<PAGE>   1

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

                                    FORM 10-K


                  FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
           SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the fiscal year ended   December 31, 2000
                               -------------------

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 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                                (IRS Employer
incorporation or organization)                               Identification No.)


 20202 WINDROW DRIVE, LAKE FOREST, CA                              92630
----------------------------------------                     -------------------
(Address of Principal Executive offices)                         (Zip code)


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

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
NO PAR VALUE

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the 13,911,477 shares of voting Common Stock of
the registrant held by non-affiliates of the registrant on March 1, 2001, based
on the last sale price of such stock on the Nasdaq Small Cap Market on such
date, was $27,822,954.

Registrant's outstanding stock as of March 1, 2001 was 15,060,704 shares of
Common Stock.


<PAGE>   2

Information required by Part III is incorporated by reference to portions of the
registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission within 120 days after
the close of the registrant's year ended December 31, 2000.

                                     PART I

ITEM 1. BUSINESS

THE COMPANY

I-Flow Corporation (the "Company" or "I-Flow") designs, develops, manufactures
and markets technically advanced, low-cost ambulatory drug delivery systems that
are redefining the standard of care by providing life enhancing, cost effective
solutions for pain management and infusion therapy. The Company's products are
used both in hospitals and alternate site settings.

Since its beginnings in 1985, I-Flow Corporation has established a reputation in
the medical and health care industry as an innovator in pain management and drug
delivery technology. Through product innovation and strategic acquisitions, the
Company has emerged as a leader in pain management, offering truly highly
effective therapies for physicians and their patients. I-Flow's suite of pain
management products allows for reliable and simple regional anesthesia
techniques that eliminate many of the side effects customarily associated with
narcotics and general anesthesia. Patients generally recover more rapidly after
surgery, which results in shorter hospital stays and reduced costs.

I-Flow manufactures a growing line of compact, portable infusion pumps,
catheters, needles and pain kits that administer medication directly to the
wound site as well as administer local anesthetics, chemotherapies, antibiotics,
diagnostic agents, nutritional supplements and other medications. The Company
has continued to introduce reliable, lightweight, portable infusion pumps
enabling patients to live ambulatory and, therefore, more productive lifestyles.
I-Flow sells and distributes its products throughout the United States, Canada,
Europe, Asia, Mexico, Brazil, Australia, New Zealand and the Middle East.
InfuSystem, Inc., a wholly owned subsidiary, is primarily engaged in the rental
of infusion pumps on a month-to-month basis. Spinal Specialties Inc., a
subsidiary of I-Flow Corporation, is primarily engaged in the manufacturing and
marketing of custom regional anesthesia kits with expanded capabilities in
interventional radiology products.

The Company was incorporated in the State of California in July 1985. The
Company's corporate offices are located at 20202 Windrow Drive, Lake Forest,
California 92630. The telephone number is (949) 206-2700 and its web site is
located at www.i-flowcorp.com.

ACQUISITIONS

On July 22, 1996, the Company purchased substantially all of the assets of Block
Medical, Inc. ("Block"), a wholly-owned subsidiary of Hillenbrand Industries,
Inc. Block was a San Diego, California based manufacturer and marketer of
ambulatory infusion devices.

On February 11, 1998, the Company acquired all of the outstanding stock of
InfuSystem II, Inc. and Venture Medical, Inc. (collectively referred to as
"InfuSystem"). InfuSystem is a leading ambulatory infusion pump management
provider based in Madison Heights, Michigan. By delivering ambulatory pumps and
the related disposables from a variety of manufacturers to private medical
practices and clinics across the country, InfuSystem uses a distinctive approach
to service the cancer infusion therapy market.

On January 14, 2000, the Company acquired all of the outstanding stock of Spinal
Specialties, Inc. ("Spinal Specialties") a designer and manufacturer of custom
spinal, epidural and nerve block infusion kits based in San Antonio, Texas.
Spinal Specialties provides a line of custom disposable products for chronic and
acute pain management, that are tailored to the specific needs of the hospital,
anesthesiologist and pain clinic.


                                       2

<PAGE>   3

THE PRODUCTS

I-Flow offers the health care professional an array of cost-effective drug
delivery devices designed to meet the needs of today's managed care environment
both in the hospital and alternate site setting. The I-Flow family of products
is focused on three primary market segments - Regional Anesthesia, IV Infusion
Therapy and Oncology Infusion Services.

REGIONAL ANESTHESIA

Chronic Pain Kits

This product line resulted from I-Flow's January 2000 acquisition of Spinal
Specialties, Inc. and it includes custom spinal, epidural, discogram and nerve
block kits. These disposable products for chronic pain management are tailored
to the specific needs of the anesthesiologist, hospital, and pain management
clinic. The spinal tray line can be combined with I-Flow's infusion systems to
create new products for managing acute and chronic pain.

Acute Pain Kits

The Acute Pain Kit product line includes the PainBuster(R) Pain Management
System, ON-Q(R) Pain Management System and C-bloc(TM) Continuous Nerve Block
System. I-Flow's PainBuster and ON-Q Systems offer continuous wound site pain
management, considered one of the most ideal treatments for post-operative pain.
This approach represents a significant improvement over previous methods of
post-operative pain management. Since fewer narcotics are used, there are fewer
side effects. I-Flow's C-bloc technology combines the advantages of a custom
nerve block kit with the added feature of a disposable infusion pump. Recent
studies have shown that C-bloc, when used for continuous nerve block
applications, significantly reduced pain scores and the use of narcotics for
pain control following shoulder surgeries.

The Company's Soaker(TM) Catheters (2.5" and 5" versions) were granted Food and
Drug Administration (FDA) permission for use for pain management of large
surgical incisions in November 1999 and March 2000 respectively. The Soaker
Catheter, which attaches to I-Flow's diverse line of infusion systems, provides
a continuous, even infusion of a non-narcotic, local anesthetic directly along
incisions for post-operative pain management.

IV INFUSION THERAPY

Elastomerics

I-Flow's complete product line of elastomeric pumps delivers medication from an
elastic "balloon" that does not rely on gravity for proper delivery. These pumps
are small enough to fit into a patient's pocket or be clipped to a patient's
clothing. These benefits provide patients with better mobility and a quicker
transition to rehabilitation. This easy-to-use technology provides the health
care professional with a device that is both safe and simple enough for patients
to use for self-administration. The Company's elastomeric line of products can
be used for pain management medications, antibiotics or other medications.

Elastomeric products include the patented Homepump Eclipse(R), Homepump Eclipse
"C"Series and One-Step KVO(TM).

Syringe Delivery Systems

I-Flow's Syringe Delivery Systems are designed to provide accurate intravenous
push delivery from a syringe. The systems are cost-effective for both single and
multiple doses and provide health care professionals with a safe and accurate
alternative to gravity or IV push methods with a relatively easy learning curve
for patients.

Products include the Medi-SIS 20(TM) and Medi-SIS 60(TM) Syringe Infusion
Systems.


                                       3

<PAGE>   4

Non-Electric IV Bag Delivery Systems

I-Flow's non-electric products provide a safe and easy-to-use system for
controlled infusion. Pumps in this category are drug delivery systems consisting
of a reusable mechanical infuser and specially designed administration sets.
They can provide precise delivery of medications requiring slow and continuous
infusions.

Products include the Paragon(R) and Sidekick(R) ambulatory infusion pumps and
the Rely-A-Flow(R) Gravity Set.

Electronic Pumps

Products include I-Flow VIP(TM), which can be used with VOICELINK(R) Remote
Programming System. The VOICELINK System enables caregivers to monitor and
program the devices for their patients with just a touch-tone phone. The Company
believes the Vivus 4000(R) is the only ambulatory, multi-channel, multi-therapy
electronic infusion pump currently available in the United States and provides
accurate and safe remote programming and delivery of four individual protocols
regardless of complexity.

ONCOLOGY INFUSION SERVICES

InfuSystem, an I-Flow Corporation subsidiary, provides ambulatory infusion pump
systems and supplies to Oncology offices and clinics for chemotherapy. Pumps
from a variety of manufacturers are offered to customers primarily on a rental
basis. Revenues are primarily derived from billings to third party insurers.

THE MARKETS

The Company participates in three market segments: Regional Anesthesia, IV
Infusion Therapy, and Oncology Infusion Services. Over the last three years,
I-Flow significantly expanded its product line and distribution capabilities to
establish itself as a leading participant in the regional anesthesia arena.
Management believes that this expansion, coupled with the Company's innovations
in pain management and infusion technologies, has placed I-Flow in a strong
position for future potential growth.

The hospital market for I-Flow's simple, portable regional anesthesia
technologies is currently a virtually untapped market. There are more than 39
million operative procedures performed in the U.S. every year. I-Flow estimates
that its ON-Q(R) and PainBuster(R) systems could be used in at least 10 million
of those procedures. The Company also believes that the product lines of Spinal
Specialties can be potentially used in nearly all of the approximate 4 million
U.S. live births per year.

The alternate site health care industry has grown significantly in the past few
years with ambulatory infusion devices being one of the fastest growing
segments. An ambulatory pump enables patients to leave the hospital earlier,
making it very attractive to cost-conscious hospitals and to patients who favor
home treatment.

I-Flow's sales in the IV Infusion Therapy market include the Company's
intravenous elastomeric pumps, mechanical infusion devices, and electronic
infusion pumps and disposables.

The Company participates in the Oncology Infusion Services market through the
activities of InfuSystem, Inc. which provides infusion pump rentals and related
disposable products, primarily for chemotherapy.

The following table sets forth a summary of the Company's revenues by market
segment, excluding a $2,000,000 license fee received in 1999, expressed as
percentages of the total net revenues:

Revenues by Market Segment                2000           1999           1998
--------------------------                ----           ----           ----
Regional Anesthesia                        26%            21%             9%
IV Infusion Therapy                        48%            48%            64%
Oncology Infusion Services                 26%            31%            27%


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<PAGE>   5

COMPETITION

The drug infusion industry is highly competitive. The Company competes in this
market based on price, service and product performance. Some of the competitors
have significantly greater resources than the Company for research and
development, manufacturing and marketing, and as a result may be better able to
compete for market share, even in areas in which the Company's products may be
superior. The industry is subject to technological changes and there can be no
assurance that the Company will be able to maintain any existing technological
advantage long enough to establish its products and to sustain profitability.

The number of current competitors and the Company's current competitive position
for each of its product lines is noted in the table below.

                                                                    Company's
                                                                    Estimated
                                                 Number of Known   Competitive
Market Description                                 Competitors      Position
------------------                               ---------------   -----------
Elastomerics                                            3               1
Chronic Pain Kits                                      11               8
Acute Pain Kits (Wound Site Pain Management)            4               1
Syringe Delivery Systems                                8               7
Non-Electric IV Bag Delivery Systems                    4               2
Electronic Pumps                                        7               4

The Company has focused its product development efforts on products in the pain
management and ambulatory infusion systems markets and, with the majority of its
new products, it is expanding its market to include hospitals. Amounts spent on
Company-sponsored product development activities are disclosed in the
Consolidated Statements of Operations and Comprehensive Operations included
elsewhere herein.

SALES AND DISTRIBUTION

Distribution of the Company's products in the United States is currently managed
directly through its internal sales force as well as through a number of
regional medical product distributors. As of March 1, 2001, the Company and its
subsidiaries had 23 internal sales representatives located throughout the United
States. The Company relies on regional U.S. medical product distributors for
approximately 6% of its revenue. There are no complete integrated contracts with
any of these distributors. The Company is actively pursuing additional
distribution arrangements for its products.

During 1998, the Company entered into an agreement with B. Braun Melsungen AG, 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
Company also entered into a similar agreement with B. Braun Medical, Inc. to
distribute I-Flow's elastomeric pumps to its full line IV Infusion Therapy
solution customers in the United States. These two relationships have generated
significant sales for the Company. During the years ended December 31, 2000,
1999 and 1998, combined sales to these companies accounted for approximately
18%, 16% and 20%, respectively of the Company's net revenues.

In May 1999, the Company entered into an agreement with dj Orthopedics LLC
(formerly DonJoy, a division of Smith & Nephew, Inc.), a leading provider of
orthopedic braces, to distribute the Company's PainBuster(R) pain management
system exclusively in the United States and Canada for orthopedic surgery
applications. 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. The agreement called for I-Flow to
receive a nonrefundable $2 million licensing fee during 1999. Additionally, dj
Orthopedics is required to make minimum purchases in order to maintain
distribution rights.

In June 1999, the Company signed a distribution agreement with Ethicon
Endo-Surgery, Inc., a Johnson & Johnson company, under which Ethicon
Endo-Surgery became the exclusive distributor of I-Flow's ON-Q(R) Pain
Management System for all surgical applications excluding orthopedics. The
ON-Q(R) Pain Management System


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<PAGE>   6

infuses non-narcotic local anesthetics directly into the operative site, the
patient's primary source of post-operative pain. This multi-year agreement
requires Ethicon Endo-Surgery to meet minimum purchase commitments to maintain
exclusive distribution rights.

The Company sells several of its products into the international market and has
signed agreements with distributors in various countries. Currently, the Company
is selling its products through distributors in Canada, Brazil, the Benelux
Countries, Germany, England, Ireland, Italy, Mexico, Spain, Korea, Australia,
New Zealand and Israel. Aggregate revenues from countries outside of the United
States represented approximately 22%, 20% and 28% of the Company's total
revenues for the years ended December 31, 2000, 1999 and 1998, respectively. The
Company does not have any capital investments in any foreign operations except
for its plant in Mexico.

Total revenue attributable to each geographic area into which the Company has
sales is as follows:

<TABLE>
<CAPTION>

Sales to unaffiliated customers:              2000                 1999                 1998
--------------------------------           -----------          -----------          -----------
<S>                                        <C>                  <C>                  <C>
     United States                         $24,870,000          $23,962,000          $17,020,000
     Europe                                  5,153,000            4,181,000            5,032,000
     Asia                                    1,295,000            1,165,000            1,129,000
     Other                                     648,000              476,000              411,000
</TABLE>

MANUFACTURING AND OPERATIONS

With the acquisition of substantially all of the assets of Block in July 1996,
the Company acquired Block's wholly-owned subsidiary, a manufacturing plant in
Northern Mexico. This plant has been in operation since 1994 and has
historically performed, and is currently performing, the manufacture of all of
Block's disposable IV Infusion Therapy devices and tubing sets. The Company
intends to maintain the plant in Mexico and to manufacture a substantial portion
of its products there. The Company regularly reviews the use of outside vendors
for production versus internal manufacturing, analyzing factors such as the
quality of the products received from vendors, the costs of the products, timely
delivery and employee utilization.

In each of the years ended December 31, 2000, 1999 and 1998, the Company
incurred expenses of approximately $1,223,000, $1,057,000 and $940,000,
respectively, for product development.

PATENTS AND TRADEMARKS

The Company has filed U.S. patent applications for substantially all of its
products. The total number of patents now held by the Company is approximately
40. These patents generally expire between 2009 to 2015, with the most
significant patents expiring in 2009. The Company has also filed for
intellectual property right protection in all foreign countries from which it
has significant revenue. In the opinion of management, there are no related
limitations that would have a material adverse effect on the Company.

Copyrights have been obtained for the Vivus 4000(R) programming software. The
product names are either registered trademarks or have trademark applications
pending. There can be no assurance that pending patent or trademark applications
will be approved or that any patents will provide competitive advantages for the
Company's products or will not be challenged or circumvented by competitors.

REGULATIONS GOVERNING THE COMPANY'S MANUFACTURING OPERATIONS

Development and manufacture of I-Flow products is regulated by the Food, Drug
and Cosmetic Act (the Act). Under the Act, the Company is required to register
its facilities and list its devices with the Federal Food and Drug
Administration ("FDA"), to file notice of intent to market new products under
Section 510(K) of the Act, to track the location of certain of its products and
to report any incidents of death or serious injury relating to its products. To
date, there have been no reportable conditions found during any FDA inspections.
Failure to comply with any of


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<PAGE>   7

these regulations can result in civil and criminal penalties upon the Company
and/or the recall, seizure or injunction of certain of its products.

The State of California, in addition to the FDA, has similar regulations and
requires annual production-site inspections to maintain the relevant
manufacturing license. State regulations also address the storage and handling
of certain chemicals and disposal of their wastes.

The Company is required to comply with federal, state and local environmental
laws. To date, however, there has been no significant effect of environmental
issues on the capital expenditures, earnings and competitive position of the
Company and there is currently no significant use of hazardous materials in the
manufacture of the Company's products.

Products intended for export are subject to additional regulations, including
compliance with ISO 9000. In May 1995, the Company received ISO 9001
certification, which indicates that I-Flow's products meet specified uniform
standards of quality and testing. The Company was also granted permission to use
the CE mark on its products, which reflects approval of the Company's products
for export into 18 member countries of the European Community. In December 1996,
the Block operations, including its Mexico facility, were added to the Company's
ISO certification and permission was granted to use the CE mark on the Block
products.

The Company has passed all regulatory inspections and believes that it is
currently in compliance with all relevant federal, state and international
requirements in all material respects.

EMPLOYEES

As of March 1, 2001, the Company and its subsidiaries had a total of 158
full-time employees in the United States and an additional 224 employees at the
Company's wholly-owned subsidiary in Mexico. None of the Company's employees in
the United States are covered by a collective bargaining agreement with a union.
The Company considers its relationship with its employees to be good. The
Company also uses temporary employees as needed, mainly in manufacturing.

ITEM 2. PROPERTIES

In July 1997, the Company entered into a ten-year noncancelable operating lease
for a 51,000 square foot building in Lake Forest, California, to be used as its
primary facility. The Company also leases a facility for its manufacturing plant
in Northern Mexico, a facility for the operation of its subsidiary in Detroit,
Michigan and a facility for its recently acquired subsidiary in San Antonio,
Texas. These facilities currently operate at approximately 60% of capacity.

ITEM 3. LEGAL PROCEEDINGS

As of March 1, 2001, the Company was involved in legal proceedings in the normal
course of operations. Although the outcome of the proceedings cannot be
determined as of March 1, 2001, in the opinion of management any resulting
future liability will not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the three
months ended December 31, 2000.


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<PAGE>   8

                      EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information concerning the executive officers of
the Company as of March 1, 2001. There are no family relationships between any
of the executive officers or directors of the Company. The executive officers
are chosen annually at the first meeting of the Board of Directors following the
annual meeting of shareholders and, subject to the terms of any employment
agreement, serve at the will and pleasure of the Board of Directors.

Name (Age)                             Position
----------                             ---------
Donald M. Earhart (56)                 President, Chief Executive Officer and
                                         Chairman of the Board
Henry Tsutomu Tai, Ph.D., M.D. (57)    Secretary and Director
James J. Dal Porto (47)                Executive Vice President, Chief Operating
                                         Officer and Director
James R. Talevich (50)                 Chief Financial Officer and Treasurer

DONALD M. EARHART, former Corporate Officer and President of the Optical
Division of Allergan, Inc. (from 1986 to 1990), has been Chairman of the Board
since March 1991 and Chief Executive Officer since July 1990. Mr. Earhart joined
the Company as President and Chief Operating Officer in June 1990. Mr. Earhart,
who holds a Bachelor of Engineering degree from Ohio State University and a
Masters Degree in Business Administration from Roosevelt University, has over 25
years experience in the medical products industry. Prior to his employment at
Allergan, he was a Corporate Officer and Division President of Bausch and Lomb
and was an operations manager of Abbott Laboratories. He has also served as an
engineering consultant at Peat, Marwick, Mitchell & Co. and as an engineer with
Eastman Kodak Company.

HENRY TSUTOMU TAI, PH.D., M.D. is the initial progenitor of the Company's
product and business concept in multiple-drug infusion systems and founding
director. Dr. Tai was Chairman of the Board from 1985 to 1988 and has been a
director and Secretary of the Company since 1990. Dr. Tai has been a consultant
in hematology and oncology since 1977. Dr. Tai holds a Bachelor of Arts degree
in Molecular Biology from Harvard University and a Ph.D. in Molecular Biology
and an M.D. from the University of Southern California. He has done postdoctoral
research in the molecular biology of tumor virus DNA at the Weizman Institute of
Science in Israel and at the California Institute of Technology.

JAMES J. DAL PORTO joined the Company in October 1989 to serve as Controller.
Mr. Dal Porto was promoted to Treasurer in October 1990, to Vice President of
Finance and Administration in March 1991, to Executive Vice President, Chief
Financial Officer in March 1993 and to Chief Operating Officer in February 1994.
Mr. Dal Porto served as Financial Planning Manager and Manager of Property
Accounting and Local Taxation at CalComp, a high technology manufacturing
company, from 1984 to 1989. Mr. Dal Porto holds a Bachelor of Science degree in
Economics from the University of California, Los Angeles, and a Masters in
Business Administration from California State University, Northridge.

JAMES R. TALEVICH became Chief Financial Officer in August 2000. Prior to
joining I-Flow he was Chief Financial Officer of Gish Biomedical, Inc. from 1999
to 2000 and Chief Financial Officer of Tectrix Fitness Equipment from 1995 to
1999. Earlier in his career he held financial management positions with
Mallinckrodt Medical, Inc., Sorin Biomedical, Inc., a medical products
subsidiary of Fian S.p.A., Pfizer, Inc., Sensormedics Corporation, a privately
held medical device company, Baxter Travenol Laboratories, Inc., and KPMG Peat
Marwick. Mr. Talevich holds an M.B.A. degree from the University of California
at Los Angeles, a Bachelor of Arts degree in Physics from California State
University, and is a Certified Public Accountant.


                                       8

<PAGE>   9

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock trades on The Nasdaq Small-Cap Market under the
symbol "IFLO." The table below sets forth the high and low sales prices of the
Company's Common Stock as reported by The Nasdaq Small-Cap Market. As of March
1, 2001, the Company's closing stock price was $2.00.

                                   High                  Low
                                   -----                -----
1999
     1st Quarter                   $2.94                $1.75
     2nd Quarter                   $5.00                $2.72
     3rd Quarter                   $4.34                $3.50
     4th Quarter                   $4.50                $3.69



2000
     1st Quarter                   $6.50                $3.44
     2nd Quarter                   $7.50                $2.50
     3rd Quarter                   $3.97                $2.63
     4th Quarter                   $3.13                $0.75

American Stock Transfer & Trust Company is the Company's transfer agent for its
Common Stock. As of March 1, 2001, the Company had approximately 500
shareholders of record and, based upon information received from nominee
holders, the Company believes it has in excess of 8,000 total beneficial
holders.

The Company has not paid, and does not currently expect to pay in the
foreseeable future, cash dividends on its Common Stock.

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
"Effective Time"). In the Merger, all of the outstanding shares of Common Stock
of VMI and InfuSystem were exchanged for 987,074 shares of Common Stock of the
Company. 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 InfuSystem and VMI, as payment of Amherst's
fees and expenses in connection with the Merger. In August 1998, the Company
issued an additional 209,675 shares of its Common Stock pursuant to a valuation
floor provision for the six-month anniversary. In February 1999, the Company
paid an additional $286,000 pursuant to a valuation floor provision for the
one-year anniversary. The Company relied on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended. The shares
of Common Stock issued pursuant to the Merger Agreement were included in the
Registration Statement on form S-3 (Registration No. 333-62929) filed by the
Company in January 1999.

On January 14, 2000, the Company acquired Spinal Specialties, Inc., a designer
and manufacturer of custom spinal, epidural and nerve block infusion kits based
in San Antonio, Texas, for $1.5 million. The purchase price included $584,000 in
cash and 200,000 shares of I-Flow common stock with a fair value of $3.75 per
share for a total value of approximately $750,000. An additional $165,000 of
contingent purchase price was paid in 2001. The transaction was recorded using
the purchase method of accounting and resulted in the recording of $1,905,000 in
goodwill.


                                       9

<PAGE>   10

ITEM 6. SELECTED FINANCIAL DATA

The data set forth below has been derived from the audited Consolidated
Financial Statements of I-Flow Corporation and is qualified by reference to, and
should be read in conjunction with, the Consolidated Financial Statements and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this report.

<TABLE>
<CAPTION>
                                                                          Years Ended December 31,
(Amounts in thousands, except                      ----------------------------------------------------------------------
  per share amounts)                                 2000           1999           1998           1997           1996
                                                   ---------      ---------      ---------      ---------      ----------
<S>                                                <C>            <C>            <C>            <C>            <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:(1)
Revenue:
  Net product sales                                $  23,497      $  19,197      $  17,006      $  17,678      $    9,153
  Rental income and other                              8,469          8,587          6,586             64             139
  Licensing fees                                          --          2,000             --             --           4,600
                                                   ---------      ---------      ---------      ---------      ----------
    Total revenue                                     31,966         29,784         23,592         17,742          13,892

Cost of sales                                         13,710         11,824         10,219          8,450           3,954
                                                   ---------      ---------      ---------      ---------      ----------
Gross Profit                                          18,256         17,960         13,373          9,292           9,938

Operating expenses:
  Selling and marketing                                5,115          4,193          4,178          3,197           2,617
  General and administrative                           8,928          8,257          6,401          4,281           4,336
  Product development                                  1,223          1,057            940          1,035           1,139
  Non-recurring charges                                   --             --             --             --           9,252
                                                   ---------      ---------      ---------      ---------      ----------
    Total operating expenses                          15,266         13,507         11,519          8,513          17,344
                                                   ---------      ---------      ---------      ---------      ----------
  Operating income (loss)                              2,990          4,453          1,854            779          (7,406)
  Interest and other income (expense), net              (265)          (404)          (684)          (334)             41
                                                   ---------      ---------      ---------      ---------      ----------
  Income (loss) before income taxes                    2,725          4,049          1,170            445          (7,365)
  Income tax provision (benefit)                       1,113         (4,763)            69             80              60
                                                   ---------      ---------      ---------      ---------      ----------
  Net income (loss)                                $   1,612      $   8,812      $   1,101      $     365      $   (7,425)
                                                   =========      =========      =========      =========      ==========
  Net income (loss) per share, basic               $    0.11      $    0.61      $    0.08      $    0.02      $    (0.69)
                                                   =========      =========      -========      =========      ==========
  Net income (loss) per share, diluted             $    0.10      $    0.58      $    0.08      $    0.02      $    (0.69)
                                                   =========      =========      -========      =========      ==========

  Weighted-average common shares outstanding:
      Basic                                           15,002         14,387         13,479         12,210         10,849
      Diluted                                         15,647         15,116         13,711         13,030         10,849

CONSOLIDATED BALANCE SHEET DATA:(2)(3)(4)
  Working capital                                  $  14,441      $  13,565      $   6,588      $   4,573      $   4,905
  Total assets                                        35,215         31,768         24,336         17,634         17,234
  Long-term obligations                                1,303          1,548          2,680          1,579          2,884
  Total shareholders' equity                          27,618         24,670         14,817         10,588          9,597
</TABLE>

--------------
(1)  Certain amounts previously reported have been reclassified to conform with
     the presentation at December 31, 2000.

(2)  In July 1996, the Company acquired Block Medical, Inc. See Note 2 of Notes
     to Consolidated Financial Statements.

(3)  In February 1998, the Company acquired InfuSystem II, Inc. and Venture
     Medical, Inc. See Note 3 of Notes to Consolidated Financial Statements.

(4)  In January 2000, the Company acquired Spinal Specialties, Inc. See Note 4
     of Notes to Consolidated Financial Statements.


                                       10

<PAGE>   11

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>

(Amounts in thousands, except per share amounts)
2000                                   Mar. 31      June 30      Sept.30      Dec. 31
----                                   -------      -------      -------      -------
<S>                                    <C>          <C>          <C>          <C>
Total revenues                         $ 7,467      $ 7,740      $ 7,371      $ 9,388
Gross profit                             4,478        4,314        4,060        5,404
Income before income taxes                 719          438          434        1,134
Net income                                 431          252          258          671

Basic net income per share                0.03         0.02         0.02         0.04

Basic average common shares             14,886       15,015       15,039       15,058

Diluted net income per share              0.03         0.02         0.02         0.04
Diluted average common and common
  equivalent shares                     15,783       15,772       15,624       15,334
</TABLE>

<TABLE>
<CAPTION>

1999                                   Mar. 31      June 30      Sept.30      Dec. 31
----                                   -------      -------      -------      -------
<S>                                    <C>          <C>          <C>          <C>
Total revenues                         $ 6,218      $ 7,338      $ 7,831      $ 8,397
Gross profit                             3,779        4,451        4,774        4,956
Income before income taxes                 579          929        1,125        1,416
Net income                                 558          893        1,096        6,265

Basic net income per share                0.04         0.06         0.08         0.43

Basic average common shares             14,099       14,349       14,442       14,498

Diluted net income per share              0.04         0.06         0.07         0.41
Diluted average common and common
  equivalent shares                     14,693       15,510       15,766       15,359
</TABLE>



                                       11

<PAGE>   12

ITEM 7. 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
THAT MAY IMPACT FUTURE OPERATING RESULTS. DISCLOSURES THAT 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
SIGNIFICANTLY 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 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 AND FUTURE
CHANGES TO THAT SYSTEM, COMPETITION IN THE INDUSTRY, ECONOMIC CONDITIONS IN
FOREIGN COUNTRIES, TECHNOLOGICAL CHANGES 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.

Consolidated Results of Operations - For the Year Ended December 31, 2000
Compared to the Year Ended December 31, 1999

Net revenues during the year ended December 31, 2000 were $31,966,000 compared
to $29,784,000 for the prior year, an increase of 7%. In January 2000, the
Company acquired Spinal Specialties, Inc. ("Spinal Specialties"), a designer and
manufacturer of custom spinal, epidural and nerve block kits based in San
Antonio, Texas. Revenues generated by Spinal Specialties of $1,960,000 for the
period from January 14, 2000 (date of acquisition) through December 31, 2000
were included in net revenues for the year ended December 31, 2000. Net product
revenues increased from $19,197,000 in 1999 to $23,497,000 in 2000, an increase
of 22%.

The Company's revenues during 2000 and 1999 were generated in three primary
market segments: regional anesthesia, IV infusion therapy, and oncology infusion
services. Revenues during 1999 also included a one-time $2,000,000 license fee.
Regional anesthesia product revenues for 2000, which included the PainBuster(R)
and ON-Q(R) infusion pain management kits and Spinal Specialties products,
increased by 43% to $8,254,000 compared to $5,758,000 for fiscal 1999, excluding
the license fee. The $2,496,000 increase was primarily related to $1,960,000 in
revenues generated by Spinal Specialties during 2000 subsequent to its
acquisition in January 2000.

IV Infusion Therapy product sales increased 13% in 2000 to $15,243,000 compared
to $13,514,000 in 1999 due to increased orders by domestic and international
distributors. In March 1998, the Company entered into an agreement with B. Braun
Melsungen AG, 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 Company also entered into a similar agreement
under which B. Braun Medical, Inc. distributes I-Flow's elastomeric pumps to its
full line IV Infusion Therapy solution customers in the United States. During
the year ended December 31, 2000, 1999 and 1998, combined sales to these
companies accounted for approximately 18%, 16% and 20%, respectively, of the
Company's net revenues.

Revenues for oncology infusion services provided by the Company's InfuSystem
subsidiary were $8,469,000 in 2000 compared to $8,512,000 in 1999. The fiscal
year ended December 31, 2000 was a transition year for Infusystem, whose
customer base was significantly affected by changes in medical insurance
coverage practices and procedures for patient medical reimbursement utilized by
managed care organizations and other healthcare payors. During this transition
InfuSystem essentially rebuilt its customer base by strengthening existing
managed care contracts and adding new contracts with such leading healthcare
providers as Blue Cross/Blue Shield Affiliates, U.S. Oncology, United
Healthcare, Beech Street Corporation, Nylcare, One Health Plan and Integrated
Health Plan.


                                       12

<PAGE>   13

In May 1999, the Company entered into an agreement with dj Orthopedics LLC
(formerly DonJoy, a division of Smith & Nephew, Inc.), a leading provider of
orthopedic braces, to distribute the Company's PainBuster Pain Management System
exclusively in the United States and Canada for orthopedic surgery applications.
I-Flow's PainBuster(R) Pain Management System provides continuous infusion of a
non-narcotic, local anesthetic directly into the intraoperative site for
post-operative pain management. The agreement called for I-Flow to receive a
nonrefundable $2 million licensing fee during 1999. Additionally, dj Orthopedics
is required to make minimum purchases in order to maintain distribution rights.

In June 1999, the Company signed a distribution agreement with Ethicon
Endo-Surgery, Inc., a Johnson & Johnson company, under which Ethicon
Endo-Surgery became the exclusive distributor of I-Flow's ON-Q(R) Pain
Management System for all surgical applications excluding orthopedics. The
ON-Q(R) Pain Management System infuses non-narcotic local anesthetics directly
into the operative site, the patient's primary source of post-operative pain.
This multi-year agreement requires Ethicon Endo-Surgery to meet minimum purchase
commitments to maintain exclusive distribution rights.

Cost of revenues was $13,710,000 during the year ended December 31, 2000,
compared to $11,824,000 in the prior year, an increase of 16%. As a percentage
of total revenue, cost of revenues increased by three percentage points for the
year ended December 31, 2000 compared to the prior year, due primarily to the
licensing fees received in 1999 which were not received in the year ended
December 31, 2000.

Selling and marketing expenses for the year ended December 31, 2000 increased
$922,000 or 22% from the prior year. This increase is primarily related to the
acquisition of Spinal Specialties. Selling and marketing expenses associated
with Spinal Specialties totaled $500,000 for the period from January 14, 2000
(date of acquisiton) through December 31, 2000. As a percentage of net product
sales, selling and marketing expenses remained unchanged as compared to 1999.

General and administrative expenses for the year ended December 31, 2000
increased $671,000 or 8% from the prior year. This increase was primarily due to
higher personnel costs, insurance costs and various other costs associated with
the growth in the business as well as the addition of Spinal Specialties. For
the period from January 14, 2000 (date of acquisition) through December 31, 2000
general and administrative expenses for Spinal Specialties were $414,000. As a
percentage of net product sales, general and administrative expenses decreased
from the prior year by 5%. This decrease represents an overall effort by
management to control spending.

Product development expenses for the year ended December 31, 2000 increased from
the prior year by $166,000, or 16%, due primarily to increased efforts on the
new pain management products. The Company will continue to incur product
development expenses as it continues its efforts to introduce new technology and
cost-efficient products into the market. Product development has remained
relatively consistent as a percentage of net product sales.

During the year ended December 31, 1999, the Company recorded a net income tax
benefit of $4,763,000 as a result of a reduction in the valuation allowance for
deferred tax assets. By comparison, during the year ended December 31, 2000, the
Company recorded income tax expense of $1,113,000. The Company's deferred tax
assets primarily relate to net operating loss carryforwards for federal and
state tax purposes that can be used to offset taxes on future earnings. The
valuation allowance on the deferred tax assets was reduced, as it became more
likely that the Company will incur future profits and therefore will be able to
realize the tax benefits.

Consolidated Results of Operations - For the Year Ended December 31, 1999
Compared to the Year Ended December 31, 1998

Net revenues during the year ended December 31, 1999 were $29,784,000 compared
to $23,592,000 for the prior year, an increase of 26%. In February 1998, the
Company acquired InfuSystems II, Inc. and Venture Medical, Inc., both of which
were national ambulatory infusion pump management and distribution companies
based in Detroit, Michigan. These companies were merged into InfuSystem, Inc.
("InfuSystem"), a wholly-owned subsidiary of the Company. InfuSystem is
primarily engaged in the rental of infusion pumps on a month-to-month basis.
Rental revenues generated by InfuSystem of $6,468,000 for the period from
February 11, 1998 (date of acquisition) through


                                       13
<PAGE>   14

December 31, 1998 were included in net revenues for the year ended December 31,
1998. Rental revenues of $8,512,000 were included for the year ended December
31, 1999.

Net product revenues increased from $17,006,000 in 1998 to $19,197,000 in 1999,
an increase of 13%. The 1998 revenues were adversely affected by the
restructuring of the Company's worldwide distribution network as well as
existing distributor inventory levels early in 1998, which caused a short-term
decline in shipments of infusion products to the Company's previous distribution
partners. As described above, several new distribution partners and new products
were added in 1998 and 1999. These new distributors contributed significantly to
the increased product revenues for the year ended December 31, 1999.

Cost of sales of $11,824,000 was incurred during the year ended December 31,
1999, compared to $10,219,000 in the prior year, an increase of 16%. As a
percentage of total revenue, cost of sales decreased by four percentage points
for the year ended December 31, 1999 compared to the prior year, due primarily
to the increased licensing fees in 1999 and a change in the sales mix towards
the new pain management products, which have a higher gross margin.

Selling and marketing expenses for the year ended December 31, 1999 remained
essentially unchanged with an increase of only $15,000. As a percentage of net
product sales, selling and marketing expenses decreased from the prior year by
approximately 3% due to the lower selling costs associated with the new
distribution agreements described above.

General and administrative expenses for the year ended December 31, 1999
increased $1,856,000 or 29% from the prior year. This increase was primarily due
to higher personnel costs, insurance costs and various other costs associated
with the growth in the business as well as the addition of InfuSystem for the
entire year in 1999 compared to only a portion of the year for 1998. As a
percentage of net product sales, general and administrative expenses remained
relatively unchanged.

Product development expenses for the year ended December 31, 1999 increased from
the prior year by $117,000, or 12%, due primarily to increased efforts on the
new pain management products.

During the year ended December 31, 1999, the Company recorded a tax benefit of
$4,763,000 related to a reduction in the valuation allowance for deferred tax
assets. The Company's deferred tax assets primarily relate to net operating loss
carryforwards for federal and state tax purposes that can be used to offset
taxes on future earnings. The valuation allowance on the deferred tax assets was
reduced, as it became more likely that the Company will incur future profits and
therefore will be able to realize the tax benefits.

Liquidity and Capital Resources

During the year ended December 31, 2000, cash of $1,724,000 was provided by
operating activities consisting of net income of $1,612,000 plus non-cash
expenses of $4,152,000, less net changes in operating assets and liabilities of
$4,040,000.

The Company used cash for investing activities during the year ended December
31, 2000 by acquiring net leasehold improvements, furniture, fixtures, equipment
and other assets of $2,948,000 for use in its operations. In addition during
fiscal 2000, there was a net cash outflow related to other assets of $232,000
and the Company paid $584,000 in connection with the Spinal Specialties
acquisition.

During the year ended December 31, 2000, cash of $26,000 was provided by
financing activities consisting primarily of net borrowings on the line of
credit of $412,000, proceeds of $406,000 from the exercise of stock options and
warrants, and net payments on notes payable of $792,000.

As of December 31, 2000, the Company had cash and cash equivalents of $1,184,000
and net receivables of $12,487,000. 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.




                                       14
<PAGE>   15

The Company has a working capital line of credit with a bank expiring in October
2001. Under the line of credit, the Company may borrow up to the lesser of
$4,000,000 or 80% of eligible accounts receivable and 25% of eligible inventory,
as defined, at the bank's prime rate plus 0.50% (9.5% at December 31, 2000).
Under the line as of December 31, 2000, there were funds available for borrowing
of $3,500,000, as well as an outstanding balance of $500,000.

In conjunction with the acquisition of Block, the Company entered into a
$4,000,000 note payable with a bank due in equal monthly installments of
principal of $83,333 plus interest at the bank's prime rate plus 1%. Repayment
of this note was completed in June 2000. In March 1998, the Company entered into
an additional note payable with a bank for $2,500,000 ($1,250,000 outstanding at
December 31, 2000) due in equal monthly installments of principal of $46,296
plus interest at the bank's prime rate plus 1% (9.5% at December 31, 2000)
beginning in October 1998 through March 2003. Proceeds from this note were used
to pay down the line of credit and for general working capital purposes.

As described above, on February 9, 1998, the Company entered into an Agreement
and Plan of Merger (the "Agreement") with InfuSystems II, Inc., Venture Medical,
Inc. and their shareholders, contemplating the merger of both companies with and
into InfuSystem, Inc., a wholly-owned subsidiary of the Company. Pursuant to the
Agreement, the mergers were effective as of February 11, 1998. See Note 3 in
Notes to Consolidated Financial Statements. The subsidiary has a revolving line
of credit with a bank under which it may borrow up to $2,500,000 or 80% of
eligible accounts receivable, as defined, at the bank's prime rate plus 0.50%
(9.5% at December 31, 2000). There were no outstanding borrowings under the line
as of December 31, 2000.

The lines of credit and the notes are collateralized by substantially all of the
Company's assets and require the Company to comply with certain covenants
principally relating to working capital and liquidity. As of December 31, 2000,
the Company was in compliance with all such covenants.





                                       15
<PAGE>   16

New Accounting Pronouncements

Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities is effective for all fiscal years
beginning after June 15, 2000. SFAS No. 133 as amended, establishes accounting
and reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts and for hedging activities. Under SFAS
No. 133, certain contracts that were not previously considered derivatives may
now meet the definition of a derivative. The Company will adopt SFAS No. 133
effective January 1, 2001 and the Company believes that such adoption will not
have a material impact on its consolidated financial statements.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, which the
Company adopted in the fourth fiscal quarter of 2000. Adoption of SAB No. 101
did not have a material impact on the Company's consolidated financial
statements.

In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of
Accounting Principles Board ("APB") Opinion 25, Accounting for Stock Issued to
Employees ("FIN 44"). FIN 44 clarifies the application of APB No. 25 for the
following: the definition of employee for purposes of applying APB No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence for various modifications to the terms of a
previously fixed stock option award; and the accounting for an exchange of stock
compensation awards in a business combination. The Company adopted FIN 44
effective July 1, 2000 and such adoption did not have a material impact on its
consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's financial instruments include cash and cash equivalents and
long-term debt. At December 31, 2000, the carrying values of the Company's
financial instruments approximated fair values based on current market prices
and rates.

It is the Company's current policy to not enter into derivative financial
instruments. The Company does not currently have any significant direct foreign
currency exposure at December 31, 2000.


                                       16
<PAGE>   17

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS

The Report of Independent Auditors and the Consolidated Financial Statements
listed in the "Index to Consolidated Financial Statements" in Item 14 are filed
as part of this report.


FINANCIAL STATEMENT SCHEDULES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                        Balance at       Charged to      Additions for                           Balance at
                                       Beginning of      Costs and          Business                               End of
Classification                            Period          Expenses        Acquisition          Deductions          Period
--------------                         ------------      ----------      -------------        ------------       ----------
<S>                                     <C>               <C>             <C>                 <C>                <C>
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts         $  463,000        $316,000        $ 1,311,000         $  (266,000)        $1,824,000
Reserve for obsolete inventories         1,135,000         323,000                               (238,000)         1,220,000

YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts          1,824,000         501,000                                                 2,325,000
Reserve for obsolete inventories         1,220,000         808,000                               (360,000)         1,668,000

YEAR ENDED DECEMBER 31, 2000
Allowance for doubtful accounts          2,325,000         425,000                               (263,000)         2,487,000
Reserve for obsolete inventories         1,668,000         248,000                               (386,000)         1,530,000
</TABLE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

Not applicable.




                                       17
<PAGE>   18

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 2001 Annual Meeting of
Shareholders under the captions "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance," which will be filed with the
Securities and Exchange Commission no later than 120 days after the close of the
fiscal year ended December 31, 2000 and the information from the section
entitled "Executive Officers of the Registrant" following Part I, Item 4 of this
report.

ITEM 11. EXECUTIVE COMPENSATION

There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 2001 Annual Meeting of
Shareholders under the captions "Board Compensation," "Executive Compensation,"
"Report of the Compensation Committee," "Compensation Committee Interlock
Insider Participation" and "Stock Performance Graph" which will be filed with
the Securities and Exchange Commission no later than 120 days after the close of
the fiscal year ended December 31, 2000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 2001 Annual Meeting of
Shareholders under the caption "Principal Shareholders and Stock Ownership of
Management," which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended December 31, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


                                       18

<PAGE>   19

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of this Report:

    (1) Financial Statements

            The documents described in the "Index to Consolidated Financial
            Statements" are included in this report starting at page F-1.

                                                                    Page in This
    (2) Financial Statement Schedules included herein:                 Report
                                                                    ------------
            Schedule II - "Valuation and Qualifying Accounts"            17

            All other schedules are omitted, as the required
            information is inapplicable.

    (3) Exhibits

            The list of exhibits contained in the accompanying Index to
            Exhibits is herein incorporated by reference.

(b) Reports on Form 8-K

    There were no reports on Form 8-K filed during the quarter ended
    December 31, 2000.



                                       19
<PAGE>   20

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                         Page
                                                                         ----
Independent Auditors' Report                                              F-1

Consolidated Balance Sheets as of December 31, 2000 and 1999              F-2

Consolidated Statements of Operations and Comprehensive Operations
  For the Years Ended December 31, 2000, 1999 and 1998                    F-3

Consolidated Statements of Shareholders' Equity for the
  Years Ended December 31, 2000, 1999 and 1998                            F-4

Consolidated Statements of Cash Flows for the Years
  Ended December 31, 2000, 1999 and 1998                                  F-5

Notes to Consolidated Financial Statements                                F-6





                                       20
<PAGE>   21

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
 of I-Flow Corporation:

We have audited the accompanying consolidated balance sheets of I-Flow
Corporation and subsidiaries (the Company) as of December 31, 2000 and 1999, and
the related consolidated statements of operations and comprehensive operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. Our audits also included the financial statement
schedule listed in the Index at Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of I-Flow Corporation and subsidiaries
as of December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.


DELOITTE & TOUCHE LLP


Costa Mesa, California
February 21, 2001


                                      F-1

<PAGE>   22

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
(Amounts in thousands,                                      December 31,     December 31,
except share amounts)                                           2000             1999
----------------------                                      ------------     ------------
<S>                                                         <C>              <C>
ASSETS

Current assets:
  Cash and cash equivalents                                   $  1,184         $  3,192
  Accounts receivable, less allowance for doubtful
    accounts of $2,487 and $2,325 at December 31, 2000
    and 1999, respectively                                      12,487            8,748
  Inventories, net                                               4,161            3,785
  Prepaid expenses and other                                       360              553
  Deferred taxes                                                 2,543            2,837
                                                              --------         --------
  Total current assets                                          20,735           19,115

Property, net                                                    4,591            2,985
Goodwill and other intangibles, net                              7,641            6,454
Notes receivable and other                                          11              174
Deferred taxes                                                   2,237            3,040
                                                              --------         --------
Total assets                                                  $ 35,215         $ 31,768
                                                              ========         ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                            $  2,673         $  1,800
  Accrued payroll and related expenses                           1,482            1,526
  Income taxes payable                                             644              607
  Current portion of long-term debt                                976            1,443
  Line of credit                                                   500               88
  Other liabilities                                                 19               86
                                                              --------         --------
    Total current liabilities                                    6,294            5,550
                                                              --------         --------

Long-term debt, less current portion                             1,303            1,548

Commitments and contingencies (Note 8)

Shareholders' equity
  Preferred stock, no par value; 5,000,000 shares
    authorized; no shares issued and outstanding                    --               --
  Common stock, no par value; 40,000,000 shares
    authorized, 15,051,929 and 14,692,125 shares
    issued and outstanding at December 31, 2000
    and 1999, respectively                                      40,741           39,414
  Common stock warrants                                            615              615
  Accumulated other comprehensive income                            35               26
  Accumulated deficit                                          (13,773)         (15,385)
                                                              --------         --------
  Total shareholders' equity                                    27,618           24,670
                                                              --------         --------
Total liabilities and shareholders' equity                    $ 35,215         $ 31,768
                                                              ========         ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                      F-2

<PAGE>   23

CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE OPERATIONS

<TABLE>
<CAPTION>
                                                         Years ended December 31,
(Amounts in thousands,                          ------------------------------------------
except per share amounts)                         2000             1999             1998
-------------------------                       --------         --------         --------
<S>                                             <C>              <C>              <C>
Revenues:
  Net product sales                             $ 23,497         $ 19,197         $ 17,006
  Rental income and other                          8,469            8,587            6,586
  Licensing fees                                      --            2,000               --
                                                --------         --------         --------
  Total revenues                                  31,966           29,784           23,592

Cost of revenues                                  13,710           11,824           10,219
                                                --------         --------         --------
Gross profit                                      18,256           17,960           13,373
                                                --------         --------         --------

Operating expenses
  Selling and marketing                            5,115            4,193            4,178
  General and administrative                       8,928            8,257            6,401
  Product development                              1,223            1,057              940
                                                --------         --------         --------
  Total operating expenses                        15,266           13,507           11,519
                                                --------         --------         --------

Operating income                                   2,990            4,453            1,854
Interest and other expense, net                     (265)            (404)            (684)
                                                --------         --------         --------
Income before income taxes                         2,725            4,049            1,170

Income tax provision (benefit) expense             1,113           (4,763)              69
                                                --------         --------         --------
Net income                                      $  1,612         $  8,812         $  1,101
                                                ========         ========         ========
Net income per share
Basic                                           $   0.11         $   0.61         $   0.08
Diluted                                             0.10             0.58             0.08

Comprehensive Operations:

Net income                                      $  1,612         $  8,812         $  1,101
Foreign currency translation adjustments               9               26              117
                                                --------         --------         --------
Comprehensive income                            $  1,621         $  8,838         $  1,218
                                                ========         ========         ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                      F-3

<PAGE>   24

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                               Preferred Stock          Common Stock
                                              -----------------      --------------------
(Amounts in thousands)                         Shares    Amount      Shares        Amount
----------------------                        -------    ------      ------        ------
<S>                                           <C>        <C>         <C>          <C>
Balance, January 1, 1998                        656     $1,494       12,393       $33,853

Exercise of common stock warrants
  and options                                                            16            30

Common stock issued for acquisition                                   1,256         3,044

Conversion of preferred stock                  (355)      (808)         379           808

Preferred stock dividend

Cumulative translation adjustment

Net income
                                               ----     ------       ------       -------
Balance, December 31, 1998                      301      $ 686       14,044       $37,735

Exercise of common stock options                                        326           869

Tax impact from exercise of stock options                                             309

Stock based compensation                                                              101

Purchase price adjustment                                                            (286)

Conversion of preferred stock                  (301)      (686)         322           686

Reversal of preferred stock dividend

Cumulative translation adjustment

Net income
                                               ----     ------       ------       -------
Balance, December 31, 1999                       --     $   --       14,692       $39,414

Exercise of common stock options                                        182           406

Common stock issued for acquisition                                     200           750

Settlement of escrow shares                                             (22)          (67)

Tax impact from exercise of stock options                                            (145)

Stock based compensation                                                              383

Cumulative translation adjustment

Net income
                                               ----     ------       ------       -------
Balance, December 31, 2000                       --     $   --      15,052        $40,741
</TABLE>


<TABLE>
<CAPTION>

                                                              Accumulated
                                                                 Other
                                                  Common     Comprehensive
                                                   Stock         Income       Accumulated
(Amounts in thousands)                            Warrants       (Loss)         Deficit         Total
----------------------                            --------   -------------    -----------      -------
<S>                                               <C>        <C>              <C>              <C>
Balance, January 1, 1998                           $ 615         $(117)        $(25,257)       $10,588

Exercise of common stock warrants
  and options                                                                                       30

Common stock issued for acquisition                                                              3,044

Conversion of preferred stock

Preferred stock dividend                                                            (63)           (63)

Cumulative translation adjustment                                  117                             117

Net income                                                                        1,101          1,101
                                                   -----         -----         --------        -------
Balance, December 31, 1998                         $ 615         $  --         $(24,219)       $14,817

Exercise of common stock options                                                                   869

Tax impact from exercise of stock options                                                          309

Stock based compensation                                                                           101

Purchase price adjustment                                                                         (286)

Conversion of preferred stock

Reversal of preferred stock dividend                                                 22             22

Cumulative translation adjustment                                   26                              26

Net income                                                                        8,812          8,812
                                                   -----         -----         --------        -------
Balance, December 31, 1999                         $ 615          $ 26         $(15,385)       $24,670

Exercise of common stock options                                                                   406

Common stock issued for acquisition                                                                750

Settlement of escrow shares                                                                        (67)

Tax impact from exercise of stock options                                                         (145)

Stock based compensation                                                                           383

Cumulative translation adjustment                                    9                               9

Net income                                                                        1,612          1,612
                                                   -----         -----         --------        -------
Balance, December 31, 2000                         $ 615          $ 35         $(13,773)       $27,618
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                      F-4

<PAGE>   25

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                                                              ---------------------------------------
(Amounts in thousands)                                         2000             1999            1998
----------------------                                        -------         -------         -------
<S>                                                           <C>             <C>             <C>
Cash flows from operating activities:
  Net income                                                  $ 1,612         $ 8,812         $ 1,101
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Deferred taxes                                            1,087          (5,569)             --
      Depreciation and amortization                             2,648           2,490           2,414
      Loss on disposal of property                                 10              37              --
      Compensation expense for stock option grants                383             101             136
      Change in inventory obsolescence reserve                   (138)            448              85
      Change in allowance for doubtful accounts                   162             378              50
      Changes in operating assets and liabilities,
        net of effect of business acquisitions:
          Accounts receivable                                  (3,696)         (1,562)           (559)
          Inventories                                            (283)            172             329
          Prepaid expenses and other                              235              14            (348)
          Accounts payable and accrued payroll
            and related expenses                                 (106)          1,058            (956)
          Deferred revenue                                         --              --             (58)
          Income taxes payable                                   (260)            607              --
          Other liabilities                                        70              82            (162)
                                                              -------         -------         -------
Net cash provided by operating activities                       1,724           7,068           2,032
                                                              -------         -------         -------

Cash flows from investing activities:
  Capital expenditures                                         (2,948)         (1,048)           (688)
  Cash paid for acquisition, net of cash received                (584)           (286)           (673)
  Change in other assets                                         (232)           (178)            488
                                                              -------         -------         -------
Net cash used in investing activities                          (3,764)         (1,512)           (873)
                                                              -------         -------         -------
Cash flows from financing activities:
  Net proceeds (repayments) from line of credit                   412          (1,891)         (1,607)
  Proceeds from issuance of note payable                          812             163           2,558
  Payments on notes payable                                    (1,604)         (1,935)         (1,938)
  Cash dividend on preferred stock                                 --              --             (63)
  Proceeds from exercise of stock options and warrants            406             378              30
                                                              -------         -------         -------
Net cash provided by (used in) financing activities                26          (3,285)         (1,020)
                                                              -------         -------         -------

Effect of exchange rates on cash                                    6             (50)            117
                                                              -------         -------         -------
Net increase (decrease) in cash and cash equivalents           (2,008)          2,221             256
Cash and cash equivalents at beginning of year                  3,192             971             715
                                                              -------         -------         -------
Cash and cash equivalents at end of year                      $ 1,184         $ 3,192         $   971
                                                              =======         =======         =======

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid                                                 $   256         $   476         $   698
                                                              -------         -------         -------
Income tax payments                                           $   245         $    36         $    69
                                                              -------         -------         -------
Non cash preferred stock conversion                           $    --         $   686         $   808
                                                              -------         -------         -------
Deferred stock based compensation                             $    --         $   491         $    --
                                                              -------         -------         -------
Tax impact from exercise of stock options                     $  (145)        $   309         $    --
                                                              -------         -------         -------
Settlement of escrow shares                                   $    67         $    --         $    --
                                                              -------         -------         -------

Liabilities issued and assumed in connection
  with acquisition:
    Fair value of assets acquired (including intangibles)     $ 2,222         $    --         $ 8,783
    Less receivable from acquired entity                           --              --            (684)
    Cash outflows for business acquisition                       (584)           (286)           (673)
    Common stock and warrants issued                             (750)            286          (3,044)
                                                              -------         -------         -------
Liabilities issued and assumed                                $   888         $    --         $ 4,382
                                                              =======         =======         =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                      F-5

<PAGE>   26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations - I-Flow Corporation ("I-Flow" or "the Company") was
incorporated on July 17, 1985. The Company designs, develops and markets
technically advanced, low-cost ambulatory infusion systems that are redefining
the standard of care by providing life enhancing, cost effective solutions for
pain management and infusion therapy. The Company's products are used both in
hospitals and alternate site settings. I-Flow manufactures a growing line of
compact, portable infusion pumps, catheters and pain kits that administer
medication directly to the wound site as well as administer local anesthetic,
chemotherapy, antibiotics, nutritional supplements and other medications.
InfuSystem, Inc., a wholly-owned subsidiary, is primarily engaged in the rental
of medical infusion pumps. The rentals are on a month-to-month basis and are
treated as operating leases.

Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents - Cash and cash equivalents consist of cash in the
bank, money-market funds and U.S. Treasury bills with an original maturity date
of 90 days or less.

Inventories - Inventories are stated at the lower of cost (determined on a first
in, first out basis) or market. Inventories consisted of the following as of
December 31:

                                    2000                  1999
                                -----------           -----------
Raw Materials                   $ 4,456,000           $ 3,581,000
Work in Process                     171,000               164,000
Finished Goods                    1,064,000             1,708,000
Reserve for Obsolescence         (1,530,000)           (1,668,000)
                                -----------           -----------
Total                           $ 4,161,000           $ 3,785,000
                                ===========           ===========

Property - Property is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the related assets, ranging from two
to seven years. Leasehold improvements are amortized using the straight-line
method over the life of the asset or the remaining term of the lease, whichever
is shorter. Property consisted of the following as of December 31:

<TABLE>
<CAPTION>
                                                   2000                1999
                                                -----------         -----------
<S>                                             <C>                 <C>
Furniture, fixtures and equipment               $ 5,724,000         $ 4,710,000
Rental and demonstration equipment                5,031,000           2,976,000
Accumulated depreciation and amortization        (6,164,000)         (4,701,000)
                                                -----------         -----------
Total                                           $ 4,591,000         $ 2,985,000
                                                ===========         ===========
</TABLE>

Long Lived Assets - The Company accounts for the impairment and disposition of
long-lived assets in accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. In accordance with SFAS 121, long-lived
assets to be held are reviewed for events or changes in circumstances, which
indicate that their carrying value may not be recoverable. The Company
periodically reviews the carrying value of long-lived assets to determine
whether or not impairment to such value has occurred and has determined that
there was no impairment at December 31, 2000.


                                      F-6


<PAGE>   27

Goodwill and Other Intangibles - Goodwill represents the excess purchase cost
over the net assets acquired and is amortized over five to fifteen years using
the straight-line method. Other intangible assets include patents, acquired
workforce value and acquired technology which are being amortized using the
straight-line method over two to seven years. Accumulated amortization of
goodwill and other intangible assets amounted to $4,608,000 and $3,340,000 as of
December 31, 2000 and 1999, respectively. The Company periodically evaluates the
recoverability of goodwill based on projected undiscounted operating cash flows
and evaluates the recoverability of other intangibles based on the requirements
of SFAS No. 121. At December 31, 2000, the Company believes there has been no
impairment of the value of goodwill and other intangible assets.

Revenue Recognition - Revenue from product sales is recognized at the time of
shipment and passage of title. Provision is made currently for estimated product
returns and warranty obligations, both of which have historically been
insignificant.

Fees for non-cancelable licensing agreements with no minimum quantity or other
performance requirements are recognized as revenue upon execution of the related
agreement, assuming collection is probable. Fees for licensing agreements that
include minimum quantity or other performance requirements are recognized as
revenue ratably over the license period or as such criteria are met.

Rental revenue from medical pumps is recorded as earned over the term of the
related rental agreements, normally 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. Provision is made currently to reduce revenue to
the estimated allowable amount per such contractual rates.

Accounting for Stock Based Compensation - The Company accounts for employee
stock options using the intrinsic value method in accordance with Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees
and Financial Accounting Standards Board (FASB) Interpretation No. 28,
Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans, and has adopted the disclosure-only alternative of SFAS No. 123,
Accounting for Stock-Based Compensation (See Note 6). Stock options issued to
consultants and vendors are accounted for at fair value in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force (EITF) No. 96-18,
Accounting for Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction With Selling Goods or Services (See Note 6).

Earnings Per Share - Pursuant to SFAS No. 128, Earnings Per Share, the Company
provides dual presentation of "Basic" and "Diluted" earnings per share ("EPS").

Basic EPS excludes dilution from common stock equivalents and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution from common stock equivalents, such as outstanding stock options,
calculated using the treasury stock method. Common stock equivalents have not
been included in calculating diluted EPS where inclusion would be anti-dilutive.


                                      F-7

<PAGE>   28

The following is a reconciliation between the components of the basic and
diluted earnings per share calculations:

<TABLE>
<CAPTION>
                                                   Years ended December 31,
                                         --------------------------------------------
                                             2000           1999             1998
                                         -----------     -----------     ------------
<S>                                      <C>             <C>             <C>
Net income                               $ 1,612,000     $ 8,812,000     $  1,101,000
Less preferred stock dividends                    --              --          (63,000)
                                         -----------     -----------     ------------
Net income available to common
  shareholders                           $ 1,612,000     $ 8,812,000     $  1,038,000
                                         -----------     -----------     ------------

Basic net income per share
  Weighted-average number of common
    shares outstanding                    15,002,000      14,387,000       13,479,000

  Effect of dilutive securities:
    Stock options                            645,000         729,000          232,000
                                         -----------     -----------     ------------
Diluted net income per share
  Weighted-average number of common
    shares outstanding                    15,647,000      15,116,000       13,711,000
                                         ===========     ===========     ============
</TABLE>

Comprehensive Income - Pursuant to SFAS No. 130, Reporting Comprehensive Income,
the Company has included a calculation of comprehensive income in its
accompanying consolidated statements of operations and comprehensive operations
for the years ended December 31, 2000, 1999 and 1998.

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles necessarily requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.

Foreign Currency - The financial position and results of operations of the
Company's foreign subsidiary are generally measured using the local currency as
the functional currency. Assets and liabilities of the subsidiary are translated
at the exchange rate in effect at each year-end. Income statement accounts are
translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from differences in exchange rates from period
to period are included in shareholders' equity. Realized gains or losses from
foreign currency transactions are included in operations as incurred.

Due to the highly inflationary environment in Mexico (as defined by SFAS No. 52,
Foreign Currency Transactions), the U.S. dollar served as the functional
currency for the Company's Mexican subsidiary during 1998. As a result, gains
and losses from foreign currency transactions and from translation of the
Mexican subsidiary's financial statements during 1998 were recognized as a
component of interest and other expenses, net. Such amounts were not significant
for the year ended December 31, 1998. During 1999 and 2000, the environment in
Mexico was not highly inflationary, therefore, the gains and losses from
translation of the Mexican subsidiary's financial statements were included as a
component of shareholders' equity.

Reclassifications - Certain prior year amounts have been reclassified to conform
to the current year presentation.

New Accounting Pronouncements - SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities is effective for all fiscal years beginning
after June 15, 2000. SFAS No. 133 as amended, establishes accounting and
reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts and for hedging activities. Under SFAS
No. 133, certain contracts that were not previously considered derivatives may
now meet the definition of a derivative. The Company will adopt SFAS No. 133
effective January 1, 2001 and the Company believes that such adoption will not
have a material impact on its consolidated financial statements.


                                      F-8

<PAGE>   29

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, which the
Company adopted in the fourth fiscal quarter of 2000. Adoption of SAB No. 101
did not have a material impact on the Company's consolidated financial
statements.

In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion 25, Accounting for Stock Issued to Employees ("FIN 44"). FIN 44
clarifies the application of APB No. 25 for the following: the definition of
employee for purposes of applying APB No. 25; the criteria for determining
whether a plan qualifies as a non-compensatory plan; the accounting consequence
for various modifications to the terms of a previously fixed stock option award;
and the accounting for an exchange of stock compensation awards in a business
combination. The Company adopted FIN 44 effective July 1, 2000 and such adoption
did not have a material impact on its consolidated financial statements.

2. ACQUISITION OF BLOCK MEDICAL, INC.

On July 22, 1996, the Company purchased substantially all of the assets of Block
Medical, Inc. ("Block"). The assets were acquired for an aggregate purchase
price of approximately $18 million. The purchase price has been allocated to the
net assets acquired, in-process research and development, goodwill and other
intangibles. The amount allocated to in-process research and development of $4.9
million has been expensed as of the acquisition date. Consideration for the
purchase consisted of: $15,000,000 in cash, 433,018 shares of I-Flow Corporation
Common Stock with a value of $2,000,000 as of the date of closing, and a warrant
to purchase 250,000 shares of I-Flow Corporation Common Stock at an exercise
price of $4.62, expiring July 22, 2001, valued at $615,000 at the date of
closing. In addition, the Company incurred direct acquisition costs of $803,000.

The Company recorded a restructuring charge in 1996 of $1,552,000 to provide for
expenses related to consolidating Block's facilities with its own in 1997. The
$1,552,000 restructuring charge was comprised of approximately $788,000 in
severance and relocation expenses, $380,000 in moving expenses and $384,000 for
lease abandonment. The restructuring was completed during 1997 and there was no
restructuring reserve remaining as of December 31, 1997.

3. 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.

In the Merger, all of the outstanding shares of Common Stock of VMI and
InfuSystem were exchanged for 987,074 shares of the Company's Common Stock,
valued at approximately $2.9 million, plus 59,395 shares of the Company's Common
Stock valued at $177,000 as payment for related investment banker's fees. In
addition, the Company incurred direct acquisition costs of $673,000. The
transaction was recorded using the purchase method of accounting and resulted in
the recording of approximately $3,546,000 in goodwill.

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 was less
than the value of its Common Stock as of the closing ($2.98 per share), then the
Company was obligated to pay additional amounts as merger consideration. Any
additional amounts were to be calculated pursuant to the formula set forth in
the Agreement. At the Company's election, it could 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 209,675 shares of
its Common Stock pursuant to the valuation floor provision for the six-month
anniversary. In February 1999, the Company paid cash of $286,000 pursuant to the
valuation floor provision for the one-year anniversary. There was no adjustment
required for the


                                      F-9

<PAGE>   30

eighteen-month and two-year anniversaries. Pursuant to APB Opinion No. 16,
Business Combinations, there was no incremental value ascribed to these
additional payments for purchase accounting purposes. During 2000, certain
shares held in escrow, pursuant to the Agreement, were distributed in a final
purchase price adjustment. As a result, the Company reacquired 22,000 common
shares and reduced goodwill by $67,000.

4. ACQUISITION OF SPINAL SPECIALTIES, INC.

On January 14, 2000, the Company acquired Spinal Specialties, Inc., a designer
and manufacturer of custom spinal, epidural and nerve block infusion kits based
in San Antonio, Texas, for $1.5 million. The purchase price included $584,000 in
cash and 200,000 shares of I-Flow common stock with a fair value of $3.75 per
share for a total value of approximately $750,000. An additional $165,000 of
contingent purchase price was paid in 2001. The transaction was recorded using
the purchase method of accounting and resulted in the recording of $1,905,000 in
goodwill.

In conjunction with the acquisition, the Company entered into employment
agreements with two employees of Spinal Specialties that expire in January 2002.
Under the terms of the agreements, each of the individuals will receive a
minimum base salary of $130,000 per year for the terms of the contracts.

During fiscal 1999 and 1998 the operations of Spinal Specialties were not
significant in relation to the consolidated operating results of the Company
presented in the accompanying consolidated statements of operations and
comprehensive operations.

5. LINES OF CREDIT AND LONG-TERM DEBT

The Company has a line of credit, expiring in October 2001, under which it may
borrow up to the lesser of $4,000,000 or 80% of eligible accounts receivable and
25% of eligible inventory, as defined. There was $3,500,000 available for
borrowing under the line as well as an outstanding balance of $500,000 as of
December 31, 2000. Interest is payable monthly at the bank's prime rate (9.5% at
December 31, 2000) plus 0.50%.

Additionally, the Company's wholly-owned subsidiary, InfuSystem, entered into a
line of credit agreement, expiring in March 2002, under the terms of this line
of credit agreement, Infusystem may borrow up to the lesser of $2,500,000 or 80%
of its eligible accounts receivable, as defined. There was $2,500,000 available
for borrowing under the line as of December 31, 2000. There were no amounts
outstanding under the line of credit as of December 31, 2000. Interest is
payable monthly at 0.25% below the bank's prime rate. The principal is due at
maturity and is collateralized by all assets of InfuSystem.

These lines of credit contain covenants primarily relating to the maintenace of
certain financial ratios, all of which the Company was in compliance with as of
December 31, 2000.


                                      F-10

<PAGE>   31

The Company's long term debt consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                  2000           1999
                                                               ----------     ----------
<S>                                                            <C>            <C>
Note Payable due in equal monthly principal installments
of $83,333 plus interest at the bank's prime rate plus 1%,
collateralized by all assets of the Company, paid in full
during July 2000                                               $       --     $  559,000

Note Payable due in equal monthly principal installments
of $46,296 plus interest at the bank's prime rate plus
1%, through March 2003; collateralized by all assets of
the Company                                                     1,250,000      1,806,000

Installment Notes under which interest is payable
monthly at 0.50% over the bank's prime rate, due on
various dates; collateralized by all assets of
InfuSystem, Inc.                                                  914,000        156,000

Other                                                             115,000        470,000
                                                               ----------     ----------
Total                                                           2,279,000      2,991,000

Less current portion                                              976,000      1,443,000
                                                               ----------     ----------
Total long-term debt                                           $1,303,000     $1,548,000
                                                               ==========     ==========
</TABLE>

The notes contain covenants primarily relating to the maintenance of certain
financial ratios, all of which the Company was in compliance with as of December
31, 2000.

Future principal payments on long-term debt are as follows:

            Year ended December 31:
            -----------------------
            2001                                      $  976,000
            2002                                         931,000
            2003                                         370,000
            2004                                           2,000
                                                      ----------
            Total                                     $2,279,000
                                                      ==========

At December 31, 2000, the Company was contingently liable for $192,000 under an
irrevocable standby letter of credit which expires in August 2002.

6. SHAREHOLDERS' EQUITY, COMMON STOCK WARRANTS AND OPTIONS

During the year ended December 31, 1999, 301,250 shares of the Series B
Preferred Stock were converted into 321,333 shares of the Company's Common
Stock. As of December 31, 2000, there was no Preferred Stock issued and
outstanding.

In July 1996, the Company issued warrants for the purchase of 250,000 shares of
the Company's Common Stock in conjunction with the acquisition of Block
("Acquisition Warrants") (Note 2). The exercise price for these warrants was
equal to the fair market value of the Common Stock at the date of grant.
Additionally, in conjunction with the financing obtained for the acquisition
(Note 4), the Company issued warrants to the bank for the purchase of 60,000
shares of the Company's Common Stock at an exercise price of $5.00 per share,
expiring in July 2001.


                                      F-11

<PAGE>   32

In May 1996, the shareholders of the Company approved a new equity incentive
plan (the "1996 Plan") which provides for the grant of stock options (including
incentive stock options or nonqualified stock options) and other stock-based
benefits to directors, officers, employees, consultants and advisors of the
Company and its affiliated entities. The maximum number of shares of Common
Stock which may be the subject of awards granted under the 1996 Plan may not
exceed 2,500,000 shares in the aggregate, subject to adjustments for stock
splits or other adjustments as discussed below. The shares available under the
1996 Plan may either be authorized and unissued shares or shares reacquired by
the Company through open market purchases or otherwise. If any award granted
under the 1996 Plan expires, terminates or is forfeited before the exercise
thereof or the payment in full thereof, the shares covered by the unexercised or
unpaid portion will become available for new grants under the 1996 Plan. Options
granted become exercisable at such times as determined by the Compensation
Committee of the Board of Directors and expire on various dates up to ten years
from the date of grant.

The Company has issued options under the 1996 Plan to purchase an aggregate of
385,707 shares of its Common Stock to certain key employees at exercise prices
below fair market value as deferred compensation for services rendered.
Compensation expense related to these options aggregating $383,000, $101,000 and
$136,000 has been recorded for each of the years ended December 31, 2000, 1999
and 1998, respectively. The remaining deferred compensation as of December 31,
2000 was approximately $985,000 and will be amortized as the related awards are
earned and vested through 2005.

The Company also has a stock option plan which provides for the granting of
options to non-employee directors to purchase up to 400,000 shares of the
Company's Common Stock at exercise prices not less than the fair market value of
the Company's Common Stock at the date of grant. Under the terms of the plan,
options to purchase 10,000 shares of the Company's Common Stock are to be
granted to each non-employee director serving in such capacity as of the first
business day of January of each year as long as the plan remains in existence.
Options granted become exercisable in four equal installments, with one
installment occurring at the end of each calendar quarter subsequent to the date
of grant. The options expire at the earlier of five years from the date of grant
or two years after termination of the option holder's status as a director.

During fiscal year 2000, the Company granted options to nonemployees to purchase
36,000 shares of the Company's common stock in connection with consulting
services. These options have exercise prices equal to the estimated fair market
value of the underlying shares at the date of grant and generally vest over one
year. The fair value of these options using the Black-Scholes Pricing Model with
the following weighted-average assumptions - expected life, 5 years, 79% stock
volatility, average risk-free interest rate of 4.7%, and no dividends during the
expected term, was $51,000, of which $10,000 was recorded as expense during the
year ended December 31, 2000.


                                      F-12

<PAGE>   33

Stock option activity for all plans is summarized as follows:

<TABLE>
<CAPTION>
                                                                                  Weighted-
                                                                  Number of        Average
                                                                    Shares      Exercise Price
                                                                  ----------    --------------
<S>                                                               <C>           <C>
Balance, January 1, 1998 (1,909,601 exercisable at a
  weighted-average price of $2.87)                                 2,775,647         $3.17
  Granted (weighted-average fair value of $2.32)                   1,770,918          2.00
  Canceled/Expired                                                (1,217,180)         4.36
  Exercised                                                          (16,000)         1.63

Balance, December 31, 1998 (1,865,735 exercisable at
  a weighted-average price of $2.21)                               3,313,385          2.16
  Granted (weighted-average fair value of $1.92)                     163,500          3.06
  Canceled/Expired                                                  (244,329)         2.06
  Exercised                                                         (326,365)         1.81

Balance, December 31, 1999 (1,974,317 exercisable at
  a weighted-average price of $2.27)                               2,906,191          2.27
  Granted (weighted-average fair value of $2.57)                   1,119,434          3.39
  Canceled/Expired                                                  (388,714)         3.19
  Exercised                                                         (182,266)         2.47
                                                                  ----------         -----
Balance, December 31, 2000 (2,140,504 exercisable at
  a weighted-average price of $2.31)                               3,454,645         $2.49
                                                                  ==========         =====
</TABLE>

On February 5, 1998, the Board of Directors approved a program for the
cancellation and regrant of certain options, whereby all Directors and employees
could elect to relinquish their existing options with exercise prices ranging
from $3.56 to $5.44 per share, in return for options to purchase 43% fewer
shares at an exercise price of $2.50 per share. Under this program options to
purchase 1,115,000 shares at prices ranging from $3.56 to $5.44 were cancelled
and new options were granted to purchase 635,550 shares at a price of $2.50.
Vesting on the new options began one year from the date of grant and continues
over the next four years.

Options to purchase 1,162,135 and 158,900 shares of the Company's Common Stock
were available for grant under the 1996 Plan and the non-employee director's
plan, respectively, as of December 31, 2000.

The following table summarizes information concerning outstanding and
exercisable options for all plans as of December 31, 2000:

<TABLE>
<CAPTION>
                                 Options Outstanding                          Options Exercisable
                            ---------------------------------------        --------------------------
                                             Weighted-
                                              Average      Weighted-                        Weighted-
                              Number         Remaining      Average          Number          Average
                            Of Shares       Contractual    Exercise         Of Shares        Exercise
Range of Exercise Prices   Outstanding     Life in Years     Price         Exercisable        Price
------------------------   -----------     -------------   --------        -----------       --------
<S>                        <C>             <C>             <C>             <C>               <C>
$0.25 - $1.44                 607,910           4.39         $0.99            386,051          $0.96
$1.54 - $2.18                 585,775           3.34         $1.89            440,600          $1.81
$2.20 - $2.50                 815,723           3.07         $2.40            695,199          $2.39
$2.53 - $3.15                 412,804           2.69         $2.90            248,975          $2.95
$3.37 - $3.37                 663,388           5.45         $3.37            161,050          $3.37
$3.38 - $5.69                 369,045           3.36         $4.01            208,629          $4.05
                            ---------          -----         -----          ---------          -----
Total                       3,454,645           3.79         $2.49          2,140,504          $2.31
                            =========          =====         =====          =========          =====
</TABLE>


                                      F-13

<PAGE>   34

The Company has adopted the disclosure-only provisions of SFAS No. 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 grant date consistent
with the provisions of SFAS No. 123, the Company's net income and net income per
share would have been the pro forma amounts indicated below:

                                                     Years Ended December 31,
                                                   ----------------------------
(Amounts in thousands, except per share amounts)    2000       1999       1998
------------------------------------------------   ------     ------     ------
Net income - as reported                           $1,612     $8,812     $1,101

Net income - pro forma                             $   23     $8,238     $   56

Basic earnings per share - as reported             $ 0.11     $ 0.61     $ 0.08

Basic earnings per share - pro forma               $ 0.00     $ 0.57     $ 0.00

Diluted earnings per share - as reported           $ 0.10     $ 0.58     $ 0.08

Diluted earnings per share - pro forma             $ 0.00     $ 0.55     $ 0.00
                                                   ------     ------     ------

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 in 2000, 1999 and 1998: no dividend yield; expected
volatility 79% in 2000, 75% in 1999, and 76% in 1998; risk-free interest rate of
4.7% in 2000, 5.7% in 1999, and 5.0% in 1998; and expected lives of 5 years.

7. INCOME TAXES

The Company accounts for income taxes under the provisions of SFAS No. 109 -
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are established for temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at tax
rates expected to be in effect when such assets or liabilities are realized or
settled.


                                      F-14

<PAGE>   35

The income tax provision (benefits) for the years ended December 31, 2000, 1999
and 1998 are summarized as follows:

                                             Years Ended December 31,
                                     --------------------------------------
                                        2000           1999          1998
                                     -----------    -----------    --------
     Current:

     Federal                         $    77,000    $   797,000    $ 24,000
     State                                85,000          5,000       5,000
     Foreign                                  --             --      40,000
                                     -----------    -----------    --------
                                         162,000        802,000      69,000
     Deferred:

     Federal                             811,000      1,213,000      (8,000)
     State                               276,000        361,000      (5,000)
     Foreign                                  --             --      13,000
                                     -----------    -----------    --------
                                       1,087,000      1,574,000          --

     Change in valuation allowance      (136,000)    (7,139,000)         --
                                     -----------    -----------    --------
     Total                           $ 1,113,000    $(4,763,000)   $ 69,000
                                     ===========    ===========    ========

A deferred tax asset in the amount of $465,000 was acquired in conjunction
InfuSystem II, Inc. and Venture Medical, Inc. in 1998. A valuation allowance of
$465,000 was established for the deferred tax asset. If this deferred tax asset
is realized, the benefit will first go to reduce any unamortized goodwill
remaining from the acquisition.

The reconciliations of income tax provision computed at federal statutory rate
of 35% to income tax provision (benefit) provided in the financial statements
are as follows:

                                              Years Ended December 31,
                                           ------------------------------
                                           2000        1999         1998
                                           ----       ------        -----

  Tax at federal statuatory rates          35.0%        35.0%        35.0%
  State income taxes, net                   6.5%         5.8%         1.1%
  Foreign income                           (0.7)%        0.1%         0.6%
  R&D credit                               (1.1)%       (1.4)%       (4.2)%
  Goodwill                                  5.3%         2.0%         5.6%
  Acquisition transactions                  0.0%        17.3%         0.0%
  Other                                     0.8%        (0.2)%        3.5%
  Change in valuation allowance            (5.0)%     (176.3)%      (35.7)%
                                           ----       ------        -----
  Total                                    40.8%      (117.7)%        5.9%
                                           ====       ======        =====


                                      F-15

<PAGE>   36

As of December 31, 2000 and 1999, the Company had net deferred tax assets
comprised of the following:

                                                           December 31,
                                                   ----------------------------
Deferred Tax Assets:                                   2000            1999
                                                   -----------      -----------
Net operating losses                               $ 1,485,000      $ 3,181,000
Amortization of goodwill and other intangibles       2,520,000        2,851,000
Reserves not currently deductible                    2,431,000        2,155,000
Cash to accrual adjustment                            (188,000)        (412,000)
State taxes                                           (248,000)        (377,000)
Credits                                                731,000          488,000
Accrued compensation and related costs                 360,000          361,000
Depreciation                                            57,000          134,000
                                                   -----------      -----------
                                                     7,148,000        8,381,000
Valuation allowance                                 (2,368,000)      (2,504,000)
                                                   -----------      -----------
Total                                              $ 4,780,000      $ 5,877,000
                                                   ===========      ===========

At December 31, 2000, the Company had a federal net operating loss carryforward
of approximately $3,890,000 which begins to expire in the year 2004. Due to
certain tax regulations, future use of a portion of the net operating loss
carryforwards is limited to approximately $600,000 per year. Tax credits for
federal taxes of approximately $731,000 begin to expire in 2007.

The net deferred tax assets of December 31, 1999 were offset by a valuation
allowance of $2,504,000. During the year ended December 31, 2000, the future
realization of a majority of the reserved portion of the net deferred tax assets
was not determined by management to be more likely than not, based on current
and projected taxable income. However, for the year ended December 31, 2000, the
valuation allowance was decreased related to the utilization of certain tax
credits.

8. COMMITMENTS AND CONTINGENCIES

In June 1990, the Company entered into an employment agreement with the
President of the Company that expires on June 4, 2001. Under the terms of the
agreement, the President will receive a minimum base salary of $200,000 per year
for the term of this contract, with salary reviews conducted annually by the
Board of Directors.

In July 1997, the Company entered into a noncancelable operating lease for a
51,000 square foot building for its primary facility. The lease agreement
contains certain scheduled rent increases (which are accounted for on a
straight-line basis) and expires in June 2007.

Future minimum lease payments under the lease are as follows:

                Years Ended December 31,
                ------------------------
                2001                                  441,000
                2002                                  462,000
                2003                                  483,000
                2004                                  428,000
                2005                                  428,000
                Thereafter                            642,000
                                                   ----------
                Total                              $2,884,000
                                                   ==========

                                      F-16

<PAGE>   37

Rent expense for the years ended December 31, 2000, 1999 and 1998 was $627,000,
$571,000 and $541,000, respectively.

The Company is also involved in litigation arising from the normal course of
operations. In the opinion of management, the ultimate impact of such litigation
will not have a material adverse effect on the Company's financial position and
results of operations.

9. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) retirement plan in which any full time employee may
participate. As of January 2000 the Company contributes $0.33 for each dollar of
employee contribution up to a maximum employer contribution of 1.32% of
participants' annual salaries. The maximum employer contribution at 1.32%
corresponds to an employee contribution of 4% of annual salary. During the year
ended December 31, 2000, such contributions totaled $108,000. No employer
contributions were authorized during the years ended December 31, 1999 or 1998.
The Company does not provide post-retirement benefits to its employees.

10. BUSINESS SEGMENTS

During 2000, the Company operated 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 accounting
policies of the segments are the same as those described in the summary of
significant accounting policies (Note 1).

Business segment information is as follows for the years ended December 31,
2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                    Manufacturing
                                    and Marketing         Rentals         Consolidated
                                    -------------       -----------       ------------
<S>                                 <C>                 <C>               <C>
2000:
Revenues                             $23,497,000        $ 8,469,000        $31,966,000
Operating income                       1,426,000          1,564,000          2,990,000
Assets                                23,631,000         11,584,000         35,215,000
Depreciation and amortization          1,646,000          1,002,000          2,648,000
Property additions                       860,000          2,088,000          2,948,000
                                     -----------        -----------        -----------
1999:
Revenues                             $21,272,000        $ 8,512,000        $29,784,000
Operating income                       2,507,000          1,946,000          4,453,000
Assets                                22,291,000          9,477,000         31,768,000
Depreciation and amortization          1,456,000          1,034,000          2,490,000
Property additions                       416,000            632,000          1,048,000
                                     -----------        -----------        -----------
1998:
Revenues                             $17,124,000        $ 6,468,000        $23,592,000
Operating income                         722,000          1,132,000          1,854,000
Assets                                15,885,000          8,451,000         24,336,000
Depreciation and amortization          1,324,000          1,090,000          2,414,000
Property additions                       388,000            300,000            688,000
                                     -----------        -----------        -----------
</TABLE>


                                      F-17

<PAGE>   38

Sales to major customers as a percentage of total revenue are shown in the table
below for the years ended December 31:

                                               2000           1999          1998
                                               ----           ----          ----
Customer A - elastomeric infusion products      18%            16%           20%
Customer B - elastomeric infusion products       8%            11%           --
Customer C - elastomeric infusion products      11%             9%           --

As of December 31, 2000, accounts receivable due from Customer A & Customer C
represented approximately 11% and 12% of total accounts receivable,
respectively. A decision by a significant customer to substantially decrease or
delay purchases from the Company or the Company's inability to collect
receivables from these customers could have a material adverse effect on the
Company's financial condition and results of operations.

All of the Company's rental revenue is domestic. Export sales of medical
products represented 22%, 20% and 28% of total revenue during 2000, 1999 and
1998, respectively. Total revenue by geographical region is summarized as
follows:

Sales to unaffiliated customers:       2000            1999             1998
--------------------------------   -----------      -----------      -----------
United States                      $24,870,000      $23,962,000      $17,020,000
Europe                               5,153,000        4,181,000        5,032,000
Asia / Pacific Rim                   1,295,000        1,165,000        1,129,000
Other                                  648,000          476,000          411,000
                                   -----------      -----------      -----------
Total                              $31,966,000      $29,784,000      $23,592,000
                                   ===========      ===========      ===========



                                      F-18

<PAGE>   39

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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

Dated: March 30, 2001                          By: /s/ Donald M. Earhart
                                                   -----------------------------
                                                       Donald M. Earhart,
                                                       Chairman, President & CEO

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant in the
capacities indicated on March 30, 2001.

             Signature                                Title
             ---------                                -----

/s/ Donald M. Earhart                       Chairman, President and Chief
---------------------------------------     Executive Officer
    Donald M. Earhart


/s/ James J. Dal Porto                      Executive Vice President, Chief
---------------------------------------     Operating Officer and Director
    James J. Dal Porto


/s/ James R. Talevich                       Chief Financial Officer (Principal
---------------------------------------     Financial and Accounting Officer)
    James R. Talevich


/s/ John H. Abeles                          Director
---------------------------------------
    John H. Abeles, M.D.


/s/ Jack H. Halperin                        Director
---------------------------------------
    Jack H. Halperin


/s/ Joel S. Kanter                          Director
---------------------------------------
    Joel S. Kanter


/s/ Erik H. Loudon                          Director
---------------------------------------
    Erik H. Loudon


/s/ Henry Tsutomu Tai                       Director and Secretary
---------------------------------------
    Henry Tsutomu Tai, Ph.D., M.D.

<PAGE>   40

                                INDEX TO EXHIBITS

Set forth below is a list of the exhibits included 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 (5)

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

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

    4.1       Specimen Common Stock Certificate (5)

    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. (8)

   10.1       Employment Agreement with Donald M. Earhart dated May 16, 1990
              (2)(6)

   10.2       1987-1988 Incentive Stock Option Plan and Non-Statutory Stock
              Option Plan Restated as of March 23, 1992 (5)(6)

   10.3       1992 Non-Employee Director Stock Option Plan (4)(6)

   10.4       License and Transfer Agreement with SoloPak Pharmaceuticals Inc.,
              dated March 6, 1996 (7)

   10.5       1996 Stock Incentive Plan (6)(9)

   10.6       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. (8)

   10.7       Employment Agreement with James J. Dal Porto dated September 6,
              1996 (10)

   10.8       Lease Agreement Between Industrial Developments International,
              Inc. as Landlord and I-Flow Corporation as Tenant dated April 14,
              1997 (11)

   10.9       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. (12)

   10.10      Loan and Security Agreement between Silicon Valley Bank and I-Flow
              Corporation dated September 28, 1995 (13)

   10.11      Amendment to Loan Agreement between Silicon Valley Bank and I-Flow
              Corporation dated March 2, 1998 (13)

   10.12      Employment Agreement with James R. Talevich dated June 30, 2000
              (14)

   21         List of Subsidiaries

   23.1       Independent Auditors' Consent


<PAGE>   41

-----------
(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 Form 10-K for its fiscal year ended December 31, 1991.

(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)  Management contract or compensatory plan or arrangement required to be
     filed as an exhibit pursuant to applicable rules of the Securities and
     Exchange Commission.

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

(9)  Incorporated by reference to exhibit with this title filed with the
     Company's Registration Statement (#333-16547) declared effective November
     20, 1996.

(10) Incorporated by reference to exhibit with this title filed with the
     Company's Form 10-K for its fiscal year ended December 31, 1996.

(11) Incorporated by reference to exhibit with this title filed with the
     Company's Report on Form 8-K dated April 14, 1997.

(12) Incorporated by reference to exhibit with this title filed with the
     Company's Report on Form 8-K dated February 9, 1998.

(13) Incorporated by reference to exhibit with this title filed with the
     Company's Form 10-K for its fiscal year ended December 31, 1997.

(14) Incorporated by reference to exhibit with this title filed with the
     Company's Form 10-K for its fiscal year ended December 31, 2000.