We are a leader in the development, manufacture and sale of proprietary, disposable medical connection systems for use in vascular therapy applications. Our devices are designed to protect patients from catheter related bloodstream infections and healthcare workers from exposure to diseases through accidental needlesticks or hazardous drugs. We are also a leader in the production of custom infusion sets and we incorporate our proprietary products into many of those custom infusion sets. In addition, we are a significant manufacturer of critical care medical devices, including catheters, angiography kits and cardiac monitoring systems.

Critical Accounting Policies

In our Annual Report on Form 10-K for the year ended December 31, 2008, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our consolidated financial statements. We have not changed these policies from those previously disclosed in our Annual Report.

New Accounting Pronouncements

In April 2009, the FASB issued FSP SFAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies", to amend the provisions related to the initial recognition and measurement, subsequent measurement and disclosure of assets and liabilities arising from contingencies in a business combination under SFAS 141(R). Under the new guidance, assets acquired and liabilities assumed in a business combination that arise from contingencies should be recognized at fair value on the acquisition date if fair value can be determined during the measurement period. If fair value cannot be determined, companies should typically account for the acquired contingencies using existing guidance. We adopted FAS 141(R) and FSP SFAS 141(R)-1 on January 1, 2009. The adoption did not have a material effect on our financial position or results of operations.

In April 2009, the FASB issued FSP SFAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly" which provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, "Fair Value Measurements", when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This pronouncement is effective for periods ending after June 15, 2009. We do not expect this pronouncement to have a material effect on our financial position and results of operations.

In April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments", to amend the other-than-temporary impairment guidance in debt securities to be based on intent to sell instead of ability to hold the security and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This pronouncement is effective for periods ending after June 15, 2009. We do not expect this pronouncement to have a material effect on our financial position and results of operations.

We have implemented all new accounting pronouncements that are in effect and that may impact our consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial statements.

Business Overview

Until the late 1990s, our primary emphasis in product development, sales and marketing was disposable medical connectors for use in I.V. therapy, and our principal product was the CLAVE. In the late 1990s, we commenced a transition from a product-centered company to an innovative, fast, efficient, low-cost manufacturer of custom infusion sets, using processes that we believe can be readily applied to a variety of disposable medical devices. This strategy has enabled us to capture revenue on the entire I.V. delivery system, and not just a component of the system. We have furthered this effort to include all of our proprietary devices beyond the CLAVE.

Our largest customer is Hospira. Our relationship with Hospira has been and will continue to be of singular importance to our growth. In the first quarter of 2009 and years ended 2008, 2007 and 2006, our revenues from worldwide sales to Hospira were 71%, 69%, 73% and 77%, respectively, of total revenues. Although we can provide no assurances, we expect this percentage will be maintained in the future as a result of sales of CLAVE products, custom infusion sets, new products and critical care products to Hospira. Hospira has a significant share of the I.V. set market in the U.S., and provides us access to that market. We expect that Hospira will be important to our growth for CLAVE, custom products, and our other products worldwide.

We believe the success of the CLAVE has motivated, and will continue to motivate others to develop one-piece, swabbable, needleless connectors that may incorporate many of the same functional and physical characteristics as the CLAVE. We are aware of a number of such products. We have patents covering the technology embodied in the CLAVE and intend to enforce those patents as appropriate. If we are not successful in enforcing our patents, competition from such products could adversely affect our market share and prices for our CLAVE products. Although overall pricing has been stable recently, the average price of our CLAVE products may decline in the future. There is no assurance that our current or future products will be able to successfully compete with products developed by others.

We are reducing our dependence on our current proprietary products by introducing new products and systems and acquiring product lines. Under one of our Hospira Agreements, we manufacture custom infusion sets for sale by Hospira and jointly promote the products under the name SetSource. In 2005, we acquired Hospira's Salt Lake City manufacturing facility and entered into the Manufacturing Commercialization and Development Agreement ("MCDA") with Hospira to produce their invasive monitoring, angiography products and certain other products they had manufactured at that facility. We also contract with group purchasing organizations and independent dealer networks for inclusion of our non-critical care CLAVE and custom products in the product offerings of those entities. We are expanding our custom products business through increased sales to medical product manufacturers, independent distributors and direct sales to the end users of our product. These expansions include our 2008 agreement with Premier and an agreement extension with MedAssets. Both organizations are U.S. healthcare purchasing networks. Custom products, which include custom infusion, custom oncology and custom critical care products, accounted for approximately $19.0 million or 35% of total revenue in the first quarter of 2009 and $70.2 million or 34% of total revenue in 2008. We expect continued increases in sales of custom infusion sets and custom oncology products. As part of this effort, we have recently introduced a number of new products: the TEGO for use in dialyses, the Orbit 90 diabetes set, and a line of oncology products including the Spiros male luer connector device, the Genie vial access device and custom I.V sets and ancillary products specifically designed for chemotherapy. There is no assurance that we will be successful in finding acquisition opportunities acquiring companies or products or integrating them into our existing business.

Custom products and new products will be of increasing importance to us in future years. We expect continued growth in our CLAVE products in the U.S., but at a modest growth rate. We also potentially face substantial increases in competition in our CLAVE business. Growth for all of our products outside the U.S. could be substantial, although to date it has been relatively modest. Therefore, we are directing increasing product development, acquisition, sales and marketing efforts to custom products and other products that lend themselves to customization and new products in the U.S. and international markets.

In 2005, we acquired Hospira's Salt Lake City manufacturing facility, related capital equipment and entered into a 20-year MCDA with Hospira, under which we produce for sale, exclusively to Hospira, substantially all the products, primarily critical care, that Hospira had manufactured at that facility. Hospira retains commercial responsibility for the products we are producing, including sales, marketing, pricing, distribution, customer contracts, customer service and billing. The U.S. market for most of the critical care products that we sell to Hospira has been declining in recent years. Under the MCDA, we manufacture the products and Hospira is responsible for sales to end customers, and we have little ability to directly influence Hospira's sales and marketing efforts, and our sales under the MCDA are subject to fluctuations over which we have little control.

We have also committed to fund certain research and development to improve critical care products and develop new products for sale to Hospira and to provide sales specialist support. Our prices and our gross margins on the products we sell to Hospira under the MCDA are based on cost savings that we are able to achieve in producing those products over Hospira's cost to manufacture those same products at the purchase date. We record revenue net of any such reductions. There is no assurance as to the amounts of future sales or profits under the MCDA.

In February 2009, we acquired a small manufacturing and distribution company based in Germany for $5.7 million. The products and distribution from this company are in the oncology and neonatal markets.

We believe that achievement of our growth objectives worldwide will require increased efforts by us in sales and marketing and product development in these markets.

There is no assurance that we will be successful in implementing our growth strategy. The custom products market is small, and we could encounter customer resistance to custom products. Further, we could encounter increased competition as other companies see opportunity in this market. Product development or acquisition efforts may not succeed, and even if we do develop or acquire products, there is no assurance that we will achieve profitable sales of such products. An adverse change in our relationship with Hospira, or a deterioration of Hospira's position in the market, could have an adverse effect on us. Increased expenditures for sales and marketing and product acquisition and development may not yield desired results when expected, or at all. While we have taken steps to control those risks, there are certain of those risks which may be outside of our control, and there is no assurance that steps we have taken will succeed.

The following table sets forth, for the periods indicated, total revenues by product as a percentage of total revenues:

                                      Quarter ended March 31,,        Fiscal Year Ended
Product Line                            2009            2008          2008          2007
CLAVE                                         39 %            41 %         39 %          38 %
Custom products                               35 %            33 %         34 %          31 %
Critical care                                 18 %            17 %         18 %          23 %
Other products                                 8 %             7 %          8 %           7 %
License, royalty and revenue share             - %             2 %          1 %           1 %
Total                                        100 %           100 %        100 %         100 %

We sell our I.V. administration products to independent distributors, direct sales and through agreements with Hospira and certain other medical product manufacturers. Most independent distributors handle the full line of our I.V. administration products. We sell our invasive monitoring, angiography and I.V. administration products through three agreements with Hospira (the "Hospira Agreements"). Under a 1995 agreement, Hospira purchases CLAVE products, principally bulk, non-sterile connectors and the CLC2000. Under a 2001 agreement, we sell custom infusion sets to Hospira under a program referred to as SetSource. Our 1995 and 2001 agreements with Hospira provide Hospira with conditional exclusive and nonexclusive rights to distribute all existing ICU Medical products worldwide with terms that extend to 2014. Under the MCDA, we sell Hospira invasive monitoring, angiography and other products which they formerly manufactured at the Salt Lake City facility. The terms of the MCDA extend to 2025. We also sell certain other products to a number of other medical product manufacturers.

We believe that as healthcare providers continue to either consolidate or join major buying organizations, the success of our products will depend, in part, on our ability, either independently or through strategic relationships such as our Hospira relationship, to secure long-term contracts with large healthcare providers and major buying organizations. As a result of this marketing and distribution strategy we derive most of our revenues from a relatively small number of distributors and manufacturers. The loss of a strategic relationship with a customer or a decline in demand for a manufacturing customer's products could have a material adverse effect on our operating results.

We have an ongoing program to increase systems capabilities, improve manufacturing efficiency, reduce labor costs, reduce time needed to produce an order, and minimize investment in inventory. These include the use of automated assembly equipment for new and existing products and use of larger molds and molding machines. In 2006, we centralized our proprietary molding in Salt Lake City and expanded our production facility in Mexico which took over the majority of our manual assembly previously done in Salt Lake City. In 2007, we began a significant initiative to improve production processes, called the "ICU Production System" or "IPS", which we believe will enable us to further improve our manufacturing efficiency. We started IPS in our Mexico facility in 2007 and in our Salt Lake City facility in 2008. These efforts are ongoing in both facilities and will continue in 2009. We may establish additional production facilities outside the U.S. There is no assurance as to the benefits of IPS or our success in establishing manufacturing facilities outside the U.S.

We distribute products through three distribution channels. Product revenues for each distribution channel were as follows:

                                  Quarter ended March 31,      Fiscal Year Ended
Channel                            2009            2008         2008        2007
Medical product manufacturers            66 %            68 %       67 %        71 %
Domestic distributors/direct             15 %            18 %       18 %        16 %
International customers                  19 %            14 %       15 %        13 %

Sales to international customers do not include bulk CLAVE products sold to Hospira in the U.S., but used in I.V. products manufactured by Hospira and exported. Those sales are included in sales to medical product manufacturers. Other sales to Hospira for destinations outside the U.S. are included in sales to international customers.

Quarter-to-quarter comparisons: We present summarized income statement data in Item 1- Financial Statements. The following table shows, for the year ended December 31, 2008 and the first quarters of 2009 and 2008, the percentages of each income statement caption in relation to total revenues.

                                      Fiscal Year        Quarter ended March 31,
                                          2008            2009             2008
Revenue
Net sales                                       99 %           100 %             98 %
Other                                            1 %             - %              2 %
Total revenues                                 100 %           100 %            100 %

Gross profit                                    44 %            49 %             40 %

Selling, general and
administrative expenses                         26 %            28 %             29 %
Research and development expenses                2 %             1 %              5 %
Total operating expenses                        28 %            29 %             34 %

Income from operations                          16 %            20 %              6 %
Other income                                     2 %             - %              3 %
Income before income taxes                      18 %            20 %              9 %
Income taxes                                     6 %             7 %              3 %
Net income                                      12 %            13 %              6 %

Quarterly results: The healthcare business in the United States is subject to seasonal fluctuations, and activity tends to diminish somewhat in the summer months of June, July and August, when illness is less frequent than in winter months and patients tend to postpone elective procedures. This may cause seasonal fluctuations in our business. In addition, we can experience fluctuations in net sales as a result of variations in the ordering patterns of our largest customers, which may be driven more by production scheduling and their inventory levels, and less by seasonality. The current challenging economic environment has not had a meaningful impact on our business in the operating results reported in this report, however, starting towards the end of the first quarter of 2009, a few of our customers began to take a more conservative stance on inventory levels. Our expenses often do not fluctuate in the same manner as net sales, which may cause fluctuations in operating income that are disproportionate to fluctuations in our revenue.

Quarter Ended March 31, 2009 Compared to the Quarter Ended March 31, 2008

Revenues were $54.3 million in the first quarter of 2009, compared to $44.7 million in the first quarter of 2008.

Distribution channels: Net U.S. sales to Hospira in the first quarter of 2009 were $34.8 million, compared to net sales of $28.8 million in the first quarter of 2008. The $6.0 million increase was primarily from a $2.6 million increase in CLAVE sales, a $2.1 million increase in critical care product sales and a $1.1 million increase custom product sales. The increase in CLAVE sales was from higher unit sales due to increased market share through Hospira. The increase in critical care product sales was due to higher unit sales charged for certain critical care products. The increase in custom products was primarily due to higher unit sales in custom infusion sets from the conversion by certain of our customers from a

competitor's standard sets to our custom systems. We expect the growth in sales to Hospira in 2009 from 2008 in CLAVE and custom infusion sets to be offset by declines in critical care and custom critical care product sales, although there is no assurance that these expectations will be realized.

Net sales to domestic distributors/direct in the first quarter of 2009 (including Canada) were $8.3 million compared to $7.7 million in the first quarter of 2008, an increase of seven percent. The increase was primarily from increased oncology and TEGO sales, both newer product lines. We expect increases in domestic distributor sales in 2009 compared to 2008, principally from growth in custom products and new product sales, although there is no assurance that these expectations will be realized.

Net sales to international customers (excluding Canada) were $10.2 million in the first quarter of 2009, compared with $6.2 million in the first quarter of 2008. The increased sales were primarily from $2.9 million of increased custom product sales and $0.4 million of increased CLAVE sales. We acquired a small company in Germany that closed in the middle of the first quarter of 2009. Sales from this acquisition were approximately $0.7 million in the first quarter of 2009. The custom sales increase was primarily from unit growth in custom oncology due to a product launch of this line in the first quarter of 2008. The CLAVE increase is from increased unit volume due to increased market share and demographic growth. The majority of the increase was attributable to increased sales in Europe. We expect increases in international customer sales in 2009, primarily from increased custom product sales and oncology product sales and additional sales of our new products from our recent acquisition, although there is no assurance that these expectations will be realized.

Product and other revenue: Net sales of CLAVE products increased from $18.3 million in the first quarter of 2008 to $21.2 million in the first quarter of 2009, an increase of $2.9 million or 16%. This increase was primarily from increased sales to Hospira from increased market share and demographic growth. We expect increases in CLAVE product sales in 2009 compared to 2008, although there is no assurance that these expectations will be realized.

Net sales of custom products, which include custom infusion, custom oncology products and custom critical care products, were $19.0 million in the first quarter of 2009 compared to $14.9 million in the first quarter of 2008. This increase was primarily comprised of increased sales of custom oncology products of $2.7 million and custom infusion sets of $1.4 million. The unit growth in custom infusion sets was primarily due to the conversion by certain of our customers from a competitor's standard sets to our custom systems. The unit growth in custom oncology is due to a product launch of this line in the first quarter of 2008. We expect increases in custom infusion set sales and new custom oncology sales. We expect decreases in custom critical care sales from unit volume decreases in 2009 compared to 2008.

Critical care product sales were $9.6 million in the first quarter of 2009 compared to $7.4 million in the first quarter of 2008. This increase was due to higher unit sales of certain critical care products. We expect unit volume decreases in 2009 compared to 2008.

Our new oncology product sales, including custom oncology, were $4.3 million in the first quarter of 2009 compared to $1.3 million in the first quarter of 2008.

Other revenue consists of license, royalty and revenue share income and was approximately $0.1 million in the first quarter of 2009 and $1.0 million in the first quarter of 2008. The decrease from 2008 was due to an exclusivity payment we received in 2008 that did not recur in 2009. We may receive other license fees or royalties in the future for the use of our technology. There is no assurance as to amounts or timing of any future payments, or whether such payments will be received.

Gross margins for the first quarters of 2009 and 2008 were 49% and 40%, respectively. The margin improvement is attributed to a favorable product mix, improved efficiencies at our Mexico manufacturing facility, favorable exchange rate fluctuations on costs incurred at our Mexico manufacturing facility and lower transportation costs on our products.

We estimate our gross margin in 2009 will approximate 44-45%. There is no assurance that these expectations will be realized.

Selling, general and administrative expenses ("SG&A")were $15.1 million and 28% of revenues in the first quarter of 2009, compared with $13.1 million and 29% of revenues in the first quarter of 2008. The increase was primarily from increased legal expenses of $1.4 million, increased compensation and benefits of $0.5 million and higher sales and marketing promotional costs of $0.2 million. The increase in legal expenses is primarily from higher patent litigation costs. The increase in compensation and benefits is primarily from greater stock compensation and higher salary costs, which includes 13 new hires in sales. We expect SG&A in 2009 to be approximately 27-28% of revenue with the increase

principally from the addition of sales personnel, increased travel related expenses, increased compensation and stock compensation expense and higher legal expenses from ongoing litigation. There is no assurance that these expectations will be realized.

Research and development expenses ("R&D") were $0.7 million and one percent of revenue in the first quarter of 2009 compared to $2.0 million and five percent of revenue in the first quarter of 2008. The decrease is primarily due to our increased focus on our core projects in the latter half of 2008 and MedScanSonics ceasing operations in 2008. We expect R&D in 2009 to be one to two percent of revenue, although there is no assurance that these expectations will be realized.

Other incomedecreased $1.2 million to $0.3 million in the first quarter of 2009 compared to $1.5 million in the first quarter of 2008. Other income in the first quarter of 2009 is primarily comprised of interest income. Other income in the first quarter of 2008 includes $1.1 million of interest income and $0.4 million from a payment under a settlement agreement. The decrease in interest income was due to lower interest rates.

Income taxes were accrued at an estimated annual effective tax rate of 36% in the first quarter of 2009 compared to 34% in the first quarter of 2008. The 2008 rate differed from the statutory corporate rate of 35% principally because of the effect of foreign and state income taxes, tax credits, tax exempt income and deductions for domestic production activities. We expect our effective tax rate to be approximately 36% in 2009.

Liquidity and Capital Resources

During the first quarter of 2009, our cash, cash equivalents and current and long-term investment securities increased by $18.7 million.

Operating Activities: Our cash provided by operating activities tends to increase over time because of our positive operating results. However, it is subject to fluctuations, principally from the impact of integrating new locations from acquisitions, changes in net income, accounts receivable, inventories and the timing of tax payments.

During the first quarter of 2009, our cash provided by operations was $19.8 million, which was mainly comprised of net income of $7.1 million, depreciation and amortization of $3.6 million, stock compensation expense of $0.6 million, offset by changes in our operating assets and liabilities. The $7.8 million decrease in accounts receivable was the largest contributor to the change in our operating assets and liabilities. The decrease was primarily due to cash collection on sales in the fourth quarter of 2008.

Investing Activities: During the first quarter of 2009, cash used by investing activities was $8.2 million. This was primarily comprised of net investment purchases of $6.4 million and cash paid for purchases of property and equipment of $2.1 million which were primarily for equipment and mold additions.

We estimate that our capital expenditures in 2009 will approximate $15.0 . . .