<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934.

     For the quarterly period ended   September 30, 1998
                                    -----------------------

[ ]  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)

          California                                   33-0121984
-------------------------------------------------------------------------------
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                      Identification No.)


  20202 Windrow Drive, Lake Forest, CA                     92630
--------------------------------------------------------------------------------
(Address of principal executive offices)                 (Zip Code)


                                 (949) 206-2700
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes   [ ] No

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

        Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                               [ ] Yes    [ ] No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

        Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.

      As of September 30, 1998 there were 13,782,762 shares outstanding of
    Common Stock and 526,250 shares outstanding of Series B Preferred Stock.


<PAGE>   2

                               I-FLOW CORPORATION

                                    FORM 10-Q

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                         Page       
                                                                         ----       
<S>        <C>                                                           <C>        
Part I:    Financial Information                                                    
                                                                                    
  Item 1.  Financial Statements                                                     
                                                                                    
           Consolidated Balance Sheets as of September 30, 1998                     
             (Unaudited) and December 31, 1997                             3        
                                                                                    
           Consolidated Statements of Operations for the three and                  
             nine-month periods ended September 30, 1998                            
             and 1997 (Unaudited)                                          4        
                                                                                    
           Consolidated Statements of Cash Flows for the nine-month                 
             periods ended September 30, 1998 and 1997 (Unaudited)         5        
                                                                                    
           Notes to Consolidated Financial Statements                      6        
                                                                                    
  Item 2.  Management's Discussion and Analysis of Financial                        
             Condition and Results of Operations                           8        
                                                                                    
  Item 3.  Quantitative and Qualitative Disclosures about Market Risk     10        
                                                                                    
Part II:   Other Information                                              10        
                                                                                    
           Signatures                                                     12        
</TABLE>

                                       2


<PAGE>   3

                               I-FLOW CORPORATION

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                            September 30,      December 31,
                                                                 1998              1997
                                                            ------------       ------------
ASSETS                                                      (Unaudited)
<S>                                                         <C>                <C>
  CURRENT ASSETS:
    Cash and cash equivalents                               $  1,325,000       $    715,000
    Accounts receivable, net                                   7,104,000          5,127,000
    Inventories                                                4,493,000          4,058,000
    Prepaids and other                                           524,000            140,000
                                                            ------------       ------------
       Total current assets                                   13,446,000         10,040,000
                                                            ------------       ------------
PROPERTY:
    Furniture, fixtures and equipment                          9,566,000          4,170,000
    Less accumulated depreciation                             (5,876,000)        (1,939,000)
                                                            ------------       ------------
       Property, net                                           3,690,000          2,231,000
                                                            ------------       ------------
OTHER ASSETS
    Goodwill and other intangibles, net                        6,686,000          3,983,000
    Notes receivable and other                                 1,039,000          1,380,000
                                                            ------------       ------------
TOTAL                                                       $ 24,861,000       $ 17,634,000
                                                            ============       ============
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable                                        $  1,636,000       $  1,828,000
    Accrued payroll and related expenses                       1,112,000            895,000
    Deferred revenue                                                  --             58,000
    Current portion of long-term debt                          1,666,000          1,000,000
    Borrowings under line-of-credit                            2,342,000          1,500,000
    Other liabilities                                             98,000            186,000
                                                            ------------       ------------
       Total current liabilities                               6,854,000          5,467,000
                                                            ------------       ------------
LONG-TERM DEBT                                                 3,711,000          1,579,000

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
    Preferred stock - no par value; 5,000,000 shares
      authorized; 526,250 and 656,250 series B shares
      issued and outstanding at September 30, 1998 and
      December 31, 1997, respectively (aggregate
      preference on liquidation is $1,263,000)                 1,198,000          1,494,000
    Common stock - no par value; 40,000,000 shares
      authorized; 13,782,762 and 12,393,619 shares
      issued and outstanding at September 30, 1998 and
      December 31, 1997, respectively                         37,206,000         33,853,000
    Common stock warrants                                        615,000            615,000
    Accumulated deficit                                      (24,723,000)       (25,374,000)
                                                            ------------       ------------
       Net shareholders' equity                               14,296,000         10,588,000
                                                            ------------       ------------
TOTAL                                                       $ 24,861,000       $ 17,634,000
                                                            ============       ============
</TABLE>

See accompanying notes to condolidated financial statements

                                       3

<PAGE>   4
                               I-FLOW CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                       Three Months Ended                Nine Months Ended
                                          September 30,                    September 30,
                                 -----------------------------     -----------------------------
                                      1998             1997             1998             1997
                                 ------------     ------------     ------------     ------------
<S>                              <C>              <C>              <C>              <C>         
Net revenues                     $  6,574,000     $  4,705,000     $ 16,539,000     $ 14,068,000
                                 ------------     ------------     ------------     ------------
Costs and expenses:
  Cost of sales                     2,733,000        2,085,000        7,184,000        5,891,000
  Selling and marketing             1,107,000          827,000        3,038,000        2,448,000
  General and administrative        1,541,000          687,000        4,018,000        2,369,000
  Product development                 236,000          209,000          678,000          813,000
  Amortization of intangibles         201,000          120,000          538,000          355,000
                                 ------------     ------------     ------------     ------------
    Total costs and expenses        5,818,000        3,928,000       15,456,000       11,876,000

Operating profit                      756,000          777,000        1,083,000        2,192,000
Interest income (expense)            (204,000)         (69,000)        (521,000)        (212,000)
Income taxes                          (15,000)         (29,000)         (37,000)         (67,000)
                                 ------------     ------------     ------------     ------------
Net income                       $    537,000     $    679,000     $    525,000     $  1,913,000
                                 ============     ============     ============     ============
Net income per share
     Basic                       $       0.04     $       0.05     $       0.04     $       0.15
                                 ============     ============     ============     ============
     Diluted                     $       0.04     $       0.05     $       0.04     $       0.14
                                 ============     ============     ============     ============
</TABLE>

See accompanying notes to consolidated financial statements

                                       4

<PAGE>   5

                               I-FLOW CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                Nine Months Ended
                                                                  September 30,
                                                           ---------------------------
                                                               1998           1997
                                                           -----------     -----------
<S>                                                        <C>             <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                 $   525,000     $ 1,913,000
Adjustments to reconcile net income
  to net cash provided by operations:
  Depreciation and amortization                              1,528,000       1,176,000
  Changes in operating assets and liabilities:
    Royalty receivable                                              --       1,000,000
    Accounts receivable                                        561,000      (2,180,000)
    Inventories                                                249,000        (769,000)
    Prepaid expenses and other                                (231,000)        (96,000)
    Accounts payable, accrued and other liabilities         (1,854,000)     (2,082,000)
                                                           -----------     -----------
Net cash provided (used) by operating activities               778,000      (1,038,000)
                                                           -----------     -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Property acquisitions                                       (403,000)       (789,000)
  Change in other assets                                       (13,000)       (401,000)
                                                           -----------     -----------
Net cash used by investing activities                         (416,000)     (1,190,000)
                                                           -----------     -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Change in line of credit                                  (1,243,000)      1,000,000
  Change in notes payable                                    1,352,000        (753,000)
  Proceeds from exercise of stock options and warrants          13,000         683,000
                                                           -----------     -----------
Net cash provided by financing activities                      122,000         930,000
                                                           -----------     -----------
Effect of exchange rates on cash                               126,000              --

NET DECREASE IN CASH AND CASH EQUIVALENTS                      610,000      (1,298,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD               715,000       1,651,000
                                                           -----------     -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                 $ 1,325,000     $   353,000
                                                           ===========     ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid                                                  521,000         215,000
                                                           -----------     -----------
Income tax payments                                             37,000          66,000
                                                           -----------     -----------
Liabilities issued and assumed in connection
  with acquisition:
  Fair value of assets acquired (including intangibles)      8,254,000
  Common stock issued                                        3,044,000
                                                           -----------
Liabilities issued and assumed                               5,210,000
                                                           ===========
</TABLE>

See accompanying notes to consolidated financial statements

                                       5


<PAGE>   6

                               I-FLOW CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

1.  BASIS OF PRESENTATION

    The accompanying unaudited consolidated financial statements contain all
    adjustments (consisting only of normal recurring adjustments) which, in the
    opinion of management, are necessary to present fairly the financial
    position of the Company at September 30, 1998 and the results of its
    operations and its cash flows for the nine-month periods ended September 30,
    1998 and 1997. 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, 1997 filed with the
    Securities and Exchange Commission on March 31, 1998.

    Certain amounts previously reported have been reclassified to conform with
    the presentation at September 30, 1998.

2.  EARNINGS PER SHARE

    In December 1997, the Company adopted Statement of Financial Accounting
    Standards ("SFAS") No. 128, Earnings per Share. SFAS No. 128 redefines
    earnings per share under generally accepted accounting principles. Under the
    new standard, primary net income per share is replaced by basic net income
    per share and fully diluted net income per share is replaced by diluted net
    income per share. All historical earnings per share information have been
    restated as required by SFAS No. 128.

    Basic net income (loss) per share is computed using the weighted average
    number of common shares outstanding during the periods presented.

    Diluted net income (loss) per share is computed using the weighted average
    number of common and common equivalent shares outstanding during the periods
    presented assuming the conversion of all shares of the Company's convertible
    preferred stock into common stock and the exercise of all in-the-money stock
    options. Common equivalent shares have not been included where inclusion
    would be antidilutive.

    
                                       6

<PAGE>   7
    The following is a reconciliation between the net income and the number of
    shares used in the basic and diluted net income per share calculations:

<TABLE>
<CAPTION>

                                    Three Months Ended    Nine Months Ended 
                                       September 30,        September 30,   
                                    ------------------   -----------------  
                                     1998       1997      1998      1997    
                                    -------    -------   ------   -------   
                                           (Amounts in thousands)           
<S>                                    <C>        <C>      <C>      <C>     
Net income                             527        679      525      1,913   
Less preferred stock dividends          14         19       42         57   
                                    ------      -----     ----     ------   
Net income available to                                                     
 common shareholders                   513        660      483      1,856   
                                    ------      -----     ----     ------   
Basic net income (loss) per share                                                                     
   Weighted average number                                                  
     of shares outstanding          13,632     12,224    13,332    12,287   
   Effect of dilutive securities:                                                            
       Preferred stock                 570        700       570       700   
       Stock options                   185        812       333       855   
                                    ------      -----      ----     -----   
Diluted net income (loss) per share                                                                 
   Weighted average number                                                  
     of shares outstanding          14,387     13,736    14,235    13,842   
                                    ======     ======    ======    ======   
</TABLE>


3.  RECENT ACCOUNTING PRONOUNCEMENTS

    The Company has adopted SFAS No. 130, Reporting Comprehensive Income, for
    the period ending September 30, 1998 and 1997. The Company has no reportable
    differences between net income and comprehensive income. Therefore, no
    statement of comprehensive income has been presented.

    For the current year ending December 31, 1998, the Company will adopt SFAS
    No. 131, Disclosures About Segments of an Enterprise and Related
    Information. SFAS No. 131, which is based on the management approach to
    segment reporting, establishes requirements to report selected segment
    information quarterly and to report entity-wide disclosures about products
    and services, major customers and the material countries in which the entity
    holds assets and reports revenue. The Company has not yet determined the
    impact, if any, of adopting such standards on its consolidated financial
    statements.

4.  ACQUISITION OF INFUSYSTEMS II, INC. AND VENTURE MEDICAL, INC.

    On February 9, 1998, the Company entered into an Agreement and Plan of
    Merger (the "Agreement") with, InfuSystems II, Inc. ("InfuSystem"), Venture
    Medical, Inc. ("VMI") and the shareholders of InfuSystem and VMI,
    contemplating the merger of InfuSystem and VMI with and into a wholly-owned
    subsidiary of the Company. Pursuant to the Agreement, VMI and InfuSystem
    were merged (the "Merger") with and into the subsidiary effective as of
    February 11, 1998. The acquisition was accounted for under the purchase
    method of accounting and the purchase price has been allocated to the net
    assets acquired and goodwill.

    In the Merger, all of the outstanding shares of Common Stock of VMI and
    InfuSystems were exchanged for shares of Common Stock of the Company. The
    aggregate number of shares of Common Stock of the Company issued in the
    Merger to the shareholders of VMI and InfuSystems was 972,372 shares, valued
    at approximately $2.9 million (subject to certain post-closing adjustments).
    As contemplated by the Agreement, shares of Common Stock of the Registrant
    issued in the Merger valued at $1.5 million (the "Escrowed Shares") were
    withheld and were delivered to an escrow agent, to be deposited in escrow.
    The Escrowed Shares, or cash equal to the closing value of the Escrowed
    Shares, will be held for a period of two years during which time they will
    be subject to claims by the Company to satisfy the obligations of
    InfuSystems, VMI and the shareholders of InfuSystems and VMI under the
    Agreement (subject to the possible earlier release of a portion of the
    Escrowed Shares in connection with collection of certain accounts
    receivable). At each of the six-month, one-year, eighteen-month and two-year
    anniversaries of the closing, if the value of the Company's Common Stock at
    such time is less than the value of its Common Stock as of the closing
    ($2.98 per share), then the Company will be obligated to pay additional
    amounts as merger consideration. Any additional amounts are to be calculated
    pursuant to the formula set forth in the Agreement. At the Company's
    election, it may pay such additional merger consideration, by the issuance
    of additional shares of its Common Stock, in cash, or any combination
    thereof. In August 1998, the Company issued 234,806 shares of its Common
    Stock pursuant to the valuation floor provision for the six-month
    anniversary. There was no incremental value ascribed to these additional
    shares for purchase accounting of the acquisition.


                                       7

<PAGE>   8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
        RESULTS OF OPERATIONS


    Certain disclosures made by the Company in this report and in other reports
    and statements released by the Company are and will be forward-looking in
    nature, such as comments which express the Company's opinions about trends
    and factors which may impact future operating results. Disclosures which use
    words such as the Company "believes," "anticipates," or "expects" or use
    similar expressions are intended to identify forward-looking statements.
    Such statements are subject to certain risks and uncertainties, which could
    cause actual results to differ from those, expected and readers are
    cautioned not to place undue reliance on these forward-looking statements.
    The Company undertakes no obligation to publish revised forward-looking
    statements to reflect the occurrence of unanticipated 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, as well as in
    the Company's periodic reports on Forms 10-K, 10-Q, and 8-K filed with the
    Securities and Exchange Commission. The risks affecting the Company's
    business include reliance on the success of the Home Health Care Industry,
    the reimbursement system currently in place, competition in the industry,
    demand in foreign countries, customer credit risks, technological changes
    and product availability. Any such 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.

RESULTS OF OPERATIONS

    Net revenues during the three and nine-month period ended September 30, 1998
    were $6,574,000 and $16,539,000, respectively, compared to $4,705,000 and
    $14,068,000 for the same periods in the prior year, an increase of 40% and
    18%, respectively. In February 1998, the Company acquired two new
    subsidiaries, InfuSystems II, Inc. and Venture Medical, Inc., both of which
    were national ambulatory infusion pump management and distribution companies
    based in Detroit, Michigan. On February 11, 1998, these companies were
    merged into InfuSystem, Inc. (formally, I-Flow Subsidiary, Inc.) a wholly
    owned subsidiary of the Company. Revenues generated by InfuSystem, Inc. of
    $1,650,000 and $4,361,000 for the periods from July 1, 1998 through
    September 30, 1998 and February 11, 1998 (date of acquisition) through
    September 30, 1998, were included in net revenues for the three and
    nine-month periods ended September 30, 1998.

    During 1998, the Company entered into an agreement with B. Braun Melsungen
    AG (G.BRN), a world leader in the manufacture and distribution of
    pharmaceuticals and infusion products, to distribute I-Flow's elastomeric
    infusion pumps in Western Europe, Eastern Europe, the Middle East, Asia
    Pacific, South America and Africa. The initial purchase minimum for the
    first eighteen months of this five-year agreement is approximately $4
    million with shipments beginning in the second quarter. The Company also
    recently entered into a similar agreement under which B. Braun of America,
    Inc. will distribute I-Flow's elastomeric pumps to its full line IV solution
    customers in the United States. These two new relationships are expected to
    generate significant sales opportunities for the Company for the remainder
    of 1998 and beyond. During the nine-month period ended September 30, 1998,
    aggregate sales to these companies accounted for approximately 20% of the
    Company's net revenues.

    In September 1998, the Company entered into a letter of understanding with
    Smith & Nephew, Inc., a leading worldwide healthcare company offering a
    broad range of products for the care and repair of bone, joints, skin and
    other soft tissue. Traded on the London Stock Exchange, Smith & Nephew had
    1997 sales of $1.7 billion. Under the agreement, Smith & Nephew will become
    the exclusive United States and Canadian distributor for orthopaedic surgery
    applications of I-Flow's disposable PainBusterTM infusion pain management
    kit. The letter of understanding calls for Smith & Nephew to purchase a
    minimum of $2 million of PainBuster kits from I-Flow in 1998 and to enter
    into a five year distribution agreement with purchase commitments for 1999
    and beyond to be negotiated. During the three month period ended September
    30, 1998, sales of the PainBuster to Smith & Nephew were $1 million.
    I-Flow's PainBuster pain management system provides continuous infusion of a
    non-narcotic, local anesthetic directly into the intraoperative site for
    post operative pain management. I-Flow received approval in June 1998 from
    the U.S. Food and Drug Administration to market the PainBuster in the United
    States.


                                       8


<PAGE>   9

    Cost of sales of $2,733,000 and $7,184,000 were incurred during the three
    and nine-month periods ended September 30, 1998, compared to $2,085,000 and
    $5,891,000 in the prior year. As a percentage of net sales, cost of sales
    was relatively unchanged compared to the same period in the prior year.

    Selling and marketing expenses for the three and nine-month periods ended
    September 30, 1998 increased over the same periods in the prior year by
    $280,000 or 53% and $590,000 or 24%, respectively. This increase is due to
    the addition of $301,000 and $735,000, for the three and nine-month periods
    ended September 30, 1998 in such expenses for InfuSystem, Inc. Without the
    InfuSystem, Inc. selling and marketing expenses, the Company's selling and
    marketing expenses for the three and nine-month periods ended September 30,
    1998 would have decreased by $21,000 and $145,000, respectively.

    General and administrative expenses for the three and nine-month periods
    ended September 30, 1998 increased $854,000 or 125% and $1,649,000 or 70%,
    respectively, from the same periods in the prior year, due to the addition
    of InfuSystem, Inc. For the three and nine-month periods ended September 30,
    1998 InfuSystem, Inc. incurred general and administrative expenses of
    $493,000 and $1,229,000, respectively. Without the InfuSystem, Inc. general
    and administrative expenses, the Company's general and administrative
    expenses for the three and nine-month periods ended September 30, 1998 would
    have increased by $361,000 and $420,000, respectively.

    Product development expenses for the three and nine-month periods ended
    September 30, 1998 increased over the same period in the prior year by
    $27,000, or 13% and decreased by $135,000 or 17%, respectively. The decrease
    in the expenses for the nine-month period was primarily due to the
    consolidating of the engineering efforts of Block Medical, Inc. with those
    of the Company in late 1997. The Company will continue to incur product
    development expenses as it continues its efforts to introduce new
    improved-technology, cost-efficient products into the market.

LIQUIDITY AND CAPITAL RESOURCES

    During the nine-month period ended September 30, 1998, funds of $778,000
    were used by operating activities consisting of net income of $525,000 plus
    non-cash expenses of $1,528,000 less net changes in operating assets and
    liabilities of $1,275,000. These changes in operating assets and liabilities
    consisted of: (1) a decrease in accounts receivable of $561,000 due to
    improved collections and (2) a decrease in inventory of $249,000 due to
    higher sales, less (3) an increase in prepaid expenses and other of $231,000
    due to the addition of InfuSystem and (3) a reduction in accounts payable
    and other liabilities of $1,854,000 due to the timing of payments of trade
    accounts payable.

    The Company used funds for investing activities during the nine-month period
    ended September 30, 1998 by acquiring leasehold improvements, furniture,
    fixtures, equipment and other assets aggregating $416,000 for use in its
    operations.

    During the nine-month period ended September 30, 1998, funds of $122,000
    were provided by financing activities consisting primarily of proceeds from
    borrowings on notes payable of $2,500,000 net of payments on the notes
    payable of $1,148,000 and a net reduction on the line of credit of
    $1,243,000.

    As of September 30, 1998, the Company had cash funds of $1,325,000 and net
    receivables of $7,104,000. To date, the Company has financed its operations
    and working capital requirements primarily through equity financings and
    bank borrowings. Management believes the Company's funds are sufficient to
    provide for its short and long-term projected needs for operations. However,
    the Company may decide to sell additional equity or increase its borrowings
    in order to fund increased product development or for other purposes.


                                       9


<PAGE>   10

YEAR 2000 COMPLIANCE

    Many currently installed computer systems and software products are coded to
    accept only two digit entries in the date code field. These date code fields
    will need to accept four digit entries to distinguish 21st century dates
    from 20th century dates. As a result, in less than two years, computer
    systems and/or software used in many companies may need to be upgraded to
    comply with such "Year 2000" requirements.

    The Company has determined that it will be necessary to modify or replace
    portions of its hardware and software so that its computer systems properly
    utilize dates beyond December 31, 1999. The Company believes that with
    modifications and conversions, the Year 2000 issue can be managed, and the
    associated risks mitigated. The Company has received confirmation from
    vendors of certain purchased software used for internal operations that
    current releases or upgrades, if installed, are designed to be Year 2000
    compliant. The Company is in the process of installing such upgrades to its
    current systems and believes that substantially all of the upgrades will be
    completed by December 31, 1998. The Company, however, is initiating
    communications with its critical external relationships to determine the
    extent to which the Company may be vulnerable to such parties' failure to
    resolve their own Year 2000 issues. Where practicable, the Company will
    assess and attempt to mitigate its risks with respect to failure of these
    entities to be Year 2000 ready. The effect, if any, on the Company's results
    of operations from the failure of such parties to be Year 2000 ready is not
    reasonably estimable.

    The Company is in the process of evaluating its own products for potential
    Year 2000 issues and making such products Year 2000 compliant. The vast
    majority of the Company's products are not date sensitive and the Company
    does not directly rely on any of its ventors or customers systems. The
    Company does not believe that there will be significant issues or costs
    associated to make its products Year 2000 compliant; however, there can be
    no assurance that such products do not contain undetected errors or defects
    associated with year 2000 date functions.

    The Company has been using both external and internal resources to reprogram
    or replace its software for the Year 2000 issues. To date, the amounts
    incurred and expensed for developing and carrying out the plan have not had
    a material effect on the Company's operations. The Company plans to complete
    Year 2000 modifications, including testing, by early 1999. The total
    remaining cost for addressing the Year 2000 issue of approximately $66,000,
    which is based on management's current estimates, is not expected to be
    material to the Company's operations. All remaining Year 2000 issues costs
    will be funded through operating cash flows. Although the Company is not
    aware of any material operational issues or costs associated with preparing
    its products or internal information systems for the year 2000, there can be
    no assurances that the Company will not experience serious unanticipated
    negative consequences and/or material costs caused by undetected errors or
    defects in the technology used in its internal systems, which are composed
    predominantly of third party software and hardware.

    Should the Company not be completely successful in mitigating internal and
    external Y2K risks, this could result in a system failure or miscalculations
    causing disruptions of operations, including, among other things, a
    temporary inability to process transactions, send invoices, or engage in
    similar normal business activities at the Company or its vendors and
    suppliers. The Company believes, that under a worst case scenario, it could
    continue the majority of its normal business activities on a manual basis.

Item 3. Quantitative and Qualitative Disclosures about Market Risk. 

        Not Applicable


                                      10

<PAGE>   11
                           PART II - OTHER INFORMATION

Item 1. Not Applicable

Item 2. Changes in Securities and Use of Proceeds

    On February 9, 1998, the Company entered into an Agreement and Plan of
    Merger (the "Agreement") with, InfuSystems II, Inc. ("InfuSystem"), Venture
    Medical, Inc. ("VMI") and the shareholders of InfuSystems and VMI,
    contemplating the merger of InfuSystem and VMI with and into a wholly-owned
    subsidiary of the Company. Pursuant to the Agreement, VMI and InfuSystem
    were merged (the "Merger") with and into the subsidiary effective as of
    February 11, 1998 (the "Effective Time"). In the Merger, all of the
    outstanding shares of Common Stock of VMI and InfuSystem were exchanged for
    shares of Common Stock of the Company. The aggregate number of shares of
    Common Stock of the Company issued in the Merger to the shareholders of VMI
    and InfuSystem was 972,372 shares valued at $2.9 million. In accordance with
    the terms of the Agreement, 59,395 shares of the Company's Common Stock were
    issued to Amherst Capital Partners, L.L.C. (Amherst"), investment banker for
    InfuSystems II, Inc. and Venture Medical, Inc., as payment of Amherst's fees
    and expenses in connection with the Merger. At each of the six-month,
    one-year, eighteen-month and two-year anniversaries of the closing, if the
    value of the Company's Common Stock at such time is less than the value of
    its Common Stock as of the closing ($2.98 per share), then the Company will
    be obligated to pay additional amounts as merger consideration. Any
    additional amounts are to be calculated pursuant to the formula set forth in
    the Agreement. At the Company's election, it may pay such additional merger
    consideration, by the issuance of additional shares of its Common Stock, in
    cash, or any combination thereof. In August 1998, the Company issued 234,806
    shares of its Common Stock to the shareholders of VMI and InfuSystem and
    Amerherst, pursuant to the valuation floor provision for the six-month
    anniversary. There was no incremental value ascribed to these additional
    shares for purchase accounting of the acquisition. The Company relied on the
    exemption from registration provided by Section 4(2) of the Securities Act
    of 1933, as amended. Pursuant to the Merger Agreement, the Company is
    obligated to use its commercially reasonable best efforts to register the
    shares of Common Stock within six months after the Effective Time.

Items 3.-5. Not Applicable

Item 6. Exhibits and Reports on Form 8-K

        (a) Exhibits

    Exhibit No.                             Exhibit
    -----------                             -------

       3.1          Restated Articles of Incorporation of the Company (2)

       3.2          Certificate of Amendment to Restated Articles of
                    Incorporation dated June 14, 1991 (3)

       3.3          Certificate of Amendment to Restated Articles of
                    Incorporation dated May 12, 1992 (4)

       3.4          Certificate of Determination covering Company's Series B
                    Preferred Stock filed with the Secretary of State on October
                    5, 1992 (4)

       3.5          Restated Bylaws as of July 22, 1991 of the Company (3)

       4.1          Specimen Common Stock Certificate (4)

       4.2          Warrant Agreement between the Company and American Stock
                    Transfer & Trust Company, as Warrant Agent, dated February
                    13, 1990 (1)

       4.3          Form of Warrant dated July 22, 1996, issued in conjunction
                    with the acquisition of Block Medical, Inc. (5)

      27            Financial Data Schedule

-----------------
(1)  Incorporated by reference to exhibit with this title filed with the
     Company's Registration Statement (#33-32263-LA) declared effective 
     February 1, 1990.


                                       11


<PAGE>   12

(2)  Incorporated by reference to exhibit with this title filed with the
     Company's Form 10-K for its fiscal year ended September 30, 1990.

(3)  Incorporated by reference to exhibit with this title filed with the
     Company's Registration Statement (#33-41207-LA) declared effective August
     8, 1991.

(4)  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.

(5)  Incorporated by reference to exhibit with this title filed with the
     Company's Report on Form 8-K dated July 22, 1996.

     (b) Reports on Form 8-K.

         During the quarter ended September 30, 1998, the Company filed no
         Current Reports on Form 8-K.


                                       12

<PAGE>   13

                                   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
                                                (Registrant)


Date: November 11, 1998                      /s/ DONALD M. EARHART
      -----------------                      -----------------------------------
                                                 Donald M. Earhart,
                                                 Chairman, President and CEO


Date: November 11, 1998                      /s/ GAYLE L. ARNOLD
      -----------------                      -----------------------------------
                                                 Gayle L. Arnold,
                                                 Vice President, Finance, Chief
                                                 Financial Officer


                                       13

<PAGE>   14

                                INDEX TO EXHIBITS

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


    Exhibit No.                             Exhibit
    -----------                             -------

       3.1          Restated Articles of Incorporation of the Company (2)

       3.2          Certificate of Amendment to Restated Articles of
                    Incorporation dated June 14, 1991 (3)

       3.3          Certificate of Amendment to Restated Articles of
                    Incorporation dated May 12, 1992 (4)

       3.4          Certificate of Determination covering Company's Series B
                    Preferred Stock filed with the Secretary of State on October
                    5, 1992 (4)

       3.5          Restated Bylaws as of July 22, 1991 of the Company (3)

       4.1          Specimen Common Stock Certificate (4)

       4.2          Warrant Agreement between the Company and American Stock
                    Transfer & Trust Company, as Warrant Agent, dated February
                    13, 1990 (1)

       4.3          Form of Warrant dated July 22, 1996, issued in conjunction
                    with the acquisition of Block Medical, Inc. (5)

      27            Financial Data Schedule

-----------------
(1)  Incorporated by reference to exhibit with this title filed with the
     Company's Registration Statement (#33-32263-LA) declared effective 
     February 1, 1990.

(2)  Incorporated by reference to exhibit with this title filed with the
     Company's Form 10-K for its fiscal year ended September 30, 1990.

(3)  Incorporated by reference to exhibit with this title filed with the
     Company's Registration Statement (#33-41207-LA) declared effective August
     8, 1991.

(4)  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.

(5)  Incorporated by reference to exhibit with this title filed with the
     Company's Report on Form 8-K dated July 22, 1996.