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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-51902
INFUSYSTEM HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
20-3341405
(I.R.S. Employer Identification No.)
31700 Research Park Drive
Madison Heights, Michigan 48071
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code:
(248) 291-1210
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.0001 per share
Name of Exchange on which Registered
New York Stock Exchange Amex
Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. YES ¨ NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. YES ¨ NO x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). YES ¨ NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (check one)
Large accelerated filer
Non-accelerated filer
(Do not check if smaller reporting company.)
¨
¨
Accelerated filer ¨
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x
The aggregate market value of the registrant’s voting equity held by non-affiliates of the registrant, computed by reference to
the closing sales price for the registrant’s common stock on June 30, 2010, as reported on the OTC Bulletin Board, was
approximately $40,828,912. In determining the market value of the voting equity held by non-affiliates, securities of the
registrant beneficially owned by directors and officers of the registrant have been excluded. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of shares of the registrant’s common stock outstanding as of March 9, 2011 was 21,105,506.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of this registrant’s definitive proxy statement for its 2011 Annual Meeting of Stockholders to be filed with the SEC
no later than 120 days after the end of the registrant’s fiscal year are incorporated herein by reference in Part III of this Annual
Report on Form 10-K.
Table of Contents
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 60
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
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Cautionary Statement about Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). All statements other than statements of historical facts contained in this Annual Report on Form 10-K,
including statements regarding the future financial position, business strategy, plans, and objectives of management for future
operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,”
“should,” “plan,” “expect,” and similar expressions, as they relate to us, are intended to identify forward-looking statements.
We have based these forward-looking statements largely on current expectations and projections about future events and
financial trends that we believe may affect financial condition, results of operations, business strategy and financial needs.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, without
limitation, those described in “Risk Factors” and elsewhere in this Annual Report on Form 10-K, including, among other
things:
• dependence on our Medicare Supplier Number;
• changes in third-party reimbursement rates;
• availability of chemotherapy drugs used in our infusion pump systems;
• physician’s acceptance of infusion pump therapy over oral medications;
• our growth strategy, involving entry into new fields of infusion-based therapy;
• the current global financial crisis;
• industry competition; and
• dependence upon our suppliers.
These risks are not exhaustive. Other sections of this Annual Report on Form 10-K include additional factors which could
adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors, nor can we assess
the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements.
You should not rely upon forward looking statements as predictions of future events. We cannot assure you that the
events and circumstances reflected in the forward looking statements will be achieved or occur. Although we believe that the
expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements.
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PART I
References in this Annual Report on Form 10-K to “we,” “us,” or the “Company” are to InfuSystem Holdings, Inc. and
its subsidiaries.
Item 1.
Business.
Background
We were formed as a Delaware blank check company in 2005 for the purpose of acquiring through a merger, capital stock
exchange, asset acquisition or other similar business combination, one or more operating businesses in the healthcare sector.
We completed our initial public offering on April 18, 2006. On September 29, 2006, we entered into a Stock Purchase
Agreement (as, amended the “Stock Purchase Agreement”) with I-Flow Corporation (I-Flow), Iceland Acquisition subsidiaries,
our wholly-owned subsidiaries, and InfuSystem, a wholly-owned subsidiary of I-Flow Corporation. Upon the closing of the
transactions contemplated by the Stock Purchase Agreement on October 25, 2007, Iceland Acquisition subsidiaries purchased
all of the issued and outstanding capital stock of InfuSystem from I-Flow and concurrently merged with and into InfuSystem.
As a result of the merger, Iceland Acquisition subsidiaries ceased to exist as an independent entity and InfuSystem, as the
corporation surviving the merger, became our wholly-owned subsidiary Effective October 25, 2007, we changed our corporate
name from HAPC, INC. to InfuSystem Holdings, Inc.
InfuSystem was incorporated under the laws of the State of California in December 1997 under the name I-Flow
subsidiary, Inc., as a wholly owned subsidiary of I-Flow. In February 1998, I-Flow subsidiary, Inc. acquired Venture Medical,
Inc. and InfuSystem II, Inc. in a merger transaction pursuant to which I-Flow subsidiary, Inc. as the surviving corporation
changed its name to InfuSystem, Inc.
Business Concept and Strategy
The Company is the leading provider of infusion pumps and related services. The Company services hospitals, oncology
practices and other alternate site healthcare providers. Headquartered in Madison Heights, Michigan, the Company delivers
local, field-based customer support, and also operates pump service and repair Centers of Excellence in Michigan, Kansas,
California, and Ontario, Canada.
Our core service is to supply electronic ambulatory infusion pumps and associated disposable supply kits to oncology
practices, infusion clinics and hospital outpatient chemotherapy clinics to be utilized in the treatment of a variety of cancers
including colorectal cancer. Colorectal cancer (CRC) is the second most prevalent form of cancer in the United States,
according to the American Cancer Society, and the standard of care for the treatment of CRC relies upon continuous
chemotherapy infusions delivered via electronic ambulatory infusion pumps.
The Company provides these pumps and related supplies to oncology clinics, obtains an assignment of insurance benefits
from the patient, and bills the patient’s insurance company or patient as appropriate, for the use of the pump and supplies, and
collects payment. The Company provides pump management services for the pumps and associated disposable supply kits to
over 1,300 oncology practices in the United States. The Company retains title to the pumps during this process.
In addition, the Company sells, rents and leases new and pre-owned pole mounted and ambulatory infusion pumps to, and
provides biomedical certification, maintenance and repair services for, these same oncology practices as well as to other
alternate site settings including home care and home infusion providers, skilled nursing facilities, pain centers and others in
the United States and Canada. The Company also provides these products and services to customers in the hospital market.
The Company purchases new and pre-owned pole mounted and ambulatory infusion pumps from a variety of sources on a
non-exclusive basis. The Company repairs, refurbishes and provides biomedical certification for the devices as needed. The
pumps are then available for sales, rental or to be used within the Company’s ambulatory infusion pump management service.
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One aspect of our business strategy over the next one to three years is to expand into treatment of other cancers. We
currently generate approximately 20% of our revenue from treatments for disease states other than colorectal cancer. There are
a number of approved treatment regimens for head and neck, pancreatic, esophageal and other gastric cancers which present
opportunities for growth. There are also a number of other drugs currently approved by the U.S. Food and Drug Administration
(the FDA), as well as agents in the pharmaceutical development pipeline, which we believe could potentially be used with
continuous infusion protocols for the treatment of other diseases in addition to colorectal cancer. Drugs or protocols currently
in clinical trials may also obtain regulatory approval over the next several years. If these new drugs obtain regulatory approval
for use with continuous infusion protocols, we expect the pharmaceutical companies to focus their sales and marketing forces
on promoting the new drugs and protocols to physicians.
Another aspect of our business strategy over the next one to three years is to actively pursue opportunities for the
expansion of our business through strategic alliances, joint ventures and/or acquisitions. We believe there are opportunities to
acquire smaller, regional competitors that perform similar services to us, but do not have the national market access, a network
of third party payor contracts or operating economies of scale that we currently enjoy. We also plan to leverage our extensive
networks of oncology practices and insurers by distributing complementary products and introducing key new services.
We face risks that other competitors can provide the same services as us. Those risks are currently mitigated by our
existing third party payor contracts and economies of scale, which allow for predictable reimbursement and less costly
purchase and management of the pumps, respectively. Additionally, we have already established a long standing relationship
as a provider of pumps to over 1,300 oncology practices in the United States. We believe that there are competitive barriers to
entry against other suppliers with respect to these oncology practices because we have an established national presence and
third party payor contracts in place covering approximately 195 million third party payor lives (i.e., persons enrolled in
various managed care plans or commercial insurance carriers such as health maintenance organizations and preferred provider
organizations) increasing the likelihood that we participate in the insurance networks of patients to whom physicians wish to
refer an ambulatory infusion pump provider. Moreover, we have an available inventory of approximately 21,000 active
ambulatory infusion pumps, which may allow us to be more responsive to the needs of physicians and patients than a new
market entrant. We do not perform any research and development.
First Biomedical
On June 15, 2010, we acquired all of the issued and outstanding stock of First Biomedical, Inc (First Biomedical)
pursuant to a Stock Purchase Agreement with the stockholders of First Biomedical.
First Biomedical sells, rents, services and repairs new and pre-owned infusion pumps and other medical equipment. It also
sells a variety of primary and secondary tubing, cassettes, catheters and other disposable items that are utilized with infusion
pumps. Headquartered in Olathe, Kansas, with additional facilities in California and Toronto, First Biomedical is a leading
provider to alternate site healthcare facilities and hospitals in the United States and Canada. The acquisition of First
Biomedical has allowed us to expand our offerings to existing customers with the addition of biomedical service and repair,
while simultaneously bolstering the growth of infusion pump sales within our existing and potential future markets.
First Biomedical’s results of operations are included in our consolidated statements of operations from the date of
acquisition.
Continuous Infusion Therapy
Continuous infusion of chemotherapy involves the gradual administration of a drug via a small, lightweight, portable
electronic infusion pump over a prolonged period of time, defined as greater than 8 hours, and up to 24 hours daily. A cancer
patient can receive his or her medicine anywhere from 1 to 30 days per month depending
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on the chemotherapy regimen that is most appropriate to that individual’s health status and disease state. This may be
followed by periods of rest and then repeated cycles with treatment goals of progression free disease survival. This drug
administration method has replaced intravenous push or bolus administration in specific circumstances. The advantages of
slow continuous low doses of certain drugs are well documented. Clinical studies support the use of continuous infusion
chemotherapy for decreased toxicity without loss of anti-tumor efficacy. The 2009/2010 National Comprehensive Cancer
Network (NCCN) Guidelines recommend the use of continuous infusion for treatment of numerous cancer diagnoses. We
believe that the growth of continuous infusion therapy is driven by three factors: evidence of improved clinical outcomes;
lower toxicity and side effects; and a favorable reimbursement environment.
• In the past decade, significant progress has been made in the treatment of colorectal cancer due to advances in
surgery, radiotherapy and chemotherapy. In the late 1990s, medical researchers discovered that the delivery method
of the drug (or schedule) was a key component to drug availability, efficacy and tolerability. Schedule dependant
anti-tumor activity and toxicity has resulted in continuous infusion 5-Fluorouracil being adopted as the standard of
care. In 2000, the FDA approved Camptosar (the trade name for the generic chemotherapy drug Irinotecan), a drug
developed by Pfizer, for first-line therapy in combination with 5-Fluorouracil for the treatment of colorectal cancer.
In 2002, the FDA approved Eloxatin (the trade name for the generic chemotherapy drug Oxaliplatin), a drug
developed by Sanofi-Aventis, for use in combination with continuous infusion 5-Fluorouracil for the treatment of
colorectal cancer. FOLFIRI, the chemotherapy protocol which includes Camptosar in combination with continuous
infusion 5-Fluorouracil and the drug Leucovorin, and FOLFOX, the chemotherapy protocol which includes Eloxatin
in combination with continuous infusion 5-Fluorouracil and Leucovorin, have resulted in significantly improved
overall survival rates for colorectal cancer patients at various stages of the disease state. We believe that Sanofi-
Aventis and Pfizer have each dedicated significant resources to educating physicians and promoting the use of
FOLFOX and FOLFIRI. Simultaneously, the NCCN has established these regimens as the standards of care for the
treatment of colorectal cancer.
• The use of continuous infusion has been demonstrated to decrease or alter the toxicity of a number of cytotoxic, or
cell killing agents. Higher doses of drugs can be infused over longer periods of time, leading to improved tolerance
and decreased toxicity. For example, the cardiotoxicity (heart muscle damage) of the chemotherapy drug
Doxorubicin is decreased by schedules of administration (The Chemotherapy Source Book, Perry, M.C.). Nausea,
vomiting, diarrhea and decreased white blood cell and platelet counts are all affected by duration of delivery.
Continuous infusion can lead to improved tolerance and patient comfort while enhancing the patient’s ability to
remain on the chemotherapy regimen. Additionally, the lower toxicity profile and resulting reduction in side effects
enables patients undergoing continuous infusion therapy to continue a relatively normal lifestyle, which may
include continuing to work, go shopping, and care for family members. We believe that the partnering of physician
management and patient autonomy provide for the highest quality of care with the greatest patient satisfaction.
• We believe that oncology practices have a heightened sensitivity to whether and how much they are reimbursed for
services. Simultaneously, the Center for Medicare and Medicaid Services (CMS) and private insurers are increasingly
focusing on evidenced based medicine to inform their reimbursement decisions — that is, aligning reimbursement
with clinical outcomes and adherence to standards of care. Continuous infusion therapy is a main component of the
standard of care for certain cancer types because clinical evidence demonstrates superior outcomes. Payors recognize
this and it is reflected in favorable reimbursement for clinical services related to the delivery of this care.
Services
Our core service is to provide oncology offices, infusion clinics and hospital out-patient chemotherapy clinics with
ambulatory infusion pumps in addition to related supplies for patient use. We then directly bill and collect payment from
payors and patients for the use of these pumps. We own approximately 21,000 ambulatory
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infusion pumps which are dedicated to this service offering. At any given time, it is estimated that approximately 60% of the
pumps are in the possession of patients. The remainder of the pumps is in transport for cleaning and calibration, or in oncology
clinics as back-ups.
After a doctor determines that a patient is eligible for ambulatory infusion pump therapy, the doctor arranges for the
patient to receive an infusion pump and provides the necessary chemotherapy drugs. The oncologist and nursing staff train the
patient in the use of the pump and initiate service. The physician bills insurers, Medicare, Medicaid, third party payor
companies or patients (collectively, “payors”) for the physician’s professional services associated with initiating and
supervising the infusion pump administration, as well as the supply of drugs. We directly bill payors for the use of the pump
and related disposable supplies. We have contracts with more than 200 payors that cover approximately 195 million third
party payor lives. Billing to payors requires coordination with patients and physicians who initiate the service, as physicians’
offices must provide us with appropriate paperwork (patient’s insurance information, physician’s order and an
acknowledgement of benefits that shows receipt of equipment by the patient) in order for us to bill the payors.
In addition to providing high quality and convenient care, we believe that our business offers significant economic
benefits for patients, providers and payors.
• We provide patients with 24-hour by 7 days (24x7) service and support. We employ oncology and intravenous
certified registered nurses trained on ambulatory infusion pump equipment who staff our 24x7 hotline to address
questions that patients may have about their pump treatment, the infusion pumps or other medical or technical
questions related to the pumps.
• Physicians use our services to outsource the capital commitment, pump service, maintenance and billing and
administrative burdens associated with pump ownership. Our service also allows the doctor to continue a direct
relationship with the patient and to receive professional service fees for setting up the treatment and administering
the drugs.
• We believe our services are attractive to payors because they are generally less expensive than hospitalization or
home care.
Other services we offer include the sales, rental and leasing of pole mounted and ambulatory infusion pumps to oncology
practices, hospitals and other clinical settings. We own a fleet of approximately 14,000 new and used pole mounted and
ambulatory pumps, representing over 70 makes and models of equipment which are dedicated to these services. These pumps
are available for daily, weekly, monthly or annual rental periods as well as for sale or lease.
In addition to sales, rental and leasing services, the company also provides biomedical maintenance, repair and
certification services for the devices we provide as well as for devices owned by customers but not acquired through
InfuSystem. We operate pump service and repair Centers of Excellence across the United States and Canada and employ a staff
of highly trained technicians to provide these services.
Relationships with Physician Offices
We have business relationships with clinical oncologists in more than 1,300 practices. Though this represents a
substantial portion of the oncologists in the United States, we believe we can continue to expand our network to further
penetrate the oncology market. Based on our high retention rates and the positive results of our professional customer
satisfaction research, we believe our relationships with physician offices are strong.
We believe that, in general, we do not compete directly with hospitals and physician offices to treat patients. Rather, by
providing products and services to hospitals and physician offices and other care facilities and providers, we believe that we
assist other providers in meeting increasing patient demand and manage institutional constraints on capital and manpower due
to the nature of limited resources in hospitals and physician offices.
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Sales and Marketing
We employ a sales team of approximately 39 salespersons to coordinate our sales and marketing activities. Our efforts are
directed primarily at physician’s offices, infusion clinics, hospital outpatient chemotherapy clinics and other enterprises
serving patients who receive continuous infusions.
Employees
As of December 31, 2010, we had 180 employees, including 167 full-time employees and 13 part-time employees. None
of our employees are unionized.
Company Officers
Sean McDevitt, Chairman and Chief Executive Officer
Mr. McDevitt has served as the Company’s Chairman of the Board since April 2005 and as Chief Executive Officer since
September 2009. Mr. McDevitt is a founding principal, and since 2007 has been a Managing Director of Maren Group, an
investment banking firm which provides mergers and acquisitions advisory services in the healthcare and technology sectors.
Prior to joining Maren Group, Mr. McDevitt was a Managing Director of FTN Midwest Securities Corp. from September 2004
to January 2007. In 1999, Mr. McDevitt co-founded Alterity Partners, a boutique investment bank which provided capital
markets and merger and acquisition advisory services to high growth companies. Alterity Partners was acquired by FTN
Midwest Securities Corp. in September 2004. Mr. McDevitt was formerly a senior investment banker at Goldman Sachs &
Company, from 1995 through 1999 where he led deal teams in a variety of technology and healthcare/biopharmaceutical
transactions, including mergers and acquisitions, divestitures and initial public offerings. Prior to Goldman Sachs & Company,
Mr. McDevitt worked in sales and marketing at Pfizer Inc. from 1991 until 1994. He was a Captain in the U.S. Army Rangers
and was decorated for combat in the Panama invasion. He is a member of the Council on Foreign Relations. Mr. McDevitt
received his B.S. in Computer Science and Electrical Engineering from the U.S. Military Academy at West Point and an
M.B.A. from Harvard Business School.
James M. Froisland, Chief Financial Officer
Mr. Froisland has served as the Company’s Chief Financial Officer since December 2010. Prior to joining InfuSystem,
from 2006 to 2010, Mr. Froisland served as Senior Vice President, Chief Financial Officer, Chief Information Officer and
Corporate Secretary for Material Sciences Corporation (NASDAQ:MASC). Prior to this role, Mr. Froisland served as Senior
Vice President, Chief Financial Officer and Chief Information Officer for InteliStaf Healthcare, Inc. and has held a variety of c-
level and senior financial and information technology positions at Burns International Services Corporation, Anixter
International Inc., Budget Rent A Car Corporation, Allsteel Inc., and The Pillsbury Company. Mr. Froisland started his career
with KPMG, LLP and is a Certified Public Accountant. Mr. Froisland has an MBA, in Management Information Systems from
the Carlson School of Management, University of Minnesota, and a BA, in Math and Accounting, from Luther College.
Mr. Froisland also serves on the Board of Directors and Audit Committee for Westell Technologies, Inc. (NASDAQ:WSTL).
Material Suppliers
We supply a wide variety of pumps and associated equipment, as well as disposables and ancillary supplies. The majority
of our pumps are electronic ambulatory pumps purchased from the following manufacturers, each of which is material and
supplies more than 10% of the ambulatory pumps purchased by us: Smiths Medical, Inc.; Hospira Worldwide, Inc.; and
WalkMed Infusion, LLC (formerly known as McKinley Medical, LLC). There are no supply agreements in place with any of
the suppliers. All purchases are handled pursuant to pricing agreements, which contain no material terms other than prices that
are subject to change by the manufacturer.
Seasonality
Our business is not subject to seasonality.
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Environmental Laws
We are required to comply with applicable environmental laws regulating the disposal of cleaning agents used in the
process of cleaning our ambulatory infusion pumps, as well as the disposal of sharps and blood products used in connection
with the pumps. We do not believe that compliance with such laws has a material effect on our business.
Significant Customers
We have sought to establish contracts with as many third party payor organizations as commercially practicable, in an
effort to ensure that reimbursement is not a significant obstacle for providers who recommend continuous infusion therapy and
wish to utilize our services. A third party payor organization is a health care payor or a group of medical services payors that
contracts to provide a wide variety of healthcare services to enrolled members through participating providers such as us. A
payor is any entity that pays on behalf of a member patient.
We currently have contracts with more than 200 third party payor plans that cover approximately 195 million lives.
Material terms of contracts with third party payor organizations are typically a set fee or rate, or discount from billed charges
for equipment provided. These contracts generally provide for a term of one year, with automatic one-year renewals, unless we
or the contracted payor do not wish to renew. Our largest contracted payor is Medicare, which accounted for approximately
31% of our gross billings for ambulatory infusion pump services for the year ended December 31, 2010. Our contracts with
various individual Blue Cross/Blue Shield affiliates in the aggregate accounted for approximately 23% of our gross billings
for ambulatory infusion pump services for the year ended December 31, 2010. We also contract with various other third party
payor organizations, commercial Medicare replacement plans, self insured plans and numerous other insurance carriers. No
individual payor, other than Medicare and the Blue Cross/Blue Shield entities, accounts for greater than approximately 6% of
our ambulatory infusion pump services gross billings.
Competitors
We believe that our competition is primarily composed of regional providers, hospital-owned durable medical equipment
(DME) providers, physician providers and home care infusion providers. An estimate of the number of competitors is not
known or reasonably available, due to the wide variety in type and size of the market participants described below. We are not
aware of any industry reports with respect to the competitive market described below. The description of market segments and
business activities within those market segments is based on our experiences in the industry.
• Regional Providers: Regional DME providers act as distributors for a variety of medical products. We believe
regional DME provider sales forces generally consist of a relatively small number of salespeople, usually covering
several states. Regional DME providers tend to carry a limited selection of infusion pumps and their salespeople
generally have limited resources. Regional DME providers usually do not have 24x7 nursing services. We believe
that regional DME providers have relatively few third party payor contracts, which may prevent these providers from
being paid at acceptable levels and may also result in higher out-of-pocket costs for patients.
• Hospital-owned DME Providers: Many hospitals have in-house DME providers to supply basic equipment. In
general, however, these providers have limited capital and tend to stock a small inventory of infusion pumps. We
believe that hospital-owned providers have limited ability to grow because of restricted patient populations. Growth
from outside of the hospital may pose a challenge because hospitals typically will not provide referrals to
competitors, instead preferring to offer patients a choice of non-hospital-affiliated DME providers.
• Physician Providers: A limited number of physicians maintain an inventory of their own infusion pumps and provide
them to patients for a fee. However, we believe that pump utilization in this area
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tends to be low and the costs associated with ongoing supplies, preventative maintenance and repairs can be
relatively high. Moreover, we believe that a high percentage of DME claims by doctors are rejected by payors upon
first submission, requiring a physician’s staff to spend significant time and effort to resubmit claims and receive
payment for treatment. The numerous service and technical questions from patients may present another significant
cost to a physician provider’s staff.
• Home Care Infusion Providers: Home care infusion providers provide chemotherapy drugs and services to allow for
in-home patient treatment. We believe that home care infusion treatment can be very costly and that many patients
do not carry insurance coverage that covers home-based infusion services, resulting in larger out-of-pocket costs.
Because home care treatments may take as long as six months, these costs can be high and can result in higher
patient co-payments. We believe that home care providers may also be reluctant to offer 24x7 coverage or additional
patient visits, due to capped fees.
Regulation of Our Business
Our business is subject to certain regulations. Specifically, as a Medicare supplier of DME and related supplies, we must
comply with DMEPOS Supplier Standards established by the Health Care Financing Administration regulating Medicare
suppliers of DME and prosthetics, orthotics and supplies (DMEPOS). The DMEPOS Supplier Standards consist of 26
requirements that must be met in order for a DMEPOS supplier to be eligible to receive payment for a Medicare-covered item.
Some of the more significant DMEPOS Supplier Standards require us to (i) advise Medicare beneficiaries of their option to
purchase certain equipment, (ii) honor all warranties under state law and not charge Medicare beneficiaries for the repair or
replacement of equipment or for services covered under warranty, (iii) permit agents of the Centers for Medicare and Medicaid
Services to conduct on-site inspections to ascertain compliance with the DMEPOS Supplier Standards, (iv) maintain liability
insurance in prescribed amounts, (v) refrain from contacting Medicare beneficiaries by telephone, except in certain limited
circumstances, (vi) answer questions and respond to complaints of beneficiaries regarding the supplied equipment,
(vii) disclose the DMEPOS Supplier Standards to each Medicare beneficiary to whom we supply equipment, (viii) maintain a
complaint resolution procedure and record certain information regarding each complaint, (ix) maintain accreditation from a
CMS approved accreditation organization and, (x) meet the surety bond requirements specified in 42 C.F.R. 424.57.
We are also subject to the provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) which
are designed to protect the security and confidentiality of certain patient health information. Under HIPAA, we must provide
patients access to certain records and must notify patients of our use of personal medical information and patient privacy
rights. Moreover, HIPAA sets limits on how we may use individually identifiable health information and prohibits the use of
patient information for marketing purposes. The adoption of the American Recovery and Reinvestment Act of 2009 (ARRA)
includes a new breach notification requirement that applies to breaches of unsecured health information occurring on or after
September 23, 2009.
We are subject to regulation in the various states in which we operate. We believe we are in compliance with all such
regulation.
The healthcare industry is undergoing fundamental changes resulting from political, economic and regulatory influences.
In the U.S., comprehensive programs are under consideration that seek to, among other things, increase access to healthcare for
the uninsured and control the escalation of healthcare expenditures within the economy. On March 23, 2010, healthcare
reform legislation (the “Healthcare Legislation”) was approved by Congress and has been signed into law. This legislation has
only recently been enacted and requires the adoption of implementing regulations, which may impact our business.
Available Information
Our Internet address is www.infusystem.com. On this Web site, we post the following filings as soon as reasonably
practicable after they are electronically filed with or furnished to the U.S. Securities and Exchange
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Commission (the SEC): our Annual Reports on Form 10-K; our Quarterly Reports on Form 10-Q; our Current Reports on Form
8-K; our proxy statements related to our annual stockholders’ meetings; and any amendments to those reports or statements.
All such filings are available on our Web site free of charge. The content on our Web site is not incorporated by reference into
this Annual Report on Form 10-K unless expressly noted.
Item 1A. Risk Factors.
An investment in our securities involves a high degree of risk. You should consider carefully all of the material risks
described below, together with the other information contained in this Annual Report on Form 10-K. If any of the following
events occur, our business, financial condition, results of operations and cash flows may be materially adversely affected.
RISK FACTORS RELATING TO OUR BUSINESS AND THE INDUSTRY IN WHICH WE OPERATE.
We are dependent on our Medicare Supplier Number.
We are required to have a Medicare Supplier Number in order to bill Medicare for services provided to Medicare patients.
Furthermore, all third party and Medicaid contracts require us to have a Medicare Supplier Number. In addition, we are
required to comply with Medicare Supplier Standards in order to maintain such number. If we are unable to comply with the
relevant standards, we could lose our Medicare Supplier Number. The loss of such identification number for any reason would
prevent us from billing Medicare for patients who rely on Medicare to pay their medical expenses and, as a result, we would
experience a decrease in our revenues. Without such a number, we would be unable to continue our various third party and
Medicaid contracts. A significant portion of our revenue is dependent upon our Medicare Supplier Number.
The Center for Medicare and Medicaid Services (CMS) has issued a ruling that all durable medical equipment (“DME”)
providers must be accredited by a recognized accrediting entity by September 30, 2009. On February 17, 2009, we received
accreditation from Community Health Accreditation Program (CHAP), thus meeting this CMS requirement. If we lost our
accredited status, our financial condition, revenues and results of operations would be materially and adversely affected.
Changes in third-party reimbursement rates may adversely impact our revenues.
Our revenues are substantially dependent on third-party reimbursement. We are paid directly by private insurers and
governmental agencies, often on a fixed fee basis, for continuous infusion equipment and related disposable supplies provided
to patients. If the average fees allowable by private insurers or governmental agencies were reduced, the negative impact on
revenues could have a material adverse effect on our financial condition, results of operations and cash flows. Also, if amounts
owed to us by patients and insurers are reduced or not paid on a timely basis, we may be required to increase our bad debt
expense and/or decrease our revenues.
Any change in the overall healthcare reimbursement system may adversely impact our business.
Changes in the healthcare reimbursement system often create financial incentives and disincentives that encourage or
discourage the use of a particular type of product, therapy or clinical procedure. Market acceptance of continuous infusion
therapy may be adversely affected by changes or trends within the healthcare reimbursement system. Changes to the health
care reimbursement system that favor other technologies or treatment regimens that reduce reimbursements to providers or
treatment facilities that use our services, may adversely affect our ability to market our services profitably.
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Our success is impacted by the availability of the chemotherapy drugs that are used in our continuous infusion pump
systems.
We primarily derive our revenue from the rental of ambulatory infusion pumps to oncology patients through physicians’
offices and chemotherapy clinics. A shortage in the availability of chemotherapy drugs that are used in the continuous
infusion pump system could have a material adverse effect on our financial condition, results of operations and cash flows.
If future clinical studies demonstrate that oral medications are as effective as or more effective than continuous infusion
therapy, our business could be adversely affected.
Numerous clinical trials are currently ongoing, evaluating and comparing the therapeutic benefits of current continuous
infusion-based regimens with various oral medication regimens. If these clinical trials demonstrate that oral medications
provide equal or greater therapeutic benefits and/or demonstrate reduced side effects compared to prior oral medication
regimens, our revenues and overall business could be materially and adversely affected. Additionally, if new oral medications
are introduced to the market that are superior to existing oral therapies, physicians’ willingness to prescribe continuous
infusion-based regimens could decline, which would adversely affect our financial condition, results of operations and cash
flows.
Global financial conditions may negatively impact our business, results of operations, financial condition and/or liquidity.
The recent global financial crisis affecting the banking system and financial markets, as well as the uncertainty in global
economic conditions, have resulted in a significant tightening of credit markets, a low level of liquidity in financial markets
and reduced corporate profits and capital spending. As a result, our customers (i.e., patients and payors) may face issues
gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to
us. In addition, the current global financial crisis could also adversely impact our suppliers’ ability to provide us with
materials and components, either of which may negatively impact our financial condition, results of operations and cash flows.
The financial crisis could also adversely impact our ability to access the financial markets.
Although we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers
to make required payments and such losses have historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same loss rates that we have in the past, especially given the current
turmoil of the worldwide economy.
State licensure laws for durable medical equipment, or DME, suppliers are subject to change. If we fail to comply with any
state’s laws, we will be unable to operate as a DME supplier in such state and our business operations will be adversely
affected.
As a DME supplier operating in all 50 states of the United States, we are subject to each state’s licensure laws regulating
DME suppliers. State licensure laws for DME suppliers are subject to change and we must ensure that we are continually in
compliance with the laws of all 50 states. In the event that we fail to comply with any state’s laws governing the licensing of
DME suppliers, we will be unable to operate as a DME supplier in such state until we regain compliance. We may also be
subject to certain fines and/or penalties and our business operations could be adversely affected.
Our growth strategy includes expanding into treatment for cancers other than colorectal. There can be no assurance that
continuous infusion-based regimens for these other cancers will become standards of care for large numbers of patients or
that we will be successful in penetrating these different markets.
An aspect of our growth strategy is to expand into the treatment of other cancers, such as head, neck and gastric.
Currently, relatively small percentages of these patients are treated with regimens that include continuous infusion therapy.
That population will expand only if clinical trial results for new drugs and new combinations of
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drugs demonstrate superior outcomes for regimens that include continuous infusion therapy relative to alternatives. No
assurances can be given that these new drugs and drug combinations will be approved or will prove superior to oral
medication or other treatment alternatives. In addition, no assurances can be given that we will be able to penetrate
successfully any new markets that may develop in the future or manage the growth in additional resources that would be
required.
The industry in which we operate is intensely competitive and changes rapidly. If we are unable to successfully compete with
our competitors, our business operations may suffer.
The drug infusion industry is highly competitive. Some of our competitors and potential competitors have significantly
greater resources than we do for research and development, marketing and sales. As a result, they may be better able to compete
for market share, even in areas in which our services may be superior. The industry is subject to technological changes and
such changes may put our current fleet of pumps at a competitive disadvantage. If we are unable to effectively compete in our
market, our financial condition, results of operations and cash flows may materially suffer.
Our industry is dependent on regulatory guidelines that affect our billing practices. If our competitors do not comply with
these regulatory guidelines, our business could be adversely affected.
Aggressive competitors may not fully comply with rules pertaining to documentation required by CMS and other payors
for patient billing. Competitors, who don’t meet the same standards of compliance that we do with regards to billing
regulations, can put us at a potential competitive disadvantage. We are a participating provider with Medicare and under
contract with more than 200 additional insurance plans, all of which have very stringent guidelines. If our competitors do not
comply with these regulatory guidelines, our business could be adversely affected.
We rely on independent suppliers for our products. Any delay or disruption in the supply of products, particularly our supply
of electronic ambulatory pumps, may negatively impact our operations.
Our infusion pumps are obtained from outside vendors. The majority of our new pumps are electronic ambulatory
infusion pumps which are supplied to us by three major suppliers: Smiths Medical, Inc.; Hospira Worldwide, Inc.; and
WalkMed Infusion, LLC (formerly known as McKinley Medical, LLC). The loss or disruption of our relationships with outside
vendors could subject us to substantial delays in the delivery of pumps to customers. Significant delays in the delivery of
pumps could result in possible cancellation of orders and the loss of customers. Our inability to provide pumps to meet
delivery schedules could have a material adverse effect on our reputation in the industry, as well as our financial condition,
results of operations and cash flows.
Although we do not manufacture the products we distribute, if one of the products distributed by us proves to be defective or
is misused by a health care practitioner or patient, we may be subject to liability that could adversely affect our financial
condition and results of operations.
Although we do not manufacture the pumps that we distribute, a defect in the design or manufacture of a pump
distributed by us, or a failure of pumps distributed by us to perform for the use specified, could have a material adverse effect
on our reputation in the industry and subject us to claims of liability for injuries and otherwise. Misuse of the pumps
distributed by us by a practitioner or patient that results in injury could similarly subject us to liability. Any substantial
underinsured loss could have a material adverse effect on our financial condition, results of operations and cash flows.
Furthermore, any impairment of our reputation could have a material adverse effect on our revenues and prospects for future
business.
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Unexpected costs or delays in integrating acquisitions could adversely affect our financial results.
During the year the Company acquired all of the outstanding stock of First Biomedical, and plans to make additional
acquisitions going forward . As a result, we must devote significant management attention and resources to integrating the
business practices and operations . We may encounter difficulties that could harm the businesses, adversely affect our financial
condition, and cause our stock price to decline, including the following:
• We may have difficulty or experience delays in integrating the business and operations;
• We may have difficulty maintaining employee morale and retaining key managers and other employees as we take
steps to combine the personnel and business cultures of separate organizations into one, and to eliminate duplicate
positions and functions; and
• We may have difficulty preserving important relationships with others, such as strategic partners, customers, and
suppliers, who may delay or defer decisions on agreements with us, or seek to change existing agreements with us,
because of the acquisition.
The integration process may divert the attention of our officers and management from day-to-day operations and disrupt
our business, particularly if we encounter these types of difficulties. The failure of the combined company to meet the
challenges involved in the integration process could cause an interruption of or a loss of momentum in the activities of the
combined company and could seriously harm our results of operations.
Even if the operations are integrated successfully, the combined company may not fully realize the expected benefits of
the transaction, including the synergies, cost savings or growth opportunities, whether within the anticipated time frame, or
anytime in the future.
We intend to actively pursue opportunities for the further expansion of our business through strategic alliances, joint
ventures and/or acquisitions. Future strategic alliances, joint ventures and/or acquisitions may require significant resources
and/or result in significant unanticipated costs or liabilities to us.
Over the next two to three years we intend to actively pursue opportunities for the further expansion of our business
through strategic alliances, joint ventures and/or acquisitions. Any future strategic alliances, joint ventures or acquisitions will
depend on our ability to identify suitable partners or acquisition candidates, as the case may be, negotiate acceptable terms for
such transactions and obtain financing, if necessary. We also face competition for suitable acquisition candidates which may
increase our costs. Acquisitions or other investments require significant managerial attention, which may be diverted from our
other operations. Any future acquisitions of businesses could also expose us to unanticipated liabilities.
If we engage in strategic acquisitions, we may experience significant costs and difficulty in assimilating operations or
personnel, which could threaten our future growth.
If we make any acquisitions, we could have difficulty assimilating operations, technologies and products or integrating or
retaining personnel of acquired companies. In addition, acquisitions may involve entering markets in which we have no or
limited direct prior experience. The occurrence of any one or more of these factors could disrupt our ongoing business, distract
our management and employees and increase our expenses. In addition, pursuing acquisition opportunities could divert our
management’s attention from our ongoing business operations and result in decreased operating performance. Moreover, our
profitability may suffer because of acquisition-related costs or amortization of intangible assets. Furthermore, we may have to
incur debt or issue equity securities in future acquisitions. The issuance of equity securities would dilute our existing
stockholders.
Covenants in our debt agreements restrict our business.
The credit agreement that governs our credit facility with Bank of America, N.A. and KeyBank National Association
contains, and the agreements that govern our future indebtedness may contain, covenants that restrict our ability to and the
ability of our subsidiaries to, among other things:
• create, incur, assume or suffer to exist any lien upon any of our property, assets or revenues;
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• make certain investments;
• create, incur, assume or suffer to exist any indebtedness;
• merge, dissolve, liquidate, consolidate all or substantially all of our assets;
• make any disposition or enter into any agreement to make any disposition; and
• declare or make, directly or indirectly, any dividend or other restricted payment, or incur any obligation (contingent
or otherwise) to do so.
Recently adopted healthcare reform legislation may adversely affect our business.
The healthcare industry is undergoing fundamental changes resulting from political, economic and regulatory influences.
In the U.S., comprehensive programs are under consideration that seek to, among other things, increase access to healthcare for
the uninsured and control the escalation of healthcare expenditures within the economy. On March 23, 2010, healthcare
reform legislation (the “Healthcare Legislation”) was approved by Congress and has been signed into law. This legislation has
only recently been enacted and requires the adoption of implementing regulations, which may impact our business. The
Healthcare Legislation could have a material adverse effect on our business, financial condition and results of operations.
If we fail to comply with applicable healthcare regulations, we could face substantial penalties and our business, operations
and financial condition could be adversely affected.
Certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights may be
applicable to our business. We may be subject to healthcare fraud and abuse regulation and patient privacy regulation by both
the federal government and the states in which we conduct our business. The laws that may affect our ability to operate
include:
• the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, soliciting, receiving or
providing remuneration, directly or indirectly, to induce (i) the referral of an individual, for an item or service, or
(ii) the purchasing or ordering of a good or service, for which payment may be made under federal healthcare
programs such as the Medicare and Medicaid programs;
• federal false claims laws which prohibit, among other things, knowingly presenting, or causing to be presented,
claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may
apply to entities like us that promote medical devices, provide medical device management services and may
provide coding and billing advice to customers;
• the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits executing a
scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and
which also imposes certain requirements relating to the privacy, security and transmission of individually
identifiable health information; and
• state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to
items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the
privacy and security of health information in certain circumstances, many of which differ in significant ways from
state to state and often are not preempted by HIPAA, thus complicating compliance efforts.
Additionally, the compliance environment is changing, with more states, such as California and Massachusetts,
mandating implementation of compliance programs, compliance with industry ethics codes, and spending limits, and other
states, such as Vermont, Maine, and Minnesota, requiring reporting to state governments of gifts, compensation and other
remuneration to physicians. Federal legislation, the Physician Payments Sunshine Act of 2009, has been proposed and is
moving forward in Congress. This legislation would require disclosure to the federal government of payments to physicians.
These laws all provide for penalties for
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non-compliance. The shifting regulatory environment, along with the requirement to comply with multiple jurisdictions with
different compliance and reporting requirements, increases the possibility that a company may run afoul of one or more laws.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations
that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or
restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely
affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we
successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from
the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy,
security and fraud laws may prove costly.
We are dependent on key personnel, and the loss of any key employees or officers may have a materially adverse effect on
our operations.
Our success is substantially dependent on the continued services of our executive officers and other key personnel who
generally have extensive experience in our industry. Our future success also will depend in large part upon our ability to
identify, attract and retain other highly qualified managerial, technical and sales and marketing personnel. Competition for
these individuals is intense. The loss of the services of any key employees, or our failure to attract and retain other qualified
and experienced personnel on acceptable terms, could have a material adverse effect on our business and results of operations.
The preparation of our financial statements in accordance with accounting principles generally accepted in the United
States requires us to make estimates, judgments, and assumptions that may ultimately prove to be incorrect.
The accounting estimates and judgments that management must make in the ordinary course of business affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the periods presented. If management misinterprets GAAP, subsequent adjustments resulting from errors could
have a material adverse effect on our operating results for the period or periods in which the change is identified. Additionally,
subsequent adjustments from errors could require us to restate our financial statements. Restating financial statements could
result in a material decline in the price of our stock.
RISK FACTORS RELATING SPECIFICALLY TO OUR COMMON STOCK AND WARRANTS
The market price of our common stock has been, and is likely to remain, volatile and may decline in value.
The market price of our common stock has been and is likely to continue to be volatile. Market prices for securities of
healthcare services companies, including ours, have historically been volatile, and the market has from time to time
experienced significant price and volume fluctuations that appear unrelated to the operating performance of particular
companies. The following factors, among others, can have a significant effect on the market price of our securities:
• announcements of technological innovations, new products, or clinical studies by others;
• government regulation;
• changes in the coverage or reimbursement rates of private insurers and governmental agencies;
• announcements regarding new products or services or strategic alliances or acquisitions;
• developments in patent or other proprietary rights;
• the liquidity of the market for our common stock and warrants;
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• changes in health care policies in the United States or globally;
• global financial conditions; and
• comments by securities analysts and general market conditions.
The realization of any risks described in these “Risk Factors” could also have a negative effect on the market price of our
common stock and warrants.
We do not pay dividends and this may negatively affect the price of our stock.
Under the terms of our credit agreement with Bank of America, N.A. and KeyBank National Association, we are not
permitted to pay dividends on our common stock and do not anticipate paying dividends on our common stock in the
foreseeable future. The future price of our common stock may be adversely impacted because we do not pay dividends.
Future sales of our common stock may depress our stock price.
The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in
the public market, or the perception that these sales could occur. In addition to the shares of our common stock currently
available for sale in the public market, shares of our common stock sold in past private placements (which include shares held
by certain members of our board of directors) and the shares of common stock underlying our outstanding warrants are subject
to registration rights. If the holders of these securities choose to exercise their registration rights, this would result in an
increase in the number of shares of our common stock available for resale in the public market, which in turn could lead to a
decrease in our stock price and a dilution of stockholders’ ownership interests. These factors could also make it more difficult
for us to raise funds through future equity offerings.
Certain anti-takeover provisions in our amended and restated certificate of incorporation and bylaws and the Delaware
General Corporation Law (the DGCL,), as well as our stockholders rights plan, may discourage, delay or prevent a change in
control of our company and adversely affect the trading price of our common stock.
Our amended and restated certificate of incorporation and bylaws and the DGCL contain certain anti-takeover provisions
which may discourage, delay or prevent a change in control of our company that our stockholders may consider favorable and,
as a result, adversely affect the trading price of our common stock. Our amended and restated certificate of incorporation
authorizes our board of directors to issue up to 1,000,000 shares of blank check preferred stock. Our amended and restated
bylaws include provisions establishing advance notice procedures with respect to stockholder proposals and director
nominations and permitting only stockholders holding at least a majority of our outstanding common stock to call a special
meeting. Additionally, as a Delaware corporation, we are subject to section 203 of the DGCL, which, among other things, and
subject to various exceptions, restricts certain business transactions between a corporation and a stockholder owning 15% or
more of the corporation’s outstanding voting stock (“an interested stockholder”) for a period of three years from the date the
stockholder becomes an interested stockholder.
In addition, our board of directors has adopted a stockholder rights plan. This plan would cause the substantial dilution of
the holdings of any person that attempts to acquire us without the approval of our board of directors.
Item 1B. Unresolved Staff Comments.
None.
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Item 2.
Properties.
We do not own any real property. We lease office and warehouse space at the following locations:
Madison Heights
New York
Bennington
Olathe
Santa Fe Springs
Mississauga
MI
NY
VT
KS
CA
Ontario, Canada
We believe that such office and warehouse space is suitable and adequate for our business.
Item 3.
Legal Proceedings.
We are involved in legal proceedings arising out of the ordinary course and conduct of our business, the outcomes of
which are not determinable at this time. We have insurance policies covering such potential losses where such coverage is cost
effective. In our opinion, any liability that might be incurred by us upon the resolution of these claims and lawsuits will not, in
the aggregate, have a material adverse effect on our financial condition, results of operations or cash flows.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is currently traded on the NYSE Amex under the symbol INFU. Our warrants and units are currently
traded on the OTC Bulletin Board under the symbols INHIU.OB and INHIW.OB, respectively. Prior to December 23, 2010, our
common stock was traded on the OTC Bulletin Board under the symbol INHI.OB.
Each warrant entitles the holder to purchase from us one share of our common stock at an exercise price of $5.00. Our
warrants will expire at 5:00 p.m., New York City time, on April 11, 2011, or earlier upon redemption.
The following tables set forth, for the calendar quarter indicated, the quarterly high and low bid information of our
common stock, units and warrants, respectively, as reported on the NYSE Amex or the OTC Bulletin Board, as applicable. The
quotations listed below reflect interdealer prices, without retail markup, markdown or commission and may not necessarily
represent actual transactions.
Common Stock
Quarter ended
December 31, 2010
September 30, 2010
June 30, 2010
March 31, 2010
December 31, 2009
September 30, 2009
June 30, 2009
March 31, 2009
Units*
Quarter ended
December 31, 2010
September 30, 2010
June 30, 2010
March 31, 2010
December 31, 2009
September 30, 2009
June 30, 2009
March 31, 2009
High
$2.70
$2.70
$2.70
$2.85
$3.00
$3.00
$3.25
$2.50
High
$2.05
$1.50
$1.50
$2.45
$2.20
$2.10
$2.10
$2.10
Low
$2.10
$2.05
$2.25
$2.10
$2.15
$2.15
$2.08
$1.52
Low
$2.05
$1.50
$1.50
$2.35
$2.10
$2.10
$2.10
$2.10
* There are 1,650 units outstanding as of December 31, 2010 which are included within common stock in the consolidated
financial statements.
Warrants
Quarter ended
December 31, 2010
September 30, 2010
June 30, 2010
March 31, 2010
December 31, 2009
September 30, 2009
June 30, 2009
March 31, 2009
High
$ .04
$ .08
$ .10
$ .09
$ .10
$ .11
$ .12
$.125
Low
$ .01
$ .02
$ .06
$.053
$ .05
$ .05
$.065
$ .05
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Holders of Common Equity
As of February 16, 2011, we had approximately 359 stockholders of record of our common stock. This does not include
beneficial owners of our common stock, including Cede & Co., nominee of the Depository Trust Company.
Dividends
We have not paid any dividends on our common stock to date. The payment of dividends in the future will be contingent
upon our revenues and earnings, if any, capital requirements and general financial condition. Under the terms of our credit
agreement with Bank of America, N.A. and KeyBank National Association, we are not permitted to pay dividends. It is the
present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our
board of directors does not anticipate declaring any dividends in the foreseeable future.
Equity Compensation Plan Information
The following table provides information as of December 31, 2010 with respect to compensation plans, including
individual compensation arrangements, under which our equity securities are authorized for issuance.
Plan Category
Equity compensation plans approved by security
holders (1)
Equity compensation plans not approved by security
holders (3)
Total
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
Weighted-average
exercise price of
outstanding
options, warrants
and rights (2)
(b)
Number of
securities remaining
available for future
issuance under
equity
compensation plans
(excluding securities
reflected in column
(a))
(c)
191,229
$
2.66
68,437
2,112,500
2,303,729
Not Applicable
2.66
$
Not Applicable
68,437
(1) This amount includes 60,750 shares of common stock issuable upon the vesting of certain restricted stock awards (the
“Restricted Stock Awards”) and 130,479 shares of common stock issuable upon the exercise of a vested stock option
award (the “Stock Option”) made under the InfuSystem Holdings, Inc. 2007 Stock Incentive Plan (the “Plan”). This
amount does not include 237,500 shares of common stock which vested under the terms of the Restricted Stock Awards
during the year ended December 31, 2010. This amount also does not include 1,125,000 shares of common stock issuable
upon the vesting of Restricted Stock Awards granted to directors in 2010, all of which vested prior to December 31, 2010.
(2) Represents the exercise price of the Stock Option.
(3) This amount includes 2,112,500 shares of common stock issuable upon the vesting of certain Restricted Stock Awards
made outside of the Plan during the year ended December 31, 2010. This amount does not include 62,500 shares of
common stock which vested under the terms of the Restricted Stock Awards during the year ended December 31, 2010.
This amount also does not include 50,000 shares of common stock issuable upon the vesting of a Restricted Stock Award
granted to a director in 2010, all of which vested prior to December 31, 2010.
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Stock Performance Graph
The graph set forth below compares the change in the our cumulative total stockholder return on our common stock
between December 29, 2006 and December 31, 2010 with the cumulative total return of the NASDAQ Composite Index and
the NASDAQ Biotechnology Index during the same period. This graph assumes the investment of $100 on December 29, 2006
in our common stock and each of the comparison groups and assumes reinvestment of dividends, if any. We have not paid any
dividends on our common stock, and no dividends are included in the report of our performance. This graph is not “soliciting
material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities
Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in
any such filing.
InfuSystem Holdings, Inc. Common Stock
Nasdaq Composite Index
Nasdaq Biotechnology Index
Recent Sales of Unregistered Securities
None.
Repurchases of Equity Securities
12/31/07
12/29/06
12/31/10
$100.00 $ 74.24 $42.04 $ 39.36 $ 41.68
$100.00 $109.81 $65.29 $ 93.95 $109.84
$100.00 $105.71 $91.38 $105.68 $121.52
12/31/09
12/31/08
As previously announced, our board of directors has authorized a share repurchase program of up to $2 million of our
outstanding common shares. The repurchase program will be funded by our available cash balance.
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Stock repurchases may be made through open market transactions, negotiated purchases or otherwise, at times and in such
amounts as our management deems to be appropriate. The timing and actual number of shares repurchased will depend on a
variety of factors, including price, financing and regulatory requirements, as well as other market conditions. The program
does not require us to repurchase any specific number of shares or to complete the program within a specific period of time.
The following table provides information about our purchased of common stock during the fourth quarter of the year
ended December 31, 2010:
(period)
October 1, 2010 — October 31, 2010
November 1, 2010 — November 30,
2010
December 1, 2010 — December 31,
2010
Total for fourth quarter of 2010
Total Number of
Shares Purchased
—
Average Price
Paid per Share
—
$
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
—
$
—
2.45
2.46
2.46
$
9,574
1,976,000
36,247
45,821
1,887,000
1,887,000
$
9,574
36,247
45,821
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Item 6.
Selected Financial Data.
InfuSystem Holdings, Inc. and Subsidiaries
You should read the following selected financial data together with our financial statements and related notes included in
Item 8 of this Annual Report on Form 10-K, and with “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” included in Item 7 of this Annual Report on Form 10-K. We have derived the statement of operations
data for the years ended December 31, 2010, 2009 and 2008 and the balance sheet data as of December 31, 2010 and 2009
from our audited financial statements, which are included in Item 8 of this Annual Report on Form 10-K. Our historical results
for any period are not necessarily indicative of results to be expected for any future period. The information for InfuSystem
Holdings, Inc. for the year ended December 31, 2007 includes operations for InfuSystem from October 26, 2007 through
December 31, 2007.
Statement of Operations Data (1)
(in thousands, except per share data)
Net revenues
Total operating expenses
Total other (loss) income
Income tax (benefit) expense
Net (loss) income
Net (loss) income per share — basic
Net (loss) income per share — diluted
Balance Sheet Data (at period end) (1)
Year Ended
December 31,
2010
$ 47,229
(48,167)
(2,285)
(1,371)
(1,852)
(0.09)
(0.09)
$
$
Year Ended
December 31,
2009
$ 38,964
(33,636)
(3,577)
(977)
774
0.04
0.04
$
$
Year Ended
December 31,
2008
$ 35,415
(30,629)
6,080
(907)
9,959
0.56
0.53
$
$
Year Ended
December 31,
2007
$
$
$
6,582
(8,079)
(189)
(1,110)
(2,796)
(0.15)
(0.15)
(in thousands)
Total assets
Long-term debt, including current maturities
Stockholders’ equity
December 31,
2010
$ 130,364
32,197
85,086
December 31,
2009
$ 114,690
24,141
81,465
December 31,
2008
$ 116,220
30,669
80,073
December 31,
2007
$ 116,426
32,294
68,759
(1) On October 25, 2007, we completed our acquisition of 100% of the issued and outstanding capital stock of InfuSystem
from I-Flow pursuant to the terms of the Stock Purchase Agreement. InfuSystem’s results of operations are included in our
Consolidated Statements of Operations from the date of the acquisition. For more information, see Note 3 “Acquisitions”
to our Consolidated Financial Statements which are included in this Annual Report on Form 10-K.
Predecessor InfuSystem
The statement of operations data for the period from January 1, 2007 to October 25, 2007 and fiscal year ended
December 31, 2006 and the balance sheet data as of December 31, 2006 was derived from the audited financial statements of
Predecessor InfuSystem, which are not included in this report.
Statement of Operations Data
Net revenues
Cost of revenues
Total operating expenses
Income tax expense
Net income
January 1,
2007 to
October 25,
2007
$ 25,001
6,702
15,673
1,086
1,777
Year Ended
December 31,
2006
$ 31,716
8,455
15,091
3,094
4,963
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Balance Sheet Data (at period end)
Total assets
Stockholders’ equity
December 31,
2006
$ 27,628
22,008
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are the leading provider of infusion pumps and related services. We service hospitals, oncology practices and other
alternate site healthcare providers. Headquartered in Madison Heights, Michigan, we deliver local, field-based customer
support, and also operate Centers of Excellence in Michigan, Kansas, California, and Ontario, Canada.
We supply electronic ambulatory infusion pumps and associated disposable supply kits to oncology practices, infusion
clinics and hospital outpatient chemotherapy clinics. These pumps and supplies are utilized primarily by colorectal cancer
patients who receive a standard of care treatment that utilizes continuous chemotherapy infusions delivered via electronic
ambulatory infusion pumps. We obtain an assignment of insurance benefits from the patient, bill the insurance company or
patient accordingly, and collect payment. We provide pump management services for the pumps and associated disposable
supply kits to over 1,300 oncology practices in the United States, and retain title to the pumps during this process.
We sell or rent new and pre-owned pole mounted and ambulatory infusion pumps to, and provide biomedical
recertification, maintenance and repair services for, oncology practices as well as other alternate site settings including home
care and home infusion providers, skilled nursing facilities, pain centers and others.
On June 15, 2010, we entered into a stock purchase agreement with the shareholders of First Biomedical, Inc. to acquire
all of the issued and outstanding stock of First Biomedical and completed the acquisition for total consideration of $17.4
million. First Biomedical’s results of operations are included in our consolidated statements of operations from the acquisition
date.
First Biomedical sells, rents, services and repairs new and pre-owned infusion pumps and other medical equipment. First
Biomedical also sells a variety of primary and secondary tubing, cassettes, catheters and other disposable items that are
utilized with infusion pumps. Headquartered in Olathe, KS, with additional facilities in California and Toronto, First
Biomedical is a leading provider to alternate site healthcare facilities and hospitals in the United States and Canada.
InfuSystem Holdings, Inc. Results of Operations for the Year ended December 31, 2010 compared to the Year ended
December 31, 2009
Revenues
Our revenue for the year ended December 31, 2010 was $47.2 million, a 21% increase compared to $39.0 million for the
year ended December 31, 2009. The increase in revenues is primarily related to revenues generated by recently acquired First
Biomedical, obtaining business at new customer facilities, as well as deeper penetration into existing customer facilities.
Gross Profit
Gross profit for the year ended December 31, 2010 was $33.5 million, an increase of 17% compared to $28.6 million in
the prior year. It represented 71% of revenues in the current year compared to 73% in the prior
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year. The decrease, as a percentage of revenues, is primarily related to higher pump depreciation and disposal costs, a higher
mix of pump sales and services, including First Biomedical, as compared to third party billings, partially offset by lower
supplies costs.
Provision for Doubtful Accounts
Provision for doubtful accounts for the year ended December 31, 2010 was $4.5 million, compared to $4.0 million for the
year ended December 31, 2009. The provision for doubtful accounts remained consistent at 10% of revenues for the year
ended December 31, 2010, compared to the year ended December 31, 2009.
Amortization of Intangible Assets
Amortization of intangible assets for the year ended December 31, 2010 was $2.3 million, a 28% increase compared to
$1.8 million for the year ended December 31, 2009. The increase is primarily related to additional intangible assets associated
with the acquisition of First Biomedical, as well as amortization of new software.
Selling and Marketing Expenses
For the year ended December 31, 2010, our selling and marketing expenses were $7.1 million compared to $5.3 million
for the year ended December 31, 2009. Selling and marketing expenses during these periods consisted of sales salaries,
commissions and associated fringe benefit and payroll-related items, marketing, share-based compensation, travel and
entertainment and other miscellaneous expenses. The increase in expenses is primarily related to expenses incurred by recently
acquired First Biomedical. As compared to the prior year, these expenses increased from 13% to 15% of revenues for the year
ended December 31, 2010.
General and Administrative Expenses
During the year ended December 31, 2010, our general and administrative expenses were $20.6 million, compared to
$12.2 million for the year ended December 31, 2009. The increase is primarily related to an increase in share-based
compensation, expenses incurred at recently acquired First Biomedical, and costs associated with the acquisition of First
Biomedical. General and administrative expenses during these periods consisted primarily of administrative personnel salaries,
fringe benefits and payroll-related items, professional fees, share-based compensation, insurance and other miscellaneous
expenses. General and administrative expenses have increased from 31% to 44% of revenues for the year ended December 31,
2010 compared to the same period in the prior year. The increase as a percentage of revenue is primarily related to an increase
in share-based compensation expense.
Other Income and Expenses
During the year ended December 31, 2010, we recorded a gain on derivatives of $207 thousand, compared to a loss of $78
thousand during the year ended December 31, 2009. Included in the year ended December 31, 2010 gain was an unrealized
gain from the change in fair value of our warrants, a realized loss recorded in connection with the warrant exchange, and a
realized gain on the termination of our prior interest rate swap, whereas the year ended December 31, 2009 loss included an
unrealized loss from the change in the fair value of our warrants and an unrealized gain from the change in the fair value of the
interest rate swap that was in place at the time. For more information, refer to the discussion under “Summary of Significant
Accounting Policies — Warrants and Derivative Financial Instruments” included in Note 2 and “Warrants and Derivative
Financial Instruments” included in Note 6 to our Consolidated Financial Statements included in this Annual Report on Form
10-K.
During the year ended December 31, 2010, we recorded interest expense of $3.4 million, compared to $3.5 million for the
year ended December 31, 2009. These amounts consist primarily of interest paid on our term
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loans, cash payments associated with our terminated and new interest rate swaps, amortization of deferred debt issuance costs
and interest expense on capital leases. The decrease is primarily related to a lower interest rate of the new term loan as well as a
lower swap rate. These were offset by a one-time expensing of all of the remaining I-Flow deferred debt issuance costs and an
increase in capital leases.
During the year ended December 31, 2010, we recorded income tax benefit of $1.4 million, compared to an expense of
$977 thousand for the year ended December 31, 2009. The effective tax rate for the year ended December 31, 2010 was
47.21%, compared to 55.43% for the year ended December 31, 2009. The effective tax rate of 47.21% for the year ended
December 31, 2010, as compared to the statutory rate of 34%, is primarily driven by permanent items including the current
change in the valuation allowance on net deferred tax assets, the change in the net deferred tax liability on indefinite-lived
goodwill and various state tax expenses. Refer to the discussion under “Summary of Significant Accounting Policies —
Income Taxes” included in Note 2 and “Income Taxes” included in Note 8 to our Consolidated Financial Statements included
in this Annual Report on Form 10-K.
Inflation
Management believes that there has been no material effect on our operations or financial condition as a result of
inflation or changing prices of our ambulatory infusion pumps during the period from December 31, 2009 through
December 31, 2010.
InfuSystem Holdings, Inc. Results of Operations for the Year ended December 31, 2009 compared to the Year ended
December 31, 2008
Revenues
Our revenue is predominantly derived from our rental of ambulatory infusion pumps which are primarily used for
continuous infusion of chemotherapy drugs for patients with colorectal cancer. Our revenue for the year ended December 31,
2009 was $39.0 million, an 11% improvement compared to $35.4 million for the year ended December 31, 2008. The increase
in revenues is primarily due to obtaining business at new customer facilities, improved operational efficiency tools which led
to successful billing of older or delayed documentation, as well as increased reimbursement.
Gross Profit
Gross profit for the year ended December 31, 2009 was $28.6 million, up 9% compared to $26.2 million for the year
ended December 31, 2008. It represented 73% of revenues for the year ended December 31, 2009 compared to 74% for the year
ended December 31, 2008. The decrease, as a percent of revenues, was primarily related to increased revenues, as well as higher
pump repair and maintenance costs, offset by lower freight costs as compared to the prior period.
Amortization of Intangible Assets
Amortization of intangible assets for the year ended December 31, 2009 was $1.8 million, which was identical to the
amount recognized for the year ended December 31, 2008. This represents the annual amortization expense associated with
our Physician Relationships, which we amortize over 15 years.
Provision for doubtful accounts
Provision for doubtful accounts for the year ended December 31, 2009 was $4.0 million, compared to $3.2 million for the
year ended December 31, 2008. The provision for doubtful accounts has increased slightly from 9% to 10% of revenues for the
year ended December 31, 2009, compared to the year ended December 31, 2008. The increase, as a percentage of revenue, is
directly related to a slight increase in the mix of billings directly to patients, as compared to billings to third-party payors.
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Selling and Marketing Expenses
For the year ended December 31, 2009, our selling and marketing expenses were $5.3 million, compared to $4.7 million
for the year ended December 31, 2008. Selling and marketing expenses during these periods consisted of sales salaries,
commissions and associated fringe benefit and payroll-related items, travel and entertainment, marketing, share-based
compensation, and other miscellaneous expenses. These expenses have remained fairly consistent as a percentage of revenues,
at approximately 13% for the years ended December 31, 2009 and 2008.
General and Administrative Expenses
During the year ended December 31, 2009, our general and administrative expenses were $12.2 million, compared to
$11.8 million for the year ended December 31, 2008. General and administrative expenses during these periods consisted
primarily of administrative personnel, including management and officers’ salaries, fringe benefits and payroll-related items,
professional fees, share-based compensation, insurance (including directors’ and officers’ insurance) and other miscellaneous
expenses. The expenses in total have decreased slightly from 33% to 31% of revenues for the year ended December 31, 2009,
compared to the year ended December 31, 2008. The decrease, as a percentage of revenues, for the year ended December 31,
2009 is primarily driven by a decrease in stock based compensation and a decrease in professional fees primarily related to
significant efficiencies associated with the preparation and audit of our Annual Report on Form 10-K. These decreases were
partially offset by the recognition of Steve Watkins’, our former CEO, compensation and benefits in accordance with his
separation agreement.
Other Income and Expenses
During the year ended December 31, 2009, we recorded a loss on derivatives of $78 thousand, compared to a gain of $9.8
million during the year ended December 31, 2008. These amounts represent an unrealized (loss) gain which resulted from the
change in the fair value of our warrants, combined with an unrealized gain (loss) resulting from the change in the fair value of
our single interest rate swap.
During the year ended December 31, 2009, we recorded interest expense of $3.5 million, compared to $3.8 million for the
year ended December 31, 2008. These amounts consist of interest paid to Kimberly-Clark (formerly I-Flow) on our term loan,
the amortization of deferred debt issuance costs incurred in conjunction with the loan, expense associated with the interest rate
swap and interest expense on capital leases for ambulatory pumps. The decrease is primarily the result of a decrease in interest
expense on the term loan with Kimberly-Clark (formerly I-Flow). This was the result of a decrease in the outstanding balance
due to significant principal payments made during the year ended December 31, 2009. This was partially offset by higher cash
payments associated with our single interest rate swap, due to the LIBOR rate being significantly lower during the year ended
December 31, 2009 as compared to the year ended December 31, 2008. The decrease was also partially offset by interest
expense related to new capital leases that we entered into during the year to finance the purchase of ambulatory pumps.
During the year ended December 31, 2009, we recorded income tax expense of $977 thousand, compared to $907
thousand for the year ended December 31, 2008. The effective tax rate for the year ended December 31, 2009 was 55.43%,
compared to 8.34% for the year ended December 31, 2008. The effective tax rate of 55.4% for the year ended December 31,
2009, as compared to the statutory rate of 34%, is primarily driven by permanent items including the current change in the
valuation allowance on net deferred tax assets, the change in the net deferred tax liability on indefinite-lived goodwill and
various state tax expenses.
Liquidity and Capital Resources
As of December 31, 2010 we had cash resources of $5.0 million compared to $7.8 million at December 31, 2009. The
decrease in cash was primarily related to cash used for the acquisition of First Biomedical, partially offset by an increase in
outstanding term debt and positive cash flows from operating activities.
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Cash provided by operating activities for the year ended December 31, 2010 was $10.8 million, compared to cash
provided by operating activities of $9.7 million for the year ended December 31, 2009. The increase is primarily attributable
to higher revenues and earnings, not including non-cash items such as stock based compensation and depreciation.
Cash used in investing activities for the year ended December 31, 2010 was $19.1 million, compared to $4.6 million for
the year ended December 31, 2009. The increase is primarily related to cash paid for the acquisition of First Biomedical,
partially offset by lower purchases of infusion pumps, more extensive use of capital leases, as a percentage of acquisitions, to
acquire such equipment, and the non-repeat of first half 2009 expenditures associated with both moving our office facilities
and investments in customized software.
Cash provided by financing activities for the year ended December 31, 2010 was $5.5 million, compared to cash used in
financing activities of $8.9 million for the year ended December 31, 2009. The increase is primarily related to an increase in
outstanding term debt, partially offset by upfront costs associated with our new credit facilities and higher principal payments
associated with capital leases.
Management believes the current funds, together with expected cash flows from ongoing operations as well as the $4.9
million available on the revolving credit facility from Bank of America referred to below, are sufficient to fund our current
operations for at least the next 12 months.
On June 15, 2010, we entered into a credit facility with Bank of America, N.A. as Administrative Agent, and KeyBank
National Association as Documentation Agent. The facility consists of a $30.0 million term loan and a $5.0 million revolving
credit facility, both of which mature in June 2014. Interest on the term loan is payable at our choice of LIBOR plus 4.5%, or
the Bank of America prime rate plus 3.5%. As of December 31, 2010, interest was payable at LIBOR plus 4.5%, which equaled
approximately 4.76%.
Proceeds from the new term loan were used to repay the outstanding balance of our debt held by Kimberly-Clark (I-Flow),
as well as contribute to the acquisition consideration for First Biomedical. As of December 31, 2010, the Company had a letter
of credit in the amount of $81 thousand outstanding, leaving $4.9 million available on its revolving credit facility.
The Bank of America term loan is collateralized by substantially all of our assets and requires us to comply with
covenants principally relating to satisfaction of a total leverage ratio, a fixed charge coverage ratio, and an annual limit on
capital expenditures. As of December 31, 2010, we believe we were in compliance with all such covenants.
Contractual Obligations
As of December 31, 2010, future payments related to contractual obligations are as follows:
Debt obligations
Capital Lease Obligations
Operating Lease Obligations
Total
Less than
1 Year
$ 4,500
1,051
481
$ 6,032
1 to 3
Years
Payment Due by Period (1) (2)
3 to 5
Years
(Amounts in Thousands)
$14,625
216
395
$15,236
$ 9,569
2,236
596
$12,401
More than
5 Years
$ —
—
—
$ —
Total
$28,694
3,503
1,472
$33,669
(1) The table above does not include any potential payout to Kimberly-Clark (formerly I-Flow) associated with the earn-out
provision in the Stock Purchase Agreement. For more information, refer to the discussion under “Acquisitions” included
in Note 3 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
(2) The table above does not include any interest payments associated with our variable rate term debt. For more information,
refer to the discussion under “Debt and other Long-term Obligations” included in Note 7 to our Consolidated Financial
Statements included in this Annual Report on Form 10-K.
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Included in the operating lease obligations are future minimum lease payments as of December 31, 2010 under various
lease agreements we have entered into for office space.
Contingent Liabilities
We do not have any contingent liabilities.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions
and judgments that affect the amounts reported in the financial statements, including the notes thereto. We consider critical
accounting policies to be those that require more significant judgments and estimates in the preparation of our consolidated
financial statements, including the following: revenue recognition, which includes contractual allowances; accounts
receivable and allowance for doubtful accounts; warrants and derivative financial instruments; income taxes; and goodwill
valuation. Management relies on historical experience and other assumptions believed to be reasonable in making its
judgment and estimates. Actual results could differ materially from those estimates.
Management believes its application of accounting policies, and the estimates inherently required therein, are reasonable.
These accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances
dictate a change.
Our accounting policies are more fully described under the heading “Summary of Significant Accounting Policies” in
Note 2 to our Consolidated Financial Statements included in this Annual Report on Form 10-K. We believe the following
critical accounting estimates are the most significant to the presentation of our financial statements and require the most
difficult, subjective and complex judgments:
Revenue Recognition
The majority of our revenue is rental revenue in the oncology market. Revenues are recognized predominantly under fee
for service arrangements through equipment that we rent to patients. We recognize revenue only when all of the following
criteria are met: 1) persuasive evidence of an arrangement exists; 2) services have been rendered; 3) the price to the customer is
fixed or determinable; and 4) collectability is reasonably assured. Persuasive evidence of an arrangement is determined to
exist, and collectability is reasonably assured, when 1) we receive a physician’s written order and assignment of benefits,
signed by the physician and patient, respectively, and 2) we have verified actual pump usage and 3) we receive patient
acknowledgement of assignment of benefits. We recognize rental revenue from electronic infusion pumps as earned, normally
on a month-to-month basis. Pump rentals are billed at our established rates, which often differ from contractually allowable
rates provided by third-party payors such as Medicare, Medicaid and commercial insurance carriers. All billings to third party
payors are recorded net of provision for contractual adjustments to arrive at net revenues.
Due to the nature of the industry and the reimbursement environment in which we operate, certain estimates are required
to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they
will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-
party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in
adjustments to amounts originally recorded. Due to continuing changes in the health care industry and third-party
reimbursement, it is possible that management’s estimates could change in the near term, which could have an impact on our
results of operations and cash flows.
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Our largest payor is Medicare, which accounted for approximately 31% of our gross billings for the year ended
December 31, 2010. We have contracts with various individual Blue Cross/Blue Shield affiliates which in the aggregate
accounted for approximately 23% of our gross billings for the year ended December 31, 2010. No individual payor, other than
Medicare and the Blue Cross/Blue Shield entities accounts for greater than 6% of our gross billings.
We recognize revenue for selling, renting and servicing new and pre-owned infusion pumps and other medical equipment
to oncology practices as well as other alternate site settings including home care and home infusion providers, skilled nursing
facilities, pain centers and others, when 1) persuasive evidence of an arrangement exists; 2) services have been rendered; 3) the
price to the customer is fixed or determinable; and 4) collectability is reasonably assured. We perform an analysis to estimate
sales returns and record an allowance. This estimate is based on historical sales returns.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are reported at the estimated net realizable amounts from patients, third-party payors and other direct
pay customers for goods provided and services rendered. We perform periodic analyses to assess the accounts receivable
balances and record an allowance for doubtful accounts based on the estimated collectability of the accounts such that the
recorded amounts reflect estimated net realizable value. Upon determination that an account is uncollectible, the account is
written-off and charged to the allowance.
Accounts receivable are reduced by an allowance for amounts that could become uncollectible in the future. Our estimate
for allowance for doubtful accounts is based upon management’s assessment of historical and expected net collections by
payor. Due to continuing changes in the health care industry and third-party reimbursement it is possible that management’s
estimates could change in the near term, which could have an impact on its financial position, results of operations, and cash
flows.
Following is an analysis of the allowance for doubtful accounts for InfuSystem Holdings, Inc. for the years ended
December 31, 2010, 2009 and 2008 ($000’s):
Allowance for doubtful accounts — 2010
Allowance for doubtful accounts — 2009
Allowance for doubtful accounts — 2008
Balance at
beginning
of Period
$ 1,842
$ 1,552
$ 1,638
Acquired
in acquisition
37
$
—
—
Charged
to costs and
expenses
4,515
4,006
3,187
$
$
$
Deductions (1)
(4,598)
$
(3,716)
$
(3,273)
$
Balance
at end of
Period
$1,796
$1,842
$1,552
(1) Deductions represent the write-off of uncollectible account receivable balances.
Warrants and Derivative Financial Instruments
On April 18, 2006, we consummated our initial public offering (IPO) of 16,666,667 units. Each unit consists of one share
of common stock and two redeemable common stock purchase warrants. Each warrant entitles the holder to purchase from us
one share of our common stock at an exercise price of $5.00. On May 18, 2006, we sold an additional 208,584 units (the
“Overallotment Units”) to FTN Midwest Securities Corp., the underwriter of our IPO (FTN Midwest), pursuant to a partial
exercise by FTN Midwest of its overallotment option. The Warrant Agreement provides for us to register the shares underlying
the warrants in the absence of our ability to deliver registered shares to the warrant holders upon warrant exercise.
ASC 815 requires freestanding derivative contracts that are settled in a company’s own stock, including common stock
warrants, to be designated as equity instruments, assets or liabilities. Under the provisions of this standard, a contract
designated as an asset or a liability must be carried at its fair value on a company’s balance sheet, with any changes in fair
value recorded in the company’s results of operations. A contract designated as an equity instrument must be included within
equity, and no fair value adjustments are required from period to period.
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On February 16, 2010 we announced an Offer to Exchange common stock for outstanding warrants. At the time, we had
35,108,219 outstanding warrants. The exchange offer expired on March 17, 2010. Holders of our warrants had the option to
exchange their warrants for either One (1) share of Common Stock for every thirty-five (35) Warrants tendered, or One (1) share
of Common Stock for every twenty-five (25) Warrants tendered, provided the recipient agreed to be subject to a lock-up
provision precluding transfer of the shares of Common Stock received for six months following the expiration of the Exchange
Offer. The lock-up provision expired in September 2010. Based on the final count, 25,635,723 Warrants were properly
tendered; 24,766,700 were tendered for shares of Common Stock subject to a lock-up, and 869,023 were tendered for
unrestricted shares of Common Stock. Under the terms of the Exchange Offer, we issued an aggregate 1,015,489 shares of
Common Stock in exchange for the tendered Warrants. After the exchange, there are 8,329,638 publicly held warrants and
1,142,858 privately held warrants outstanding.
In accordance with ASC 815, the 8,329,638 remaining warrants issued in connection with the IPO and overallotment to
purchase common stock must be settled in registered shares and are separately accounted for as liabilities as discussed in Note
6. The fair value of these warrants is shown on our balance sheet and the unrealized changes in the value of these warrants are
shown in our statement of operations as “Gain (loss) on derivatives.” These warrants are freely traded on the “Over the Counter
Bulletin Board.” Consequently, the fair value of these warrants is estimated as the market price of the warrant at each period
end. To the extent the market price increases or decreases, our warrant liabilities will also increase or decrease with a
corresponding impact on the Company’s results of operations within “Gain (loss) on derivatives”.
Sales of warrants that can be settled in unregistered shares of common stock, as discussed in Note 10, are treated as equity
and included in additional paid in capital. The total warrants issued to date that can be settled in unregistered shares of
common stock are 1,142,858 at an issue price of $.70 per warrant or a total issue price of $800 thousand.
ASC 815 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value.
Cash Flow Hedge
We are exposed to risks associated with future cash flows related to the variability of the interest rate on its term loan with
Bank of America. In order to manage the exposure of these risks, we enter into interest rate swaps. On July 20, 2010, we entered
into a single interest rate swap and designated the swap as a cash flow hedge. In accordance with ASC 815, the fair value of the
swap is shown on our consolidated balance sheet within derivative liabilities, unrealized changes in the fair value are included
in accumulated other comprehensive loss within the stockholders’ equity section on our consolidated balance sheet, and any
realized changes would be included in our consolidated statement of operations within interest expense.
Income Taxes
We account for income taxes in accordance with ASC 740, “Income Taxes,” which requires that we recognize deferred tax
liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and
liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax (expense)
benefit results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in
the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized. For more
information, refer to the “Income Taxes” discussion included in Note 8.
Goodwill Valuation
Goodwill arising from business combinations represents the excess of the purchase price over the estimated fair value of
the net assets of the businesses acquired.
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In accordance with the provisions of ASC 350, “Intangibles – Goodwill and Other,” goodwill is tested annually for
impairment or more frequently if circumstances indicate the possibility of impairment. Significant judgments required to
estimate fair value include estimating future cash flows, and determining appropriate discount rates, growth rates and other
assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value which could
trigger impairment. We performed the annual impairment test at October 31, 2010, and determined there was no impairment of
goodwill. The fair value of the Company’s single reporting unit was estimated using a valuation model that combined an
income and market approach, utilizing the discounted cash flow and guideline public company methods, respectively, which
indicated that the fair value of its net assets exceeded the carrying value by less than 10%. No events have occurred
subsequent to October 31, 2010 that indicates impairment may have occurred.
The relationship of the Company’s market capitalization to the carrying value of its net assets can impact estimates of
these assumptions, and can therefore impact the Company’s judgment as to the fair value of its reporting unit when performing
goodwill impairment tests. During 2010, the Company’s market capitalization remained fairly consistent with such experience
in 2009. The Company evaluated the movement in its stock price along with its 2010 performance relative to expectations. In
addition, the Company assessed several unique factors; a thinly traded, closely held, illiquid stock, an “overhang” created by
having a significant amount of warrants outstanding (see Note 6), and a limited research or analyst coverage. The implied
control premium was within the range of market control premiums paid in transactions of companies in the healthcare industry
during the past three years. Based on this evaluation, the Company concluded that neither the market capitalization at
October 31, 2010, nor the change vs. the prior year, were definitive indicators of impairment.
As the Company’s warrants expire in April 2011 and its common stock was listed on the NY AMEX in December 2010,
the Company will monitor the impact of these factors as well as control premiums for healthcare transactions, operational
performance measures, general economic conditions and its market capitalization. A downward trend in one or more of these
factors could cause the Company to reduce the estimated fair value of its reporting unit and recognize a corresponding
impairment of goodwill in connection with a future goodwill impairment test.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
At December, 2010, the principal plus accrued interest on our term loan with Bank of America was $28.1 million. The
term loan bears interest at LIBOR plus 4.5% or the Bank of America prime rate plus 3.5%, at our option. The loan is a variable
rate loan and therefore fair value approximates book value. See Note 7 to our Consolidated Financial Statements included in
this Annual Report on Form 10-K for further discussion of our term loan with Bank of America.
We are exposed to interest rate fluctuations on our underlying variable rate long-term debt. We utilize a single interest
rate swap agreement to moderate approximately 65% of such exposure. We do not use derivative financial instruments for
trading or other speculative purposes.
Based on the term loans and interest rate swaps outstanding, a decrease in LIBOR to zero (which is less than a 100 basis
point decrease) and a 100 basis point decrease in the Bank of America prime rate would have increased our cash flow and
pretax earnings by approximately $52 thousand for the year ended December 31, 2010. A 100 basis point increase in LIBOR
and the Bank of America prime rate would have decreased our cash flow and pretax earnings year ended December 31, 2010 by
approximately $14 thousand.
We have classified certain warrants as derivative liabilities, which resulted in a liability of $83 thousand at December 31,
2010. We classified the warrants as derivative liabilities because there is a possibility that we may be required to settle the
warrants in registered shares of common stock. We are required to compare the fair market value of these instruments from the
date of the initial recording to their fair market value as of the end of each reporting period and to reflect the change in fair
market value in our Consolidated Statements of Operations as a gain or loss for the applicable period.
30
Table of Contents
Item 8.
Financial Statements and Supplementary Data.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets for the years ended December 31, 2010 and December 31, 2009
Consolidated Statements of Operations for the years ended December 31, 2010, December 31, 2009 and December 31,
2008
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010, December 31, 2009 and
December 31, 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2010, December 31, 2009 and
December 31, 2008
Notes to Consolidated Financial Statements
31
Page
32
33
34
35
36
38
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
InfuSystem Holdings, Inc.
Madison Heights, Michigan
We have audited the accompanying consolidated balance sheets of InfuSystem Holdings, Inc. and subsidiaries (the
“Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ equity,
and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
InfuSystem Holdings, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally
accepted in the United States of America.
/S/ DELOITTE & TOUCHE LLP
Detroit, Michigan
March 10, 2011
32
Table of Contents
(in thousands, except share data)
ASSETS
Current Assets:
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2010
December 31,
2009
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $1,796 and $1,842 at
$
5,014
$
7,750
December 31, 2010 and 2009, respectively
Inventory
Prepaid expenses and other current assets
Deferred income taxes
Total Current Assets
Property & equipment, net
Deferred debt issuance costs, net
Goodwill
Intangible assets, net
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Accrued expenses and other current liabilities
Derivative liabilities
Current portion of long-term debt
Total Current Liabilities
Long-term debt, net of current portion
Deferred income taxes
Other liabilities
Total Liabilities
Commitments and Contingencies
Stockholders’ Equity
Preferred stock, $.0001 par value: authorized 1,000,000 shares; none issued
Common stock, $.0001 par value; authorized 200,000,000 shares; issued 21,163,337 and
18,734,144, respectively; outstanding 21,117,516 and 18,734,144, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained (deficit) earnings
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to consolidated financial statements.
33
6,679
1,699
750
1,147
15,289
16,672
658
64,092
33,252
401
$ 130,364
$
2,016
4,631
183
5,551
12,381
26,646
5,788
406
$ 45,221
—
5,517
925
395
125
14,712
13,499
781
56,580
28,911
207
$ 114,690
$
1,306
1,573
2,670
5,501
11,050
18,640
3,314
221
$ 33,225
—
—
—
2
87,004
(64)
(1,799)
85,143
$ 130,364
2
81,410
—
53
81,465
$ 114,690
Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Net revenues
Cost of revenues:
Product, service and supply costs
Pump depreciation, sales and disposals
Gross profit
Sales, general and administrative expenses:
Provision for doubtful accounts
Amortization of intangibles
Selling and marketing
General administrative
Total sales, general and administrative expenses
Operating (loss) income
Other (loss) income:
Gain (loss) on derivatives
Interest expense
Gain on extinguishment of long-term debt
Other expense
Total other (loss) income
(Loss) income before income taxes
Income tax benefit (expense)
Net (loss) income
Net (loss) income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Year Ended
December 31,
2010
Year Ended
December 31,
2009
Year Ended
December 31,
2008
$
47,229
$
38,964
$
35,415
7,730
5,954
33,545
4,515
2,259
7,087
20,622
34,483
(938)
207
(3,352)
1,118
(258)
(2,285)
(3,223)
1,371
(1,852)
(0.09)
(0.09)
$
$
$
6,200
4,127
28,637
4,006
1,827
5,258
12,218
23,309
5,328
(78)
(3,499)
—
—
(3,577)
1,751
(977)
774
0.04
0.04
$
$
$
5,422
3,769
26,224
3,187
1,827
4,659
11,765
21,438
4,786
9,815
(3,735)
—
—
6,080
10,866
(907)
9,959
0.56
0.53
$
$
$
19,721,378
19,721,378
18,609,797
18,931,356
17,940,952
18,672,321
See accompanying notes to consolidated financial statements.
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Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
Common Stock
Treasury Stock
(in thousands, except share data)
Balances at January 1, 2008
Gross restricted shares issued upon
vesting
Amortization of stock-based
compensation expense
Issuance of treasury stock for
Par Value
$0.0001
Amount
Paid in
Capital
in Excess
of Par
Retained
(Deficit)
Earnings
Accumulated
Other
Comprehensive
Loss
2 $79,437 $(10,680) $
Shares
18,316
Shares Amount
— (1,491) $ — $
Total
Stockholders’
Equity
68,759
275 — —
—
— — —
—
— — 1,550
—
— — —
1,550
services
— — —
—
—
257 —
—
Common stock repurchased to
satisfy minimum statutory
withholding on stock-based
compensation
Net income
Balances at December 31, 2008
Gross restricted shares issued upon
(78) —
(195)
— — —
2 $80,792 $
18,513
—
9,959
(721) $
— — —
— — —
— (1,234) $ — $
(195)
9,959
80,073
vesting
265 — —
—
— — —
—
Common stock issued to employees
Amortization of stock-based
compensation expense
Issuance of treasury stock for
8
— —
753
—
— — —
753
services
— — —
—
— 1,234 —
—
Common stock repurchased to
satisfy minimum statutory
withholding on stock-based
compensation
Net income
Balances at December 31, 2009
Gross restricted shares issued upon
(52) —
(135)
— — —
2 $81,410 $
18,734
—
774
53 $
— — —
— — —
— — $ — $
(135)
774
81,465
vesting
1,476 — —
—
— — —
—
5
Common stock issued to employees
Shares issued from warrant exchange 1,015
Amortization of stock-based
compensation expense
Treasury shares repurchased
Common stock repurchased to
satisfy minimum statutory
withholding on stock-based
compensation
Net loss
Comprehensive loss
Balances at December 31, 2010
2,015
— — 3,860
(114)
— —
—
—
— — —
(46) —
—
—
(1,852)
— — —
— —
(67) —
(167)
— — —
21,163
2 $87,004 $ (1,799) $
(64)
(64)
(46) $ — $
2,015
3,860
(114)
(167)
(1,852)
(64)
85,143
See accompanying notes to consolidated financial statements.
35
Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
OPERATING ACTIVITIES
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
(Gain) loss on derivative liabilities
(Gain) on extinguishment of long-term debt
Provision for doubtful accounts
Depreciation
Loss on disposal of pumps
Amortization of intangible assets
Amortization of deferred debt issuance costs
Stock-based compensation
Deferred income taxes
Changes in assets and liabilities, exclusive of effects of acquisitions:
(Increase) in accounts receivable, net of provision
(Increase) decrease in other current assets
(Increase) in other assets
Increase (decrease) in accounts payable and other liabilities
(Decrease) in derivative liabilities from termination of interest
rate swap
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Cash paid for acquisition, net of cash acquired
Proceeds from sale of property
Payment of deferred acquisition costs
Cash received for acquisition from I-Flow
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Principal payments on term loan
Cash proceeds from term loan
Capitalized debt issuance costs
Common stock repurchased to satisfy minimum statutory
withholding on stock-based compensation
Treasury shares repurchased
Principal payments on capital lease obligations
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
36
Year Ended
December 31,
2010
Year Ended
December 31,
2009
Year Ended
December 31,
2008
$
(1,852)
$
774
$
9,959
(207)
(1,118)
4,515
5,357
994
2,259
980
3,860
(1,236)
(3,948)
(506)
(173)
2,252
(365)
10,812
(2,444)
(16,616)
—
—
—
(19,060)
(22,623)
30,000
(808)
(167)
(68)
(822)
5,512
(2,736)
7,750
5,014
78
—
4,006
4,122
342
1,827
495
753
2,254
(5,355)
(253)
(207)
872
—
9,708
(4,612)
—
1
—
—
(4,611)
(8,565)
—
—
(9,815)
—
3,187
3,935
553
1,827
642
1,550
935
(1,835)
560
—
(601)
—
10,897
(1,733)
—
10
(105)
784
(1,044)
(2,044)
—
—
(135)
—
(160)
(8,860)
(3,763)
11,513
7,750
$
(195)
—
(61)
(2,300)
7,553
3,960
$ 11,513
Table of Contents
The following table presents certain supplementary cash flow information for the years ended December 31, 2010, 2009
and 2008:
(in thousands)
Cash paid for interest (including swap payments)
Cash paid for income taxes
Supplementary non-cash activities:
Property acquired with a capital lease
Tender offer to exchange warrants
Additions to property (a)
Origination of seller note (b)
Current assets assumed in acquisition (b)
Current liabilities assumed in acquisition (b)
Deferred tax liability assumed in acquisition (b)
Deferred tax asset assumed in acquisition (b)
Treasury stock transactions (number of shares)
Gross issuance of vested restricted shares (number of shares)
Year Ended
December 31,
2010
Year Ended
December 31,
2009
Year Ended
December 31,
2008
$
$
$
$
$
$
$
$
$
$
2,372
21
1,869
2,016
903
750
2,352
438
2,754
30
46
1,476
$
$
$
$
$
$
$
$
$
$
2,933
18
2,198
—
291
—
—
—
—
—
1,234
265
$
$
$
$
$
$
$
$
$
$
3,115
533
480
—
14
—
—
—
—
—
257
275
(a) Amounts consist of current liabilities for net property that have not been included in investing activities. These amounts
have not been paid for as of December 31, 2010, 2009 and 2008 but will be included as a cash outflow when paid.
(b) See Note 3 — “Acquisitions”
See accompanying notes to consolidated financial statements.
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Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Nature of Operations
The information in this Annual Report on Form 10-K includes the financial position of InfuSystem Holdings, Inc. and its
consolidated subsidiaries (the “Company”) as of December 31, 2010 and 2009, the results of its operations and cash flows for
the years ended December 31, 2010, 2009 and 2008, and stockholders’ equity from January 1, 2008 to December 31, 2010. In
the opinion of the Company, the consolidated statements for the all periods presented include all adjustments, consisting of
normal recurring adjustments, necessary to present a fair statement of the results for such periods.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). All intercompany accounts and transactions have been
eliminated.
The Company is the leading provider of infusion pumps and related services. The Company services hospitals, oncology
practices and other alternate site healthcare providers. Headquartered in Madison Heights, Michigan, the Company delivers
local, field-based customer support, and also operates pump repair Centers of Excellence in Michigan, Kansas, California, and
Ontario, Canada.
On June 15, 2010, the Company entered into a stock purchase agreement with the shareholders of First Biomedical, Inc.,
(First Biomedical) a Kansas corporation, to acquire all of the issued and outstanding stock of First Biomedical and completed
the acquisition simultaneously. First Biomedical sells, rents, services and repairs new and pre-owned infusion pumps and other
medical equipment. First Biomedical also sells a variety of primary and secondary tubing, cassettes, catheters and other
disposable items that are utilized with infusion pumps. For more information, refer to the “Acquisition” discussion included in
Note 3.
The Company supplies electronic ambulatory infusion pumps and associated disposable supply kits to oncology
practices, infusion clinics and hospital outpatient chemotherapy clinics. These pumps and supplies are utilized primarily by
colorectal cancer patients who receive a standard of care treatment that utilizes continuous chemotherapy infusions delivered
via electronic ambulatory infusion pumps. The Company obtains an assignment of insurance benefits from the patient, bills
the insurance company or patient accordingly, and collects payment. The Company provides pump management services for
the pumps and associated disposable supply kits to over 1,300 oncology practices in the United States. The Company retains
title to the pumps during this process.
In addition, the Company sells or rents new and pre-owned pole mounted and ambulatory infusion pumps to, and
provides biomedical recertification, maintenance and repair services for oncology practices as well as other alternate site
settings including home care and home infusion providers, skilled nursing facilities, pain centers and others. The Company
also provides these products and services to customers in the small-hospital market.
The Company purchases new and pre-owned pole mounted and ambulatory infusion pumps from a variety of sources on a
non-exclusive basis. The Company repairs, refurbishes and provides biomedical certification for the devices as needed. The
pumps are then available for sale, rental or to be used within the Company’s ambulatory infusion pump management service.
2.
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all wholly owned organizations. All
intercompany transactions and account balances have been eliminated in consolidation.
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Table of Contents
Segments
The Company operates in one business segment based on management’s view of its business for purposes of evaluating
performance and making operating decisions, representing the only reportable segment in accordance with Accounting
Standard Codification (“ASC”) 280, “Segment Reporting.”
The Company utilizes shared services including but not limited to, human resources, payroll, finance, sales, pump repair
and maintenance services, as well as certain shared assets and sales, general and administrative costs. The Company is in the
process of transitioning more shared services and synergies since the acquisition of First Biomedical. The Company’s
approach is to make operational decisions and assess performance based on delivering products and services that together
provide solutions to our customer base, utilizing functional management structure and shared services where possible. Based
upon this business model, the chief operating decision maker only reviews consolidated financial information.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions
and judgments that affect the amounts reported in the financial statements, including the notes thereto. The Company
considers critical accounting policies to be those that require more significant judgments and estimates in the preparation of
its consolidated financial statements, including the following: revenue recognition, which includes contractual adjustments;
accounts receivable and allowance for doubtful accounts; sales return allowances; inventory reserves; income taxes; and
goodwill valuation. Management relies on historical experience and other assumptions believed to be reasonable in making
its judgment and estimates. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash
equivalents. The Company maintains its cash and cash equivalents primarily with two financial institutions and is fully
insured with the Federal Deposit Insurance Corporation (FDIC) under the Temporary Liquidity Guarantee Program until
December 31, 2012.
Accounts Receivable and Allowances
Accounts receivable are reported at the estimated net realizable amounts from patients, third-party payors and other direct
pay customers for goods provided and services rendered. The Company performs periodic analyses to assess the accounts
receivable balances. It records an allowance for doubtful accounts based on the estimated collectability of the accounts such
that the recorded amounts reflect estimated net realizable value. Upon determination that an account is uncollectible, the
account is written-off and charged to the allowance.
Accounts receivable are reduced by an allowance for amounts that could become uncollectible in the future. The
Company’s estimate for its allowance for doubtful accounts is based upon management’s assessment of historical and expected
net collections by payor. Due to continuing changes in the health care industry and third-party reimbursement it is possible
that management’s estimates could change in the near term, which could have an impact on its financial position, results of
operations, and cash flows.
Following is an analysis of the allowance for doubtful accounts for InfuSystem Holdings, Inc. for the years ended
December 31, 2010, 2009 and 2008 ($000’s):
Allowance for doubtful accounts — 2010
Allowance for doubtful accounts — 2009
Allowance for doubtful accounts — 2008
Balance at
beginning
of Period
$ 1,842
$ 1,552
$ 1,638
Acquired
in acquisition
37
$
—
—
Charged
to costs and
expenses
4,515
4,006
3,187
$
$
$
Deductions (1)
(4,598)
$
(3,716)
$
(3,273)
$
Balance
at end of
Period
$1,796
$1,842
$1,552
(1) Deductions represent the write-off of uncollectible account receivable balances.
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Inventory
Our Inventory consists of infusion pumps and related parts and supplies and is stated at the lower of cost, determined on a
first in, first out basis, or market. The Company periodically performs an analysis of slow moving inventory and records a
reserve based on estimated obsolete inventory.
Property and Equipment
Property and equipment is stated at acquired cost and depreciated using the straight-line method over the estimated
useful lives of the related assets, ranging from three to seven years. Rental equipment, consisting primarily of infusion pumps
that the Company acquires from third-parties, is depreciated over five years. Information Technology (IT) software and
hardware are depreciated over three years. Leasehold improvements are amortized using the straight-line method over the life
of the asset or the remaining term of the lease, whichever is shorter. Maintenance and minor repairs are charged to operations as
incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is recorded in the current period.
Long-Lived Assets
The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360, “Property,
Plant and Equipment.” This standard addresses financial accounting and reporting for the impairment of long-lived assets and
for the disposal of long-lived assets. In accordance with this standard, long-lived assets to be held are reviewed for events or
changes in circumstances, which indicate that their carrying value may not be recoverable. If an impairment indicator exists,
the Company assesses the asset or asset group for recoverability. Recoverability of these assets is determined based upon the
expected undiscounted future net cash flows from the operations to which the assets relate, utilizing management’s best
estimates, appropriate assumptions and projections at the time. If the carrying value is determined not to be recoverable from
future operating cash flows, the asset is deemed impaired and an impairment loss would be recognized to the extent the
carrying value exceeded the estimated fair market value of the asset. The Company reviews the carrying value of long-lived
assets if there is an indicator of impairment. The Company has determined that no impairment indicators existed as of
December 31, 2010.
Goodwill Valuation
Goodwill arising from business combinations represents the excess of the purchase price over the estimated fair value of
the net assets of the businesses acquired.
In accordance with the provisions of ASC 350, “Intangibles — Goodwill and Other,” goodwill is tested annually for
impairment or more frequently if circumstances indicate the possibility of impairment. Significant judgments required to
estimate fair value include estimating future cash flows, and determining appropriate discount rates, growth rates and other
assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value which could
trigger impairment. The Company performed the annual impairment test at October 31, 2010, and determined there was no
impairment of goodwill. No events have occurred subsequent to October 31, 2010 that indicates impairment may have
occurred. For more information, refer to the “Goodwill and Intangible Assets” discussion included in Note 5.
Intangible Assets
Intangible assets consist of trade names, physician and customer relationships, non-compete agreements, and software.
The trade names, physician and customer relationships and non-compete agreements arose from the acquisitions of InfuSystem
and First Biomedical. The Company amortizes the value assigned to the physician and customer relationships on a straight-
line basis over the period of expected benefit, which is 15 years. The
40
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acquired physician and customer relationship base represents a valuable asset of InfuSystem due to the expectation of future
business opportunities to be leveraged from the existing relationship with each physician and customer. InfuSystem has long-
standing relationships with numerous oncology clinics, physicians, home care and home infusion providers, skilled nursing
facilities, pain centers and others. These relationships are expected, on average, to have a 15 year useful life, based on minimal
attrition experienced to date by the Company and expectations of continued minimal attrition. Non-compete agreements are
amortized on a straight-line basis over five years and software is amortized on a straight-line basis over three years.
Management tests non-amortizable intangible assets (i.e., trade names such as InfuSystem) for impairment in accordance with
ASC 350. The Company performed the annual impairment test at October 31, 2010, and determined there was no impairment.
No events have occurred subsequent to October 31, 2010 that indicates impairment may have occurred. For more information,
refer to the “Goodwill and Intangible Assets” discussion included in Note 5.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive loss consists only of the unrealized loss on the single interest rate swap in place as of
December 31, 2010, net of taxes. For more information on the interest rate swap, refer to Note 6. During the year there was an
accumulated other comprehensive loss of $100 thousand related to the unrealized loss on the swap. The tax impact on the loss
was $35 thousand, leaving a net accumulated other comprehensive loss of $64 thousand. These were the only net changes to
accumulated other comprehensive loss for the year ended December 31, 2010. The following table summarizes comprehensive
loss for the applicable periods (in thousands):
Net income (loss)
Accumulated other comprehensive income (loss) on derivatives, net of taxes
Total comprehensive income (loss)
Year Ended
December 31,
2010
(1,852)
(64)
(1,916)
$
$
Revenue Recognition
The majority of the Company’s revenue is rental revenue in the oncology market. Revenues are recognized
predominantly under fee for service arrangements through equipment that the Company rents to patients. The Company
recognizes revenue only when all of the following criteria are met: 1) persuasive evidence of an arrangement exists; 2) services
have been rendered; 3) the price to the customer is fixed or determinable; and 4) collectability is reasonably assured.
Persuasive evidence of an arrangement is determined to exist, and collectability is reasonably assured, when the Company
receives 1) a physician’s written order and assignment of benefits, signed by the physician and patient, respectively, and the
Company has 2) verified actual pump usage and 3) insurance coverage. The Company recognizes rental revenue from
electronic infusion pumps as earned, normally on a month-to-month basis. Pump rentals are billed at the Company’s
established rates, which often differ from contractually allowable rates provided by third-party payors such as Medicare,
Medicaid and commercial insurance carriers. All billings to third party payors are recorded net of provision for contractual
adjustments to arrive at net revenues.
Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates
are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk
that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many
third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may
result in adjustments to amounts originally recorded. Due to continuing changes in the health care industry and third-party
reimbursement, it is possible that management’s estimates could change in the near term, which could have an impact on our
results of operations and cash flows.
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The Company’s largest payor is Medicare, which accounted for approximately 31%, 31% and 32% of its gross billings for
ambulatory infusion pump services for the years ended December 31, 2010, 2009 and 2008, respectively. The Company has
contracts with various individual Blue Cross/Blue Shield affiliates which in the aggregate accounted for approximately 23%,
22% and 22% of its gross billings for ambulatory infusion pump services for the years ended December 31, 2010, 2009 and
2008, respectively. No individual payor (other than Medicare and the Blue Cross/Blue Shield entities) accounts for greater
than 6% of the Company’s ambulatory infusion pump services gross billings for the fiscal years ended December 31, 2010,
2009 and 2008.
The Company recognizes revenue for selling, renting and servicing new and pre-owned infusion pumps and other
medical equipment to oncology practices as well as other alternate site settings including home care and home infusion
providers, skilled nursing facilities, pain centers and others, when persuasive evidence of an arrangement exists; services have
been rendered; the price to the customer is fixed or determinable; and collectability is reasonably assured. The Company
performs an analysis to estimate sales returns and records an allowance. This estimate is based on historical sales returns.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes,” which requires that the Company
recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the
tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred
income tax (expense) benefit results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance
is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be
realized. For more information, refer to the “Income Taxes” discussion included in Note 8.
Share Based Payment
ASC 718, “Stock Compensation,” requires all entities to recognize compensation expense in an amount equal to the fair
value of share based payments made to employees, among other requirements. Under the fair value based method,
compensation cost is measured at the grant date based on the fair value of the award and is recognized on a straight-line basis
over the award vesting period. Accordingly, share based payments issued to officers and directors are measured at fair value
and recognized as expense over the related vesting periods.
In 2007, the Company adopted the 2007 Stock Incentive Plan (the “Plan”) providing for the issuance of a maximum of
2,000,000 shares of common stock in connection with the grant of stock-based or stock-denominated awards. In addition,
during the year ended December 31, 2010, the Company made certain grants of restricted stock outside of the Plan.
During the year ended December 31, 2010, the Company granted 3,440,000 restricted shares. Of the total shares granted,
1,440,000 entitle a holder to receive, at the end of a vesting period, a specified number of shares of the Company’s common
stock. The remaining 2,000,000 shares granted entitle the holder to receive common stock when the shares vest based upon
certain market conditions tied to the Company’s stock price, or certain performance conditions including a change in control.
Share based compensation expense recognized for the year ended December 31, 2010, 2009 and 2008 was $5.9 million,
$753 thousand and $1.6 million, respectively.
Warrants and Derivative Financial Instruments
On April 18, 2006, the Company consummated its initial public offering (“IPO”) of 16,666,667 units. Each unit consists
of one share of common stock and two redeemable common stock purchase warrants. Each warrant entitles the holder to
purchase from the Company one share of its common stock at an exercise price of $5.00. On May 18, 2006, the Company sold
an additional 208,584 units (the “Overallotment Units”) to FTN Midwest Securities Corp., the underwriter of its IPO (FTN
Midwest), pursuant to a partial exercise by FTN Midwest of its
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overallotment option. The Warrant Agreement provides for the Company to register the shares underlying the warrants in the
absence of the Company’s ability to deliver registered shares to the warrant holders upon warrant exercise.
ASC 815 requires freestanding derivative contracts that are settled in a company’s own stock, including common stock
warrants, to be designated as equity instruments, assets or liabilities. Under the provisions of this standard, a contract
designated as an asset or a liability must be carried at its fair value on a company’s balance sheet, with any changes in fair
value recorded in the company’s results of operations. A contract designated as an equity instrument must be included within
equity, and no fair value adjustments are required from period to period.
On February 16, 2010 the Company announced an Offer to Exchange common stock for outstanding warrants. At the
time, the Company had 35,108,219 outstanding warrants. The exchange offer expired on March 17, 2010. Holders of the
Company’s warrants had the option to exchange their warrants for either One (1) share of Common Stock for every thirty-five
(35) Warrants tendered, or One (1) share of Common Stock for every twenty-five (25) Warrants tendered, provided the recipient
agreed to be subject to a lock-up provision precluding transfer of the shares of Common Stock received for six months
following the expiration of the Exchange Offer. The lock-up provision expired in September 2010. Based on the final count,
25,635,723 Warrants were properly tendered; 24,766,700 were tendered for shares of Common Stock subject to a lock-up, and
869,023 were tendered for unrestricted shares of Common Stock. Under the terms of the Exchange Offer, the Company issued
an aggregate 1,015,489 shares of Common Stock in exchange for the tendered Warrants. After the exchange, there are
8,329,638 publicly held warrants and 1,142,858 privately held warrants outstanding. The Company recognized a loss of $491
thousand as a result of the exchange.
In accordance with ASC 815, the 8,329,638 remaining warrants issued in connection with the IPO and overallotment to
purchase common stock must be settled in registered shares and are separately accounted for as liabilities as discussed in Note
6. The fair value of these warrants is shown on the Company’s balance sheet and the unrealized changes in the value of these
warrants are shown in the Company’s statement of operations as “Gain (loss) on derivatives.” These warrants are freely traded
on the “Over the Counter Bulletin Board.” Consequently, the fair value of these warrants is estimated as the market price of the
warrant at each period end. To the extent the market price increases or decreases, the Company’s warrant liabilities will also
increase or decrease with a corresponding impact on the Company’s results of operations within “Gain (loss) on derivatives”.
Sales of warrants that can be settled in unregistered shares of common stock, as discussed in Note 10, are treated as equity
and included in additional paid in capital. The total warrants issued to date that can be settled in unregistered shares of
common stock are 1,142,858 at an issue price of $.70 per warrant or a total issue price of $800 thousand.
ASC 815 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value.
Cash Flow Hedge
The Company is exposed to risks associated with future cash flows related to the variability of the interest rate on its term
loan with Bank of America. In order to manage the exposure of these risks, the Company enters into interest rate swaps. On
July 20, 2010, the Company entered into a single interest rate swap and designated the swap as a cash flow hedge. In
accordance with ASC 815, the fair value of the swap is shown on the Company’s consolidated balance sheet within derivative
liabilities, unrealized changes in the fair value are included in accumulated other comprehensive loss within the stockholders’
equity section on the Company’s consolidated balance sheet, and any realized changes would be included in the Company’s
consolidated statement of operations within interest expense.
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Deferred Debt Issuance Costs
Capitalized debt issuance costs as of December 31, 2010 relate solely to the Company’s Bank of America credit facility,
while as of December 31, 2009 they related solely to the Company’s term loan with Kimberly-Clark (formerly I-Flow). The
Company classifies the costs related to the Bank of America credit facility as non-current assets and amortizes them using the
interest method through the maturity date of June 2014. For a further discussion of the Company’s deferred debt issuance
costs, see Note 7.
Earnings Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the period. Diluted earnings (loss) per share assumes the issuance of potentially dilutive shares of
common stock during the periods. The following table reconciles the numerators and denominators of basic and diluted
earnings (loss) per share computations:
Numerator:
Net (loss) income (in thousands)
$
(1,852)
$
774
$
9,959
Year Ended
December 31,
2010
Year Ended
December 31,
2009
Year Ended
December 31,
2008
Denominator:
Weighted average common shares outstanding:
Basic
Dilutive effect of non-vested awards
Diluted
Net (loss) earnings per share:
Basic
Diluted
19,721,378
—
19,721,378
18,609,797
321,559
18,931,356
17,940,952*
731,369
18,672,321
$
$
(0.09)
(0.09)
$
$
0.04
0.04
$
$
0.56
0.53
* Includes, from April 25, 2008, the 1,234,044 shares referenced in Note 9 to our Consolidated Financial Statements included
in this Annual Report on Form 10-K. As of December 31, 2008, the Company was in the process of taking necessary
administrative steps to effectuate issuance of the remaining 1,234,044 shares which were issued in February 2009.
For the year ended December 31, 2010, the following warrants, stock options and restricted shares were not included in
the calculation because they would have an anti-dilutive effect because of the net loss: 8,329,638 outstanding warrants issued
in connection with the IPO, 1,142,858 warrants issued privately, 130,479 vested stock options and 2,173,250 in unvested
restricted shares. For the years ended December 31, 2009 and 2008, the following warrants were not included in the calculation
because they would have an anti-dilutive effect: 33,750,502 outstanding warrants issued in connection with the IPO and
1,357,717 warrants issued privately. For the year ended December 31, 2009, there were 100,479 vested stock options granted
under the 2007 Stock Incentive Plan that were not included in the calculation as they would have an anti-dilutive effect. For
the year ended December 31, 2008, there were 300,000 non-vested stock options granted under the 2007 Stock Incentive Plan
that were not included in the calculation as they would have an anti-dilutive effect.
Subsequent events
The Company adopted the provisions of ASC 855, “Subsequent Events” effective June 15, 2009, and management has
concluded that there are no other significant subsequent events requiring disclosure as of the date the consolidated financial
statements were issued.
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3. Acquisitions
Entry into a Material Definitive Agreement
On June 15, 2010, the Company entered into a stock purchase agreement with the shareholders of First Biomedical to
acquire all of the issued and outstanding stock of First Biomedical and completed the acquisition for total consideration of
$17.4 million. Included in the consideration is $16.7 million paid in cash and a $750 thousand seller note described in further
detail below.
First Biomedical sells, rents, services and repairs new and pre-owned infusion pumps and other medical equipment. First
Biomedical also sells a variety of primary and secondary tubing, cassettes, catheters and other disposable items that are
utilized with infusion pumps. Headquartered in Olathe, KS, with additional facilities in California and Toronto, First
Biomedical is a leading provider to alternate site healthcare facilities and hospitals in the United States and Canada. The
acquisition of First Biomedical allows the Company to expand its offerings to existing customers with the addition of
biomedical service and repair, while simultaneously bolstering the growth of infusion pump sales within the oncology space
and realized synergies.
First Biomedical’s results of operations are included in the Company’s consolidated statements of operations from the
acquisition date.
Purchase Price Allocation
Pursuant to ASC 805, “Business Combinations,” the purchase price has been allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as of the acquisition date. The purchase price allocation was
primarily based upon a valuation using income and cost approaches, and management’s estimates and assumptions. There was
an excess, or premium, paid for the acquisition due to the benefits described above. The excess of the purchase price over the
net tangible and identifiable intangible assets was recorded as goodwill. For tax purposes, goodwill consists of both
identifiable intangible assets (customer relationships and non-competition agreements from the table below) and
unidentifiable intangible assets (goodwill from the table below). Goodwill is expected to be partially deductible for tax
purposes. The purchase price allocation is based on a final analysis. The allocation of the purchase price to the fair values of
the assets acquired and liabilities assumed as of the transaction date is presented below (in thousands):
Accounts receivable, net of allowances
Other current assets
Property and equipment
Goodwill
Customer relationships
Non-competition agreements
Other assets
Current liabilities
Deferred tax liability
Total purchase price
$ 1,729
700
4,772
7,512
5,000
760
131
(438)
(2,754)
$17,412
The stock purchase agreement provided for an adjustment to the purchase price based on final working capital as of the
closing balance sheet, which was finalized during the fourth quarter of year ended December 31, 2010 and resulted in an
additional payment of $199 thousand, increasing the total purchase price.
Acquired property and equipment are being depreciated on a straight-line basis with estimated remaining lives ranging
from 1 year to 14.5 years. Intangible assets are being amortized on a straight-line basis with estimated remaining lives ranging
from 5 to 15 years reflecting the expected future value.
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Fees
During the year ended December 31, 2010, we incurred legal and professional fees directly related to the First Biomedical
acquisition totaling approximately $965 thousand. All such costs are presented under the caption “General and
administrative” within operating expenses in the accompanying consolidated statements of operations.
Seller Note
Pursuant to the terms of the Stock Purchase Agreement, as of the date of the acquisition the Company entered into a
subordinated promissory note with the former majority shareholder of First Biomedical (the Seller) in the amount of $750
thousand. In accordance with the note, the Company will pay the Seller in equal installments over 24 months, which includes
annual interest of 5%. As of December 31, 2010 the outstanding principal due on the note was $569 thousand.
Pro Forma Financial Information
The pro forma financial information in the table below summarizes the combined results of operations of the Company
and First Biomedical as though the companies had been combined as of the beginning of each period presented. The pro forma
financial information is presented for informational purposes only and is not indicative of the results of operations that would
have been achieved if the acquisition had taken place at the beginning of each period presented nor is it indicative of future
results. We did not disclose the revenue and income of First Biomedical separately as it is not practical since the operations are
already substantially integrated. The following pro forma financial information for all periods presented also includes the pro
forma depreciation and amortization charges from acquired tangible and intangible assets, and related tax effects:
Net revenues
Net (loss) income
(Loss) earnings per share — basic
(Loss) earnings per share — diluted
Year Ended December,
2009
2010
$48,741
$52,316
1,305
(1,511)
0.07
(0.08)
0.07
(0.08)
InfuSystem Acquisition — Additional Contingent Payment
The Stock Purchase Agreement related to the acquisition of InfuSystem provides for a potential additional payment of up
to $12.0 million, or the earn-out, to I-Flow in 2011, provided that certain consolidated net revenue growth targets related to
the Company’s operations are met. Any amounts ultimately paid out in 2011 per the earn-out would increase Goodwill at the
time of payment. No additional payment will be made unless the Company achieves consolidated net revenue compounded
annual growth rate (CAGR) of at least 40% over the three-year period. The consolidated net revenue CAGR for the three-year
period ended December 31, 2010, as compared to InfuSystem’s 2007 net revenues, was 22% and therefore, there will be no
additional payment made related to the acquisition.
4.
Property and Equipment
Property and equipment consisted of the following as of December 31, 2010 and 2009 (amounts in thousands):
Pump equipment
Furniture, fixtures, and equipment
Accumulated depreciation
Total
46
2010
$ 28,037
1,894
(13,259)
$ 16,672
2009
$20,142
1,832
(8,475)
$13,499
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Included in pump equipment above is $4.6 million and $2.7 million, as of December 31, 2010 and 2009, respectively,
worth of pumps obtained under various capital leases. Included in accumulated depreciation above are $723 thousand and
$278 thousand, as of December 31, 2010 and 2009, respectively, associated with the same capital leases. Under the terms of all
such capital leases, the Company does not presently hold title to these pumps, and will not obtain title until such time as the
capital lease obligations are settled in full.
Depreciation expense for 2010, 2009 and 2008 was $5.4 million, $4.1 million and $3.9 million, respectively, which was
recorded in cost of revenues and general and administrative expenses, for pump equipment and other fixed assets, respectively.
5. Goodwill and Intangible Assets
Goodwill
Goodwill arising from business combinations represents the excess of the purchase price over the estimated fair value of
the net assets of the businesses acquired. The goodwill amount for the October 25, 2007 acquisition of InfuSystem is $56.6
million, and is based upon the final valuation analysis. The goodwill amount for the June 15, 2010 acquisition of First
Biomedical is $7.5 million, and is based upon the final valuation analysis.
Impairment Testing
As of October 31, 2010, the Company performed its annual impairment test pursuant to ASC 350, “Intangibles —
Goodwill and Other.” The fair value of the Company’s single reporting unit was estimated using a valuation model that
combined an income and market approach, utilizing the discounted cash flow and guideline public company methods,
respectively, which indicated that the fair value of its net assets exceeded the carrying value by less than 10%. Based on the
results of the valuation, the Company determined there was no impairment of goodwill. No events have occurred subsequent
to October 31, 2010 that indicates impairment may have occurred.
The estimated fair value of the Company’s net assets is dependent on several significant assumptions, including
management’s projections of future earnings, cost of capital or discount rate and terminal value growth rates. Assumptions
related to future cash flows and discount rates involve significant management judgment and are subject to significant
uncertainty.
Although the Company’s cash flow forecasts used in the discounted cash flow approach are based on assumptions that are
consistent with plans and estimates the Company is using to manage the underlying business, there is significant judgment in
projecting the cash flows attributable to the underlying business. If actual revenue growth, profit margins, selling, general and
administrative (SGA) expenses, liquidity, capital spending or market conditions should differ significantly from the
assumptions included in the Company’s business outlook used in the cash flow models, the fair value of its net assets could
fall below the carrying value and impairment charges could be required to write down goodwill to its fair value.
The relationship of the Company’s market capitalization to the carrying value of its net assets can impact estimates of
these assumptions, and can therefore impact the Company’s judgment as to the fair value of its reporting unit when performing
goodwill impairment tests. During 2010, the Company’s market capitalization remained fairly consistent with such experience
in 2009. The Company evaluated the movement in its stock price along with its 2010 performance relative to expectations. In
addition, the Company assessed several unique factors; a thinly traded, closely held, illiquid stock, an “overhang” created by
having a significant amount of warrants outstanding (see Note 6), and a limited research or analyst coverage. The implied
control premium was within the range of market control premiums paid in transactions of companies in the healthcare industry
during the past three years. Based on this evaluation, the Company concluded that neither the market capitalization at
October 31, 2010, nor the change vs. the prior year, were definitive indicators of impairment.
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As the Company’s warrants expire in April 2011 and its common stock was listed on the NY AMEX in December 2010,
the Company will monitor the impact of these factors as well as control premiums in the healthcare industry, operational
performance measures, general economic conditions and its market capitalization. A downward trend in one or more of these
factors could cause the Company to reduce the estimated fair value of its reporting unit and recognize a corresponding
impairment of goodwill in connection with a future goodwill impairment test.
The Company tests non-amortizable intangible assets (i.e., trade names) for impairment in accordance with ASC 350. The
Company performed the annual impairment test at October 31, 2010, and determined there was no impairment. No events have
occurred subsequent to October 31, 2010 that indicates impairment may have occurred. The intangible assets resulting from
the October 25, 2007 acquisition of InfuSystem are based upon the final valuation analysis. The intangible assets resulting
from the June 15, 2010 acquisition of First Biomedical are based upon the final valuation analysis.
Identifiable Intangible Assets
The carrying amount and accumulated amortization of intangible assets as of December 31, 2010 and December 31, 2009
were as follows (in thousands):
Nonamortizable intangible assets
Trade names
Amortizable intangible assets
Physician and customer relationships
Non-competition agreements
Software
Total nonamortizable and amortizable intangible assets
Less accumulated amortization
Total identifiable intangible assets
December 31,
2010
December 31,
2009
$
5,500
$
5,500
32,400
760
980
39,640
(6,388)
$ 33,252
27,400
—
—
32,900
(3,989)
$ 28,911
Amortization expense for intangible assets for the years ended December 31, 2010 and 2009 was $2.3 million and $1.8
million, respectively, which was recorded in operating expenses. Expected annual amortization expense for intangible assets
recorded as of December 31, 2010 is as follows (in thousands):
Amortization expense
2011
$2,607
2012
$2,576
2013
$2,445
2014
$2,342
2015
$2,312
6. Warrants and Derivative Financial Instruments
The Company has determined that the warrants discussed in Note 2, issued in connection with the IPO including the
Overallotment Units, should be classified as liabilities in accordance with ASC 815. Therefore, the fair value of each
instrument must be recorded as a liability on the Company’s balance sheet. Changes in the fair values of these instruments are
reflected as adjustments to the amount of the recorded liabilities, and the corresponding gain or loss is recorded in the
Company’s statement of operations within “Gain (loss) on derivatives”. At the date of the conversion of each warrant or
portion thereof, or exercise of the warrants or portion thereof, as the case may be, the corresponding liability is reclassified as
equity.
On February 16, 2010 the Company announced an Offer to Exchange common stock for outstanding warrants. At the
time, the Company had 35,108,219 outstanding warrants. The exchange offer expired on
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March 17, 2010. Holders of the Company’s warrants had the option to exchange their warrants for either One (1) share of
Common Stock for every thirty-five (35) Warrants tendered, or One (1) share of Common Stock for every twenty-five
(25) Warrants tendered, provided the recipient agreed to be subject to a lock-up provision precluding transfer of the shares of
Common Stock received for six months following the expiration of the Exchange Offer. The lock-up provision expired in
September 2010. Based on the final count, 25,635,723 Warrants were properly tendered; 24,766,700 were tendered for shares
of Common Stock subject to a lock-up, and 869,023 were tendered for unrestricted shares of Common Stock. Under the terms
of the Exchange Offer, the Company issued an aggregate of 1,015,489 shares of Common Stock in exchange for the tendered
Warrants. There are 8,329,638 publicly held warrants (issued in connection with the IPO) and 1,142,858 privately held
warrants remaining after the exchange.
The fair value of the Company’s 8,329,638 and 33,750,502 warrants issued in connection with the IPO outstanding at
December 31, 2010 and December 31, 2009, respectively, were liabilities of $83,000 or $0.01 per warrant and $2,025,000 or
$0.06 per warrant, respectively and are included in derivative liabilities within the Company’s balance sheet.
On June 11, 2010, the Company terminated the single interest rate swap agreement that fixed its LIBOR-based variable
rate on the Kimberly-Clark (I-Flow) loan. The interest rate swap was terminated through a cash settlement in the amount of
$365 thousand, which was the fair value of the interest rate swap as of the date of the termination. The fair value of the
Company’s interest rate swap outstanding at December 31, 2009 was a liability of $645 thousand. The Company elected not to
designate the swap as a cash flow hedge, in accordance with ASC 815. The fair value of the swap was therefore shown on the
Company’s consolidated balance sheet and the unrealized changes in the value of the swap are shown in the Company’s
consolidated statement of operations within “Gain (loss) on derivatives”.
On July 20, 2010, the Company entered into a single interest rate swap with a July 30, 2010 effective date. The interest
rate swap agreement, which expires in June 2014, had a notional value of $18.3 million on December 31, 2010, which
represented approximately 65% of the outstanding underlying debt, and a fixed rate of 1.40%. The fair value of the interest
rate swap outstanding at December 31, 2010 was a liability of $100 thousand. The Company has designated the swap as a cash
flow hedge. In accordance with ASC 815, the fair value of the swap is shown on the Company’s consolidated balance sheet
within derivative liabilities, unrealized changes in the value are included in other comprehensive income within the
stockholders’ equity section on the Company’s consolidated balance sheet, and any realized changes are included in the
Company’s consolidated statement of operations within interest expense.
The following table presents the fair values of the Company’s derivative instruments as of (in thousands):
Description
Balance Sheet Location
December 31,
2010
December 31,
2009
Derivative Designated as a Cash Flow
Hedge
Interest rate swap
Derivatives Not Designated as Hedging
Instruments
Warrants
Interest rate swap
Total
Derivative liabilities
$
100
$
—
Derivative liabilities
Derivative liabilities
49
83
—
183
2,025
645
2,670
$
$
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The following table presents the pretax impact that changes in the fair values of derivatives designated as hedging
instruments had on Accumulated Other Comprehensive Income (AOCI) and earnings during the year ended December 31,
2010 (in thousands):
Description
Interest rate swap
Total
Loss Recognized
in OCI
$
$
100
100
Location of
Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
Gain (loss) on
derivatives
Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)
$
$
—
—
Location of
Gain (Loss)
Recognized in Income
(Ineffective Portion and
Amount Excluded
from
Effectiveness Testing)
Gain (loss) on
derivatives
Gain (Loss)
Recognized in Income
(Ineffective Portion
and Amount Excluded
from Effectiveness
Testing)
$
$
—
—
The following table presents the pretax gains (losses) that changes in the fair values of derivatives not designated as
hedging instruments had on earnings during the year ended December 31, 2010 and 2009 (in thousands):
Description
Warrants
Interest rate swap
Total
Location of Gain (Loss) Recognized
in Income
December 31,
2010
December 31,
2009
Gain (loss) on derivatives
Gain (loss) on derivatives
$
$
(73)
280
207
$
$
(506)
428
(78)
The following tables present the methods used to establish fair value measurements for each of the derivatives (in
thousands):
Description
Warrant liability
Interest rate swap liability
Total
Description
Warrant liability
Interest rate swap liability
Total
Fair Value Measurements at Reporting Date Using
Quoted
Prices in
Active Markets
for Identical
Liabilities
(Level 1)
$
$
83
—
83
Significant
Other
Observable
Inputs
(Level 2)
$
—
100
100
Significant
Unobservable
Inputs
(Level 3)
$
—
—
—
Fair Value Measurements at Reporting Date Using
Quoted
Prices in
Active Markets
for Identical
Liabilities
(Level 1)
$
$
2,025
—
2,025
Significant
Other
Observable
Inputs
(Level 2)
$
$
—
645
645
Significant
Unobservable
Inputs
(Level 3)
$
—
—
—
December 31,
2010
$
$
83
100
183
December 31,
2009
$
$
$
2,025
645
2,670
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7. Debt and other Long-term Obligations
On June 15, 2010, the Company entered into a credit facility with Bank of America, N.A. as Administrative Agent, and
KeyBank National Association as Documentation Agent. The facility consists of a $30.0 million term loan and a $5.0 million
revolving credit facility, both of which mature in June 2014. Interest on the term loan is payable at the Company’s choice of
LIBOR plus 4.5%, or the Bank of America prime rate plus 3.5%. As of December 31, 2010, interest was payable at LIBOR plus
4.5%, which equaled approximately 4.76%.
Proceeds from the term loan were used to repay the outstanding balance of the Company’s debt held by Kimberly-Clark
(I-Flow), as well as contribute to the acquisition consideration for First Biomedical. As of December 31, 2009, the rate in effect
for the Kimberly-Clark (I-Flow) loan was 8.5%.
As of December 31, 2010, the Company had a letter of credit in the amount of $81 thousand outstanding, leaving $4.9
million available on its revolving credit facility.
The term loan is collateralized by substantially all of the Company’s assets and requires the Company to comply with
covenants, including but not limited to, financial covenants relating to satisfaction of a total leverage ratio, a fixed charge
coverage ratio, and an annual limit on capital expenditures, including capital leases. As of December 31, 2010, the Company
believes it was in compliance with all such covenants.
In conjunction with the new credit facility, the Company incurred deferred debt issuance costs of $808 thousand. These
costs are recognized in income using the effective interest method through the maturity date of June 15, 2014. Amortization of
these costs for the year ended December 31, 2010 was $149 thousand, which was recorded in interest expense. Also, the
Company incurred deferred debt issuance costs in 2007 in conjunction with the Kimberly-Clark (I-Flow) loan. The remaining
unamortized I-Flow debt costs were completely amortized when the term loan was paid in full on June 15, 2010. Total deferred
debt amortization expense for the year ended December 31, 2010 was $980 thousand.
In conjunction with the acquisition of First Biomedical, the Company entered into a subordinated promissory note with
the former majority shareholder of First Biomedical (the Seller) in the amount of $750 thousand. In accordance with the note,
the Company will pay the Seller in equal installments over 24 months, which includes annual interest of 5%. As of
December 31, 2010 the outstanding principal due on the note was $569 thousand.
The Company sometimes enters into capital leases to finance the purchase of ambulatory infusion pumps. The pumps are
capitalized into property and equipment at their fair market value, which equals the value of the future minimum lease
payments, and are depreciated over the useful life of the pumps.
Maturities on the loans and capital lease are as follows (in thousands):
2011
2012
2013
2014
Total
Term Loan
Seller Note
Capital Lease
Total
51
$4,125 $4,500 $4,875 $14,625 $28,125
569
—
3,503
1,078
$5,551 $5,852 $5,953 $14,841 $32,197
—
216
375
1,051
194
1,158
Table of Contents
8.
Income Taxes
The components of consolidated provision for income taxes for the years ended December 31, 2010, 2009, and 2008 are
as follows:
Provision for Federal income taxes —
Current
Deferred
Total provision for Federal income taxes
Provision for state and local income taxes —
Current
Deferred
Total provision for state and local income taxes
Provision for foreign income taxes —
Current
Deferred
Total provision for foreign income taxes
Consolidated (benefit) expense for income taxes
2010
2009
2008
$ (248)
(1,618)
(1,866)
$(1,306)
2,205
899
$(165)
877
712
92
346
438
29
49
78
137
58
195
57
—
57
$(1,371)
—
—
—
977
$
—
—
—
$ 907
The significant components of net deferred income taxes as of December 31, 2010 and 2009 are as follows:
Deferred Federal income tax assets —
Bad debt reserves
Stock based compensation
Interest Rate Swap
Net Operating Loss
Accrued Compensation
Alternative Minimum Tax Credit
Inventory
Other
Valuation Allowance
Total deferred Federal income tax assets
Deferred Federal income tax liabilities —
Depreciation and asset basis differences
Amortization
Other
Total deferred Federal income tax liabilities
Net deferred Federal income tax liability
Net deferred state and local income tax liability
Net deferred income taxes
52
2010
2009
98
$
1,078
—
2,762
273
42
80
5
—
4,338
(1,998)
(6,367)
(33)
(8,398)
(4,060)
(581)
$(4,641)
$
99
249
219
1,780
178
42
6
2
(867)
1,708
(1,653)
(3,070)
(67)
(4,790)
(3,082)
(107)
$(3,189)
Table of Contents
The classification of net deferred income taxes as of December 31, 2010 is summarized as follows:
Deferred tax assets
Deferred tax liabilities
Net deferred income taxes
Current
$1,185
(38)
$1,147
Long-
term
$ 3,661
(9,449)
$(5,788)
Total
$ 4,846
(9,487)
$(4,641)
The classification of net deferred income taxes as of December 31, 2009 is summarized as follows:
Deferred tax assets
Deferred tax liabilities
Net deferred income taxes
Current
$ 194
(69)
$ 125
Long-
term
$ 1,573
(4,887)
$(3,314)
Total
$ 1,767
(4,956)
$(3,189)
The reconciliations of the effective income tax rate to the federal statutory rate are as follows:
Federal income tax provision at the statutory rate
State and local income taxes, net of related Federal taxes
Foreign income taxes, net of related Federal taxes
Effect of change in state tax rate
Other Permanent Differences
Non-deductible loss (gain) on warrant liability
Non-deductible transaction costs
Valuation allowance
Stock Based Compensation
Prior year adjustments
Effective income tax rate
2010
34.00%
1.25%
(1.96)%
(13.21)%
(2.71)%
(0.98)%
(9.46)%
32.42%
6.29%
1.57%
47.21%
2009
34.00%
4.60%
—
—
2.49%
9.76%
—
6.98%
—
(2.40)%
55.43%
2008
34.00%
1.78%
—
0.02%
0.47%
(33.27)%
—
(32.56)%
23.53%
14.37%
8.34%
The Company’s realization of its deferred tax assets is dependent upon many factors, including, but not limited to, the
Company’s ability to generate sufficient taxable income. Certain deferred tax liabilities can also be considered as a source of
future taxable income including those resulting from the acquisition. In prior years the Company had deferred tax assets to
which a full valuation allowance was applied. Based upon the weight of available evidence, it was more likely than not that
some portion or all of the deferred tax assets would not be realized. During the year ended December 31, 2010, as a result of a
review of the Company’s earnings history, existing deferred tax liabilities including those resulting from the First Biomedical
acquisition, the Company has removed the valuation allowance previously applied against the net deferred tax asset.
Following is an analysis of the deferred tax asset valuation allowance for InfuSystem Holdings, Inc. for the years ended
December 31, 2010, 2009, and 2008 ($000’s):
Valuation Allowance — 2010
Valuation Allowance — 2009
Valuation Allowance — 2008
Balance at
beginning
of Period
940
$
$
785
$ 4,401
Charged
to costs
and
expenses
$ (940)
$ (458)
5
$
Deductions
$ —
$
613
$ (3,621)
Balance
at end
of Period
$ —
$ 940*
$ 785
* Includes $867,000 and $73,000 in valuation allowance for federal and state income taxes, respectively.
53
Table of Contents
On June 15, 2010, the Company acquired the stock of First Biomedical, Inc. In accordance with ASC 805, “Business
Combinations”, the fair value of the consideration was allocated to the net assets acquired adjusting the book value of the
acquired assets to their fair market value. As this was a stock acquisition, the Company’s tax basis of the assets acquired did
not change. This differential resulted in the recording of deferred tax liabilities of $2,754,000 in connection with the First
Biomedical assets. These new deferred tax liabilities, which are a source of future taxable income, provide strong evidence in
support of the valuation allowance reversal as described above.
9. Related Party Transactions
In 2006, the Company reserved in its treasury 2,000,000 shares of common stock for issuance to Sean McDevitt and
416,666 shares of common stock for issuance to Pat LaVecchia. The consummation of the acquisition of InfuSystem, Inc.
resulted in 925,531 of these shares being issued at October 25, 2007. Of the remaining 1,491,135 shares, 257,091 were issued
in 2008 and 1,234,044 were issued in February 2009.
During the year ended December 31, 2010, the Company granted 3,225,000 shares to members of the Board of Directors
and Officers, and 1,304,250 shares vested and were issued to members of the Board of Directors and Officers. During the year
ended December 31, 2009, there were no shares granted to members of the Board of Director or Officers, and 157,709 shares
vested and were issued to members of the Board of Directors and Officers. During the year ended December 31, 2008 the
Company granted 471,000 shares to members of the Board of Directors and Officers, and 137,500 shares vested and were
issued to members of the Board of Directors and Officers. The Company recognized $5.4 million, $399 thousand and $791
thousand in stock based compensation related to members of the Board of Directors and Officers during the years ended
December 31, 2010, 2009 and 2008, respectively.
Effective September 7, 2009, Steve Watkins resigned as Chief Executive Officer and Director of the Company.
Prior to the Company’s acquisition of InfuSystem, InfuSystem had been providing billing and collection services to I-
®
Flow for its ON-Q product. On October 25, 2007, InfuSystem and I-Flow entered into an Amended and Restated Services
Agreement (the “Services Agreement”) pursuant to which InfuSystem agreed to continue to provide I-Flow with these services,
and I-Flow agreed to pay InfuSystem a monthly service fee. The service was discontinued effective August 31, 2009. During
the year ended December 31, 2009, the Company recorded revenues $160 thousand from this arrangement. There was no
outstanding receivable amount due as of December 31, 2009. There were no related revenues recorded for the year ended
December 31, 2010.
As of December 31, 2009, the Company had $4.9 million payable to Kimberly-Clark (I-Flow) within current portion of
long-term debt and $16.8 million payable to Kimberly-Clark (I-Flow) within long-term debt.
On October 19, 2010, the Company facilitated the sale, on behalf of Kimberly-Clark, of 2,789,203 InfuSystem common
stock shares held by Kimberly-Clark (I-Flow) through a public secondary offering. This represented 100% of the InfuSystem
shares held by Kimberly-Clark (I-Flow). As of October 19, 2010, Kimberly-Clark (I-Flow) is no longer considered a related
party. Transaction costs associated with this secondary offering were paid for by Kimberly-Clark (I-Flow).
In connection with the warrant exchange as described in Note 6 to these consolidated financial statements, three present
Company board members exchanged 186,287 privately held warrants under the lock-up provision for 7,451 shares of common
stock.
As described in Note 7 to these consolidated financial statements, in accordance with the terms of the Stock Purchase
Agreement with First Biomedical, the Company entered into a subordinated promissory note with the former majority
shareholder of First Biomedical (the Seller) in the amount of $750 thousand. In accordance with
54
Table of Contents
the note, the Company will pay the Seller in equal installments over 24 months, which includes annual interest of 5%. As of
December 31, 2010 the outstanding principal due on the note was $569 thousand. The Seller is a current employee of the
Company, and is subject to an employment agreement. Also, the Seller owns Jan-Mar LLC and is the principal owner of the
CW Investment Group LLC. In accordance with the Stock Purchase Agreement, the Company entered into operating lease
agreements with Jan-Mar LLC and the CW Investment Group LLC, each of which owns one of the two office buildings utilized
by First Biomedical in Olathe, Kansas. The terms of each lease is thirty six months, commencing on July 1, 2010. Rent will be
paid monthly in the amount of $5 thousand to Jan-Mar LLC and $3 thousand to the CW Investment Group LLC.
10. Commitments and Contingencies
Certain of the Company’s directors committed to purchase up to $1.0 million of the Company’s warrants from the
Company in a private placement at a price of $.70 per warrant subsequent to the filing of the preliminary proxy statement
seeking stockholder approval of the acquisition of InfuSystem. Such officers and directors agreed not to sell or transfer the
warrants until after the Company consummated a business combination. The warrants have an exercise price of $5.00 per share
of common stock and became exercisable commencing on October 25, 2007, the acquisition date, and expire April 11, 2011 or
earlier upon redemption by the Company. The Company may call the warrants for redemption in whole and not in part at a
price of $0.01 per warrant at anytime after the warrant becomes exercisable. The warrants cannot be redeemed unless the holder
receives written notice not less than 30 days prior to the redemption and if and only if, the reported last price of the common
stock equals or exceeds $8.50 per share for any 20 trading days within a 30 day period ending on the third day of business
prior to the notice of redemption to warrant holders. The Company has fully reserved the shares underlying the warrants as
authorized but not issued. The warrants issued and sold in 2006 and 2007 were not registered under the Securities Act of 1933,
as amended (the Securities Act). As a result, the warrants and the common stock issuable upon exercise of the warrants may not
be sold unless they have been registered pursuant to a registration statement filed under the Securities Act or pursuant to an
available exemption from the registration requirements of the Securities Act as evidenced by an opinion of counsel reasonably
satisfactory to the Company. There are 1,142,858 privately held warrants remaining after the exchange as discussed in Note 6
to these consolidated financial statements.
The Company is involved in legal proceedings arising out of the ordinary course and conduct of our business, the
outcomes of which are not determinable at this time. We have insurance policies covering such potential losses where such
coverage is cost effective. In the Company’s opinion, any liability that might be incurred by us upon the resolution of these
claims and lawsuits will not, in the aggregate, have a material adverse effect on the Company’s consolidated financial
position, results of operations or cash flows
Effective September 7, 2009, Steve Watkins resigned as Chief Executive Officer and Director of the Company. In
connection with his resignation, the Company entered into a separation agreement with Mr. Watkins in which the Company
will pay Mr. Watkins his annual base salary of $311 thousand for a period of two years following the resignation date in
accordance with the Company’s regular payroll practices. Also, the Company agreed to pay a bonus in the amount of $150
thousand for the 2009 calendar year within thirty days of the resignation date; such amount was paid in October 2009. The
Company will continue to pay for Mr. Watkins’ existing health insurance benefits for a period of two years following the
resignation date. Additionally, any unvested portions of Mr. Watkins’ stock options and restricted share grants vested pro rata
based upon his services to the Company as Chief Executive Officer during the 2009 calendar year.
As of December 31, 2010, the Company had approximate minimum future operating lease commitments of (in
thousands):
2011
$481
2012
$360
2013
$236
55
2014
$195
2015
$200
Table of Contents
11. Share-based Compensation
2007 Stock Incentive Plan
In 2007, the Company adopted the 2007 Stock Incentive Plan providing for the issuance of a maximum of 2,000,000
shares of common stock in connection with the grant of stock-based or stock-denominated awards. During 2010 and 2009, the
Company granted restricted shares and stock options. As of December 31, 2010, 68,000 common shares remained available for
future grant under the 2007 Stock Incentive Plan.
During the year ended December 31, 2010 the Company granted restricted shares both under the Plan and outside of it,
and during the year ended December 31, 2009 the Company granted restricted shares and stock options under the Plan.
During the year ended December 31, 2010, the Company granted 3,440,000 restricted shares. Of the total shares granted,
1,440,000 entitle a holder to receive, at the end of a vesting period, a specified number of shares of the Company’s common
stock. The remaining 2,000,000 shares granted entitle the holder to receive common stock when the shares vest based upon
certain market conditions tied to the Company’s stock price, or certain performance conditions including a change in control.
Restricted Shares
Restricted shares entitle the holder to receive, upon meeting certain vesting criteria, a specified number of shares of the
Company’s common stock. Stock-based compensation cost of restricted shares is measured by the market value of the
Company’s common stock on the date of grant. Compensation cost associated with certain restricted share grants also takes
into account market conditions in its measurement. The following table summarizes restricted share activity for the years
ended December 31, 2010 and 2009:
Unvested at January 1, 2009
Granted
Vested
Vested shares foregone to satisfy minimum statutory withholding
Forfeitures
Unvested at December 31, 2009
Granted
Vested
Vested shares forgone to satisfy minimum statutory withholding
Forfeitures
Unvested at December 31, 2010
Number of
shares
(In thousands)
521
133
(213)
(52)
(65)
324
3,440
(1,408)
(67)
(115)
2,174
Weighted
average
grant
date fair
value
$ 2.94
$ 2.66
$ 2.93
$ 2.86
$ 2.87
$ 2.86
$ 2.50
$ 2.56
$ 2.78
$ 2.66
$ 2.51
As of December 31, 2010, there was $7.5 million of pre-tax total unrecognized compensation cost related to non-vested
restricted shares, which will be adjusted for future forfeitures. The Company expects to recognize such cost over a period of
approximately 14 years.
Stock Options
There were no stock options granted during the year ended December 31, 2010. During the year ended December 31,
2009, the Company granted 30 thousand stock options at an exercise price of $1.85 per share which was the market price on
the date of grant.
56
Table of Contents
Share-based compensation expense was determined based on the fair value of the options. The fair value of the options
was calculated using the Black Scholes pricing model based on the following assumptions:
Expected life
Risk free interest rate
Volatility
Dividend yield
2009
2.5 years
1.38% - 1.42%
35% - 37%
0%
The following table summarizes stock option activity for the year ended December 31, 2009:
Unvested at January 1, 2009
Granted
Vested
Forfeitures
Unvested at December 31, 2009
Stock-based compensation expense
Number of
options
(In thousands)
300
30
(130)
(200)
—
Weighted
average
exercise
price
$ 2.90
$ 1.85
$ 2.66
$ 2.90
$ N/A
The following table shows the total stock-based compensation expense, which is included in selling, general and
administrative expenses, related to all of the Company’s equity awards in accordance with ASC 718 (in thousands):
Restricted share expense
Stock option expense
Total stock-based compensation expense
2010
$5,853*
—
$5,853
December 31,
2009
$700
53
$753
2008
$1,415
135
$1,550
* Includes $2.1 million expense for a tax gross-up liability associated with certain restricted share grants.
Common Share Repurchase Program
In November of 2010, our board of directors authorized a share repurchase program of up to $2 million of our outstanding
common shares. The repurchase program will be funded by our available cash balance.
Stock repurchases may be made through open market transactions, negotiated purchases or otherwise, at times and in such
amounts as our management deems to be appropriate. The timing and actual number of shares repurchased will depend on a
variety of factors, including price, financing and regulatory requirements, as well as other market conditions. The program
does not require us to repurchase any specific number of shares or to complete the program within a specific period of time.
During the year ended December 31, 2010, we repurchased 46,000 shares at an average price of $2.46 per share at a cost
of $114,000
12. Employee Benefit Plans
The Company has defined contribution plans in which the company contributes a certain percentage of employee
contributions. Such Company matching contributions totaled $196 thousand, $67 thousand and $59 thousand for the years
ended December 31, 2010, 2009 and 2008, respectively. The Company does not provide other post-retirement or post-
employment benefits to its employees.
57
Table of Contents
13. Unaudited Quarterly Information
(in thousands, except per share data)
Net revenues
Gross profit
Sales, general and administrative expenses
Total other (expense) income
Income (loss) before income taxes
Net (loss) income
(Loss) earnings per share — basic
(Loss) earnings per share — diluted
(in thousands, except per share data)
Net revenues
Gross profit
Sales, general and administrative expenses
Total other income (expense)
Income (loss) before income taxes
Net income (loss)
Earnings (loss) per share — basic
Earnings (loss) per share — diluted
March 31,
2010
$10,934
8,120
6,628
(1,194)
298
(12)
0.00
0.00
March 31,
2009
$ 9,227
7,117
5,868
(3,628)
(2,367)
(2,507)
(0.14)
(0.14)
Quarter Ended
June 30,
2010
$10,487
7,520
7,774
(319)
(573)
144
0.01
0.01
$
September 30,
2010
12,733
8,897
8,069
(359)
469
174
0.01
0.01
Quarter Ended
June 30,
2009
$9,173
6,895
5,551
1,155
2,499
2,760
0.15
0.15
September 30,
2009
$
9,902
7,116
5,753
(1,395)
(32)
(445)
(0.02)
(0.02)
December 31,
2010
$ 13,075
9,009
12,013
(412)
(3,416)
(2,158)
(0.11)
(0.11)
December 31,
2009
$ 10,662
7,788
6,137
291
1,651
966
0.05
0.05
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Table of Contents
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the Exchange Act) that are designed to ensure that information required to be disclosed in
our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our
management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal
accounting and financial officer), as appropriate, to allow timely decisions regarding required financial disclosure. In
designing and evaluating the disclosure controls and procedures, management recognizes that a control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are
met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, with a company have been detected.
As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of December 31, 2010. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer each concluded that our disclosure controls and procedures are effective, at the reasonable assurance
level, as of the end of the period covered by this Annual Report on Form 10-K, as of December 31, 2010.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rule 13a-15(f) of the Exchange Act. Our internal control over financial reporting system is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance that material misstatements will be prevented or detected on a timely basis. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. The
assessment of the related controls at First Biomedical, which was acquired during the fiscal year, was excluded from the
assessment. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment, management has
concluded that, as of December 31, 2010, our internal control over financial reporting is effective based on those criteria.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm
regarding internal control over financial reporting because that requirement under Section 404 of the Sarbanes-Oxley Act of
2002 was permanently removed for non-accelerated filers pursuant to the provisions of Section 989G(a) set forth in the Dodd-
Frank Wall Street Reform and Consumer Protection Act enacted into federal law in July 2010.
59
Table of Contents
Changes in Internal Control Over Financial Reporting
During the year ended December 31, 2010 the Company began implementing a new Enterprise Resource Planning (ERP)
system and certain phases have been completed and modules implemented, including payroll and employee benefits modules.
Further implementation and improvements will continue in next year ending December 31, 2010.
There were no other changes to our internal control over financial reporting that occurred during the quarter ended
December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Part III, Item 10 is incorporated herein by reference to our definitive proxy statement relating
to the 2011 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information required by Part III, Item 11 is incorporated herein by reference to our definitive proxy statement relating
to the 2011 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Part III, Item 12 is incorporated herein by reference to our definitive proxy statement relating
to the 2010 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Part III, Item 13 is incorporated herein by reference to our definitive proxy statement relating
to the 2011 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
Item 14. Principal Accounting Fees and Services
The information required by Part III, Item 14 is incorporated herein by reference to our definitive proxy statement relating
to the 2011 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
60
Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
Reference is made to the Index to Financial Statements under Item 8, Part II hereof.
2. Financial Statement Schedules
The Financial Statement Schedules have been omitted either because they are not required or because the
information has been included in the financial statements or the notes thereto included in this Annual Report on
Form 10-K.
3. Exhibits
(b) See Item 15(a)(3)
(c) See Item 15(a)(3)
61
Table of Contents
Exhibit
Number
3.1
Description of Document
Amended and Restated Certificate of Incorporation (1)
Exhibit Index
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
Certificate of Amendment of Amended and Restated Certificate of Incorporation (5)
By-Laws (1)
Amended and Restated By-Laws (2)
Certificate of Amendment of Amended and Restated Certificate of Incorporation (16)
Amended and Restated By-Laws (20)
Specimen Unit Certificate (4)
Specimen Common Stock Certificate (4)
Specimen Warrant Certificate (4)
Form of Warrant Agreement between Registrant and Mellon Investor Services LLC (2)
Form of Purchase Option granted to FTN Midwest Securities Corp. (4)
Form of Warrant issued to Sean McDevitt (7)
Unit Purchase Option Clarification Agreement, dated as of February 9, 2007, by and between Registrant and
FTN Midwest Securities Corp. (8)
Warrant, dated as of April 12, 2007, issued to Sean McDevitt (9)
Form of Warrant between Registrant and each of Sean McDevitt, John Voris, Wayne Yetter, Jean Pierre Millon
and Erin Enright. (12)
Amended and Restated Registration Rights Agreement, dated as of October 17, 2007 by and among Registrant,
Wayne Yetter, John Voris, Jean-Pierre Millon, Erin Enright, Sean McDevitt, Pat LaVecchia and Great Point
Partners LLC (22)
Form of Stock Transfer Agency Agreement (2)
Stock Purchase Agreement, dated as of September 29, 2006, by and among Registrant,
Iceland Acquisition subsidiaries, Inc., InfuSystem, Inc. and I-Flow Corporation (6)
Amendment No. 1 to Stock Purchase Agreement, dated as of April 30, 2007, by and among Registrant, Iceland
Acquisition subsidiaries, Inc., InfuSystem, Inc. and I-Flow Corporation (9)
Amendment No. 2 to Stock Purchase Agreement, dated as of June 29, 2007, by and among Registrant, Iceland
Acquisition subsidiaries, Inc., InfuSystem, Inc. and I-Flow Corporation (10)
Amendment No. 3 to Stock Purchase Agreement, dated as of July 31, 2007, by and among Registrant, Iceland
Acquisition subsidiaries, Inc., InfuSystem, Inc. and I-Flow Corporation (11)
Amendment No. 4 to Stock Purchase Agreement, dated as of September 18, 2007, by and among Registrant,
Iceland Acquisition subsidiaries, Inc., InfuSystem, Inc. and I-Flow Corporation (14)
Subscription Agreement, dated as of April 12, 2007, between Registrant and Sean McDevitt (9)
Form of Subscription Agreement between Registrant and each of Sean McDevitt, John Voris, Wayne Yetter, Jean
Pierre Millon and Erin Enright (12)
Memorandum of Intent, dated as of September 12, 2007, by and among Registrant, I-Flow Corporation,
InfuSystem, Inc. and Iceland Acquisition subsidiaries, Inc. (13)
62
Table of Contents
Exhibit
Number
10.11
10.12
10.13
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Description of Document
Further Agreement Regarding Project Iceland, dated as of October 17, 2007, by and among Registrant, I-Flow
Corporation, InfuSystem, Inc. and Iceland Acquisition subsidiaries, Inc. (15)
Acknowledgment and Agreement, dated as of October 8, 2007, by and among Registrant, I-Flow Corporation,
InfuSystem, Inc. and Iceland Acquisition subsidiaries, Inc. (16)
Credit and Guaranty Agreement, dated as of October 25, 2007, by and among Registrant,
Iceland Acquisition subsidiaries, Inc. and I-Flow Corporation (16)
Employment Agreement, dated as of November 12, 2007, by and between Registrant and Sean Whelan (17)
Employment Agreement, dated as of November 12, 2007, by and between Registrant and Janet Skonieczny (17)
InfuSystem Holdings, Inc. 2007 Stock Incentive Plan (19)
Separation Agreement, dated August 28, 2009, by and between Registrant and Steve Watkins (22)
Share Award Agreement between the InfuSystem Holdings, Inc. and Sean McDevitt (24)
Restricted Stock Award Agreement between Sean Whelan and InfuSystem Holdings, Inc. (25)
Restricted Stock Award Agreement between Jan Skonieczny and InfuSystem Holdings, Inc. (25)
Restricted Stock Award Agreement between Bryan Russo and InfuSystem Holdings, Inc. (25)
Restricted Stock Award Agreement between David Haar and InfuSystem Holdings, Inc. (25)
Restricted Stock Award Agreement between Scott Chesky and InfuSystem Holdings, Inc. (25)
Restricted Stock Award Agreement between Timothy Kopra and InfuSystem Holdings, Inc. (25)
InfuSystem Holdings, Inc. 2007 Stock Incentive Plan (23)
14.1
21.1
23.1
31.1
31.2
32.1
32.2
*
(1)
(2)
(3)
(4)
(5)
Code of Ethics (3)
Subsidiaries of Registrant (18)
Consent of Deloitte & Touche LLP *
Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as
amended *
Certification of Principal Accounting Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as
amended *
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
Filed herewith
Incorporated by reference to Registrant’s Registration Statement on Form S-1 (File No. 333-129035) filed on
October 14, 2005.
Incorporated by reference to Amendment No. 1 to Registrant’s Registration Statement on Form S-1 (File No. 333-
129035) filed on December 8, 2005.
Incorporated by reference to Amendment No. 2 to Registrant’s Registration Statement on Form S-1 (File No. 333-
129035) filed on January 17, 2006.
Incorporated by reference to Amendment No. 3 to Registrant’s Registration Statement on Form S-1 (File No. 333-
129035) filed on March 3, 2006.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on April 24, 2006.
63
Table of Contents
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on October 4, 2006.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on January 3, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on February 14, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on May 4, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on July 5, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on August 1, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on September 12, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on September 13, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on September 21, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on October 22, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on October 31, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on November 16, 2007.
Incorporated by reference to Registrant’s Annual Report on Form 10-K filed on March 24, 2008.
Incorporated by reference to Registrant’s Registration Statement on Form S-8 (File No. 333-150066) filed on April 3,
2008.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on January 22, 2008.
Incorporated by reference to Registrant’s Current Report on Form 8-K filled on September 1, 2009.
Incorporated by reference to Registrant’s Annual Report on Form 10-K filed on March 3, 2009.
Incorporated by reference to Registrant’s Registration Statement on Form S-8 (File No. 333-150066) filed on April 3,
2008.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed April 9, 2010.
Incorporated by reference to Registrant’s Registration Statement on Form S-8 (File No. 333-167914) filed on July 1,
2010.
64
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
INFUSYSTEM HOLDINGS, INC.
Date: March 10, 2011
By:
/s/ SEAN MCDEVITT
Sean McDevitt
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacity and on the dates indicated.
Date: March 10, 2011
Date: March 10, 2011
Date: March 10, 2011
Date: March 10, 2011
Date: March 10, 2011
Date: March 10, 2011
Date: March 10, 2011
Date: March 10, 2011
Date: March 10, 2011
Date: March 10, 2011
/s/ SEAN MCDEVITT
Sean McDevitt
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ JAMES FROISLAND
James Froisland
Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ SEAN MCDEVITT
Sean McDevitt
Chairman of the Board
/s/ JOHN VORIS
John Voris
Director
/s/ PAT LAVECCHIA
Pat LaVecchia
Director
/s/ WAYNE YETTER
Wayne Yetter
Director
/s/ JEAN-PIERRE MILLON
Jean-Pierre Millon
Director
/s/ DAVID DREYER
David Dreyer
Director
/s/ JAMES FREDDO
James Freddo
Director
/s/ TIM KOPRA
Tim Kopra
Director
65
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference, in Registration Statement Nos. 333-150066 and 333-167914, on Form S-8, of
our report dated March 10, 2011, relating to the consolidated financial statements of InfuSystem Holdings, Inc. and
subsidiaries appearing in the Annual Report on Form 10-K of InfuSystem Holdings, Inc. for the year ended December 31, 2010.
/S/ DELOITTE & TOUCHE LLP
Detroit, Michigan
March 10, 2011
EXHIBIT 31.1
CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
I, Sean McDevitt, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2010 of InfuSystem Holdings, 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 the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial 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 officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange 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 15(d)-15(f)) for the registrant and we have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting.
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 10, 2011
By:
/s/ SEAN MCDEVITT
Sean McDevitt
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
I, James Froisland, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2010 of InfuSystem Holdings, 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 the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial 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 officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange 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 15(d)-15(f)) for the registrant and we have:
a.
b.
c.
d.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report
is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting.
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a.
b.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 10, 2011
By:
/s/ JAMES FROISLAND
James Froisland
Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
EXHIBIT 32.1
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18,
United States Code), the undersigned officer of InfuSystem Holdings, Inc., a Delaware corporation (the “Company”), does
hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K”) of the Company fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and information
contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 10, 2011
By:
/s/ SEAN MCDEVITT
Sean McDevitt
Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
EXHIBIT 32.2
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18,
United States Code), the undersigned officer of InfuSystem Holdings, Inc., a Delaware corporation (the “Company”), does
hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K”) of the Company fully
complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and information
contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 10, 2011
By:
/s/ JAMES FROISLAND
James Froisland
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.