Heartbeam Inc Annual Report 2014

Plain-text annual report

Use these links to rapidly review the documentTABLE OF CONTENTSTable of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-KBioTelemetry, Inc.(Exact name of registrant as specified in its charter)(610) 729-7000(Registrant's telephone number, including area code)(Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act:Title of Each Class Name of Each Exchange on WhichRegisteredCommon Stock, $0.001 par value NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No ý 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 1934during 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 filingrequirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes ý No o 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, tothe 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 tothis Form 10-K. ý Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2014ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from N/A to N/ACommission file number: 000-55039DELAWARE(State or other jurisdiction ofincorporation or organization) 46-2568498(I.R.S. EmployerIdentification No.)1000 Cedar Hollow RoadMalvern, Pennsylvania(Address of principal executive offices) 19355(Zip Code)Largeacceleratedfiler o Acceleratedfiler ý Non-accelerated filer o(Do not check if asmaller reporting company) Smallerreportingcompany o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý The aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $163,218,174 based on the closing sale price atwhich the common stock was last sold on June 30, 2014, the last business day of the registrant's most recently completed second fiscal quarter. As of February 18, 2015, 26,734,569 shares of the registrant's common stock were outstanding.DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive proxy statement for its 2015 annual meeting of stockholders, which proxy statement will be filed no later than120 days after the close of the Registrant's fiscal year ended December 31, 2014, are hereby incorporated by reference in Part III of this Annual Report onForm 10-K. Table of Contents BioTelemetry, Inc.Annual Report on Form 10-KFor The Fiscal Year Ended December 31, 2014 TABLE OF CONTENTS 2 Page PART I Item 1. Business 4 Item 1A. Risk Factors 13 Item 1B. Unresolved Staff Comments 26 Item 2. Properties 26 Item 3. Legal Proceedings 27 Item 4. Mine Safety Disclosures 28 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 29 Item 6. Selected Financial Data 31 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 42 Item 8. Financial Statements and Supplementary Data 43 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 74 Item 9A. Controls and Procedures 74 Item 9B. Other Information 78 PART III Item 10. Directors, Executive Officers and Corporate Governance 78 Item 11. Executive Compensation 78 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 78 Item 13. Certain Relationships and Related Transactions, and Director Independence 79 Item 14. Principal Accountant Fees and Services 79 PART IV Item 15. Exhibits and Financial Statement Schedules 79 Exhibit Index 81 Signatures 84 Table of ContentsUnless the context otherwise indicates or requires, the terms "we," "our," "us," "BioTelemetry," and the "Company," as used in this Annual Report onForm 10-K, refer to BioTelemetry, Inc. and its directly and indirectly owned subsidiaries, including its legal subsidiaries, CardioNet, LLC, BraemarManufacturing, LLC, Cardiocore Lab, LLC, Mednet Healthcare Technologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc., andUniversal Medical Laboratory, Inc. as a combined entity, except where otherwise stated or where it is clear that the terms mean only BioTelemetry, Inc.exclusive of its subsidiaries. CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS This document includes certain forward looking statements within the meaning of the "Safe Harbor" provisions of the Private Securities LitigationReform Act of 1995 regarding, among other things, our growth prospects, the prospects for our products and our confidence in our future. These statementsmay be identified by words such as "expect," "anticipate," "estimate," "intend," "plan," "believe," "promises" and other words and terms of similar meaning.Examples of forward-looking statements include statements we make regarding our ability to increase demand for our products and services, to leverage ourMCOTTM platform to expand into new markets, our market share, our expectations regarding revenue trends in our segments, and the achievement of costefficiencies through process improvement and gross margin improvements. Such forward looking statements are based on current expectations and involveinherent risks and uncertainties, including important factors that could delay, divert, or change any of these expectations, and could cause actual outcomesand results to differ materially from current expectations. These factors include, among other things:•our ability to successfully integrate newly-acquired businesses, such as Mednet, BMS and Radcore, into our business; •our ability to obtain and maintain adequate protection of our intellectual property; •the effectiveness of our cost savings initiatives; •our ability to educate physicians and continue to obtain prescriptions for our products and services; •changes to insurance coverage and reimbursement levels by Medicare and commercial payors for our products and services; •our ability to attract and retain talented executive management and sales personnel; •our ability to identify acquisition candidates, acquire them on attractive terms and integrate their operations into our business; •the commercialization of new products; •our ability to obtain and maintain required regulatory approvals for our products, services and manufacturing facilities; •changes in governmental regulations and legislation; •acceptance of our new products and services; •adverse regulatory action; •interruptions or delays in telecommunications systems; •our ability to successfully resolve outstanding legal proceedings; and •the other factors that are described in Item 1A. "Risk Factors" of this Annual Report on Form 10-K. We undertake no obligation to publicly update any forward looking statement, whether as a result of new information, future events, or otherwise, exceptas may be required by law.3Table of Contents PART I Item 1. Business Overview BioTelemetry, Inc. provides cardiac monitoring services, cardiac monitoring device manufacturing, and centralized cardiac core laboratory services.Since we became focused on cardiac monitoring in 1999, we have developed a proprietary integrated patient management platform that incorporates awireless data transmission network, Food and Drug Administration ("FDA") cleared algorithms and medical devices, and 24-hour monitoring service centers. BioTelemetry operates under three reportable segments: (1) Patient Services, (2) Product and (3) Research Services. The Patient Services segment isfocused on the diagnosis and monitoring of cardiac arrhythmias, or heart rhythm disorders. We offer cardiologists and electrophysiologists a full spectrum ofsolutions which provides them with a single source of cardiac monitoring services. These services range from the differentiated mobile cardiac telemetryservice ("MCT"), which we market as Mobile Cardiac Outpatient TelemetryTM ("MCOT™") or External Cardiac Ambulatory Telemetry ("ECAT"), to wirelessand trans telephonic event, Holter, Pacemaker and International Normalized Ratio ("INR") monitoring. The Product segment focuses on the development,manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals. The Research Services segment is engaged in centralcore laboratory services providing cardiac monitoring, scientific consulting and data management services for drug and medical device trials. As of July 31, 2013, we reorganized to create a holding company structure. CardioNet, Inc., which was previously the public company, became a wholly-owned subsidiary of a newly formed entity, BioTelemetry, Inc., a Delaware corporation, and all the outstanding shares of CardioNet, Inc. were exchanged, onan one-for-one basis, for shares of BioTelemetry, Inc. Our new holding company began trading on August 1, 2013 on The NASDAQ Global Select Marketunder our same symbol "BEAT".Business Strategy Our goals are to solidify our position as the leading provider of outpatient cardiac monitoring services, expand our presence in the research servicesmarket and leverage our monitoring platform in new markets. The key elements of the business strategy by which we intend to achieve these goals include:•Increase Demand for Our Comprehensive Cardiac Monitoring Solutions. We believe that we can increase demand for our comprehensiveportfolio of outpatient cardiac monitoring solutions by educating cardiologists and electrophysiologists on the benefits of using mobilecardiac outpatient telemetry to meet their arrhythmia monitoring needs, stressing the increased diagnostic yield and their ability to use theclinically significant data to make timely interventions and guide more effective treatments. •Expand Our Presence in the Research Services Market. In December 2010, we entered the core lab services business through our acquisitionof Agility Centralized Research Services. We later were able to expand our presence in research services with our acquisition of CardiocoreLab in August 2012 and our purchase of the assets of RadCore Lab in June 2014. We are focusing efforts on increasing our presence in thisfield, and to become a preferred global provider, as it provides us with the ability to diversify our service offerings while leveraging ourexpertise in cardiac monitoring. •Leverage Our Monitoring Platform to New Market Opportunities. We believe our mobile cardiac outpatient telemetry-MCOT™ platformcan be leveraged for applications in multiple markets.4Table of ContentsWhile our initial focus has been on arrhythmia diagnosis and monitoring, we intend to expand into new market areas that require outpatient orambulatory monitoring and management.Patient Services The Patient Services segment, operating as CardioNet, LLC ("CardioNet") and Heartcare Corporation of America, Inc. ("Heartcare"), is focused on thediagnosis and monitoring of cardiac arrhythmias, or heart rhythm disorders. We provide cardiologists and electrophysiologists who prefer to use a singlesource of cardiac monitoring services with a full spectrum of solutions, ranging from our differentiated MCT services to wireless and trans telephonic eventand Holter monitoring. We also provide Pacemaker and INR monitoring. Our MCOT™ service incorporates a lightweight patient-worn sensor attached to electrodes that capture two-channel ECG data, measuring electricalactivity of the heart, on a compact wireless handheld monitor. The monitor analyzes incoming heartbeat-by-heartbeat information from the sensor on a real-time basis by applying proprietary algorithms designed to detect arrhythmias. When the monitor detects an arrhythmic event, it automatically transmits theECG to the Monitoring Centers in San Francisco, CA or Malvern, PA, even in the absence of symptoms noticed by the patient. At the Monitoring Centers,which operate 24 hours a day, 7 days per week, experienced certified cardiac monitoring specialists analyze the sent data, respond to urgent events and reportresults in the manner prescribed by the physician. The MCOT™ device employs two-way wireless communications, enabling continuous transmission ofpatient data to the Monitoring Centers and permitting physicians to remotely adjust monitoring parameters and request previous ECG data from the memorystored in the monitor. The MCOT™ device has the capability of storing 30 days of continuous ECG data, in contrast to a maximum of 10 minutes for atypical event monitor, and a maximum of 24 hours for a typical Holter monitor. In January 2014, we acquired Mednet Healthcare Technologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc., and UniversalMedical Laboratory, Inc. (together, "Mednet"). Through the Heartcare entity, we gained access to a secondary mobile cardiac telemetry technology that ismarketed as ECAT. Patients utilizing the ECAT service are monitored at our Ewing, NJ location. Heartcare also expands our market for wireless and transtelephonic event, Holter and Pacemaker monitoring. Our event monitoring services provide physicians with the flexibility to prescribe wireless event monitors, digital loop event monitors, memory loopevent monitors and non-loop event monitors. Event data is transmitted, either through automatic transmission of event data with wireless event monitors orthrough telephonic transmission of stored event data with our traditional event monitors, to one of our event monitoring centers in Minnesota, Pennsylvania,California or New Jersey, where our trained cardiac technicians analyze the data, generate a report of the findings and return the results back to the physician. A Holter monitor stores an image of the electrical impulses of every heartbeat or irregularity in digital format on a compact flashcard. The flashcard ismailed or the data is sent electronically through a secure web transfer to one of our Holter labs in Pennsylvania or New Jersey where our trained cardiactechnicians analyze the data, generate a report of the findings and return the results back to the physician. We market our services throughout the United States and receive reimbursement for the monitoring provided to patients from Medicare and other third-party commercial payors.5Table of ContentsProduct The Product segment, operating as Braemar Manufacturing, LLC ("Braemar") and Universal Medical, Inc. ("UMI"), focuses on the manufacturing,engineering and development of noninvasive cardiac monitors for leading healthcare companies worldwide. We have been able to build successful customerrelationships by providing reliable, quality products and engineering services. We offer contract manufacturing services, developing and producing devicesto the specific requirements set by customers. Braemar and UMI currently manufacture various devices including but not limited to cardiac event monitors, digital Holter monitors and mobile cardiactelemetry monitors. Our facilities located in San Diego, CA, Eagan, MN and Ewing, NJ are responsible for research and product development under FDAguidelines. Manufacturing of devices is performed in our Eagan, MN and Ewing, NJ facilities. We believe that our manufacturing facilities will be sufficientto meet our manufacturing needs for the foreseeable future. We believe our manufacturing operations are in compliance with regulations mandated by the FDA. We are subject to unannounced inspections by theFDA and we successfully completed routine audits by the FDA in February 2013 in Eagan, NJ and December 2014 in Ewing, NJ with no significant findingsnoted or warnings issued. Our Eagan, MN, San Diego, CA and Ewing, NJ facilities are ISO 13485:2003 certified and registered with the FDA. ISO 13485 is aquality system standard used by medical companies providing design, development, manufacturing, installation and servicing, and is the basis for acquiringCE Marking for medical device product distribution in the European Union. Braemar and UMI currently manufacture the cardiac monitoring devices utilized by our Patient Services segment. There are a number of criticalcomponents and sub-assemblies in the devices. The vendors for these materials are qualified through stringent evaluation and testing of their performance.We implement a strict no-change policy with our contract manufacturers to ensure that no components are changed without our approval.Research Services The Research Services segment, operating as Cardiocore, LLC ("Cardiocore"), is engaged in central core laboratory services that provide cardiacmonitoring, imaging services, scientific consulting and data management services for drug, medical treatment and device trials. The centralized servicesinclude electrocardiography (ECG), Holter monitoring, ambulatory blood pressure monitoring (ABPM), echocardiography (ECHO), multigated acquisitionscan (MUGA), a full range of imaging services, protocol development, expert reporting and statistical analysis. We also provide a full range of supportservices that include project coordination, setup and management, equipment rental, data transfer, processing, and analysis and 24/7 customer support andsite training. Our data management systems enable complete customization for sponsors' preferred data specifications and our web service, CardioPortal™,provides access to rich data from any web browser, without client-side plug-ins. We entered the research services field through the acquisition of Agility Centralized Research Services in December 2010, and later expanded ourpresence with the acquisition of Cardiocore Lab in August 2012 and RadCore Lab in June 2014. Through these acquisitions, we gained global experience incentral core laboratory services, which includes experience in Phase I-IV and Thorough QT Trials. Our primary customers are pharmaceutical companies andcontract research organizations. Additionally, we operate core lab locations in Maryland, California and London, UK, which support sponsors and sites inEastern and Western Europe, Russia and Asia-Pacific, North and South America, Africa and the Middle East.6Table of ContentsResearch and Development For the years ended December 31, 2014, 2013, and 2012, we spent $7.4 million, $7.3 million, and $4.7 million, respectively, on research anddevelopment expenses focused on developing new products and enhancements to our existing products. In 2013, we outsourced our hardware developmentto the Belgium-based nanoelectronics research center IMEC. We intend to continue to develop proof of superiority of our MCOT™ technology throughclinical data. The three primary sources of clinical data that we have used to date to illustrate the clinical value of MCOT™ include: (1) a randomized 300-patient clinical study; (2) our cumulative actual monitoring experience from our databases; and (3) numerous other published studies. We completed a 17-center, 300-patient randomized clinical trial in March 2007 that was sponsored by us. We believe this study represents the largestrandomized study comparing two noninvasive arrhythmia monitoring methods. The study was designed to evaluate patients who were suspected to have anarrhythmic cause underlying their symptoms, but who were a diagnostic challenge given that they had already had a non-diagnostic 24-hour Holtermonitoring session or four hours of telemetry within 45 days prior to enrollment. Patients were randomized to either MCOT™ or to a loop event monitor forup to 30 days. Of the 300 patients who were randomized, 266 patients who completed a minimum of 25 days of monitoring were analyzed (134 patients usingMCOT™ and 132 patients using loop event monitors). The study specifically compared the success of MCOT™ against loop event monitors in detecting patients afflicted with atrial fibrillation because of theprevalence of asymptomatic episodes that occur in cases of atrial fibrillation and the difficulty of diagnosis. Diagnosis and treatment of atrial fibrillation isimportant because it can lead to many other medical problems, including stroke. The study concluded that MCOT™ provided a significantly higherdiagnostic yield, approximately three times as likely to detect an arrhythmic event, compared to traditional loop event monitoring, including suchmonitoring designed to automatically detect certain arrhythmias. In addition to the aforementioned 300-patient randomized clinical trial, MCOT™ has been cited and referenced in a total of 39 publications andabstracts.Sales and Marketing We market our arrhythmia monitoring solutions and medical devices primarily to cardiologists and electrophysiologists, who are the physicianspecialists who most commonly diagnose and manage patients with arrhythmias. We market our research services to pharmaceutical companies, medicaldevice companies, and contract research and academic research organizations. We market our products to physicians, hospitals and other cardiac monitoringproviders. We attend trade shows and medical conferences to promote our various products and services. The trade shows and conferences we attend arerelated to organizations such as: the Heart Rhythm Society, American College of Cardiology (ACC), Society of Thoracic Surgeons, European Society ofCardiology, American Heart Association and the American Telemedicine Association. We also attend the Medica, DIA and Partnerships in Clinical Trialstradeshows as well as the annual Boston Atrial Fibrillation Conference. We sponsor peer-to-peer educational events and participate in targeted publicrelations opportunities. CardioNet is a leading member of the Remote Cardiac Service Provider Group. In addition, Cardiocore is a founding member and thefirst cardiac core lab to join the Cardiac Safety Research Consortium ("CSRC"). Through the CSRC, we are able to network with representatives of majorpharmaceutical companies, as well as discuss key cardiac safety issues during the drug development process.Patient Services Reimbursement In the Patient Services segment, services are billed to government and commercial payors using specific codes describing the services. Those codes arepart of the Commercial Procedural Terminology7Table of Contents("CPT") coding system which was established by the American Medical Association ("AMA") to describe services provided by physicians and othersuppliers. Physicians select the code that best describes the medical services being prescribed. In addition to receiving reimbursement from Medicare at ratesthat are set nationally and adjusted for certain regional indices, we enter into contracts with commercial payors to receive reimbursement at specified rates forour technical services. Such contracts typically provide for an initial term of between one and three years and provide for automatic renewal thereafter. Eitherparty can typically terminate these contracts by providing between 60 and 120 days prior notice to the other party at any time following the end of the initialterm of the agreement. The contracts provide for an agreed upon reimbursement rate, which in some instances is tied to the rate of reimbursement we receivefrom Medicare. Pursuant to these contracts, we generally agree to indemnify our commercial payors for damages arising in connection with the performanceof our obligations under these agreements. In addition to receiving reimbursement from government and commercial payors, we have direct arrangements with physicians who may purchase ourmonitoring services and then submit claims for these services directly to commercial and government payors. In some cases, patients may pay for their serviceout-of-pocket.Competition Although we believe that we have a leading market share in the mobile cardiac arrhythmia monitoring industry, the market in which we operate isfragmented and characterized by a large number of smaller regional service providers. We believe that the principal competitive factors that impact thesuccess of our cardiac monitoring solutions include some or all of the following:•quality of our algorithms used to detect symptoms; •quality of clinical data; •ease of use and reliability of cardiac monitoring solutions for patients and physicians; •technology performance, innovation, flexibility and range of application; •timeliness and clinical relevance of new product introductions; •quality and availability of customer support services; •size, experience, knowledge and training of sales and marketing staff; •brand recognition and reputation; •relationships with referring physicians, hospitals, managed care organizations and other third party payors; •reporting capabilities; and •perceived value. We believe that we compete favorably based on the factors described above. However, our industry is evolving rapidly and is becoming increasinglycompetitive and the basis on which we compete may change over time. In addition, if companies with substantially greater resources than ours enter ourmarket, we will face increased competition. Our Product division competes directly with other original equipment manufacturers. We believe that we compete favorably based on our suite of qualityproducts and innovative solutions, our superior customer service and our extensive industry experience. Our Research Services business competes directly with other cardiac core labs as well as contract research organizations that offer core lab services. Webelieve that we compete favorably based on our8Table of Contentscomprehensive cardiac service offering, the scale of our operation and our ability to support the entire life cycle of new drug development.Intellectual Property We rely on a combination of intellectual property laws, nondisclosure agreements and other measures to protect our proprietary rights. Patents. As of December 31, 2014, we had 30 issued United States patents, of which 3 are United States design patents. We also had 80 issued foreignpatents, bringing our total number of issued patents world-wide to 110. As part of our overall global intellectual property strategy, we had approximately 41patent applications currently on file worldwide. We filed these patent applications in the United States, Europe, Canada, China, Korea, Japan and Australia.Our issued United States patents expire between 2017 and 2032. Trademarks and Copyrights. As of December 31, 2014, we had 10 trademark registrations, 8 pending trademark applications in the United States and 1pending trademark application in Europe for a variety of word marks and slogans. Our trademarks are an integral part of our business and include, amongothers, the registered trademark CardioNet®, and the unregistered trademarks Mobile Cardiac Outpatient Telemetry™, MCOT™, and CardioPortal™. Wealso had a significant amount of copyright-protected materials, including among other things, software textual material. In addition, we also seek to maintain certain intellectual property and proprietary know-how as trade secrets, and generally require our partners toexecute non-disclosure agreements prior to any substantive discussions or disclosures of our technology or business plans. Our business and competitivepositions are dependent in part upon our ability to protect our proprietary technology and our ability to avoid infringing the patents or proprietary rights ofothers.Government Regulation The health care industry is highly regulated, with no guarantee that the regulatory environment in which we operate will not change significantly andadversely in the future. We believe that health care legislation, rules, regulations and interpretations will change, and we expect to modify our agreementsand operations in response to these changes. U.S. Food and Drug Administration. The medical devices that we use to provide patient monitoring services are regulated by the FDA under theFederal Food, Drug, and Cosmetic Act. The basic regulatory requirements that manufacturers of medical devices distributed in the U.S. must comply with arePremarket Notification 510(k), unless exempt, or Premarket Approval ("PMA"); establishment registration; medical device listing; quality system regulation;labeling requirements; and medical device reporting. The algorithms we use in the MCT service maintain FDA 510(k) clearance as a Class II device ("510(k) clearance"). On October 28, 2003, the FDA issueda guidance document entitled: "Class II Special Controls Guidance Document: Arrhythmia Detector and Alarm." In addition to conforming to the generalrequirements of the Federal Food, Drug, and Cosmetic Act, including the Premarket Notification requirements described above, all of our 510(k) submissionsaddress the specific issues covered in this special controls guidance document. Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include certain sanctions, such asfines, injunctions and civil penalties; recall or seizure of our devices and intellectual property; operating restrictions; partial suspension or total shutdown ofproduction; withdrawal of 510(k) clearance of new components or algorithms; withdrawal9Table of Contentsof 510(k) clearance already granted to one or more of our existing components or algorithms; and criminal prosecution. Health Care Fraud and Abuse. In the United States, there are state and federal anti-kickback laws that generally prohibit the payment or receipt ofkickbacks, bribes or other remuneration in exchange for the referral of patients or other health care-related business. In addition, federal law (e.g., the "Stark"law) and some state laws prohibit the existence of certain financial relationships between referring physicians and healthcare providers and suppliers unlessthose relationships meet the requirements of specific exceptions to the law. Anti-kickback laws constrain our sales, marketing and promotional activities bylimiting the kinds of financial arrangements we may have with physicians, medical centers and others in a position to purchase, recommend or refer patientsfor our cardiac monitoring services or other products or services we may develop and commercialize. Due to the breadth of some of these laws, it is possiblethat some of our current or future practices might be challenged under one or more of these laws. Furthermore, federal and state false claims laws prohibit anyone from presenting, or causing to be presented, claims for payment to third party payors thatare false or fraudulent. Violations may result in substantial civil penalties, including treble damages, and criminal penalties, including imprisonment, finesand exclusion from participation in federal health care programs. The Federal False Claims Act also contains "whistleblower" or "qui tam" provisions thatallow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the government. Various states have enactedlaws modeled after the Federal False Claims Act, including "qui tam" provisions, and some of these laws apply to claims filed with commercial insurers. Anyviolations of anti-kickback and false claims laws could have a material adverse effect on our business, financial condition and results of operations. The Patient Protection and Affordable Care Act. On March 23, 2010, the Patient Protection and Affordable Care Act was signed into law and onMarch 30, 2010, the Health Care and Education Reconciliation Act of 2010 was signed into law. Together, the two measures, collectively known as theAffordable Care Act, make the most sweeping and fundamental changes to the United States health care system since the creation of Medicare and Medicaid.The Affordable Care Act includes numerous health-related provisions with various effective dates, including expanded Medicaid eligibility, a requirementthat most individuals have health insurance or pay a penalty, new requirements for health plans and insurance policy standards, the establishment of healthinsurance exchanges, changes to Medicare payment systems to encourage more cost-effective care, and new and expanded tools to address fraud and abuse.Section 6002 of the Affordable Care Act requires manufacturers of medical devices and other products reimbursed by Medicare to report annually to thegovernment certain payments to physicians and teaching hospitals. As a result of the passage of the Affordable Care Act, manufacturers of certain medical devices are subject to an excise tax, applicable to sales of taxablemedical devices beginning January 1, 2013. Several devices that are manufactured by our Product segment are subject to these taxes. The tax equals 2.3% ofthe sale price of the applicable medical device. As a manufacturer, we are responsible for remitting these taxes to the federal government. Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). The Health Insurance Portability and Accountability Act was enacted by theUnited States Congress in 1996. Numerous state and federal laws govern the collection, dissemination, use and confidentiality of patient and other healthinformation, including the administrative simplification and privacy provisions of HIPAA. Historically, state law has governed confidentiality issues, andHIPAA preserves these laws to the extent they are more protective of a patient's privacy or provide the patient with greater access to his or her healthinformation. As a result of the implementation of the HIPAA regulations, many states are considering revisions to their existing laws and regulations that mayor may not be more stringent or10Table of Contentsburdensome than the federal HIPAA provisions. HIPAA applies directly to covered entities, which include health plans, health care clearinghouses and manyhealth care providers. The HIPAA statute and its implementing rules are concerned primarily with the privacy of protected health information when it is usedand/or disclosed; the confidentiality, integrity and availability of electronic health information; and the content and format of certain identified electronichealth care transactions. The laws governing health care information privacy and security impose civil and criminal penalties for their violation and canrequire substantial expenditures of financial and other resources for information technology system modifications and for ongoing operational compliance. Medicare. Medicare is a federal program administered by the Centers for Medicare & Medicaid Services ("CMS") and its Medicare administrativecontractors. The Medicare program provides qualified persons with health care benefits that cover the major costs of medical care within prescribed limits,subject to certain deductibles and co-payments. The Medicare program has established guidelines for local and national coverage determinations andreimbursement of certain equipment, supplies and services, which are subject to change. The methodology for determining coverage status and the basis andamount of Medicare reimbursement varies based upon, among other factors, the setting in which a Medicare beneficiary receives health care items andservices. The Medicare program is subject to statutory and regulatory changes, retroactive and prospective rate adjustments, administrative rulings, interpretationsof policy, Medicare administrative contractor determinations, and government funding restrictions. All of these policies may materially increase or decreasethe rate of program payments to health care facilities and other health care suppliers and practitioners, including those paid for our cardiac monitoringservices. Any changes in federal legislation, regulations or other policies affecting Medicare coverage or reimbursement relative to our cardiac monitoringservices could have an adverse effect on our performance. Our facilities in Pennsylvania, California, New Jersey and Minnesota are enrolled in Medicare as Independent Diagnostic Testing Facilities ("IDTFs"),which is defined by CMS as an entity independent of a hospital or physician's office in which diagnostic tests are performed by licensed or certified non-physician personnel under appropriate physician supervision. Medicare has set very detailed performance standards that every IDTF must meet in order toobtain or maintain its billing privileges, including requirements to, among other things, operate in compliance with all applicable federal and state licensureand regulatory requirements for the health and safety of patients; maintain a physical facility on an appropriate site meeting specific criteria; have acomprehensive liability insurance policy of at least $0.3 million per location; disclose certain ownership information; have its testing equipment calibratedand maintained in accordance with specific standards; have technical staff on duty with the appropriate credentials to perform tests; and permit on-siteinspections. These requirements are subject to change. We believe that our facilities are in compliance with the IDTF standards. Environmental Regulation. We use materials and products regulated under environmental laws, primarily in the manufacturing and sterilizationprocesses. While it is difficult to quantify, we believe the ongoing cost of compliance with environmental protection laws and regulations will not have amaterial impact on our business, financial position or results of operations.Supply Chain Diligence and Transparency Section 1502 of the Dodd Frank Wall Street Reform and Consumer Protection Act was adopted to further the humanitarian goal of ending the violentconflict and human rights abuses in the Democratic Republic of the Congo and adjoining countries (DRC). This conflict has been partially financed by theexploitation and trade of tantalum, tin, tungsten, and gold (so called "conflict minerals") that originate from mines or smelters in the region. SEC rulesadopted in August 2012 under Section 1502 require reporting companies to disclose annually on Form SD whether any such minerals that are necessary tothe functionality or production of products they manufactured, or for which they contracted the manufacture, during the prior calendar year did, in fact,originate in the DRC and, if so, if the related revenues were used to support the conflict and/or abuses.11Table of Contents Some of the products manufactured by Braemar and UMI may contain tantalum, tin, tungsten and/or gold. Consequently, in compliance with SEC rules,we have adopted a policy on conflict minerals, which can be found on our website, and have implemented a supply chain due diligence and risk mitigationprocess with reference to the Organization for Economic Cooperation and Development (OECD) guidance approved by the SEC to assess and report annuallywhether our products are "conflict free." We support efforts to end the violence and human rights abuses in the mining of certain minerals in the DRC. We expect our suppliers to comply with theOECD guidance and industry standards and to ensure that their supply chain conforms to our policy and the OECD guidance. We will mitigate identifiedrisks by working directly with our suppliers; however, we may need to alter our sources of supply or modify our product design if circumstances require. Wemay incur certain costs in order to comply with these disclosure requirements, including for due diligence to determine the source of the subject mineralsused in our products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. In addition,these rules could adversely affect the sourcing, supply and pricing of materials used in our products throughout the supply chain beyond our control, whetheror not the subject minerals are "conflict free."Product Liability and Insurance The design, manufacture and marketing of medical devices and services of the types we produce entail an inherent risk of product liability claims. Inaddition, we provide information to health care providers and payors upon which determinations affecting medical care are made, and claims may be madeagainst us resulting from adverse medical consequences to patients resulting from the information we provide. To protect ourselves from product liabilityclaims, we maintain professional liability and general liability insurance on a "claims made" basis. Insurance coverage under such policies is contingent upona policy being in effect when a claim is made, regardless of when the events which caused the claim occurred. While, as of the date of this Report, a materialproduct liability claim has never been made against us and we believe our insurance policies are adequate in amount and coverage for our current operations,there can be no assurance that the coverage maintained by us is sufficient to cover all future claims. In addition, there can be no assurance that we will be ableto obtain such insurance on commercially reasonable terms in the future.Employees As of December 31, 2014, we employed 922 employees. None of our employees are represented by a collective bargaining agreement. We consider ourrelationship with our employees to be good.Available Information We file electronically with the U.S. Securities and Exchange Commission our annual reports on Form 10-K, quarterly reports on Form 10-Q, currentreports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We makeavailable on our website at http://www.biotelinc.com, free of charge, copies of these reports as soon as reasonably practicable after we electronically file suchmaterial with, or furnish it to the SEC. Further copies of these reports are located at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C.20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a websitethat contains reports, proxy and information statements, and other information regarding our filings, at http://www.sec.gov.12Table of Contents Item 1A. Risk Factors We have a history of net losses and future profitability is uncertain. We have incurred net losses from our inception. For the years ended December 31, 2014 and 2013, we realized net losses of $9.8 million and$7.3 million, respectively. As of December 31, 2014, we had a total accumulated deficit of approximately $203.6 million. Although we have initiated plansto reduce our operating losses and achieve profitability, we may continue to incur losses if we are not able to execute our plans. If we do achieve profitability,we may not be able to sustain or increase profitability on a quarterly or annual basis.Reimbursement by Medicare is highly regulated and subject to change and our failure to comply with applicable regulations could decrease our revenue,subject us to penalties or adversely affect our results of operations. The Medicare program is administered by CMS, which imposes extensive and detailed requirements on medical services providers, including, but notlimited to, rules that govern how we structure our relationships with physicians, how and when we submit reimbursement claims, how we operate ourmonitoring facilities and how and where we provide our arrhythmia monitoring solutions. Our failure to comply with applicable Medicare rules could resultin the discontinuation of our reimbursement under the Medicare payment program, a requirement to return funds already paid to us, civil monetary penalties,criminal penalties and/or exclusion from the Medicare program.Changes in the reimbursement rate that commercial payors and Medicare will pay for our services could adversely affect our revenue. We receive reimbursement for our services from commercial payors and from Medicare administrative contractors with jurisdiction in the state where theservices are performed. In addition, our prescribing physicians receive reimbursement for professional interpretation of the information provided by ourproducts and services from commercial payors or Medicare. Average commercial reimbursement rates have declined from 2009 to 2014. Over time, we expectthat commercial payors may transition from commercial pricing to the CMS national rate, which is lower than those rates historically paid by commercialpayors. Furthermore, when commercial payors combine their operations, the combined company may elect to reimburse for our products and services at thelowest rate paid by any of the participants in the consolidation. If one of the payors participating in the consolidation does not reimburse for one of ourproducts or services, the combined company may elect not to reimburse for such product or service. In addition, CMS may reduce the reimbursement rate forour services, as it has in the past. A decrease in the reimbursement rates would adversely affect our financial results.If we do not obtain and maintain adequate protection for our intellectual property, it may adversely affect the value of our technology and devices andfuture revenues and operating income. Our business and competitive positions are dependent in part upon our ability to protect our proprietary technology. To protect our proprietary rights, werely on a combination of trademark, copyright, patent, trade secret and other intellectual property laws, employment, confidentiality and inventionassignment agreements with our employees and contractors, and confidentiality agreements and protective contractual provisions with other third parties. Weattempt to protect our intellectual property position by filing trademark applications and U.S., foreign and international patent applications related to ourproprietary technology, inventions and improvements that are important to the development of our business. We do not believe that any single patent, trademark or other intellectual property right of ours, or combination of our intellectual property rights, islikely to prevent others from competing with us using13Table of Contentsa similar business model. There are many issued patents and patent applications held by others in our industry and the electronics field. Our competitors mayindependently develop technologies that are substantially similar or superior to our technologies, or design around our patents or other intellectual propertyto avoid infringement. In addition, we may not apply for a patent relating to products or processes that are patentable, we may fail to receive any patent forwhich we apply or have applied, and any patent owned by us or issued to us could be circumvented, challenged, invalidated, or held to be unenforceable, orrights granted thereunder may not adequately protect our technology or provide a competitive advantage to us. If a third party challenges the validity of anypatents or proprietary rights of ours, we may become involved in intellectual property disputes and litigation that would be costly and time-consuming. Although third parties may infringe on our patents and other intellectual property rights, we may not be aware of any such infringement, or we may beaware of potential infringement but elect not to seek to prevent such infringement or pursue any claim of infringement, and the third party may continue itspotentially infringing activities. Any decision whether or not to take further action in response to potential infringement of our patent or other intellectualproperty rights may be based on a variety of factors, such as the potential costs and benefits of taking such action, and business and legal issues andcircumstances. Litigation of claims of infringement of a patent or other intellectual property rights may be costly and time-consuming, may divert theattention of key Company personnel, and may not be successful or result in any significant recovery of compensation for any infringement or enjoining ofany infringing activity. Litigation or licensing discussions may also involve or lead to counterclaims that could be brought by a potential infringer tochallenge the validity or enforceability of our patents and other intellectual property. To protect our trade secrets and other proprietary information, we generally require our employees, consultants, contractors and outside collaborators toenter into written nondisclosure agreements. These agreements, however, may not provide adequate protection to prevent any unauthorized use,misappropriation or disclosure of our trade secrets, know-how or other proprietary information. These agreements may be breached, and we may not becomeaware of, or have adequate remedies in the event of, any such breach. Also, others may independently develop the same or substantially equivalentproprietary information and techniques or otherwise gain access to our trade secrets.Our ability to innovate or market our products may be impaired by the intellectual property rights of third parties. Our success is dependent, in part, upon our ability to avoid infringing the patents or proprietary rights of others. Our industry and the electronics field arecharacterized by a large number of patents, patent filings and frequent litigation based on allegations of patent infringement. Competitors may have filedapplications for, or have been issued, patents and may obtain additional patents and proprietary rights related to devices, services or processes that we use tocompete. We may not be aware of all of the patents or patent applications potentially adverse to our interests that may have been filed or issued to others. U.S. patent applications may be kept confidential while pending in the Patent and Trademark Office. If other companies have or obtain patents relatingto our products or services, we may be required to obtain licenses to those patents or to develop or obtain alternative technology. We may not be able toobtain any such licenses on acceptable terms, or at all. Any failure to obtain such licenses could impair or foreclose our ability to make, use, market or sell ourproducts and services. Based on the litigious nature of our industry and the electronics field and the fact that we may pose a competitive threat to some companies who own orcontrol various patents, it is possible that one or more third parties may assert a patent infringement claim seeking damages and to enjoin the14Table of Contentsmanufacture, use, sale and marketing of our products and services. If a third party asserts that we have infringed on its patent or proprietary rights, we maybecome involved in intellectual property disputes and litigation that would be costly and time-consuming and could impair or foreclose our ability to make,use, market or sell our products and services. Lawsuits may have already been filed against us without our knowledge. Additionally, we may receive noticesfrom other third parties suggesting or asserting that we are infringing their patents and inviting us to license such patents. We do not believe that we areinfringing on any other party's patents or that a license to any such patents is necessary. Should litigation over such patents arise, we intend to vigorouslydefend against any allegation of infringement. If we are found to infringe on the patent or intellectual property rights of others, we may be required to pay damages, stop the infringing activity orobtain licenses or rights to the patents or other intellectual property in order to use, manufacture, market or sell our products and services. Any requiredlicense may not be available to us on acceptable terms, or at all. If we succeed in obtaining such licenses, payments under such licenses would reduce anyearnings from our products. In addition, licenses may be non-exclusive and, accordingly, our competitors may have access to the same technology as thatwhich may be licensed to us. If we fail to obtain a required license or are unable to alter the design of our product candidates to make a license unnecessary,we may be unable to manufacture, use, market or sell our products and services, which could significantly affect our ability to achieve, sustain or grow ourcommercial business.If we are unable to successfully integrate recently acquired companies and technology, we may not realize the benefits anticipated and our future growthmay be adversely affected. In the past two years, we have grown through acquisitions of companies and technology, including our acquisitions of Mednet HealthcareTechnologies, Inc. in February 2014, the cardiac monitoring division of Biomedical Systems in April 2014 and the assets of RadCore Lab in June 2014.Acquisitions involve risks associated with our assumption of the liabilities of an acquired company, which may be liabilities that we were or are unaware of atthe time of the acquisition, potential write-offs of acquired assets and potential loss of the acquired company's key employees or customers. Physician, patientand customer satisfaction or performance problems with an acquired business, technology, service or device could also have a material adverse effect on ourreputation. Additionally, potential disputes with the seller of an acquired business or its employees, suppliers or customers and amortization expenses relatedto intangible assets could adversely affect our business, operating results and financial condition. If we fail to properly evaluate and execute acquisitions, ourbusiness may be disrupted and our operating results and prospects may be harmed. Furthermore, integrating acquired companies or new technologies into our business may prove more difficult than we anticipate. We may encounterdifficulties in successfully integrating our operations, technologies, services and personnel with that of the acquired company, and our financial andmanagement resources may be diverted from our existing operations. Offices in multiple states create a strain on our ability to effectively manage ouroperations and key personnel. If we elect to consolidate our facilities, we may lose key personnel unwilling to relocate to the consolidated facility, may havedifficulty hiring appropriate personnel at the consolidated facility and may have difficulty providing continuity of service through the consolidation.The success of our business is partially dependent on our ability to raise capital, and failure to raise the necessary capital may adversely affect our resultsof operations, financial condition and stock price. We believe that our existing cash and cash equivalents, together with our revolving credit facility with The General Electric Capital Corporation ("GECapital"), will be sufficient to meet our15Table of Contentsanticipated cash requirements for the foreseeable future. However, our future funding requirements will depend on many factors, including:•the results of our operations; •the reimbursement rates associated with our products and services; •our ability to secure contracts with additional commercial payors providing for the reimbursement of our services; •the costs associated with manufacturing and building our inventory of our current and future generation monitors; •the costs of hiring additional personnel and investing in infrastructure to support future growth; •the costs of undertaking future strategic initiatives, such as acquisitions or joint ventures; •the emergence of competing technologies and products and other adverse market developments; •the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights or defending againstclaims of infringement by others; and •actions taken by the FDA, CMS and other regulatory authorities affecting cardiac monitoring devices and competitive products. If we decide to raise additional capital in the future, such capital may not be available on reasonable terms, or at all. If we raise additional funds byissuing equity securities, substantial dilution to existing stockholders would likely result. If we raise additional funds by incurring debt financing, the termsof the debt may involve significant cash payment obligations as well as covenants and financial ratios that may restrict our ability to operate our business.We have outstanding debt, and may incur other debt in the future, which could adversely affect our financial condition, liquidity and results of operations. As of December 31, 2014, we had an outstanding credit facility with The General Electric Capital Corporation ("GE Capital"). We may borrow additionalamounts in the future and use the proceeds from any future borrowing for general corporate purposes, future acquisitions or expansion of our business. Our incurrence of this debt, and any increases in our levels of debt, may adversely affect our operating results and financial condition by, among otherthings:•requiring a portion of our cash flow from operations to make payments on this debt; •limiting our flexibility in planning for, or reacting to, changes in our business and the industry. Our current credit facility imposes restrictions on us, including restrictions on our ability to create liens on our assets, incur additional indebtedness,make acquisitions or dispose of assets, and also requires us to maintain compliance with specified financial ratios. Our ability to comply with these ratios maybe affected by events beyond our control. If we breach any of the covenants and do not obtain a waiver from our lender, then, subject to applicable cureperiods, our outstanding indebtedness could be declared immediately due and payable.Our business depends on our ability to attract and retain talented employees. Our business is based on successfully attracting and retaining talented employees. The market for highly skilled workers and leaders in our industry isextremely competitive. If we are less successful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop and deliversuccessful products and services may be adversely affected.16Table of ContentsOur Patient Services segment is dependent upon physicians prescribing our services and failure to obtain those prescriptions may adversely affect ourrevenue. The success of our Patient Services segment is dependent upon physicians prescribing our services. Our success in obtaining prescriptions will bedirectly influenced by a number of factors, including:•the ability of the physicians with whom we work to obtain sufficient reimbursement and be paid in a timely manner for the professionalservices they provide in connection with the use of our arrhythmia monitoring solutions; •our ability to continue to establish ourselves as a comprehensive arrhythmia monitoring services provider; •our ability to educate physicians regarding the benefits of our proprietary services over alternative diagnostic monitoring solutions; and •the clinical efficacy of our devices. If we are unable to educate physicians regarding the benefits of our products and obtain sufficient prescriptions for our services, revenue from theprovision of our arrhythmia monitoring solutions could potentially decrease.Audits or denials of our claims by government agencies and private payors could reduce our revenues and have an adverse effect on our results ofoperations. As part of our business operations, we submit claims on behalf of patients directly to, and receive payments from, Medicare, Medicaid, and other third-party payors. We are subject to extensive government regulation, including requirements for submitting reimbursement claims under appropriate codes andmaintaining certain documentation to support our claims. Medicare contractors and Medicaid agencies periodically conduct pre- and post-payment reviewsand other audits of claims and are under increasing pressure to more closely scrutinize health care claims and supporting documentation. We have been andare currently subject to pre- and post-payment reviews as well as audits of claims under CMS' Recovery Audit Program and may experience such reviews andaudits of claims in the future. Such reviews and similar audits of our claims could result in material delays in payment, as well as material recoupments ordenials, which would reduce our net sales and profitability, or result in our exclusion from participation in the Medicare or Medicaid programs. We are alsosubject to similar review and audits from private payors, which may also result in material delays in payment and material recoupments and denials. Inaddition, state agencies may conduct investigations or submit requests for information relating to claims data submitted to private payors. For example, in thesecond quarter 2014, the New Jersey Department of Banking and Insurance Bureau of Fraud Deterrence requested claims data that the Mednet entitiessubmitted to private payors. We have responded to requests for information from the State of New Jersey and continue to cooperate regarding this inquiry.We may experience difficulty in obtaining reimbursement for our services from commercial payors that consider our technology to be experimental andinvestigational, which would adversely affect our revenue and operating results. Many commercial payors refuse to enter into contracts to reimburse the fees associated with medical devices or services that such payors determine to be"experimental and investigational." Commercial payors typically label medical devices or services as "experimental and investigational" until such devicesor services have demonstrated product superiority evidenced by a randomized clinical trial. We completed a clinical trial in March 2007 that showed thatMCOT™ provided higher diagnostic yield than traditional loop event monitoring. Prior to our clinical trial, MCOT™ was labeled "experimental andinvestigational" by several commercial payors. Since the trial was published in17Table of ContentsMarch 2007, we have obtained contracts with many of these commercial payors that previously labeled MCOT™ as "experimental and investigational." Wehave not obtained contracts with certain remaining commercial payors, however, and these payors have informed us that they do not believe the data fromthis trial justifies the removal of the experimental designation. As a result, these commercial payors may refuse to reimburse the technical and professionalfees associated with MCOT™. If commercial payors decide not to reimburse our services or the related services provided by physicians, or the rates of such reimbursement change, or ifwe fail to properly administer claims, our revenue could fail to grow and could decrease.We have a concentrated number of payors and losing one of them would reduce our sales and adversely affect our business and operating results. A small number of payors and Medicare represent a significant percentage of our revenue. For the year ended December 31, 2014, our top 10 payors byrevenue accounted for approximately 66% of our Patient Services revenue, of which 40% is Medicare. Our agreements with commercial payors typicallyallow either party to the contract to terminate the contract by providing between 60 and 120 days prior written notice to the other party at any time followingthe end of the initial term of the contract. Our commercial payors may elect to terminate or not to renew their contracts with us for any reason and, in someinstances can unilaterally change the reimbursement rates they pay. In the event any of our key commercial payors terminate their agreements with us, electnot to renew or enter into new agreements with us upon expiration of their current agreements, or do not renew or establish new agreements on terms asfavorable as are currently contracted, our business, operating results and prospects would be adversely affected.We have a concentration of risk related to the accounts receivable from one customer and failure to fully collect outstanding balances from this customer,or a combination of other customers, may adversely affect our results of operations. As of December 31, 2014, we have balances owed to us from one customer, Medicare, representing approximately 16% of our total net accountsreceivable. We maintain an allowance for doubtful accounts based on the collections history and aging of outstanding receivables, as well as for any specificinstances we become aware of that may preclude us from reasonably assuring collection on outstanding balances. Determining the allowance for doubtfulaccounts is judgmental in nature and often involves the use of significant estimates. A determination that requires a change in our estimates could have amaterially adverse effect on our financial condition and operating results.If we do not have enough equipment or experience delays in manufacturing, we may be unable to fill prescriptions in a timely manner, physicians mayelect not to prescribe our services, and our revenue and growth prospects may be harmed. When a physician prescribes cardiac monitoring to a patient, our customer service department begins the patient set-up process. While our goal is toprovide each patient with the appropriate device in a timely manner, we have experienced, and may in the future experience, delays due to the availability ofdevices, primarily when converting to a new generation of device or in connection with the increase in prescriptions following potential acquisitions of othercompanies. We may also experience shortages of devices due to manufacturing difficulties. Multiple suppliers provide the components used in our devices, but ourMinnesota and New Jersey facilities are registered and approved by the FDA as the manufacturer of record of our devices. Our manufacturing operationscould be disrupted by fire, earthquake or other natural disaster, a labor-related disruption, failure in supply or other logistical channels, electrical outages orother reasons. If there were a disruption to our18Table of Contentsfacilities in Minnesota or New Jersey, we would be unable to manufacture devices until we have restored and re-qualified our manufacturing capability ordeveloped alternative manufacturing facilities. Our success in obtaining future prescriptions from physicians is dependent upon our ability to promptly deliver devices to our patients, and a failure inthis regard would have an adverse effect on our revenue and growth prospects.Interruptions or delays in telecommunications systems could impair the delivery of our MCT and wireless event services. The success of our MCT and wireless event services is dependent upon our ability to transmit and process data. Our MCT and wireless event devices relyon third party wireless carriers to transmit data over their data networks. We are dependent upon these third party wireless carriers to provide datatransmission services to us through our various agreements. If we fail to maintain these relationships, or if we lose wireless carrier services, we would be forcedto seek alternative providers of data transmission services, which might not be available on commercially reasonable terms or at all. As we expand our commercial activities, an increased burden will be placed upon our data processing systems and the equipment upon which they rely.Interruptions of our data networks, or the data networks of our wireless carriers for any extended length of time, loss of stored data or other computer problemscould have a material adverse effect on our business and operating results. Frequent or persistent interruptions in our arrhythmia monitoring services couldcause permanent harm to our reputation and could cause current or potential users of our remote monitoring services or prescribing physicians to believe thatour systems are unreliable, leading them to switch to our competitors. Such interruptions could result in liability, claims and litigation against us for damagesor injuries resulting from the disruption in service. Our systems are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, computerviruses, break-ins, sabotage, and acts of vandalism. Despite any precautions that we may take, the occurrence of a natural disaster or other unanticipatedproblems could result in lengthy interruptions in these services. We do not carry business interruption insurance to protect against losses that may result frominterruptions in service as a result of system failures. Moreover, the communications and information technology industries are subject to rapid andsignificant changes, and our ability to operate and compete is dependent on our ability to update and enhance the communication technologies used in oursystems and services.New products and technological advances by our competitors may negatively affect our market share, commercial opportunities and results of operations. The market for arrhythmia monitoring solutions is evolving rapidly and becoming increasingly competitive. Our industry is highly fragmented andcharacterized by a small number of large providers and a large number of smaller regional service providers. These third parties compete with us in marketingto payors and prescribing physicians, recruiting and retaining qualified personnel, acquiring technology and developing solutions complementary to ourprograms. In addition, as companies with substantially greater resources than ours enter our market, we will face increased competition. If our competitors arebetter able to develop and patent arrhythmia monitoring solutions than us, or develop more effective or less expensive arrhythmia monitoring solutions thatrender our solutions obsolete or non-competitive, or deploy larger or more effective marketing and sales resources than ours, our business will be harmed andour commercial opportunities will be reduced or eliminated.19Table of ContentsWe operate in an intensely competitive industry, and our failure to respond quickly to technological developments and incorporate new features into ourproducts could harm our ability to compete. We operate in an intensely competitive industry that experiences rapid technological developments, changes in industry standards, changes in patientrequirements, and frequent new product introductions and improvements. If we are unable to respond quickly and successfully to these developments, wemay lose our competitive position, and our products or technologies may become uncompetitive or obsolete. To compete successfully, we must maintain asuccessful research and development effort, develop new products and production processes, and improve our existing products and processes at the samepace or ahead of our competitors. Our research and development efforts are aimed at solving increasingly complex problems, as well as creating newtechnologies, and we do not expect that all of our projects will be successful. If our research and development efforts are unsuccessful, our future results ofoperations could be materially harmed.We rely on network and information systems and other technologies, as well as key properties, and a disruption, cyber-attack, failure or destruction of suchnetworks, systems, technologies or properties may disrupt our businesses. Network and information systems and other technologies are critical to our business activities. Network and information systems-related events, such ascomputer hackings, cyber-attacks, computer viruses, worms or other destructive or disruptive software, process breakdowns, denial of service attacks,malicious social engineering or other malicious activities, or any combination of the foregoing, or power outages, natural disasters, terrorist attacks or othersimilar events, could result in a degradation or disruption of our services, excessive call volume to call centers or damage to our properties, equipment anddata. These events also could result in large expenditures to repair or replace the damaged properties, networks or information systems or to protect them fromsimilar events in the future. Further, any security breaches, such as misappropriation, misuse, leakage, falsification or accidental release or loss of informationmaintained in our information technology systems, including customer, personnel and vendor data, could damage our reputation and require us to expendsignificant capital and other resources to remedy any such security breach. We may provide certain confidential, proprietary and personal information to thirdparties in connection with our businesses, and while we obtain assurances that these third parties will protect this information, there is a risk that thisinformation may be compromised. Moreover, the amount and scope of insurance we maintain against losses resulting from any such events or securitybreaches may not be sufficient to cover our losses or otherwise adequately compensate us for any disruptions to our businesses that may result, and theoccurrence of any such events or security breaches could have a material adverse effect on our businesses.Violation of federal and state laws regarding privacy and security of patient information may adversely affect our business, financial condition oroperations. The use and disclosure of certain health care information by health care providers and their business associates have come under increased publicscrutiny. Federal standards under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, establish rules concerning how individually-identifiable health information may be used, disclosed and protected. Historically, state law had governed confidentiality issues, and HIPAA preserves theselaws to the extent they are more protective of a patient's privacy or provide the patient with more access to his or her health information. Additionally, themore recent Health Information Technology for Economic and Clinical Health ("HITECH") Act and associated changes to HIPAA impose additionalrequirements relating to the privacy, security and transmission of individually identifiable health information. We must operate our business in a manner thatcomplies with all applicable laws, both federal and state, and that does not jeopardize the ability of our customers to comply with all applicable laws. Webelieve that our20Table of Contentsoperations are consistent with these legal standards. Nevertheless, these laws and regulations present risks for health care providers and their businessassociates that provide services to patients in multiple states. Because some of these laws and regulations are recent, and few have been interpreted bygovernment regulators or courts, we may need to adjust our interpretations of these laws and regulations over time. If a challenge to our activities issuccessful, it could have an adverse effect on our operations, may require us to forego relationships with customers in certain states and may restrict theterritory available to us to expand our business. In addition, even if our interpretations of HIPAA and other federal and state laws and regulations are correct,we could be held liable for unauthorized uses or disclosures of patient information as a result of inadequate systems and controls to protect this informationor as a result of the theft of information by unauthorized computer programmers who penetrate our network security. Violation of these laws against us could have a material adverse effect on our business, financial condition and results of operations. For example, weexperienced the theft of two unencrypted laptop computers and, as a result, were required to provide notices under the HIPAA Breach Notification Rule.Although we have been in compliance with our obligations stemming from these incidents, there has yet to be an outcome to the ongoing investigation intothe thefts by the United States Department of Health and Human Services' Office for Civil Rights. We are unable to predict what action, if any, might be takenin the future by the Office for Civil Rights or other governmental authorities as a result of this investigation or what impact, if any, the outcome of this mattermight have on our results of operations.Our operations and the operations of our physicians and patients are subject to regulation aimed at preventing health care fraud and abuse and, if we areunable to fully comply with such laws, we could face substantial penalties. Our operations may be directly or indirectly affected by various broad state and federal health care fraud and abuse laws, including the FederalHealthcare Programs' Anti-Kickback Statute and the Federal False Claims Act. For some of our services, we directly bill physicians, who, in turn, bill payors.Although we believe such payments are proper and in compliance with laws and regulations, we may be subject to claims asserting that we have violatedthese laws and regulations. If our past or present operations are found to be in violation of these laws, we or our officers may be subject to civil or criminalpenalties, including large monetary penalties, damages, fines, imprisonment and exclusion from Medicare and Medicaid program participation. Furthermore,if we knowingly "cause" the filing of false claims for reimbursement with government programs such as Medicare and Medicaid, we may be subject tosubstantial civil penalties, including treble damages. For example, in 2011, we received a Civil Investigative Demand ("CID") issued by the U.S. Departmentof Justice, Western District of Washington. The CID stated that it was issued as part of an investigation under the Federal False Claims Act and soughtdocuments for the period January 1, 2007 through the date of the CID. During the second quarter of 2014, the Company reached an agreement in principle fora potential settlement; however, the pending settlement is subject to satisfactory negotiation and completion of a settlement agreement. The Federal False Claims Act also contains "whistleblower" or "qui tam" provisions that allow private individuals to bring actions on behalf of thegovernment alleging that the defendant has defrauded the government. In recent years, the number of suits brought in the medical industry by privateindividuals has increased dramatically. Various states have enacted laws modeled after the Federal False Claims Act, including "qui tam" provisions, andsome of these laws apply to claims filed with commercial insurers. Even if we are not found to have violated any of these federal or state anti-fraud or falseclaims acts, the costs of defending these claims could adversely affect our results of operations.21Table of ContentsThe operation of our monitoring facilities is subject to rules and regulations governing IDTFs and state licensure requirements; failure to comply withthese rules could prevent us from receiving reimbursement from Medicare and some commercial payors. We have monitoring facilities in Pennsylvania, Minnesota, New Jersey and California that analyze the data obtained from arrhythmia monitors andreport the results to physicians. In order for us to receive reimbursement from Medicare and some commercial payors, we must our monitoring centers certifiedas IDTFs. Certification as an IDTF requires that we follow strict regulations governing how the center operates, such as requirements regarding the experienceand certifications of the technicians who review data transmitted from our monitors. These rules and regulations vary from location to location and aresubject to change. If they change, we may have to change the operating procedures at our monitoring facilities, which could increase our costs significantly.If we fail to obtain and maintain IDTF certification, our services may no longer be reimbursed by Medicare and some commercial payors, which could have amaterial adverse impact on our business.Changes in the health care industry or tort reform could reduce the number of arrhythmia monitoring solutions ordered by physicians, which could resultin a decline in the demand for our solutions, pricing pressure and decreased revenue. Changes in the health care industry directed at controlling health care costs or perceived over-utilization of arrhythmia monitoring solutions couldreduce the volume of solutions ordered by physicians. If more health care cost controls are broadly instituted throughout the health care industry, the volumeof cardiac monitoring solutions could decrease, resulting in pricing pressure and declining demand for our services, which could harm our operating results.In addition, it has been suggested that some physicians order arrhythmia monitoring solutions, even when the services may have limited clinical utility,primarily to establish a record for defense in the event of a claim of medical malpractice against the physician. Legal changes increasing the difficulty ofinitiating medical malpractice cases, known as tort reform, could reduce the amount of our services prescribed as physicians respond to reduced risks oflitigation, which could harm our operating results.Legislation and policy changes reforming the United States healthcare system may have a material adverse effect on our operating results and financialcondition. On March 23, 2010, both the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed intolaw. Together, the two measures make the most sweeping and fundamental changes to the United States health care system since the creation of Medicare andMedicaid. The Health Care Reform laws include a large number of health-related provisions to take effect over the next few years, including expandingMedicaid eligibility, requiring most individuals to have health insurance, establishing new regulations on health plans, establishing health insuranceexchanges, requiring manufacturers to report payments or other transfers of value made to physicians and teaching hospitals, and modifying certain paymentsystems to encourage more cost-effective care. In addition, various healthcare reform proposals have also emerged at the state level. We cannot predict the effect that newly enacted laws or any futurelegislation or regulation will have on us. However, the implementation of new legislation and regulation may lower reimbursements for our products, reducemedical procedure volumes and adversely affect our business.Failure to appropriately track and report certain payments and physician hospitals may violate certain federal reporting laws and subject us to fines andpenalties. Section 6002 of the Affordable Care Act requires certain medical device manufacturers that produce devices covered by the Medicare and state Medicaidprograms to report annually to the22Table of Contentsgovernment certain payments to physicians and teaching hospitals. If we fail to appropriately track and report such payments to the government, we could besubject to civil fines and penalties, which could adversely affect the results of our operations.The FDA may recommend a different approach to measuring the cardiac impact and safety of drugs as part of the approval process. Such changes couldmake the systems and processes of our research subsidiary obsolete and adversely affect revenue and profitability. The FDA has provided guidance reinforcing the need for cardiac safety testing of all compounds entering the blood stream as part of the approvalprocess. The requirements vary based on the type and history of compound. This testing is accomplished by different methods, including Cardiac imagingsuch as MUGA scan and echocardiography, and electrocardiographic (ECG) analysis including measuring the QT/QTc interval for prolongation. We functionas an ECG core lab and have developed proprietary systems and processes to receive Cardiac imaging studies and ECGs for analysis. It is possible that, in thefuture, the FDA may recommend a different approach for evaluating cardiac impact and safety of compounds which may diminish the need for an ECG corelab. This would considerably reduce the value of our existing systems and processes and would substantially decrease our revenues and profitability.If we or our suppliers fail to achieve or maintain regulatory approval of manufacturing facilities, our growth could be limited and our business could beharmed. We currently assemble and manufacture our devices in our Eagan, MN and Ewing, NJ facilities. We do purchase INR monitoring devices from thirdparties. In order to maintain compliance with FDA and other regulatory requirements, our manufacturing facilities must be periodically re-evaluated andqualified under a quality system to ensure they meet production and quality standards. Suppliers of components and products used to manufacture MCT,event, Holter and Pacemaker devices, and the manufacturers of the monitors used in INR services must also comply with FDA regulatory requirements, whichoften require significant resources and subject us and our suppliers to potential regulatory inspections and stoppages. If we or our suppliers do not maintainregulatory approval for our manufacturing operations, our business could be adversely affected.Our dependence on a limited number of suppliers may prevent us from delivering our devices on a timely basis. We currently rely on a limited number of suppliers of components for the devices that we manufacture. If these suppliers became unable to providecomponents in the volumes needed or at an acceptable price, we would have to identify and qualify acceptable replacements from alternative sources ofsupply. The process of qualifying suppliers is lengthy. Delays or interruptions in the supply of our requirements could limit or stop our ability to providesufficient quantities of devices on a timely basis, meet demand for our services, which could have a material adverse effect on our business, financialcondition and results of operations.We are subject to medical device taxes that impose additional taxes on our services. Effective January 1, 2013, as a result of the passage of the Affordable Care Act, manufacturers of certain medical devices are subject to an excise tax onthe sale of the devices. Several devices that are manufactured by our Product segment are devices that are subject to this tax. The tax is 2.3% of the sale priceof the applicable medical device. As the manufacturer, we are responsible for remitting these taxes to the Federal Government. If taxes are not collected fromcustomers in an amount equal to the taxes owed, or the taxes are not remitted in a timely matter, we may be subject to penalties and fees that could adverselyaffect our business. Furthermore, if we are forced to raise our prices as a result of23Table of Contentsthe tax, then customers may stop or purchase fewer of our products, hurting our revenue and results of operations.We could be subject to medical liability or product liability claims, which may not be covered by insurance and which would adversely affect our businessand results of operations. The design, manufacture and marketing of services of the types we provide entail an inherent risk of product liability claims. Any such claims against usmay require us to incur significant defense costs, irrespective of whether such claims have merit. In addition, we provide information to health care providersand payors upon which determinations affecting medical care are made, and claims may be made against us resulting from adverse medical consequences topatients resulting from the information we provide. In addition, we may become subject to liability in the event that the devices we use fail to correctly recordor transfer patient information or if we provide incorrect information to patients or health care providers using our services. Our liability insurance is subject to deductibles and coverage limitations. In addition, our current insurance may not continue to be available to us onacceptable terms, if at all, and, if available, the coverage may not be adequate to protect us against any future claims. If we are unable to obtain insurance atan acceptable cost or on acceptable terms with adequate coverage or otherwise protect against any claims against us, we will be exposed to significantliabilities, which may adversely affect our business and results of operations.We are subject to numerous FDA regulations and decisions and it may be costly to comply with these regulations and decisions and to develop compliantproducts and processes. The devices that we manufacture are classified as medical devices and are subject to extensive regulation by the FDA. Further, we maintain establishmentregistration with the FDA as a distributor of medical devices. FDA regulations govern manufacturing, labeling, promotion, distribution, importing, exporting,shipping and sale of these devices. Our devices and our arrhythmia detection algorithms have 510(k) clearance status from the FDA. Modifications to ourdevices or our algorithms that could significantly affect safety or effectiveness, or that could constitute a significant change in intended use, would require anew clearance from the FDA. If in the future we make changes to our devices or our algorithms, the FDA could determine that such modifications require newFDA clearance, and we may not be able to obtain such FDA clearances timely, or at all. We are subject to continuing regulation by the FDA, including quality regulations applicable to the manufacture of our devices and various reportingregulations, as well as regulations that govern the promotion and advertising of medical devices. The FDA could find that we have failed to comply with oneof these requirements, which could result in a wide variety of enforcement actions, ranging from a warning letter to one or more severe sanctions. Thesesanctions could include fines, injunctions and civil penalties; recall or seizure of devices; operating restrictions, partial suspension or total shutdown ofproduction; refusal to grant 510(k) clearance of new components or algorithms; withdrawing 510(k) clearance already granted to one or more of our existingcomponents or algorithms; and criminal prosecution. Any of these enforcement actions could be costly and significantly harm our business, financialcondition and results of operations.New regulations related to conflict minerals may adversely impact our business. The Dodd Frank Wall Street Reform and Consumer Protection Act contains provisions to improve transparency and accountability concerning thesupply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo and adjoining countries ("DRC"). Due to thematerials used in certain of the products manufactured by our subsidiaries, Braemar and UMI, we must comply with annual disclosure and reporting rulesadopted by the SEC by assessing whether the subject24Table of Contentsminerals contained in Braemar and UMI's products originated in the DRC. Our supply chain is complex since we do not source our minerals directly from theoriginal mine or smelter. Consequently, we incur costs in complying with these disclosure requirements, including for due diligence to determine the sourceof the subject minerals used in our products and other potential changes to products, processes or sources of supply as a consequence of such verificationactivities. The rules may adversely affect the sourcing, supply and pricing of materials used in our products throughout the supply chain beyond our control,whether or not the subject minerals are "conflict free." Also, we may face reputational challenges if we determine that certain of our products contain mineralsnot determined to be conflict free or if we are unable to sufficiently verify the origins for all subject minerals used in our products through our diligenceprocess.If our clients discontinue using our services or cancel research projects, revenue may be adversely affected and we may not receive future business fromthese clients. Clients may cease using our services or may prematurely cancel research projects. The cancellation or delay of a large contract or multiple contractscould have an adverse material effect on our revenue and profitability. The loss of clients or individual contracts could have an adverse effect if we are unableto attract new clients or unable to replace projects. Historically, clients have cancelled or discontinued projects and may in the future cancel their contractsfor various reasons including:•unexpected or undesired clinical results of the product; •a decision that a particular study is no longer necessary or needed; •insufficient patient enrollment or poor project performance; and •production problems resulting in shortages of the drugs.We are reliant on the outsourcing of clinical research by pharmaceutical, clinical research and biotechnology companies. We are reliant on the ability and willingness of pharmaceutical, clinical research and biotechnology companies to continue to spend on clinical researchto outsource the types of research services that we provide. As such, we are impacted and subject to risks, uncertainties and trends that affect companies inthese industries. Any downturn in these industries or reduction in spending or outsourcing could adversely affect our business.Future sales of our common stock may depress our stock price. Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the marketthat the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of December 31, 2014, we had26,693,248 outstanding shares of vested common stock. In addition, we have 4,115,486 options and restricted stock units ("RSUs") outstanding to purchaseshares of our common stock that will become exercisable over the next four years. If exercised, these options and RSUs would result in additional sharesbecoming available for sale.Anti-takeover provisions in our charter documents and Delaware law might deter acquisition bids for us that our stockholders might consider favorable. Our amended and restated certificate of incorporation and bylaws contain provisions that may make the acquisition of our Company more difficultwithout the approval of our Board of Directors. These provisions:•establish a classified board of directors so that not all members of the board are elected at one time;25Table of Contents•authorize the issuance of undesignated preferred stock, the terms of which may be established and shares of which may be issued withoutstockholder approval, and which may include rights superior to the rights of the holders of common stock; •prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders; •provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; and •establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon bystockholders at stockholder meetings. In addition, because we are incorporated in Delaware, we are subject to Section 203 of the Delaware General Corporation Law which, subject to certainexceptions, prohibits stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. These anti-takeoverprovisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change of control of our Company, even ifdoing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for our stockholders to electdirectors of their choosing and cause us to take other corporate actions such stockholders desire.We may not be able to realize our net operating loss carryforwards. We have deferred tax assets that include net operating loss carryforwards that can be used to offset taxable income in future periods and reduce incometaxes payable in those future periods. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during theperiods in which those temporary differences are deductible. The timing and manner in which we can utilize our net operating loss carryforward and futureincome tax deductions in any year may be limited by provisions of the Internal Revenue Code regarding the change in ownership of corporations. Suchlimitation may have an impact on the ultimate realization of our carryforwards and future tax deductions. Section 382 of the Internal Revenue Code("Section 382") imposes limitations on a corporation's ability to utilize net operating losses if it experiences an "ownership change." In general terms, anownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentagepoints over a three-year period. Any unused annual limitation may be carried over to later years, and the amount of the limitation may under certaincircumstances be increased by the built-in gains in assets held by us at the time of the change that are recognized in the five-year period after the change.Currently, a portion of our loss carryforwards are limited under Section 382. Item 1B. Unresolved Staff Comments None. Item 2. Properties As of December 31, 2014, we lease facilities in the following locations:•47,000 square feet of space for our headquarters and Patient Services operations center in Malvern, PA, under an agreement that expires inMarch 2021; •28,000 square feet of space for Patient Services monitoring as well as Product manufacturing in Ewing, NJ, under an agreement that expires inDecember 2018; •24,000 square feet of space for Patient Services monitoring as well as Product manufacturing in Eagan, MN, under an agreement that expires inJanuary 2017;26Table of Contents•16,000 square feet of space for our Patient Services distribution center in Chester, PA, under an agreement that expires in December 2020; •13,000 square feet of space for Research Services in Rockville, MD under an agreement that expires in November 2018; •12,000 square feet of space dedicated to Product research and development, various IT functions, and engineering activities in San Diego, CA,under an agreement that expires in January 2015; •11,000 square feet of space for our Patient Services distribution center in Phoenix, AZ, under an agreement that expires in April 2015; •7,000 square feet of space for our Patient Services monitoring facility in San Francisco, CA, under an agreement that expires in March 2019; •5,000 square feet of space for our Patient Services customer support center in Norfolk, VA under an agreement that expires in July 2018; •4,000 square feet of space for Research Services in San Francisco, CA under an agreement that expires in October 2015; and •200 square feet of space for Research Services in London, UK under an agreement that continues on a calendar quarterly basis until terminated. We believe that our existing facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available in thefuture on commercially reasonable terms. Item 3. Legal Proceedings From time to time, in the ordinary course of business and like others in the industry, we receive requests for information from government agencies inconnection with their regulatory or investigational authority or are involved in traditional employment or business litigation. We review such requests andnotices and take appropriate action. The final outcome of any current or future litigation or governmental or internal investigations cannot be accurately predicted, nor can we predict anyresulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. We record accruals for suchcontingencies to the extent that it concludes it is probable that a liability has been incurred and the amount of the loss can be projected.Department of Justice Civil Investigation On August 25, 2011, we received a Civil Investigative Demand issued by the U.S. Department of Justice, Western District of Washington. The CID statesthat it was issued in the course of an investigation under the Federal False Claims Act and seeks documents for the period January 1, 2007 through the date ofthe CID. The CID indicates that the investigation concerns allegations that we may have used inappropriate diagnosis codes when submitting claims forpayment to Medicare for our real-time, MCOT™ services. During the second quarter of 2014, the Company reached an agreement in principle for a potentialsettlement; however, the pending settlement is subject to satisfactory negotiation and completion of a settlement agreement. As result, the Company recordeda non-operating charge of $6,400 in the first half of 2014. This reserve was recorded to Interest and other loss, net in the Consolidated Statements of and isincluded in Accrued liabilities on the balance sheet.27Table of ContentsCardioNet v. Mednet Litigation On May 8, 2012, CardioNet filed suit against Mednet Healthcare Technologies, Inc., MedTel 24, Inc., RhythmWatch LLC, and AMI CardiacMonitoring, Inc., in the United States District Court for the Eastern District of Pennsylvania (Civil Action No. 2:12-CV-2517-JS) for patent infringementrelated to the making, use, offering for sale, and sale of the Heartrak ECAT device and monitoring services. The suit asserted that the defendants areinfringing CardioNet's U.S. Patent Nos. 7,212,850, 7,907,996, 6,569,095, 7,587,237 and 7,941,207. CardioNet sought an injunction against each defendant,as well as monetary damages. The defendants asserted counterclaims alleging the patents in suit are invalid and not infringed. This litigation concluded on January 31, 2014 when the Court entered a Consent Judgment declaring all five CardioNet patents valid and enforceable,and infringed by the defendants' making, using, offering to sell, or selling the Heartrak ECAT device and monitoring services. The Consent Judgment alsodeclared that all defendants are permanently enjoined from further infringement and are required to turn over all existing inventory of the Heartrak ECATsystem to CardioNet and Braemar. Simultaneously, with the entry of the consent judgment, BioTelemetry, through its CardioNet subsidiary, entered into a definitive stock purchaseagreement, to purchase all of the outstanding capital stock of Mednet and its affiliated entities for consideration of $5.5 million in cash and 96,649 shares ofour common stock, valued at $0.7 million at closing. In addition, as a result of the acquisition, we assumed indebtedness from the Mednet entities in theaggregate amount of $9.7 million, including interest. Under the terms of the Consent Judgment entered by the Court, Medtel 24 was granted a limited, non-exclusive, license for the Heartrak ECAT system fora period of one year. On the 364th day of such license, MedTel 24 filed a Motion to Set Aside the Consent Judgment and served the Company with a Demandfor Arbitration. We are vigorously defending the claim and believe it to be without merit.CardioNet v. ScottCare Litigation On May 8, 2012, CardioNet filed suit against The ScottCare Corporation and Ambucor Health Solutions, Inc. in the United States District Court for theEastern District of Pennsylvania (Civil Action No. 2:12-CV-2516-PBT) for patent infringement under the same five CardioNet patents, as mentioned above inthe Mednet litigation, related to the making, use, sale, and offering for sale of the ScottCare TeleSentry Mobile Cardiac Telemetry device and monitoringservices. CardioNet is seeking an injunction against each defendant, as well as monetary damages. The ScottCare Corporation has asserted counterclaimsalleging the patents in suit are invalid and not infringed. On May 10, 2013, CardioNet, Inc. and Braemar Manufacturing, LLC filed an Amended Complaint identifying Braemar as the new owner of all right, titleand interest to the patents in suit with CardioNet as the exclusive licensee of these patents. Fact discovery closed on June 30, 2014, and the trial has been re-scheduled for June 8, 2015. Consistent with the accounting for contingent liabilities, no accrual has been recorded in the financial statements. We arevigorously pursuing our claims and defending against the counterclaims. Item 4. Mine Safety Disclosures Not Applicable.28Table of Contents Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock is traded on The NASDAQ Global Select Market under the symbol "BEAT." The following table sets forth the range of high and lowsale prices of our common stock for the periods indicated:20142013As of February 18, 2015, there were 26,734,569 shares of our common stock outstanding. Also as of that date, we had approximately 65 holders of record.Dividends We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings tosupport our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for theforeseeable future. Any future determination related to dividend policy will be made at the discretion of our Board of Directors.29Quarter Ended High Low December 31, 2014 $10.68 $6.56 September 30, 2014 7.57 6.54 June 30, 2014 11.02 6.78 March 31, 2014 11.71 6.88 Quarter Ended High Low December 31, 2013 $11.72 $7.07 September 30, 2013 10.56 5.47 June 30, 2013 6.12 2.33 March 31, 2013 2.59 2.14 Table of ContentsStock Performance Graph The graph below compares the total stockholder return of an investment of $100 on December 31, 2009 through December 31, 2014 for (i) our commonstock (ii) The NASDAQ Health Care Index and (iii) The Russell 2000 Index. Each of the three measures of cumulative total return assumes reinvestment ofdividends, if any. The stock price performance shown on the graph below is based on historical data and is not indicative of future stock price performance. Comparison of 5 Year Cumulative Total ReturnAmong BioTelemetry, Inc., The NASDAQ Health Care Indexand The Russell 2000 Index The foregoing graph and chart shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Reporton Form 10-K into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extentwe specifically incorporate this information by reference, and shall not otherwise be deemed filed under those acts.30Company/Index Base Period12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 BioTelemetry, Inc. $100.00 $78.79 $39.90 $38.38 $133.67 $168.86 NASDAQ HealthCare Index $100.00 $110.33 $115.31 $146.72 $230.41 $296.01 Russell 2000Index $100.00 $126.86 $121.56 $141.43 $196.34 $205.95 Table of Contents Item 6. Selected Financial Data The selected financial data set forth below are derived from our consolidated financial statements. The Statement of Operations for the years endedDecember 31, 2014, 2013 and 2012, and the balance sheet data at December 31, 2014 and 2013 are derived from our audited consolidated financialstatements included elsewhere in this report. The statement of operations data for the years ended December 31, 2011 and 2010 and the balance sheet data atDecember 2012, 2011 and 2010 are derived from our audited consolidated financial statements, which are not included herein. The following selected financial data should be read in conjunction with the Consolidated Financial Statements and related notes thereto in Item 8 and"Management's Discussion and Analysis of Financial Condition and Results of Operation" in Item 7 of this report.31 Year ended December 31, 2014 2013 2012 2011 2010 in thousands, except per share data Statement ofOperationsData: Revenues: Patient services $133,178 $100,386 $93,640 $106,853 $119,924 Researchservices 19,744 20,329 8,333 1,079 — Product 13,656 8,786 9,521 11,090 — Total revenues 166,578 129,501 111,494 119,022 119,924 Cost of revenues: Patient services 54,942 35,177 36,793 42,258 47,492 Researchservices 10,646 11,317 3,726 571 — Product 7,526 3,937 5,074 6,247 — Total cost ofrevenues 73,114 50,431 45,593 49,076 47,492 Gross profit 93,464 79,070 65,901 69,946 72,432 Operatingexpenses: General andadministrative 45,131 36,569 32,644 35,011 34,657 Sales andmarketing 28,805 26,275 25,604 27,821 29,338 Bad debtexpense 9,347 7,787 11,912 12,080 18,578 Research anddevelopment 7,396 7,338 4,664 5,698 4,897 Integration,restructuringand othercharges 7,098 7,982 4,236 4,659 4,654 GoodwillImpairment — — — 45,999 — Total operatingexpenses 97,777 85,951 79,060 131,268 92,124 Loss fromoperations (4,313) (6,881) (13,159) (61,322) (19,692)Other (loss)income, net (7,793) (223) 52 144 94 Loss beforeincome taxes (12,106) (7,104) (13,107) (61,178) (19,598)(Provision) benefitfor income taxes 2,313 (215) 905 (244) (262)Net loss $(9,793)$(7,319)$(12,202)$(61,422)$(19,860)Net loss percommon share: Basic anddiluted $(0.37)$(0.29)$(0.49)$(2.51)$(0.82)Weighted averagenumber of sharesoutstanding: Basic anddiluted 26,444,626 25,543,646 24,933,656 24,425,318 24,109,085 Table of Contents Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation You should read the following discussion and analysis of our financial condition and results of our operations in conjunction with our consolidatedfinancial statements and the related notes to those statements included elsewhere in this report. This discussion contains forward-looking statementsreflecting our current expectations that involve risks and uncertainties. Our actual results and the timing of events may differ materially from thosecontained in these forward-looking statements due to a number of factors—see "Cautionary Statement Regarding Forward-Looking Statements" andItem 1A "Risk Factors." We are on a calendar year end, and except where otherwise indicated below, "2014" refers to the year ended December 31, 2014,"2013" refers to the year ended December 31, 2013 and "2012" refers to the year ended December 31, 2012.OverviewCompany Background We provide cardiac monitoring services, cardiac monitoring device manufacturing, and centralized cardiac core laboratory services. We operate underthree reportable segments: (1) Patient Services, (2) Product and (3) Research Services. The Patient Services segment is focused on the diagnosis andmonitoring of cardiac arrhythmias, or heart rhythm disorders. We offer cardiologists and electrophysiologists with a full spectrum of solutions which providesthem with a single source of cardiac monitoring services. These services range from the differentiated MCT service marketed as Mobile Cardiac OutpatientTelemetryTM ("MCOT™") or External Cardiac Ambulatory Telemetry ("ECAT"), to wireless and trans telephonic event, Holter, Pacemaker and InternationalNormalized Ratio ("INR") monitoring. The Product segment focuses on the development, manufacturing, testing and marketing of medical devices to medicalcompanies, clinics and hospitals. The Research Services segment is engaged in central core laboratory services providing cardiac monitoring, imaging,scientific consulting and data management services for drug and medical device trials. As of July 31, 2013, we reorganized to create a holding company structure. CardioNet, Inc., which was previously the public company, became a wholly-owned subsidiary of a newly formed entity, BioTelemetry, Inc., a Delaware corporation, and all the outstanding shares of CardioNet, Inc. were exchanged, onan one-for-one basis, for share of BioTelemetry, Inc. Our new holding company began trading on August 1, 2013 on The NASDAQ Global Select Marketunder our same symbol "BEAT."Recent Acquisitions In June 2014, we completed the acquisition of the assets of RadCore Lab, LLC ("RadCore"), an imaging core lab serving the biopharmaceutical andmedical device research market. This acquisition broadens our offerings and adds new oncology, musculoskeletal and neurological imaging capabilities,supported by a state-of-the-art, cloud-based analysis platform. RadCore is included in the Research Services segment.32 As of December 31, 2014 2013 2012 2011 2010 in thousands Balance Sheet Data: Cash and cash equivalents $20,007 $22,151 $18,298 $18,531 $18,705 Short-term available-for-sale investments — — — 27,953 26,779 Working capital 14,150 25,215 24,932 57,177 60,634 Total assets 124,778 87,546 90,010 94,975 156,692 Total debt 24,008 — — — — Total shareholders' equity 63,676 66,829 69,998 77,997 134,928 Table of Contents In April 2014, we completed the acquisition of substantially all of the assets of Biomedical Systems Corporation's ("BMS") cardiac event monitoring,Holter monitoring and mobile telemetry monitoring services. The acquisition gave us access to internally developed Holter software and to establishedcustomer relationships and is primarily included in the Patient Services segment. In January 2014, we completed the acquisition of Mednet Healthcare Technologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc.,and Universal Medical Laboratory, Inc. (together, the "Mednet entities"). Mednet provides cardiac monitoring services and is an original equipmentmanufacturer of cardiac monitoring devices. The acquisition gave us access to established customer relationships and is included in the Patient Services andProduct segments. In August 2012, we completed the acquisition of Cardiocore Lab, Inc. ("Cardiocore"). Cardiocore is engaged in central core laboratory services thatprovide cardiac monitoring for drug and medical treatment trials. Cardiocore's primary customers are pharmaceutical companies and contract researchorganizations. The acquisition gave us access to industry expertise, an established operating structure and a substantial footprint in the core lab industry.Cardiocore is included in our Research Services segment. In February 2012, we completed the acquisition of ECG Scanning & Medical Services, Inc. ("ECG Scanning"). ECG Scanning was engaged in providingcardiac monitoring services to general practitioners, internal medicine specialists, cardiologists and hospital cardiac care departments. The acquisition gaveus access to established customer relationships. ECG Scanning is included in our Patient Services segment.Reimbursement—Patient Services We are dependent on reimbursement for our patient services by government and commercial insurance payors. Medicare reimbursement rates for ourMCT, event, Holter, Pacemaker and INR monitoring services have been established nationally by the Centers for Medicare and Medicaid Services ("CMS")and fluctuate periodically based on the annually published CMS rate table. In addition to government reimbursement through Medicare, we have successfully secured contracts with most national and regional commercial payorsfor our monitoring services. During 2014, CMS published a change to one of the factors used in the calculation for reimbursement for remote cardiac monitoring services effectiveJanuary 1, 2015. As a result, we expect an approximate 2.5% increase in our Medicare MCT reimbursement for 2015. Commercial reimbursement pricing forour services has declined over the past three years. Commercial pricing is affected by numerous factors, including the current Medicare reimbursement rates,competitive pressures, and our ability to successfully negotiate favorable terms in our agreements and the perceived value and effectiveness of our services.We expect continued pricing pressure on the rates we are able to obtain with our commercial payors.Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared inaccordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions thataffect the reported amount of assets and liabilities, revenues and expenses, and related disclosures. We base our estimates and judgments on historicalexperience and on various other factors that we believe to be reasonable under the circumstances; however, actual results may differ from these estimates. Wereview our estimates and judgments on an ongoing basis.33Table of Contents We believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results.Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements.Revenue RecognitionPatient Services Patient Services revenue includes revenue from MCT, wireless and trans telephonic event, Holter, Pacemaker and INR monitoring services. We receive asignificant portion of our revenue from third party commercial insurance organizations and governmental entities. We also receive reimbursement directlyfrom patients through co-pays and self-pay arrangements. Billings for services reimbursed by contracted third party payors, including Medicare, are recordedas revenue net of contractual allowances. Adjustments to the estimated receipts, based on final settlement with the third party payors, are recorded uponsettlement. If we do not have sufficient historical information regarding collectability from a given payor to support revenue recognition at the time ofservice, revenue is recognized when cash is received. Unearned amounts are appropriately deferred until the service has been completed. For the years endedDecember 31, 2014, 2013 and 2012, revenue from Medicare as a percentage of our Patient Services revenue was 40%, 45% and 44%, respectively.Research Services Research Services revenue includes revenue for project management and core laboratory services. Our Research Services revenues are provided on a feefor service basis, and revenue is recognized as the related services are performed. We also provide consulting services on a time and materials basis and thisrevenue is recognized as the services are performed. Our site support revenue, consisting of equipment rentals and sales along with related supplies andlogistics management, are recognized at the time of sale or over the rental period. Under a typical contract, customers pay us a portion of our fee for theseservices upon contract execution as an upfront deposit, some of which is typically nonrefundable upon contract termination. Unearned revenues, includingupfront deposits, are deferred, and then recognized as the services are performed. For arrangements with multiple deliverables, the revenue is allocated to each element (both delivered and undelivered items) based on their relativeselling prices or management's best estimate of their selling prices, when vendor-specific or third-party evidence is unavailable. We record reimbursements received for out-of-pocket expenses, including freight, as revenue in the accompanying consolidated statements ofoperations. Revenue generally is recognized net of any taxes collected from customers and subsequently remitted to government authorities.Accounts Receivable Accounts receivable related to the Patient Services segment are recorded at the time revenue is recognized, net of contractual allowances, and arepresented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of accounts receivable may not be known for several monthsafter services have been provided and billed. We record an allowance for doubtful accounts based on the aging of receivables using historical companyspecific data. The percentages and amounts used to record bad debt expense and the allowance for doubtful accounts are supported by various methods andanalyses, including current and historical cash collections, and the aging of receivables by payor. Because of continuing changes in the health care industryand third party reimbursement, it is possible that our estimates could change, which could have a material impact on our operations and cash flows. Other receivables related to the Product and Research Services segments are recorded at the time revenue is recognized, or when products are shipped orservices are performed. We estimate the34Table of Contentsallowance for doubtful accounts on a specific account basis, and consider several factors in our analysis including customer specific information and theaging of the account. We will write-off receivables when the likelihood for collection is remote and when we believe collection efforts have been fully exhausted and we donot intend to devote additional resources in attempting to collect. We perform write-offs on a monthly basis. In the Patient Services segment, we wrote off$6.5 million and $7.8 million of receivables for the years ended December 31, 2014 and 2013, respectively. The impact was a reduction of gross receivablesand a reduction in the allowance for doubtful accounts. There were no material write-offs in the Product and Research Services segments. We recorded baddebt expense of $9.3 million, $7.8 and $11.9 million, respectively, for the years ended December 31, 2014, 2013 and 2012, respectively.Stock Based Compensation ASC 718, Compensation—Stock Compensation, addresses the accounting for share-based payment transactions in which an enterprise receives employeeservices in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or thatmay be settled by the issuance of such equity instruments. ASC 718 requires that an entity measure the cost of equity-based service awards based on thegrant-date fair value of the award and recognize the cost of such awards over the period during which the employee is required to provide service in exchangefor the award (the vesting period). ASC 718 requires that an entity measure the cost of liability-based service awards based on current fair value that is re-measured subsequently at each reporting date through the settlement date. We also use the provisions of ASC 505-50, Equity Based Payments to Non-Employees, to account for stock-based compensation awards issued to non-employees for services. Such awards for services are recorded at either the fairvalue of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement dateguidelines enumerated in ASC 505-50. We estimate the fair value of our share-based awards to employees and directors using the Black-Scholes option valuation model. The Black-Scholesoption valuation model requires the use of certain subjective assumptions. The most significant of these assumptions are the estimates of the expectedvolatility of the market price of our stock and the expected term of the award. We base our estimates of expected volatility on the historical volatility of ourstock price. The expected term represents the period of time that stock-based awards granted are expected to be outstanding. Other assumptions used in theBlack-Scholes option valuation model include the risk-free interest rate and expected dividend yield. The risk-free interest rate for periods pertaining to thecontractual life of each option is based on the U.S. Treasury yield of a similar duration in effect at the time of grant. We have never paid, and do not expect topay, dividends in the foreseeable future. The fair value of our stock-based awards was estimated at the date of grant using the following assumptions: ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.Forfeitures are estimated based on our historical experience and distinct groups of employees that have similar historical forfeiture behavior are consideredfor expense recognition.35 Year Ended December 31, 2014 2013 2012 Expected volatility 62.8% 60.3% 63.4%Expected term (in years) 6.49 6.71 6.31 Weighted average risk-free interest rate 1.85% 1.34% 1.15%Expected dividends 0.0% 0.0% 0.0%Weighted average grant date fair value per option $5.00 $1.90 $1.58 Weighted average grant date fair value per RSU $8.43 $3.52 $2.82 Table of ContentsGoodwill and Acquired Intangible Assets Goodwill is the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a businesscombination. In accordance with ASC 350, Intangibles—Goodwill and Other, goodwill is reviewed for impairment annually, or when events arise that couldindicate that impairment exists. The provisions of ASC 350 require that we perform a two-step impairment test. In the first step, we compare the fair value ofour reporting units to the carrying value of the reporting units. If the carrying value of the net assets assigned to the reporting units exceeds the fair value ofthe reporting units, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting units' goodwill. If thecarrying value of the reporting units' goodwill exceeds the implied fair value, an impairment loss equal to the difference is recorded. For the purpose of performing our goodwill impairment analysis, we consider our business to be comprised of three reporting units, Patient Services,Product and Research Services. We calculate the fair value of the reporting units utilizing the income and market approaches. The income approach is basedon a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates,expected tax benefits and long-term discount rates, all of which require significant judgment. The market approach utilizes our market data. There areinherent uncertainties related to these factors and the judgment applied in the analysis. We believe that the combination of an income and a market approachprovides a reasonable basis to estimate the fair value of our reporting units. We performed a goodwill impairment analysis for the years ended December 31, 2014, 2013 and 2012. These analyses did not indicate goodwillimpairment in any of the reporting units.Statements of Operations OverviewRevenue The vast majority of our revenue is derived from cardiac monitoring services in our Patient Services segment. The amount of Patient Services revenuegenerated is based on the number of patients enrolled through physician prescriptions and the rates reimbursed to us by commercial payors, patients andMedicare. We expect MCT pricing to increase slightly in 2015 based on the recent reimbursement rates announced by CMS. In the longer-term, we expectMCT pricing to decline, consistent with the economic life cycle of a successful premium service, as a result of competition and the introduction of newtechnologies. Event, Holter, Pacemaker and INR monitoring services utilize widely accepted technologies, and we expect the price to remain relativelyconstant or slightly decline in the long-term. Other sources of revenue include revenue generated from the sale of cardiac monitoring products to third-party distributors and service providers in ourProduct segment. Product revenue is driven by the number of the units purchased by our customers, and the relative per unit pricing for various products. Theaverage price per unit and volume for our Product segment has declined from historical levels as we have focused an increasing amount of our productioncapacity on the manufacture of devices for our Patient Services segment. We expect our Product segment revenue to remain constant or increase slightly dueto the full year impact of the Mednet acquisition. Additionally, revenue is generated in the Research Services segment through various study and consulting services, which includes activities such asproject management, cardiac monitoring services, data management, equipment rental and customer support. Research Services revenue is driven by ourability to enter into service contracts at various phases of the pharmaceutical drug development lifecycle. We expect volume to increase as thepharmaceutical industry moves increasingly towards central core lab services to conduct cardiac safety studies for drug development. Negotiated pricing for36Table of Contentsservices contracts is subject to market pressures, but has remained relatively consistent over the last few years. We expect revenue from the Research Servicessegment to increase.Gross Profit Gross profit consists of revenue less the cost of revenue. Cost of revenue for the Patient Services segment includes:•salaries and benefits for personnel providing various services and customer support to physicians and patients including customer service,monitoring services, distribution services (scheduling, packaging and delivery of the devices to the patients), device repair and maintenance,and quality assurance; •cost of patient-related services provided by third-party subcontractors including device transportation to and from the patient and cellularairtime charges related to transmission of ECGs to the Monitoring Centers; •consumable supplies sent to patients along with the durable components of our devices; and •depreciation of our medical devices. Cost of revenue for the Product segment includes the cost of materials and labor related to the manufacture of our products and product repair services. Cost of revenue for the Research Services segment includes:•depreciation of our medical devices; •cost of materials and transportation related to the shipment of products and supplies; •cost of internal and third party medical specialists and technicians; and •salaries and benefits of personnel providing various services to customers including consulting, customer support, project management andcertain information technology support. We expect multiple factors to influence our gross profit margins in the foreseeable future. If reimbursement rates decline in our Patient Services segment,it would have an adverse effect on our gross profit margin. Payor mix is unpredictable and dependent on the insurance coverage of patients that are prescribedour services. We expect to continue to achieve efficiencies in cost of revenues through process improvements, as well as from a reduction in the cost of ourdevices. These factors will have a favorable impact on our gross profit margins. While these factors could be offsetting, it is difficult to predict how they willinfluence our gross profit margins. If we experience volume or selling price declines in our Product segment, or service contract pricing or volume declines in our Research Servicessegment, it would have an adverse effect on our gross profit margin. We expect the cost of selling products and repairs to remain relatively consistent. Weexpect to achieve some efficiencies in our Research Services segment cost of sales through process improvement, and expect a favorable impact on grossmargins due to the leveraging of the relatively fixed cost infrastructure.General and Administrative General and administrative expense consists primarily of salaries and benefits related to general and administrative personnel, stock-basedcompensation, management bonus, professional fees primarily related to legal and audit fees, amortization related to intangible assets, facilities expenses andthe related overhead.37Table of ContentsSales and Marketing Sales and marketing expense consists primarily of salaries, benefits, and commissions related to sales, marketing and contracting personnel. Alsoincluded are marketing programs such as trade shows and advertising campaigns.Research and Development Research and development expense consists primarily of salaries and benefits of personnel as well as subcontractors who work on new productdevelopment and sustaining engineering of our existing products.Integration, Restructuring and Other Charges Integration, restructuring and other charges are related to strategic acquisitions, cost reduction programs, reorganizations and facility closures, as well asother costs that are not considered part of our ongoing business operations.Results of OperationsYears Ended December 31, 2014 and 2013 Revenue. Total revenue for the year ended December 31, 2014 was $166.6 million compared to $129.5 million for the year ended December 31, 2013,an increase of $37.1 million, or 28.6%. Approximately $30.1 million of the increase resulted from the acquisitions of Mednet and BMS. Excluding theseacquisitions, the remaining increase was due to increased volume in the Patient Services and Product segments which was partially offset by the previouslyannounced price reduction from Medicare, as well as reduced rates from commercial contracts tied to Medicare. These increases were partially offset by adecrease in the Research Services segment of $0.6 million. Gross Profit. Gross profit increased to $93.5 million for the year ended December 31, 2014 from $79.1 million for the year ended December 31, 2013.The increase of $14.4 million, or 18.2%, was due primarily due to the acquisitions of Mednet and BMS. Gross profit as a percentage of revenue decreased to56.1% for the year ended December 31, 2014 compared to 61.1% for the year ended December 31, 2013. The decrease in the gross profit percentage wasprimarily related to the acquisitions, including the impact of a lower margin patient mix of approximately 330 basis points and duplicative labor costs as weintegrated the businesses. Our gross profit percentage also declined 115 basis points due to the reduction in the reimbursement rates which were partiallyoffset by the increased patient volume in the base business as well as operational efficiencies. General and Administrative Expense. General and administrative expense was $45.1 million for the year ended December 31, 2014 compared to$36.6 million for the year ended December 31, 2013. The increase of $8.5 million, or 23.4%, was due to the additional expense associated with the Mednetand BMS acquisitions, including customer service, billing and collections, information technology and other back office functions. As a percentage of totalrevenue, general and administrative expense was 27.1% for the year ended December 31, 2014 compared to 28.2% for the year ended December 31, 2013. Sales and Marketing Expense. Sales and marketing expense was $28.8 million for the year ended December 31, 2014 compared to $26.3 million for theyear ended December 31, 2013. The increase of $2.5 million, or 9.6%, was due to the additional expense associated with the Mednet and BMS acquisitions.As a percentage of total revenue, sales and marketing expense was 17.3% for the year ended December 31, 2014 compared to 20.3% for the year endedDecember 31, 2013. Bad Debt Expense. Bad debt expense was $9.3 million for the year ended December 31, 2014 compared to $7.8 million for the year endedDecember 31, 2013. The increase of $1.5 million, or38Table of Contents20.0%, was due to increased revenue related primarily to the acquisitions of Mednet and BMS. Bad debt expense before accounting for acquisitions waslower despite increased revenue due to improved collections with ongoing process improvements. The bad debt expense recorded was based upon anevaluation of historical collection experience of accounts receivable by payor class, the age of the receivables, as well as specific payor circumstances. As apercentage of Patient Services revenue, bad debt expense was 7.0% for the year ended December 31, 2014 compared to 7.8% for the year ended December 31,2013. Substantially all of our bad debt expense relates to the Patient Services segment. Bad debt expense in the Product and Research Services segments wasminimal and is recorded on a specific account basis. Research and Development Expense. Research and development expense was $7.4 million for the year ended December 31, 2014 compared to$7.3 million for the year ended December 31, 2013. As a percent of total revenue, research and development expense was 4.4% for the year endedDecember 31, 2014 compared to 5.7% for the year ended December 31, 2013. Integration, Restructuring and Other Charges. Total integration, restructuring and other charges were $7.1 million for the year ended December 31,2014. Legal charges of $4.7 million were related to patent litigation, the Civil Investigative Demand and acquisition related matters which were net of a$0.9 million reversal of a legal accrual related to the Mednet acquisition. The severance and employee related costs of $1.7 million are associated withactivities surrounding our acquisitions. Integration, restructuring and other charges were 4.3% of total revenue for the year ended December 31, 2014. Total integration, restructuring and other charges were $8.0 million for the year ended December 31, 2013. The costs included other charges of$5.5 million primarily relating to legal fees associated with patent litigation, as well as the Civil Investigative Demand. The remaining expenses related tointernal restructuring activities including the creation of our holding company structure. Integration, restructuring and other charges were 6.2% of totalrevenue for the year ended December 31, 2013. Other (Loss) Income. Other loss was $7.8 million for the year ended December 31, 2014 compared to other loss of $0.2 million for the year endedDecember 31, 2013. For the year ended December 31, 2014, we recorded a non-operating charge of $6.4 million as a potential settlement cost with theDepartment of Justice and $1.4 million related primarily to debt extinguishment fees, interest expense and the amortization of deferred financing fees. For theyear ended December, 31, 2013, the other loss was primarily related to financing fees for the line of credit agreement. Income Taxes. Our effective tax rate was a benefit of 19.1% for the year ended December 31, 2014 and was a provision of 3.0% for the year endedDecember 31, 2013. We recorded $2.5 million of a tax benefit for the year ended December 31, 2014 related to the Mednet acquisition that occurred inJanuary 2014. This was partially offset by $0.2 million in tax expense incurred primarily for state income tax. Net Loss. We incurred a net loss of $9.8 million for the year ended December 31, 2014 compared to a net loss of $7.3 million for the year endedDecember 31, 2013.Years Ended December 31, 2013 and 2012 Revenue. Total revenue for the year ended December 31, 2013 was $129.5 million compared to $111.5 million for the year ended December 31, 2012,an increase of $18.0 million, or 16.2%. The increase was primarily related to an increase in Research Services revenue of $12.0 million related to theacquisition of Cardiocore, and an increase of $6.7 million in the Patient Services segment due to increased patient volume stemming from the success of theCardioNet Comprehensive sales campaign, the annualization of the ECG acquisition, and the impact of the United and Kaiser contracts. These increases werepartially offset by a decrease in the Product segment of $0.7 million.39Table of Contents Gross Profit. Gross profit increased to $79.1 million for the year ended December 31, 2013 from $65.9 million for the year ended December 31, 2012.The increase of $13.2 million, or 20.0%, was due primarily to an increase in gross profit of $9.4 million from the Patient Services segment related to higherrevenue and the impact of operational efficiencies, a $4.4 million increase in the Research Services segment related to the acquisition of Cardiocore offset bya $0.6 million decrease in the Product segment. Gross profit as a percentage of revenue increased to 61.1% for the year ended December 31, 2013 compared to59.1% for the year ended December 31, 2012. General and Administrative Expense. General and administrative expense was $36.6 million for the year ended December 31, 2013 compared to$32.6 million for the year ended December 31, 2012. The increase of $4.0 million, or 12.0%, was due primarily to the increase in Research Services expenseof $2.7 million related to the acquisition of Cardiocore, as well as an increase of $1.3 million of employee related expenses at the corporate level. As apercentage of total revenue, general and administrative expense was 28.2% for the year ended December 31, 2013 compared to 29.3% for the year endedDecember 31, 2012. Sales and Marketing Expense. Sales and marketing expense was $26.3 million for the year ended December 31, 2013 compared to $25.6 million for theyear ended December 31, 2012. The increase of $0.7 million, or 2.6%, was due primarily to $1.8 million of additional sales and marketing expense in theResearch Services segment related to the Cardiocore acquisition. This was offset by a decrease of $1.1 million in employee related expenses in the PatientServices segment. As a percentage of total revenue, sales and marketing expense was 20.3% for the year ended December 31, 2013 compared to 23.0% for theyear ended December 31, 2012. Bad Debt Expense. Bad debt expense was $7.8 million for the year ended December 31, 2013 compared to $11.9 million for the year endedDecember 31, 2012. The decrease of $4.1 million, or 34.6%, was due primarily to increased overall cash collections due to process improvements. The baddebt expense recorded was based upon an evaluation of historical collection experience of accounts receivable by payor class, the age of the receivables, aswell as specific payor circumstances. As a percentage of Patient Services revenue, bad debt expense was 7.8% for the year ended December 31, 2013compared to 12.7% for the year ended December 31, 2012. Substantially all of our bad debt expense relates to the Patient Services segment. Bad debtexpense in the Product and Research Services segments was minimal and is recorded on a specific account basis. Research and Development Expense. Research and development expense was $7.3 million for the year ended December 31, 2013 compared to$4.7 million for the year ended December 31, 2012. The increase of $2.6 million, or 57.3%, was due primarily to an increase of $1.6 million related to thedevelopment of our next generation device by IMEC, an increase of $0.6 million in the Research Services segment related to the acquisition of Cardiocore aswell as $0.4 million of other expense. As a percent of total revenue, research and development expense was 5.7% for the year ended December 31, 2013compared to 4.2% for the year ended December 31, 2012. Integration, Restructuring and Other Charges. Total integration, restructuring and other charges were $8.0 million for the year ended December 31,2013. The costs included other charges of $5.5 million primarily relating to legal fees associated with patent litigation, as well as the Civil InvestigativeDemand. The remaining expenses related to internal restructuring activities including the creation of our holding company structure. Integration,restructuring and other charges were 6.2% of total revenue for the year ended December 31, 2013. Total integration, restructuring and other charges were $4.2 million for the year ended December 31, 2012. The costs included other charges of$1.8 million relating to legal matters and settlement of litigation, $1.5 million of integration and restructuring charges relating to employee severances,$0.8 million of deal related costs due to the acquisition of Cardiocore and $0.1 million of40Table of Contentsother restructuring charges. Integration, restructuring and other charges were 3.8% of total revenue for the year ended December 31, 2012. Other (Loss) Income. Other loss was $0.2 million for the year ended December 31, 2013 compared to other income of $0.1 million for the year endedDecember 31, 2012. The other loss in 2013 related primarily to financing fees for the line of credit agreement. For the year ended December, 31, 2012, we hadinterest income, which was primarily offset by amortization of bond premiums. Income Taxes. Our effective tax rate was a provision of 3.0% for the year ended December 31, 2013 and was a benefit of 6.9% for the year endedDecember 31, 2012. The tax expense resulted from certain state taxes that are based on gross receipts rather than income. Net Loss. We incurred a net loss of $7.3 million for the year ended December 31, 2013 compared to a net loss of $12.2 million for the year endedDecember 31, 2012.Liquidity and Capital Resources As of December 31, 2014, our principal source of liquidity was cash and cash equivalents of $20.0 million and net accounts receivable of $24.5 million.We had working capital of $14.2 million as of December 31, 2014. We had $8.8 million of cash provided by operations for the twelve months ended December 31, 2014. Our ongoing operations during this period resultedin a loss of $9.8 million, which included $24.0 million of non-cash items related to bad debt, depreciation, amortization, stock compensation expense and atax benefit primarily related to the Mednet acquisition, as well as $6.4 million relating to the potential settlement cost with the Department of Justice. Theseitems were offset by an increase in accounts receivable and other assets primarily due to the acquisitions in 2014. In addition, we used $5.7 million for the purchase of Mednet, $8.0 million for the purchase of BMS, $0.4 million for the purchase of RadCore. We alsoused $12.8 million of cash for capital purchases, primarily related to the investment in medical devices in the Patient and Research Services segments for usein our ongoing operations and the investment in internally developed software for the twelve months ended December 31, 2014. In connection with the acquisition of the Mednet entities, we entered into a promissory note with The Bancorp Bank ("Bancorp") in the principal amountof $9.8 million. We used $8.6 million to repay the assumed debt for Mednet and $1.2 million to fund Mednet's working capital needs. In addition, we used$8.0 million from our existing credit facility with Midcap Financial ("Midcap") in connection with the purchase of the cardiac monitoring business ofBiomedical Systems Corporation on April 3, 2014. On December 30, 2014, we entered into a $25.0 million term loan and $15.0 revolving credit facility with The General Electric Capital Corporation ("GECapital"). We used $17.4 million to repay the outstanding balances of the MidCap and Bancorp Loans. Net proceeds of $6.2 million, after debtextinguishment, financing and closing fees and interest expense of $1.4 million, will be used to fund the settlement with the Department of Justice. As ofDecember 31, 2014, our revolving credit facility was undrawn.41Table of ContentsContractual Obligations and Commitments The following table describes our long-term contractual obligations and commitments as of December 31, 2014: As of December 31, 2014, we are bound under facility leases and several office equipment leases that are included in the table above. From time to time,we may enter into contracts or purchase orders with third parties under which we may be required to make payments. Our payment obligations under certainagreements will depend on, among other things, the progress of our development programs. Therefore, we are unable at this time to estimate with certainty thepotential future costs we will incur under these agreements or purchase orders.Recent Accounting Pronouncements In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. The newstandard will require revenue recognized to represent the transfer of promised goods or services to customers in an amount that reflects the consideration inwhich we expect to receive in exchange for those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition andis effective for the annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact the adoption of this standard willhave on our consolidated financial statements. In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating LossCarryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance provides specific financial statement presentation requirements ofan unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance states that anunrecognized tax benefit in those circumstances should be presented as a reduction to the deferred tax asset. The ASU is effective for fiscal years, and interimperiods within those years, beginning after December 15, 2013. The amendment did not have a material impact on our results of operations, cash flows, orfinancial positionOff-Balance Sheet Arrangements As of December 31, 2014 and 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities referred toas structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or othercontractually narrow or limited purposes. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Our cash and cash equivalents as of December 31, 2014 were $20.0 million. As we do not invest in any short-term or long-term securities, we have nomaterial exposure to interest rate risk.42 (in thousands)Payments due by period Contractual obligations Total 2015 2016 2017 2018 2019 Beyond Operating lease obligations 14,639 3,277 2,941 2,836 2,770 1,357 1,458 Capital lease obligations 868 480 287 101 — — — Table of Contents Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm The Board of Directors and ShareholdersBioTelemetry, Inc. We have audited the accompanying consolidated balance sheets of BioTelemetry, Inc. as of December 31, 2014 and 2013, and the related consolidatedstatements of operations and comprehensive income (loss), cash flows and shareholders' equity for each of the three years in the period ended December 31,2014. Our audits also included the financial statement schedule listed at Item 15(a). These financial statements and schedule are the responsibility ofBioTelemetry's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of BioTelemetry, Inc.at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered inrelation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), BioTelemetry, Inc.'sinternal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2015 expressed an unqualifiedopinion thereon.Philadelphia, PennsylvaniaFebruary 23, 201543 /s/ Ernst & Young LLPTable of Contents BIOTELEMETRY, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) See accompanying notes.44 December 31, 2014 2013 Assets Current assets: Cash and cash equivalents $20,007 $22,151 Accounts receivable, net of allowance for doubtful accounts of $10,347 and $7,555 atDecember 31, 2014 and 2013, respectively 15,184 11,437 Other accounts receivable, net of allowance for doubtful accounts of $315 and $85 atDecember 31, 2014 and 2013, respectively 9,362 5,680 Inventory 2,566 2,554 Prepaid expenses and other current assets 2,352 2,433 Total current assets 49,471 44,255 Property and equipment, net 21,703 18,779 Intangible assets, net 22,720 7,312 Goodwill 29,596 16,469 Other assets 1,288 731 Total assets $124,778 $87,546 Liabilities and shareholders' equity Current liabilities: Accounts payable $13,195 $8,718 Accrued liabilities 18,460 8,190 Current portion of capital leases 480 187 Current portion of long term debt 938 — Deferred revenue 2,248 1,945 Total current liabilities 35,321 19,040 Deferred tax liability 1,258 767 Long term portion of capital leases 388 469 Long term debt 23,070 — Deferred rent 1,065 441 Total liabilities 61,102 20,717 Shareholders' equity Common stock—$.001 par value as of December 31, 2014 and 2013; 200,000,000 sharesauthorized as of December 31, 2014 and 2013; 26,693,248 and 25,812,754 shares issuedand outstanding at December 31, 2014 and 2013, respectively 27 26 Paid-in capital 267,236 260,597 Accumulated deficit (203,587) (193,794)Total shareholders' equity 63,676 66,829 Total liabilities and shareholders' equity $124,778 $87,546 Table of Contents BIOTELEMETRY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except share and per share amounts) See accompanying notes.45 Year Ended December 31, 2014 2013 2012 Revenues: Patient services $133,178 $100,386 $93,640 Research services 19,744 20,329 8,333 Product 13,656 8,786 9,521 Total revenues 166,578 129,501 111,494 Cost of revenue: Patient services 54,942 34,179 36,793 Research services 10,646 11,317 3,726 Product 7,526 4,935 5,074 Total cost of revenues: 73,114 50,431 45,593 Gross profit 93,464 79,070 65,901 Operating expenses: General and administrative 45,131 36,569 32,644 Sales and marketing 28,805 26,275 25,604 Bad debt expense 9,347 7,787 11,912 Research and development 7,396 7,338 4,664 Integration, restructuring and other charges 7,098 7,982 4,236 Total operating expenses 97,777 85,951 79,060 Loss from operations (4,313) (6,881) (13,159)Other (loss) income (net) (7,793) (223) 52 Loss before income taxes (12,106) (7,104) (13,107)Benefit (provision) for income taxes 2,313 (215) 905 Net loss $(9,793)$(7,319)$(12,202)Net loss per common share: Basic and diluted $(0.37)$(0.29)$(0.49)Weighted average number of common shares outstanding: Basic and diluted 26,444,626 25,543,646 24,933,656 Other comprehensive loss: Unrealized gains/(losses) on securities: Unrealized holding gains/(losses) arising during the period — — 16 Comprehensive loss $(9,793)$(7,319)$(12,186)Table of Contents BIOTELEMETRY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts) See accompanying notes.46 Year Ended December 31, 2014 2013 2012 Operating activities Net loss $(9,793)$(7,319)$(12,202)Adjustments to reconcile net loss to net cash provided by operating activities: Provision for doubtful accounts 9,347 7,787 11,912 Depreciation 8,858 9,978 8,037 Increase (decrease) in deferred rent 355 (215) (198)Deferred income tax (benefit) expense (2,499) 53 (1,033)Stock-based compensation 4,037 3,303 3,747 Amortization of intangibles 3,692 2,340 1,341 Loss on extinguishment of debt 203 — — Amortization of investment premium — — 268 Changes in operating assets and liabilities: Accounts receivable (12,795) (4,597) (3,635)Inventory 299 340 (885)Prepaid expenses and other assets (128) (637) 691 Accounts payable 47 2,369 552 Accrued and other liabilities 7,188 (2,143) (2,852)Net cash provided by operating activities 8,811 11,259 5,743 Investing activities Acquisition of businesses, net of cash acquired (14,100) — (28,155)Purchases of property and equipment and investment in internally developed software (12,781) (8,169) (5,962)Purchases of short-term available-for-sale investments — — (11,935)Sale or maturity of short-term available-for-sale investments — — 39,636 Net cash used in investing activities (26,881) (8,169) (6,416)Financing activities Proceeds from the exercise of employee stock options and employee stock purchaseplan contributions 1,051 847 440 Issuance of long-term debt 41,838 — — Repayment of long-term debt (26,434) — — Principal payments on capital lease obligations (529) (84) — Net cash provided by financing activities 15,926 763 440 Net (decrease) increase in cash and cash equivalents (2,144) 3,853 (233)Cash and cash equivalents—beginning of period 22,151 18,298 18,531 Cash and cash equivalents—end of period $20,007 $22,151 $18,298 Supplemental disclosure of cash flow information Cash paid for interest $856 $132 $295 Cash paid for taxes $148 $112 $135 Capital lease obligations — $737 — Table of Contents BIOTELEMETRY, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except share amounts) See accompanying notes.47 Shareholders' Equity Common Stock AccumulatedOtherComprehensiveIncome Paid-inCapital AccumulatedDeficit TotalShareholders'Equity Shares Amount BalanceDecember 31,2011 24,534,601 $25 $252,261 $(16)$(174,273)$77,997 Exercise ofstock optionsand purchaseof sharesrelated to theemployeestockpurchase plan 194,878 — 440 — — 440 Stock basedcompensation 459,861 — 3,747 — — 3,747 Net loss — — — — (12,202) (12,202)Changes inunrealizedgain onavailable-for-saleinvestments — — — 16 — 16 BalanceDecember 31,2012 25,189,340 25 256,448 — (186,475) 69,998 Exercise ofstock optionsand purchaseof sharesrelated to theemployeestockpurchase plan 348,681 1 846 — — 847 Stock basedcompensation 274,733 — 3,303 — — 3,303 Net loss — — — — (7,319) (7,319)BalanceDecember 31,2013 25,812,754 26 $260,597 $— $(193,794)$66,829 Exercise ofstock optionsand purchaseof sharesrelated to theemployeestockpurchase plan 503,036 1 1,050 — — 1,051 Stock basedcompensation 195,437 — 4,037 — — 4,037 Issuance ofstock relatedto businesscombinations 182,021 — 1,552 — — 1,552 Net loss — — — — (9,793) (9,793)BalanceDecember 31,2014 26,693,248 $27 $267,236 $— $(203,587)$63,676 Table of Contents BIOTELEMETRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2014, 2013 and 2012 (In thousands, except share and per share amounts) 1. Organization and Description of Business BioTelemetry, Inc. ("BioTelemetry," "Company", "we," "our" or "us"), a Delaware corporation, was formerly known as CardioNet, Inc. CardioNet, Inc. wasreorganized under a holding company structure with the new name BioTelemetry, Inc. effective July 31, 2013. On August 1, 2013, we continued trading onThe NASDAQ Global Select under the symbol "BEAT.". BioTelemetry, Inc. provides cardiac monitoring services, cardiac monitoring device manufacturing, and centralized cardiac core laboratory services.Since we became focused on cardiac monitoring in 1999, we have developed a proprietary integrated patient management platform that incorporates awireless data transmission network, Food and Drug Administration ("FDA") cleared algorithms and medical devices, and 24-hour monitoring service centers. We operate under three reportable segments: (1) Patient Services, (2) Product and (3) Research Services. The Patient Services segment is focused on thediagnosis and monitoring of cardiac arrhythmias, or heart rhythm disorders. We offer cardiologists and electrophysiologists with a full spectrum of solutionswhich provides them with a single source of cardiac monitoring services. These services range from the differentiated MCT service marketed as MobileCardiac Outpatient TelemetryTM ("MCOT™") or External Cardiac Ambulatory Telemetry ("ECAT"),"), to wireless and trans telephonic event, Holter,Pacemaker and International Normalized Ratio ("INR") monitoring. The Product segment focuses on the development, manufacturing, testing and marketingof medical devices to medical companies, clinics and hospitals. The Research Services segment is engaged in central core laboratory services providingcardiac monitoring, imaging, scientific consulting and data management services for drug and medical device trials. In June 2014, we completed the acquisition of the assets of RadCore Lab, LLC ("RadCore"), an imaging core lab serving the biopharmaceutical andmedical device research market. RadCore is included in the Research Services segment. In April 2014, we completed the acquisition of substantially all of the assets of Biomedical Systems Corporation ("BMS") cardiac event monitoring,Holter monitoring and mobile telemetry monitoring services. BMS is primarily included in the Patient Services segment. In January 2014, we completed the acquisition of Mednet Healthcare Technologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc.,and Universal Medical Laboratory, Inc. (together, the "Mednet entities"). Mednet provides cardiac monitoring services and is an original equipmentmanufacturer of cardiac monitoring devices. Mednet entities are included in the Patient Services and Product segment. In August 2012, we completed the acquisition of Cardiocore Lab, Inc. ("Cardiocore"). Cardiocore is a central core laboratory that provides cardiacmonitoring services for drug and medical treatment trials. Cardiocore's primary customers are pharmaceutical companies and contract research organizations.Cardiocore is included in our Research Services segment. In February 2012, we completed the acquisition of ECG Scanning & Medical Services, Inc. ("ECG Scanning"). Similar to our core Patient Servicessegment, ECG Scanning was engaged in providing cardiac monitoring services to general practitioners, internal medicine specialists, cardiologists andhospital cardiac care departments. ECG Scanning is included in our Patient Services segment.48Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)2. Summary of Significant Accounting PoliciesPrinciples of Consolidation The accompanying consolidated financial statements include the accounts of BioTelemetry and its wholly owned subsidiaries. All significantintercompany transactions and balances have been eliminated in consolidation.Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that management makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.Fair Value of Financial Instruments The fair value of financial instruments is defined as the amount at which the instrument could be exchanged in a current transaction between willingparties. Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, other receivables, accounts payable, short-term andlong-term debt. With the exception of the long-term debt, the carrying value of these financial instruments approximates their fair value because of theirshort-term nature (classified as Level 1). For long-term debt, based on the borrowing rates currently available, the carrying value also approximates fair valueas of December 31, 2014 (classified as Level 2). The Company did not have any Level 3 assets or liabilities for the periods ended December 31, 2014 and2013.Cash and Cash Equivalents Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined asliquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash and have minimalinterest rate risk.Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable related to the Patient Services segment are recorded at the time revenue is recognized, net of contractual allowances, and arepresented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of accounts receivable may not be known for several monthsafter services have been provided and billed. We record allowance for doubtful accounts based on the aging of receivables using historical data. Thepercentages and amounts used to record bad debt expense and the allowance for doubtful accounts are supported by various methods and analyses, includingcurrent and historical cash collections, and the aging of receivables by payor. Because of continuing changes in the health care industry and third partyreimbursement, it is possible that our estimates of collectability could change, which could have a material impact on our operations and cash flows.49Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued) Other receivables related to the Product and Research Services segments are recorded at the time revenue is recognized, or when products are shipped orservices are performed. We estimate allowance for doubtful accounts on a specific account basis, and consider several factors in our analysis includingcustomer specific information and aging of the account. We write off receivables when the likelihood for collection is remote and when we believe collection efforts have been fully exhausted and we do notintend to devote additional resources in attempting to collect. We perform write-offs on a monthly basis. In the Patient Services segment, we wrote off $6,494and $7,919 of receivables for the years ended December 31, 2014 and 2013, respectively. The impact was a reduction of gross receivables and a reduction inthe allowance for doubtful accounts. There were no material write offs in the Product and Research Services segments. Additionally, we recorded bad debtexpense of $9,347, $7,787 and $11,912 for the years ended December 31, 2014, 2013, and 2012, respectively. Unfavorable adjustments of $782 and $1,480were made to accounts receivable in 2014 and 2013, respectively, related to prior years accounts receivable.Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash, cash equivalents and accounts receivable. Wemaintain our cash and cash equivalents with high quality financial institutions to mitigate this risk. We perform ongoing credit evaluations of our customersand generally do not require collateral. We record an allowance for doubtful accounts in accordance with the procedures described above. Past-due amountsare written off against the allowance for doubtful accounts when collections are believed to be unlikely and all collection efforts have ceased. At December 31, 2014, 2013 and 2012, one customer, Medicare, accounted for 16%, 18% and 20%, respectively, of our net accounts receivable.Inventory Inventory is valued at the lower of cost (using first-in, first-out cost method) or market (net realizable value or replacement cost). Managementperiodically reviews inventory for specific future usage, and estimates of impairment of individual inventory items are recorded to reduce inventory to thelower of cost or market.Property and Equipment Property and equipment is recorded at cost. Depreciation is recorded over the estimated useful life of each class of depreciable assets, and is computedusing the straight-line method. Leasehold improvements are amortized over the shorter of the estimated asset life or term of the lease. Repairs andmaintenance costs are charged to expense as incurred.50Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued)Impairment of Long-Lived Assets We periodically evaluate the recoverability of the carrying value of our long-lived assets based on the criteria established in Accounting StandardsCodification (ASC) 360, Property, Plant & Equipment. We consider historical performance and anticipated future results in our evaluation of potentialimpairment. Accordingly, when indicators of impairment are present, we evaluate the carrying value of these assets in relation to the operating performance ofthe business and the undiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of the expectedfuture cash flows is less than the assets' carrying value.Goodwill and Acquired Intangible Assets Goodwill is the excess of purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a businesscombination. In accordance with ASC 350, Intangibles—Goodwill and Other, goodwill is reviewed for impairment annually, or when events arise that couldindicate that impairment exists. The provisions of ASC 350 require that we perform a two-step impairment test. In the first step, we compare the fair value ofour reporting units to the carrying value of the reporting units. If the carrying value of the net assets assigned to the reporting units exceeds the fair value ofthe reporting units, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting units' goodwill. If thecarrying value of the reporting units' goodwill exceeds the implied fair value, an impairment loss equal to the difference is recorded. For the purpose of performing our goodwill impairment analysis in 2014, we consider our business to be comprised of three reporting units, PatientServices, Product and Research Services. We calculate the fair value of the reporting units utilizing a weighting of the income and market approaches. Theincome approach is based on a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growthrates, income tax rates, expected tax benefits and long-term discount rates, all of which require significant judgment. The market approach utilizes our marketdata as well as market data from publicly traded companies that are similar to us. There are inherent uncertainties related to these factors and the judgmentapplied in the analysis. We believe that the combination of an income and a market approach provides a reasonable basis to estimate the fair value of ourreporting units.Revenue Recognition We recognize approximately 80% of our total revenue from patient monitoring services in our Patient Services segment. We receive a significant portionof our revenue from third party commercial payors and governmental entities. We also receive reimbursement directly from patients through co-pay,deductibles and self-pay arrangements. Revenue from the Medicare program is based on reimbursement rates set by CMS. Revenue from contracted commercial payors is recorded at thenegotiated contractual rate. Revenue from non-contracted commercial payors is recorded at net realizable value based on historical payment patterns.Adjustments to the estimated net realizable value, based on final settlement with the third51Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued)party payors, are recorded upon settlement. If we do not have consistent historical information regarding collectability from a given payor, revenue isrecognized when cash is received. Unearned amounts are appropriately deferred until service has been completed. For the years ended December 31, 2014,2013 and 2012, revenue from Medicare as a percentage of total revenue was 32%, 35% and 37%, respectively. Revenue received from the sale of products, product repair and supplies is recognized when shipped, or as service is completed. Research Services revenue includes revenue for research and core laboratory services. Our Research Services revenues are provided on a fee for servicebasis, and revenue is recognized as the related services are performed. We also provide consulting services on a time and materials basis and recognizerevenues as we perform the services. Our site support revenue, consisting of equipment rentals and sales along with related supplies and logisticsmanagement, are recognized at the time of sale or over the rental period. Under a typical contract, customers pay us a portion of our fee for these servicesupon contract execution as an upfront deposit, some of which is typically nonrefundable upon contract termination. Unearned revenues, including upfrontdeposits, are deferred, and then recognized as the services are performed. For arrangements with multiple deliverables, the revenue is allocated to each element (both delivered and undelivered items) based on their relativeselling prices or management's best estimate of their selling prices, when vendor- specific or third-party evidence is unavailable. We record reimbursements received for out-of-pocket expenses, including freight, incurred as revenue in the accompanying consolidated statements ofoperations. Revenue generally is recognized net of any taxes collected from customers and subsequently remitted to government authorities.Research and Development Costs Research and development costs are charged to expense as incurred.Net Loss We compute net loss per share in accordance with ASC 260, Earnings Per Share. The following summarizes the potential outstanding common stock asof the end of each period:52 December 31,2014 December 31,2013 December 31,2012 Employee stock purchase plan estimated share optionsoutstanding 39,232 81,848 50,903 Common stock options and restricted stock units ("RSUs")outstanding 4,115,486 3,993,590 3,669,103 Common stock available for grant 2,262,168 1,761,840 1,442,434 Common stock 26,693,248 25,812,754 25,189,340 Total 33,110,134 31,650,032 30,351,780 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued) Basic net loss per share is computed by dividing net loss by the weighted average number of fully vested common shares outstanding during the period.Diluted net loss per share is computed by giving effect to all potential dilutive common shares, including stock options, and RSUs. The following table presents the calculation of historical basic and diluted net loss per share: If the outstanding vested options or RSUs were exercised or converted into common stock, the result would be anti-dilutive for the years endedDecember 31, 2014, 2013 and 2012. Accordingly, basic and diluted net loss per share are the same for the years ended December 31, 2014, 2013 and 2012.Stock-Based Compensation ASC 718, Compensation—Stock Compensation, addresses the accounting for share-based payment transactions in which an enterprise receives employeeservices in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or thatmay be settled by the issuance of such equity instruments. ASC 718 requires that an entity measures the cost of equity-based service awards based on thegrant-date fair value of the award and recognizes the cost of such awards over the period during which the employee is required to provide service inexchange for the award (the vesting period). ASC 718 requires that an entity measures the cost of liability-based service awards based on current fair valuethat is re-measured subsequently at each reporting date through the settlement date. We account for equity awards issued to non-employees in accordancewith ASC 505-50, Equity-Based Payments to Non-Employees.Income Taxes We account for income taxes under the liability method, as described in ASC 740, Income Taxes. Deferred income taxes are recognized for the taxconsequences of temporary differences between the tax and financial statement reporting bases of assets and liabilities. A valuation allowance for net deferredtax assets is provided unless realizability is judged to be more likely than not.53 Year Ended December 31, 2014 2013 2012 (in thousands, except per share amounts) Numerator: Net loss $(9,793)$(7,319)$(12,202)Denominator: Weighted average shares used in computing basic anddiluted net loss per share 26,444,626 25,543,646 24,933,656 Basic and diluted net loss per share $(0.37)$(0.29)$(0.49) Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)2. Summary of Significant Accounting Policies (Continued)Segment Information ASC 280, Segment Reporting, establishes standards for reporting information regarding operating segments in annual financial statements. Operatingsegments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operatingdecision-maker, or decision-making group in making decisions on how to allocate resources and assess performance. We report our business under three segments: Patient Services, Product and Research Services. The Patient Services segment is focused on the monitoringof cardiac arrhythmias or heart rhythm disorders in a healthcare setting. The Product segment focuses on the development, manufacturing, testing andmarketing of medical devices to medical companies, clinics and hospitals. The Research Services segment includes our operations that engage in central corelaboratory services in a research environment, which includes certain equipment rental and Product sales. In addition, we realigned the Product segment toexclude central core laboratory research operations previously reported in this segment and repositioned these operations into the Research Services segment.Recent Accounting Pronouncements In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. The newstandard will require revenue recognized to represent the transfer of promised goods or services to customers in an amount that reflects the consideration inwhich we expect to receive in exchange for those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition andis effective for the annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact the adoption of this standard willhave on the consolidated financial statements. In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating LossCarryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance provides specific financial statement presentation requirements ofan unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance states that anunrecognized tax benefit in those circumstances should be presented as a reduction to the deferred tax asset. The ASU is effective for fiscal years, and interimperiods within those years, beginning after December 15, 2013. The amendment did not have a material impact on our results of operations, cash flows, orfinancial position.3. Business CombinationsRadCore Lab, LLC On June 3, 2014, we acquired the assets of RadCore Lab, LLC ("RadCore"), an imaging core lab serving the biopharmaceutical and medical deviceresearch market. This acquisition broadens our offerings and adds new oncology, musculoskeletal and neurological imaging capabilities, supported by astate-of-the-art, cloud-based analysis platform. We paid $400 in cash at closing and 22,513 shares of our common stock, valued at $200 at closing. While thisacquisition provides growth potential, the54Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)3. Business Combinations (Continued)acquisition of RadCore did not have a material effect on our financial condition, results of operations or cash flows.Biomedical Systems Corporation On April 3, 2014, we completed the acquisition of substantially all of the assets of Biomedical Systems Corporation's ("BMS") cardiac event monitoring,Holter monitoring and mobile telemetry monitoring services. The acquisition gave us access to internally developed Holter software and to establishedcustomer relationships. We paid $8,000 in cash at closing and 62,859 shares of our common stock, valued at $650 at closing. While the acquisition has beenincluded within the consolidated results of operations and financial condition from the date of the acquisition, BMS did not have a material effect on ourresults of operations or cash flows. The amounts below represent the preliminary fair value estimates as of December 31, 2014 and are subject to subsequent adjustment as additionalinformation is obtained during the measurement period. The primary areas of those preliminary estimates that were not yet finalized related to certaintangible assets and identifiable intangible assets. The Company will complete the accounting for the BMS acquisition within a year of the acquisition date. While the purchase price allocation has not been finalized, the estimated allocation of intangible assets is comprised of the following: Goodwill recorded in connection with this acquisition is attributable to synergies expected to arise from cost savings opportunities. All of the recordedgoodwill is included in the Patient Services segment.Mednet Healthcare Technologies, Inc. On January 31, 2014, we acquired Mednet Healthcare Technologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc., and UniversalMedical Laboratory, Inc. (together, "Mednet").55Fair value of assets acquired: Property and equipment $882 Goodwill 3,559 Intangible assets 4,209 Net assets acquired $8,650 EstimatedUseful Life(Years) Fair Value Customer relationships 15 $2,100 Technology 4 1,849 Covenants not to compete 7 260 Total intangible assets $4,209 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)3. Business Combinations (Continued)Mednet provides cardiac monitoring services and is an original equipment manufacturer of cardiac monitoring devices. The acquisition gave us access toestablished customer relationships. Upon the closing of the transaction, we acquired all of the issued and outstanding capital stock, and Mednet became awholly-owned subsidiary. We paid $5,500 in cash at closing and 96,649 shares of our common stock, valued at $705 at closing. In addition, as a result of theacquisition, we assumed indebtedness from Mednet in the aggregate amount of $9,720, including interest. The acquisition has been included within theconsolidated results of operations and financial condition from the date of the acquisition. The amounts below represent the preliminary fair value estimates as of December 31, 2014 and are subject to subsequent adjustment as additionalinformation is obtained during the measurement period. The primary areas of those preliminary estimates that were not yet finalized related to certaintangible assets and liabilities acquired, as well as identifiable intangible assets. The Company expects to complete the accounting for the Mednet acquisitionwithin a year of the acquisition date. While the purchase price allocation has not been finalized, the estimated allocation of intangible assets is comprised of the following:56Fair value of assets acquired: Cash and cash equivalents $(199)Accounts receivable 3,879 Inventory 311 Property and equipment 3,429 Goodwill 9,354 Intangible assets 9,220 Other assets 317 Total assets acquired 26,311 Liabilities assumed: Accounts payable 4,427 Accrued expenses 2,932 Other liabilities 3,027 Long-term debt, capital leases, note payable and related interest 9,720 Total liabilities assumed 20,106 Net assets acquired $6,205 EstimatedUseful Life(Years) Fair Value Customer relationships 13 $6,500 Technology 5 1,600 Covenants not to compete 5 420 Indefinite-lived trade name 700 Total intangible assets $9,220 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)3. Business Combinations (Continued) Goodwill recorded in connection with this acquisition is attributable to the assembled workforce and synergies expected to arise from cost savingsopportunities. All of the recorded goodwill is included in the Patient Services segment. The unaudited pro forma information below presents combined results of operations as if the acquisition had occurred at the beginning of the periodspresented instead of January 31, 2014. The pro forma information presented below does not include anticipated synergies or certain other expected benefitsof the acquisition and should not be used as a predictive measure of our future results of operations. Mednet contributed $23,355 in revenue for the twelvemonths ended December 31, 2014.Cardiocore Lab, Inc. On August 29, 2012, we entered into a definitive merger agreement with Cardiocore Lab, Inc. ("Cardiocore"), a Delaware corporation. Upon the closingof the transaction, Cardiocore became a wholly-owned subsidiary. We paid an aggregate purchase price of $23,500 in cash at closing. The acquisition hasbeen included within the consolidated results of operations and financial condition from the date of the acquisition. Cardiocore is engaged in central core laboratory services that provide cardiac monitoring for drug and medical treatment trials. Cardiocore's primarycustomers are pharmaceutical companies and contract research organizations. The acquisition gave us access to industry expertise, an established operatingstructure and a substantial footprint in the core laboratory industry. The unaudited pro forma information below presents combined results of operations as if the acquisition had occurred at the beginning of the periodspresented instead of August 29, 2012. The pro forma information is based on historical results adjusted for the effect of purchase accounting and is57 December 31, 2014 2013 Revenue $170,076 $155,415 Net Loss $(8,014)$(8,604)Net loss per common share: Basic and Diluted $(0.30)$(0.34)Weighted average number of shares: Basic 26,444,626 25,640,295 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)3. Business Combinations (Continued)not necessarily indicative of the results of operations of the combined entity had the acquisition occurred at the beginning of the periods presented, nor is itnecessarily indicative of future results.ECG Scanning and Medical Services, Inc. On February 10, 2012, we entered into and closed on a definitive Stock Purchase Agreement (the "Stock Purchase Agreement") with ECG Scanning andMedical Services, Inc., an Ohio corporation ("ECG Scanning"). Upon the closing of the transaction, we acquired all of the issued and outstanding capitalstock, and ECG Scanning became a wholly-owned subsidiary. ECG Scanning was a provider of cardiac monitoring services in the United States. We paid anaggregate cash purchase price of $5,800 at closing and up to an additional $600 in cash, with an estimated fair value of $570, upon the achievement ofcertain performance targets approximately one year from the date of purchase. At December 31, 2012, the estimated fair value of the earn-out was $0. Thereduction of the liability was recognized in the Statement of Operations and Comprehensive Income (Loss) in the Integration, restructuring, and other line.The acquisition has been included within the consolidated results of operations and financial condition from the date of the acquisition. The acquisitiongave us access to established customer relationships, and entry into additional regions and geographic locations.4. Inventory Inventory consists of the following: Inventories, which include purchased parts, materials, direct labor and applied manufacturing overhead, are stated at the lower of cost or net realizablevalue, with cost determined by use of the first-in, first-out method.58 December 31,2012 Revenue $124,698 Net Income (Loss) $(10,936)Net Income per common share: Basic and Diluted $(0.47)Weighted average number of shares: Basic 24,933,656 December 31, 2014 2013 Raw materials and supplies $2,347 $2,404 Finished goods 219 150 Total inventories $2,566 $2,554 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)5. Property and Equipment Property and equipment consists of the following: Depreciation expense associated with property and equipment was $8,858, $9,978 and $8,037, for the years ended December 31, 2014, 2013 and 2012,respectively.6. Goodwill and Intangible Assets Goodwill was recognized at the time of our acquisitions. The carrying amount of goodwill as of December 31, 2014 and 2013 was $29,596 and $16,469,respectively. The changes in the carrying amounts of goodwill by segment were as follows:59 December 31, EstimatedUseful Life(Years) 2014 2013 Cardiac monitoring devices, device parts and components 3 - 5 $47,190 $37,273 Computers and purchased software 3 - 5 12,614 13,302 Equipment, tools and molds 3 - 5 5,543 5,384 Furniture and fixtures 7 1,396 2,863 Leasehold improvements Life of lease 2,930 2,665 Capital leases 3 - 7 1,884 737 Total property and equipment, at cost 71,557 62,224 Less accumulated depreciation (49,854) (43,445)Total property and equipment, net $21,703 $18,779 Reporting Segment PatientServices ResearchServices Product Total Balance at December 31, 2013 $1,577 $11,735 $3,157 $16,469 Goodwill acquired during the year 12,912 215 — 13,127 Balance at December 31, 2014 $14,489 $11,950 $3,157 $29,596 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)6. Goodwill and Intangible Assets (Continued) The gross carrying amounts and accumulated amortization of our intangible assets as of December 31, 2014 and 2013 are as follows: The estimated amortization expense for the next five years is summarized as follows at December 31, 2014: Amortization expense for the years ended December 31, 2014, 2013 and 2012 was $3,692, $2,340 and $1,341, respectively. The increase in amortizationexpense is driven by the current year acquisitions. At December 31, 2014, 2013 and 2012, we performed our required annual impairment test of goodwill. Based on this impairment test, we determined thatnone of the reporting unit's goodwill was impaired.60 December 31, EstimatedUseful Life(Years) 2014 2013 Customer relationships 5 - 15 $10,700 $2,100 Technology including internally developed software 3 - 5 12,649 4,000 Signed backlog 1 - 4 3,160 2,800 Unsigned backlog 4 600 600 Covenants not to compete 5 - 7 1,040 360 Total intangible assets, gross 28,149 9,860 Customer relationships accumulated amortization (1,556) (722)Proprietary technology accumulated amortization (3,855) (1,902)Signed backlog accumulated amortization (1,984) (1,400)Unsigned backlog accumulated amortization (350) (200)Covenants not to compete accumulated amortization (295) (124)Total accumulated amortization (8,040) (4,348)Indefinite-lived trade name 2,500 1,800 In-process internally developed software 111 — Total intangible assets, net $22,720 $7,312 2015 $4,628 2016 3,531 2017 2,828 2018 2,342 2019 1,768 Thereafter 5,012 Total intangibles assets, net $20,109 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)7. Accrued Expenses Accrued expenses consisted of the following:8. Integration, Restructuring and Other Charges We account for expenses associated with exit or disposal activities in accordance with ASC 420, Exit or Disposal Cost Obligations, and record theexpenses in "Integration, restructuring and other charges" in our statement of operations, and record the related accrual in the "Accrued expenses" line of ourbalance sheet. For the years ended December 31, 2014, 2013 and 2012, we incurred expenses related to restructuring, integration and other activities. These expenseswere primarily a result of our recent patent litigation, the Civil Investigative Demand, as well as the activities surrounding our acquisitions. A summary ofthese expenses is as follows:9. Shareholders' EquityCommon Stock As of December 31, 2014 and 2013, we were authorized to issue 200,000,000 shares of common stock. As of December 31, 2014 and 2013, we had26,693,248 and 25,812,754 shares outstanding, respectively.61 December 31, 2014 2013 Accrued compensation $5,296 $4,932 Accrued professional fees 8,289 1,922 Accrued purchases 977 311 Accrued restructuring costs 689 96 Other 3,209 929 Total $18,460 $8,190 Year ended December 31, 2014 2013 2012 Legal fees $4,691 $5,516 $1,780 Severance and employee related costs 1,738 1,410 1,490 Professional fees 669 492 778 Expenses related to facility closure — 564 — Other charges — — 188 Total $7,098 $7,982 $4,236 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)9. Shareholders' Equity (Continued)Preferred Stock We maintain an unregistered blank check preferred stock class. As of December 31, 2014 and 2013, there are no shares authorized and outstanding.Stock Based Compensation2008 Equity Incentive Plan Our 2008 Equity Incentive Plan (the 2008 Option Plan) became effective on March 18, 2008. The Plan permits our Board of Directors to grant incentivestock options to employees and non-qualified stock options, restricted stock, performance stock and other stock-based incentive awards to officers, directors,employees and consultants. On that date, we began granting options to purchase shares of common stock to employees, executives, directors and consultants.Under the terms of the 2008 Option Plan, all available shares in the 2003 Option Plan's share reserve automatically roll into the 2008 Option Plan. Anycancellations or forfeitures of granted options under the 2003 Option Plan also automatically roll into the 2008 Option Plan. Beginning on January 1, 2009,and each year thereafter, the number of options available to be granted under the plan will increase by the lesser of 4% of the total number of common sharesoutstanding or 1,500,000 shares. Options granted under the 2008 Option Plan have exercise prices not less than the fair market value at the date of grant and have an expiration date of nogreater than ten years from the date of grant. There is no vesting schedule provided in the 2008 Option Plan, and vesting is determined by the Board ofDirectors on the date of grant. The 2008 Equity Incentive Plan has 1,834,017 shares available for grant as of December 31, 2014. Stock option activity is summarized for the years ended December 31, 2014, 2013 and 2012 as follows:62 Numberof Shares WeightedAverageExercise Price Options outstanding as of December 31, 2011 1,846,911 $10.11 Granted 1,387,560 $2.68 Cancelled (326,458)$11.34 Exercised (2,252)$1.61 Options outstanding as of December 31, 2012 2,905,761 $6.44 Granted 729,439 $3.24 Cancelled (393,770)$5.93 Exercised (105,496)$4.43 Options outstanding as of December 31, 2013 3,135,934 $5.83 Granted 582,012 $8.45 Cancelled (310,303)$6.55 Exercised (156,791)$3.37 Options outstanding as of December 31, 2014 3,250,852 $6.40 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)9. Shareholders' Equity (Continued) A summary of total outstanding stock options as of December 31, 2014 is as follows: The table below summarizes certain additional information with respect to our options: Total cash received from the exercise of stock options for the year ended December 31, 2014, 2013 and 2012 was $529, $467 and $4, respectively. Thetax benefit was fully reserved for through a tax valuation allowance. Restricted stock units activity is summarized for the years ended December 31, 2014, 2013 and 2012 as follows:63 Options Outstanding Options Exercisable Range of Exercise Price NumberOutstanding WeightedAverageRemainingContractualLife (inyears) WeightedAverageExercisePrice NumberExercisable WeightedAverageRemainingContractualLife (inyears) WeightedAverageExercisePrice $0.70 - $7.50 2,478,630 6.80 $4.08 1,750,230 6.37 $4.43 $7.51 - $15.00 473,475 8.86 $8.94 98,945 7.70 $8.93 $15.01 - $22.50 218,347 4.28 $18.42 218,347 4.28 $18.42 $22.51 - $31.18 80,400 3.62 $30.17 80,400 3.62 $30.17 $0.70 - $31.18 3,250,852 6.82 $6.40 2,147,922 6.11 $7.02 (In thousands) 2014 2013 2012 Aggregate intrinsic value of options outstanding at year-end $15,258 $11,183 $46 Aggregate intrinsic value of options exercisable at year-end 9,918 4,382 13 Aggregate intrinsic value of options exercised during the year 840 422 2 Numberof Shares Weighted AverageGrant Date FairValue Restricted stock outstanding as of December 31, 2011 622,080 $8.17 Granted 741,379 $2.82 Forfeited (69,854)$3.45 Vested (530,263)$8.03 Restricted stock outstanding as of December 31, 2012 763,342 $3.54 Granted 457,200 $3.52 Forfeited (82,813)$3.07 Vested (280,073)$4.82 Restricted stock outstanding as of December 31, 2013 857,656 $3.15 Granted 292,079 $8.48 Forfeited (89,664)$3.30 Vested (195,437)$6.27 Restricted stock outstanding as of December 31, 2014 864,634 $3.68 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)9. Shareholders' Equity (Continued) In addition, a summary of total outstanding RSUs as of December 31, 2014 is as follows: We estimate the fair value of our share-based awards to employees and directors using the Black-Scholes option valuation model. The Black-Scholesoption valuation model requires the use of certain subjective assumptions. The most significant of these assumptions are the estimates of the expectedvolatility of the market price of our stock and the expected term of the award. We base our estimates of expected volatility on the historical average of ourstock price. The expected term represents the period of time that stock-based awards granted are expected to be outstanding. Other assumptions used in theBlack-Scholes option valuation model include the risk-free interest rate and expected dividend yield. The risk-free interest rate for periods pertaining to thecontractual life of each option is based on the U.S. Treasury yield of a similar duration in effect at the time of grant. We have never paid, and do not expect topay, dividends in the foreseeable future. The fair value of our stock-based awards was estimated at the date of grant using the following weighted average assumptions: Based on our historical experience of options and restricted stock units that cancel before becoming fully vested, we have assumed an annualizedforfeiture rate of 9.7% for all options and 6.8% for restricted stock units. Under the true-up provision of ASC 718, we will record additional expense if theactual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture rate is higher than estimated.64Range of Grant Price RSUsOutstanding $2.16 - $6.75 632,201 $6.76 - $9.75 232,433 $2.16 - $9.75 864,634 Year EndedDecember 31, 2014 2013 2012 Expected volatility 62.8% 60.3% 63.4%Expected term (in years) 6.49 6.71 6.31 Weighted average risk-free interest rate 1.85% 1.34% 1.15%Expected dividends 0.0% 0.0% 0.0%Weighted average grant date fair value per option $5.00 $1.90 $1.58 Weighted average grant date fair value per RSU $8.43 $3.52 $2.82 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)9. Shareholders' Equity (Continued) As of December 31, 2014, 2013 and 2012, the impact on our loss before income taxes as a result of stock-based compensation expense incurred was asfollows: Total compensation cost of options granted but not yet vested at December 31, 2014, 2013 and 2012 was approximately $2,744, $2,644 and $3,433,respectively, which is expected to be recognized over a weighted average period of 2.68 years, 2.14 and 2.34 years, respectively. Unvested stock options as ofDecember 31, 2014 and 2013 were 1,102,930 and 1,491,574, respectively. As of December 31, 2014 and 2013, the weighted average grant date fair value perunvested option was $5.19 and $3.45, respectively. The stock-based compensation expense related to unvested RSUs not yet recognized at December 31, 2014, 2013 and 2012 was approximately $1,979,$1,795 and $1,892, respectively, which is expected to be recognized over a weighted average period of 1.50 years, 1.31 years and 1.47 years, respectively.Unvested RSUs as of December 31, 2014 and 2013 were 864,634 and 857,656, respectively. As of December 31, 2014 and 2013, the weighted average grantdate fair value per unvested RSU was $4.23 and $3.15, respectively.Employee Stock Purchase Plan In July 2008, we made available an employee stock purchase plan in which substantially all of our full-time employees became eligible to participateeffective March 18, 2008. Under the plan, employees may contribute through payroll deductions up to 15% of their compensation toward the purchase of ourcommon stock, or $21, whichever is lower. The price per share is equal to the lower of 85% of the fair market price on the first day of the offering period, or85% of the fair market price on the day of purchase. Proceeds received from the issuance of shares are credited to stockholders' equity in the period that theshares are issued. In 2014, 346,245 shares were purchased in accordance with the Employee Stock Purchase Plan (ESPP). Net proceeds from the issuance ofshares of common stock under the ESPP for the year ended December 31, 2014 were $871. In January 2014, the number of shares available for grant wasincreased by 258,240, per the ESPP plan documents. At December 31, 2014, approximately 428,151 shares remain available for purchase under the ESPP. Forthe years ended December 31, 2014, 2013 and 2012, we incurred ESPP expenses of $408, $211 and $182, respectively.65 Year Ended December 31, 2014 2013 2012 (in thousands, except per share amounts) Numerator: Stock-based compensation $(4,037)$(3,303)$(3,747)Denominator: Weighted average shares used in computing basic and diluted net lossper share 26,444,626 25,543,646 24,933,656 Impact of stock-based compensation per share $(0.15)$(0.13)$(0.15)Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)9. Shareholders' Equity (Continued)Option Acceleration On December 1, 2009, we accelerated the vesting of certain employees' unvested options that were deeply out-of-the-money. The acceleration was donebecause we believed that there was no longer a compensation incentive tied to performance, given the exercise price of the options that were accelerated.Consistent with ASC 718, we continued to expense the accelerated options over the remaining service period. We do not have a static policy threshold to usefor determining whether an option is deeply out-of-the-money. Rather, we believe that the determination should be made in light of current marketconditions, probability of stock price recovery within the remaining service period, and historical volatility of our stock price. For the purposes of this optionacceleration, we determined that options that were out-of-the-money by 30% or more were deeply out-of-the-money. As a result of the option acceleration,approximately 309,000 previously unvested shares became fully vested on December 1, 2009. We incurred an expense associated with the options that wereaccelerated in the amount of $0, $137 and $578 for the years ended December 31, 2014, 2013 and 2012, respectively, which have been recorded in theGeneral and administrative line of the consolidated statement of operations.10. Income Taxes We have deferred income tax assets totaling $57,314 at December 31, 2014, consisting primarily of federal and state net operating loss and creditcarryforwards. Due to uncertainty regarding the ultimate realization of these net operating loss and credit carryforwards and other deferred income tax assets,we have established a full valuation allowance (net of deferred tax liabilities for indefinite lived intangibles) on our deferred tax assets and will recognize thebenefits only as reassessment indicates the benefits are realizable. The determination of the required valuation allowance against net deferred tax assets wasmade without taking into account the deferred tax liabilities created from the book and tax differences on indefinite-lived assets. Our income tax benefit for 2014 of $2,313 primarily relates to a tax benefit due to the release of the Company's valuation allowance in the amount of$2,499 resulting from the corresponding recognition of a deferred tax liability on Mednet's opening balance sheet in accordance with ASC 805, BusinessCombinations. We performed an analysis to determine the extent to which we can use our net operating loss carryforwards and other deferred tax assets in future periods,subject to certain limitations imposed by the Internal Revenue Code. We concluded that largely because of our cumulative history of pre-tax losses in themost current three year period, it cannot predict that the benefits of the net operating loss carryforwards will be realized in future periods, and therefore wecontinue to provide a full valuation allowance for net deferred tax assets (exclusive of deferred tax liabilities for indefinite lived intangibles). We willperform a similar analysis during 2015 to reassess the ability to realize the net operating loss carryforwards and other deferred tax assets in the future66Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)10. Income Taxes (Continued) Deferred taxes result from temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and theamounts used for income tax purposes. The significant components of our deferred tax assets and liabilities are as follows: Reconciliations between expected income taxes computed at the federal rate of 35% for each of the years ended December 31, 2014, 2013 and 2012, andthe provision (benefit) for income taxes is as follows: The increase in the valuation allowance in December 31, 2014 is the net of increases from the current year loss and credits generated and the release ofthe valuation allowance in accordance with ASC 805, Business Combinations, due to the Mednet acquisition accounting. At December 31, 2014, we hadfederal net operating loss carryforwards of approximately $100,997 to offset future federal taxable67 December 31, 2014 2013 Deferred tax assets: Net operating loss carryforwards $38,540 $37,335 Research & development and AMT credit carryforwards 5,314 4,687 Stock option grants 7,410 6,533 Allowance for doubtful accounts 4,532 3,101 Other, net 1,518 1,928 Total deferred tax assets 57,314 53,584 Less valuation allowance (52,998) (50,979)Net deferred tax assets $4,316 $2,605 Deferred tax liabilities: Property, plant and equipment (360) (345)Identified intangible assets (3,756) (2,089)Indefinite lived intangible assets (987) (730)Prepaid insurance (200) (171)Total deferred tax liabilities (5,303) (3,335)Net deferred tax liability (987) (730) Years ended December 31, 2014 2013 2012 Income tax benefit at statutory rate $(4,237)$(2,486)$(4,587)State income tax, net of federal benefit 4 716 (211)Stock-based compensation 43 203 397 Nondeductible goodwill impairment — — — Other (258) 182 200 Increase in valuation allowance 2,135 1,600 3,296 Income tax (benefit) provision $(2,313)$215 $(905)Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)10. Income Taxes (Continued)income expiring in various years starting in 2018 through 2034. At December 31, 2014, we had state net operating loss carryforwards of $47,776, whichexpire in various years starting in 2015 through 2034. Additionally, we have Research and Development credit carryforwards of $4,906 which begin toexpire in 2021 through 2034. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporarydifferences are deductible. The timing and manner in which we can utilize our net operating loss carryforward and future income tax deductions in any yearmay be limited by provisions of the Internal Revenue Code regarding the change in ownership of corporations. Such limitation may have an impact on theultimate realization of our carryforwards and future tax deductions. Section 382 of the Internal Revenue Code ("Section 382") imposes limitations on acorporation's ability to utilize net operating losses if it experiences an "ownership change." Section 383 of the Internal Revenue Code imposes similarlimitations on other tax attributes such as research and development credits. In general terms, an ownership change may result from transactions increasingthe ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. Any unused annual limitationmay be carried over to later years, and the amount of the limitation may under certain circumstances be increased by the built-in gains in assets held by us atthe time of the change that are recognized in the five-year period after the change. Currently, a portion of our loss carryforwards is limited under Section 382. The components of our income tax (benefit) provision are summarized as follows: The U.S. Internal Revenue Service concluded its examination of our U.S. federal tax returns for all years through 2010. Because of net operating losses,our U.S. federal tax returns statutes for those years will remain subject to examination until the losses are utilized. Additionally, state tax return statutesgenerally remain open due to operating losses. We do not have a tax reserve recorded for tax contingencies. As of December 31, 2014 and 2013, we have not identified any uncertain tax positions andtherefore, it has no tax reserve recorded as of December 31, 2014 and 2013.68 Year EndedDecember 31, 2014 2013 Current: Federal $— $24 State 186 138 Total current provision for income taxes 186 162 Deferred: Federal (2,355) — State (144) 53 Total deferred provision (benefit) for income taxes (2,499) 53 Total provision (benefit) for income taxes $(2,313)$215 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)11. Commitments and ContingenciesLeases We lease our principal administrative and service facilities as well as office equipment under non-cancelable operating leases expiring at various datesthrough 2021. The terms of the leases are renewable at the end of the lease term. Payments made under operating leases are charged to operations on astraight-line basis over the period of the lease. Differences between straight-line expense and cash payments are recognized in the deferred rent line of thebalance sheet. Rent expense was $3,721, $3,622 and $2,946 for the years ended December 31, 2014, 2013 and 2012, respectively. We have entered into and acquired capital leases with various expiration dates through 2017 which were used to finance equipment, furniture andmedical devices. Future minimum lease payments under non-cancelable operating and capital leases are summarized as follows at December 31, 2014:12. Credit AgreementCredit Agreement On December 30, 2014, we entered into a Credit Agreement with GE Capital, as agent for the lenders ("Lenders"), and as a Lender and swingline lender.Pursuant to the Credit Agreement, the Lenders agreed to make loans to us as follows; (i) Term Loans in an amount of $25,000 as of the closing date with anuncommitted ability to increase such Term Loans up to an amount not to exceed $10,000 , and (ii) Revolving Loans up to $15,000, which remain undrawn.The loan is recorded on our balance sheet in the amount of $24,008, which is net of an original issue discount of $992 related to fees paid to GE Capital. The GE Loans bear interest at an annual rate of LIBOR plus 4.0%, subject to a LIBOR floor of 1.0%. The outstanding principal of the Term Loan will bepaid as follows:•Beginning April 1, 2015, the principal amount of the Term Loan will be repaid, on a quarterly basis, in installments of $312, plus accruedinterest; •Beginning January 1, 2018, the principal amount of the Term Loan will be repaid, on a quarterly basis, in installments of $625, plus accruedinterest;69 OperatingLeases CapitalLeases 2015 $3,277 $480 2016 2,941 287 2017 2,836 101 2018 2,770 — 2019 1,357 — Thereafter 1,458 — $14,639 $868 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)12. Credit Agreement (Continued)•Beginning October 1, 2019, the remaining $16,563 will be paid in full on or before December 30, 2019, or such earlier date upon anacceleration of the Term Loan by the Lenders upon an event of default or termination by us. The Loans are secured by substantially all of our assets and by a pledge of the capital stock of our U.S. based subsidiaries as well as a pledge of 65% ofthe capital stock of Cardiocore Lab Ltd. and BioTelemetry Belgium.Covenants The Credit Agreement contains affirmative and financial covenants regarding the operations of our business and certain negative covenants that, amongother things, limit our ability to incur additional indebtedness, grant certain liens, make certain investments, merge or consolidate, make certain restrictedpayments and engage in certain asset dispositions, including a sale of all, or substantially all, of our property. As of the closing date of the agreement, wewere in compliance with our covenants.Debt Extinguishment In August 2012, we entered into a Credit and Security Agreement with MidCap Financial, LLC to provide revolving loan borrowings with a loancommitment of up to $15,000, and an option to increase to a maximum loan commitment of $30,000. We borrowed $8,000 in April 2014 to fund the BMSacquisition. If we terminated the Midcap Loan at any point prior to the loan expiration date of August 2016, we would incur a loan termination fee of 1.00%of the loan commitment due immediately preceding the termination. In February 2014, we entered into a Credit and Security Agreement with The Bancorp Bank for an aggregate amount of $9,830. The proceeds were usedto pay off the assumed debt of $8,563 associated with the Mednet acquisition and to fund Mednet's working capital needs. In December 2014, we used the proceeds of the GE Loans to repay in full the $8,000 and $9,411 outstanding balances of the MidCap and BancorpLoans, respectively. In connection with this repayment, we incurred a debt extinguishment loss of $372, included in Other (loss) income, net in ourconsolidated statements of operations. This loss includes a pre-payment penalty paid to Midcap as well as the write-off of the unamortized deferred financingfees related to the Midcap and Bancorp Loans.13. Employee Benefit Plan We sponsor a 401(k) Retirement Savings Plan (the Plan) for all eligible employees who meet certain requirements. Participants may contribute, on a pre-tax basis, up to the maximum allowable amount pursuant to Section 401(k) of the Internal Revenue Code. We are not required to contribute to the Plan. InJanuary 2012, we adopted an amendment to eliminate the employers' matching contribution. In January 2014, we adopted an amendment to the Plan thatallowed for an employer matching contribution of 100% of the first 3% of the employees' salary, and 50% of the next 2% of the employees' salary. For theyears ended December 31, 2014, 2013 and 2012, we contributed $1,483, $0 and $0, respectively. Employer contributions vest immediately.70Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)14. Segment Information We operate under three reportable segments: Patient Services, Product, and Research Services. The Patient Services segment is focused on the monitoringof cardiac arrhythmias or heart rhythm disorders with our comprehensive suite of cardiac monitoring solutions in a healthcare setting. The Product segmentfocuses on the development, manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals. Our Research Servicessegment is engaged in central core laboratory services providing cardiac monitoring, imaging, scientific consulting and data management services for drugand medical device trials. Intercompany revenue relating to the manufacturing of devices by the Product segment for the other segments is included on theintersegment revenue line. Expenses that can be specifically identified with a segment have been included as deductions in determining pre-tax segment income. Any remainingexpenses including research and development costs incurred by the Product segment for the benefit of the other segments as well as the elimination of costsassociated with intercompany revenue are included in Corporate and Other. Also included in Corporate and Other is the Department of Justice settlement, aswell as interest expense, net and other financing expenses. We do not allocate assets to the individual segments. Mednet and BMS are primarily included inthe Patient Services segment; with the product manufacturing and sales portions being included in the Product segment. RadCore is included in the ResearchServices segment. 15. Legal Proceedings From time to time, in the ordinary course of business and like others in the industry, we receive requests for information from government agencies inconnection with their regulatory or investigational authority or are involved in traditional employment or business litigation. We review such requests andnotices and take appropriate action.71 PatientServices ResearchServices Product Corporateand Other Consolidated 2014 Revenues $133,178 $19,744 $13,656 $— $166,578 Intersegment revenues — — 7,789 (7,789) — Income (loss) before income taxes 27,792 (701) 6,681 (45,878) (12,106)Depreciation and amortization 8,157 3,710 502 181 12,550 Capital expenditures 11,488 1,077 216 — 12,781 PatientServices ResearchServices Product Corporateand Other Consolidated 2013 Revenues $100,386 $20,329 $8,786 $— $129,501 Intersegment revenues — — 6,191 (6,191) — Income (loss) before income taxes 27,298 798 5,307 (40,507) (7,104)Depreciation and amortization 4,253 4,057 551 3,457 12,318 Capital expenditures 5,796 2,242 131 — 8,169 Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)15. Legal Proceedings (Continued) The final outcome of any current or future litigation or governmental or internal investigations cannot be accurately predicted, nor can we predict anyresulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. We record accruals for suchcontingencies to the extent that it concludes it is probable that a liability has been incurred and the amount of the loss can be projected.CardioNet v. Mednet Litigation On May 8, 2012, CardioNet, Inc. filed suit against Mednet Healthcare Technologies, Inc., MedTel 24, Inc., RhythmWatch LLC, and AMI CardiacMonitoring, Inc., in the United States District Court for the Eastern District of Pennsylvania (Civil Action No. 2:12-CV-2517-JS) for patent infringementrelated to the making, use, offering for sale, and sale of the Heartrak ECAT device and monitoring services. The suit asserted that the defendants wereinfringing CardioNet's U.S. Patent Nos. 7,212,850, 7,907,996, 6,569,095, 7,587,237 and 7,941,207. CardioNet sought an injunction against each defendant,as well as monetary damages. The defendants asserted counterclaims alleging the patents in suit were invalid and not infringed. This litigation concluded on January 31, 2014 when the Court entered a Consent Judgment declaring all five CardioNet patents valid and enforceable,and infringed by the defendants' making, using, offering to sell, or selling the Heartrak ECAT device and monitoring services. The Consent Judgment alsodeclared that all defendants are permanently enjoined from further infringement and are required to turn over all existing inventory of the Heartrak ECATsystem to CardioNet and Braemar. Simultaneously with the entry on of the consent judgment BioTelemetry, through its CardioNet subsidiary, entered into a definitive stock purchaseagreement, to purchase all of the outstanding capital stock of Mednet and its affiliated entities for consideration of $5,500 in cash and 96,649 shares of ourcommon stock, valued at $705 at closing. In addition, as a result of the acquisition, we assumed indebtedness from the Mednet entities in the aggregateamount of $9,720, including interest. Under the terms of the Consent Judgment entered by the Court, Medtel 24 was granted a limited, non-exclusive, license for the Heartrak ECAT system fora period of one year. On the 364th day of such license, MedTel 24 filed a Motion to Set Aside the Consent Judgment and served the Company with a Demandfor Arbitration. We are vigorously defending the claim and believe it to be without merit.CardioNet v. ScottCare Litigation On May 8, 2012, CardioNet, Inc. filed suit against The ScottCare Corporation and Ambucor Health Solutions, Inc. in the United States District Court forthe Eastern District of Pennsylvania (Civil Action No. 2:12-CV-2516-PBT) for patent infringement under the same five CardioNet patents, as mentionedabove in the Mednet litigation, related to the making, use, sale, and offering for sale of the ScottCare TeleSentry Mobile Cardiac Telemetry device andmonitoring services. CardioNet is seeking an injunction against each defendant, as well as monetary damages. The ScottCare Corporation has assertedcounterclaims alleging the patents in suit are invalid and not infringed. On May 10, 2013, CardioNet, Inc. and Braemar Manufacturing, LLC filed an Amended Complaint identifying Braemar as the new owner of all right, titleand interest to the patents in suit with72Table of ContentsBIOTELEMETRY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)Years Ended December 31, 2014, 2013 and 2012(In thousands, except share and per share amounts)15. Legal Proceedings (Continued)CardioNet as the exclusive licensee of these patents. Fact discovery closed on June 30, 2014, and the trial has been re-scheduled for June 8, 2015. Consistentwith the accounting for contingent liabilities, no accrual has been recorded in the financial statements. We are vigorously pursuing our claims and defendingagainst the counterclaims.16. Civil Investigative Demand On August 25, 2011, we received a Civil Investigative Demand ("CID") issued by the U.S. Department of Justice, Western District of Washington. TheCID states that it was issued in the course of an investigation under the Federal False Claims Act and seeks documents for the period January 1, 2007 throughthe date of the CID. The CID indicates that the investigation concerns allegations that we may have used inappropriate diagnosis codes when submittingclaims for payment to Medicare for our real-time, MCOT™ services. During the second quarter of 2014, we reached an agreement in principle for a potentialsettlement; however, the pending settlement is subject to satisfactory negotiation and completion of a settlement agreement. As result, we recorded a non-operating charge of $6,400 in the first half of 2014. This reserve was recorded to Other (loss) income, net in the consolidated statements of operations and isincluded in Accrued liabilities on the balance sheet. The final outcome of any current or future litigation or governmental or internal investigations, including the potential settlement, cannot be accuratelypredicted, nor can we predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities.We record accruals for such contingencies to the extent that it concludes it is probable that a liability has been incurred and the amount of the loss can beprojected.17. Quarterly Financial Data (Unaudited) The following tables summarize the unaudited quarterly financial data for the last two fiscal years.18. Subsequent Events None.73 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (in thousands, except per share amount) 2014 Total revenues $37,162 $42,650 $43,113 $43,653 Gross profit 21,644 23,613 23,678 24,529 Integration, restructuring and other charges 2,980 1,000 1,045 2,073 (Loss) income from operations (3,696) (401) 486 (702)Net loss (4,122) (3,988) (29) (1,654)Basic and diluted net loss per share $(0.16)$(0.15)$(0.00)$(0.06)2013 Total revenues $32,418 $32,104 $31,874 $33,105 Gross profit 19,545 19,496 19,234 20,795 Integration, restructuring and other charges 1,202 2,541 3,077 1,162 Income (loss) from operations (2,034) (2,238) (2,835) 226 Net income (loss) (2,087) (2,299) (2,956) 23 Basic and diluted net income (loss) per share $(0.08)$(0.09)$(0.12)$0.00 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Prior to the filing of this Report on Form 10-K, an evaluation was performed under the supervision of and with the participation of our management,including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of our disclosure controls and procedures. Based onthe evaluation, the CEO and CFO have concluded that, as of December 31, 2014, our disclosure controls and procedures are effective to ensure thatinformation required to be disclosed in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within thetime periods specified in SEC rules and forms, and is accumulated and communicated to our management, as appropriate, to allow timely decisions regardingrequired disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of futureevents, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of howremote.Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 240.15d-15(f) under the Exchange Act) during thefourth fiscal quarter ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financialreporting.MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal controlover financial reporting includes those policies and procedures that:(i)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance withauthorizations of management and directors; and (iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that couldhave a material effect on the financial statements. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment,management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal74Table of ContentsControl—Integrated Framework (2013). Based on management's assessment and those criteria, management has concluded that our internal control overfinancial reporting was effective as of December 31, 2014. The effectiveness of the Company's internal control over financial reporting did not include the internal controls of Mednet HealthcareTechnologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc., and Universal Medical Laboratory, Inc. which were included in theCompany's consolidated financial statements for the year ended December 31, 2014, due to the timing of the acquisition. The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by Ernst & Young LLP, an independentregistered public accounting firm, as stated in their report included in this Annual Report on Form 10-K.75Table of Contents Report of Independent Registered Public Accounting Firm The Board of Directors and ShareholdersBioTelemetry, Inc. We have audited BioTelemetry, Inc.'s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the "COSO criteria").BioTelemetry, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectivenessof internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately andfairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the companyare being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financialstatements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate. As indicated in the accompanying Management's Report on Internal Control over Financial Reporting, management's assessment of and conclusion onthe effectiveness of internal control over financial reporting did not include the internal controls of Mednet Healthcare Technologies, Inc., HeartcareCorporation of America, Inc., Universal Medical, Inc., and Universal Medical Laboratory, Inc. (together, "Mednet"), which are included in the 2014consolidated financial statements of BioTelemetry, Inc. and constituted 22% and 4% of total and net assets, respectively, as of December 31, 2014 and 14%of revenues for the year then ended. Our audit of internal control over financial reporting of BioTelemetry, Inc. also did not include an evaluation of theinternal control over financial reporting of Mednet. In our opinion, BioTelemetry, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, basedon the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of BioTelemetry, Inc. as of76Table of ContentsDecember 31, 2014 and 2013 and the related consolidated statements of operations and comprehensive income (loss), cash flows and shareholders' equity foreach of the three years in the period ended December 31, 2014 of BioTelemetry, Inc. and our report dated February 23, 2015 expressed an unqualifiedopinion thereon.Philadelphia, PennsylvaniaFebruary 23, 201577 /s/ Ernst & Young LLPTable of Contents Item 9B. Other Information On February 16, 2015, the Compensation Committee of the Board of Directors of the Company approved a salary increase for Fred Broadway, SeniorVice President—Sales and Marketing from $271,700 to $285,285. Part III Item 10. Directors, Executive Officers and Corporate Governance Information with respect to this Item is incorporated by reference from our definitive proxy statement in connection with the 2015 Annual Meeting ofStockholders, or the Proxy Statement, unless the Proxy Statement is not filed by April 30, 2015, in which case we will amend this Form 10-K to provide theomitted information in accordance with the requirements of Instruction G to Form 10-K. BioTelemetry emphasizes the importance of professional business conduct and ethics through its corporate governance initiatives. Our Board ofDirectors has adopted a code of business conduct and ethics that applies to all employees, directors and officers, including our principal executive officer andprincipal financial officer. Our corporate governance information and materials, including our Code of Business Conduct and Ethics, are posted under"Corporate Governance" in the Investors section of our website at www.biotelinc.com. Our Board regularly reviews corporate governance developments andmodifies these materials and practices as warranted. To the extent we make amendments to or grant waivers from our Code of Business Conduct and Ethics inthe future, we intend to disclose the amendments and waivers on our website. Item 11. Executive Compensation Information required by this Item is incorporated by reference from the Proxy Statement unless the Proxy Statement is not filed on or before April 30,2015, in which case we will amend this Form 10-K to provide the omitted information in accordance with the requirements of Instruction G to Form 10-K. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this Item is incorporated by reference from the Proxy Statement unless the Proxy Statement is not filed on or before April 30,2015, in which case we will amend this Form 10-K to provide the omitted information in accordance with the requirements of Instruction G to Form 10-K.78Table of ContentsEquity Compensation Plan Information The following table presents the equity compensation plan information as of December 31, 2014: Item 13. Certain Relationships and Related Transactions, and Director Independence Information with respect to this Item is incorporated by reference from the Proxy Statement unless the Proxy Statement is not filed on or before April 30,2015, in which case we will amend this Form 10-K to provide the omitted information in accordance with the requirements of Instruction G to Form 10-K. Item 14. Principal Account Fees and Services Information required by this Item is incorporated by reference from the Proxy Statement unless the Proxy Statement is not filed on or before April 30,2015, in which case we will amend this Form 10-K to provide the omitted information in accordance with the requirements of Instruction G to Form 10-K. Part IV Item 15. Exhibits and Financial Statement Schedules (a)The following financial statements, schedules and exhibits are filed as part of this report: 1.Financial Statements—The Financial Statements required by this item are listed on the Index to Financial Statements in Part II, Item 8 of thisreport. 2.Financial Statement Schedules •Schedule II—Valuation and Qualifying Accounts and Reserves; and •Other financial statement schedules are not included because they are not required or the information is otherwise shown in thefinancial statements or notes thereto. 3.Exhibits—The exhibits listed on the accompanying Exhibit Index are filed as part of, or are incorporated by reference into, this report. (b)See Item 15(a)(3) above. (c)See Item 15(a)(2) above.79 Equity Compensation Plan Information Number of securitiesto be issued uponexercise ofoutstanding options,warrants, and rights Weighted averageexercise price ofoutstanding options,warrants and rights Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding securitiesreflected in column (a)) (a) (b) (c) Equity compensation plans approved bysecurity holders: Employee and non-employee director stockoption plans 4,115,486 $5.83 1,834,017 Employee stock purchase plan 39,232 $5.11 428,151 Total 4,154,718 $5.82 2,262,168 Table of Contents SCHEDULE II 80 BeginningBalance AdditionsCharged ToExpense DeductionsFromReserve EndingBalance Allowance for Doubtful Accounts Year ended December 31, 2014 $7,640 $9,347 $(6,325)$10,662 Year ended December 31, 2013 $7,617 $7,787 $(7,763)$7,640 Year ended December 31, 2012 $9,889 $11,912 $(14,184)$7,617 Table of Contents EXHIBIT INDEX 81ExhibitNumber Description 2.1 Stock Purchase Agreement by and among CardioNet, LLC, Mednet Healthcare Technologies, Inc., HeartcareCorporation of America, Inc., Universal Medical, Inc., Universal Medical Laboratory, Inc. and Frank Movizzo,dated as of January 31, 2014 (Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K filed,February 3, 2014). 2.2 Stock Purchase Agreement by and among the CardioNet, LLC, ECG Scanning and Medical Services, Inc. andthe Stockholder Representatives (as defined therein), dated as of February 10, 2012. (Incorporated by referenceto Exhibit 10.1 to the Registrant's Form 8-K filed February 10, 2012 (File No. 001-33993)). 2.3 Agreement and Plan of Reorganization, dated as of April 22, 2013, by and among CardioNet, Inc., theRegistrant and BioTelemetry Merger Sub, Inc. (incorporated by reference to the Registrant's registrationstatement on Form S-4 and amendments thereto (File No. 333-188058)). 3.1 Certificate of Incorporation of BioTelemetry, Inc. (incorporated by reference to the Registrant's registrationstatement on Form S-4 and amendments thereto (File No. 333-188058)). 3.2 Bylaws of BioTelemetry, Inc. (incorporated by reference to the Registrant's registration statement on Form S-4and amendments thereto (File No. 333-188058)) 10.1 CardioNet, Inc. Form of Indemnity Agreement (incorporated by reference to Exhibit 10.1 to CardioNet, Inc.'sregistration statement on Form S-1 and amendments thereto (File No. 333-145547)). 10.2(1)CardioNet, Inc. 2008 Equity Incentive Plan and Form of Stock Option Agreement thereunder (incorporated byreference to Exhibit 10.3 to CardioNet, Inc.'s registration statement on Form S-1 and amendments thereto (FileNo. 333-145547)). 10.3(1)CardioNet, Inc. 2008 Non-Employee Directors' Stock Option Plan and Form of Stock Option Agreementthereunder (incorporated by reference to Exhibit 10.4 to CardioNet, Inc.'s registration statement on Form S- 1and amendments thereto (File No. 333-145547)). 10.4(1)CardioNet, Inc. 2008 Employee Stock Purchase Plan and Form of Offering Document thereunder (incorporatedby reference to Exhibit 10.5 to CardioNet, Inc.'s registration statement on Form S-1 and amendments thereto(File No. 333-145547)). 10.5 Office Lease dated February 6, 2004 between CardioNet, Inc. and Executive One Associates, as amended(incorporated by reference to Exhibit 10.13 to CardioNet, Inc.'s registration statement on Form S-1 andamendments thereto (File No. 333-145547)). 10.6 Building Sublease Agreement dated May 23, 2013, between CardioNet, Inc. and Here North America, LLC.(incorporated by reference to Exhibit 99.1 to CardioNet, Inc.'s Current Report on Form 8-K, dated May 23,2013(File No. 001-33993)). 10.7 Amendment No. 8 dated February 1, 2010 to the Communication Voice and Data Services Provider Agreementdated May 12, 2003 between the Company and Verizon (as successor to Qualcomm Incorporated andnPhase, LLC), as amended (incorporated by reference to Exhibit 10.19 to CardioNet, Inc.'s Current Report onForm 8-K, dated November 30, 2011).Table of Contents82ExhibitNumber Description 10.8 Purchase Agreement dated September 14, 2001 between CardioNet, Inc. and Varian, Inc. (a wholly-ownedsubsidiary of Jabil Circuit, Inc.) (incorporated by reference to Exhibit 10.20 to CardioNet, Inc.'s registrationstatement on Form S-1 and amendments thereto (File No. 333-145547)). 10.9 Consignment Inventory Agreement dated September 13, 2004 between CardioNet, Inc. and Varian, Inc. (awholly-owned subsidiary of Jabil Circuit, Inc.) (incorporated by reference to Exhibit 10.21 to CardioNet, Inc.'sregistration statement on Form S-1 and amendments thereto (File No. 333-145547)). 10.10(1)CardioNet, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to CardioNet, Inc.'sCurrent Report on Form 8-K filed October 28, 2008 (File No. 001-33993)). 10.11(1)CardioNet, Inc. Compensation Program for Non-Employee Directors (incorporated by reference to Exhibit 99.5to the Registrant's Current Report on Form 8-K filed January 28, 2009 (File No. 001-33993)). 10.12(1)Employment Agreement, dated as of June 15, 2010, between Joseph H. Capper and CardioNet, Inc.(incorporated by reference to Exhibit 99.2 to CardioNet, Inc.'s Current Report on Form 8-K filed June 18, 2010(File No. 001-33993)). 10.13(1)Employment Agreement, dated as of January 28, 2010, between CardioNet, Inc. and Heather Getz (incorporatedby reference to Exhibit 10.36 to CardioNet, Inc.'s Annual Report on Form 10-K filed February 23, 2010 (FileNo. 001-33993)). 10.14(1)Employment Agreement, dated as of December 7, 2010, between CardioNet, Inc. and Daniel Wisniewski(incorporated by reference to Exhibit 10.38 to CardioNet, Inc.'s Annual Report on Form 10-K, filedFebruary 25, 2010(File No. 001-33993)). 10.15(1)Employment Agreement dated as of February 7, 2011, between CardioNet, Inc. and Peter Ferola (incorporatedby reference to Exhibit 10.1 to CardioNet, Inc.'s Quarterly Report on Form 10-Q dated May 6, 2011(FileNo. 001-33993)). 10.16(1)Employment Agreement dated as of June 11, 2012, between CardioNet, Inc. and Michael Geldart (incorporatedby reference to Exhibit 10.1 to CardioNet, Inc.'s Quarterly Report on Form 10-Q filed August 9, 2012(FileNo. 001-33993)). 10.17(1)Employment Agreement dated as of July 30, 2010, between CardioNet, Inc. and Fred Anthony Broadway III(incorporated by reference to Exhibit 10.26 to CardioNet, Inc.'s Annual Report on Form 10-K filed February 22,2013(File No. 001-33993)). 10.18 Credit and Security Agreement, dated as of February 21, 2014, by and among CardioNet, LLC,BioTelemetry, Inc., Braemar Manufacturing, LLC, cardioCORE Lab, LLC, ECG Scanning & MedicalServices LLC, Heartcare Corporation of America, Inc., Mednet Healthcare Technologies, Inc., UniversalMedical, Inc. and Universal Medical Laboratory, Inc., each as a borrower, and The Bancorp Bank, asadministrative agent and lender, and the additional lenders from time to time party thereto (incorporated byreference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed February 24, 2014). 10.19 Promissory Note, dated as of February 21, 2014, in the principal amount of $9,830,000, issued in favor of TheBancorp Bank (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filedFebruary 24, 2014).Table of Contents83ExhibitNumber Description 10.20 Assumption and Joinder Agreement and Amendment to Credit Agreement, dated as of February 21, 2014,among BioTelemetry, Inc., CardioNet, LLC, cardioCORE Lab, LLC, Braemar Manufacturing, LLC, ECGScanning & Medical Services LLC, each as an existing borrower, and Midcap Funding IV, LLC, as agent, andMednet Healthcare Technologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc. andUniversal Medical Laboratory, Inc., each as joining borrowers (incorporated by reference to Exhibit 10.3 to theRegistrant's Current Report on Form 8-K filed February 24, 2014). 10.21 Fourth Amended and Restated Revolving Loan Note, dated as of February 21, 2014, in the principal amount of$15,000,000, issued in favor of Midcap Funding IV, LLC (incorporated by reference to Exhibit10.4 to theRegistrant's Current Report on Form 8-K filed February 24, 2014). 10.22 Asset Purchase Agreement by and between CardioNet, LLC and Biomedical Systems Corporation dated as ofMarch 19, 2014 (incorporated by reference to Exhibit2.1 to the Registrant's Current Report on Form 8-K filedMarch 20, 2014). 23*Consent of Ernst & Young LLP. 31.1*Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under theSecurities and Exchange Act of 1934, as amended. 31.2*Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under theSecurities and Exchange Act of 1934, as amended. 32*Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document. 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. 101.SCH XBRL Taxonomy Extension Schema Document. 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB XBRL Taxonomy Extension Label Linkbase Document. 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.*Filed herewith. †Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separatelywith the Securities and Exchange Commission. (1)Indicates a management plan or compensatory plan or arrangement.Table of Contents 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 itsbehalf by the undersigned, thereunto duly authorized. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated.84Date: February 23, 2015 BioTelemetry, Inc. By: /s/ JOSEPH H. CAPPERJoseph H. CapperPresident and Chief Executive OfficerSignature Title Date /s/ JOSEPH H. CAPPERJoseph H. Capper President and Chief Executive Officer(Principal Executive Officer) February 23, 2015/s/ HEATHER C. GETZHeather C. Getz, CPA Chief Financial Officer (Principal Financialand Accounting Officer) February 23, 2015/s/ KIRK E. GORMANKirk E. Gorman Chairman and Director February 23, 2015/s/ RONALD A. AHRENSRonald A. Ahrens Director February 23, 2015/s/ ANTHONY J. CONTIAnthony J. Conti Director February 23, 2015/s/ JOSEPH A. FRICKJoseph A. Frick Director February 23, 2015/s/ REBECCA RIMELRebecca Rimel Director February 23, 2015/s/ ROBERT J. RUBINRobert J. Rubin, M.D. Director February 23, 2015QuickLinks -- Click here to rapidly navigate through this document Exhibit 23 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-149800) pertaining to the 2003 Equity Incentive Plan,2008 Equity Incentive Plan, 2008 Employee Stock Purchase Plan, and 2008 Non-Employee Directors' Stock Option Plan of BioTelemetry, Inc. of our reportsdated February 23, 2015, with respect to the consolidated financial statements and schedule of BioTelemetry, Inc. and the effectiveness of internal controlover financial reporting of BioTelemetry, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2014.Philadelphia, PennsylvaniaFebruary 23, 2015 /s/ Ernst & Young LLPQuickLinksExhibit 23Consent of Independent Registered Public Accounting FirmQuickLinks -- Click here to rapidly navigate through this document Exhibit 31.1 CERTIFICATION PURSUANT TORULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934 I, Joseph H. Capper, certify that:1.I have reviewed this annual report on Form 10-K of BioTelemetry, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: February 23, 2015 /s/ JOSEPH H. CAPPERJoseph H. CapperPresident and Chief Executive Officer(Principal Executive Officer)QuickLinksExhibit 31.1CERTIFICATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934QuickLinks -- Click here to rapidly navigate through this document Exhibit 31.2 CERTIFICATIONS PURSUANT TORULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934 I, Heather C. Getz, certify that:1.I have reviewed this annual report on Form 10-K of BioTelemetry, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant's internal control over financial reporting; and 5.The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting.Date: February 23, 2015 /s/ HEATHER C. GETZ Heather C. Getz, CPA Chief Financial Officer(Principle Financial and Accounting Officer)QuickLinksExhibit 31.2CERTIFICATIONS PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934QuickLinks -- Click here to rapidly navigate through this document Exhibit 32 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of BioTelemetry, Inc. on Form 10-K for the year ended December 31, 2014, as filed with the Securities andExchange Commission on the date hereof (the "Report"), each of Joseph H. Capper, the President and Chief Executive Officer of BioTelemetry, and HeatherC. Getz, the Chief Financial Officer of BioTelemetry, hereby certifies, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, that, to his or her knowledge:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofBioTelemetry./s/ JOSEPH H. CAPPERJoseph H. CapperPresident and Chief Executive OfficerFebruary 23, 2015 /s/ HEATHER C. GETZHeather C. Getz, CPAChief Financial OfficerFebruary 23, 2015QuickLinksExhibit 32CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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