order to reduce costs, certain hospitals have adopted a 
protocol increasing the maximum time between disposable administration set 
changes from every 24 hours to as much as every 72 hours. Notwithstanding 
this change in protocol, unit sales volume of the Company's disposable 
administration sets increased in every year since 1993, primarily as a result 
of the growth in its installed base of infusion pumps. However, uncertainty 
remains with regard to future changes within the healthcare industry.  The 
trend towards managed care and economically motivated buyers in the U.S. may 
result in continued pressure on selling prices of products and compression on 
gross margins.  The U.S. marketplace is increasingly characterized by 
consolidation among healthcare providers and purchasers of medical products.  
The Company's profitability is affected by the increasing use of Group 
Purchasing Organizations ("GPOs") which are better able to negotiate 
favorable pricing from providers of infusion systems, such as the Company, 
and which police compliance with exclusive buying arrangements for their 
members. These buying arrangements, in certain situations, also may result in 
the GPO requiring removal of the Company's existing infusion pumps. The 
Company expects that such GPOs will become increasingly more common and may 
have an adverse effect on the Company's future profitability. Finally, the 
enactment of national health care reform or other legislation affecting 
payment mechanisms and health care delivery would affect the Company's future 
results of operations. Although the final form of any such legislation is not 
known, it is likely that any such legislation may impose limits on the number 
and type of medical procedures which may be performed and may restrict a 
provider's ability to select specific devices or products for use in 
administering care which, in turn, could adversely impact demand and/or 
pricing for the Company's infusion systems. It is impossible to predict the 
extent to which the Company may be affected by any such change in 
legislation. 

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected financial 
information expressed as a percentage of sales, as well as pro forma third 
quarter 1996 and pro forma nine months ended September 30, 1996 operating 
results in thousands of dollars.  The pro forma data is based on the 
historical operating results of Advanced Medical and IVAC Holdings, Inc., 
adjusted to give effect to the Merger as if it occurred on January 1, 1996.  
The

                                    - 12 -
<PAGE>

data excludes non-recurring charges related to the Merger, as well as the 
operating results of River Medical, Inc., a subsidiary of IVAC which was 
divested prior to the consummation of the Merger.

The pro forma financial data is not necessarily indicative of the Company's 
results of operations that might have occurred had such transactions been 
completed at the beginning of the period specified, and do not purport to 
represent what the Company's consolidated results of operations might be for 
any future period. 

<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED SEPTEMBER 30,
                                                --------------------------------------------------------
                                                  AS REPORTED     PRO FORMA      PRO FORMA   AS REPORTED
                                                     1996           1996             1996        1997
                                                 -------------  -------------     ----------  ---------
                                                 (% OF SALES)  ($ IN THOUSANDS)        (% OF SALES)
<S>                                             <C>            <C>               <C>          <C>
Sales........................................     100.0%          $ 85,072           100.0%    100.0%
Cost of sales................................      54.5             45,446            53.4      48.8
                                                -------          ---------          ------    ------
Gross margin.................................      45.5%            39,626            46.6%     51.2%
Selling and marketing expense................      15.6             16,354            19.2      18.3
General and administrative expense...........      10.5              9,473            11.1      10.7
Research and development expense.............       7.2              4,734             5.6       5.2
Integration and other non-recurring expense..        --                 --              --       1.9
Lease interest income........................       2.2              1,188             1.4       1.3
                                                -------          ---------          ------    ------
Income from operations.......................      14.4             10,253            12.1      16.4
Interest expense.............................      (8.3)           (10,341)          (12.2)    (13.0)
Other, net...................................        .9                171              .2        --
                                                -------          ---------          ------    ------
Income before income taxes...................       7.0                 83              .1       3.4
Provision for income taxes...................       4.2                600              .7       2.2
                                                -------          ---------          ------    ------
Net income (loss)............................       2.8%          $   (517)            (.6%)     1.2%
                                                -------          ---------          ------    ------
                                                -------          ---------          ------    ------
OTHER DATA:                                                                       
   Adjusted EBITDA...........................      22.1%          $ 18,942           22.3%      28.3%
</TABLE>

<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED SEPTEMBER 30,
                                               ----------------------------------------------------------
                                                 AS REPORTED     PRO FORMA        PRO FORMA   AS REPORTED
                                                    1996           1996              1996        1997
                                                 -------------  -------------     ----------  ---------
                                                (% OF SALES)  ($ IN THOUSANDS)        (% OF SALES)
<S>                                            <C>            <C>               <C>          <C>
                                              
Sales........................................    100.0%          $251,552           100.0%    100.0%
Cost of sales................................     54.7            134,542            53.5      53.2
                                               -------          ---------          ------    ------
Gross margin.................................     45.3%           117,010            46.5%     46.8%
Selling and marketing expense................     16.1             47,482            18.9      18.6
General and administrative expense...........     10.3             29,000            11.5      11.0
Research and development expense.............      7.1             13,237             5.3       5.0
Integration and other non-recurring expense..       --                 --              --       6.8
Lease interest income........................      2.2              3,612             1.5       1.3
                                               -------          ---------          ------    ------
Income from operations.......................     14.0             30,903            12.3       6.7
Interest expense.............................     (8.2)           (30,892)          (12.3)    (12.8)
Other, net...................................      1.5                804              .3        --
                                               -------          ---------          ------    ------
Income (loss) before income taxes............      7.3                815              .3      (6.1)
Provision for (benefit from) income taxes....      3.9              2,035              .8      (2.1)
                                               -------          ---------          ------    ------
Net income (loss)............................      3.4%          $ (1,220)            (.5%)    (4.0%)
                                               -------          ---------          ------    ------
                                               -------          ---------          ------    ------
OTHER DATA:                                   
   Adjusted EBITDA...........................   21.4%          $ 55,790            22.2%      24.3%
</TABLE>

                                    - 13 -
<PAGE>
<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED SEPTEMBER 30,          NINE MONTHS ENDED SEPTEMBER 30,
                                       --------------------------------------    ---------------------------------------
                                       AS REPORTED    PRO FORMA   AS REPORTED     AS REPORTED   PRO FORMA    AS REPORTED
                                           1996          1996        1997            1996          1996          1997
                                       -----------   -----------  -----------    -----------    -----------  -----------
                                                    (IN THOUSANDS)                           (IN THOUSANDS)

<S>                                    <C>           <C>           <C>           <C>            <C>           <C>
ADJUSTED EBITDA (1)                    $ 6,104       $ 18,942      $ 24,580      $ 17,461       $ 55,790      $ 62,402
Inventory purchase price                                                                                    
   allocation adjustment (2)                --             --            --            --             --        (1,607)
Integration and other non-                                                                                  
   recurring expense                        --             --        (1,693)           --             --       (17,592)
Depreciation and                                                                                            
   amortization (3)                     (2,102)        (8,689)       (8,627)       (6,015)       (24,887)      (25,950)
Interest income                            298            222            57         1,012            549           442
Interest expense                        (2,308)       (10,341)      (11,277)       (6,707)       (30,892)      (32,972)
Other, net                                 (51)           (51)          (46)          255            255          (446)
(Provision for) benefit                                                                                     
   from income taxes                    (1,162)          (600)       (1,900)       (3,218)        (2,035)        5,500
                                       --------      --------      --------      --------       --------      -------- 
   Net income (loss)                   $   779       $   (517)     $  1,094      $  2,788       $ (1,220)     $(10,223)
                                       --------      --------      --------      --------       --------      --------
                                       --------      --------      --------      --------       --------      --------
                                                                                                            
</TABLE>

----------------

(1)  Adjusted EBITDA represents income from operations before non-recurring 
     non-cash purchase accounting charges, restructuring charges, integration 
     charges and depreciation and amortization. Adjusted EBITDA does not 
     represent net income or cash flows from operations, as these terms are 
     defined under generally accepted accounting principles, and should not 
     be considered as an alternative to net income or to cash flows as an 
     indicator of the Company's operating performance or to cash flows as a 
     measure of liquidity.  The Company has included information concerning 
     Adjusted EBITDA herein because it understands that such information is 
     used by investors as a measure of an issuer's historical ability to 
     service debt.  Restructuring and other one-time non-recurring charges 
     are excluded from Adjusted EBITDA as the Company believes that the 
     inclusion of these items would not be helpful to an investor's 
     understanding of the Company's ability to service debt. The Company's 
     computation of Adjusted EBITDA may not be comparable to similar titled 
     measures of other companies.
  
(2)  Amount represents that portion of the purchase accounting adjustments 
     made to adjust the acquired IVAC inventory to its estimated fair value 
     on the Merger date which was charged to cost of sales during 1997.
  
(3)  Depreciation and amortization excludes amortization of debt issuance 
     costs included in interest expense.

The following table summarizes sales to customers located in the United 
States and international locations:

<TABLE>
<CAPTION>
                            THREE MONTHS ENDED SEPTEMBER 30,          NINE MONTHS ENDED SEPTEMBER 30,
                       --------------------------------------    ---------------------------------------
                       AS REPORTED    PRO FORMA   AS REPORTED     AS REPORTED   PRO FORMA    AS REPORTED
                           1996          1996        1997            1996          1996          1997
                       -----------   -----------  -----------    -----------    -----------  -----------
                                    (IN MILLIONS)                              (IN MILLIONS)
<S>                    <C>           <C>           <C>           <C>            <C>           <C>
U.S. sales               $21.9         $55.8        $55.9            $64.6       $164.8         $162.6
International sales        5.8          29.3         31.0             17.2         86.8           94.3
                         -----         -----        -----            -----       ------         ------
  Total sales            $27.7         $85.1        $86.9            $81.8       $251.6         $256.9
                         -----         -----        -----            -----       ------         ------
                         -----         -----        -----            -----       ------         ------

</TABLE>

                                    - 14 -
<PAGE>

For purposes of this discussion and analysis, the three months ended 
September 30, 1996 and 1997 are referred to as Third Quarter 1996 and Third 
Quarter 1997, respectively, and the nine months ended September 30, 1996 and 
1997 are referred to as 1996 and 1997, respectively.

THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED 
SEPTEMBER 30, 1997

SALES

Sales increased $59.2 million during Third Quarter 1997 as compared to Third 
Quarter 1996 due to the Merger.  On a pro forma basis, sales increased $1.8 
million, or 2.1%, during Third Quarter 1997 as compared to Third Quarter 
1996.  United States sales increased $0.1 million, or 0.2%, on a pro forma 
basis while international sales increased $1.7 million, or 5.8%, on a pro 
forma basis.  The majority of the Company's international sales are 
denominated in foreign currency.  Due to a stronger U.S. dollar as compared 
to the actual foreign currency exchange rates in effect during Third Quarter 
1996, translation of Third Quarter 1997 international sales were adversely 
impacted by approximately $2.3 million.  The increase in international sales 
is primarily due to an increase in volume of drug infusion disposable 
administration sets as well as the August 1996 repurchase of IMED product 
European distribution rights from Pharmacia & Upjohn, Inc. which has resulted 
in higher average selling prices for these products in 1997.

GROSS MARGIN

The gross margin percentage increased 5.7 percentage points, from 45.5% for 
Third Quarter 1996 to 51.2% for Third Quarter 1997, primarily due to vendor 
price concessions resulting from the Merger and favorable international 
margins due in part to the repurchase of European distribution rights from 
Pharmacia & Upjohn, Inc.  This was partially offset by increased amortization 
expenses resulting from the IVAC purchase price allocated to certain 
intangible assets.  Pro forma gross margin percentage for Third Quarter 1996 
was 46.6% compared to 51.2% for Third Quarter 1997.

SELLING AND MARKETING EXPENSE

Selling and marketing expense increased $11.6 million during Third Quarter 
1997 primarily due to the Merger.  On a pro forma basis, selling and 
marketing expense decreased approximately $0.5 million, or 2.8%, during Third 
Quarter 1997.  As a percentage of sales, on a pro forma basis, selling and 
marketing expense decreased from 19.2% in Third Quarter 1996 to 18.3% in 
Third Quarter 1997 primarily due to Merger-related synergies resulting in a 
decrease in domestic labor and advertising costs offset by increased 
international expenses of $.5 million, or 2.8%.

GENERAL AND ADMINISTRATIVE EXPENSE

General and administrative expense increased $6.4 million during Third 
Quarter 1997 primarily due to the Merger.  On a pro forma basis, general and 
administrative expense decreased by $0.2 million, or 2.1%, during Third 
Quarter 1997.  As a percentage of sales, on a pro forma basis, general and 
administrative expense decreased from 11.1% for Third Quarter 1996 to 10.7% 
for Third Quarter 1997 due to an increase in sales, as well as Merger-related 
synergies at ALARIS Medical Systems including lower data processing and 
general insurance expense.  International expenses increased by $0.4 million, 
or 28%, primarily as a result of IMED's repurchase of the European 
distribution rights for IMED products from Pharmacia & Upjohn, Inc. in August 
1996 and an associated increase in European direct operations.

RESEARCH AND DEVELOPMENT EXPENSE

Research and development expense increased approximately $2.6 million during 
Third Quarter 1997 due to the Merger.  On a pro forma basis, research and 
development expense decreased from $4.7 million, or 5.6% of sales, during 
Third Quarter 1996 to $4.5 million, or 5.2% of sales, for Third Quarter 1997, 
primarily due to synergies realized in the Merger and realignment and 
prioritization of research and development projects.

                                    - 15 -
<PAGE>
INTEGRATION AND OTHER NON-RECURRING EXPENSE

The Company incurred $1.7 million in integration costs during Third Quarter 
1997.  These costs are in addition to restructuring and integration charges 
of $15.3 million recorded in the fourth quarter of 1996, $3.7 million and 
$12.2 million recorded in the first and second quarters of 1997, 
respectively.   The Third Quarter 1997 expense consists primarily of 
information systems conversion costs of $1.4 million and other integration 
costs of $0.3 million.

INCOME FROM OPERATIONS

Income from operations increased $10.3 million during Third Quarter 1997 
primarily due to the Merger.  On a pro forma basis, operating income 
increased $4.0 million, from $10.3 million in Third Quarter 1996 to $14.3 
million in Third Quarter 1997, due primarily to improved gross margin of $4.8 
million and reduced selling and marketing, general and administrative and 
research and development expenses.  This increase was partially offset by 
integration expenses incurred in Third Quarter 1997.

ADJUSTED EBITDA

Adjusted EBITDA increased $18.5 million during Third Quarter 1997 compared to 
Third Quarter 1996 primarily due to the Merger.  On a pro forma basis, as a 
percentage of sales, Adjusted EBITDA increased from 22.3%, or $18.9 million, 
for Third Quarter 1996 to 28.3%, or $24.6 million, for Third Quarter 1997 due 
to the reasons discussed above.  Adjusted EBITDA represents income from 
operations before non-recurring purchase accounting charges, restructuring 
charges, integration charges and depreciation and amortization. Adjusted 
EBITDA does not represent net income or cash flows from operations, as these 
terms are defined under generally accepted accounting principles, and should 
not be considered as an alternative to net income or to cash flows as an 
indicator of the Company's operating performance or to cash flows as a 
measure of liquidity.  The Company has included information concerning 
Adjusted EBITDA herein because it understands that such information is used 
by investors as a measure of an issuer's historical ability to service debt. 
Restructuring and other one-time non-recurring charges are excluded from 
Adjusted EBITDA as the Company believes that the inclusion of these items 
would not be helpful to an investor's understanding of the Company's ability 
to service debt. The Company's computation of Adjusted EBITDA may not be 
comparable to similar titled measures of other companies.

INTEREST EXPENSE

Interest expense increased $9.0 million during Third Quarter 1997 compared to 
Third Quarter 1996 primarily due to the Merger.  In addition to interest on 
approximately $404.0 million of borrowings to finance the Merger and related 
debt refinancings, higher interest expense was incurred in Third Quarter 1997 
due to IMED's $11.0 million purchase of the European distribution rights for 
IMED products in August 1996.  This increase in interest expense was offset 
by reductions in interest on $37.5 million of convertible debt which was 
converted to common stock in connection with the Merger, as well as the 
redemption of $21.9 million of 15% subordinated debentures in December 1996.  
On a pro forma basis, interest expense increased $0.9 million due to 
additional borrowings under the Company's revolving credit facility (see 
Liquidity and Capital Resources). The additional borrowings were used to pay 
for restructuring and integration costs associated with the Merger and to 
ramp up inventory for fourth quarter sales.

                                    - 16  -
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 
30, 1997

SALES

Sales increased $175.1 million during 1997 as compared to 1996 due to the 
Merger.  On a pro forma basis, sales increased $5.3 million, or 2.1%, during 
1997 as compared to 1996.  United States sales decreased $2.2 million, or 
1.3%, on a pro forma basis while international sales increased $7.5 million, 
or 8.6%, on a pro forma basis.  The increase in international sales is 
primarily due to an increase in volume of drug infusion instruments and 
disposable administration sets as well as the August 1996 repurchase of IMED 
product European distribution rights from Pharmacia & Upjohn, Inc. which has 
resulted in higher average selling prices for these products in 1997.  The 
majority of the Company's international sales are denominated in foreign 
currency.  Due to a stronger U.S. dollar in 1997 as compared to the actual 
foreign currency exchange rates in effect during 1996, translation of 1997 
international sales were adversely impacted by $4.2 million. The decrease in 
U.S. sales in the nine months ended September 30, 1997 as compared to the 
nine months ended September 30, 1996, on a pro forma basis, is primarily due 
to a decrease in the drug infusion instrument and disposable administration 
set volume from the prior year as a result of the business interruption in 
Mexico during the second quarter of 1997 (see Note 4 to the Condensed 
Consolidated Financial Statements).

GROSS MARGIN

The gross margin percentage increased from 45.3% for the nine months ended 
September 30, 1996 to 46.8% for the nine months ended September 30, 1997 
primarily due to vendor price concessions resulting from the Merger and 
favorable international margins due in part to the repurchase of European 
distribution rights from Pharmacia & Upjohn, Inc.  These were partially 
offset by increased amortization expense resulting from the IVAC purchase 
price allocated to certain intangible assets, $1.6 million of non-recurring 
purchase accounting inventory adjustments, as well as $2.5 million related to 
a voluntary field correction of certain Gemini PC-1 and PC-2 infusion pumps 
(see Note 5 to the Condensed Consolidated Financial Statements) charged to 
cost of sales during 1997.  Pro forma gross margin percentage for 1996 was 
46.5% compared to 48.4% for 1997, exclusive of the purchase accounting 
inventory adjustment and product field correction charges.

SELLING AND MARKETING EXPENSE

Selling and marketing expense increased $34.6 million during 1997 primarily 
due to the Merger.  On a pro forma basis, selling and marketing expense 
increased approximately $0.3 million, or 0.7%, during 1997.  As a percentage 
of sales, on a pro forma basis, selling and marketing expense decreased from 
18.9% in 1996 to 18.6% in 1997.  Domestic expense decreased by $2.4 million, 
or 7.9%, from 1996 due to Merger-related synergies. The decrease in domestic 
selling and marketing expense was more than offset by increased international 
expenses of $2.7 million, or 16.2%, due largely to increased distribution 
costs and IMED's repurchase of the European distribution rights for IMED 
products from Pharmacia & Upjohn, Inc. in August 1996 and an associated 
increase in European direct operations.

GENERAL AND ADMINISTRATIVE EXPENSE

General and administrative expense increased $19.8 million during 1997 
primarily due to the Merger.  On a pro forma basis, general and 
administrative expense decreased by $0.8 million, or 2.7%, during 1997.  As a 
percentage of sales, on a pro forma basis, general and administrative expense 
decreased from 11.5% for 1996 to 11.0% for 1997 due to an increase in sales, 
as well as Merger-related synergies at ALARIS Medical Systems, including 
lower data processing and general insurance expense.  International expenses 
increased by $0.2 million, or 4.8%, primarily as a result of IMED's 
repurchase of the European distribution rights for IMED products from 
Pharmacia & Upjohn, Inc. in August 1996 and an associated increase in 
European direct operations.

RESEARCH AND DEVELOPMENT EXPENSE

Research and development expense increased approximately $7.0 million during 
1997 primarily due to the Merger.  On a pro forma basis, research and 
development expense decreased from $13.2 million, or 5.3% of sales, for the 
nine

                                    - 17 -
<PAGE>

months ended September 30, 1996 to $12.7 million, or 5.0% of sales, for the 
nine months ended September 30, 1997, primarily due to synergies realized in 
the Merger and realignment and prioritization of research and development 
projects.

INTEGRATION AND OTHER NON-RECURRING EXPENSE

The Company incurred $17.6 million in integration costs and other 
non-recurring expense during the first nine months of 1997.  These costs are 
in addition to restructuring and integration charges of $15.3 million 
recorded in the fourth quarter of 1996.  The 1997 expense consists primarily 
of the write-off of a product distribution and license agreement with a third 
party developer of an ambulatory and alternate site infusion pump of $4.5 
million, maquiladora settlement and related costs of $4.1 million, 
information systems conversion costs of $3.1 million, management consulting 
fees of $1.4 million, severance of $1.3 million and other integration costs 
of $3.2 million. The Company has reviewed its products and related research 
and development activities and market opportunities in order to focus on 
projects that will provide greater competitive advantage and stockholder 
return.  That review resulted in the termination of the aforesaid product 
distribution and license agreement.  The $4.5 million charge related to such 
termination includes a $4.3 million non-cash charge representing the 
intangible asset associated with such agreement.

INCOME FROM OPERATIONS

Income from operations increased $5.8 million during 1997 primarily due to 
the Merger.  This increase was partially offset by expenses related to the 
field correction on the Gemini pumps in the first quarter and the maquiladora 
business interruption in the second quarter.  On a pro forma basis, operating 
income decreased $13.6 million from $30.9 million in 1996 to $17.3 million in 
1997 due to the reasons discussed above.

ADJUSTED EBITDA

Adjusted EBITDA increased $44.9 million during 1997 primarily due to the 
Merger.  On a pro forma basis, as a percentage of sales, Adjusted EBITDA 
increased from 22.2%, or $55.8 million, for 1996 to 24.3%, or $62.4 million, 
for 1997 due to the reasons discussed above.  Excluding the $2.5 million 
charge to cost of sales during the first quarter of 1997, Adjusted EBITDA 
would have increased to $64.9 million, an increase of $9.1 million or 
approximately 16.3%, as compared to pro forma 1996. Adjusted EBITDA 
represents income from operations before non-recurring non-cash purchase 
accounting charges, restructuring charges, integration charges and 
depreciation and amortization.  Adjusted EBITDA does not represent net income 
or cash flows from operations, as these terms are defined under generally 
accepted accounting principles, and should not be considered as an 
alternative to net income or to cash flows as an indicator of the Company's 
operating performance or to cash flows as a measure of liquidity. The Company 
has included information concerning Adjusted EBITDA herein because it 
understands that such information is used by investors as a measure of an 
issuer's historical ability to service debt. Restructuring and other one-time 
non-recurring charges are excluded from Adjusted EBITDA as the Company 
believes that the inclusion of these items would not be helpful to an 
investor's understanding of the Company's ability to service debt.  The 
Company's computation of Adjusted EBITDA may not be comparable to similar 
titled measures of other companies.

INTEREST EXPENSE

Interest expense increased $26.3 million during 1997 primarily due to the 
Merger.  In addition to interest on approximately $404.0 million of 
borrowings to finance the Merger and related debt refinancings, higher 
interest expense was incurred in 1997 due to IMED's $11.0 million purchase of 
the European distribution rights for IMED products in August 1996.  This 
increase in interest expense was offset by reductions in interest on $37.5 
million of convertible debt which was converted to common stock in connection 
with the Merger, as well as the redemption of $21.9 million of 15% 
subordinated debentures in December 1996.  On a pro forma basis, interest 
expense increased $2.1 million due to additional borrowings under the 
Company's revolving credit facility (see Liquidity and Capital Resources).  
The additional borrowings were used to pay for restructuring and integration 
costs associated with the Merger.

LIQUIDITY AND CAPITAL RESOURCES

Management currently believes that sufficient cash will be
available through ALARIS Medical Systems, based upon current
operations, to satisfy debt service and other corporate expenses of
ALARIS Medical in the

                                    - 18 -
<PAGE>

foreseeable future. In particular, ALARIS Medical Systems' credit facility 
permits ALARIS Medical Systems to transfer to ALARIS Medical up to $1.5 
million annually to fund ALARIS Medical's operating expenses and additional 
amounts sufficient to meet interest expense requirements. 

The Company expects to continue to meet its liquidity needs, including, in 
the short-term, funding of restructuring and integration costs, as well as 
long-term capital expenditure requirements with cash flow from operations and 
borrowings under the credit facility.  The Company's primary future use of 
funds will be to fund capital expenditures and strategic acquisitions and to 
pay debt service on outstanding indebtedness. 

During the quarter ended September 30, 1997 the Company made cash payments of 
approximately $1.5 million related to merger and integration costs accrued at 
December 31, 1996, as well as payments of approximately $1.7 million for 
integration costs expensed during the third quarter of 1997.

At September 30, 1997, the Company's outstanding indebtedness was $447.6 
million, which includes $199.1 million of bank term debt under the credit 
facility and $200.0 million of Senior Subordinated Notes due 2006 (the 
"Notes"), which were borrowed in connection with the Merger.  The bank debt 
bears interest at floating rates based, at the Company's option, on 
Eurodollar or prime rates. As a result, a one percent increase in the rate of 
interest charged on indebtedness outstanding under the credit facility at 
September 30, 1997 would result in additional annual interest expense of 
approximately $1.0 million.  During the second quarter of 1997 the Company 
entered into an interest rate protection agreement covering 50% of its term 
loan borrowings. Such agreement fixed the interest rate charged on such 
borrowings resulting in a weighted average fixed rate of 9.6% on the 
principal balance covered. Included in total consolidated debt, at September 
30, 1997, ALARIS Medical had $16.2 million of outstanding Convertible 
Debentures. 

In connection with obtaining the Merger financing, the Company also obtained 
a $50.0 million revolving credit line as part of the credit facility.  At 
September 30, 1997, $26.5 million in borrowings and $0.5 million under 
letters of credit were outstanding under this line of credit and $23.0 
million was available.  A net $4.0 million was borrowed during the quarter. 

In connection with the Merger, the Company assumed IVAC's obligations to 
Siemens Infusion Systems Ltd. These obligations relate to the payment of 
additional purchase consideration related to the acquisition of the MiniMed 
product line (the predecessor product line to MS III) and provide for the 
payment of the greater of $3.0 million per year or 8% of the prior year's MS 
III sales in 1997 through 1999.  The Company made the minimum 1997 payment of 
$3.0 million during the first quarter of 1997.

As a result of the Company's significant indebtedness, the Company expects to 
incur significant interest expense in future periods. The Company believes 
that cash provided by operations will be sufficient to meet its interest 
expense obligations. 

Annual amortization of the Company's indebtedness are $.3 million for the 
fourth quarter of 1997 and $14.6 million and $15.6 million for 1998 and 1999, 
respectively. 

The Convertible Debentures provide for semi-annual interest payments of 
approximately $0.6 million and mature on January 15, 2002. The Notes and the 
credit facility permit ALARIS Medical Systems to fund interest payments on 
the Convertible Debentures and to make limited distributions to ALARIS 
Medical to fund operating expenses and to pay income taxes; PROVIDED THAT, 
with respect to the credit facility, there exists no default or event of 
default under the credit facility. The Notes and the credit facility, 
however, restrict distributions to ALARIS Medical to fund the repayment of 
the Convertible Debentures at maturity. 

In addition to routine capital expenditures that are expected to be
consistent with the combined historical capital expenditures of
IMED and IVAC, the Company expects to make a total of approximately
$12.4 million of capital

                                    - 19 -
<PAGE>

and operating expenditures during 1997 and 1998 for the acquisition and 
implementation of a new enterprise-wide information system.

The Company made capital expenditures of approximately $5.4 million and $15.1 
million during the three and nine months ended September 30, 1997, 
respectively, of which approximately $0.7 million and $5.3 million, 
respectively, were related to the consolidation of the IMED and IVAC 
facilities.  The Company anticipates capital spending for the fourth quarter 
of 1997 to be approximately $5.0 million as the Company plans to purchase 
hardware to support new information systems, move and consolidate its U.K. 
operations into a new leased facility and purchase tooling and other 
equipment for new products.

The Company believes that it will generate sufficient cash flow from 
operations to fund its operations, make planned capital expenditures and make 
required payments of principal and interest under its credit facility and 
interest on the Notes; however, the Company may not generate sufficient cash 
flow from operations to repay the Notes at maturity. Accordingly, the Company 
may have to refinance the Notes at or prior to maturity or sell assets or 
raise equity capital to repay the principal amount of the Notes. In addition, 
the Company's ability to fund its operations, to make planned capital 
expenditures and to make scheduled principal and interest payments will be 
dependent on the Company's future operating performance, which is itself 
dependent on a number of factors, many of which the Company cannot control, 
including conditions affecting the Company's foreign operations, prevailing 
economic conditions, availability of other sources of liquidity, and 
financial, business, regulatory and other factors affecting the Company's 
business and operations.

SEASONALITY

Infusion instrument sales are typically higher in the fourth quarter due to 
sales compensation plans which reward the achievement of annual quotas and 
the seasonal characteristics of the industry, including hospital purchasing 
patterns.  First quarter sales are traditionally not as strong as the fourth 
quarter.  The Company anticipates that this trend will continue but is unable 
to predict the effect, if any, from health care reform and increased 
competitive pressures.

HEALTH CARE REFORM

Heightened public awareness and concerns regarding the growth in overall 
health care expenditures in the United States may result in the enactment of 
legislation affecting payment mechanisms and health care delivery.  
Legislation which imposes limits on the number and type of medical procedures 
which may be performed or which has the effect of restricting a provider's 
ability to select specific devices or products for use in administrating 
medical care may adversely impact the demand for the Company's products.  In 
addition, legislation which imposes restrictions on the price which may be 
charged for medical products may adversely affect the Company's results of 
operations.  It is not possible to predict the extent to which the Company or 
the health care industry in general may be adversely affected by the 
aforementioned in the future.

FORWARD-LOOKING STATEMENTS

Forward-Looking Statements in this report are made pursuant to the Safe 
Harbor Provisions of the Private Securities Litigation Reform Act of 1995.  
Persons reading this report are cautioned that such forward-looking 
statements involve risks and uncertainties, including, without limitation, 
the effect of legislative and regulatory changes effecting the health care 
industry; the potential of increased levels of competition; technological 
changes; the dependence of the Company upon the success of new products and 
ongoing research and development efforts; restrictions contained in the 
instruments governing the Company's indebtedness; the significant leverage to 
which the Company is subject; and other matters referred to in this report 
and ALARIS Medical's Report on Form 10-K for the year ended December 31, 1996.

BACKLOG

The backlog or orders, believed to be firm, at September 30, 1997 was $7.9 
million.

                                    - 20 -
<PAGE>
                                    PART II                            
                               OTHER INFORMATION
-------------------------------------------------------------------------------

ITEM 1.  LEGAL PROCEEDINGS

See Note 5 to the Condensed Consolidated Financial Statements.


                                    - 21 -
<PAGE>
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

     11.1 -    Computation of Net Income per share for the
               three and nine months ended September 30, 1996
               and 1997.
     
                _________________________________________


(b)  Reports on Form 8-K

None.


                                    - 22 -
<PAGE>
                                  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.
     
     
                                                    ALARIS MEDICAL, INC.
                                                    --------------------
                                                            (REGISTRANT)
     
     
     
     
     Date:   November 11, 1997                 By:  /S/ DOUGLAS C. JEFFRIES  
                                                   ------------------------
                                                        Douglas C. Jeffries
                                          Vice President and Chief Financial
                                                                     Officer
     

                                    - 23 -
<PAGE>          
                              EXHIBIT INDEX

Exhibit                                                          Page   
  No.                                                             No.   
------                                                           ----
11.1    Computation of Net Income per share for the three and 
        nine months ended September 30, 1996 and 1997...........  25
     


                                    - 24 -