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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549




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FORM 10-Q

(Mark One)

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[ X ] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|      |  |                                                                                         
|      |  | For the quarterly period ended   September 30, 2003                                     
|      |  |                                                                                         
|[  ]  |  | 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:   0-18338

I-Flow Corporation

(Exact Name of Registrant as Specified in Its Charter)


|                                                 |  |                                     
|------------------------------------------------ |  | ------------------------------------
|Delaware                                         |  | 33-0121984                          
|                                                 |  |                                     
|(State or Other Jurisdiction of Incorporation or |  | (I.R.S. Employer Identification No.)
|Organization)                                    |  |                                     
|                                                
|20202 Windrow Drive, Lake Forest, CA             |  | 92630                               
|                                                 |  |                                     
|(Address of Principal Executive Offices)         |  | (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 [ X ] No [  ]

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

As of November 6, 2003, there were 18,108,633 shares of common stock
outstanding.





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TABLE OF CONTENTS



|                             |                                                                                               |                                                                              |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- |  |  |  |  |  | 
|                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                                       
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
|                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                             
|                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                        
|                             | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                             | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                             | Item 4. CONTROLS AND PROCEDURES                                                              
|PART II  - OTHER INFORMATION
|                             | Item 1. Legal Proceedings                                                                    
|                             | Item 2. Changes in Securities and Use of Proceeds                                            
|                             | Item 5. Other Information                                                                    
|                             | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                  
|INDEX TO EXHIBITS           
|EXHIBIT 2.2                 
|EXHIBIT 4.7                 
|EXHIBIT 4.8                 
|EXHIBIT 10.25               
|EXHIBIT 31.1                
|EXHIBIT 31.2                
|EXHIBIT 32.1                



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##### Table of Contents



I-FLOW CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2003

Table of Contents

|                              |                                                                                               |                                                                                                                                                     |    |      |   | 
|----------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                              |                                                                                               |                                                                                                                                                     |    | Page
|                              |                                                                                               |                                                                                                                                                     |    |     
|Part I: Financial Information |                                                                                               |                                                                                                                                                     |    |     
|                              | Item 1. Financial Statements (Unaudited)                                                      |                                                                                                                                                     |    |      |  
|                              |                                                                                               | Condensed Consolidated Balance Sheets as of September 30, 2003 and
December 31, 2002                                                                |    |      | 1 | 
|                              |                                                                                               | Condensed Consolidated Statements of Operations and Comprehensive Operations
for the three and nine-month periods ended September 30, 2003 and 2002 |    |      | 2 | 
|                              |                                                                                               | Condensed Consolidated Statements of Cash Flows for the nine-month periods
ended September 30, 2003 and 2002                                        |    |      | 3 | 
|                              |                                                                                               | Notes to Condensed Consolidated Financial Statements                                                                                                |    |      | 4 | 
|                              | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                                                     |    | 11   |  
|                              | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                                                                                     |    | 16   |  
|                              | Item 4. Controls and Procedures                                                               |                                                                                                                                                     |    | 16   |  
|Part II: Other Information    |                                                                                               |                                                                                                                                                     |    |     
|                              | Item 1. Legal Proceedings                                                                     |                                                                                                                                                     |    | 17   |  
|                              | Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                                                     |    | 17   |  
|                              | Item 5. Other Information                                                                     |                                                                                                                                                     |    | 18   |  
|                              | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                                                     |    | 24   |  
|Signatures                    |                                                                                               |                                                                                                                                                     | 28 |     





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##### Table of Contents






I-FLOW CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |              |   |             |            | 
|------------------------------------ | --------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | - | ------------- | ---------- | ------------ | - | ----------- | ---------- | 
|                                     |                 |                                                                                                                                                                                  |                           |   | September 30, |            | December 31,
|                                     |                 |                                                                                                                                                                                  |                           |   | 2003          |            | 2002        
|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |             
|ASSETS                               |                 |                                                                                                                                                                                  |                           |   |               |            |              |  
|                                     | CURRENT ASSETS: |                                                                                                                                                                                  |                           |   |               |            |              |   |            
|                                     |                 | Cash and cash equivalents                                                                                                                                                        |                           | $ | 11,269,000    |            |              | $ | 1,700,000   |           
|                                     |                 | Accounts receivable, net                                                                                                                                                         |                           |   | 11,860,000    |            |              |   | 10,483,000  |           
|                                     |                 | Inventories, net                                                                                                                                                                 |                           |   | 8,355,000     |            |              |   | 7,046,000   |           
|                                     |                 | Prepaid expenses and other current assets                                                                                                                                        |                           |   | 860,000       |            |              |   | 477,000     |           
|                                     |                 | Deferred taxes                                                                                                                                                                   |                           |   | 2,541,000     |            |              |   | 2,541,000   |           
|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |              |   |             |           
|                                     |                 |                                                                                                                                                                                  | Total current assets      |   |               | 34,885,000 |              |   |             | 22,247,000 | 
|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |              |   |             |           
|                                     |                 | Property, net                                                                                                                                                                    |                           |   | 6,829,000     |            |              |   | 5,626,000   |           
|                                     |                 | Goodwill                                                                                                                                                                         |                           |   | 2,639,000     |            |              |   | 2,639,000   |           
|                                     |                 | Other intangible assets, net                                                                                                                                                     |                           |   | 1,194,000     |            |              |   | 1,134,000   |           
|                                     |                 | Other long-term assets                                                                                                                                                           |                           |   | 174,000       |            |              |   | 155,000     |           
|                                     |                 | Deferred taxes                                                                                                                                                                   |                           |   | 1,560,000     |            |              |   | 1,560,000   |           
|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |              |   |             |           
|TOTAL                                |                 | $                                                                                                                                                                                | 47,281,000                |   |               | $          | 33,361,000   |  
|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |              |   |             |           
|LIABILITIES AND STOCKHOLDERS EQUITY |                 |                                                                                                                                                                                  |                           |   |               |            |              |  
|CURRENT LIABILITIES:                 |                 |                                                                                                                                                                                  |                           |   |               |            |              |  
|                                     |                 | Accounts payable                                                                                                                                                                 |                           | $ | 3,605,000     |            |              | $ | 3,898,000   |           
|                                     |                 | Accrued payroll and related expenses                                                                                                                                             |                           |   | 2,524,000     |            |              |   | 1,349,000   |           
|                                     |                 | Income taxes payable                                                                                                                                                             |                           |   | 228,000       |            |              |   | 507,000     |           
|                                     |                 | Current portion of long-term debt                                                                                                                                                |                           |   | 5,000         |            |              |   | 77,000      |           
|                                     |                 | Other liabilities                                                                                                                                                                |                           |   | 303,000       |            |              |   | 59,000      |           
|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |              |   |             |           
|                                     |                 |                                                                                                                                                                                  | Total current liabilities |   |               | 6,665,000  |              |   |             | 5,890,000  | 
|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |              |   |             |           
|LONG-TERM DEBT, less current portion |                 |                                                                                                                                                                                  |                          |   |               |            | 1,000        |  
|COMMITMENTS AND CONTINGENCIES        |                 |                                                                                                                                                                                  |                           |   |               |            |              |  
|STOCKHOLDERS 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; 17,938,923 and 15,473,138 shares
issued and outstanding at September 30, 2003
and December 31, 2002, respectively |                           |   | 56,685,000    |            |              |   | 43,106,000  |           
|                                     |                 | Accumulated other comprehensive loss                                                                                                                                             |                           |   | (181,000      | )          |              |   | (95,000     | )         
|                                     |                 | Accumulated deficit                                                                                                                                                              |                           |   | (15,888,000   | )          |              |   | (15,541,000 | )         
|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |              |   |             |           
|                                     |                 |                                                                                                                                                                                  | Net stockholders equity  |   |               | 40,616,000 |              |   |             | 27,470,000 | 
|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |              |   |             |           
|TOTAL                                |                 | $                                                                                                                                                                                | 47,281,000                |   |               | $          | 33,361,000   |  
|                                     |                 |                                                                                                                                                                                  |                           |   |               |            |              |   |             |           

See accompanying notes to unaudited condensed consolidated financial statements.

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I-FLOW CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(Unaudited)

|                                                                                          |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |            |            |            |  
|----------------------------------------------------------------------------------------- | -------------------------- | ------------------------ | --------------------------------- | --------- | ------------------ | -------- | ----------------- | --------- | --------- | ------- | ---------- | ---------- | ---------- | -------- | ---------- | ---------- | ---------- | ---------- | -
|                                                                                          |                            |                          |                                   |           | Three Months Ended |          | Nine Months Ended
|                                                                                          |                            |                          |                                   |           | September 30,      |          | September 30,    
|                                                                                          |                            |                          |                                   |           |                    |          |                  
|                                                                                          |                            |                          |                                   |           | 2003               |          | 2002              |           | 2003      |         | 2002      
|                                                                                          |                            |                          |                                   |           |                    |          |                   |           |           |         |           
|Net revenues                                                                              |                            | $                        | 12,985,000                        |           |                    | $        | 9,639,000         |           |           | $       | 36,712,000 |            |            | $        | 27,694,000 |           
|Costs and expenses:                                                                       |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|                                                                                          | Cost of sales              |                          |                                   | 5,057,000 |                    |          |                   | 3,711,000 |           |         |            | 14,029,000 |            |          |            | 10,959,000 |           
|                                                                                          | Selling and marketing      |                          |                                   | 5,498,000 |                    |          |                   | 3,103,000 |           |         |            | 14,273,000 |            |          |            | 8,409,000  |           
|                                                                                          | General and administrative |                          |                                   | 2,470,000 |                    |          |                   | 2,106,000 |           |         |            | 7,363,000  |            |          |            | 6,116,000  |           
|                                                                                          | Product development        |                          |                                   | 589,000   |                    |          |                   | 542,000   |           |         |            | 1,611,000  |            |          |            | 1,633,000  |           
|                                                                                          |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|                                                                                          |                            | Total costs and expenses |                                   |           | 13,614,000         |          |                   |           | 9,462,000 |         |            |            | 37,276,000 |          |            |            | 27,117,000 |           
|Operating income (loss)                                                                   |                            |                          | (629,000                          | )         |                    |          | 177,000           |           |           |         | (564,000   | )          |            |          | 577,000    |           
|Interest expense (income), net                                                            |                            |                          | 41,000                            |           |                    |          |                  |           |           |         | 38,000     |            |            |          | (5,000     | )         
|Income tax provision (benefit)                                                            |                            |                          | (284,000                          | )         |                    |          | 70,000            |           |           |         | (255,000   | )          |            |          | 233,000    |           
|                                                                                          |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|Net income (loss) before cumulative effect of a change in
accounting principle            |                            |                          | (386,000                          | )         |                    |          | 107,000           |           |           |         | (347,000   | )          |            |          | 349,000    |           
|Cumulative effect of a change in accounting principle:                                    |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|                                                                                          | Goodwill impairment        |                          |                                   |          |                    |          |                   |          |           |         |            |           |            |          |            | (3,474,000 | )         
|                                                                                          |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|Net income (loss)                                                                         |                            | $                        | (386,000                          | )         |                    | $        | 107,000           |           |           | $       | (347,000   | )          |            | $        | (3,125,000 | )         
|                                                                                          |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|Net income (loss) per share, before cumulative effect of a
change in accounting principle |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|                                                                                          |                            |                          | Basic                             |           | $                  | (0.02    | )                 |           | $         | 0.01    |            |            | $          | (0.02    | )          |            | $          | 0.02       |  
|                                                                                          |                            |                          | Diluted                           |           | $                  | (0.02    | )                 |           | $         | 0.01    |            |            | $          | (0.02    | )          |            | $          | 0.02       |  
|Loss per share from cumulative effect of a change in
accounting principle                 |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|                                                                                          |                            |                          | Basic                             |           | $                  |         |                   |           | $         |        |            |            | $          |         |            |            | $          | (0.22      | )
|                                                                                          |                            |                          | Diluted                           |           | $                  |         |                   |           | $         |        |            |            | $          |         |            |            | $          | (0.22      | )
|Net income (loss) per share                                                               |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|                                                                                          |                            |                          | Basic                             |           | $                  | (0.02    | )                 |           | $         | 0.01    |            |            | $          | (0.02    | )          |            | $          | (0.20      | )
|                                                                                          |                            |                          | Diluted                           |           | $                  | (0.02    | )                 |           | $         | 0.01    |            |            | $          | (0.02    | )          |            | $          | (0.20      | )
|Comprehensive Operations:                                                                 |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|                                                                                          |                            |                          | Net income (loss)                 |           | $                  | (386,000 | )                 |           | $         | 107,000 |            |            | $          | (347,000 | )          |            | $          | (3,125,000 | )
|                                                                                          |                            |                          | Foreign currency translation loss |           |                    | (28,000  | )                 |           |           | (18,000 | )          |            |            | (86,000  | )          |            |            | (81,000    | )
|                                                                                          |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           
|                                                                                          |                            |                          | Comprehensive income (loss)       |           | $                  | (414,000 | )                 |           | $         | 89,000  |            |            | $          | (433,000 | )          |            | $          | (3,206,000 | )
|                                                                                          |                            |                          |                                   |           |                    |          |                   |           |           |         |            |            |            |          |            |           

See accompanying notes to unaudited condensed consolidated financial statements.

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I-FLOW CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                                                          |                                                      |                                                        |            |                   |            |      |            |            |          |  
|----------------------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------------------ | ---------- | ----------------- | ---------- | ---- | ---------- | ---------- | -------- | -
|                                                                                          |                                                      |                                                        |            | Nine Months Ended
|                                                                                          |                                                      |                                                        |            | September 30,    
|                                                                                          |                                                      |                                                        |            |                  
|                                                                                          |                                                      |                                                        |            | 2003              |            | 2002
|                                                                                          |                                                      |                                                        |            |                   |            |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |                                                      |                                                        |            |                   |            |      |            |           
|Net loss                                                                                  |                                                      | $                                                      | (347,000   | )                 |            | $    | (3,125,000 | )         
|Adjustments to reconcile net loss
to net cash provided by (used in) operating activities: |                                                      |                                                        |            |                   |            |      |            |           
|                                                                                          | Depreciation and amortization                        |                                                        |            | 1,904,000         |            |      |            | 1,515,000  |         
|                                                                                          | Goodwill impairment                                  |                                                        |            |                  |            |      |            | 3,474,000  |         
|                                                                                          | Compensation expense related to stock option grants  |                                                        |            | 388,000           |            |      |            | 577,000    |         
|                                                                                          | Reduction
in allowance for doubtful accounts         |                                                        |            | (393,000          | )          |      |            | (407,000   | )       
|                                                                                          | Change in inventory obsolescence reserve             |                                                        |            | 146,000           |            |      |            | 56,000     |         
|                                                                                          | Changes in operating assets and liabilities:         |                                                        |            |                   |            |      |            |            |         
|                                                                                          |                                                      | Accounts receivable                                    |            |                   | (983,000   | )    |            |            | 431,000  |  
|                                                                                          |                                                      | Inventories                                            |            |                   | (1,455,000 | )    |            |            | (3,000   | )
|                                                                                          |                                                      | Prepaid expenses and other current assets              |            |                   | (368,000   | )    |            |            | (121,000 | )
|                                                                                          |                                                      | Accounts payable, accrued payroll and related expenses |            |                   | 900,000    |      |            |            | (30,000  | )
|                                                                                          |                                                      | Income taxes payable                                   |            |                   | (280,000   | )    |            |            | 184,000  |  
|                                                                                          |                                                      | Other liabilities                                      |            |                   | 251,000    |      |            |            | (21,000  | )
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           
|Net cash provided by (used in) operating activities                                       |                                                      |                                                        | (237,000   | )                 |            |      | 2,530,000  |           
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |                                                      |                                                        |            |                   |            |      |            |           
|                                                                                          | Property acquisitions                                |                                                        |            | (2,888,000        | )          |      |            | (1,865,000 | )       
|                                                                                          | Change in other assets                               |                                                        |            | (319,000          | )          |      |            | (350,000   | )       
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           
|Net cash used in investing activities                                                     |                                                      |                                                        | (3,207,000 | )                 |            |      | (2,215,000 | )         
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                     |                                                      |                                                        |            |                   |            |      |            |           
|                                                                                          | Revolving line of credit borrowings                  |                                                        |            | 1,000,000         |            |      |            |           |         
|                                                                                          | Revolving line of credit payments                    |                                                        |            | (1,000,000        | )          |      |            |           |         
|                                                                                          | Principal payments on notes payable                  |                                                        |            | (889,000          | )          |      |            | (186,000   | )       
|                                                                                          | Proceeds from issuance of notes payable              |                                                        |            | 816,000           |            |      |            |           |         
|                                                                                          | Proceeds from issuance of common stock, net          |                                                        |            | 11,630,000        |            |      |            |           |         
|                                                                                          | Proceeds from exercise of stock options and warrants |                                                        |            | 1,561,000         |            |      |            | 48,000     |         
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           
|Net cash provided by (used in) financing activities                                       |                                                      |                                                        | 13,118,000 |                   |            |      | (138,000   | )         
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           
|Effect of exchange rates on cash                                                          |                                                      |                                                        | (105,000   | )                 |            |      | (104,000   | )         
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                 |                                                      |                                                        | 9,569,000  |                   |            |      | 73,000     |           
|CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD                                          |                                                      |                                                        | 1,700,000  |                   |            |      | 2,033,000  |           
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                |                                                      | $                                                      | 11,269,000 |                   |            | $    | 2,106,000  |           
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                       |                                                      |                                                        |            |                   |            |      |            |           
|Interest paid                                                                             |                                                      | $                                                      | 53,000     |                   |            | $    | 11,000     |           
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           
|Income
taxes paid                                                                         |                                                      | $                                                      | 31,000     |                   |            | $    | 49,000     |           
|                                                                                          |                                                      |                                                        |            |                   |            |      |            |           

See accompanying notes to unaudited condensed consolidated financial statements.

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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, except for the goodwill impairment charge related to a
change in accounting principle discussed in Note 4 below) that, in the opinion
of management, are necessary to present fairly the financial position of I-Flow
Corporation and its subsidiaries (the Company) at September 30, 2003, the
results of its operations for the three and nine-month periods ended September
30, 2003 and 2002 and its cash flows for the nine months ended September 30,
2003 and 2002. 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 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 of the Company included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2002 filed with the Securities and
Exchange Commission on March 31, 2003.

New Accounting Pronouncements In June 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets(SFAS 142). SFAS 142
addresses the financial accounting and reporting requirements for acquired
goodwill and other intangible assets. The Company adopted the provisions of
SFAS 142 effective January 1, 2002. Under SFAS 142, the Company is no longer
required to amortize goodwill and other intangible assets with indefinite
lives. Instead, SFAS 142 requires that goodwill and intangible assets deemed
to have an indefinite useful life be reviewed for impairment upon adoption of
SFAS 142 and at least annually thereafter. See Note 4 to condensed
consolidated financial statements.

In August 2001, the FASB issued SFAS No. 143, Accounting for Obligations
Associated with the Retirement of Long-Lived Assets(SFAS 143). SFAS 143
establishes accounting standards for the recognition and measurement of an
asset retirement obligation and its associated asset retirement cost. It also
provides accounting guidance for legal obligations associated with the
retirement of tangible long-lived assets. SFAS 143 is effective for fiscal
years beginning after June 15, 2002, with early adoption permitted. The
Company adopted the provisions of SFAS 143 on January 1, 2003 and such adoption
did not have a material impact on its consolidated results of operations and
financial position.

In October 2001, the FASB issued SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS 144). SFAS 144 establishes a single
accounting model for the impairment or disposal of long-lived assets and new
standards for reporting discontinued operations. SFAS 144 superseded SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Ofand APB Opinion No. 30, Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.The
provisions of SFAS 144 are effective in fiscal years beginning after December
15, 2001 and, in general, are to be applied prospectively. The Company adopted
the provisions of SFAS 144 on January 1, 2002 and such adoption did not have a
material impact on its consolidated results of operations and financial
position.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities(SFAS 146), which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supersedes Emerging Issues Task Force (EITF) Issue 94-3, Liability
Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF Issue 94-3, a liability for an exit cost as
defined in EITF Issue 94-3 was recognized at the date of an entitys commitment
to an exit plan. SFAS 146 also establishes that the liability should initially
be measured and recorded at fair value. SFAS 146 is effective for exit and
disposal activities initiated after December

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31, 2002. The Company adopted the
provisions of SFAS 146 on January 1, 2003, and such adoption did not have a
material impact on its consolidated results of operations and financial
position.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others.FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002 while the provisions of the disclosure
requirements are effective for financial statements of interim or annual
reports ending after December 15, 2002. The Company adopted the disclosure
provisions of FIN 45 during the fourth quarter of fiscal 2002 and such adoption
did not have a material impact on the consolidated financial statements. The
Company adopted the recognition provisions of FIN 45 effective January 1, 2003
and such adoption did not have a material impact on the consolidated results of
operations and financial position.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure(SFAS 148). SFAS 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation(SFAS 123), to provide
alternative methods for voluntary transition to SFAS 123s fair value method of
accounting for stock-based employee compensation. SFAS 148 also requires
disclosure of the effects of an entitys accounting policy with respect to
stock-based employee compensation on reported net income (loss) and earnings
(loss) per share in annual and interim financial statements. The Company has
adopted the provisions of SFAS 148 effective January 1, 2003, and has included
the additional required disclosures below under the heading Accounting for
Stock Based Compensation. This adoption did not have a material impact on the
Companys consolidated results of operations and financial position.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure used
for business purposes that either does not have equity investors with voting
rights or has equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the entity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. The Company
adopted the provisions of FIN 46 effective February 1, 2003, and such adoption
did not have a material impact on its consolidated results of operations and
financial position because the Company currently has no variable interest
entities.

In May 2003, the FASB issued SFAS No.150 (SFAS 150), Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
SFAS 150 improves the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity. SFAS 150 requires that
those instruments be classified as liabilities in statements of financial
position. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. On June 15, 2003, the
Company adopted SFAS 150 which had no material impact on the Companys
consolidated results of operations and financial position.

Accounting for Stock-Based Compensation The Company accounts for employee
stock options using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employeesand
FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans. Stock options issued to consultants and
vendors are accounted for at fair value.

The Company has adopted the disclosure-only provisions of SFAS 123, Accounting
for Stock-Based Compensation. Accordingly, no compensation cost has been
recognized for stock option grants to employees and 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

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grant date consistent
with the provisions of SFAS 123, the Companys net income (loss) and net income
(loss) per share would have been the pro forma amounts indicated below:

|                                                                                                                    |  |                    |       |                   |  |      |      |      |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---- | ---- | ---- |  | - | ----- | - |  | - | ------ | -
|                                                                                                                    |  | Three Months Ended |       | Nine Months Ended
|                                                                                                                    |  | September 30,      |       | September 30,    
|                                                                                                                    |  |                    |       |                  
|(Amounts in thousands, except per share amounts)                                                                    |  | 2003               |       | 2002              |  | 2003 |      | 2002
|                                                                                                                    |  |                    |       |                   |  |      |      |     
|Net income (loss)  as reported                                                                                     |  | $                  | (386  | )                 |  | $    | 107  |      |  | $ | (347  | ) |  | $ | (3,125 | )
|Stock-based employee compensation included in
net income (loss), net of tax                                         |  | $                  | 56    |                   |  | $    | 103  |      |  | $ | 167   |   |  | $ | 309    |  
|Total stock-based employee compensation expense
determined under fair value based method for
all awards, net of tax |  | $                  | (166  | )                 |  | $    | (243 | )    |  | $ | (503  | ) |  | $ | (815   | )
|                                                                                                                    |  |                    |       |                   |  |      |      |      |  |   |       |   |  |   |        |  
|Net loss  pro forma                                                                                                |  | $                  | (496  | )                 |  | $    | (33  | )    |  | $ | (683  | ) |  | $ | (3,631 | )
|                                                                                                                    |  |                    |       |                   |  |      |      |      |  |   |       |   |  |   |        |  
|Basic earnings (loss) per share  as reported                                                                       |  | $                  | (0.02 | )                 |  | $    | 0.01 |      |  | $ | (0.02 | ) |  | $ | (0.20  | )
|Basic earnings (loss) per share  pro forma                                                                         |  | $                  | (0.03 | )                 |  | $    |     |      |  | $ | (0.04 | ) |  | $ | (0.24  | )
|Diluted earnings (loss) per share  as reported                                                                     |  | $                  | (0.02 | )                 |  | $    | 0.01 |      |  | $ | (0.02 | ) |  | $ | (0.20  | )
|Diluted earnings (loss) per share  pro forma                                                                       |  | $                  | (0.03 | )                 |  | $    |     |      |  | $ | (0.04 | ) |  | $ | (0.23  | )
|                                                                                                                    |  |                    |       |                   |  |      |      |      |  |   |       |   |  |   |        |  

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 nine months ended September 30, 2003 and
fiscal year 2002: no dividend yield; expected volatility 94%; risk-free
interest rate of 3.04%; and expected lives of 5 years.

2. Inventories

Inventories consisted of the following:

|                |  |               |           |              |  |   |           | 
|--------------- |  | ------------- | --------- | ------------ |  | - | --------- | 
|                |  | September 30, |           | December 31,
|                |  | 2003          |           | 2002        
|                |  |               |           |             
|Raw Materials   |  | $             | 5,333,000 |              |  | $ | 4,404,000 | 
|Work in Process |  |               | 868,000   |              |  |   | 411,000   | 
|Finished Goods  |  |               | 2,154,000 |              |  |   | 2,231,000 | 
|                |  |               |           |              |  |   |           | 
|Total           |  | $             | 8,355,000 |              |  | $ | 7,046,000 | 
|                |  |               |           |              |  |   |           | 

3. Earnings (Loss) 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.

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.

The following is a reconciliation between the number of shares used in the
basic and diluted net income (loss) per share calculations:

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|                                                                               |                                                                            |                                             |     |                    |   |                   |     |        |     |    |     |        |   |    |       |        |     | 
|------------------------------------------------------------------------------ | -------------------------------------------------------------------------- | ------------------------------------------- | --- | ------------------ | - | ----------------- | --- | ------ | --- | -- | --- | ------ | - | -- | ----- | ------ | --- | 
|                                                                               |                                                                            |                                             |     | Three Months Ended |   | Nine Months Ended
|                                                                               |                                                                            |                                             |     | September 30,      |   | September,       
|                                                                               |                                                                            |                                             |     |                    |   |                  
|(Amounts in thousands)                                                         |                                                                            | 2003                                        |     | 2002               |   | 2003              |     | 2002  
|                                                                               |                                                                            |                                             |     |                    |   |                   |     |       
|Net
income (loss) before cumulative effect of a change in
accounting principle |                                                                            | ($                                          | 386 | )                  |   | $                 | 107 |        |     | ($ | 347 | )      |   | $  | 349   |       
|                                                                               |                                                                            |                                             |     |                    |   |                   |     |        |     |    |     |        |   |    |       |       
|Net income (loss)                                                              |                                                                            | ($                                          | 386 | )                  |   | $                 | 107 |        |     | ($ | 347 | )      |   | ($ | 3,125 | )     
|                                                                               |                                                                            |                                             |     |                    |   |                   |     |        |     |    |     |        |   |    |       |       
|Basic net income (loss) per share                                              |                                                                            |                                             |     |                    |   |                   |     |        |     |    |     |        |   |    |       |       
|                                                                               | Weighted average number of common shares outstanding                       |                                             |     | 16,445             |   |                   |     | 15,367 |     |    |     | 15,827 |   |    |       | 15,361 |    
|                                                                               | Effect of dilutive securities:                                             |                                             |     |                    |   |                   |     |        |     |    |     |        |   |    |       |        |    
|                                                                               |                                                                            | Stock options and unvested restricted stock |     |                    |  |                   |     |        | 334 |    |     |        |  |    |       |        | 588 | 
|                                                                               |                                                                            |                                             |     |                    |   |                   |     |        |     |    |     |        |   |    |       |       
|Diluted net income (loss) per share                                            |                                                                            |                                             |     |                    |   |                   |     |        |     |    |     |        |   |    |       |       
|                                                                               | Weighted average number of common and common
equivalent shares outstanding |                                             |     | 16,445             |   |                   |     | 15,701 |     |    |     | 15,827 |   |    |       | 15,949 |    
|                                                                               |                                                                            |                                             |     |                    |   |                   |     |        |     |    |     |        |   |    |       |       

No potential common shares have been excluded from diluted weighted average
common shares for the three and nine-month periods ended September 30, 2003, respectively, due to anti-dilutive effects.

Potential common shares of 2,878,953 and 1,358,112 have been excluded from
diluted weighted average common shares for the three and nine-month periods
ended September 30, 2002, respectively, as the effect would be anti-dilutive.

4. Goodwill and Other Intangible Assets

SFAS 142 addresses the financial accounting and reporting requirements for
acquired goodwill and other intangible assets. The Company adopted the
provisions of SFAS 142 in January 2002. Under SFAS 142, the Company is no
longer required to amortize goodwill and other intangible assets with
indefinite lives. Instead, SFAS 142 requires that goodwill and intangible
assets deemed to have an indefinite useful life be reviewed for impairment upon
adoption of SFAS 142 and at least annually thereafter.

Under SFAS 142, goodwill impairment is deemed to exist if the net book value of
a reporting unit exceeds its estimated fair value. The Companys reporting
units are consistent with the operating segments underlying the reporting
segments identified in Note 5 below.

In accordance with SFAS 142, in June
2002 the Company completed a test for impairment of goodwill as of
January 1, 2002 and concluded that consolidated goodwill in the amount of $3,474,000
was impaired. The Company recorded a non-cash charge of $3,474,000 to reduce
the carrying value of its goodwill retroactively to the January 1, 2002
adoption date. Such charge is not included in operating income and is
reflected as a cumulative effect of a change in accounting principle, effective
January 1, 2002, in the accompanying Condensed Consolidated Statements of
Operations and Comprehensive Operations.

The total impairment amount of $3,474,000 was attributable to the Companys
manufacturing and marketing business segment, and represents the previously
unamortized goodwill resulting from the Companys purchase of substantially all
of the assets of Block Medical, Inc. on July 22, 1996 and the Companys
acquisition of
all of the outstanding stock of Spinal Specialties, Inc. on January 14, 2000.
In calculating the impairment charge, the fair value of the impaired reporting
unit was estimated using a market multiple methodology. The impairment of the
goodwill associated with the manufacturing and marketing segment resulted from
the low profitability of the business segment.

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The changes in carrying amount of goodwill by segment for fiscal year 2002 and
the nine months ended September 30, 2003 are as follows:

|                                 |  |                   |            |         |  |       |           |  |  |   |            |  
|-------------------------------- |  | ----------------- | ---------- | ------- |  | ----- | --------- |  |  | - | ---------- | -
|                                 |  | Manufacturing and |            |         |  |       |           |  |  |  
|                                 |  | Marketing         |            | Rentals |  | Total
|                                 |  |                   |            |         |  |      
|Balance as of January 1, 2002    |  | $                 | 3,474,000  |         |  | $     | 2,639,000 |  |  | $ | 6,113,000  |  
|Impairment loss                  |  |                   | (3,474,000 | )       |  |       |          |  |  |   | (3,474,000 | )
|                                 |  |                   |            |         |  |       |           |  |  |   |            |  
|Balance as of December 31, 2002  |  |                   |           |         |  |       | 2,639,000 |  |  | $ | 2,639,000  |  
|Goodwill acquired                |  |                   |           |         |  |       |          |  |  |   |           |  
|Impairment loss                  |  |                   |           |         |  |       |          |  |  |   |           |  
|                                 |  |                   |            |         |  |       |           |  |  |   |            |  
|Balance as of September 30, 2003 |  | $                 |           |         |  | $     | 2,639,000 |  |  | $ | 2,639,000  |  
|                                 |  |                   |            |         |  |       |           |  |  |   |            |  

As of September 30, 2003, the remaining goodwill of $2,639,000 is attributable
to the Companys rentals business segment and the Company has determined that
there was no impairment of this goodwill as of September 30, 2003.

Amortizable intangible assets in the accompanying consolidated balance sheets
are as follows:

|                 |  |                          |           |              |  |     |         |  |  |   |           | 
|---------------- |  | ------------------------ | --------- | ------------ |  | --- | ------- |  |  | - | --------- | 
|                 |  | As of September 30, 2003
|                 |  |                         
|                 |  | Carrying                 |           | Accumulated  |  |     |         | 
|                 |  | Amount                   |           | Amortization |  | Net
|                 |  |                          |           |              |  |    
|Patents          |  | $                        | 2,100,000 |              |  | $   | 813,000 |  |  | $ | 1,187,000 | 
|Licensing Rights |  |                          | 150,000   |              |  |     | 143,000 |  |  |   | 7,000     | 
|                 |  |                          |           |              |  |     |         |  |  |   |           | 
|Total            |  | $                        | 2,250,000 |              |  | $   | 956,000 |  |  | $ | 1,194,000 | 
|                 |  |                          |           |              |  |     |         |  |  |   |           | 

|                 |  |                         |           |              |  |     |         |  |  |   |           | 
|---------------- |  | ----------------------- | --------- | ------------ |  | --- | ------- |  |  | - | --------- | 
|                 |  | As of December 31, 2002
|                 |  |                        
|                 |  | Carrying                |           | Accumulated  |  |     |         | 
|                 |  | Amount                  |           | Amortization |  | Net
|                 |  |                         |           |              |  |    
|Patents          |  | $                       | 1,817,000 |              |  | $   | 713,000 |  |  | $ | 1,104,000 | 
|Licensing Rights |  |                         | 150,000   |              |  |     | 120,000 |  |  |   | 30,000    | 
|                 |  |                         |           |              |  |     |         |  |  |   |           | 
|Total            |  | $                       | 1,967,000 |              |  | $   | 833,000 |  |  | $ | 1,134,000 | 
|                 |  |                         |           |              |  |     |         |  |  |   |           | 

The Company amortizes patents and licensing rights over a period of seven and
five years, respectively. Amortization expense for the three and nine months
ended September 30, 2003 was $76,000 and $222,000, respectively, compared to
$63,000 and $184,000 for the same periods in the prior year. Amortization
expense of intangible assets is expected to be approximately $300,000 in each
of the next five fiscal years.

5. Stockholders Equity

During September 2003, the Company sold 1,666,740 shares of common stock at
$7.50 per share with net proceeds of $11,630,000. In connection with the sale
of the common stock, the Company granted the investors warrants to purchase
250,011 shares of common stock with an exercise price of $10.00 per share. The
estimated fair value of these warrants on the grant date was $1,272,000 as
calculated by the Black-Scholes pricing model. These warrants are fully exercisable and
expire five years from the date of grant. All of these warrants remain
outstanding as of September 30, 2003. The following weighted average
assumptions were used to calculate the fair value of these warrants
using the Black-Scholes pricing model: contractual life, five years, stock volatility of
87%, risk-free interest rate of 2.730%, and no dividends during the term.

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6. Business Segments

The Company operates in two business segments: manufacturing and marketing of
medical infusion pumps and rentals of medical infusion pumps. The rental
business segment principally consists of the activities of InfuSystem, Inc.
within the oncology infusion services market segment. The manufacturing and
marketing business segment consists of two major product groups, IV Infusion
Therapy products and Regional Anesthesia products.

Business segment information is as follows for the three and nine-month periods
ended September 30, 2003 and 2002.

|                                      |  |                   |        |         |  |              |        |  |  |   |        |  
|------------------------------------- |  | ----------------- | ------ | ------- |  | ------------ | ------ |  |  | - | ------ | -
|                                      |  | Manufacturing and |        |         |  |              |        |  |  |  
|(Amounts in thousands)                |  | Marketing         |        | Rentals |  | Consolidated
|                                      |  |                   |        |         |  |             
|Three months ended September 30, 2003 |  |                   |        |         |  |              |        |  |  |   |        |  
|Revenues                              |  | $                 | 9,661  |         |  | $            | 3,324  |  |  | $ | 12,985 |  
|Operating income                      |  |                   | (1,076 | )       |  |              | 447    |  |  |   | (629   | )
|Assets                                |  |                   | 36,438 |         |  |              | 10,843 |  |  |   | 47,281 |  
|                                      |  |                   |        |         |  |              |        |  |  |   |        |  
|Nine months ended September 30, 2003  |  |                   |        |         |  |              |        |  |  |   |        |  
|Revenues                              |  |                   | 27,045 |         |  |              | 9,667  |  |  |   | 36,712 |  
|Operating income                      |  |                   | (2,498 | )       |  |              | 1,934  |  |  |   | (564   | )
|Assets                                |  |                   | 36,438 |         |  |              | 10,843 |  |  |   | 47,281 |  
|                                      |  |                   |        |         |  |              |        |  |  |   |        |  
|Three months ended September 30, 2002 |  |                   |        |         |  |              |        |  |  |   |        |  
|Revenues                              |  |                   | 7,122  |         |  |              | 2,517  |  |  |   | 9,639  |  
|Operating income                      |  |                   | (465   | )       |  |              | 642    |  |  |   | 177    |  
|Assets                                |  |                   | 21,715 |         |  |              | 11,401 |  |  |   | 33,116 |  
|                                      |  |                   |        |         |  |              |        |  |  |   |        |  
|Nine months ended September 30, 2002  |  |                   |        |         |  |              |        |  |  |   |        |  
|Revenues                              |  |                   | 20,084 |         |  |              | 7,610  |  |  |   | 27,694 |  
|Operating income                      |  |                   | (1,347 | )       |  |              | 1,924  |  |  |   | 577    |  
|Assets                                |  |                   | 21,715 |         |  |              | 11,401 |  |  |   | 33,116 |  
|                                      |  |                   |        |         |  |              |        |  |  |   |        |  

7. Guarantees and Indemnifications

The Company from time to time enters into certain types of contracts 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 leased 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) 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. Generally, 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. The Company believes that the fair value of indemnities,
commitments and guarantees that the Company issued during the three and
nine-month periods ended September 30, 2003 was not significant to the
Companys financial position, results of operations, or cash flows.

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8. Subsequent Event

On October 28, 2003, I-Flow Corporation announced that it had entered into an
agreement to sell its wholly owned Spinal Specialties, Inc. subsidiary to
Integra LifeSciences Holdings Corporation for approximately $6 million in cash.
The transaction was consummated effective November 1, 2003, and
a gain will be recorded in the fourth fiscal quarter of 2003.

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|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|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 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 which 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, without limitation, reliance on the success of the home health care
industry, the Companys success in pursuing its direct sales strategy, 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 developments, and product availability. 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

I-Flow prepares its consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America.
Accordingly, the Company is required to make estimates, judgments and
assumptions that the Company believes are reasonable based upon 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 which the Company believes are the most important to aid in
fully understanding and evaluating its reported financial results include the
following:

Revenue Recognition and Accounts Receivable

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. Also, the
Company records a provision for the estimated amount of future returns based
upon historical experience and any notification received of pending returns.
Although product 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 occur.

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 may experience significant extended payment terms with
certain of these third party payors, but it continuously monitors reimbursement
rates from third party payors and timing of payments. Any change in
reimbursement or collection rates could have a material impact on the Companys
operating results for the period or periods in which the change is identified.

Bad Debts

The Company performs various analyses to evaluate accounts receivable balances.
It records an allowance for bad debts based upon 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 related to product

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sales to estimate the amount that will ultimately be uncollectible and
therefore should be reserved. The percentages are increased as the accounts
age. The collectibility of accounts receivable related to rental revenues from
medical pumps is estimated based upon current and historical collection and
reimbursement rates for that business segment. 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 upon 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 such that 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 such 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 upon the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. The Company regularly reviews its deferred tax
assets for recoverability and establishes a valuation allowance based upon
historical taxable income, projected future taxable income, and the expected
timing of the reversals of existing temporary differences. If the Company were
to operate at a profit in the future and generate 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
Companys effective tax rate. Likewise, if the Company is unable to operate at
a profit and unable to generate sufficient future taxable income, it could be
required to establish an additional valuation allowance against all or a
significant portion of its deferred tax assets resulting in a substantial
increase in its effective tax rate and a material adverse impact on operating
results.

Intangible Assets

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 market value to book value of each
reporting unit to determine whether or not any potential impairment of goodwill
exists. The Company cannot guarantee that there will be no additional
impairment in the future. See Note 4 to Condensed Consolidated Financial
Statements.

The Company also reviews the recoverability of the carrying value of identified
intangibles and other long-lived assets on an annual basis or whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of these assets is determined based upon
the forecasted undiscounted future net cash flows from the operations to which
the assets relate, utilizing our best estimates, appropriate assumptions and
projections at the time. These projected future cash flows may significantly
vary over time as a result of increased competition, changes in technology,
fluctuations in demand, consolidation of customers and reductions in average
selling prices. If the carrying value is determined not to be recoverable from
future operating cash flows, the asset would be deemed impaired and an
impairment loss would be recognized to the extent the carrying value exceeded
the estimated fair market value of the asset.

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Results of Operations

Net revenues during the three and nine-month periods ended September 30, 2003
were $12,985,000 and $36,712,000 compared to $9,639,000 and $27,694,000 for the
same periods in the prior year, representing increases of 35% and 33%,
respectively. The net increases in revenues of $3,346,000 and $9,018,000 for
the three and nine-month periods ended September 30, 2003 compared to the
comparable periods in the prior year were primarily due to increases in
regional anesthesia product revenues of $2,072,000, or 66%, and $5,577,000, or
64%, respectively. The regional anesthesia revenue increase resulted from
increased market penetration by the Companys ON-Q® Post Operative Pain Relief
System and by the Companys Spinal Specialties subsidiary.
Regional Anesthesia products include ON-Q, Spinal Specialties
products, and the PainBuster® Post-Operative Pain Relief System.
The Companys distribution agreement with dj Orthopedics, Inc.,
under which dj Orthopedics has the right to distribute the
Companys PainBuster Post-Operative Pain Relief System on a
non-exclusive basis to the U.S. orthopedic surgery segment, expires
on December 31, 2003. Revenues in both
other market segments also increased over the prior year. For the three and
nine-month periods ended September 30, 2003, Oncology infusion services
increased $758,000 and $2,009,000, respectively, and I.V. infusion therapy
increased $516,000 and $1,432,000, respectively, when compared to the
comparable periods in the prior year, due to increased market penetration. The
increase in Oncology infusion services revenues is related to the increased
clinical usage of new chemotherapy drugs and protocols requiring the use of
continuous intravenous pump services.

The Company incurred cost of sales of $5,057,000 and $14,029,000 during the
three and nine-month periods ended September 30, 2003 compared to $3,711,000
and $10,959,000, respectively, for the comparable periods in the prior year.
This represents an increase of 36% and 28%, respectively. This increase is
primarily due to higher sales volume. For the three-month period ended
September 30, 2003, cost of sales as a percentage of net revenues remained
relatively constant compared to the comparable period in the prior year. For
the nine-month period ended September 30, 2003, cost of sales as a percentage
of net revenues decreased from the comparable period in the prior year by
approximately one percentage point, primarily due to increased sales of
higher-margin products including the Companys ON-Q® Post Operative Pain Relief
System during the nine months ended September 30, 2003.

Selling and marketing expenses for the three and nine-month periods ended
September 30, 2003 increased over the comparable periods in the prior year by
$2,395,000, or 77%, and $5,864,000, or 70%, respectively. As a percentage of
net revenues, selling and marketing expenses increased by ten percentage points
for the three-month period ended September 30, 2003 and by nine percentage
points for the nine month period ended September 30, 2003 compared to the
comparable periods in the prior year. These increases were primarily due to
additional salaries, commissions, travel expenses, and recruiting costs related
to the expansion of the Companys direct sales force. The increase also
consisted of increased marketing expenses related to the Companys ON-Q®
Post-Operative Pain Relief System.

General and administrative expenses for the three and nine-month periods ended
September 30, 2003 increased by $364,000, or 17%, and
$1,247,000, or 20%,
compared to the comparable periods in the prior year. These increases were
primarily due to increased insurance and legal costs, and the payment of an
entry fee of $100,000 in July 2003 in connection with the Companys transfer
from the Nasdaq Small Cap Market to the Nasdaq National Market System. As a
percentage of net revenues, general and administrative expenses decreased by
approximately three percentage points and two percentage points, respectively,
for the three and nine-month periods ended September 30, 2003 when compared to
the comparable periods in the prior year. The decreases as a percentage of
sales are primarily due to higher sales levels.

Product development expenses for the three-month period ended September 30,
2003 increased by $47,000, or 9%, compared to the comparable period in the
prior year, primarily due to increased engineering supplies and prototyping
expenses. Product development expenses for the nine-month period ended
September 30, 2003 decreased slightly by $22,000, or 1%. This decrease was
primarily due to reduced consulting expenses and other outside services due to
the completion of specific projects. 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 and
nine-month periods ended September 30, 2003 decreased by approximately one
percentage point compared to the comparable periods in the prior year,
primarily due to higher sales levels.

During the three and nine-month periods ended September 30, 2003, the Company
recorded an income tax benefit of $284,000 and $255,000, respectively, compared
to income tax expense of $70,000 and $233,000 for the comparable periods in the
prior year. The Companys effective tax rates for the three and nine-month
periods ended September 30, 2003 were 42.4% in both periods, compared to 39.5%
and 40.0%, respectively, for the comparable periods in the prior year.

In accordance with SFAS 142, the Company completed a test for goodwill
impairment in June 2002 and concluded that consolidated goodwill in the amount
of $3,474,000 was impaired as of January 1, 2002. The Company recorded

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a non-cash charge of approximately $3,474,000 to reduce the carrying value of
its goodwill which was recorded as a cumulative effect of a change in
accounting principle in 2002. See Note 4 to Condensed Consolidated Financial
Statements.

Liquidity and Capital Resources

During the nine-month period ended September 30, 2003, cash of $237,000 was
used in operating activities consisting of a net loss of $347,000 plus non-cash
expenses of $2,045,000, less net changes in operating assets and liabilities of
$1,935,000, primarily related to increases in accounts receivable and
inventories as a result of increased sales levels.

The Company used cash in investing activities during the nine-month period
ended September 30, 2003 aggregating $2,983,000, compared to $2,215,000 for the
same period in the prior year. The expenditures in the nine month period ended
September 30, 2003 consisted of $2,888,000 used to acquire capital equipment
including electronic infusion pumps for the Companys rental business segment,
computer equipment, purchased software, leasehold improvements, furniture,
fixtures, tooling and equipment for use in the Companys operations, and a net
outflow related to other assets, primarily patents, of $319,000.

During the nine-month period ended September 30, 2003, cash of $13,118,000 was
provided by financing activities consisting of $11,630,000 in net proceeds from
a private transaction completed on September 4, 2003 in which the Company
issued a total of 1,666,740 shares of its common stock at a price of $7.50 per
share. Gross proceeds from the transaction were $12,500,550. The Company also
issued warrants entitling the stockholders that participated in this private
transaction to purchase up to 250,011 additional shares of common stock at an
exercise price of $10.00 per share. The warrants are exercisable for a period
of five years.

The Company also received $1,561,000 in proceeds from the exercise of options
to purchase common stock during the nine month period ended September 30, 2003.
Proceeds from notes payable of $816,000 were offset by $889,000 of
net principal payments on notes payable.

As of September 30, 2003, the Company had cash and cash equivalents of
$11,269,000, net accounts receivable of $11,860,000, and net working capital of
$28,220,000. Management believes the Companys funds, together with possible
borrowings on its existing lines of credit and other bank loans, are sufficient
to provide for its short and long-term needs for operations as currently
projected. 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 has a working capital line of credit with a bank expiring in
December 2003. Under the line of credit, the Company may 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 plus 0.50% (4.55% at September
30, 2003). As of September 30, 2003, there were funds available for borrowing
of $3,875,000 and no outstanding borrowings. The Company also has a term loan
facility with the bank for a maximum amount of $2,000,000, at the banks prime
rate plus 1.00%, expiring in December 2003. There was no amount outstanding
under the term loan as of September 30, 2003.

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% (3.75% at
September 30, 2003). There were no outstanding borrowings under the line of
credit as of September 30, 2003 and there were funds available for borrowing of
$2,808,000. The credit line expires June 30, 2004. In addition, InfuSystem
has a loan facility under which it may borrow up to $2,500,000 for the purchase
of equipment. As of September 30, 2003, there were no outstanding borrowings
under the loan facility.

The lines of credit and the notes 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 September 30,
2003, the Company was in compliance with all such covenants.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets(SFAS 142). SFAS 142 addresses the financial
accounting and reporting requirements for acquired goodwill and other
intangible assets. The Company adopted the provisions of SFAS 142 effective
January 1, 2002. Under SFAS 142, the Company is no longer required to amortize
goodwill and other intangible assets with indefinite lives. Instead, SFAS 142
requires that

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goodwill and intangible assets deemed to have an indefinite useful life be
reviewed for impairment upon adoption of SFAS 142 and at least annually
thereafter. See Note 4 to condensed consolidated financial statements.

In August 2001, the FASB issued SFAS No. 143, Accounting for Obligations
Associated with the Retirement of Long-Lived Assets(SFAS 143). SFAS 143
establishes accounting standards for the recognition and measurement of an
asset retirement obligation and its associated asset retirement cost. It also
provides accounting guidance for legal obligations associated with the
retirement of tangible long-lived assets. SFAS 143 is effective for fiscal
years beginning after June 15, 2002, with early adoption permitted. The
Company adopted the provisions of SFAS 143 on January 1, 2003 and such adoption
did not have a material impact on its consolidated results of operations and
financial position.

In October 2001, the FASB issued SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS 144). SFAS 144 establishes a single
accounting model for the impairment or disposal of long-lived assets and new
standards for reporting discontinued operations. SFAS 144 superseded SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Ofand APB Opinion No. 30, Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.The
provisions of SFAS 144 are effective in fiscal years beginning after December
15, 2001 and, in general, are to be applied prospectively. The Company adopted
the provisions of SFAS 144 on January 1, 2002 and such adoption did not have a
material impact on its consolidated results of operations and financial
position.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities(SFAS 146), which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and supersedes Emerging Issues Task Force (EITF) Issue 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF Issue 94-3,
a liability for an exit cost as defined in EITF Issue 94-3 was recognized at
the date of an entitys commitment to an exit plan. SFAS 146 also establishes
that the liability should initially be measured and recorded at fair value.
SFAS 146 is effective for exit and disposal activities initiated after December
31, 2002. The Company adopted the provisions of SFAS 146 on January 1, 2003,
and such adoption did not have a material impact on its consolidated results of
operations and financial position.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others.FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002 while the provisions of the disclosure
requirements are effective for financial statements of interim or annual
reports ending after December 15, 2002. The Company adopted the disclosure
provisions of FIN 45 during the fourth quarter of fiscal 2002 and such adoption
did not have a material impact on the consolidated financial statements. The
Company adopted the recognition provisions of FIN 45 effective January 1, 2003
and such adoption did not have a material impact on the consolidated results of
operations and financial position.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure(SFAS 148). SFAS 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation(SFAS 123), to provide
alternative methods for voluntary transition to SFAS 123s fair value method of
accounting for stock-based employee compensation. SFAS 148 also requires
disclosure of the effects of an entitys accounting policy with respect to
stock-based employee compensation on reported net income (loss) and earnings
(loss) per share in annual and interim financial statements. The Company has
adopted the provisions of SFAS 148 effective January 1, 2003, and has included
the additional required disclosures below under the heading Accounting for
Stock Based Compensation. This adoption did not have a material impact on the
Companys consolidated results of operations and financial position.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure used
for business purposes that either does not have equity investors with voting
rights or has equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN 46 requires certain
variable interest

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entities to be consolidated by the primary beneficiary of the entity if the
entity investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain of the disclosure requirements apply in
all financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The Company adopted the provisions
of FIN 46 effective February 1, 2003, and such adoption did not have a material
impact on its consolidated results of operations and financial position because
the Company currently has no variable interest entities.

In May 2003, the FASB issued SFAS No.150 (SFAS 150), Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.
SFAS 150 improves the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity. SFAS 150 requires that
those instruments be classified as liabilities in statements of financial
position. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. On June 15, 2003, the
Company adopted SFAS 150 which had no material impact on the Companys
consolidated results of operations and financial position.




Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Foreign Currency

The Company has a subsidiary operating 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.

As of the end of the period covered by this quarterly report on Form 10-Q, the
Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including its Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures. Based upon that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective
in timely alerting them to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Companys periodic SEC filings. There have been no significant changes in the
Companys internal control over financial reporting during the period covered
by this quarterly report on Form 10-Q that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting.

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PART II  - OTHER INFORMATION







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|Item 1. |  | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
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|        |  | In February 2002, the Company initiated a patent infringement action
against a manufacturer of catheter products. The Company believes this
manufacturer was providing to a large orthopedic company a catheter that
was claimed to be functionally equivalent to the Companys Soaker
Catheter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  | The lawsuit was settled in April 2003 pursuant to the terms of a
Confidential Settlement Agreement. The Company granted a license to the
manufacturer as a part of that settlement. In addition, the manufacturer
agreed to not refer to, advertise or promote the catheter, or any of its
catheter products, as providing uniform distribution of fluid throughout
the fenestrated area of the catheter or generically as a soaker.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
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|Item 2. |  | Changes in Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  | In December 2001, the Board of Directors of the Company approved a
restricted stock plan (the 2001 Restricted Stock Plan) pursuant to
which employees of the Company may be offered the opportunity to acquire
common stock of the Company. On February 27, 2003, the Board of
Directors of the Company approved an amendment to the 2001 Restricted
Stock Plan; to authorize an additional 250,000 shares for issuance under
the 2001 Restricted Stock Plan; however, subsequent to the Boards
approval, the Board of Directors decided to terminate any future
issuances under the 2001 Restricted Stock Plan. As of September 30,
2003, a total of 70,000 shares of restricted common stock were issued and
outstanding under the 2001 Restricted Stock Plan. On May 29, 2003, the
Board of Directors of the Company approved a new restricted stock plan
(the 2003 Restricted Stock Plan) pursuant to which employees of the
Company may be offered the opportunity to acquire common stock of the
Company. The Board of Directors authorized a total of 250,000 shares for
issuance under the 2003 Restricted Stock Plan. In July 2003, the Company
issued 90,000 shares of restricted stock under the 2003 Restricted Stock
Plan. Generally, the restrictions on the shares issued under both the
2001 and 2003 Restricted Stock Plans lapse over a period of three years,
subject to possible acceleration based upon the achievement of individual
performance goals.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  | On May 8, 2003, in connection with entering into the Amended and Restated
Loan and Security Agreement with Silicon Valley Bank, the Company issued
a warrant to Silicon Valley Bank to purchase 15,625 shares of the
Companys common stock at an exercise price of $3.84 per share. The
warrant is immediately exercisable and expires on May 8, 2010. In
addition, the Company granted certain registration rights to Silicon
Valley Bank in connection with the issuance of the warrant. Silicon
Valley Bank exercised its registration rights and the shares underlying
the warrant were registered for resale under the Companys Registration
Statement on Form S-3 (Registration No. 333-109096), declared effective
by the Securities and Exchange Commission on September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  | On September 4, 2003, the Company completed a private placement with
accredited investors for the sale of 1,666,740 shares of the Companys
common stock, together with warrants to purchase up to 250,011 additional
shares of the Companys common stock. The Companys common stock was
sold at a purchase price of $7.50 per share. The warrants to purchase
the Companys common stock are exercisable for a period of five years at
an exercise price of $10.00 per share. Gross proceeds to the Company
from the private placement were $12,500,550. Pursuant to the terms of
the private placement, the Company subsequently filed with the Securities
and Exchange Commission a Registration Statement on Form S-3
(Registration No. 333-109096) covering the
resale of the shares of its common stock sold in connection with the
private placement and issuable upon exercise of outstanding warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  | The sales and issuances of the foregoing securities were made in
reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, and
Rule 506 promulgated thereunder, as transactions not involving
any public offering.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

17



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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 years and have an accumulated deficit.
Future losses are possible.

As of June 30, 2003, our accumulated deficit was approximately $15.5
million. We had net income/(losses) of $1,612,000, $1,267,000 and ($3,035,000)
for the years ended December 31, 2000, 2001, and 2002, respectively. We had
net income of $39,000 for the six-month period ended June 30, 2003. We may not
achieve or maintain profitability in the future, and further losses may arise.

For example, during the six month period ended June 30, 2003, our total
costs and expenses increased by an amount greater than the increase in
revenues, compared to the six month period ended June 30, 2002. There can be
no assurance that our revenue growth 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 the increase in our revenues, we will not be profitable.

We may need to raise additional capital in the future to fund our operations
and we may be unable to raise such funds when needed or on acceptable terms.

During the six-month period ended June 30, 2003, our operating activities
used cash of $290,000 and our investing activities (primarily property
acquisitions) used an additional $2,050,000 in the same period. As of June 30,
2003, we had cash on hand of $1,517,000, net accounts receivable of
$11,657,000, and total debt of $1,807,000, consisting of $1,000,000 on a bank
line of credit, $800,000 on a term loan with a bank and $7,000 of other debt.
On September 4, 2003, we received approximately $11,500,000, net of expenses,
from a private placement transaction. 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 the next 36 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 curtail our operations and to
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 possessed by 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.

We have invested substantial resources into the sales and marketing of the
ON-Q® Post-Operative Pain Relief System. If the product does not achieve
significant clinical acceptance, our financial condition and operating results
would be adversely affected.

Our current strategy assumes that the ON-Q Post-Operative Pain Relief
system 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 sales
and marketing of the ON-Q system. During the six months ended June 30, 2003,
we invested approximately $6,500,000 in the sales and marketing of ON-Q. A
failure of the ON-Q product to achieve and maintain a significant market
presence will have a material adverse effect on our financial condition and
results of operations.

18



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Our products are highly regulated by various 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 list our devices with the U.S. Food and Drug Administration,
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/or a recall, seizure or injunction with respect to the 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 foreign export are subject to additional
regulations, including compliance with ISO 9000. In May 1995, we received ISO
9000 certification, which indicates that our products meet specified uniform
standards of quality and testing. We also were granted permission to use the
CE mark on certain of our products, which reflects approval of our products for
export into 18 member countries of the European Community. In December 1996,
our Block operations, including our Mexico facility, were added to our ISO
certification and permission was granted to use the CE mark on all disposable
elastomeric products acquired with Block Medical in 1996. If we fail to comply
with additional foreign regulations or to maintain ISO certification and CE
approval, the sale of our products could be suspended in one or more of our
foreign markets.

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.

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 must frequently make
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 later 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/or a
recall, seizure or injunction with respect to the 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 would
adversely affect our net income.

As of June 30, 2003, $2,619,000 of our assets consisted of goodwill, an
intangible asset acquired through the acquisition of our InfuSystem subsidiary.
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 also compare
market value to book value to determine whether or not any potential impairment
of goodwill exists. In fiscal year 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 that may take place in the future. Any impairment charge
will adversely affect our net income.

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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, and
often such changes provide financial incentives and disincentives that
encourage or discourage the use of a particular type of product, therapy, or
clinical procedure. Sales and market acceptance of our products may be
adversely affected by specific changes or trends within the reimbursement
system. Changes to the health care system that favor other technologies or
that reduce reimbursement to the provider or the treatment facility may
adversely affect our ability to sell our products profitably.

Hospitals, alternate care site providers and physicians are heavily
dependent upon 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. Reimbursements are not paid directly to us. Rather, users of the
product (i.e., healthcare providers) will often request that their patients
health insurance provider provide them some form of reimbursement for the
disposables that are consumed in therapy.

We believe that the current trend in the insurance industry (both private
and governmental) has been to eliminate cost-based reimbursement and move
towards fixed or limited fees for service, thereby encouraging 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.

Our subsidiary, InfuSystem, depends primarily upon third-party
reimbursement for the collection of its revenues. InfuSystem is paid directly
by third-party payors, often on a fixed fee basis, for infusion services
provided to its customers. InfuSystems revenues comprised 27% of I-Flows
consolidated revenues for the six month period ended June 30, 2003. If the
average fees allowable by insurance carriers were reduced, the negative impact
on revenues of InfuSystem could have a material adverse effect on our financial
condition and 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 I-Flow 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 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 may materially suffer.

We rely on independent suppliers for certain parts and materials necessary to
assemble our products. Any delay or disruption in the supply of these parts
may prevent us from manufacturing our products and negatively impact our
operations.

While 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.

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If one of our products proves to be defective or is misused by a healthcare
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 in the failure
of the devices to perform for the use which I-Flow specifies for the system,
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 which results in injury could similarly
subject us to claims of liability. We currently have in place product
liability insurance in the amount of $5,000,000 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.

I-Flow relies substantially on proprietary technology and capabilities.
We have filed U.S. patent applications for substantially all of our products.
The total number of patents now held by I-Flow is approximately 40 and includes
patents relating to both the ON-Q Pain Relief System and Soaker catheter. We
have also filed for intellectual property rights protection in all foreign
countries from which we currently derive significant revenue. Our patents
generally expire between 2009 to 2015, with the most significant patents
expiring in 2009. Without appropriate 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.

We manufacture the majority of our products in Mexico. Any difficulties or
disruptions in the operation of this foreign plant may adversely impact our
operations.

A substantial portion of our products are manufactured by our Mexican
subsidiary, Block Medical de Mexico, S.A. de C.V. We may encounter
difficulties with 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.
If there are difficulties or problems in the 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.

In the six months ended June 30, 2003, sales to customers in foreign
countries comprised approximately 20% 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.

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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.

During the six-month period ending June 30, 2003, sales to B. Braun Celsa
S.A. (France) and B. Braun Medical, Inc., a national U.S. distributor,
accounted for approximately 11% and 5%, respectively, of our net revenues. Any
deterioration in our relationship with B. Braun Celsa or B. Braun Medical could
lead to 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 could have a
material adverse effect on our operating results for the period or periods in
which the change is identified. Additionally, subsequent adjustments could
require us to restate our financial statements. Restating financial statements
could result in a material decline in the price of our stock.

RISK FACTORS RELATED SPECIFICALLY TO OUR COMMON STOCK

The average trading volume for our 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 current monthly average
trading volume is approximately 350,000 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. For example, in the months of June, July and August 2003,
the highest reported sale price for the month was an average of 59% higher than
the lowest reported sale price for the month. 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 I-Flow or others, 
| | - |  | --------------------------------------------------------------------------------------------------
|
| |  |  | government regulation,                                                                            
|
| |  |  | developments in patent or other proprietary rights,                                               
|
| |  |  | future sales of substantial amounts of our common stock by existing stockholders or by I-Flow, and
|
| |  |  | comments by securities analysts and general market conditions.                                    

The realization of any of the risks described in these Risk Factors
could have a negative effect on the market price of our common stock.

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In the future, our 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 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 the stock
would likely be negatively affected. Currently, our common stock is traded on
the Nasdaq National Market. Nasdaq has certain continued listing requirements,
including a minimum trading price. Failure to comply with any one of several
Nasdaq requirements may cause our 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 which would have a material adverse effect on the price and
liquidity 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 warrants may be resold pursuant
to currently effective registration statements.  In addition
to the shares of common stock subject to our Registration Statement on
Form S-3 (Registration No. 333-109096), as of September 15,
2003, there are:



| |  |  | 16,193,522 shares of common stock that have been issued in
registered offerings and are freely tradable in the public markets,                        
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 160,000 shares of restricted common stock that have been
issued under our various restricted stock plans, and                                         
|
| |  |  | an aggregate of 3,354,219 shares of common stock that may be
issued on the exercise of stock options outstanding under our
various stock option plans.

We cannot estimate the number of shares of common stock that may actually
be resold in the public market since 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.

Anti-takeover devices may prevent a sale, or changes in the management, of
I-Flow.

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 I-Flow. 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 and require stockholders to give written
notice of any proposal or director nomination to us within a certain period of
time prior to the stockholder annual meeting.

We may also issue shares of preferred stock without stockholder approval
and upon 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.

I-Flow has not and does not anticipate the payment of dividends on its
common stock in the foreseeable future. The future price of our common stock
may be depressed by the fact that we do not pay dividends.

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Item 6.Exhibits and Reports on Form 8-K

(a) Exhibits

Set forth below is a list of the exhibits included or incorporated by
reference as part of this report:

|            |  |                                                                                                                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                        
|2.1         |  | Merger Agreement by and between I-Flow Corporation, a Delaware
corporation, and I-Flow Corporation, a California corporation, dated
July 27, 2001 (1)                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                        
|2.2         |  | Stock Purchase Agreement, dated October 28, 2003, by and between
Integra LifeSciences Corporation, a Delaware corporation and I-Flow
Corporation, a Delaware corporation                                                                                               
|            |  |                                                                                                                                                                                                                                                                        
|2.3         |  | Agreement and Plan of Merger by and among I-Flow Corporation, Spinal Acquisition Corp., Spinal Specialties, Inc. and the Shareholders of
Spinal Specialties, Inc. dated January 13, 2000 (12)                                                                          
|            |  |                                                                                                                                                                                                                                                                        
|2.4         |  | Agreement and Plan of Merger by and among I-Flow Corporation, I-Flow
Subsidiary, Inc., Venture Medical, Inc., and InfuSystems II, Inc. and
the Shareholders of Venture Medical, Inc. and InfuSystems II, Inc.
(10)                                                     
|            |  |                                                                                                                                                                                                                                                                        
|3.1         |  | Certificate of Incorporation of I-Flow Corporation, a Delaware Corporation (1)                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                        
|3.2         |  | Bylaws of I-Flow Corporation, a Delaware Corporation (1)                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                        
|3.3         |  | Certificate of Designation Regarding Series A Junior Participating
Cumulative Preferred Stock (15)                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                        
|4.1         |  | Specimen Common Stock Certificate (2)                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                        
|4.2         |  | Warrant Agreement between the Company and American Stock Transfer &
Trust Company, as Warrant Agent, dated February 13, 1990 (3)                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                        
|4.3         |  | Reserved.                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                        
|4.4         |  | 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 Form of Election to Purchase
(15)
|            |  |                                                                                                                                                                                                                                                                        
|4.5         |  | Warrant to Purchase Stock, dated May 8, 2003, between I-Flow
Corporation and Silicon Valley Bank (17)                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                        
|4.6         |  | Registration Rights Agreement, dated May 8, 2003, between I-Flow
Corporation and Silicon Valley Bank (17)                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                        
|4.7         |  | Form of Warrant, dated September 4, 2003                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                        
|4.8         |  | Form of Registration Rights Agreement, dated September 4, 2003                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                        
|10.1        |  | 1987-1988 Incentive Stock Option Plan and Non-Statutory Stock Option
Plan Restated as of March 23, 1992 (5) *                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                        
|10.2        |  | 1992 Non-Employee Director Stock Option Plan (6) *                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                        
|10.3        |  | License and Transfer Agreement with SoloPak Pharmaceuticals Inc.,
dated March 6, 1996 (7)                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                        
|10.4        |  | 1996 Stock Incentive Plan (8) *                                                                                                                                                                                                                                        

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|            |  |                                                                                                                                                               |  |  |  | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  | Exhibit                                                                                                                                                       |  |  |  | 
|            |  |                                                                                                                                                               |  |  |  | 
|10.5        |  | Agreement for Purchase and Sale of Assets dated as of July 3, 1996 by
and among I-Flow Corporation, Block Medical, Inc. and Hillenbrand
Industries, Inc. (4) 
|            |  |                                                                                                                                                              
|10.6        |  | Lease Agreement between Industrial Developments International, Inc.
as Landlord and I-Flow Corporation as Tenant dated April 14, 1997 (9)                    
|            |  |                                                                                                                                                              
|10.7        |  | Reserved.                                                                                                                                                    
|            |  |                                                                                                                                                              
|10.8        |  | Amended and Restated Loan and Security Agreement between Silicon
Valley Bank and I-Flow Corporation dated May 8, 2003 (17)                                   
|            |  |                                                                                                                                                              
|10.10       |  | I-Flow Corporation 2001 Equity Incentive Plan (2) *                                                                                                          
|            |  |                                                                                                                                                              
|10.11       |  | 2001 Restricted Stock Plan of I-Flow Corporation (16) *                                                                                                      
|            |  |                                                                                                                                                              
|10.12       |  | 2003 Restricted Stock Plan of I-Flow Corporation (17)*                                                                                                       
|            |  |                                                                                                                                                              
|10.13       |  | Loan Agreement, dated March 31, 2000, by and among InfuSystem, Inc.,
I-Flow Corporation, and Old Kent Bank (17)                                              
|            |  |                                                                                                                                                              
|10.14       |  | 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) (17)
|            |  |                                                                                                                                                              
|10.15       |  | 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) (17)
|            |  |                                                                                                                                                              
|10.16       |  | Second Amended and Restated Promissory Note, dated April 1, 2003,
between InfuSystem, Inc. and Fifth Third Bank (formerly Old Kent
Bank) (17)                
|            |  |                                                                                                                                                              
|10.17       |  | Employment Agreement with Donald M. Earhart dated May 16, 1990 (13) *                                                                                        
|            |  |                                                                                                                                                              
|10.18       |  | Amendment #1 to Employment Agreement with Donald M. Earhart dated
June 21, 2001 (2)*                                                                         
|            |  |                                                                                                                                                              
|10.19       |  | Promissory Note with Donald M. Earhart dated June 15, 2001 (2) *                                                                                             
|            |  |                                                                                                                                                              
|10.20       |  | Amended and Restated Employment Agreement with James J. Dal Porto
dated June 21, 2001 (2) *                                                                  
|            |  |                                                                                                                                                              
|10.21       |  | Employment Agreement with James R. Talevich dated June 30, 2000 (14) *                                                                                       
|            |  |                                                                                                                                                              
|10.22       |  | Agreement Re: Change in Control with Donald M. Earhart dated June 21,
2001 (2) *                                                                             
|            |  |                                                                                                                                                              
|10.23       |  | Agreement Re: Change in Control with James J. Dal Porto dated June
21, 2001 (2) *                                                                            
|            |  |                                                                                                                                                              
|10.24       |  | Agreement Re: Change in Control with James R. Talevich, dated June
21, 2001 (2) *                                                                            

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|            |  |                                                                                                                                |  |  |  | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|Exhibit No. |  | Exhibit                                                                                                                        |  |  |  | 
|            |  |                                                                                                                                |  |  |  | 
|            |  |                                                                                                                               
|10.25       |  | Form of Securities Purchase Agreement, dated September 2, 2003                                                                
|            |  |                                                                                                                               
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act on 2002                            
|            |  |                                                                                                                               
|31.2        |  | Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act on 2002                            
|            |  |                                                                                                                               
|32.1        |  | 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 Current Report on Form 8-K on August 3, 2001.                                                             
|    
|(2)  |  | 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.                                        
|    
|(3)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Registration Statement (#33-32263-LA) declared effective
February 1, 1990.                                
|    
|(4)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Current Report on Form 8-K dated July 22, 1996.                                                           
|    
|(5)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Post Effective Amendment to its Registration Statement
(#33-41207-LA) declared effective November 6, 1992.
|    
|(6)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Annual Report on Form 10-K for its fiscal year ended December
31, 1991.                                   
|    
|(7)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Annual Report on Form 10-K for its fiscal year ended December
31, 1995.                                   
|    
|(8)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Registration Statement (#333-16547) declared effective November
20, 1996.                                 
|    
|(9)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Current Report on Form 8-K dated April 14, 1997.                                                          
|    
|(10) |  | Incorporated by reference to exhibit with this title filed with the
Companys Current Report on Form 8-K dated February 9, 1998.                                                        
|    
|(11) |  | Reserved.                                                                                                                                                                               
|    
|(12) |  | 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.                                       
|    
|(13) |  | Incorporated by reference to exhibit with this title filed with the
Companys Annual Report on Form 10-K for its fiscal year ended September
30, 1990.                                  

26



---



##### Table of Contents



|(14) |  | Incorporated by reference to exhibit with this title filed with the
Companys Annual Report on Form 10-K for its fiscal year ended December
31, 2000.                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(15) |  | Incorporated by reference to exhibit with this title filed with the
Companys Current Report on Form 8-K, filed with the Securities and
Exchange Commission on March 13, 2002.
|    
|(16) |  | Incorporated by reference to exhibit with this title filed with the
Companys Annual Report on Form 10-K for its fiscal year ended December
31, 2002.                         
|    
|(17) |  | 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.                              



| | (b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On July 29, 2003, the Company filed a current report on Form 8-K
pursuant to which the Company furnished a release regarding its
second quarter financial results for 2003. On September 3, 2003,
the Company filed a current report on Form 8-K to report that the
Company had entered into a private placement with accredited
investors for the sale of 1,666,740 shares of the Companys common
stock, together with warrants to purchase up to 250,011 additional
shares of the Companys common stock. On November 3, 2003, the
Company filed a current report on Form 8-K pursuant to which it
furnished a release regarding its third quarter financial results
for 2003 and a transcript of the related earnings conference call.

27



---



##### 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 CORPORATION                             
|                        |  |                                                
|Date:
November 14, 2003 |  | /s/ Donald M. Earhart                          
|                        |  |                                                
|                        |  | Donald M. Earhart                              
|                        |  | President, Chairman and Chief Executive Officer
|                        |  | (As Principal Executive Officer)               
|                        |  |                                                
|Date:
November 14, 2003 |  | /s/ James R. Talevich                          
|                        |  |                                                
|                        |  | James R. Talevich                              
|                        |  | Chief Financial Officer                        
|                        |  | (As Principal Financial Officer)               

28



---



##### Table of Contents






INDEX TO EXHIBITS

|            |  |                                                                                                                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                        
|2.1         |  | Merger Agreement by and between I-Flow Corporation, a Delaware
corporation, and I-Flow Corporation, a California corporation, dated
July 27, 2001 (1)                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                        
|2.2         |  | Stock Purchase Agreement, dated October 28, 2003, by and between
Integra LifeSciences Corporation, a Delaware corporation and I-Flow
Corporation, a Delaware corporation                                                                                               
|            |  |                                                                                                                                                                                                                                                                        
|2.3         |  | Agreement and Plan of Merger by and among I-Flow Corporation, Spinal Acquisition Corp., Spinal Specialties, Inc. and the Shareholders of
Spinal Specialties, Inc. dated January 13, 2000 (12)                                                                          
|            |  |                                                                                                                                                                                                                                                                        
|2.4         |  | Agreement and Plan of Merger by and among I-Flow Corporation, I-Flow
Subsidiary, Inc., Venture Medical, Inc., and InfuSystems II, Inc. and
the Shareholders of Venture Medical, Inc. and InfuSystems II, Inc.
(10)                                                     
|            |  |                                                                                                                                                                                                                                                                        
|3.1         |  | Certificate of Incorporation of I-Flow Corporation, a Delaware Corporation (1)                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                        
|3.2         |  | Bylaws of I-Flow Corporation, a Delaware Corporation (1)                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                        
|3.3         |  | Certificate of Designation Regarding Series A Junior Participating
Cumulative Preferred Stock (15)                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                        
|4.1         |  | Specimen Common Stock Certificate (2)                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                        
|4.2         |  | Warrant Agreement between the Company and American Stock Transfer &
Trust Company, as Warrant Agent, dated February 13, 1990 (3)                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                        
|4.3         |  | Reserved.                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                        
|4.4         |  | 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 Form of Election to Purchase
(15)
|            |  |                                                                                                                                                                                                                                                                        
|4.5         |  | Warrant to Purchase Stock, dated May 8, 2003, between I-Flow
Corporation and Silicon Valley Bank (17)                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                        
|4.6         |  | Registration Rights Agreement, dated May 8, 2003, between I-Flow
Corporation and Silicon Valley Bank (17)                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                        
|4.7         |  | Form of Warrant, dated September 4, 2003                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                        
|4.8         |  | Form of Registration Rights Agreement, dated September 4, 2003                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                        
|10.1        |  | 1987-1988 Incentive Stock Option Plan and Non-Statutory Stock Option
Plan Restated as of March 23, 1992 (5) *                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                        
|10.2        |  | 1992 Non-Employee Director Stock Option Plan (6) *                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                        
|10.3        |  | License and Transfer Agreement with SoloPak Pharmaceuticals Inc.,
dated March 6, 1996 (7)                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                        
|10.4        |  | 1996 Stock Incentive Plan (8) *                                                                                                                                                                                                                                        



---



##### Table of Contents



|            |  |                                                                                                                                                               |  |  |  | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit No. |  | Exhibit                                                                                                                                                       |  |  |  | 
|            |  |                                                                                                                                                               |  |  |  | 
|10.5        |  | Agreement for Purchase and Sale of Assets dated as of July 3, 1996 by
and among I-Flow Corporation, Block Medical, Inc. and Hillenbrand
Industries, Inc. (4) 
|            |  |                                                                                                                                                              
|10.6        |  | Lease Agreement between Industrial Developments International, Inc.
as Landlord and I-Flow Corporation as Tenant dated April 14, 1997 (9)                    
|            |  |                                                                                                                                                              
|10.7        |  | Reserved.                                                                                                                                                    
|            |  |                                                                                                                                                              
|10.8        |  | Amended and Restated Loan and Security Agreement between Silicon
Valley Bank and I-Flow Corporation dated May 8, 2003 (17)                                   
|            |  |                                                                                                                                                              
|10.10       |  | I-Flow Corporation 2001 Equity Incentive Plan (2) *                                                                                                          
|            |  |                                                                                                                                                              
|10.11       |  | 2001 Restricted Stock Plan of I-Flow Corporation (16) *                                                                                                      
|            |  |                                                                                                                                                              
|10.12       |  | 2003 Restricted Stock Plan of I-Flow Corporation (17)*                                                                                                       
|            |  |                                                                                                                                                              
|10.13       |  | Loan Agreement, dated March 31, 2000, by and among InfuSystem, Inc.,
I-Flow Corporation, and Old Kent Bank (17)                                              
|            |  |                                                                                                                                                              
|10.14       |  | 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) (17)
|            |  |                                                                                                                                                              
|10.15       |  | 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) (17)
|            |  |                                                                                                                                                              
|10.16       |  | Second Amended and Restated Promissory Note, dated April 1, 2003,
between InfuSystem, Inc. and Fifth Third Bank (formerly Old Kent
Bank) (17)                
|            |  |                                                                                                                                                              
|10.17       |  | Employment Agreement with Donald M. Earhart dated May 16, 1990 (13) *                                                                                        
|            |  |                                                                                                                                                              
|10.18       |  | Amendment #1 to Employment Agreement with Donald M. Earhart dated
June 21, 2001 (2)*                                                                         
|            |  |                                                                                                                                                              
|10.19       |  | Promissory Note with Donald M. Earhart dated June 15, 2001 (2) *                                                                                             
|            |  |                                                                                                                                                              
|10.20       |  | Amended and Restated Employment Agreement with James J. Dal Porto
dated June 21, 2001 (2) *                                                                  
|            |  |                                                                                                                                                              
|10.21       |  | Employment Agreement with James R. Talevich dated June 30, 2000 (14) *                                                                                       
|            |  |                                                                                                                                                              
|10.22       |  | Agreement Re: Change in Control with Donald M. Earhart dated June 21,
2001 (2) *                                                                             
|            |  |                                                                                                                                                              
|10.23       |  | Agreement Re: Change in Control with James J. Dal Porto dated June
21, 2001 (2) *                                                                            
|            |  |                                                                                                                                                              
|10.24       |  | Agreement Re: Change in Control with James R. Talevich, dated June
21, 2001 (2) *                                                                            



---



##### Table of Contents



|            |  |                                                                                                                                |  |  |  | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|Exhibit No. |  | Exhibit                                                                                                                        |  |  |  | 
|            |  |                                                                                                                                |  |  |  | 
|            |  |                                                                                                                               
|10.25       |  | Form of Securities Purchase Agreement, dated September 2, 2003                                                                
|            |  |                                                                                                                               
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act on 2002                            
|            |  |                                                                                                                               
|31.2        |  | Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act on 2002                            
|            |  |                                                                                                                               
|32.1        |  | 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 Current Report on Form 8-K on August 3, 2001.                                                             
|    
|(2)  |  | 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.                                        
|    
|(3)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Registration Statement (#33-32263-LA) declared effective
February 1, 1990.                                
|    
|(4)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Current Report on Form 8-K dated July 22, 1996.                                                           
|    
|(5)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Post Effective Amendment to its Registration Statement
(#33-41207-LA) declared effective November 6, 1992.
|    
|(6)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Annual Report on Form 10-K for its fiscal year ended December
31, 1991.                                   
|    
|(7)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Annual Report on Form 10-K for its fiscal year ended December
31, 1995.                                   
|    
|(8)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Registration Statement (#333-16547) declared effective November
20, 1996.                                 
|    
|(9)  |  | Incorporated by reference to exhibit with this title filed with the
Companys Current Report on Form 8-K dated April 14, 1997.                                                          
|    
|(10) |  | Incorporated by reference to exhibit with this title filed with the
Companys Current Report on Form 8-K dated February 9, 1998.                                                        
|    
|(11) |  | Reserved.                                                                                                                                                                               
|    
|(12) |  | 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.                                       
|    
|(13) |  | Incorporated by reference to exhibit with this title filed with the
Companys Annual Report on Form 10-K for its fiscal year ended September
30, 1990.                                  

|(14) |  | Incorporated by reference to exhibit with this title filed with the
Companys Annual Report on Form 10-K for its fiscal year ended December
31, 2000.                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(15) |  | Incorporated by reference to exhibit with this title filed with the
Companys Current Report on Form 8-K, filed with the Securities and
Exchange Commission on March 13, 2002.
|    
|(16) |  | Incorporated by reference to exhibit with this title filed with the
Companys Annual Report on Form 10-K for its fiscal year ended December
31, 2002.                         
|    
|(17) |  | 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.