##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
   FORM 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
 OR o
    
    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: 000-18338 I-FLOW CORPORATION  Delaware
(State or Other Jurisdiction of Incorporation or
Organization)
    
    33-0121984
(I.R.S. Employer Identification No.)20202 Windrow Drive, Lake Forest, CA
(Address of Principal Executive Offices)
    
    92630
(Zip Code)
 (949) 206-2700
(Registrants Telephone Number, Including Area Code) 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
þ   No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes
þ   No o As of April 29, 2005 there were 22,354,000 shares of common stock outstanding.




---



I-FLOW CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2005 Table of Contents PagePart I: Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets
    
    
    1Condensed Consolidated Statements of Operations and Comprehensive Operations
    
    
    2Condensed Consolidated Statements of Cash Flows
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    14Item 4.
    
    Controls and Procedures
    
    
    14Part II: Other InformationItem 1.
    
    Legal Proceedings
    
    
    15Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 5.
    
    Other Information
    
    
    15Item 6.
    
    Exhibits
    
    
    21SignaturesEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




---



##### Table of Contents



PART 1  FINANCIAL INFORMATION 
  Item 1.
    FINANCIAL STATEMENTS 
 I-FLOW CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited) March 31,
    
    
    December 31,2005
    
    
    2004ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    17,277,000
    
    
    $
    10,021,000Short-term investments
    
    
    21,721,000
    
    
    
    34,087,000Accounts receivable, less allowance for doubtful accounts of $3,560,000
and $2,900,000 at March 31, 2005 and December 31, 2004, respectively
    
    
    16,843,000
    
    
    
    15,765,000Inventories, net
    
    
    9,685,000
    
    
    
    8,365,000Prepaid expenses and other current assets
    
    
    1,010,000
    
    
    
    921,000Total current assets
    
    
    66,536,000
    
    
    
    69,159,000Property, net
    
    
    12,465,000
    
    
    
    11,097,000Goodwill
    
    
    2,639,000
    
    
    
    2,639,000Other intangible assets, net
    
    
    1,443,000
    
    
    
    1,407,000Other long-term assets
    
    
    128,000
    
    
    
    128,000TOTAL
    
    $
    83,211,000
    
    
    $
    84,430,000LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    5,439,000
    
    
    $
    4,392,000Accrued payroll and related expenses
    
    
    4,608,000
    
    
    
    5,995,000Income taxes payable
    
    
    194,000
    
    
    
    115,000Other liabilities
    
    
    791,000
    
    
    
    709,000Total current liabilities
    
    
    11,032,000
    
    
    
    11,211,000COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock  $0.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding
    
    
    
    
    
    
    Common stock  $0.001 par value; 40,000,000 shares
authorized; 22,340,000 and 22,220,000 shares
issued and outstanding at March 31, 2005
and December 31, 2004, respectively
    
    
    106,739,000
    
    
    
    105,703,000Accumulated other comprehensive loss
    
    
    (357,000
    )
    
    
    (290,000
    )Accumulated deficit
    
    
    (34,203,000
    )
    
    
    (32,194,000
    )Net stockholders equity
    
    
    72,179,000
    
    
    
    73,219,000TOTAL
    
    $
    83,211,000
    
    
    
    $84,430,000
 See accompanying notes to condensed consolidated financial statements. 1




---



##### Table of Contents



I-FLOW CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(Unaudited) Three Months EndedMarch 31,2005
    
    
    2004Revenues:Net product sales
    
    $
    16,270,000
    
    
    $
    9,906,000Net rental income and other
    
    
    6,471,000
    
    
    
    4,263,000Total revenues
    
    
    22,741,000
    
    
    
    14,169,000Cost of revenues:Product cost of revenues
    
    
    4,340,000
    
    
    
    3,522,000Rental cost of revenues
    
    
    1,762,000
    
    
    
    1,160,000Total cost of revenues
    
    
    6,102,000
    
    
    
    4,682,000Gross Profit
    
    
    16,639,000
    
    
    
    9,487,000Operating expenses:Selling and marketing
    
    
    13,562,000
    
    
    
    7,683,000General and administrative
    
    
    4,624,000
    
    
    
    3,617,000Product development
    
    
    623,000
    
    
    
    579,000Total operating expenses
    
    
    18,809,000
    
    
    
    11,879,000Operating loss
    
    
    (2,170,000
    )
    
    
    (2,392,000
    )Interest income, net
    
    
    239,000
    
    
    
    36,000Loss before income taxes
    
    
    (1,931,000
    )
    
    
    (2,356,000
    )Income tax expense (benefit)
    
    
    78,000
    
    
    
    (856,000
    )Net loss
    
    $
    (2,009,000
    )
    
    $
    (1,500,000
    )Net loss per share:Basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.08
    )Comprehensive Operations:Net loss
    
    $
    (2,009,000
    )
    
    $
    (1,500,000
    )Foreign currency translation loss
    
    
    (2,000
    )
    
    
    (23,000
    )Unrealized
loss on investment securities
    
    
    (65,000
    )
    
    
    Comprehensive loss
    
    $
    (2,076,000
    )
    
    $
    (1,523,000
    )
 See accompanying notes to condensed consolidated financial statements. 2




---



##### Table of Contents



I-FLOW CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months EndedMarch 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (2,009,000
    )
    
    $
    (1,500,000
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    1,038,000
    
    
    
    737,000Stock-based compensation
    
    
    751,000
    
    
    
    269,000Provision for doubtful accounts receivable
    
    
    385,000
    
    
    
    621,000Loss on property disposal
    
    
    29,000
    
    
    
    Provision for inventory obsolescence
    
    
    (2,000
    )
    
    
    373,000Deferred income taxes benefit
    
    
    
    
    
    
    (877,000
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,463,000
    )
    
    
    (183,000
    )Inventories
    
    
    (1,318,000
    )
    
    
    82,000Prepaid expenses and other current assets
    
    
    (89,000
    )
    
    
    10,000Accounts payable, accrued payroll and related expenses
    
    
    (340,000
    )
    
    
    (630,000
    )Income taxes payable
    
    
    79,000
    
    
    
    21,000Other liabilities
    
    
    82,000
    
    
    
    (50,000
    )Net cash used in operating activities
    
    
    (2,857,000
    )
    
    
    (1,127,000
    )CASH FLOWS FROM INVESTING ACTIVITIES:Property acquisitions
    
    
    (2,346,000
    )
    
    
    (1,620,000
    )Purchases of investments
    
    
    (1,209,000
    )
    
    
    Maturities of investments
    
    
    12,525,000
    
    
    
    Sale of investments
    
    
    985,000
    
    
    
    Patent acquisitions
    
    
    (125,000
    )
    
    
    (100,000
    )Net cash provided by (used in) investing activities
    
    
    9,830,000
    
    
    
    (1,720,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options and warrants
    
    
    285,000
    
    
    
    421,000Principal payments on notes payable
    
    
    
    
    
    
    (1,000
    )Net cash provided by financing activities
    
    
    285,000
    
    
    
    420,000Effect of exchange rates on cash
    
    
    (2,000
    )
    
    
    3,000NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    7,256,000
    
    
    
    (2,424,000
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    10,021,000
    
    
    
    15,185,000CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    17,277,000
    
    
    $
    12,761,000
 See accompanying notes to condensed consolidated financial statements. 3




---



##### Table of Contents



I-FLOW CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation  The accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring adjustments) that, in the
opinion of management, are necessary to present fairly the financial position of I-Flow Corporation
and its subsidiaries (the Company) at March 31, 2005 and the results of its operations and cash
flows for the three-month periods ended March 31, 2005 and 2004. Certain information and footnote
disclosures normally included in financial statements have been condensed or omitted pursuant to
rules and regulations of the Securities and Exchange Commission (the SEC), although the Company
believes that the disclosures in the financial statements are adequate to make the information
presented not misleading. The financial statements included herein should be read in conjunction with the financial
statements included in the Companys Annual Report on Form 10-K for the year ended December 31,
2004 as filed with the SEC on March 16, 2005. Use of Estimates The preparation of financial statements in conformity with generally
accepted accounting principles in the United States necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from
these estimates. New Accounting Pronouncements  In November 2004, the Financial Accounting Standards Board
(the FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, Inventory Costs
(SFAS 151), which amends Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing.SFAS
151 requires the allocation of fixed production overhead costs be based on the normal capacity of
the production facilities and unallocated overhead costs be recognized as an expense in the period
incurred. In addition, other items, such as abnormal freight, handling costs and wasted materials,
require treatment as current period charges rather than a portion of the inventory cost. SFAS 151
is effective for inventory costs incurred during periods beginning after June 15, 2005. The Company
is currently assessing the impact of the adoption of SFAS 151 and its impact on its condensed
consolidated financial statements. In December 2004, the
FASB issued SFAS No. 123-revised 2004, Share-Based Payment(SFAS 123R)
which replaces SFAS No. 123, Accounting for Stock-Based Compensation(SFAS 123), and supersedes
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. SFAS
123R requires the measurement of all employee share-based payments to employees, including grants
of employee stock options, using a fair-value-based method and the recording of such expense in the
Companys condensed consolidated statements of operations. The accounting provisions of SFAS 123R
are effective for reporting periods beginning after June 15, 2005, which is the third quarter for
calendar year companies. However, on April 14, 2005, the SEC announced that the effective date for
compliance with SFAS 123R would be deferred until January 1, 2006 for calendar year companies.
Accordingly, the Company will adopt the provisions of SFAS 123R effective January 1, 2006 based on
the new effective date announced by the SEC. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to
financial statement recognition. Set forth below are the pro forma net loss and net loss per share
amounts, for the three-month periods ended March 31, 2005 and 2004, as if the Company had used a
fair-value-based method required by SFAS 123 to measure compensation
expense for employee stock incentive awards. Although the Company has not yet determined whether
the adoption of SFAS 123R will result in amounts that are similar to the current pro forma
disclosures under SFAS 123, the Company is evaluating the requirements under SFAS 123R and expects
the adoption to have a significant adverse impact on the Companys condensed consolidated
statements of operations and net income (loss) per share. 4




---



##### Table of Contents



Accounting for Stock-Based Compensation  The Company accounts for employee and director
stock options using the intrinsic value method in accordance with APB Opinion No. 25 and FASB
Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans,and has adopted the disclosure-only alternative of SFAS 123.Stock options issued to
consultants and vendors are accounted for at fair value. Because the Company has adopted the disclosure-only provisions of SFAS 123, no compensation cost
has been recognized for stock option grants to employees or non-employee directors with exercise
prices equal to the fair market value of the underlying shares at the grant date. Had compensation
cost for the Companys option plans been determined based on the fair value of the options at the
grant date consistent with the provisions of SFAS 123, the Companys net loss and net loss per
share would have been the pro forma amounts indicated below: Three Months Ended March 31,(Amounts in thousands, except per share amounts)
    

2005
    
    

2004Net loss  as reported
    
    $
    (2,009
    )
    
    $
    (1,500
    )Stock-based employee and director compensation
included in net loss, net of tax
    
    
    754
    
    
    
    133Total stock-based employee and director
compensation expense determined under fair
value based method for all awards, net of tax
    
    
    (2,532
    )
    
    
    (876
    )Net loss  pro forma
    
    $
    (3,787
    )
    
    $
    (2,243
    )Basic and
diluted net loss per share  as reported
    
    $
    (0.09
    )
    
    $
    (0.08
    )Basic and
diluted net loss per share  pro forma
    
    $
    (0.17
    )
    
    $
    (0.12
    )
 The amounts in the above table related to stock-based employee and director compensation included
in net loss, net of tax (using the effective tax rate for the periods presented) relate to employee
and director stock options only and exclude compensation expense related to consultant stock
options and restricted stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for grants during the
three months ended March 31, 2005 and 2004: no dividend yield; expected volatility of 90% in 2004
and 86% in 2005; risk-free interest rate of 3.64% in 2004 and 4.17% in 2005; and expected lives of
5 years. 2. Inventories Inventories consisted of the following: March 31,
    
    
    December 31,2005
    
    
    2004Raw Materials
    
    $
    6,186,000
    
    
    $
    5,145,000Work in Process
    
    
    1,459,000
    
    
    
    1,369,000Finished Goods
    
    
    2,961,000
    
    
    
    2,774,000Reserve for Obsolescence
    
    
    (921,000
    )
    
    
    (923,000
    )Total
    
    $
    9,685,000
    
    
    $
    8,365,000
 5




---



##### Table of Contents



3. Earnings (Loss) Per Share Pursuant to SFAS No. 128, Earnings Per Share, the Company provides dual presentation of Basic and
Diluted earnings per share. Basic net income (loss) per share is computed using the weighted average number of common shares
outstanding during the periods presented, excluding unvested restricted stock which the Company has
a right to repurchase in the event of early termination of employment of 11,000 shares and 65,000
shares as of March 31, 2005 and 2004, respectively. Diluted net income (loss) per share is computed using the weighted average number of common and
common equivalent shares outstanding during the periods utilizing the treasury stock method for
stock options, warrants and unvested restricted stock. Potentially dilutive securities are not
considered in the calculation of net loss per share as their impact would be anti-dilutive. The following is a reconciliation between weighted average shares used in the basic and diluted net
loss per share calculations: Three Months Ended March 31,(Amounts in thousands)
    

2005
    
    

2004Net loss
    
    $
    (2,009
    )
    
    $
    (1,500
    )Basic net loss per share:Weighted average number of common shares outstanding
    
    
    22,236
    
    
    
    18,282Effect of dilutive securities:Stock options and unvested restricted stock (1)
    
    
    
    
    
    
    Diluted net loss per share:Weighted average number of common and common
equivalent shares outstanding
    
    
    22,236
    
    
    
    18,282Net loss per share:Basic and diluted
    
    $
    (0.09
    )
    
    $
    (0.08
    )
   (1)
    
    Optionsto purchase 92,000 and 1,000 shares of common stock have been excluded from
the treasury stock method of calculation for diluted weighted average common shares for the
three-month periods ended March 31, 2005 and 2004, respectively, as their exercise prices
exceeded the average market price of the Companys common stock for these periods and their
effect would be anti-dilutive. 4. Goodwill and Other Intangible Assets Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142), which, among other things, eliminates the amortization of goodwill and other
intangibles with indefinite lives. Under SFAS 142, intangible assets, including goodwill, that are
not subject to amortization are tested for impairment annually or more frequently if impairment
indicators exist. Under SFAS 142, goodwill impairment is deemed to exist if the net book value of a
reporting unit exceeds its estimated fair value. No goodwill impairment indicators existed for the
three months ended March 31, 2005 and, as a result, impairment testing was not required. 6




---



##### Table of Contents



Amortizable intangible assets included in the accompanying condensed consolidated balance sheets
are as follows: As of March 31, 2005Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetPatents
    
    $
    2,408,000
    
    
    $
    965,000
    
    
    $
    1,443,000
 As of December 31, 2004Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    NetPatents
    
    $
    2,310,000
    
    
    $
    903,000
    
    
    $
    1,407,000
 The Company amortizes patents over a period of seven years. Amortization expense for the three
months ended March 31, 2005 and 2004 was approximately $89,000 and $74,000, respectively. Annual
amortization expense of intangible assets is estimated to be approximately $280,000 in each of the
next five fiscal years . 5. Stockholders Equity On July 27, 2004, the Company announced that its board of directors had authorized the repurchase
of up to 1,000,000 shares of the Companys common stock. The shares may be repurchased in open
market or privately negotiated transactions in the discretion of management, subject to its
assessment of market conditions and other factors. The stock repurchase program will be in effect
until July 26, 2005, unless the program is terminated sooner or extended by the board of directors.
As of March 31, 2005, the Company had not repurchased any equity securities under the stock
repurchase program. On April 19, 2004, the Company completed a public offering of 2,990,000 shares of common stock at
$15.50 per share, of which 390,000 shares were issued pursuant to the exercise of the underwriters
over-allotment option. The shares were sold at a price to the public of $15.50 per share resulting
in net proceeds to the Company of approximately $43,087,000. 6. Operating Segments and Revenue Data The Company operates in two reportable operating segments: the manufacturing and marketing of
medical infusion pumps (the Manufacturing and Marketing operating segment) and the rental and
third party insurance billing of electronic medical infusion pumps that are manufactured by
companies other than I-Flow Corporation (the Rentals operating segment). The Manufacturing and
Marketing operating segment consists of two major market segments, the IV Infusion Therapy market
segment and Regional Anesthesia market segment. The Rentals operating segment consists of the
activities of InfuSystem, Inc., a wholly owned subsidiary of the Company, which provides infusion
pumps for chemotherapy to the Oncology Infusion Services market segment. 7




---



##### Table of Contents



Operating segment information is as follows for the three-month periods ended March 31, 2005 and
2004: Manufacturing and(Amounts in thousands)
    
    Marketing
    
    
    Rentals
    
    
    ConsolidatedThree months ended March 31, 2005Revenues
    
    $
    16,270
    
    
    $
    6,471
    
    
    $
    22,741Operating income (loss)
    
    
    (4,835
    )
    
    
    2,665
    
    
    
    (2,170
    )Assets
    
    
    62,236
    
    
    
    20,975
    
    
    
    83,211Depreciation and amortization
    
    
    344
    
    
    
    694
    
    
    
    1,038Property additions
    
    
    
    
    
    
    2,346
    
    
    
    2,346Three months ended March 31, 2004Revenues
    
    $
    9,906
    
    
    $
    4,263
    
    
    $
    14,169Operating income (loss)
    
    
    (3,292
    )
    
    
    900
    
    
    
    (2,392
    )Assets
    
    
    38,827
    
    
    
    12,079
    
    
    
    50,906Depreciation and amortization
    
    
    369
    
    
    
    368
    
    
    
    737Property additions
    
    
    524
    
    
    
    1,096
    
    
    
    1,620
 For the three months ended March 31, 2005, sales to B. Braun Medical S.A. and B. Braun Medical,
Inc. accounted for 7% and 6% of the Companys total revenues, respectively. For the three months
ended March 31, 2004, sales to B. Braun Medical S.A. and B.
Braun Medical, Inc. accounted for 9%
and 3% of the Companys total revenues, respectively. 7. Commitments and Contingencies The Company enters into certain types of contracts from time to time that contingently require the
Company to indemnify parties against third party claims. These contracts primarily relate to: (i)
divestiture and acquisition agreements, under which the Company may provide customary
indemnifications to either (a) purchasers of the Companys businesses or assets or (b) entities
from which the Company is acquiring assets or businesses; (ii) certain real estate leases, under
which the Company may be required to indemnify property owners for environmental and other
liabilities, and other claims arising from the Companys use of the applicable premises; (iii)
certain agreements with the Companys officers, directors and employees, under which the Company
may be required to indemnify such persons for liabilities arising out of their relationship with
the Company; and (iv) Company license, consulting, distribution and purchase agreements with the
Companys customers and other parties, under which the Company may be required to indemnify such
parties for intellectual property infringement claims, product liability claims and other claims
arising from the Companys provision of products or services to such parties. The terms of such obligations vary. A maximum obligation arising out of these types of agreements
is not explicitly stated and, therefore, the overall maximum amount of these obligations cannot be
reasonably estimated. Historically, the Company has not been obligated to make significant
payments for these obligations and, thus, no liabilities have been recorded for these obligations
on its balance sheets as of March 31, 2005. The Company is involved in litigation arising from the normal course of operations. In the opinion
of management, the ultimate impact of such litigation will not have a material adverse effect on
the Companys financial position and results of operations. 8




---



##### Table of Contents



Item 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS Forward-Looking Statements Statements by the Company in this report and in other reports and statements released by the
Company are and will be forward-looking in nature and express the Companys current opinions about
trends and factors that may impact future operating results. Statements that use words such as
believes, anticipates or expects or use similar expressions are intended to identify
forward-looking statements. Forward-looking statements are subject to risks and uncertainties,
which could cause actual results to differ materially from those expected, and readers are
cautioned not to place undue reliance on these forward-looking statements. The Company undertakes
no obligation to republish revised forward-looking statements to reflect the occurrence of
unanticipated or subsequent events. Readers are also urged to carefully review and consider the
various disclosures made by the Company in this report that seek to advise interested parties of
the risks and other factors that affect the Companys business. Interested parties should also
review the Companys reports on Forms 10-K, 10-Q and 8-K and other reports that are periodically
filed with the Securities and Exchange Commission. The risks affecting the Companys business
include, among others: implementation of our direct sales strategy; dependence on our suppliers and
distributors; reliance on the success of the home health care industry; our continuing compliance
with applicable laws and regulations, such as the Food, Drug and Cosmetic Act, and the FDAs
concurrence with our managements subjective judgment on compliance issues; the reimbursement
system currently in place and future changes to that system; competition in the industry; economic
and political conditions in foreign countries; currency exchange rates; inadequacy of booked
reserves; technological changes; and product availability and acceptance. All forward-looking
statements, whether made in this report or elsewhere, should be considered in context with the
various disclosures made by the Company about its business. Critical Accounting Policies The Company prepares its consolidated financial statements in conformity with accounting principles
generally accepted in the United States. Accordingly, the Company is required to make estimates,
judgments and assumptions that the Company believes are reasonable based on the information
available. These estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during
the periods presented. The critical accounting policies that the Company believes are the most
important to aid in fully understanding and evaluating its reported financial results include the
following: Revenue Recognition The Company recognizes revenue from product sales at the time of shipment and passage of title.
The Company offers the right of return for defective products and continuously monitors and tracks
product returns. The Company records a provision for the estimated amount of future returns based
on historical experience and any notification received of pending returns. Although such returns
have historically been insignificant, the Company cannot guarantee that it will continue to
experience the same return rates as it has in the past. Any significant increase in product
returns could have a material adverse impact on the Companys operating results for the period or
periods in which the returns materialize. The Company recognizes rental revenues from medical pumps over the term of the related agreement,
generally on a month-to-month basis. Pump rentals are billed at the Companys established rates,
which often differ from contractually allowable rates provided by third party payors such as
Medicare, Medicaid and commercial insurance carriers. The Company records net rental revenues at
the estimated realizable amounts from patients and third party payors. The Company experiences
significant delays in payment with certain of these third party payors, but it continuously
monitors reimbursement rates of the third party payors and the timing of such payments. Any change
in reimbursement or collection rates could have a material adverse impact on the Companys
operating results for the period or periods in which the change is identified. 9




---



##### Table of Contents



Accounts Receivable The Company performs various analyses to evaluate accounts receivable balances. It records an
allowance for bad debts based on the estimated collectibility of the accounts such that the
recorded amounts reflect estimated net realizable value. The Company applies specified percentages
to the accounts receivable agings to estimate the amount that will ultimately be uncollectible and
therefore should be reserved. The percentages are increased as the accounts age. If the actual
uncollected amounts are less than the previously estimated allowance, a favorable adjustment would
result. If the actual uncollected amounts significantly exceed the estimated allowance, the
Companys operating results would be significantly and adversely affected. Inventories The Company values inventory at the lower of the actual cost to purchase or manufacture the
inventory and the current estimated market value of the inventory. The Company regularly reviews
inventory quantities on hand and records a provision for excess and obsolete inventory on
specifically identified items based primarily on the estimated forecast of product demand and
production requirements for the next two years. A significant increase in the demand for the
Companys products could result in a short-term increase in the cost of inventory purchases while a
significant decrease in demand could result in an increase in the amount of excess inventory
quantities on hand. Additionally, the Companys estimates of future product demand may prove to be
inaccurate and thus the Company may have understated or overstated the provision required for
excess and obsolete inventory. In the future, if inventory is determined to be overvalued, the
Company would be required to recognize such costs in cost of goods sold at the time of such
determination. Likewise, if inventory is determined to be undervalued, the Company may have
over-reported cost of goods sold in previous periods and would be required to recognize additional
operating income at the time of sale. Therefore, although the Company seeks to ensure the accuracy
of its forecasts of future product demand, any significant unanticipated changes in demand or
technological developments could have a significant impact on the value of its inventory and
reported operating results. Deferred Taxes The Company recognizes deferred tax assets and liabilities based on the future tax consequences
attributable to the difference between the financial statement carrying amounts and their
respective tax bases, and for operating loss and tax credit carryforwards. The Company regularly
reviews its deferred tax assets for recoverability and establishes a valuation allowance when it is
more likely than not that projected future taxable income and the expected timing of the reversals
of existing temporary differences will be insufficient to recover any deferred tax assets. If the
Company operates at a profit in the future and generates sufficient future taxable income, it could
be required to reverse the current valuation allowance against the deferred tax assets, which would
result in a substantial decrease in the provision for income taxes in the period of reversal.
Likewise, if the Company is unable to operate at a profit and it is more likely than not that the
Company will be unable to generate sufficient future taxable income, it would be required to
continue to maintain a full valuation allowance against all of its deferred tax assets. Goodwill and Other Intangible Assets Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, required
the Company to cease amortizing goodwill and indefinite life intangibles effective January 1, 2002.
The Companys business combinations have at various times resulted in the acquisition of goodwill
and other intangible assets, which may affect the amount of future period amortization expense and
impairment expense that the Company may incur. The determination of the value of such intangible
assets requires management to make estimates and assumptions that affect its consolidated financial
statements. The Company reviews the recoverability of the carrying value of goodwill on an annual
basis or more frequently if an event occurs or circumstances change to indicate that an impairment
of goodwill has possibly occurred. The Company compares the fair value of its reporting units to
their carrying value, as well as other factors, to determine whether or not any potential
impairment of goodwill exists. If a potential impairment exists, an impairment loss is recognized
to the extent the carrying value of goodwill exceeds the difference between the fair value of the
reporting unit and the fair value of its other assets and liabilities. The Company cannot guarantee
that there will be no impairment in the future. If the Company is required to recognize an
impairment of goodwill, the Companys operating results could be significantly and adversely
affected. See Note 4 to Consolidated Financial Statements. 10




---



##### Table of Contents



Overview and Recent Developments The Company designs, develops and markets technically advanced, low-cost drug delivery systems and
services that provide life-enhancing, cost-effective solutions for pain relief and intravenous
infusion therapy. The Company focuses on three distinct markets: Regional Anesthesia, IV Infusion
Therapy and Oncology Infusion Services. The Companys products are used in hospitals, ambulatory
surgery centers, physicians offices and patients homes. The Companys strategic focus for future growth is on the Regional Anesthesia market and, more
specifically, on the Companys pain relief products marketed under its ON-Q ® brand. The
Company intends to continue to expand its sales and marketing efforts to further penetrate the
United States post-surgical pain relief market for its ON-Q products. On November 9, 2004, the Company announced the first coverage by Medicare for the ON-Q®
PainBuster®. This result arose out of a specific case in which ON-Q PainBuster was used for a
patient following surgery. Historically, all of Medicares regional contractors enforced policies
that resulted in denied payments for the ON-Q PainBuster. The decision that the ON-Q PainBuster
was medically necessary, and therefore payable by Medicare, was made by an administrative law judge
based on the law and clinical evidence submitted by the Company in the course of the Companys
appeal of the initial decision to deny coverage. With this decision, the Company intends to
request that each Medicare contractor revise its coverage policy so that such contractors will
begin to provide payment for ON-Q PainBuster when it is used to treat post-operative pain.
Additionally, private payer systems commonly establish coverage decisions based on Medicare policy.
Accordingly, the Company plans to use this coverage decision to seek to influence private insurers
as well. There is no guarantee, however, that insurance coverage by Medicare or by private
insurers will increase as a result of these or other developments. Results of Operations Revenue Net revenues increased 60%, or $8,572,000, to $22,741,000 for the three months ended March 31, 2005
compared to $14,169,000 for the same period in the prior year. Net product revenues increased 64%,
or $6,364,000, to $16,270,000 for the three months ended March 31, 2005 compared to $9,906,000 for
the same period in the prior year. Rental income, comprised of the revenues of the Companys
InfuSystem subsidiary, increased 52%, or $2,208,000, to $6,471,000 for the three months ended March
31, 2005 compared to $4,263,000 for the same period in the prior year. The Companys product revenues from the Manufacturing and Marketing operating segment during the
three months ended March 31, 2005 and 2004 were generated in two primary market segments: Regional
Anesthesia and IV Infusion Therapy. Regional Anesthesia product revenues increased 89% to
$10,790,000 for the three months ended March 31, 2005 compared to $5,721,000 for the same period in
the prior year. This increase was primarily due to increased clinical usage of the ON-Q PainBuster
by surgeons in the United States. Regional Anesthesia products include the ON-Q® PainBuster®
Post-Operative Pain Relief System, the C-blocTM Continuous Nerve Block System and the
Soaker TM Catheter. IV Infusion Therapy product sales, which included the Companys intravenous elastomeric pumps,
mechanical infusion devices and electronic infusion pumps and disposables, increased 31% to
$5,480,000 for the three months ended March 31, 2005 compared to $4,185,000 for the same period in
the prior year. The increase primarily resulted from increased sales of IV Infusion Therapy
products to U.S. and international distributors, including B. Braun Medical Inc., in the United
States, and B. Braun Medical S.A. The Company has a distribution agreement with B. Braun Medical
S.A. (France), a manufacturer and distributor of pharmaceuticals and infusion products, to
distribute I-Flows elastomeric infusion pumps in Western Europe, Eastern Europe, the Middle East,
Asia Pacific, South America and Africa. Revenues from the Rentals operating segment provided by the Companys InfuSystem subsidiary within
the Oncology Infusion Services market increased 52% to $6,471,000 for the three months ended March
31, 2005 compared to $4,263,000 for the same period in the prior year. This increase is
substantially due to an increased usage of new drugs and clinical protocols requiring the use of
ambulatory electronic pumps as opposed to oral application of chemotherapy drugs. 11




---



##### Table of Contents



Cost of Revenues Cost of revenues increased 30%, or $1,420,000, to $6,102,000 for the three months ended March 31,
2005 compared to $4,682,000 for the same period in the prior year. These increases were primarily
due to higher sales volume. As a percentage of net product sales, product cost of revenues
decreased for the three months ended March 31, 2005 by approximately nine percentage points
compared to the same period in the prior year. This decrease was due to favorable changes in sales
mix toward high-margin Regional Anesthesia products, such as the ON-Q PainBuster, during the three
months ended March 31, 2005. As a percentage of Rentals revenues, Rental cost of revenues remained
unchanged from the same period in the prior year. Selling and Marketing Expenses Selling and marketing expenses increased 77%, or $5,879,000, to $13,562,000 for the three months
ended March 31, 2005 compared to $7,683,000 for the same period in the prior year. The increase
was primarily attributable to increases in compensation and related expenses ($3,659,000),
advertising and promotions ($846,000), conferences and conventions ($336,000), outside commissions
and royalties ($287,000) and other costs related to the hiring and operation of an expanded direct
sales force in the United States and to support sales and marketing of the ON-Q PainBuster. In a
transaction effective January 1, 2002, I-Flow re-acquired from Ethicon Endo-Surgery the contractual
rights to distribute ON-Q on a direct basis. Since that time, ON-Q revenues have increased
rapidly, and the Companys primary strategy has been to rapidly increase market awareness of the
clinical and economic advantages of ON-Q technology through a combination of clinical studies,
sales force expansion and marketing programs. The number of quota-carrying sales representatives in the
Companys hospital sales force as of March 31, 2005 was approximately double the number as of March
31, 2004. As a percentage of net revenues, selling and marketing expenses increased by approximately five
percentage points for the three months ended March 31, 2005 over the comparable period in the prior
year. General and Administrative Expenses General and administrative expenses increased 28%, or $1,007,000, to $4,624,000 for the three
months ended March 31, 2005 compared to $3,617,000 for the same period in the prior year. The
increase was primarily attributable to increases in compensation and related expenses ($710,000)
and professional legal expenses ($275,000). The increase in compensation partly resulted from
increased staffing. As a percentage of net revenues, general and administrative expenses decreased
by approximately five percentage points when compared to the same period in the prior year. Product Development Expenses Product development expenses increased 8%, or $44,000, to $623,000 for the three months ended March
31, 2005 compared to $579,000 for the same period in the prior year. The increase was primarily
attributable to increases in outside services ($25,000) and temporary help ($17,000). The Company
will continue to incur product development expenses as it continues its efforts to introduce new
and improved technology and cost-efficient products into the market. Product development expenses
as a percentage of net revenues for the three months ended March 31, 2005 decreased by
approximately one percentage point compared to the same period in the prior year, primarily due to
higher sales levels. Income Taxes During the three months ended March 31, 2005, the Company recorded income tax expense of $78,000
compared to an income tax benefit of $856,000 for the same period in the prior year. The Companys
effective tax rate for the three months ended March 31, 2005 was a tax expense rate of 4.0%
compared to a tax benefit rate of 36.3% for the comparable period in the prior year, primarily due
to the full valuation allowance for deferred tax assets in 2005. Liquidity and Capital Resources During the three-month period ended March 31, 2005, cash used in operating activities was
$2,857,000, compared to $1,127,000 for the same period in the prior year. The change was primarily
due to an increase in accounts receivable and inventories, partially offset by an increase in
accounts payable. The increases in accounts receivable and inventory resulted from the overall
increase in revenues. 12




---



##### Table of Contents



During the three-month period ended March 31, 2005, cash provided by investing activities was
$9,830,000, compared to cash used in investing activities of $1,720,000 for the same period in the
prior year. The change was primarily due to proceeds from the maturities and sale of investments
with no comparable activity in the same period of the prior year, partially offset by an increase
in property additions from the purchase of electronic infusion pumps for our InfuSystem subsidiary
to support its growing rental business in the Oncology Infusion Services market. The Companys investing activities are impacted by sales, maturities and purchases of its
short-term investments. The principal objective of the Companys asset management activities is to
maximize net investment income, while maintaining acceptable levels of interest rate risk and
facilitating its funding needs. Thus, the Companys policy is to invest its excess cash in highly
liquid money market funds, U.S. government agency notes and investment grade corporate bonds and
commercial paper. During the three-month period ended March 31, 2005, cash provided by financing activities was
$285,000, compared to $420,000 for the same period in the prior year. The change was primarily due
to a decrease in the proceeds from the exercise of options and warrants to purchase common stock. As of March 31, 2005, the Company had cash and cash equivalents of $17,277,000, short-term
investments of $21,721,000, net accounts receivable of $16,843,000 and net working capital of
$55,504,000. Management believes the current funds, together with possible additional borrowings
on the existing lines of credit and other bank loans, are sufficient to provide for the Companys
projected needs to maintain operations for at least the next 12 months. The Company may decide to
sell additional equity securities or increase its borrowings in order to fund or increase its
expenditures for selling and marketing, to fund increased product development, or for other
purposes. The Company had a working capital line of credit with Silicon Valley Bank which expired on April
30, 2005. Under the terms of the line of credit, the Company was able to borrow up to the lesser
of $4,000,000 or the sum of 80% of eligible accounts receivable plus 25% of eligible inventory, as
defined, at the banks prime rate (5.75% at March 31, 2005). As of March 31, 2005, there were
funds available for borrowing of $4,000,000 and no outstanding borrowings. On May 6, 2005, the Company
entered into an amendment to the credit agreement with Silicon Valley
Bank, effective as of April 30, 2005 (the Amendment),
which, among other matters, extended the term of the credit facility
to April 29, 2006.  Pursuant to the terms of the Amendment, Silicon
Valley Bank agreed to provide the Company with a $10 million
revolving credit facility. In addition to cash advances from the line
of credit, the facility, as amended, provides the Company with a letter of credit facility, a foreign exchange forward contract
facility and cash management services. The Amendment provides that
Silicon Valley Bank will issue up to $1.5 million in letters of
credit for the Company's account, provided that the overall limit of
$10 million may not be exceeded. In addition, if there is availability under the revolving line of credit for the making of advances,
then Company may enter in foreign exchange forward contracts with Silicon Valley Bank.  In such case, the Company would commit
to purchase from or sell to Silicon Valley Bank a set amount of
foreign currency.  The sub-limit for these types of contracts is $1.5
million. Finally, the Company may use up to $1.5 million for Silicon
Valley Bank's cash management services, which may include merchant
services, direct deposit of payroll, business credit card, and check cashing services.
The Amendment also contains covenants with which the Company must
comply, including covenants that pertain to the ratio of certain
assets and liabilities of the Company and to the amount of adjusted
net losses. The Companys InfuSystem subsidiary has a revolving line of credit with a bank under which it may
borrow up to the lesser of $3,500,000 or 80% of eligible accounts receivable, as defined, at the
banks prime rate less 0.25% (5.50% at March 31, 2005). As of March 31, 2005, there were funds
available for borrowing of $3,500,000 and no outstanding borrowings. The credit line expires on
June 30, 2006. In addition, InfuSystem has a loan facility under which it may borrow up to
$2,500,000 for the purchase of equipment. As of March 31, 2005, there were no outstanding
borrowings under the loan facility. The Companys lines of credit are collateralized by substantially all of the Companys assets and
require the Company to comply with covenants principally relating to working capital and liquidity.
As of March 31, 2005, the Company believes that it was in compliance with all such covenants. New Accounting Pronouncements In November 2004, the Financial Accounting Standards Board (the FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 151, Inventory Costs(SFAS 151), which amends
Accounting Research Board No. 43, Chapter 4, Inventory Pricing.SFAS 151 requires the allocation of
fixed production overhead costs be based on the normal capacity of the production facilities and
unallocated overhead costs be recognized as an expense in the period incurred. In addition, other
items, such as abnormal freight, handling costs and wasted materials, require treatment as current
period charges rather than a portion of the inventory cost. SFAS 151 is effective for inventory
costs incurred during periods beginning after June 15, 2005. The Company is currently assessing the
impact of the adoption of SFAS 151 and its impact on its condensed consolidated financial
statements. In December 2004, the
FASB issued SFAS No. 123-revised 2004, Share-Based Payment(SFAS 123R)
which replaces SFAS No. 123, Accounting for Stock-Based Compensation(SFAS 123) and supersedes
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R
requires the measurement of all employee share-based payments to employees, including grants of
employee stock options, using a fair-value-based method and the recording of such expense in the
Companys condensed consolidated statements of operations. The accounting provisions of SFAS 123R
are effective for reporting periods beginning after June 15, 2005, which is the third quarter for
calendar year companies. However, on April 14, 2005, the Securities and Exchange Commission (the
SEC) announced that the effective date for compliance with SFAS 123R would be deferred until
January 1, 2006 13




---



##### Table of Contents



for calendar year companies. Accordingly, the Company will adopt the provisions of SFAS 123R
effective January 1, 2006 based on the new effective date announced by the SEC. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to
financial statement recognition. See Note 1 in the Notes to Consolidated Financial Statements for
the pro forma net loss and net loss per share amounts, for the three-month periods ended March 31,
2005 and 2004, as if the Company had used a fair-value-based method
required by SFAS 123 to measure compensation expense for employee stock incentive awards. Although the
Company has not yet determined whether the adoption of SFAS 123R will result in amounts that are
similar to the current pro forma disclosures under SFAS 123, the Company is evaluating the
requirements under SFAS 123R and expects the adoption to have a significant adverse impact on the
Companys condensed consolidated statements of operations and net income (loss) per share. 
  Item 3.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The Companys financial instruments include cash and cash equivalents and short-term investments.
It does not utilize derivative financial instruments, derivative commodity instruments or other
market risk sensitive instruments, positions or transactions in any material fashion. The
principal objective of the Companys asset management activities is to maximize net investment
income, while maintaining acceptable levels of interest rate risk and facilitating its funding
needs. At March 31, 2005, the carrying values of the Companys financial instruments approximated
fair values based upon current market prices and rates. Approximately 39 percent of the Companys
cash equivalents and short-term investments have maturity dates of 90 days or less from the date
acquired, approximately 43 percent have maturity dates of greater than 90 days but not more than
365 days, and approximately 18 percent have maturity dates of more than 365 days. We are
susceptible to market value fluctuations with regard to our short-term investments. However, due to
the relatively short maturity period of those investments and based on their highly liquid nature,
the risk of material market value fluctuations is not expected to be significant. Foreign Currency The Company has a subsidiary in Mexico. As a result, the Company is exposed to potential
transaction gains and losses resulting from fluctuations in foreign currency exchange rates. The
Company has not and currently does not hedge or enter into derivative contracts in an effort to
address foreign exchange risk. 
  Item 4.
    CONTROLS AND PROCEDURES Evaluation of Controls and Procedures The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Companys disclosure controls and procedures as of March 31, 2005. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer of the Company concluded that
the Companys disclosure controls and procedures were effective as of March 31, 2005. Changes In Internal Control Over Financial Reporting As reported in the Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2005, and as further discussed therein, as part of the annual audit process, a material weakness
was identified in the Companys internal control over financial reporting related to the
application of generally accepted accounting principles that pertain to the classification of the
Companys short-term investments. In correcting the error, the Company reclassified
approximately $34 million of cash and cash equivalents to short-term investments. During the first
fiscal quarter of 2005, in order to address the material weakness described above, the Company took
remedial actions to enhance its internal control over financial reporting. There were no other changes in the Companys internal
controls over financial reporting during the quarter ended March 31, 2005 that materially affected,
or were reasonably likely to materially affect, the Companys internal control over financial
reporting. 14




---



##### Table of Contents



PART II   OTHER INFORMATION 
  Item 1.
    LEGAL PROCEEDINGS As of May 9, 2005, the Company was involved in legal proceedings in the normal course of
operations. Although the ultimate outcome of the proceedings cannot be currently determined, in
the opinion of management, any resulting future liability will not have a material adverse effect
on the Company and its subsidiaries, taken as a whole. 
  Item 2.
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS On July 27, 2004, the Company announced that its board of directors had authorized the repurchase
of up to 1,000,000 shares of the Companys common stock. The shares may be repurchased in open
market or privately negotiated transactions in the discretion of management, subject to its
assessment of market conditions and other factors. The stock repurchase program will be in effect
until July 26, 2005, unless the program is terminated sooner or extended by the board of directors.
As of March 31, 2005, the Company had not repurchased any equity securities under the stock
repurchase program. 
  Item 5.
    OTHER INFORMATION Risk Factors. We are updating and restating our risk factors as follows: RISK FACTORS RELATING TO OUR BUSINESS AND THE INDUSTRY IN WHICH WE OPERATE We have experienced net losses in prior periods and have an accumulated deficit. Future losses are
possible. As of March 31, 2005, our accumulated deficit was approximately $34,203,000. We had a net loss of
$2,009,000 for the three months ended March 31, 2005. We had net income (loss) of ($3,035,000),
$457,000 and ($17,110,000) for the years ended December 31, 2002, 2003 and 2004, respectively. We
may not achieve or maintain profitability in the future, and further losses may arise. For example, during the year ended December 31, 2004, our total costs and expenses increased by an
amount greater than the increase in revenues, compared to the year ended December 31, 2003. There
can be no assurance that our future revenue growth, if any, will be greater than the growth of our
costs and expenses. If the increase in our total costs and expenses continues to be greater than
any increase in our revenues, we will not be profitable. We have invested substantial resources into the sales and marketing of the ON-Q PainBuster. If this
product does not achieve significant clinical acceptance or if our direct sales strategy is not
successful, our financial condition and operating results will be adversely affected. Our current strategy assumes that the ON-Q PainBuster will be used in a significant number of
surgical cases, ultimately becoming the standard of care for many common procedures. We have
invested, and continue to invest, a substantial portion of our resources into the establishment of
a direct sales force for the sales and marketing of ON-Q. During the year ended December 31,
2004, we invested approximately $39,500,000 in the sales and marketing of ON-Q. A failure of ON-Q
to achieve and maintain a significant market presence, or the failure to successfully implement our
direct sales strategy, will have a material adverse effect on our financial condition and results
of operations. Our customers frequently receive reimbursement from private insurers and governmental agencies. Any
change in the overall reimbursement system may adversely impact our business. The health care reimbursement system is in a constant state of change. Changes often create
financial incentives and disincentives that encourage or discourage the use of a particular type of
product, therapy or clinical procedure. Market acceptance and sales of our products may be
adversely affected by changes or trends within the reimbursement system. Changes to the health care
system that favor technologies other than ours or that reduce reimbursements to providers or
treatment facilities that use our products may adversely affect our ability to sell our products
profitably. 15




---



##### Table of Contents



Hospitals, alternate care site providers and physicians are heavily dependent on payment for their
services by private insurers and governmental agencies. Changes in the reimbursement system could
adversely affect our participation in the industry. Our products fall into the general category of
infusion devices and related disposable products with regard to reimbursement issues. Except for
payments made to our InfuSystem subsidiary, the majority of reimbursements are not paid directly to
us. Rather, health care providers will often request that their patients health insurance
providers provide them with some form of reimbursement for the disposables that are consumed in the
patients therapy. We believe that the current trend in the insurance industry (both private and governmental) has
been to eliminate cost-based reimbursement and to move towards fixed or limited fees for service,
thereby encouraging health care providers to use the lowest cost method of delivering medications.
This trend may discourage the use of our products, create downward pressure on our average prices,
and, ultimately, negatively affect our revenues. Changes in reimbursement rates may adversely impact InfuSystems revenues. InfuSystem depends primarily on third-party reimbursement for the collection of its revenues.
InfuSystem is paid directly by private insurers and governmental agencies, often on a fixed fee
basis, for infusion services provided by InfuSystem to patients. InfuSystems revenues comprised
28% of our consolidated revenues for the three months ended March 31, 2005. If the average fees
allowable by private insurers or governmental agencies were reduced, the negative impact on
revenues of InfuSystem could have a material adverse effect on our financial condition and results
of operations. Changes in reimbursement rates may adversely impact the revenue that we earn from our developing
billing strategy for ON-Q. Historically, we have charged health care providers for each ON-Q unit that they purchase from us.
Recently, we, through our InfuSystem subsidiary, have begun to bill private insurers for the use of
ON-Q in ambulatory surgery centers, rather than charging these centers for the purchase price of
each ON-Q unit. If this sales strategy is successful, we expect to increase our use of this sales
strategy for ambulatory surgery centers. Any reduction in the average fees allowable by private
insurers for the use of ON-Q in ambulatory surgery centers could negatively affect our ability to
generate revenue from the centers and this could have a material adverse effect on our financial
condition and results of operations. Our products are highly regulated by a number of governmental agencies. Any changes to the existing
rules and regulations of these agencies may adversely impact our ability to manufacture and market
our products. Our activities are regulated by the Food, Drug and Cosmetic Act. Under the Food, Drug and Cosmetic
Act, we are required, among other matters, to register our facilities and to list our devices with
the FDA, to file notice of our intent to market certain new products under Section 510(K) of the
Food, Drug and Cosmetic Act, to track the location of certain of our products, and to report any
incidents of death or serious injury relating to our products. If we fail to comply with any of
these regulations, or if the FDA subsequently disagrees with the manner in which we sought to
comply with these regulations, we could be subjected to substantial civil and criminal penalties
and a recall, seizure, or injunction with respect to the manufacture or sale of our products. Each state also has similar regulations. For example, in California, we are subject to annual
production-site inspections in order to maintain our manufacturing license. State regulations also
specify standards for the storage and handling of certain chemicals and disposal of their wastes.
We are also required to comply with federal, state, and local environmental laws. Our failure to
comply with any of these laws could expose us to material liabilities. Products intended for export are subject to additional regulations, including compliance with ISO
9001 and ISO 13485. The Company received ISO 9001 certification in May 1995 and ISO 13485
certification in July 2000, which indicate that I-Flows products meet specified uniform standards
of quality and testing. The Company was also granted permission to use the CE mark on its products,
which reflects approval of the Companys products for export into the 28 member countries of the
European Community. In December 1996, the operations of Block Medical, a wholly-owned subsidiary of
the Company, including its Mexico facility, were added to the Companys ISO certification and the
Company received permission to use the CE mark on the products manufactured by Block Medical. 16




---



##### Table of Contents



Furthermore, federal, state, local or foreign governments may enact new laws, rules and regulations
that may adversely impact our ability to manufacture and market infusion devices by, for example,
increasing our costs. Any impairment of our ability to market our infusion devices or other
products could have a material adverse effect on our financial condition and results of operations. We may need to raise additional capital in the future to fund our operations. We may be unable to
raise funds when needed or on acceptable terms. During three months ended March 31, 2005, our operating activities used cash of $2,857,000 and our
investing activities provided cash of $9,830,000. As of March 31, 2005, we had cash on hand of
$17,277,000, short-term investments of $21,721,000 and net accounts receivable of $16,843,000. We
believe our current funds, together with possible additional borrowings on our existing lines of
credit and other bank loans, are sufficient to provide for our projected needs to maintain
operations for at least the next 12 months. This estimate, however, is based on assumptions that
may prove to be wrong. If our assumptions are wrong or if we experience further losses, we may be
required to reduce our operations or seek additional financing. Any additional equity financings may be dilutive to our existing stockholders and involve the
issuance of securities that may have rights, preferences or privileges senior to those of our
current stockholders. A debt financing, if available, may involve restrictive covenants on our
business that could limit our operational and financial flexibility, and the amount of debt
incurred could make us more vulnerable to economic downturns or operational difficulties and limit
our ability to compete. Furthermore, financing may not be available when needed and may not be on
terms acceptable to us. Our compliance with laws frequently involves our subjective judgment. If we are wrong in any of our
interpretations of the laws, we could be subjected to substantial penalties for noncompliance. In the ordinary course of business, management frequently makes subjective judgments with respect
to complying with the Food, Drug and Cosmetic Act, as well as other applicable state, local and
foreign laws. If any of these regulatory agencies disagrees with our interpretation of, or objects
to the manner in which we have attempted to comply with, the applicable law, we could be subjected
to substantial civil and criminal penalties and a recall, seizure or injunction with respect to the
manufacture or sale of our products. These types of actions against us or our products could have a
material adverse effect on our financial condition and results of operations. Our intangible assets are subject to potential impairment charges that could adversely affect our
results of operations. As of March 31, 2005, $2,639,000 of our assets consisted of goodwill, an intangible asset acquired
through the acquisition of our wholly owned subsidiary, InfuSystem, Inc. (InfuSystem). The
determination of the value of such intangible assets requires management to make estimates and
assumptions that affect our financial statements. For example, we review the recoverability of the
carrying value of goodwill on an annual basis or more frequently if an event occurs or
circumstances change to indicate that an impairment of goodwill has possibly occurred. We compare
fair value of our reporting units to book value, as well as consider other factors, to determine
whether or not any potential impairment of goodwill exists. In fiscal year 2002, as a result of the
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets(SFAS 142), effective January 1, 2002, we wrote-off $3,474,000 of goodwill related to past
acquisitions other than InfuSystem. We cannot guarantee that there will be no additional impairment
in the future related to InfuSystem or other acquisitions we may make in the future. Any impairment
charge will adversely affect our results of operations. Our industry is intensely competitive and changes rapidly. If we are unable to maintain a
technological lead over our competitors, our business operations will suffer. The drug infusion industry is highly competitive. We compete in this industry based primarily on
price, service and product performance. Some of our competitors have significantly greater
resources than we do for research and development, manufacturing, marketing and sales. As a result,
they may be better able to compete for market share, even in areas in which our products may be
superior. We continue our efforts to introduce clinically effective, cost-efficient products into
the market, but the industry is subject to technological changes and we may not be able to 17




---



##### Table of Contents



maintain any existing technological advantage long enough to establish our products and to sustain
profitability. If we are unable to effectively compete in our market, our financial condition and
results of operations will materially suffer. We rely on independent suppliers for parts and materials necessary to assemble our products. Any
delay or disruption in the supply of parts may prevent us from manufacturing our products and
negatively impact our operations. Although we perform final assembly and testing of our completed infusion systems, certain component
parts, as well as molded products, are obtained from outside vendors based on our specifications.
The loss or breakdown of our relationships with these outside vendors could subject us to
substantial delays in the delivery of our products to customers. Significant delays in the delivery
of our products could result in possible cancellation of orders and the loss of customers.
Furthermore, we have numerous suppliers of components and materials that are sole-source suppliers.
Because these suppliers are the only vendors with which we have a relationship for that particular
component or material, we may be unable to produce and sell products if one of these suppliers
becomes unwilling or unable to deliver components or materials meeting our specifications. Our
inability to manufacture and sell products to meet delivery schedules could have a material adverse
effect on our reputation in the industry, as well as our financial condition and results of
operations. If one of our products proves to be defective or is misused by a health care practitioner or
patient, we may be subject to claims of liability that could adversely affect our financial
condition and the results of our operations. A defect in the design or manufacture of our products, or a failure of our products to perform for
the use that we specify, could have a material adverse effect on our reputation in the industry and
subject us to claims of liability for injuries and otherwise. Misuse of our product by a
practitioner or patient that results in injury could similarly subject us to claims of liability.
We currently have in place product liability insurance in the amount of $10,000,000 for liability
losses, including legal defense costs. Any substantial underinsured loss would have a material
adverse effect on our financial condition and results of operations. Furthermore, any impairment of
our reputation could have a material adverse effect on our sales, revenues, and prospects for
future business. We are dependent on our proprietary technology and the patents, copyrights, and trademarks that
protect our products. If competitors are able to independently develop products of equivalent or
superior capabilities, the results of our operations could be adversely impacted. We rely substantially on proprietary technology and capabilities. We have filed patent applications
in the United States for substantially all of our products. As of December 31, 2004, we held
approximately 40 patents, including patents that relate to both the ON-Q PainBuster and the Soaker
Catheter. We have also filed for intellectual property rights protection in all foreign countries
in which we currently derive significant revenue. Our patents generally expire between 2009 and
2015, with the most significant patents expiring in 2009. Without sufficient intellectual property
protection, our competitors may be able to sell products identical to ours and cause a downward
pressure on the selling price of our products. There can be no assurance that pending patent or trademark applications will be approved or that
any patents will provide competitive advantages for our products or will not be challenged or
circumvented by competitors. Our competitors may also independently develop products with
equivalent or superior capabilities or otherwise obtain access to our capabilities. In addition,
we may become involved in potential litigation involving our proprietary technology, such as
patents or copyrights infringement. Any negative outcome from such proceedings may have a material
adverse effect on our financial condition and results of operations. We manufacture the majority of our products in Mexico. Any difficulties or disruptions in the
operation of our plant may adversely impact our operations. The majority of our products are manufactured by our Block Medical subsidiary. We may encounter
difficulties as a result of the uncertainties inherent in doing business in a foreign country,
including economic, political and regulatory uncertainties. Our stockholders equity may also be
adversely affected by unfavorable translation adjustments arising from differences in exchange
rates from period to period. In addition, we have not and currently 18




---



##### Table of Contents



do not hedge or enter into derivative contracts in an effort to address foreign exchange risk. If
there are difficulties or problems in our Mexico facility, or other disruptions in our production
and delivery process affecting product availability, these difficulties could have a material
adverse effect on our business, financial condition and results of operations. A significant portion of our sales is to customers in foreign countries. We may lose revenues,
market share, and profits due to exchange rate fluctuations and other factors related to our
foreign business. For the three months ended March 31, 2005, sales to customers in foreign countries comprised
approximately 13% of our revenues. Our foreign business is subject to economic, political and
regulatory uncertainties and risks that are unique to each area of the world. Fluctuations in
exchange rates may also affect the prices that our foreign customers are willing to pay, and may
put us at a price disadvantage compared to other competitors. Potentially volatile shifts in
exchange rates may negatively affect our financial condition and operations. We currently rely on two distributors for a significant percentage of our sales. If our
relationship with these distributors were to deteriorate, our sales may materially decline. For the three months ended March 31, 2005, sales to B. Braun Medical S.A. and B. Braun Medical,
Inc. accounted for 7% and 6% of the Companys total revenues, respectively. Any deterioration in our relationship with B. Braun Medical S.A. or B. Braun Medical,
Inc. could cause a material decline in our overall sales and a material adverse effect on our
business. The preparation of our financial statements in accordance with accounting principles generally
accepted in the United States requires us to make estimates, judgments, and assumptions that may
ultimately prove to be incorrect. The accounting estimates and judgments that management must make in the ordinary course of business
affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the periods presented. If the underlying
estimates are ultimately proven to be incorrect, subsequent adjustments resulting from errors could
have a material adverse effect on our operating results for the period or periods in which the
change is identified. Additionally, subsequent adjustments from errors could require us to restate
our financial statements. Restating financial statements could result in a material decline in the
price of our stock. Failure to achieve and maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on the Companys business and its stock
price. Section 404 of the Sarbanes-Oxley Act requires the Company to evaluate annually the effectiveness
of its internal controls over financial reporting as of the end of each fiscal year beginning in
2004 and to include a management report assessing the effectiveness of its internal controls over
financial reporting in all annual reports beginning with the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2004. Section 404 also requires the Companys independent
auditor to attest to, and to report on, managements assessment of the Companys internal controls
over financial reporting. The Companys management evaluated its internal controls over financial
reporting as of December 31, 2004 in order to comply with Section 404 and concluded that its
internal controls over financial reporting were not effective. See Item 9A of the Companys Annual Report
on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange
Commission on March 16, 2005 for a discussion of the material weakness identified by management. In
addition, the Companys independent registered public accounting
firm expressed an adverse opinion on
the effectiveness of the Companys internal controls over financial reporting as of December 31,
2004. If the Company fails to implement adequate internal controls, as such standards are modified,
supplemented or amended from time to time, the Company cannot assure you that it will be able to
conclude in the future that it has effective internal controls over financial reporting in
accordance with Section 404. If the Company fails to achieve and maintain a system of effective
internal controls, it could have a material adverse effect on the Companys business and its stock
price. 19




---



##### Table of Contents



RISK FACTORS RELATED SPECIFICALLY TO OUR COMMON STOCK The average trading volume for our common stock is relatively low when compared to most larger
companies. As a result, there may be less liquidity and more volatility associated with our common
stock, even if our business is doing well. Our common stock has been traded publicly since February 13, 1990, and since then has had only a
few market makers. The average daily trading volume for our shares during the month of April 2005
was approximately 620,000 shares. There can be no assurance that a more active or established
trading market for our common stock will develop or, if developed, will be maintained. The market price of our common stock has been and is likely to continue to be highly volatile.
Market prices for securities of biotechnology and medical device companies, including ours, have
historically been highly volatile, and the market has from time to time experienced significant
price and volume fluctuations that appear unrelated to the operating performance of particular
companies. The following factors, among others, can have a significant effect on the market price
of our securities:  
    announcements of technological innovations, new products, or clinical studies by us or others;
    government regulation;
    changes in the coverage of reimbursement rates of private insurers and governmental agencies;
    developments in patent or other proprietary rights;
    future sales of substantial amounts of our common stock by existing stockholders or by us; and
    comments by securities analysts and general market conditions. The realization of any of the risks described in these Risk Factors could also have a negative
effect on the market price of our common stock. Future sales of our common stock by existing stockholders could negatively affect the market price
of our stock and make it more difficult for us to sell stock in the future. Sales of our common stock in the public market, or the perception that such sales could occur,
could result in a decline in the market price of our common stock and make it more difficult for us
to complete future equity financings. A substantial number of shares of our common stock and shares
of common stock subject to outstanding options and warrants may be resold pursuant to currently
effective registration statements. As of March 31, 2005, there were:  
    22,216,000 shares of common stock that have been issued in registered offerings and are
freely tradable in the public markets;
    225,000 shares of common stock underlying outstanding warrants which have been registered
for resale under a Registration Statement on Form S-3 (Registration No. 333-109096);
    124,000 shares of vested and unvested restricted common stock that have been issued under
our restricted stock plans; and
    an aggregate of 4,363,000 shares of common stock that may be issued on the exercise of
stock options outstanding under our equity incentive plans. We cannot estimate the number of shares of common stock that may actually be resold in the public
market because this will depend on the market price for our common stock, the individual
circumstances of the sellers, and other factors. If stockholders sell large portions of their
holdings in a relatively short time, for liquidity or other reasons, the market price of our common
stock could decline significantly. 20




---



##### Table of Contents



In the future, our common stock may be removed from listing on the Nasdaq quotation system and may
not qualify for listing on any stock exchange, in which case it may be difficult to find a market
in our stock. If our common stock is no longer traded on a national trading market, it may be more difficult for
you to sell shares that you own, and the price of our common stock would likely be negatively
affected. Currently, our common stock is traded on the Nasdaq National Market. Nasdaq has a number
of continued listing requirements, including a minimum trading price requirement. Failure to comply
with any Nasdaq continued listing requirement could cause our common stock to be removed from
listing on Nasdaq. Should this occur, we may not be able to secure listing on other exchanges or
quotation systems, and this would have a material adverse effect on the price and liquidity of our
common stock. Anti-takeover devices may prevent a sale, or changes in the management, of the Company. We have in place several anti-takeover devices, including a stockholder rights plan, that may have
the effect of delaying or preventing a sale, or changes in the management, of the Company. For
example, one anti-takeover device provides for a board of directors that is separated into three
classes, with their terms in office staggered over three year periods. This has the effect of
delaying a change in control of the board of directors without the cooperation of the incumbent
board. In addition, our bylaws do not allow stockholders to call a special meeting of stockholders
or act by written consent, and also require stockholders to give written notice of any proposal or
director nomination to us within a specified period of time prior to any stockholder meeting. We may also issue shares of preferred stock without stockholder approval and on terms that our
board of directors may determine in the future. The issuance of preferred stock could have the
effect of making it more difficult for a third party to acquire a majority of our outstanding
stock, and the holders of such preferred stock could have voting, dividend, liquidation, and other
rights superior to those of holders of our common stock. We do not pay dividends and this may negatively affect the price of our stock. The Company has not paid dividends on its common stock and does not anticipate paying dividends on
its common stock in the foreseeable future. The future price of our common stock may be depressed
because we do not pay dividends. 
  Item 6.
    EXHIBITS The Exhibit Index included herewith is incorporated herein. 21




---



##### Table of Contents



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. I-FLOW CORPORATIONDate:  May 9, 2005
    /s/Donald M. EarhartDonald M. EarhartPresident, Chairman and Chief Executive Officer
(On behalf of the registrant) Date: May 9, 2005
    /s/James R. TalevichJames R. TalevichChief Financial Officer
(As principal financial officer) 22




---



##### Table of Contents



INDEX TO EXHIBITS Exhibit No.
    
    Exhibit2.1
    
    Stock Purchase Agreement, dated October 28, 2004, by and between Integra LifeSciences
Corporation and I-Flow Corporation (1)2.2
    
    Merger Agreement, dated July 27, 2001, by and between I-Flow Corporation, a Delaware
corporation, and I-Flow Corporation, a California corporation (2)2.3
    
    Agreement and Plan of Merger, dated January 13, 2000, by and among I-Flow Corporation, Spinal
Acquisition Corp., Spinal Specialties, Inc. and the Shareholders of Spinal Specialties, Inc.
(3)2.4
    
    Agreement and Plan of Merger, dated February 9, 1998, by and among I-Flow Corporation, I-Flow
Subsidiary, Inc., Venture Medical, Inc., InfuSystems II, Inc. and the Shareholders of Venture
Medical, Inc. and InfuSystems II, Inc. (4)2.5
    
    Agreement for Purchase and Sale of Assets, dated July 3, 1996, by and among I-Flow Corporation,
Block Medical, Inc. and Hillenbrand Industries, Inc. (5)3.1
    
    Amended and Restated Certificate of Incorporation of I-Flow Corporation, a Delaware Corporation
(6)3.2
    
    Bylaws of I-Flow Corporation, a Delaware Corporation (2)3.3
    
    Certificate of Designation Regarding Series A Junior Participating Cumulative Preferred Stock
(7)4.1
    
    Specimen Common Stock Certificate (20)4.2
    
    Warrant Agreement, dated February 13, 1990, between the Company and American Stock Transfer &
Trust Company, as warrant agent (9)4.3
    
    Rights Agreement, dated as of March 8, 2002, by and between I-Flow Corporation and American
Stock Transfer & Trust Company, as rights agent, which includes, as Exhibit A, the Form of
Rights Certificate, the Form of Assignment and the Form of Election to Purchase (7)4.4
    
    Warrant to Purchase Stock, dated May 8, 2003, between I-Flow Corporation and Silicon Valley
Bank (10)4.5
    
    Registration Rights Agreement, dated May 8, 2003, between I-Flow Corporation and Silicon Valley
Bank (10)4.6
    
    Form of Warrant, dated
September 4, 2003 (1)4.7
    
    Form of Registration Rights Agreement, dated September 4, 2003 (1)10.1
    
    Form of Securities Purchase Agreement, dated September 2, 2003 (1)10.2
    
    I-Flow Corporation Amended and Restated 2001 Equity Incentive Plan (11) *10.3
    
    2003 Restricted Stock Plan of I-Flow Corporation (10)*10.4
    
    2001 Restricted Stock Plan of I-Flow Corporation (12)*10.5
    
    1996 Stock Incentive Plan (13)*10.6
    
    1992 Non-Employee Director Stock Option Plan (14)*10.7
    
    1987-1988 Incentive Stock Option Plan and Non-Statutory Stock Option Plan, restated as of March
23, 1992 (15)*10.8
    
    License and Transfer Agreement with SoloPak Pharmaceuticals Inc., dated March 6, 1996 (16)10.9
    
    Summary of the terms of the COIP for 2005 (23)10.10
    
    Addendum to manufacturing plant lease agreement (23)10.11
    
    Lease Agreement between Industrial Developments International, Inc. as Landlord and I-Flow
Corporation as Tenant dated April 14, 1997 (17)10.12
    
    Block Medical de Mexico lease agreement dated December 7, 1999 (22)10.13
    
    Amendment to Loan Agreement between Silicon Valley Bank and I-Flow Corporation dated January
30, 2004 (22)10.14
    
    Amended and Restated Loan and Security Agreement between Silicon Valley Bank and I-Flow
Corporation dated May 8, 2003 (10)10.15
    
    Loan Agreement, dated March 31, 2000, by and among InfuSystem, Inc., I-Flow Corporation and Old
Kent Bank (10)10.16
    
    First Amendment to Loan Agreement, dated April 1, 2002, by and among InfuSystem, Inc., I-Flow
Corporation and Fifth Third Bank (formerly Old Kent Bank) (10)10.17
    
    Second Amendment to Loan Agreement, dated April 1, 2003, by and among InfuSystem, Inc., I-Flow
Corporation and Fifth Third Bank (formerly Old Kent Bank) (10)




---



##### Table of Contents



Exhibit No.
    
    Exhibit10.18
    
    Second Amended and Restated Promissory Note, dated April 1, 2004, between InfuSystem, Inc. and
Fifth Third Bank (formerly Old Kent Bank) (10)10.19
    
    Promissory Note with Donald M. Earhart dated June 15, 2001 (8)*10.20
    
    Underwriting Agreement, dated April 13, 2004 (21)10.21
    
    Employment Agreement with Donald M. Earhart, dated May 16, 1990 (18)*10.22
    
    Amendment No. 1 to Employment Agreement with Donald M. Earhart, dated June 21, 2001 (8)*10.23
    
    Amended and Restated Employment Agreement with James J. Dal Porto, dated June 21, 2001 (8)*10.24
    
    Employment Agreement with James R. Talevich, dated June 30, 2000 (19) *10.25
    
    Agreement Re: Change in Control with Donald M. Earhart dated June 21, 2001 (8)*10.26
    
    Agreement Re: Change in Control with James J. Dal Porto dated June 21, 2001 (8)*10.27
    
    Agreement Re: Change in Control with James R. Talevich, dated June 21, 2001 (8)*10.28
    
    Amendment to Loan Agreement, dated
as of April 30, 2005, between I-Flow Corporation and Silicon Valley
Bank (24)31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
   *
    
    Management contract or compensatory plan or arrangement required
to be filed as an exhibit pursuant to applicable rules of the
Securities and Exchange Commission.(1)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003.(2)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Current Report on Form 8-K filed on August 3, 2001.(3)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000.(4)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Current Report on Form 8-K/A filed on March 6,
1998.(5)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Current Report on Form 8-K dated July 22, 1996.(6)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Current Report on Form 8-K dated May 29, 2002.(7)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Current Report on Form 8-K filed on March 13, 2002.(8)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001.(9)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Annual Report on Form 10-K for the fiscal year
ended September 30, 1990.(10)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003.(11)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004.(12)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.(13)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Definitive Proxy Statement filed on March 27, 1996.(14)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 1991.(15)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Post-Effective Amendment to its Registration
Statement (No. 33-41207) filed on October 27, 1992.(16)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.(17)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Current Report on Form 8-K dated April 14, 1997.(18)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Annual Report on Form 10-K for the fiscal year
ended September 30, 1990.(19)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.




---



##### Table of Contents



(20)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002.(21)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Current Report on Form 8-K filed on April 14, 2004.(22)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2003.(23)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2004.(24)
    
    Incorporated by reference to exhibit with this title filed with
the Companys Current Report on Form 8-K filed on May 9, 2005.