---

# 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 March 31, 2004 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)                               
|                                                                                   
|                                                                                   
|(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 [   ]

Indicate by check mark whether the registrant is an accelerated filer
 (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [   ]

As of April 12, 2004, the registrant had 72,249,796 shares of common
 stock outstanding.

Page 1 of 28

---

---

ALARIS MEDICAL SYSTEMS, INC.

---



# INDEX

|                                                                         | 
|------------------------------------------------------------------------ | 
|PART I. FINANCIAL INFORMATION                                            | 
|                                                                         | 
|Item 1 - Financial Statements:                                           | 
|                                                                         | 
|Consolidated Statement of Operations for the three                       | 
|months ended March 31, 2004 and 2003 (unaudited)                         | 
|                                                                         | 
|Consolidated Balance Sheet at March 31, 2004 (unaudited) and             | 
|December 31, 2003                                                        | 
|                                                                         | 
|Consolidated Statement of Cash Flows for the three months ended          | 
|March 31, 2004 and 2003 (unaudited)                                      | 
|                                                                         | 
|Consolidated Statement of Changes in Stockholders' Equity and            | 
|Comprehensive Income for the period from December 31, 2003 to March      | 
|31, 2004 (unaudited)                                                     | 
|                                                                         | 
|Notes to the Condensed Consolidated Financial Statements (unaudited)     | 
|                                                                         | 
|Item 2 - Management's Discussion and Analysis of Financial Condition and | 
|Results of Operations                                                    | 
|                                                                         | 
|Item 3 - Quantitative and Qualitative Disclosures About Market Risk      | 
|                                                                         | 
|Item 4 - Controls and Procedures                                         | 
|                                                                         | 
|PART II. OTHER INFORMATION                                               | 
|                                                                         | 
|Item 6 - Exhibits and Reports on Form 8-K                                | 

---

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

---



|                                                    | Three Months Ended March 31, | 
|--------------------------------------------------- | ---------------------------- | 
|
|                                                    |                              | 
|Sales                                               |                              | 
|Cost of sales                                       |                              | 
|                                                    |                              | 
|Gross profit                                        |                              | 
|                                                    |                              | 
|Selling and marketing expenses                      |                              | 
|General and administrative expenses                 |                              | 
|Research and development expenses                   |                              | 
|                                                    |                              | 
|Total operating expenses                            |                              | 
|                                                    |                              | 
|Interest income from sales-type capital leases      |                              | 
|                                                    |                              | 
|Income from operations                              |                              | 
|                                                    |                              | 
|Other income (expenses):                            |                              | 
|Interest income                                     |                              | 
|Interest expense                                    |                              | 
|Recapitalization expenses (Note 2)                  |                              | 
|Other, net                                          |                              | 
|                                                    |                              | 
|Total other expense                                 |                              | 
|                                                    |                              | 
|Income before income taxes                          |                              | 
|Provision for income taxes                          |                              | 
|                                                    |                              | 
|Net income                                          |                              | 
|                                                    |                              | 
|Net income per common share, basic                  |                              | 
|                                                    |                              | 
|Net income per common share, diluted                |                              | 
|                                                    |                              | 
|Weighted average common shares outstanding, basic   |                              | 
|                                                    |                              | 
|Weighted average common shares outstanding, diluted |                              | 
|                                                    |                              | 

The accompanying notes are an integral part of these
 condensed consolidated financial statements 3 

---

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

---



# ASSETS

|                                                                  | March 31,2004 | December 31,2003
|----------------------------------------------------------------- | ------------- | ----------------
|                                                                  | (Unaudited)   |                 
|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                             |  | 
|                                                          |  | 
|                                                          |  | 
|Contingencies and litigation (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 and outstanding: 72,201 and 71,320 shares at       |  | 
|March 31, 2004 and December 31, 2003, respectively        |  | 
|Capital in excess of par value                            |  | 
|Accumulated deficit                                       |  | 
|Accumulated other comprehensive income                    |  | 
|                                                          |  | 
|Total stockholders' equity                                |  | 
|                                                          |  | 
|                                                          |  | 
|                                                          |  | 

The accompanying notes are an integral part of these
 condensed consolidated financial statements 4 

---

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

---



|                                                                 | Three Months Ended March 31, | 
|---------------------------------------------------------------- | ---------------------------- | 
|
|
|Cash flows from operating activities:                            |                              | 
|Net income                                                       |                              | 
|Adjustments to reconcile net income to net cash                  |                              | 
|provided by operating activities:                                |                              | 
|Depreciation and amortization                                    |                              | 
|Net loss on disposal of property, plant and equipment            |                              | 
|Debt discount and issue costs amortization and write-offs        |                              | 
|Accretion of bond interest                                       |                              | 
|Recapitalization expenses (Note 2)                               |                              | 
|(Increase) decrease in assets:                                   |                              | 
|Receivables, net                                                 |                              | 
|Inventories                                                      |                              | 
|Prepaid expenses and other current assets                        |                              | 
|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                                    |                              | 
|Proceeds from disposal of property, plant and equipment          |                              | 
|                                                                 |                              | 
|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 exercise of stock options                          |                              | 
|                                                                 |                              | 
|Net cash used in financing activities                            |                              | 
|                                                                 |                              | 
|Effect of exchange rate changes on cash                          |                              | 
|                                                                 |                              | 
|Net (decrease) increase 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 5 

---

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

---



|                                     | Common StockShares   Amount | Capital inExcess ofPar Value | AccumulatedDeficit | AccumulatedOtherComprehensiveIncome | TotalStockholdersEquity | Compre-hensiveIncome |     | 
|------------------------------------ | --------------------------- | ---------------------------- | ------------------ | ----------------------------------- | ------------------------ | -------------------- | --- | 
|
|Balance at December 31, 2003         |                             |                              |                    | 71,320                              |                          | $                    | 713 | 
|                                     |                             |                              |                    |                                     |                          |                      |     | 
|Comprehensive income:                |                             |                             
|Net income for the period            |                             |                              |                    |                                     |                          |                      |     | 
|Equity adjustment from foreign       |                             |                             
|currency translation                 |                             |                              |                    |                                     |                          |                      |     | 
|Effects of cash flow hedges included |                             |                              |                    |                                     |                          |                      |     | 
|                                     |                             |                              |                    |                                     |                          |                      |    
|in other comprehensive income        |                             |                              |                    |                                     |                          |                      |     | 
|(net of tax expense of $111)         |                             |                              |                    |                                     |                          |                      |     | 
|                                     |                             |                              |                    |                                     |                          |                      |    
|Comprehensive income                 |                             |                              |                    |                                     |                          |                      |     | 
|                                     |                             |                              |                    |                                     |                          |                      |    
|Exercise of stock options            |                             |                              |                    | 881                                 |                          |                      | 9   | 
|                                     |                             |                              |                    |                                     |                          |                      |    
|Tax benefit from exercise of         |                             |                              |                    |                                     |                          |                      |     | 
|stock options                        |                             |                              |                    |                                     |                          |                      |     | 
|                                     |                             |                              |                    |                                     |                          |                      |     | 
|Balance at March 31, 2004            |                             |                              |                    | 72,201                              |                          | $                    | 722 | 
|                                     |                             |                              |                    |                                     |                          |                      |     | 

The accompanying notes are an integral part of these
 condensed consolidated financial statements 6 

---

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. 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, ALARIS 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 March 31, 2004, the
results of its operations for the three months ended March  31, 2004 and 2003, and its
cash flows for the three months ended March 31, 2004 and 2003.

# 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. The Companys  estimates are based on historical
experience and various judgments and assumptions management believes  are appropriate.
However, the inherent nature of estimates is that actual results will likely be different
from the estimates made.

# Concentrations of credit risk:

The
Company provides a variety of financing arrangements for its customers. The majority of
the  Companys accounts receivable are from hospitals throughout the United States,
Europe, Canada and Australia  with credit terms of generally 30 to 90 days, although
various European markets pay much longer than  the contractual terms. The Company
maintains adequate reserves for potential credit losses and such  losses have been within
managements estimates. One customer whose payment terms are 30 days, accounted for 12% of the outstanding accounts
 receivable at December 31, 2003 and 4% of the outstanding accounts receivable at March
31, 2004. This  customer is an unaffiliated third party finance company that many North
American customers have chosen  to use when financing their purchases.

- 7 -

---

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

# Collateral deposit:

The
Company was required at March 31, 2004 to maintain $3,565 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 Consolidated Balance Sheet.  This collateral amount will fluctuate as
open foreign exchange contracts are settled throughout 2004.  Under the Companys
Credit Facility (discussed in Note 5), certain lenders have agreed to provide foreign
 exchange contract lines to the Company without requiring direct cash collateral.

# 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 months ended March 31,
2004 and 2003,  were $2,154 and $1,940, respectively.

# Product warranties and deferred service revenues:

Changes  in the liability for
product warranty and deferred revenue associated with these service programs for  the
three months ended March 31, 2004 and 2003 were as follows:

|                                                 | March 31, | 
|------------------------------------------------ | --------- | 
|
|Product warranties:                              |           | 
|Balance at beginning of period                   |           | 
|Accruals for warranties issued during the period |           | 
|Adjustments for fluctuations in foreign exchange |           | 
|Settlements made during the period (A)           |           | 
|                                                 |           | 
|Balance at end of period                         |           | 
|                                                 |           | 

|                                                 |  | 
|------------------------------------------------ |  | 
|Deferred service revenues:                       |  | 
|Balance at beginning of period                   |  | 
|Amounts added to deferred revenue                |  | 
|Adjustments for fluctuations in foreign exchange |  | 
|Amounts recorded as revenue during the period    |  | 
|                                                 |  | 
|Balance at end of period                         |  | 
|                                                 |  | 

(A)       
 Settlements made to product warranties represent actual expenses incurred for the period related to
 products under warranty.

# 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 dilutive
potential common shares during the period.

- 8 -

---

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

Weighted
 average common shares used in the calculation of diluted earnings per share for the
quarter ended March  31, 2004 and 2003, includes dilutive potential common shares of
4,166 and 4,004, respectively. For the  quarter ended March 31, 2004 and 2003, options to
purchase 24 and 5 shares of common stock, respectively,  were excluded from the
calculation of  dilutive potential common shares 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 of $19.46 and $7.94, respectively.

# 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.

The
 following table illustrates the effect on net income and earnings per share if the
Company had applied  the fair value method to stock-based employee compensation:

|                                                 | Three Months Ended March 31, | 
|------------------------------------------------ | ---------------------------- | 
|
|Net income, as reported                          |                              | 
|Deduct: Total stock-based employee compensation  |                              | 
|expense determined under fair value based method |                              | 
|for all awards, net of related tax effects       |                              | 
|                                                 |                              | 
|Pro forma net income                             |                              | 
|                                                 |                              | 
|Earnings per share:                              |                              | 
|Net income per common share, basic               |                              | 
|                                                 |                              | 
|Net income per common share, diluted             |                              | 
|                                                 |                              | 
|Net income per common share, pro forma basic     |                              | 
|                                                 |                              | 
|Net income per common share, pro forma diluted   |                              | 
|                                                 |                              | 

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
assumptions for the quarters ended March 31, 2004 and 2003:

|                                          | 2004 | 2003
|----------------------------------------- | ---- | ----
|Weighted average risk-free interest rates |      |     
|Expected life                             |      |     
|Volatility                                |      |     
|Expected dividends                        |      |     

The
Black-Scholes  option valuation model is one of a number of models available 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.

- 9 -

---

# NOTE 2  RECAPITALIZATION EXPENSES

In
February  2003, AMI repurchased in a private transaction $25,000 principal amount at
maturity of its former 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.

# NOTE 3  GOODWILL AND OTHER INTANGIBLE ASSETS

Acquired
 intangible assets were as follows:

|                                           | March 31, 2004 | December 31, 2003 |   |        
|------------------------------------------ | -------------- | ----------------- | - | -------
|
|
|Patents                                    |                |                   | $ | 29,021 
|Distribution rights and license agreements |                |                   |   | 8,462  
|                                           |                |                   |   |        
|Subtotal other intangible assets, net      |                |                   |   |        
|(subject to amortization)                  |                |                   |   | 37,483 
|Acquired other intangible assets           |                |                  
|(not subject to amortization):             |                |                  
|IVAC trade name                            |                |                   |   | 74,750 
|                                           |                |                   |   |        
|Intangible assets, net                     |                |                   | $ | 112,233
|                                           |                |                   |   |        
|                                           |                |                   |   |        

For
the  quarter ended March 31, 2004 and 2003, amortization expense for other intangible
assets, net was $546  and $551, respectively. The estimated future annual amortization
expense for other intangible assets,  net is as follows:

|                                                                         | 
|------------------------------------------------------------------------ | 
|Fiscal Year                                                              | 
|2004 (A)                                                                 | 
|2005                                                                     | 
|2006                                                                     | 
|2007                                                                     | 
|2008                                                                     | 
|                                                                         | 
|(A) Amount represents remaining estimated amortization expense for 2004. | 

- 10  -

---

# NOTE 4  INVENTORIES

Inventories
comprise the following:

|                | March 31,2004 | December 31,2003
|--------------- | ------------- | ----------------
|
|Raw materials   |               |                 
|Work-in-process |               |                 
|Finished goods  |               |                 
|                |               |                 
|                |               |                 
|                |               |                 

# NOTE 5  LONG-TERM DEBT

Long-term  debt consists of the
following:

|                                                | March 31,
2004 | December 31,
2003
|----------------------------------------------- | -------------- | -----------------
|
|Bank credit facility, total term loans due 2009 |                |                  
|7-1/4% senior subordinated notes due 2011       |                |                  
|                                                |                |                  
|                                                |                |                  
|Current portion                                 |                |                  
|                                                |                |                  
|Long-term debt                                  |                |                  
|                                                |                |                  

# Bank credit facility:

As
part  of its 2003 recapitalization, 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 a fluctuating base rate, plus a margin  of 2.25%
as of March 31, 2004. The Company can elect to use either a one-, two-, three-, or
six-month  LIBOR rate. ALARIS has made elections resulting in a weighted average interest
rate at March 31, 2004  of 3.36% per annum (1.11% plus the margin of 2.25%). Payments of
$613 (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.

Utilizing
 cash flow from operations and cash on hand, the Company made two principal prepayments of $10,000 each,
along with one  scheduled quarterly principal payment of $613, during the first quarter
of 2004. Non-cash charges of  $478 for the write-off of unamortized debt issuance costs
related to the prepayments were recorded in  the Companys interest expense in the
quarter ended March 31, 2004.

The
Company  is also required, under terms agreeable to lenders under the Credit Facility, to
effectively fix the  variable interest rate exposure on at least 50% of its total
outstanding debt. The Company met this  requirement by entering into two separate
interest rate swap agreements in July 2003 and August 2003  whereby $202,000 of the term
loan was effectively converted to a weighted average fixed rate of 4.85%  as of March 31,
2004. The July 2003 swap agreement has a notional amount of $30,000 and expires on
December  30, 2005. The August 2003 swap agreement has an original notional amount of
$172,000 that decreases  on a quarterly basis to a final notional amount of $54,000 and
expires on December 29, 2006.

- 11  -

---

# NOTE 5  LONG-TERM DEBT (Continued)

The
Credit  Facility contains various operating, financial and reporting covenants. As of
March 31, 2004, the Company  was in compliance with all such covenants.

The
Companys  indebtedness under the Credit Facility is guaranteed by its direct and
indirect domestic subsidiaries.  The Companys obligations and the obligations of
its subsidiary guarantors are collateralized by a security  interest in substantially all assets
of the Company and its subsidiary guarantors, including a pledge  of the capital stock of
the Companys domestic subsidiaries and any notes owned by the Company or any  of
its subsidiary guarantors and 65% of the capital stock of the Companys and any
subsidiary guarantors  directly owned foreign subsidiaries.

# Senior subordinated notes:

As
part  of its June 2003 recapitalization, 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, 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 March 31, 2004, the
Company was in  compliance with all such covenants.

# NOTE 6  PENSION PLANS

The
Company  had a defined benefit pension plan (the Plan) which covered
substantially all of its U.S. employees  of a predecessor company as of December 31,
1993. On December 1, 1993, the predecessor companys Board  of Directors approved
amendments to the Plan provisions which include, among other matters, cessation  of
benefit accruals after December 1, 1993. All earned benefits as of that date were
preserved and the  Company will continue to contribute to the Plan as necessary to fund
earned benefits. No contributions  to the Plan were required during the three months
ended March 31, 2004 or the preceding year due to  the prepaid position of the Plan
during those years, and the Company does not expect to contribute to  the Plan during the
remainder of 2004.

The
components  of net periodic benefit (gain) cost for the three months ended March 31, 2004
and 2003, respectively,  are as follows:

|                                 | Three Months Ended March 31, | 
|-------------------------------- | ---------------------------- | 
|
|Service cost                     |                              | 
|Interest cost                    |                              | 
|Expected return on Plan assets   |                              | 
|Recognized actuarial loss        |                              | 
|                                 |                              | 
|Net periodic benefit (gain) cost |                              | 
|                                 |                              | 

- 12 -

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# 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, 2003. The geographical data  does not include intersegment
revenues. All expenses associated with corporate headquarters appear in  the North
America business unit. 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
March 31:

|                       | NorthAmerica | International | Total
|---------------------- | ------------ | ------------- | -----
|
|2004                   |              |               |      
|Sales                  |              |               | $    
|Income from operations |              |               |      
|                       |              |               |      
|2003                   |              |               |      
|Sales                  |              |               | $    
|Income from operations |              |               |      

# NOTE 8  CASH FLOW INFORMATION

For
the  quarters ended March 31, 2004 and 2003, federal, state and foreign income taxes
paid, net of tax refunds,  totaled $1,227 and $679, respectively. Interest paid during
the three months ended March 31, 2004 totaled  $9,848 and no interest was paid in the
quarter ended March 31, 2003.

# NOTE 9  CONTINGENCIES AND LITIGATION

# Litigation:

The
Company  is 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, are  not expected to have a material adverse effect on the business, financial
condition, results of operations  or cash flows of the Company.

- 13 -

---

# NOTE 9  CONTINGENCIES AND LITIGATION (Continued)

# Cal Pacifico:

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 may seek to recover from  the Company any
additional duties and penalties assessed against it by the United States Customs Service
 in this connection. Although management does not believe it is probable that this matter
will result  in a material claim against the Company, it will continue to monitor the
matter.

# Intellectual Property Indemnification:

Under
 our sales agreements with certain customers, subject to certain exceptions and
limitations, we have  agreed to indemnify our customers for damages and costs, including
attorneys fees, resulting from infringement  by our products of third-party intellectual
property rights. In certain circumstances, we also may have  an obligation to defend our
customer against claims of such infringement made by third parties. Subject  to
expiration or termination of third party intellectual property rights and to statutes of
limitation  that bar third party claims, the terms of our indemnifications are generally
perpetual from the effective  date of the agreement. Based on historical experience, the
Company does not believe any significant  payments will result, and accordingly, we have
not accrued any amounts for our indemnification. However,  there can be no assurances
that we will not have any future financial exposure under these indemnifications.

- 14 -

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PART I  ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIALCONDITION 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 (the Exchange Act). 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 Item 7 Managements Discussion and Analysis of Financial
Condition  and Results of OperationsCritical Accounting Estimates and  Factors
Relating to ALARIS, Our Industry  and Our Common Stock in our Annual Report on Form
10-K for the year ended December 31, 2003, 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 market products for the safe delivery of intravenous (IV) medications. We
are a global leader in  the design, development and marketing of IV medication safety and
infusion therapy delivery systems,  software applications, needle-free disposables and
related patient monitoring equipment. Our intravenous  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
smart pumps, with our proprietary  Guardrails Safety Software, help to reduce
the risks and costs of medication errors, help to safeguard  patients and clinicians and
gather and record clinical information for review, analysis and interpretation.

We have  one of the largest
installed bases of large volume pump delivery lines, or channels, in the U.S. hospital
 market, which we believe to be approximately 33% of such channels. 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

- 15 -

---

both segments, in Belgium, France,
Italy, The Netherlands, Norway, Spain, Sweden, the United Kingdom,  Australia, Canada,
New Zealand and South Africa. In addition, we are a leading provider of patient
monitoring  products that measure and monitor temperature, with a substantial installed
base of hospital thermometry  systems in the United States. We also provide products
which measure and monitor pulse, pulse oximetry  and blood pressure. We provide products,
professional and technical support and training services to  over 5,000 hospitals and
health care systems, as well as alternative care sites, in over 100 countries  through a
direct sales force of over 200 salespersons and more than 100 distributors. 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. Headquartered in San Diego, California, ALARIS Medical Systems employs
 approximately 3,000 people worldwide, including approximately 1,000 in the United
States.

# Critical Accounting 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 estimates 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, income taxes 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 1 to our Consolidated Financial
 Statements contained in our Annual Report on Form 10-K for the year ended December 31,
2003.

# Summary Statement of
Operations

|                                     | Three Months Ended March 31,                    |   |     |       |  
|------------------------------------ | ----------------------------------------------- | - | --- | ----- | -
|
|
|                                     | (dollars in millions, except per share amounts) |   |     |       |  
|                                     |                                                 |   |     |       |  
|Sales                                |                                                 |   | $   | 134.2 |  
|Gross profit                         |  $                                             |   | $   | 76.0  |  
|                                     |  % of sales                                    |   |     | 56.6  | %
|                                     |                                                 |   |     |      
|Operating profit                     |  $                                             |   | $   | 24.9  |  
|                                     |  % of sales                                    |   |     | 18.5  | %
|                                     |                                                 |   |     |      
|Net income                           |  $                                             |   | $   | 11.6  |  
|                                     |                                                 |   |     |       |  
|                                     |  % of sales                                    |   |     | 8.7   | %
|                                     |                                                 |   |     |       |  
|Net income per common share, diluted |                                                 | $ | .15 |       | $

|(1) | Recapitalization  expenses are $1.5 ($.9 after tax). See note 2 to our Condensed
 Consolidated Financial              Statements for a full discussion of this item as
well as the Supplemental  Schedule Reconciling GAAP Data              to Pro Forma
 Non-GAAP  Data on page 20 for a  reconciliation  of net  income  and net  income per
common              share, diluted to this non-GAAP presentation.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 16 -

---

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 March 31, |  |  
|---------------------------- | ---------------------------- |  | -
|
|                             | (dollars in millions)        |  |  
|
|North America                |                              |  |  
|Infusion Instruments         |                              |  | $
|Dedicated Disposables        |                              |  |  
|Other Disposables            |                              |  |  
|Service and other            |                              |  |  
|                             |                              |  |  
|Subtotal                     |                              |  |  
|                             |                              |  |  
|Patient Monitoring           |                              |  |  
|                             |                              |  |  
|North America Total          |                              |  | $
|                             |                              |  |  
|International                |                              | 
|Infusion Instruments         |                              |  | $
|Dedicated Disposables        |                              |  |  
|Other Disposables            |                              |  |  
|Service and other            |                              |  |  
|                             |                              |  |  
|Subtotal                     |                              |  |  
|                             |                              |  |  
|Patient Monitoring           |                              |  |  
|                             |                              |  |  
|International Total          |                              |  | $
|                             |                              |  |  
|ALARIS Medical Systems Total |                              |  | $
|                             |                              |  |  
|                             |                              |  |  

# Three Months Ended March
31, 2004 Compared with Three Months Ended March 31, 2003

Sales.  For
the quarter ended March 31, 2004, sales were $134.2 million, an increase of $13.0
million, or 11%,  over the same period in the prior year. If currency exchange rates for
the first quarter of 2004 had  prevailed during 2003, sales would have been $127.6
million for the quarter ended March 31, 2003. Thus,  the favorable effect of currency
changes on revenues was $6.4 million.

Higher
volumes of Medley Medication Safety Systems and our proprietary Guardrails Safety
Software  and disposable administration sets, as well as increased sales of professional
services were the primary  factors leading to the increase in North America sales of $7.0
million, or 9%, over the first quarter  of 2003. These increases were partially offset by
a decrease in sales volume of other infusion instruments,  as well as a decrease in sales
of patient monitoring products. North America infusion instrument sales  during the first
quarter of 2003 included $4.0 million of sales to support the U.S. government war
 readiness, that were not repeated in 2004. Additionally, an order for approximately $2 million of infusion instruments was shipped
 but not recognized during the first quarter of 2004. Revenues from professional services, most
frequently sold  with our safety products, increased $1.3 million over the first quarter
in the prior year as a result  of the growth in sales of Medley Systems and Guardrails
Safety Software. We believe that the increase  in dedicated disposables was due to the continuing growth
in our installed base of infusion devices. The growth  in other disposables was
due to an increase of approximately $1.9 million in sales of SmartSite Needle-Free
 Systems.

- 17 -

---

International
sales for the quarter ended March 31, 2004 increased $6.0 million, or 15%, compared  with
the same period in the prior year. This increase was due to higher syringe pump volumes,
strong  sales of dedicated disposable administration sets, and higher volumes of SmartSite Needle-Free
 Systems and services compared with the same period in the prior year. These increases
were partially  offset by a decrease in sales of large volume pumps and patient
monitoring products. If currency exchange  rates for the quarter ended March 31, 2004 had
prevailed during the same period in 2003, International  sales would have been $47.2
million for the quarter ended March 31, 2003.

Gross
Profit. Gross profit increased $12.8 million, or 20%, for the quarter
 ended March 31, 2004, compared with the same period in 2003. The gross margin percentage
increased to  56.6% for the first quarter of 2004, from 52.1% for the first quarter of
2003. If currency exchange  rates for the quarter ended March 31, 2004 had prevailed
during the same period in 2003, the gross margin  percentage for the quarter ended March
31, 2003 would have been 53.1%. Our increased gross margin is  primarily due to growth in
the sales of our disposables and change in the product mix which included  more higher
margin sales than in the prior year. Disposables carry a higher margin than instruments,
 and our strong disposables growth has had a positive impact on gross margin. The sales
growth of our  Medley Medication Safety System and Guardrails Safety Software has also
contributed to the increase  in gross profit in the first quarter of 2004 over the same
period in 2003, as these software-enabled  safety products carry higher margins than
equipment without advanced medication-error reducing software.  Product quality and
manufacturing efficiencies have been a primary focus for us, and lower warranty repair rates have resulted from these efforts. Additionally,
increased  volumes have resulted in lower per-unit product costs.

Selling
and Marketing Expenses. Selling and marketing expenses increased  $3.6
million, or 15%, for the quarter ended March 31, 2004, compared with the same period in
2003, primarily  due to increased selling costs associated with higher sales volume in
the first quarter of 2004 and  due to the continued investment in developing our
International selling and marketing functions to support  our International medication
safety strategy. Both our North America and International business units  incurred higher
sales and marketing costs related to increased personnel, travel and related activities
supporting the continued expansion of our medication safety strategy. As a percentage of
sales, selling  and marketing expenses increased to 20.8% for the quarter ended March 31,
2004 compared with 20.0% for  the same period in 2003. The effect of unfavorable changes in foreign currency exchange rates
on selling and marketing expenses  was $1.4 million.

General
and Administrative Expenses. General and administrative expenses
 increased $1.7 million, or 15%, for the quarter ended March 31, 2004, compared with the
same period  in 2003. As a percentage of sales, general and administrative expenses
increased to 9.6% for the quarter  ended March 31, 2004 compared with 9.2% for the same
period in 2003. The effect of unfavorable changes in foreign currency exchange rates on general and administrative
expenses was $.4 million. Increases in administrative expenses  were largely due to
higher legal and other professional services, insurance, and additional personnel  and
related payroll tax expenses over the prior year.

Research
and Development Expenses.          Research and  development  expenses  increased  approximately  $2.2  million,  or 25%,  for the quarter  ended March 31, 2004,
compared with the same period in 2003. 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  international  markets.  This higher spending was
primarily in the form of additional personnel,  outside consulting and project supplies.  The effect of unfavorable changes in foreign currency exchange rates on
research and  development  expenses  was $.2 million.  Research  and  development  expenses  increased to 8.2% of sales for the quarter
ended March 31, 2004, compared with 7.3% of sales for the same period in 2003.

Interest
Income from Sales-Type Capital Leases. Interest income from sales-type  capital
leases decreased $.3 million, or 30%, for the quarter ended March 31, 2004, compared with
the  same period in 2003 due to a decrease in the contract receivables portfolio as more
customers continue  to utilize third party financing.

- 18 -

---

Interest
Income.Interest income decreased $.1 million due to lower interest  rates
earned and lower cash balances invested during 2004 compared with 2003.

Interest
Expense. Interest expense decreased $8.4 million, or 58%, for the  quarter
ended March 31, 2004, compared with the same period in 2003. Included in interest expense
in  the first quarter of 2004 is $.5 million of debt-issue cost write-offs related to $20
million in prepayments  made under the Credit Facility. The decrease in interest expense
resulted from the 2003 recapitalization,  which reduced the principal amount of
outstanding debt and lowered interest rates on debt under the  Credit Facility and the
Notes compared with the interest rates on the debt which was refinanced in the  recapitalization.

Recapitalization
Expenses.In connection with our 2003 recapitalization  discussed in note
2 to the Condensed Consolidated Financial Statements, we recorded a pre-tax charge  of
$1.5 million ($.9 million, net of tax) for the quarter ended March 31, 2003. This charge
includes  a premium of $1.2 million, representing the purchase price over the then
accreted carrying value of $23.8 million of senior discount notes, and  the write-off of related unamortized debt issuance costs of
$.3 million.

Excluding
this charge, for the quarter ended March 31, 2003, net income would have been $3.5
 million and net income per common share, on a fully diluted basis, would have been $.05.
On a pro forma  basis, assuming the recapitalization had occurred on January 1, 2003, and
excluding the charge relating  to the repurchase of debt that we recorded in the first
quarter of 2003, net income for the quarter  ended March 31, 2003 would have been $8.4
million and net income per common share, on a fully diluted  basis, would have been $.11.

We
refer the reader to Supplemental Schedule Reconciling GAAP Data to Pro Forma
Non-GAAP Data on page 20 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
 March 31, 2004, compared with the same period in 2003 primarily due to an increase in
realized and unrealized  losses on foreign currency transactions, fees related to
amending and lowering the interest rate on  our Credit Facility and lower miscellaneous income.

Provision
for Income Taxes.  The effective income tax rate  was a 36% expense
for the three months ended March 31, 2004 compared with a 39% expense for the same
 period in 2003.  Our effective tax rate differs from the U.S. federal rate of 35%
due to state  taxes, tax credits, certain non-deductible expenses and different tax rates
for operations outside of  the United States.  The change in the  effective  tax rate from the first  quarter
 of 2003 to the first quarter of 2004 is primarily due to the
change in mix of  anticipated  taxable  income  derived  from various  jurisdictions  and  increases in available  research
credits for the full year 2004.

- 19 -

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

The
following table sets forth a reconciliation of our reported net income and net income per
 common share for the three months ended March 31, 2003 to our net income and net income
per share on  a pro forma basis as if the recapitalization 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 $1.5  million and the related tax effects we
recorded in the first quarter of 2003.

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 Notes; (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
Consolidated Financial Statements contained in our Annual Report on Form  10-K for the
year ended December 31, 2003; and (v) other debt repurchases made in the first half of 2003.

The
pro forma data are 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 are 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
March 31, 2003       
|---------------------------------------------------------------- | ----------------------------------------
|                                                                 | (dollars and share amounts in
thousands)
|                                                                 |                                         
|                                                                 |                                         
|Net income, as reported                                          |                                         
|                                                                 |                                         
|Adjustments to exclude recapitalization expenses:                |                                         
|Recapitalization expenses                                        |                                         
|Income tax benefit                                               |                                         
|                                                                 |                                         
|Net income, excluding recapitalization expenses                  |                                         
|                                                                 |                                         
|Pro forma adjustments:                                           |                                         
|Interest expense                                                 |                                         
|Other, net                                                       |                                         
|Provision for taxes                                              |                                         
|                                                                 |                                         
|Net income, pro forma                                            |                                         
|                                                                 |                                         
|Net income
 per common share, diluted, as reported               |                                         
|                                                                 |                                         
|Net income per common share, diluted, excluding                  |                                         
|recapitalization expenses                                        |                                         
|                                                                 |                                         
|Net income per common share, diluted, pro forma                  |                                         
|                                                                 |                                         
|Weighted average common shares outstanding, diluted, as reported |                                         
|                                                                 |                                         
|Pro forma adjustment:                                            |                                         
|Weighted average effect of sale of common stock                  |                                         
|                                                                 |                                         
|Weighted average common shares outstanding, diluted, pro forma   |                                         
|                                                                 |                                         

- 20 -

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# 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 and a revolving credit line into our capital
structure as a result of the June 2003 recapitalization,  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 the revolving portion of the 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 and 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.

As
part of our mid-year 2003 recapitalization, we established our new Credit Facility, which
 provides 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 Notes and 10
million shares of common stock.  We received net proceeds from the sale of the Notes of
$170.6 million and net proceeds from the sale  of our common stock of $117.5 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 substantially all of our outstanding indebtedness. The recapitalization, along
with  earlier repurchases of debt during 2003, reduced our outstanding indebtedness at
June 30, 2003 by $107  million from the amount outstanding at December 31, 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. During the second
half of 2003, we repaid $61.2 million of the term loan, closing the year with  $358.8
million of debt.

Utilizing
cash flow from operations and cash on hand, we made two principal prepayments on the term loan of $10
 million each and a scheduled quarterly principal payment of $0.6 million during the
first quarter of  2004. At March 31, 2004, giving effect to the principal payments made
in the first quarter of the year  of $20.6 million, we had $338.2 million of outstanding
indebtedness composed of a $163.2 million term  loan under the Credit Facility and $175.0
million of the Notes. We have not borrowed any portion of  the revolving credit facility.

On
December 19, 2003, we obtained an amendment to the Credit Facility to reduce the interest
 rate on the term loan by 0.25% and to provide us with improved flexibility to make
investments in our  international operations. The amendment provides for up to two
additional interest rate reductions of  0.25% each upon achieving certain ratings of the
bank debt by both Moodys Investors Service and Standard  & Poors Ratings
Services. In February 2004, we obtained the first level of ratings improvement  and
accordingly, the interest rate was then reduced by 0.25%. The term loan, as amended and
after giving  effect to this first rate reduction, bears interest at an annual rate equal
to current LIBOR or a fluctuating  base rate, plus a margin of 2.25%. We can elect to use
either a one-, two-, three-, or six-month LIBOR  rate. We have made elections in 2004
resulting in a current weighted average interest rate of 3.36%  per annum (1.11% plus the
margin of 2.25%). Payments of $0.6 million (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. We are 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, we are required to effectively fix the variable
 interest rate exposure on at least 50% of our total outstanding debt. We have met this
requirement by  entering into two separate interest rate swap agreements in July 2003 and
August 2003 whereby $202.0  million of the term loan is effectively converted to a
weighted average fixed rate of 4.85% after giving  effect to the February 2004 rate
reduction of 0.25% as previously discussed. The July 2003 swap agreement  has a notional
amount of $30.0 million and expires on December 30, 2005. The August 2003 swap agreement
 has an original notional amount of $172.0 million that decreases quarterly to a final
notional amount  of $54.0 million and expires on December 29,
2006. Our management will continue
to evaluate our short  term and long term strategies related to the interest rate risk
associated with our variable rate debt.  See Item 3  Quantitative and
Qualitative Disclosures about Market Risk.

- 21 -

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Our
indebtedness under the Credit Facility is guaranteed by our direct and indirect domestic
 subsidiaries. Our obligations and the obligations of our subsidiary guarantors are
collateralized by a security  interest in substantially all of our assets and the assets of our
subsidiary guarantors, including a  pledge of the capital stock of our direct and
indirect domestic subsidiaries and any notes we or they  own and 65% of the capital stock
of our and any subsidiary guarantors directly owned foreign subsidiaries.

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, and mature on July 1, 2011. The Notes are
redeemable at our option,  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  us 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.

The
Credit Facility contains various operating, financial, reporting and other restrictive
covenants,  including requirements to maintain certain financial ratios, limitations on
capital expenditures, limitations  on the creation of liens or additional indebtedness,
and restrictions on the prepayment of subordinated  debt, the payment of dividends,
mergers and consolidations, investments and asset dispositions. The  Notes contain
certain restrictive and reporting covenants. As of March 31, 2004, we were in compliance
 with all such covenants.

After
giving effect to the $20.6 million of principal payments on the term loan in the first
 quarter of 2004, we are required during the next twelve months (through March 31, 2005)
to make quarterly  interest payments on the term loan and settlements on the two swaps
totaling $8.0 million (assuming  current interest rates) and principal amortization
payments totaling $2.5 million. We will also be required  to make semi-annual interest
payments on the Notes of $6.3 million each on July 1, 2004 and January  1, 2005.

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. Although we
consider  it unlikely, we may need to refinance all or a portion of our indebtedness at maturity.

We
were required at March 31, 2004 to maintain $3.6 million in collateralized deposit
accounts  with commercial banks as security against open foreign exchange contracts,
primarily forward contracts.

Net
cash provided by operating activities for the quarter ended March 31, 2004, was $17.8
million  compared with $38.5 million provided by operating activities in the same period
of 2003. Net cash used  in investing activities for the quarter ended March 31, 2004 and
2003, was $13.0 million and $7.1 million,  respectively. Cash used in investing
activities includes $12.7 million and $7.0 million in  capital expenditures for
the quarters ended March 31, 2004 and 2003, respectively. Capital expenditures  for the
first quarter of 2004 included $4.3 million for a new enterprise-wide information system.
We  anticipate making capital expenditures of approximately $27 million during the
remainder of 2004. Net  cash used in financing activities for the quarter ended March 31,
2004 was $18.9 million. This was primarily  composed of principal payments under the
Credit Facility totaling $20.6 million in the first  quarter of 2004, partially
offset by proceeds received from the exercise
of stock options of $1.7 million.
 During the first quarter of 2004, net payments of federal, state and foreign taxes, net
of refunds,  were $1.3 million and interest payments on long-term debt were $9.8 million.

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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 repurchased 11-1/8%
senior discount notes, we generated  a tax net operating loss, or NOL, for 2003,
estimated to be approximately $106 million. We expect that  such NOL will effectively
eliminate federal and state income taxes payable in 2004 as well as allow  us to
carryback and recover approximately $1.6 million of income taxes we paid in previous
years. Income  tax payments in 2004 will primarily be in foreign jurisdictions and we
estimate such payments to be  approximately $4 million. The tax-effected value of our
estimated NOL at March 31, 2004 was $34.3 million,  which we expect to fully utilize by
the end of 2005. Of this estimated NOL, $18.9 million is included  in deferred tax
assets, net, current and $15.4 million is included in other non-current assets on the
 Consolidated Balance Sheet as of March 31, 2004.

With
the exception of the interest rate reduction and prepayments against our Credit Facility
 described above, there have been no significant changes to our contractual obligations,
as discussed  in Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations of  our Annual Report on Form 10-K
for the year ended December 31, 2003. As a result of the interest rate  reduction of
0.25% and $20.0 million in prepayments under the Credit Facility term loan in the quarter
 ended March 31, 2004, reduced long-term debt and future interest payment obligations are
shown in the  following schedule of contractual obligations as of March 31, 2004.

|                                   | Payments Due by Period |  |   |       |  |   |     
|---------------------------------- | ---------------------- |  | - | ----- |  | - | ----
|                                   | (dollars in millions)  |  |   |       |  |   |     
|
|Long-term Debt                     |                        |  | $ | 338.2 |  | $ | 1.8 
|Interest Payments (A)              |                        |  |   | 130.1 |  |   | 12.6
|                                   |                        |  |   |       |  |   |     
|Total Contractual Cash Obligations |                        |  |   |       |  |   |     
|on Long-term Debt                  |                        |  | $ | 468.3 |  | $ | 14.4
|                                   |                        |  |   |       |  |   |     

|(A) | Interest payment  obligations  include interest payable  quarterly under the
variable  interest term loan under the          Credit  Facility at the March 31, 2004
 interest rate of 3.36% per annum,  interest  payable  semi-annually  on the
         Notes at a fixed annual rate of 7-1/4% plus quarterly contractual settlements
under the two swap agreements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | Amount represents remaining contractual obligation during 2004.
|--- | ---------------------------------------------------------------

# 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 increased competitive
pressures. Approximately 32% of our 2003 sales  of drug infusion instruments occurred
during the fourth quarter of 2003.

# Backlog

The
amount of unfilled orders, believed to be firm, at March 31, 2004 and 2003, was $5.2
million  and $4.3 million, respectively.

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# 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 first quarter  of 2004. For the three months ended March 31, 2004 and 2003,
approximately 37% of our sales were denominated  in currencies other than the U.S.
dollar. For the three months ended March 31, 2004 and 2003, approximately  36% and 32%,
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, New  Zealand 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 March 31, 2004, we recorded a
liability in our Consolidated  Balance Sheet for foreign currency forward contracts
valued at $.5 million and an asset for option contracts  valued at $.1 million. As of
December 31, 2003, we recorded liabilities in our Consolidated Balance  Sheet for foreign
currency forward contracts valued at $.6 million and for option contracts valued at  $.2 million.

For
the three months ended March 31, 2004 and 2003, we recognized net charges related to the
 designated cash flow hedges of forecasted foreign currency exchange transactions in the
amounts of $.3  million for both periods in other expense, which consisted primarily of
costs incurred to settle hedges  for which offsetting gains were reflected in operating
income, costs to adjust foreign currency contracts  for changes in hedged forecasted cash
flows and premium costs for currency option contracts. Such costs  were recorded in
Other, net in the Consolidated Statement of Operations. At March 31, 2004,
 $1.0 million ($.6 million after tax) was included in Accumulated other comprehensive
income. 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 cost is expected to
be charged to earnings during 2004 as the hedged transactions occur.

Due
to changes in foreign currency exchange rates during three months ended March 31, 2004
and  2003, primarily a weakening of the U.S. dollar against many European currencies, we
recognized foreign  currency net transaction losses of $.1 million and net gains of $.2
million during the three months  ended March 31, 2004 and 2003, respectively. Such gains
and losses were recorded in Other, net in the Consolidated Statement of
Operations.

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# ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

# Foreign Exchange Risk Management

A
part of our risk management strategy is our currency hedging program, 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.
As part of our policy, if a derivative instrument does  not qualify for hedge accounting,
we would record costs associated with that contract as a charge to  earnings. However, 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 three months  ended March 31, 2004.

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 above Item 2  Managements
Discussion and Analysis of  Financial Condition and Results of OperationsForeign
Operations and Currency Exchange Rates.)

# Interest Rate Risk

We
are exposed to market risk from changes in interest rates, which could impact our results
 of operations and financial condition. The term loan under the Credit Facility bears
interest at a variable  rate tied to LIBOR or other index at our option. To reduce the
effect of interest rate volatility and  stabilize cash flows, we fixed the interest on
our term loan by entering into two interest rate swap  agreements. Since entering into
the swap agreements, the fair value of the swaps has become negative.  At March 31, 2004,
the negative market value of the swaps was $1.5 million and is included in other
 liabilities and the corresponding expense of $1.5 million ($1.0 million after tax) is
included in accumulated  other comprehensive income. Should we terminate the swaps in
advance of their expiration, the cost to  us could be material. Absent such swaps, a one
percentage point change in the interest rate on our term  loan (assuming no further
principal prepayments and $163.2 million outstanding principal at March 31,  2004) would
result in an approximate $1.6 million annual change in interest expense.

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# ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls
 and Procedures

We
maintain disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange
 Act) that are designed to ensure that information required to be disclosed in our
Exchange Act reports  is recorded, processed, summarized and reported within the time
periods specified in the SECs rules  and forms and that such information is
accumulated and communicated to our management, including our  Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow for timely decisions regarding
 required disclosure. In designing and evaluating the disclosure controls and procedures,
management  recognizes that any controls and procedures, no matter how well designed and
operated, can provide only  reasonable assurance of achieving the desired control
objectives, and management is required to apply  its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

Our
management performed an evaluation, under the supervision and with the participation of
our  Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation  of our disclosure controls and procedures as of March 31, 2004.
Based on that evaluation, our Chief  Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures  were effective at the reasonable
assurance level.

Changes in Internal Controls

There
was no change in our internal control over financial reporting (as defined in Rule
13a-15(f)  under the Exchange Act) identified in connection with the evaluation of our
internal control performed  during our last fiscal quarter that has materially affected,
or is reasonably likely to materially affect,  our internal control over financial reporting.

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PART IIOTHER INFORMATION

---



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

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

|     |                                                                                                                                                                                                                                                                                         |               
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------
|
|     |                                                                                                                                                                                                                                                                                         |               
|     |                                                                                                                                                                                                                                                                                         |               
|31.1 | Certification   by  David  L.   Schlotterbeck   Pursuant   to
                                                             Securities Exchange Act Rule 13a-14.                                                                                                                         | Filed herewith
|     |                                                                                                                                                                                                                                                                                         |               
|31.2 | Certification  by  William  C. Bopp  Pursuant  to  Securities
                                                             Exchange Act Rule 13a-14.                                                                                                                                    | 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
|     |                                                                                                                                                                                                                                                                                         |               
|     |                                                                                                                                                                                                                                                                                         |               

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

We
filed or furnished the following Current Reports on 8-K during the quarter ended March
31, 2004:

| | 1. | January
14,  2004,  discussing  under Item 12 an earnings  press  release  dated  January 14,
2004  reporting  our              preliminary earnings results of operations for the year
and three months ended December 31, 2003.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | March
4, 2004, discussing under Item 12 an earnings press release dated March 4, 2004 reporting
our results of operations for the year and three months ended December 31, 2003.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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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
SYSTEMS, INC.(Registrant)

|Date:
  April 27, 2004 |  | By: /s/ WILLIAM C. BOPP
William C. BoppSenior Vice President and Chief Financial Officer 
(Principal Financial Officer)
|---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------

| |  | By: /s/ ROBERT F. MATHEWS  
Robert F. MathewsVice President - Finance and Treasurer 
(Principal Accounting Officer)
| |  | ---------------------------------------------------------------------------------------------------------------------------------

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