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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998
REGISTRATION NO. 333-62929
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
I-FLOW CORPORATION
(Exact name of Registrant as specified in its charter)
20202 WINDROW DRIVE
LAKE FOREST, CALIFORNIA 92630
(949) 206-2700
(Address, including zip code, and telephone number,
including area code, of Registrant's Principal Executive Offices)
<TABLE>
<CAPTION>
CALIFORNIA 3841 33-0121984
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<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
-------------------------
GAYLE L. ARNOLD
CHIEF FINANCIAL OFFICER
I-FLOW CORPORATION
20202 WINDROW DRIVE
LAKE FOREST, CALIFORNIA 92630
(949) 206-2700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
COPIES TO:
MARK W. SHURTLEFF
GIBSON, DUNN & CRUTCHER LLP
JAMBOREE CENTER, 4 PARK PLAZA
IRVINE, CALIFORNIA 92614
(949) 451-3802
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered in this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================
Proposed
Maximum Proposed
Title of each Amount Offering Maximum Amount of
Class of Securities to be Price Per Aggregate Registration
to be Registered Registered(1) Share(2) Offering Price Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock no par value 1,277,614 $1.56 $1,993,078 $587.96
=================================================================================================
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act, includes indeterminate
number of shares of Common Stock that may be issued in connection with a
stock split, stock dividend, recapitalization, etc.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and based on the last sale price of the Common
Stock of Registrant reported on the Nasdaq Small-Cap Issues System on
September 1, 1998
================================================================================
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 12, 1998
I-FLOW CORPORATION
[LOGO]
1,277,614 SHARES OF COMMON STOCK
This Prospectus relates to an offering (the "Offering") of up to
1,277,614 shares (the "Resale Shares") of common stock (the "Common Stock") of
I-Flow Corporation (the "Company") for sale by certain selling shareholders (the
"Selling Shareholders"). Some of the Selling Shareholders received 961,942
shares of Common Stock in connection with the closing of that certain Agreement
and Plan of Merger ("the Merger Agreement") on February 11, 1998 with
InfuSystems II, Inc. ("InfuSystems"), Venture Medical, Inc. ("VMI"), and the
shareholders of InfuSystems and VMI. Those Selling Shareholders will also
receive an additional 193,635 shares pursuant to the purchase price protection
or "valuation floor" provisions of the Merger Agreement which shares are also
included in this Prospectus.
In connection with the Merger Agreement, the Company issued 59,395
shares of the Common Stock to Amherst Capital Partners, L.L.C. ("Amherst"), also
a Selling Shareholder, in consideration of Amherst's role as investment banker
in connection with the Merger Agreement, pursuant to the terms of that certain
Amherst Fee Agreement dated as of February 9, 1998. Pursuant to the "valuation
floor" provision of the Amherst Fee Agreement, the Company is required to issue
an additional 41,171 shares of Common Stock to Amherst, which shares are
included in this Prospectus.
Pursuant to the anti-dilution provisions of that certain Warrant to
Purchase Stock dated as of July 18, 1996 issued to the Silicon Valley Bank, the
Company is required to reserve for issuance 21,471 additional shares to the
Silicon Valley Bank, also a Selling Shareholder herein.
The Company's Common Stock trades on the Nasdaq Small-Cap System under
the symbol "IFLO." On November 11, 1998 the closing sale price for the Common
Stock was $1.58.
It is expected the Selling Shareholders may offer the Resale Shares
which they own, at any time and from time to time, directly through registered
agents, dealers or underwriters in the over-the-counter market, or otherwise, on
terms and conditions determined at the time of sale by the Selling Shareholders
or as a result of private negotiations between buyer and seller. Such sales may
occur at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at the negotiated prices. The Company will not
receive any proceeds from the sale of the Resale Shares by the Selling
Shareholders. The Company will bear the costs of registration which are expected
to be approximately $40,000 (see Part II, Item 14, Other Expenses of
Distribution) while expenses of any such resale will be borne by the buyer and
seller as they may agree.
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THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND PROSPECTIVE
PURCHASERS SHOULD CAREFULLY CONSIDER THE FACTORS SPECIFIED UNDER THE CAPTION
"RISK FACTORS" COMMENCING ON PAGE 4 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024; the
John C. Kluczynski Building, 230 South Dearborn Street, Chicago, Illinois 60604,
Room 3190; and 75 Park Place, New York, New York 10007, 14th Floor. Copies of
such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Website that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission. The address of the Website is http://www.sec.gov. Reports
and other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. (the "NASD") at 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus constitutes a part of a registration statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
filed by the Company with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus does not contain all of the
information included in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is made to such Registration Statement and to the exhibits relating
thereto for further information with respect to the Company and the securities
offered hereby. Copies of such Registration Statement may be obtained from the
Commission or the NASD as noted above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
2. The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1998, June 30, 1998, and September 30, 1998
3. The Company's Current Reports on Form 8-K dated July 22, 1996 and
February 9, 1998, and on Forms 8-K/A filed on August 6 and
October 2, 1996 and on March 6 and April 14, 1998.
4. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form S-1 (No. 33-41207-LA)
including any amendment or report filed for the purpose of
updating such description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the respective dates
of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
and superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, including any beneficial owner upon the request of such
person, a copy of any or all of the foregoing documents incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by
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reference into such documents). Requests for such documents should be directed
to the Chief Financial Officer of the Company at 20202 Windrow, Lake Forest, CA
92630 (Telephone: 949/206-2700).
FORWARD - LOOKING STATEMENTS
When used in this discussion, the words "believes," "anticipates" and
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 materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof. 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 Prospectus which seek to advise interested parties
of the 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 Commission.
In analyzing the Company and its business, prospective investors should
read the entire Prospectus and carefully consider, among other things, the
following risk factors before making a decision to purchase the Common Stock:
RISK FACTORS
1. ACCUMULATED DEFICIT - CONTINUING LOSSES
As of June 30, 1998 the Company's accumulated deficit was approximately
$25.0 million. The Company had net income/(losses) of $1,069,000, ($7,425,000)
and $365,000 for the years ended December 31, 1995, 1996, and 1997,
respectively. Of the net loss in 1996, $9,300,000 was attributable to the
acquisition of Block Medical, Inc. with the allocation of a portion of the
purchase price to in-process research and development, the write-down of
goodwill and a restructuring charge. The Company had a net loss of ($14,000) for
the six-month period ended June 30, 1998. There can be no assurance that the
Company can achieve and maintain profitability in the future, and further losses
may arise.
2. CONTINUED CAPITAL REQUIREMENTS
Prior to 1996, the Company had financed its operations and working
capital requirements primarily through equity financings. During the six-month
period ended June 30, 1998, the Company's operating activities used cash flow of
$845,000. As of June 30, 1998, the Company had cash on hand of $742,000 and net
receivables of $7,287,000. Management believes the Company's funds are
sufficient to provide for its projected needs to maintain operations for at
least the next 24 months. Should the Company, however, require additional
capital, there can be no assurance that such funds would be available.
On July 22, 1996, the Company purchased substantially all of the assets
of Block Medical, Inc. The assets were acquired for an aggregate purchase price
of approximately $17.5 million. Consideration for the purchase consisted of the
following: cash of $15,000,000, 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.
In conjunction with the aforementioned acquisition of Block Medical
Inc., the Company entered into a $4,000,000 note payable with a bank due in
monthly installments bearing interest at the bank's prime rate plus 1.5% (10% at
December 31, 1997) through July 2000. The note is collateralized by
substantially all of the Company's assets and requires the Company to comply
with certain covenants.
Additionally, the Company increased the maximum available borrowing
limit on its line of credit from $3,000,000 to $4,000,000 in February 1998 and
extended the expiration date to February 1999. The Company is currently in
compliance with all of its financial covenants related to its line of credit.
Management believes that the line of credit provides sufficient funding for the
Company's financial needs. The Company currently has
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approximately $300,000 outstanding under its line of credit. Management believes
that the Company has the ability to repay such amount prior to the expiration of
the line. As of June 30, 1998 the Company had commitments under its indebtedness
of approximately $1.8 million per year (decreasing to $1.2 million in the year
2000). The Company's wholly-owned subsidiary has $2.3 million currently
outstanding on its line of credit, which is due on demand. Based upon the
Company's long-term relationship with the bank, the Company believes that the
bank has no intention to call the note. The Company also believes that if such
note were to be called by the bank, other financing would be available to the
Company. Management believes the Company has the ability to meet its
commitments.
On February 9, 1998, the Company entered into the Merger Agreement with
InfuSystems and the shareholders of InfuSystems and VMI, contemplating the
merger of InfuSystems and VMI with and into a wholly-owned subsidiary of the
Company. Pursuant to the Agreement, VMI and InfuSystems 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 InfuSystems,
were exchanged for shares of Common Stock of the Company. The aggregate number
of shares of Common Stock issued in the Merger to the shareholders of VMI and
InfuSystems was 961,942 shares, valued at approximately $2.9 million (subject to
certain post-effective adjustments). The acquisition was accounted for under the
purchase method of accounting and the purchase price has been allocated to the
net assets acquired and goodwill.
3. INTANGIBLES
As of June 30, 1998, 27% of the Company's total assets consisted of
intangibles acquired in past business acquisitions. Net income is adversely
affected by the amortization of these intangibles, which amounts to
approximately $600,000 per year. Any future write-downs of intangibles would
adversely affect net income.
4. DEPENDENCE UPON THE HOME HEALTH CARE INDUSTRY
The Company markets its products primarily to the alternate care site
provider, which includes all health care providers outside the hospital. The
Company's success in selling its products is intrinsically, although not
exclusively, tied to the success of the home health care industry, which is the
largest group of alternate health care providers.
5. TRENDS AGAINST THIRD PARTY REIMBURSEMENT
The home healthcare industry is heavily dependent upon payment for its
services by private insurers and governmental agencies. Unforeseen changes in
the reimbursement system could adversely affect this industry. The Company's
products fall into the general category of infusion devices and related
disposable products with regard to reimbursement issues. Reimbursements are not
paid directly to the Company. Rather, users of the product (i.e., homecare
groups or physicians) will request that their patients' health insurance
provider provide them some form of reimbursement for the disposables that are
consumed in a therapy and a pump rental fee for loaning the device to the
patients. They typically also request fees for setting up the equipment and
providing the associated visitation services that are usual and customary for
infusion therapies.
The Company believes that the current trend in the insurance industry
(both private and governmental) has been to decrease reimbursement and move
towards limited fees for service, thereby encouraging providers to use the
lowest cost method of delivering medications. No assurance can be given that
this trend will continue or that the insurance industry will continue to provide
any reimbursements.
The Company's newly acquired subsidiary, InfuSystems, depends primarily
upon third-party reimbursement for the collection of its revenues. InfuSystems
is paid directly by third-party payors for infusion services provided to its
customers. InfuSystems' revenues comprised 27% of the Company's consolidated
revenues for the six-month period ended June 30, 1998.
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6. RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION
The intravenous drug and nutrient infusion segment of the home health
care industry is highly competitive. Some of the competitors have significantly
greater resources than the Company for research and development, manufacturing
and marketing, and may be better able to compete for a share of the market, even
in areas in which the Company's products may be superior. The Company continues
its efforts to introduce new improved-technology, cost-efficient products into
the market, however, there can be no assurance that the Company will be able to
successfully compete in the infusion device industry. The industry is subject to
technological changes and there can be no assurance that the Company will be
able to maintain any existing technological lead long enough to establish its
products and to obtain profitability.
7. PROPOSED HEALTH CARE REFORM
The Company's products are sold to health care providers. Unforeseen
changes to the health care system that favor other technologies or that reduce
reimbursement to the home healthcare industry may adversely affect the Company's
ability to sell its products profitably.
8. DEPENDENCE UPON COMPONENT SUPPLIERS
While the Company performs final assembly and testing of its infusion
systems, including pumps and disposable sets, certain component parts, including
customized semiconductors, special motors and pumping mechanisms, as well as all
molded products are obtained from independent contractors based upon
specifications provided by the Company. Although the Company does not anticipate
significant delays or disruption in the manufacture and delivery of its product,
there can be no assurance that delays or disruptions will not occur. The loss or
breakdown of the Company's relationship with its independent contractors could
subject the Company to substantial delays in the delivery of its product to
customers. Significant delays could subject the Company to possible cancellation
of orders and the loss of customers.
The Company has numerous suppliers of components which are sole-source
suppliers. The Company, however, also has identified other vendors as back-up
suppliers for the critical components. The Company believes that it is
economically prohibitive to order from two or more vendors simultaneously and
that it is the industry standard to select a primary vendor and have substitute
vendors to call upon in an emergency situation. The Company also believes that,
should its sole-sourced suppliers be unwilling or unable to produce the
components or sub-assemblies required for its products, it would not have
substantial difficulty in replacing such vendors. However, there can be no
assurance that the Company will be able to obtain uninterrupted supplies of
critical components for its products.
9. PRODUCT LIABILITY ISSUES MAY ARISE
A defect in the design or manufacture of the Company's products, or in
the failure of the devices to perform for the use which the Company specifies
for the system, may subject the Company to claims of liability for injuries and
otherwise. The Company has obtained product liability insurance in the amount of
$5,000,000 including legal defense costs. Any substantial underinsured loss
would have a material adverse effect on the Company's financial condition and
the results of its operations. The Company believes that the amount of product
liability insurance carried is comparable to similarly situated companies.
10. NO DIVIDENDS
The Company has not paid and does not anticipate the payment of
dividends on its Common Stock in the foreseeable future.
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11. COMPANY IS DEPENDENT UPON GOVERNMENT REGULATIONS FOR THE MANUFACTURING
AND MARKETING OF ITS PRODUCTS
Development and manufacturing of the Company's products is regulated by
the Food and Drug Administration ("FDA") which issued and issues extensive
regulations controlling the means and manner by which new medical products are
allowed to enter the U. S. market, as well as the documentation and control of
manufacturing processes for medical products. The Company is inspected
biannually by the FDA. As of October 1, 1998 there have been no reportable
conditions found in any of these inspections.
The Company has been granted permission by the FDA to market the Vivus
4000 Infusion System, the SideKick, the Paragon, the Band-It Syringe Delivery
System, the Liberty IV Bag Delivery System, and the Medi-SIS Syringe Infusion
System, the Verifuse Infusion System, the Voicelink, the Eclipse, the Eclipse
C-Series, and the Rely-A-Flow. However, the marketing of medical devices such as
the Company's products is subject to laws, rules and regulations administered by
the FDA. Although such laws, rules and regulations currently in effect do not
adversely impact the current operation of the Company or its ability to
manufacture and market its products, there can be no assurance that such laws,
rules and regulations will remain in effect, or that other laws, rules or
regulations may not be enacted which might adversely impact the Company's
ability to manufacture and market infusion devices.
The Company is also subject to foreign regulations regarding the
marketing and sale of its products. The Company must receive approvals from
certain government agencies prior to the sale of products in certain countries.
To date the Company has received certain of the necessary approvals and has been
granted permission to use the "CE" mark on its products for import into the 18
member countries of the European Economic Union. However, there can be no
assurances that such laws, rules and regulations will remain in effect, or that
other laws, rules or regulations may not be enacted which might adversely impact
the Company's ability to manufacture and market infusion devices in foreign
countries.
12. DEPENDENCE UPON PATENTS AND PROPRIETARY TECHNOLOGY
The Company relies substantially upon its proprietary capabilities. The
Company has now received 40 U.S. patents including a patent on the Band-It
Syringe Delivery System, the Verifuse Programmable Infusion Pump, the Homepump
Eclipse Disposable Infuser, the Medi-SIS Infusion System, and the Voicelink
Tele-medicine System. The Company has various U.S. patent applications pending
for all of its products including the Vivus 4000, the SideKick, the Paragon, the
Liberty and the Rely-A-Flow. Copyrights have been obtained for the Vivus
programming software. In addition, the Company has filed for patent and
trademark rights in all foreign jurisdictions from which the Company obtains
significant revenues. A patent has been issued for the European Economic
Community with respect to technology marketed and sold as the Homepump Eclipse
Disposible Infuser. In management's opinion there are no known intellectual
property-based limitations that would materially affect the Company's business.
There can be no assurance that others will not independently develop products
with equivalent or superior capabilities or otherwise obtain access to the
Company's capabilities.
13. RISK OF MANUFACTURING PROBLEMS
The Company has been manufacturing its products for several years
without experiencing significant manufacturing difficulties, and believes that
it has established that it can manufacture in commercial quantities. The
majority of the Company's disposable products are manufactured at the
Company-owned facility in Mexico. The Company may encounter difficulties with
the uncertainties inherent in doing business in a foreign country, but the
Company has sufficient capacity in the United States to continue the manufacture
of all products. The Company may, however, encounter difficulties scaling up
production and hiring and training of additional qualified manufacturing
personnel in such an eventuality. If in the future there are difficulties as the
Company manufactures its new products or has problems in the Mexico facility,
these difficulties could lead to fluctuations in operating results and have an
adverse effect on the Company's business, financial condition and results of
operations.
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14. DEPENDENCE UPON MAJOR DISTRIBUTOR
During the nine-month period ending September 30, 1998, sales to B.
Braun Medical, Inc. and its affiliates accounted for approximately 20% of the
Company's net revenues. The loss of this customer would have a material adverse
effect upon the business of the Company.
15. LIMITED PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The Company's Common Stock has been traded publicly since February 13,
1990, and since then has had only a few market makers. The current monthly
average trading volume is approximately 800,000 shares. There can be no
assurance that a more active or established trading market for the Company's
Common Stock will develop, or if developed that it will be maintained. The
trading price of the Company's Common Stock could fluctuate significantly in
response to variations in quarterly operating results and many other factors.
16. POTENTIAL FUTURE SALES OF SHARES PURSUANT TO RULE 144.
A substantial number of the shares of the Company's outstanding Common
Stock may be resold either through an effective Form S-3 Registration Statement
or pursuant to Rule 144 adopted under the Securities Act. Sales of substantial
amounts of the Company's Common Stock in the public market could adversely
affect the prevailing market price of the Common Stock.
17. YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, in less than two years, computer systems
and/or software used in many companies may need to be upgraded to comply with
such "Year 2000" requirements.
The Company has determined that it will be necessary to modify or
replace portions of its hardware and software so that its computer systems
properly utilize dates beyond December 31, 1999. The Company believes that with
modifications and conversions, the Year 2000 issue can be managed, and the
associated risks mitigated. The Company has received confirmation from vendors
of certain purchased software used for internal operations that current releases
or upgrades, if installed, are designed to be Year 2000 compliant. The Company
is in the process of installing such upgrades to its current systems and
believes that substantially all of the upgrades will be completed by December
31, 1998. The Company, however, is initiating communications with its critical
external relationships to determine the extent to which the Company may be
vulnerable to such parties' failure to resolve their own Year 2000 issues. Where
practicable, the Company will assess and attempt to mitigate its risks with
respect to failure of these entities to be Year 2000 ready. The effect, if any,
on the Company's results of operations from the failure of such parties to be
Year 2000 ready is not reasonably estimable.
The Company is in the process of evaluating its own products for
potential Year 2000 issues and making such products Year 2000 compliant. The
vast majority of the Company's products are not date sensitive and the Company
does not directly rely on any of its ventors or customers systems. The Company
does not believe that there will be significant issues or costs associated to
make its products Year 2000 compliant; however, there can be no assurance that
such products do not contain undetected errors or defects associated with year
2000 date functions.
The Company has been using both external and internal resources to
reprogram or replace its software for the Year 2000 issues. To date, the amounts
incurred and expensed for developing and carrying out the plan have not had a
material effect on the Company's operations. The Company plans to complete Year
2000 modifications, including testing, by early 1999. The total remaining cost
for addressing the Year 2000 issue of approximately $66,000, which is based on
management's current estimates, is not expected to be material to the Company's
operations. All remaining Year 2000 issues costs will be funded through
operating cash flows. Although the Company is not aware of any material
operational issues or costs associated with preparing its products or internal
information systems for the year 2000, there can be no assurances that the
Company will not experience serious unanticipated negative consequences and/or
material costs caused by undetected errors or defects in the technology used in
its internal systems, which are composed predominantly of third party software
and hardware.
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Should the Company not be completely successful in mitigating internal
and external Y2K risks, this could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities at the Company or its vendors and suppliers. The Company
believes, that under a worst case scenario, it could continue the majority of
its normal business activities on a manual basis.
THE COMPANY
Company designs, develops, manufactures and markets technically
advanced, ambulatory infusion systems that administer antibiotics, analgesics,
chemotherapeutic agents, hormones, nutrients, hydration therapies and other
medical treatments to patients. These compact, portable devices simplify and
improve patient care, while reducing costs through innovative product design.
They are used most frequently in the home, hospitals and physician offices.
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 Website is
located at www.i-flowcorp.com.
ACQUISITION OF BLOCK MEDICAL, INC.
On July 3, 1996, the Company entered into an agreement for the purchase
of 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. The
transactions contemplated by that agreement were consummated on July 22, 1996.
ACQUISITION OF INFUSYSTEMS II, INC. AND VENTURE MEDICAL, INC.
On February 9, 1998, the Company entered into the Merger Agreement
contemplating the merger of InfuSystems and VMI with and into a wholly-owned
subsidiary of I-Flow. The transactions contemplated by that agreement were
consummated on February 11, 1998.
InfuSystems and VMI (collectively referred to as "InfuSystems") is a
leading ambulatory infusion pump management firm based in Madison Heights,
Michigan. By delivering pumps from a variety of manufacturers to private medical
practices and clinics across the country, InfuSystems uses a unique approach to
service the cancer infusion therapy market. InfuSystems specializes in providing
ambulatory infusion pumps and the related disposables used primarily for cancer
treatments. InfuSystems believes it currently serves approximately 30% of the
total target physician and clinical ambulatory pump market for outpatient
chemotherapy treatment. They currently serve more than 1,000 physicians and
clinics out of approximately 3,500 physicians and clinics in the cancer
treatment market which are believed to be targets for services relating to
outpatient chemotherapy treatment.
THE PRODUCTS
I-Flow offers the health care professional a complete line of cost
effective infusion therapy 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 technically advanced infusion products is portable, reliable,
economical and versatile.
ELASTOMERICS
The patented Homepump Eclipse(R) and Homepump Eclipse "C" Series are
durable, portable and compact elastomeric infusion systems designed to deliver
medications such as antibiotics, pain medication, and chemotherapy drugs in a
wide range of volumes and delivery times needed to meet today's sometimes
complex protocols. The Homepump Eclipse is the market leader in elastomeric
technology and provides the health care professional with a device that is both
safe and extremely easy to teach patients to self-administer.
9
<PAGE> 10
The One Step KVO(TM) is a new elastomeric infusion device intended to be
used as an alternative to flushing and as a means to help prevent catheter
occlusions. There are several hundred million flushes performed on catheters in
the U.S. every year and the process is expensive, cumbersome and difficult to
perform correctly. The complication rates for PICC line catheters exceed 20%,
many of which are attributable to improper flushing, but it is significantly
more cost effective and easy to use. The One Step KVO is well suited for
hospitals, skilled nursing facilities and home healthcare environments.
SYRINGE DELIVERY SYSTEMS
The Medi-SIS(TM) 20 and Medi-SIS 60 Syringe Infusion Systems are
designed to provide an accurate intravenous ("IV") push delivery from a syringe.
This cost-effective syringe system delivers IV medications in single doses or in
multi-doses from one syringe over periods from 5 minutes to 12 hours. The
Medi-SIS Syringe Infusion System provides the healthcare professional with a
reusable, mechanical delivery system that can replace gravity based systems
while providing a low-cost, accurate delivery with less teaching time required
for patients.
The Band-It(TM) Syringe Delivery System and the Band-It One Dose(TM)
System deliver a variety of medications such as antibiotics, diuretics, and
other low volume drugs. The Band-It utilizes a standard Becton-Dickenson 10 or
20 cc syringe to infuse over 15 to 30 minutes, providing the lowest supply cost
per dose while still providing a safe and accurate alternative to gravity or IV
push methods.
NON-ELECTRONIC IV BAG DELIVERY SYSTEMS
The Liberty(TM) 100, Liberty 250 and Liberty 1000 IV Bag Infusion
Systems deliver medications from standard Abbott Laboratories, Inc. or Baxter
International, Inc. IV bags. The Liberty System provides a safe, easy to use
means of providing a controlled infusion, eliminating the need to teach patients
to count drops, use a roller or clamp, etc. The I-Flow Liberty system encourages
improved patient compliance, while providing a low cost means of infusion
delivery.
The Paragon(TM) ambulatory infusion pump provides accurate and cost
effective delivery of IV medications, including chemotherapy, heparin and
analgesics, which require precise and reliable delivery over extended periods of
time. The companion product, Sidekick, utilizes a patented spring technology to
deliver IV antibiotics over a shorter time period. These products are sold
outside of the United States.
The Rely-A-Flow(TM) GravitySet eliminates roller clamps and reduces the
risk of over infusion using gravity. Flow control tubing precisely controls the
rate of infusion, providing a safe and cost-effective method for delivering
medications from standard IV fluid containers at a controlled rate of flow.
ELECTRONIC PUMPS
Verifuse(TM), Verifuse Plus(TM) and the I-Flow VIP(TM) are the only
infusion devices available today that can be used with the VOICELINK(R). These
electronic infusion pumps are multi-therapy, ambulatory infusion devices with
features similar to pumps currently on market.
VOICELINK represents the "standard for tele-medicine." With VOICELINK,
the only piece of equipment a caregiver needs is a telephone. There is no
computer to carry and no special software to learn. Remote programming and
monitoring is as simple as dialing a telephone and following the verbal
instructions from a voice mail-like system. VOICELINK and a standard touch tone
telephone or cellular phone is all that is needed. The Company is currently
reviewing possibilities for licensing the VOICELINK technology for other
applications.
Vivus 4000(R) is the only ambulatory, multi-channel, multi-therapy
electronic infusion pump available. It provides accurate and safe remote
programming and delivery of four individual protocols regardless of complexity.
10
<PAGE> 11
THE MARKET
Alternate site healthcare has grown significantly in the past few years.
Ambulatory infusion devices are one of the fastest growing segments in the
alternate site healthcare marketplace. An ambulatory pump allows patients to
leave the hospital earlier, making it very attractive to cost-conscious
hospitals and to patients who favor home treatment. Alternate site revenues for
infusion devices were estimated at $400 million in 1995 and are expected to
reach approximately $600 million by the year 2000. This field has been
identified by marketing research analysts as one of the fastest growing segments
in the U.S. healthcare market with revenues rising in excess of 20% annually.
InfuSystems' market further extends the reach of I-Flow's products into
physician offices and clinics, which specialize in cancer treatment. There are
over 7,000 physicians and clinics in the cancer treatment market, of which the
Company serves over 500. In addition, the Company also serves over 500 hospitals
and hospital outpatient centers. Two of I-Flow's newer products, the One Step
KVO and the Medi-SIS Syringe Infusion System, are well suited for the hospital
market. There has been tremendous growth in the number of hospital outpatient
centers as hospitals attempt to broaden their geographic reach within their
communities.
COMPETITION
The IV drug and nutrient infusion segment of the alternate site
healthcare industry is highly competitive. The Company competes in this market
based on price, service and product performance. Some of the competitors (which
include Baxter, Abbott and Sims Deltec, among others) have significantly greater
resources than the Company for research and development, manufacturing and
marketing, and may be better able to compete for a share of the market, 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 lead long enough to establish its
products and to sustain profitability.
The number of competitors and the Company's competitive position for
each of its product lines is set out in the following table:
<TABLE>
<CAPTION>
NUMBER OF ESTIMATED
MARKET DESCRIPTION COMPETITORS COMPETITIVE POSITION
- --------------------------------------- ----------- --------------------
<S> <C> <C>
Electronic Ambulatory Infusion Pumps 7 4
Syringe Pumps 8 7
Elastomerics 3 1
Gravity Infusion Systems 10 8
Mechanical Infusion Systems 4 2
</TABLE>
The Company has focused its product development efforts on products in
the ambulatory infusion systems market and with certain of its new products, it
is expanding its market to include hospitals. Amounts spent on Company-sponsored
product development activities are disclosed in the Statements of Operations in
the Financial Statements included elsewhere herein.
SALES AND DISTRIBUTION
Distribution of the Company's products is currently managed directly
through its internal sales force as well as through a number of regional medical
product distributors. As of February 1998, the Company and its newly acquired
subsidiary, InfuSystems, had approximately 20 internal sales representatives
located throughout the United States. The Company is actively pursuing
additional distribution arrangements for its products.
In March 1998, the Company entered into a letter of intent with B. Braun
Medical Inc., a world leader in the manufacture and distribution of
pharmaceuticals and infusion products, to distribute I-Flow's Homepump Eclipse,
Homepump Eclipse C-Series and One-Step KVO elastomeric products in the United
States. This relationship will strengthen I-Flow's existing distribution network
in the home care/alternate site market and open yet another new channel of
distribution directly into hospitals through the nationwide reach of B.
Braun's 125 direct sales professionals.
11
<PAGE> 12
In April 1998, the Company entered into an agreement with B. Braun
Melsungen AG, to distribute the Company's disposable elastomeric infusion
products internationally under a private label. The purchase minimums for the
first 18 months of this five-year agreement are expected to be $4 million.
In September 1998, the Company entered into a letter of understanding
with Smith & Nephew, Inc., a leading worldwide healthcare company offering a
broad range of products for the care and repair of bone, joints, skin and other
soft tissue. Under the agreement, Smith & Nephew will become the exclusive
United States and Canadian distributor for orthopedic surgery application of the
Company's disposable PainBuster(TM) infusion pain management kit. The letter of
understanding calls for Smith & Nephew to purchase a minimum of $2 million of
PainBuster kits from the Company in 1998 and to enter into a five-year
distribution agreement with purchase commitments for 1999 and beyond to be
negotiated.
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 the Canada, Brazil, the
Benelux Countries, Germany, England, Ireland, Italy, Mexico, Spain, Korea,
Australia, New Zealand and Israel. Aggregate sales to countries outside of the
United States represented approximately 36%, 30% and 21% of the Company's
revenues for the years ended December 31, 1997, 1996 and 1995, respectively. The
Company does not have any capital investments in any foreign operations except
for its plant in Mexico.
Net revenues attributable to each geographic area into which the Company
has sales are as follows:
<TABLE>
<CAPTION>
SALES TO UNAFFILIATED
CUSTOMERS 1997 1996 1995
--------------------- ----------- ---------- ----------
<S> <C> <C> <C>
United States $11,447,000 $9,519,000 $7,925,000
Europe 3,973,000 2,690,000 1,393,000
Asia 1,986,000 1,383,000 678,000
Other 336,000 300,000 51,000
</TABLE>
MANUFACTURING AND OPERATIONS
Electromechanical assembly, calibration, pre and post-assembly quality
assurance inspection and testing, and final packaging for all products have
historically been performed at I-Flow facilities by I-Flow employees using parts
and materials acquired from a variety of outside vendors. Printed circuit board
manufacture and component integration are performed externally, with I-Flow
obtaining custom circuit boards and then providing the electronic materials and
engineering specifications to an outside assembler. In July 1997, the Company
consolidated its U.S. operations to a new facility in Lake Forest, California.
With the acquisition of substantially all 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 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, 1997, 1996 and 1995, the Company
incurred expenses of $1,035,000, and $1,139,000 and $840,000, respectively, for
research and development.
12
<PAGE> 13
PATENTS AND TRADEMARKS
The Company has filed U.S. patent applications for substantially all of
its products. The Company received a patent for the Medi-SIS Syringe Delivery
System in 1997 bringing the total number of patents now held by the Company to
40. The remaining duration of these patents ranges from eleven to seventeen
years, 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 revenues and, 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 programming software.
The product names "HOMEPUMP Eclipse," "VoiceLink" and Vivus 4000" are registered
trademarks and trademark applications are pending for most of the Company's
other products. 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 are regulated by the U.S.
Food, Drug and Cosmetic Act. The FDA, which administers this Act, has issued a
number of regulations that dictate the method by which new products are allowed
to enter the U.S. market, and the documentation and control of the manufacturing
processes. The Company regularly receives its biannual inspections from the FDA,
and to date, there have been no reportable conditions found during these
inspections.
In addition to the FDA, the State of California has a set of 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, however, there is no significant effect of such on the
capital expenditures, earnings and competitive position of the Company as there
is no significant use of hazardous materials in the manufacture of the Company's
products.
Products intended for export shipment are also subject to additional
regulations, including compliance with ISO 9000. In May 1995, the Company
received ISO 9001 certification, which ensures 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 operations of Block were also 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 June 30, 1998, the Company and its newly acquired subsidiary,
InfuSystems, had a total of 125 full-time employees in the United States and the
Company had 120 employees in its wholly-owned subsidiary in Mexico. No U.S.
employees 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.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Resale
Shares by the Selling Shareholders.
13
<PAGE> 14
RESALE OF SHARES COVERED BY THIS PROSPECTUS
On February 9, 1998, the Company entered into the Merger Agreement with
InfuSystems, VMI and the shareholders of InfuSystems and VMI, contemplating the
merger of InfuSystems and VMI with and into a wholly-owned subsidiary of the
Company. Pursuant to the Agreement, VMI and InfuSystems were merged 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 InfuSystems were exchanged for
shares of Common Stock of the Company. The aggregate number of shares of Common
Stock issued in the Merger to the shareholders of VMI and their investment
banker and InfuSystems was 961,942 shares, valued at approximately $2.9 million
(subject to certain post-effective adjustments). As contemplated by the
Agreement, 503,355 shares of Common Stock of the Registrant issued in the Merger
valued at $1.5 million (the "Escrowed Shares") were withheld and were delivered
to the U.S. Trust Company of California as escrow agent.
The shares of Company common stock placed in escrow are security for the
indemnification obligations of the selling shareholders of VMI and InfuSystems.
Escrowed shares are to be held for two years from the Effective Time of the
Merger, but are subject to release at six and twelve months after the Effective
Time, up to a maximum of $400,000 of shares valued at the "closing value" as
defined in the Merger Agreement, depending upon the collection of accounts
receivable from VMI and InfuSystems as described in the Merger Agreement.
The Merger Agreement also provides, that in the event that the average
closing price of the Common Stock on the NASDAQ Small Cap Market for the twenty
trading day period immediately preceding the six, twelve, eighteen and
twenty-fourth month anniversaries of closing on February 9, 1998 (the "Closing
Date") is less than average last sale price of I-Flow's Common Stock on the
NASDAQ Small Cap Market for the period beginning fifteen trading days
immediately preceding the Closing Date, or $2.98 per share, the Company is to
promptly pay, as additional Merger Consideration, the sum calculated pursuant to
the formula set forth in Section 1.6(a) of the Merger Agreement, in cash, Common
Stock or a combination. The Company and the affected Selling Shareholders agreed
that, pursuant to the foregoing obligation, 193,635 additional shares of Common
Stock are to be issued to the former stockholders of InfuSystems and VMI as a
result of the six month calculation.
Subject to the provisions of the Merger Agreement and applicable laws,
each of the VMI Shareholders and the InfuSystems Shareholders may sell up to
twenty-five percent of his pro rata share of (1) the Common Stock received in
the Merger plus (2) any additional shares received pursuant to the terms of the
Merger Agreement (collectively, "Total Shares") each six months beginning 180
days following the Closing Date; provided, that, a VMI shareholder or an
InfuSystems shareholder will be permitted to sell more than twenty-five percent
of his pro rata share of Total Shares, if (i) the aggregate number of Total
Shares being sold by all of the VMI Shareholders and the InfuSystems
Shareholders collectively for that six month period does not exceed twenty-five
percent of Total Shares, and (ii) the Shareholder requesting to sell more than
twenty-five percent of his pro rata share of Total Shares files with I-Flow,
prior to the sale, a certificate signed by each VMI Shareholder and InfuSystems
Shareholder consenting to such Shareholder's proposed sale of additional Total
Shares and confirming that they will not, in the aggregate, sell shares in
amounts that would cause the twenty-five percent limitation to be violated.
Pursuant to a certain Release and Settlement Agreement, Steve E.
Watkins, Fred Kamienny, Fred L. Erlich, Richard Moss, and Stephen Krtevich
agreed not to sell such amounts of their Common Stock as would prohibit Scott
Spinka from selling any or all of his Common Stock within one year of the
Closing Date. Steve E. Watkins, Fred Kamienny, Fred L. Erlich, Richard Moss, and
Stephen Krtevich each additionally agreed to provide Scott Spinka an executed
certificate necessary to comply with paragraph 6.11 of the Merger Agreement for
any sale of Common Stock Scott Spinka wishes to make in excess of Spinka's
twenty-five percent pro rata share.
The Merger Agreement provided that the Company was to use its
commercially reasonable best efforts to cause the shares of the Company's Common
Stock issued to the former stockholders of InfuSystems and VMI and to Amherst
Capital Partners, L.L.C. to be registered under the Securities Act of 1933.
In connection with the Merger Agreement, the Company issued 59,395
shares of Common Stock to Amherst Capital Partners, L.L.C., a Selling
Shareholder, in consideration of Amherst's services in connection with the
Merger pursuant to the terms of that certain Amherst Fee Agreement dated as of
February 9, 1998. In addition, pursuant to the "valuation floor" provision of
the Amherst Fee Agreement the Company must pay Amherst an additional fee of
41,171 shares of Common Stock.
14
<PAGE> 15
In conjunction with the financing obtained from the Silicon Valley Bank
for the acquisition of the assets of Block Medical as of July 22, 1996, the
Company issued to the Bank warrants to purchase 60,000 shares of Common Stock at
an exercise price of $5.00 per share, expiring July 18, 2001. Pursuant to
Section 2.4 of that certain Warrant Agreement dated as of July 18, 1996, the
Company is required to adjust the number of shares issuable upon exercise of the
Warrant in the event of a diluting issuance, such as the shares issued to the
former stockholders of InfuSystems and VMI. As calculated by the Company in
accordance with Exhibit A to the Warrant Agreement, the Silicon Valley Bank is
entitled to an additional 21,471 shares to be reserved for issuance.
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Shareholders. As used herein, "Selling Shareholders" includes donees and
pledgees selling shares received from a named Selling Shareholder after the date
of this Prospectus. All costs, expenses and fees in connection with the
registration of the Shares offered hereby will be borne by the Company.
Brokerage commissions and similar selling, expenses, if any, attributable to the
sale of Shares will be borne by the Selling Shareholders. Sales of Shares may be
effected by Selling Shareholders directly through registered agents, dealers or
underwriters from time to time in one or more types of transactions (which may
include block transactions), in the over-the-counter market, in negotiated
transactions, through put or call options transactions relating to the Shares,
through short sales of Shares, or a combination of such methods of sale, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Shareholders have advised the Company that they have not entered into
any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of Shares by the Selling Shareholders.
The Selling Shareholders may effect such transactions by selling Shares
directly to purchasers provided exemptions from state securities and
broker-dealer registration requirements are available in the state of sale or to
or through broker-dealers, which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Shareholders and/or the purchasers of Shares for
whom such broker-dealers may act as agents or to whom they sell as principal, or
both (which compensation as to a particular broker-dealer might be in excess of
customary commissions.
The Selling Shareholders and any broker-dealers that act in connection
with the sale of Shares might be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers any profit on the resale of the Shares sold by them while acting
as principals might be deemed to be underwriting discounts or commissions under
the Securities Act. The Company has agreed to indemnify each Selling Shareholder
against certain liabilities, including liabilities arising under the Securities
Act. The Selling Shareholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the Shares
against certain liabilities, including liabilities arising under the Securities
Act.
Because Selling Shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Shareholders
will be subject to the prospectus delivery requirements of the Securities Act.
The Company has informed the Selling Shareholders that the anti-manipulative
provisions of Regulation M promulgated under the Exchange Act may apply to their
sales in the market.
Selling Shareholders may resell all or a portion of the Shares in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and confirm to the requirements of such Rule.
Upon the Company being notified by a Selling Shareholder that any
material arrangement has been entered into with a broker-dealer for the sale of
Shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
Prospectus will be filed, if required, pursuant to Rule 424(b) under the Act,
disclosing (i) the name of each such selling shareholder and of the
participating broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such shares were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this Prospectus and (vi) other facts
material to the transaction. In addition, upon the Company being notified by a
Selling Shareholder that a donee or pledgee intends to sell more than 500
shares, a supplement to this Prospectus will be filed.
15
<PAGE> 16
SELLING SHAREHOLDERS
The Selling Shareholders (which term includes their transferees,
pledgees, donees or their successors) may from time to time offer and sell
pursuant to this Prospectus any or all of the Resale Shares. The following table
shows the number of shares of Common Stock beneficially owned by each Selling
Shareholder as of the date shown and the number of Resale Shares that may be
offered for the account of such Selling Shareholder pursuant to this Prospectus,
assuming that all of the Resale Shares indicated below as being beneficially
owned by each Selling Shareholder are to be offered pursuant to this Prospectus.
The information about each Selling Shareholder has been obtained from that
Selling Shareholder. None of the Selling Shareholders holds any position or
office with, has been employed by, or has otherwise had a material relationship
with the Company or its affiliates within the past three years. Because the
Selling Shareholders may offer all or some portion of the Resale Shares pursuant
to this Prospectus, no estimate can be given as to the amount of the Resale
Shares that will be held by the Selling Shareholders upon termination of any
such offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY RESALE SHARES
OWNED AS OF COVERED BY
NAME OF BENEFICIAL OWNER SEPTEMBER 2, 1998 THIS PROSPECTUS(1)
------------------------ ----------------- ------------------
<S> <C> <C>
Amherst Capital Partners, L.L.C. (2) 100,566 100,566
Fredrick L. Erlich (3) 123,303 123,303
Fredrick Kamienny (3) 123,477 123,477
Stephen Krstevich (3) 112,900 112,900
Richard Moss (3) 119,373 119,373
Silicon Valley Bank (4) 21,471 21,471
Scott Spinka (3) 62,508 62,508
Steven E. Watkins (3) 110,661 110,661
U.S. Trust Company of California (5) 503,355 503,355
---------
TOTAL 1,277,614
=========
</TABLE>
(1) Shares owned by this Selling Shareholder, the resale of which is offered
for the account of such Shareholder by this Prospectus.
(2) Shares issued in consideration for the Merger Fee defined in that certain
Amherst Fee Agreement dated as of February 9, 1998 by and among the
Company, I-Flow Subsidiary, Inc., a California corporation and wholly
owned subsidiary of I-Flow, Venture Medical, Inc., a Michigan corporation,
InfuSystems II, Inc., a Michigan corporation, the shareholders of VMI, the
shareholders of InfuSystems and Amherst Capital Partners, L.L.C., a
limited liability company formed under the laws of the State of Michigan.
The Merger Fee was increased pursuant to the "valuation floor" provisions
of the Amherst Fee Agreement.
(3) Former Stockholder of InfuSystems or of VMI.
(4) Holder of the Warrant issued in connection with a loan made to the Company
in connection with the Company's July 22, 1996 acquisition of the assets
of Block Medical, Inc. A warrant dated as of July 18, 1996, to purchase
60,000 shares at an exercise price of $5.00 per share, with certain
antidilution rights, was issued to the Bank.
(5) U.S. Trust Company of California holds the indicated shares as escrow
agent for the Company and the former stockholders of InfuSystems and VMI.
LEGAL MATTERS
The validity of the issuance of the Resale Shares offered hereby will be
passed upon for the Company by Gibson, Dunn & Crutcher LLP, 4 Park Plaza,
Jamboree Center, Irvine, California 92614.
16
<PAGE> 17
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 have been audited by Deloitte &
Touche, independent auditors, as stated in their reports, which are incorporated
herein by reference, and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
17
<PAGE> 18
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Selling
Securityholders. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, imply that there has been no change in
the affairs of the Company or that the information herein is correct as of any
time subsequent to the date as of which such information is given. This
Prospectus does not constitute an offer to sell or the solicitation of an offer
to buy by any of the securities offered hereby in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
----------------------
TABLE OF CONTENTS
Available Information................... 3
Incorporation of Certain Document by
Reference............................. 3
Forward-Looking Statement............... 4
Risk Factors............................ 4
The Company............................. 8
Use of Proceeds......................... 10
Resales of Shares Covered by this
Prospectus............................ 10
Plan of Distribution.................... 12
Selling Shareholders.................... 12
Legal Matters........................... 13
Experts................................. 13
================================================================================
================================================================================
1,277,614 SHARES
[LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
NOVEMBER ___, 1998
================================================================================
<PAGE> 19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration Fee................................... $ 588
Printing............................................... 7,000*
Legal Fees and Expenses................................ 20,000*
Accounting Fees and Expenses........................... 10,000*
Blue Sky Fees and Expenses............................. *
Miscellaneous.......................................... 2,000*
-------
Total.............................................. $39,588*
=======
</TABLE>
- -------------
* This amount is an estimate that is subject to future contingencies.
The foregoing expenses will be paid in 1998. Additional expenses where
material will be reported by amendment to this Registration Statement. The
Company will bear all expenses for the preparation and filing of the
Registration Statement and certain other expenses. The Selling Shareholders will
pay no portion of the foregoing expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 317 of the California General Law (the "CGCL"), the
Company is in certain circumstances permitted to indemnify its directors and
officers against certain expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with threatened, pending or completed civil, criminal, administrative or
investigative actions, suits or proceedings (other than an action by or in the
right of the Company), in which such persons were or are parties, or are
threatened to be made parties, by reason of the fact that they were or are
directors or officers of the Company, if such persons acted in good faith and in
a manner they reasonably believed to be in the best interests of the Company,
and with respect to any criminal action or proceeding, had no reasonable cause
to believe their conduct was unlawful. In addition, the Company is in certain
circumstances permitted to indemnify its directors and officers against expenses
incurred in connection with the defense or settlement of a threatened, pending
or completed action by or in the right of the Company, and against amounts paid
in settlement of any such action, if such persons acted in good faith and in a
manner they believed to be in the best interests of the Company and its
shareholders, provided that the specified court approval is obtained.
Under Section 204(a)(10) of the CGCL, the personal liability of a
director for monetary damages in an action brought by or in the right of the
corporation for breach of the director's duty to the corporation and its
shareholders may be eliminated, except for the liability of a director resulting
from (i) acts or omissions involving intentional misconduct or the absence of
good faith, (ii) any transaction from which a director derived an improper
personal benefit, (iii) acts or omissions showing a reckless disregard for the
director's duty, (iv) acts or omissions constituting an unexcused pattern of
inattention to the director's duty or (v) the making of an illegal distribution
to shareholders or an illegal loan or guaranty.
As permitted under the CGCL, the Restated Articles of Incorporation of
the Company provide that the personal liability of the directors of the Company
for monetary damages shall be eliminated to the fullest extent permissible under
California law. The Restated Articles of Incorporation of the Company also
provide that the Company is authorized to provide indemnification for its
directors and officers for breach of their duty to the Company and its
shareholders through Bylaw provisions or through agreements with the directors
and officers, or both, in excess of the indemnification otherwise permitted by
Section 317 of the CGCL. The Company's Bylaws provide for indemnification of its
directors and officers to the fullest extent permitted by Section 317 of the
CGCL.
II-1
<PAGE> 20
Directors and officers of the Company are covered by a Directors' and
Officers' Liability Policy issued by Reliance Insurance Company.
ITEM 16. EXHIBITS.
Set forth below is a list of the exhibits filed as part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
3.1(1) Restated Articles of Incorporation of the Company
3.2(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
3.5(2) Restated Bylaws as of July 22, 1991 of the Company
4.1(3) Specimen Common Stock Certificate
4.3(4) Form of Warrant dated July 18, 1996, issued in conjunction
with the borrowing of funds from Silicon Valley Bank
5.1 Opinion of Legal Counsel (relating to legality of securities
being registered).
10.1(5) The Agreement and Plan of Merger dated as of February 9,
1998 by and among I-Flow, I-Flow Subsidiary, Inc., VMI
Medical, Inc., InfuSystems II, Inc. and the shareholders of
VMI and InfuSystems
10.2 The Amherst Fee Agreement dated as of February 9, 1998 by
and among I-Flow, I-Flow Subsidiary, Inc., VMI, InfuSystems,
the shareholders of VMI and InfuSystems and Amherst Capital
Partners, L.L.C.
23.1 Independent Auditors' Consent
23.2 Consent of Legal Counsel (included in Exhibit 5.1 hereto)
24 Power of Attorney (included on signature page hereto)
</TABLE>
- -------------
(1) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended September 30, 1990.
(2) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-41207-LA) declared effective August
8, 1991.
(3) 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.
(4) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated July 22, 1996.
(5) Incorporated by reference to exhibit with this title filed with the
Company's Annual Report on Form 10-K for the year ending December 31, 1997
filed on March 31, 1998.
II-2
<PAGE> 21
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume or securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b), if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however, that paragraphs (1)(i) and (l)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities as that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit's plan annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons controlling
the Company pursuant to the provisions described in Item 15 above, the Company
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-3
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Amendment 2 to Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Irvine, State of California,
on November 12, 1998.
I-FLOW CORPORATION
By: /s/ DONALD M. EARHART
--------------------------------
Donald M. Earhart
President & CEO
II-4
<PAGE> 23
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Gayle
L. Arnold and James J. Dal Porto his or her true and lawful attorneys-in-fact
and agents, each acting alone, with full powers of substitution and
resubstitution, for him or her and his or her name, place and stead, at any and
all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same, all with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, with full powers and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as full to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming that all said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 31, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Donald M. Earhart Chairman, President, & CEO
- ----------------------------------
Donald M. Earhart
/s/ James J. Dal Porto Director, Executive Vice President
- ---------------------------------- and Chief Operating Officer
James J. Dal Porto
/s/ Gayle L. Arnold Principal Financial and
- ---------------------------------- Accounting Officer
Gayle L. Arnold
/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 T. Tai Director and Secretary
- ----------------------------------
Henry T. Tai, Ph.D., M.D.
</TABLE>
II-5
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
3.1(1) Restated Articles of Incorporation of the Company
3.2(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
3.5(2) Restated Bylaws as of July 22, 1991 of the Company
4.1(3) Specimen Common Stock Certificate
4.3(4) Form of Warrant dated July 18, 1996, issued in conjunction
with the borrowing of funds from Silicon Valley Bank
5.1 Opinion of Legal Counsel (relating to legality of securities
being registered).
10.1(5) The Agreement and Plan of Merger dated as of February 9,
1998 by and among I-Flow, I-Flow Subsidiary, Inc., VMI
Medical, Inc., InfuSystems II, Inc. and the shareholders of
VMI and InfuSystems
10.2(6) The Amherst Fee Agreement dated as of February 9, 1998 by
and among I-Flow, I-Flow Subsidiary, Inc., VMI, InfuSystems,
the shareholders of VMI and InfuSystems and Amherst Capital
Partners, L.L.C.
23.1 Independent Auditors' Consent
23.2 Consent of Legal Counsel (included in Exhibit 5.1 hereto)
24 Power of Attorney (included on signature page hereto)
</TABLE>
- -------------
(1) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended September 30, 1990.
(2) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-41207-LA) declared effective August
8, 1991.
(3) 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.
(4) Incorporated by reference to exhibit with this title filed with the
Company's Report on Form 8-K dated July 22, 1996.
(5) Incorporated by reference to exhibit with this title filed with the
Company's Annual Report on Form 10-K for the year ending December 31, 1997
filed on March 31, 1998.
(6) Incorporated by reference to exhibit with this title filed with the
Company's Amendment No. 1 to its Registration Statement (333-62929).
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP]
November 11, 1998
Writer's Direct Dial Number Our File Number
(949) 451-3802 C 42273-00001
I-Flow Corporation
20202 Windrow Drive
Lake Forest, CA 92630
Re: Registration Statement on Form S-3 re 1,277,614 Shares
of Common Stock (Registration No. 333-62929)
Ladies and Gentlemen:
We have acted as counsel to I-Flow Corporation, a California corporation
(the "Company"), in connection with the filing of a Registration Statement (the
"Registration Statement") with respect to the resale by certain selling
shareholders of 1,277,614 shares of the Company's common stock (the "Common
Stock"), no par value (the "Resale Shares"), issued in transactions exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). Of the Resale Shares, (i) 961,942 shares of Common Stock were
issued by the Company pursuant to that certain Agreement and Plan of Merger
dated as of February 9, 1998 (the "Merger Agreement") with InfuSystems II, Inc.
("InfuSystems"), Venture Medical, Inc. ("VMI"), and the shareholders of
InfuSystems and VMI; (ii) an additional 193,635 shares have been issued by the
Company pursuant to the "valuation floor" provisions of the Merger Agreement;
(iii) 59,395 shares of Common Stock were issued to Amherst Capital Partners,
L.L.C. ("Amherst") pursuant to that certain Amherst Fee Agreement dated as of
February 9, 1998; (iv) an additional 41,171 shares have been issued to Amherst
pursuant to the valuation floor provisions of the Amherst Fee Agreement; and
(v) 21,471 shares are reserved for issuance pursuant to the anti-dilution
requirements (the "Warrant Shares") of that certain Warrant Agreement dated as
of July 18, 1996 between the Company and Silicon Valley Bank (the
"Warrantholder") (collectively the "Selling Shareholders"), all as described in
the Registration Statement.
<PAGE> 2
GIBSON, DUNN & CRUTCHER LLP
I-Flow Corporation
November 11, 1998
Page 2
We are familiar with the corporate actions taken and proposed to be
taken by the Company in connection with the authorization, issuance and sale of
the Resale Shares and have made such other legal and factual inquiries as we
deem necessary for purposes of rendering this opinion.
We have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as copies, the authenticity of the
originals of such copied documents, and, except with respect to the Company,
that all individuals executing and delivering such documents were duly
authorized to do so.
Based on the foregoing and in reliance thereon, and subject to the
qualifications and limitations set forth below, we are of the opinion that:
1. The Resale Shares have been duly authorized and validly issued
and are fully paid and non-assessable.
2. The Warrant Shares to be issued to the Warrantholder have been
duly authorized and reserved and, when issued upon exercise of the applicable
Warrant in accordance with its terms, including payment of the applicable
exercise price, will be validly issued, fully paid and non-assessable.
Our opinions set forth above are subject to the following additional
qualifications and limitations: The Company is a California corporation. This
opinion is limited to California and federal law. You have informed us that the
Selling Shareholders may sell the Resale Shares from time to time on a delayed
or continuous basis. This opinion is limited to the laws referred to above as
in effect on the date hereof and to all facts as they presently exist.
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement and to
the filing of this opinion as Exhibit 5.1 to the Registration Statement. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the General Rules and Regulations of the Securities and Exchange
Commission.
Very truly yours,
GIBSON DUNN & CRUTCHER LLP
MWS/JBE/j
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
I-Flow Corporation on Form S-3 of our reports dated February 19, 1998, appearing
in and incorporated by reference in the Annual Report on Form 10-K of I-Flow
Corporation for the year ended December 31, 1997 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Costa Mesa, CA
November 12, 1998
