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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
Commission File Number: 001-35020
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 x NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ¨
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
¨
¨
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 price at which
the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter, was $37,577,436.
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 February 27, 2012 was 21,330,235.
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
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
Item 4.
Mine Safety Disclosures
PART II
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Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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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
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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:
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change in control, as defined by the agreement governing the Credit Facility;
dependence on our Medicare Supplier Number;
changes in third-party reimbursement rates;
availability of chemotherapy drugs used in our infusion pump systems;
physicians’ 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;
State licensure laws for durable medical equipment (“DME”);
healthcare reform legislation;
failure to comply with healthcare regulations;
dependence on key personnel;
volatility of our stock price;
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. (“InfuSystem”)
and our wholly owned subsidiaries.
Item 1.
Business.
Background
InfuSystem Holdings, Inc. is a Delaware corporation, formed in 2005. It operates through operating subsidiaries, including InfuSystem,
Inc., a California corporation (“InfuSystem”) and First Biomedical, Inc., a Kansas corporation (“First Biomedical”).
Business Concept and Strategy
We are the leading provider of infusion pumps and related services. We provide our services to hospitals, oncology practices and
facilities and other alternate site healthcare providers. Headquartered in Madison Heights, Michigan, we deliver local, field-based customer
support, and also operate 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 clinics, 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.
We provide these pumps and related supplies to oncology clinics, obtain an assignment of insurance benefits from the patient, and bill
the patient’s insurance company or patient as appropriate, for the use of the pump and supplies, and collect payment. We also provide pump
management services for the pumps and associated disposable supply kits to approximately 1,400 oncology clinics in the United States, while
retaining title to the pumps during this process.
In addition, we sell, rent and lease new and pre-owned pole mounted and ambulatory infusion pumps to oncology practices and provide
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. We also provide
these products and services to customers in the hospital market.
One aspect of our business strategy 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 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
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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 approximately 1,400 oncology
clinics in the United States. We believe that there are competitive barriers to entry against other suppliers with respect to these oncology clinics
because we have an established national presence and third party payor contracts in place covering approximately 215 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 24,000 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.
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 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 2010/2011 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.
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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 dependent 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.
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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
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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.
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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 evidence
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 24,000 ambulatory 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 the oncology clinics. The remainder of the pumps are either 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 Medicare, Medicaid, third party payor companies (collectively “payors”) or patients 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 230 payors that cover approximately
215 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.
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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.
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We believe our services are attractive to payors because they are generally less expensive than hospitalization or home care.
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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 20,000 new and used pole mounted and ambulatory pumps, representing
approximately 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, we also provide biomedical maintenance, repair and certification services for the devices
we offer 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 approximately 1,400 oncology clinics. 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 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.
Sales and Marketing
We employ a sales team of approximately 40 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, 2011, we had 197 employees, including 185 full-time employees and 12 part-time employees. None of our
employees are unionized.
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 are 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.
Environmental Laws
We are required to comply with applicable federal, state and local environmental laws regulating the disposal of cleaning agents used in
the process of cleaning our ambulatory infusion pumps, as well as the
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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 230 third party payor plans that cover approximately 200 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, 2011. Our contracts with various individual Blue Cross/Blue Shield affiliates in the aggregate
accounted for approximately 21% of our gross billings for ambulatory infusion pump services for the year ended December 31, 2011. 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 durable medical equipment (“DME”) providers, hospital-owned 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.
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Regional DME 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 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
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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.
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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 30 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 seeks to, among other things, increase access to healthcare for the uninsured and control
the escalation of healthcare expenditures within the economy. In 2010, federal legislation to reform the United States healthcare system was
enacted into law. The legislation is far-reaching and is intended to expand access to health insurance coverage, improve quality and reduce
costs over time. We expect the new law will impact various aspects of our business operations. However, it is unclear how the new law will
impact reimbursement rates under the Medicare program. In addition, the new law imposes a 2.3 percent excise tax on medical devices
scheduled to be implemented in 2013 that will apply to sales within the United States of a majority of our pump products. Many of the details
of the new law will be included in new and revised regulations, which have not yet been promulgated, and require additional guidance and
specificity to be provided by the Department of Health and Human Services, Department of Labor and Department of the Treasury.
Accordingly, while it is too early to understand and predict the ultimate impact of the new law on our business, the legislation could have a
material effect on our business, cash flows, financial condition and results of operations.
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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 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 CERTAIN RECENT EVENTS
The Company is currently evaluating strategic alternatives and cannot predict the outcome of this process or the impact it may have on
the Company’s operations.
On February 27, 2012, we announced that we had retained Houlihan Lokey as financial advisor to assist the Company in evaluating
strategic alternatives, including but not limited to, operating partnerships, joint ventures or a sale or merger of the Company. There can be no
assurance that the evaluation of strategic alternatives will result in any transaction being announced or completed. The process of evaluating
strategic alternatives and effecting a transaction, including a sale of the Company, may result in a diversion of management’s time and
resources, the inability to retain and attract key employees, and the disruption of our business operations.
We could face adverse consequences as a result of the actions of activist stockholders.
An activist stockholder group consisting of Kleinheinz Capital Partners, Meson Capital Partners, Boston Avenue Capital and certain of
their affiliates (the “Kleinheinz Dissident Group”) is seeking to gain control of the Board of Directors of the Company. The Kleinheinz
Dissident Group has circulated to stockholders a consent solicitation requesting written agent designations from our stockholders to enable
them to call a special meeting of stockholders to consider the removal of our current Board of Directors without cause, and to replace the
Board with individuals nominated by the Kleinheinz Dissident Group. On February 27, 2012, the Kleinheinz Dissident Group delivered
documentation to the Company purporting to contain agent designations from a majority of stockholders and demanding that the Company call
a special meeting. In addition, on February 27, 2012, the Kleinheinz Dissident Group delivered notice to the Company stating its intention to
nominate a competing slate for election to our Board of Directors at the Company’s regular 2012 annual meeting. On March 5, 2012 the
Company announced that it had determined that the demand for a call of a special meeting met the Company’s by-law requirement. The
Company cannot predict the outcome of this matter at this time.
Our business could be materially adversely affected by the Kleinheinz Dissident Group’s actions because:
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responding to consent solicitations and proxy contests in other actions by activist stockholders is costly and time consuming, and
may disrupt our operations and divert the attention of management and our employees;
the uncertainty and negative publicity resulting from the activities of the Kleinheinz Dissident Group could make it more difficult
for us to complete our evaluation of strategic alternatives, and it can impact our ability to attract new employees, retain current
employees, and attract and retain customers, suppliers and business partners.
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In addition, if the Kleinheinz Dissident Group were to be successful in obtaining control of our Board of Directors, the resulting change
in control would constitute an event of default under our Credit Facility with Bank of America, N.A., and KeyBank National Association.
This would allow the lenders to accelerate the maturity of all debt outstanding under that agreement. Furthermore, a change in control of the
Company would cause certain restricted stock grants to vest immediately, which would result in significant compensation expense. In addition,
the Company would be required to reclassify its debt as a current liability unless a waiver of such covenant violation was obtained and to
reassess the recoverability of its intangible assets and deferred tax assets. Finally, the Kleinheinz Dissident Group has stated that, if successful,
it intends to ask the Company to reimburse its expenses in connection with its activities.
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 initially received accreditation from
the Community Health Accreditation Program (“CHAP”) and we were recertified in February 2012, 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 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.
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
8
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in the continuous infusion pump system could have a material 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 DME suppliers are subject to change. If we fail to comply with any state 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 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.
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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 do not 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 approximately 230 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 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 effect on our financial condition, results of operations
and cash flows. Furthermore, any impairment of our reputation could have a material effect on our revenues and prospects for future business.
Unexpected costs or delays in integrating acquisitions could adversely affect our financial results.
We may make 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
10
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•
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.
A material weakness in internal control over financial reporting at our First Biomedical location may have an adverse impact on the
Company.
As outlined under 9A “Controls and Procedures” in this Report, our management has identified a material weakness in the Company’s
internal control over financial reporting relating to limited finance staff levels that are not commensurate with the Company’s increased
complexity and its financial account and reporting requirements in light of the Company’s continued growth. While the Company has taken
steps to remediate this material weakness by implementing new procedures and controls at its corporate office, these new procedures and
internal controls have not been fully implemented at our First Biomedical office location. Our management intends to initiate measures to
remediate the identified material weakness at the First Biomedical office by implementing the procedures and internal controls that were
implemented at the corporate office at the First Biomedical office. The continued existence of this material weakness could have a material
impact on the Company, and the remediation will result in additional costs.
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.
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.
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Covenants in our debt agreement restrict our business.
The credit agreement that governs our credit facility with Bank of America, N.A. and KeyBank National Association (“Credit Facility”)
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:
•
•
•
•
•
•
•
Change of control, as defined by the agreement governing the Credit Facility.
Create, incur, assume or suffer to exist any lien upon any of our property, assets or revenues;
Make certain investments;
Create, incur, assume or suffer to exist any indebtedness;
Merge, dissolve, liquidate, consolidate or sell 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.
Healthcare changes in the United States and other countries resulting in pricing pressures could have a negative impact on our future
operating results.
Initiatives sponsored by government agencies, legislative bodies and the private sector to limit the growth of healthcare costs, including
price regulation and competitive pricing, are ongoing in markets where we do business. Pricing pressure has also increased in our markets due
to continued consolidation among health care providers, trends toward managed care, the shift towards governments becoming the primary
payers of health care expenses, and government laws and regulations relating to reimbursement and pricing generally. Reductions in
reimbursement levels or coverage or other cost-containment measures could unfavorably affect our future operating results.
The impact of United States healthcare reform legislation on us remains uncertain.
In 2010, federal legislation to reform the United States healthcare system was enacted into law. The legislation is far-reaching and is
intended to expand access to health insurance coverage, improve quality and reduce costs over time. We expect the new law will have a
significant impact upon various aspects of our business operations. However, it is unclear how the new law will impact patient access to new
technologies or reimbursement rates under the Medicare program. In addition, the new law imposes a 2.3 percent excise tax on medical
devices scheduled to be implemented in 2013. Many of the details of the new law will be included in new and revised regulations, which have
not yet been promulgated, and require additional guidance and specificity to be provided by the Department of Health and Human Services,
Department of Labor and Department of the Treasury. Accordingly, while it is too early to understand and predict the ultimate impact of the
new law on our business, the legislation could have a material effect on our business, cash flows, financial condition and results of operations.
We may be unable to maintain adequate working relationships with healthcare professionals.
We seek to maintain close working relationships with respected physicians and medical personnel in hospitals and universities who
assist in product research and development. We rely on these professionals to assist us in the development of proprietary products and product
improvements to complement and expand our existing product lines. If we are unable to maintain these relationships, our ability to develop,
market and sell new and improved products could decrease and future operating results could be unfavorably affected.
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
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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 (“PPSA”), was signed into law on March 23, 2010. The PPSA requires manufacturers of
drug, device, biologics, and medical supplies covered under Medicare, Medicaid, or State Children’s Health Insurance Program (“SCHIP”) to
report payments made to physicians on an annual basis to the department of Health and Human Services (“HHS”). HHS in turn will post this
information on a public website. These laws all provide for penalties for 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, finance, 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 effect on our business and results of operations.
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Changes in accounting standards issued by the Financial Accounting Standards Board (FASB) could adversely affect our reported
revenues, profitability, and financial condition.
Our financial statements are subject to the application of accounting principles generally accepted in the United States of America
(“GAAP”), which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations
over time. Accordingly, we are required to adopt new or revised accounting standards or comply with revised interpretations that are issued
from time to time by various parties, including accounting standard setters and those who interpret the standards, such as the FASB and the
SEC, banking regulators, and our independent registered public accounting firm. Those changes could adversely affect our reported revenues,
profitability, or financial condition.
RISK FACTORS RELATING SPECIFICALLY TO OUR COMMON STOCK
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;
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.
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)
may be sold in the public market. These factors could also make it more difficult for us to raise funds through future equity offerings.
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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
1.0 million 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.
Item 2.
Properties.
We do not own any real property. We lease office and warehouse space at the following locations:
City
State/Country
Madison Heights
New York
Bennington
Olathe
League City
Santa Fe Springs
Mississauga
Michigan
New York
Vermont
Kansas
Texas
California
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 effect on our
financial condition, results of operations or cash flows.
Item 4.
Mine Safety Disclosures.
Not applicable.
15
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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. On April 11, 2011, all 8.3 million outstanding
publicly held warrants (issued in connection with the IPO) and 1.1 million privately held warrants expired in accordance with their terms and
the Company recorded a realized gain of $0.1 million as a result of the expiration.
Our warrants and units were previously 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.
See Note 7 in the Notes to the Consolidated Financial Statements for additional explanation for the expired warrants. 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, 2011
September 30, 2011
June 30, 2011
March 31, 2011
December 31, 2010
September 30, 2010
June 30, 2010
March 31, 2010
Units*
Quarter ended
December 31, 2010
September 30, 2010
June 30, 2010
March 31, 2010
* On April 11, 2011, all outstanding warrants, including those contained within units, expired.
Warrants
Quarter ended
December 31, 2010
September 30, 2010
June 30, 2010
March 31, 2010
16
High
$1.99
$2.16
$2.85
$3.11
$2.70
$2.70
$2.70
$2.85
Low
$0.90
$0.75
$2.10
$2.20
$2.10
$2.05
$2.25
$2.10
High
$2.05
$1.50
$1.50
$2.45
Low
$2.05
$1.50
$1.50
$2.35
High
$0.04
$0.08
$0.10
$0.09
Low
$0.01
$0.02
$0.06
$0.05
Table of Contents
Holders of Common Equity
As of January 26, 2012, we had approximately 400 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, 2011 with respect to compensation plans, including individual
compensation arrangements, under which our equity securities are authorized for issuance (in thousands):
Plan Category:
Equity compensation plans approved by security holders (1)
Equity compensation plans not approved by security holders (2)
Total
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
591
2,075
2,666
Number of
securities remaining
available for future
issuance under
equity
compensation plans
(excluding securities
reflected in column
(a))
2,437
—
2,437
(1) This amount includes 0.6 million shares of common stock issuable upon the vesting of certain time restricted stock awards (the “Restricted
Stock Awards”) and less than 0.1 million shares of common stock issuable upon the exercise of a vested stock option award.
(2) This amount includes 2.1 million 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, including 2.0 million shares underlying a share incentive award granted to our Chief
Executive Officer.
Stock Performance Graph
InfuSystem Holding, Inc. is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide
the information required under this item.
Recent Sales of Unregistered Securities
None.
Repurchases of Equity Securities
As previously announced, in October 2010, our Board of Directors has authorized a share repurchase program of up to $2.0 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 purchases of common stock during years ended December 31, 2011 and 2010,
respectively (in thousands, except Average Price per Share):
(period)
January 1, 2011 — March 31, 2011
April 1, 2011 — June 30, 2011
July 1, 2011 — September 30, 2011
October 1, 2011 — December 31, 2011
Total for 2011
October 1, 2010 — December 31, 2010
Total for fourth quarter of 2010
Item 6.
Selected Financial Data.
InfuSystem Holdings, Inc. and Subsidiaries
Total Number of
Shares Purchased
78
9
65
—
152
46
46
Average Price
Paid per Share
2.77
$
2.20
1.46
—
2.18
2.46
2.46
$
$
Total Number of
Shares Purchased
as Part of
Publicly
Announced
Plans
or Programs
78
9
65
—
152
46
46
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
$
$
$
1,671
1,642
1,547
1,547
1,547
1,887
1,887
The following tables set forth our selected consolidated financial data for 2007 through 2011. You should read the financial data
presented below together with our consolidated financial statements included elsewhere in this report, and information presented under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have derived the statement of operations data
for the years ended December 31, 2011, 2010 and 2009 and the balance sheet data as of December 31, 2011 and 2010 from our audited
consolidated financial statements, which are included elsewhere in this report. We have derived the statement of operations data for the years
ended December 31, 2008 and 2007 and the balance sheet data as of December 31, 2009, 2008 and 2007 from audited consolidated financial
statements which are not included in this report. On October 25, 2007, we completed the acquisition of InfuSystem, Inc., and its results of
operations are included in the results for the year ended December 31, 2007 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 benefit (expense)
Net (loss) income
Net (loss) income per share — basic
Net (loss) income per share — diluted
$
December 31,
2011
54,637
(120,993)
(2,221)
23,134
(45,443)
(2.16)
(2.16)
$
$
18
$
December 31,
2010
47,229
(48,167)
(2,285)
1,371
(1,852)
(0.09)
(0.09)
$
$
$
December 31,
2009
38,964
(33,636)
(3,577)
(977)
774
0.04
0.04
$
$
$
December 31,
2008
35,415
(30,629)
6,080
(907)
9,959
0.56
0.53
$
$
December 31,
2007
$
$
$
6,582
(8,079)
(189)
(1,110)
(2,796)
(0.15)
(0.15)
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Balance Sheet Data (at period end) (1)
(in thousands)
Total assets
Long-term debt, including current maturities
Stockholders’ equity
$
December 31,
2011
76,263
29,127
40,165
December 31,
2010
$ 130,364
32,197
85,143
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 4 “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 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
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 approximately 1,400 oncology clinics 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
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consideration of $17.4 million, which included $16.6 million in cash payments and a note payable to the seller of $0.8 million. First
Biomedical’s results of operations are included in our consolidated statements of operations from the acquisition date.
As a result of the acquisition of First Biomedical, we sell, rent, service and repair new and pre-owned infusion pumps and other medical
equipment We also sell a variety of primary and secondary tubing, cassettes, catheters and other disposable items that are utilized with infusion
pumps. With locations in Kansas, California and Toronto, we are now 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, 2011 compared to the Year ended December 31,
2010
Revenues
Our revenue for the year ended December 31, 2011 was $54.6 million, a 16% increase compared to $47.2 million for the year ended
December 31, 2010. The increase in revenues is primarily related to revenues generated by a full year of operations of First Biomedical,
acquired during 2010, 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, 2011 was $35.4 million, an increase of 5% compared to $33.5 million in the prior year. It
represented 65% of revenues in the current year compared to 71% in the prior year. The decrease in the gross margin percentage was primarily
related to our requested change to an agreement with one of our pump manufacturers that transferred our ownership of all pumps and
corresponding current rental customers to the pump manufacturer in exchange for a share of future revenues, which resulted in a $1.2 million
non-cash write-off of the transferred pumps. There was also an increase as an overall percentage of revenue in pump sales and services, which
generally have a lower gross profit margin, as compared to third party billings.
Provision for Doubtful Accounts
Provision for doubtful accounts for the year ended December 31, 2011 was $4.1 million, compared to $4.5 million for the year ended
December 31, 2010. It represented 8% of revenues in the current year compared to 10% in the prior year. The decrease, as a percentage of
revenues is primarily the result of increased collection efforts and monitoring along with a change in patient and customer base due to a full
year of operations with First Biomedical in 2011.
Amortization of Intangible Assets
Amortization of intangible assets for the year ended December 31, 2011 was $2.7 million, an 18% increase compared to $2.3 million for
the year ended December 31, 2010. The increase is primarily related to additional intangible assets associated with the acquisition of First
Biomedical, as well as amortization of new software.
Asset impairment charges
As of June 30, 2011, based on a combination of factors, including a decline in our market capitalization, updated business forecasts, and
the expiration of our warrants, we concluded that there were sufficient indicators to require us to perform an interim goodwill and indefinite
lived intangibles impairment analysis. For the purposes of the analysis performed during the second quarter of 2011, our estimates of fair
value were based on a combination of the income approach, which estimates the fair value based on the future discounted cash flows, and the
market approach, which estimates the fair value based on comparable market prices. We concluded that an impairment loss was probable and
could be reasonably estimated. Accordingly, we recorded a $44.2 million non-cash asset impairment charge.
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As of September 30, 2011, based on a significant decline in our market capitalization, we concluded that there was an additional indicator
to require us to perform an interim goodwill and indefinite lived intangibles impairment analysis and as a result, we concluded that an
impairment loss was probable and could be reasonably estimated. For the purposes of the analysis performed during the third quarter of 2011,
our estimates of fair value were based on a combination of the income approach, which estimates the fair value based on the future discounted
cash flows, and the market approach, which estimates the fair value based on comparable market prices. Accordingly, for the three months
ended September 30, 2011, we recorded $23.4 million for non-cash asset impairment charges representing our best estimate of the loss.
Based on the impairment analyses as described above, the following table outlines the impairment charges by asset category (in
thousands) for the year ended December 31, 2011:
Goodwill
Trade names
Total impairment charges
Selling and Marketing Expenses
Asset
$64,092
3,500
$67,592
For the year ended December 31, 2011, our selling and marketing expenses were $9.4 million compared to $7.1 million for the year
ended December 31, 2010. 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 through a full year of operations of the acquired First Biomedical and increases
in sales force. As compared to the prior year, these expenses increased from 15% to 17% of revenues for the year ended December 31, 2010.
General and Administrative Expenses
During the year ended December 31, 2011, our general and administrative expenses were $18.0 million, compared to $20.6 million for
the year ended December 31, 2010. The decrease is primarily related to a decrease in share-based compensation 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 decreased from 44% to 33% of revenues for the year ended December 31, 2011 compared to the
same period in the prior year.
Other Income and Expenses
During the year ended December 31, 2011, we recorded a gain on derivatives of $0.1 million, compared to a gain of $0.2 million during
the year ended December 31, 2010. Included in the year ended December 31, 2011 was the gain from the expiration on April 11, 2011 of all
remaining outstanding warrants to purchase common stock issued in connection with the IPO, whereas the year ended December 31, 2010
gain included an unrealized gain from the change in fair value of our warrants, a realized loss recorded in connection with the 2010 exchange
of common stock for warrants, and a realized gain on the termination of an interest rate swap. 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 7 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
During the year ended December 31, 2011, we recorded interest expense of $2.2 million, compared to $3.4 million for the year ended
December 31, 2010. 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 on principal balances of the term loan, a lower swap rate as
well as a one-time expensing of all of the remaining I-Flow deferred debt issuance costs during the year ended December 31, 2010.
During the year ended December 31, 2011, we recorded an income tax benefit of $23.1 million, compared to a benefit of $1.4 million for
the year ended December 31, 2010. The effective tax rate for the year ended December 31, 2011 was 33.63%, compared to 47.21% for the
year ended December 31, 2010. The effective tax rate of 33.95% for the year ended December 31, 2011, is consistent with the statutory rate of
34.00%. Refer to the discussion under “Summary of Significant Accounting Policies — Income Taxes” included in Note 2 and “Income
Taxes” included in Note 9 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, 2010 through December 31, 2011.
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 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
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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 $0.2 million, compared to a loss of $0.1 million 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 an exchange of common stock for warrants, and a realized gain on the termination
of an 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 7 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 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 $1.0 million 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 9 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.
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Liquidity and Capital Resources
As of December 31, 2011, we had cash and cash equivalents of $0.8 million compared to $5.0 million at December 31, 2010. The
decrease in cash was primarily related to cash used for the acquisition of new pumps and repayment of long-term debt, partially offset by
positive cash flows from operating activities.
Cash provided by operating activities for the year ended December 31, 2011 was $7.2 million, compared to cash provided by operating
activities of $10.8 million for the year ended December 31, 2010. An increase in inventory, to satisfy the increased sales, accounts for $1.5
million of the $3.6 million decrease. Accounts receivable increased by $0.7 million which was consistent with the increase in sales. As
identified above we recorded a non-cash asset impairment expense of approximately $67.6 million during the year ended December 31, 2011.
This was offset in part by a change in deferred tax benefits of approximately $23.4 million, as result of the impairment expense. These items
have no impact on cash, but are listed as reconciling items in the consolidated statement of cash flows.
Cash used in investing activities for the year ended December 31, 2011 was $5.6 million, compared to $19.1 million for the year ended
December 31, 2010. The decrease is primarily related to cash paid for the acquisition of First Biomedical, partially offset by a $1.7 million
increase in purchases of infusion pumps.
Cash used in financing activities for the year ended December 31, 2011 was $5.8 million, compared to cash provided by financing
activities of $5.5 million for the year ended December 31, 2010. Cash used in financing activities for the year ended December 31, 2011 was
$5.8 million compared to cash provided by financing activities of $5.5 million for the year ended December 31, 2010. The change was
primarily related to the increase in additional borrowings of $10.3 million as a result of the refinancing in 2010. The remaining change was due
to an increase in cash payments on long-term debt of $1.6 million and capital leases of $0.6 million. These were offset by a decrease in cash
paid for debt issuance costs of $0.8 million and an increase in cash paid for treasury shares of $0.3 million.
Management believes the current funds, together with expected cash flows from ongoing operations as well as the $4.9 million available
as of December 31, 2011 on the revolving credit facility from Bank of America referred to below, are sufficient to fund our current operations.
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, 2011, interest was payable at LIBOR plus 4.5%, which equaled approximately 4.78%.
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, 2011 and 2010, the Company had a letter of credit in the
amount of $0.1 million 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,
2011, we were in compliance with all such covenants and are projecting to remain in compliance for the year ended December 31, 2012.
We are required to satisfy certain financial covenants on a quarterly and annual basis comprised of an interest coverage ratio and leverage
ratio for the duration of the Credit Facility.
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In connection with the Credit Facility, we have the following covenant obligations for the duration of the facility:
a)
b)
c)
The fixed charge coverage ratio is calculated in accordance with the agreement governing the Credit Facility and has a minimum ratio
at December 31, 2011 of 1.25:1. The required ratio for the remainder of the facility duration is 1.25:1.
The leverage ratio is calculated in accordance with the agreement governing the Credit Facility and has a maximum ratio at December
31, 2011 of 2.5:1. The required ratio varies quarterly for the remainder of the facility duration, from 2.5:1 to 1.75:1.
The Credit Facility includes an annual limitation on capital expenditures in accordance with the agreement governing the Credit
Facility that were $7.5 million for the year ended December 31, 2011. The limitation varies annually for the remainder of the facility
duration from $7.5 million to $8.8 million.
Contractual Obligations
As of December 31, 2011, future payments related to contractual obligations are as follows (in thousands):
Debt obligations
Capital Lease Obligations
Operating Lease Obligations
Total
Less than
1 Year
$ 4,695
1,881
605
$ 7,181
More than
1 to 3
Years
Payment Due by Period (1)
3 to 5
Years
$ —
—
48
$ 48
$19,500
3,051
1,046
$23,597
5 Years
—
$
—
—
—
$
Total
$24,195
4,932
1,699
$30,826
(1) 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.
Included in the operating lease obligations are future minimum lease payments as of December 31, 2011 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.
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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
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. 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. We perform an
analysis to estimate sales returns and record an allowance. This estimate is based on historical sales returns.
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.
Our largest payor is Medicare, which accounted for approximately 31% of our gross billings for the year ended December 31, 2011. We
have contracts with various individual Blue Cross/Blue Shield affiliates which in the aggregate accounted for approximately 21% of our gross
billings for the year ended December 31, 2011. No individual payor, other than Medicare and the Blue Cross/Blue Shield entities accounts for
greater than 6% of our gross billings.
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.
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Following is an analysis of the allowance for doubtful accounts for InfuSystem Holdings, Inc. for the years ended December 31, 2011,
2010 and 2009 (in thousands):
Allowance for doubtful accounts — 2011
Allowance for doubtful accounts — 2010
Allowance for doubtful accounts — 2009
Balance at
beginning
of Period
$ 1,796
$ 1,842
$ 1,552
Acquired
in acquisition
—
$
37
$
—
$
Charged
to costs and
expenses
4,099
4,515
4,006
$
$
$
Deductions (1)
(4,122)
$
(4,598)
$
(3,716)
$
Balance
at end of
Period
$1,773
$1,796
$1,842
(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 16.7 million units. Each unit consisted 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 0.2 million 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.
The accounting guidance 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, we announced an Offer to Exchange common stock for outstanding warrants. At the time, we had 35.1 million
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, 25.6 million Warrants were properly tendered; 24.8 million were tendered for shares of Common Stock subject to a lock-up, and
0.8 million were tendered for unrestricted shares of Common Stock. Under the terms of the Exchange Offer, we issued an aggregate
1.0 million shares of Common Stock in exchange for the tendered Warrants. After the exchange, there were 8.3 million publicly held warrants
and 1.1 million privately held warrants outstanding.
The 8.3 million remaining warrants issued in connection with the IPO and overallotment to purchase common stock expired on April 11,
2011, and we recorded a realized gain of $0.1 million, which is included on the gain in derivatives line item on the income statement, during
the year ended December 31, 2011.
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. The fair value of the swap is presented 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.
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Income Taxes
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 9 in the Notes to the Consolidated Financial Statements.
Goodwill and Other Intangibles 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.
We apply a fair value based impairment test for our single reporting unit to the net book value of goodwill and indefinite-lived assets on
an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The
analysis of potential impairments of goodwill requires a two-step process. The first step is an estimation of fair value of the Company. If step
one indicates that impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Impairment exists
when the fair value of goodwill or indefinite-lived assets is less than the carrying value.
As of June 30, 2011, based on a combination of factors, including a decline in our market capitalization, updated business forecasts, and
the expiration of our warrants, we concluded that there were sufficient indicators to require us to perform an interim goodwill and indefinite
lived intangibles impairment analysis. For the purposes of the analysis performed during the second quarter of 2011, our estimates of fair
value were based on a combination of the income approach, which estimates the fair value based on the future discounted cash flows, and the
market approach, which estimates the fair value based on comparable market prices. We concluded that an impairment loss was probable and
could be reasonably estimated. Accordingly, we recorded a $44.2 million non-cash asset impairment charge.
As of September 30, 2011, based on a significant decline in our market capitalization, we concluded that there was an indicator to require
us to perform an additional interim goodwill and indefinite lived intangibles impairment analysis. For the purposes of the analysis performed
during the third quarter of 2011, our estimates of fair value were based on a combination of the income approach, which estimates the fair
value based on the future discounted cash flows, and the market approach, which estimates the fair value based on comparable market prices.
We concluded that an impairment loss was probable and could be reasonably estimated. Accordingly, for the three months ended
September 30, 2011, we recorded $23.4 million for non-cash asset impairment charges representing our best estimate of the loss.
For more information, refer to the “Goodwill and Intangible Assets” discussion included in Note 6 in the Notes to the Consolidated
Financial Statements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
InfuSystem Holding, Inc. is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide
the information required under this item.
28
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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, 2011 and December 31, 2010
Consolidated Statements of Operations for the years ended December 31, 2011, December 31, 2010 and December 31, 2009
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2011, December 31, 2010 and December 31,
2009
Consolidated Statements of Cash Flows for the years ended December 31, 2011, December 31, 2010 and December 31, 2009
Notes to Consolidated Financial Statements
Page
30
31
32
33
34
36
29
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, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2011. 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, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements for the year ended December 31, 2011, have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3, the possibility of a change in the majority representation of the Board and
consequent event of default under the Credit Facility, which would allow the lenders to cause the debt of $24.0 million to become immediately
due and payable, raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these
matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Deloitte & Touche LLP
Detroit, Michigan
March 16, 2012
30
Table of Contents
(in thousands, except share data)
ASSETS
Current Assets:
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $1,773 and $1,796 at
December 31, 2011 and December 31, 2010, respectively
Accounts receivable — related party
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
Deferred income taxes
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Accounts payable - related party
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
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 21,330,235 and 21,163,337,
respectively; outstanding 21,330,235 and 21,117,516, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained deficit
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes to consolidated financial statements
31
December 31,
2011
December 31,
2010
$
799
$
5,014
7,350
98
3,217
934
682
13,080
15,764
421
—
28,221
18,187
590
76,263
4,004
59
2,235
258
6,576
13,132
22,551
—
415
36,098
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
—
—
2
87,541
(136)
(47,242)
40,165
76,263
2
87,004
(64)
(1,799)
85,143
$ 130,364
$
$
$
$
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Table of Contents
(in thousands, except share data)
Net revenues
Rentals
Product sales
Net revenues
Cost of revenues:
Cost of revenues — Product, service and supply costs
Cost of revenues — Pump depreciation, sales and disposals
Gross profit
Selling, general and administrative expenses:
Provision for doubtful accounts
Amortization of intangibles
Asset impairment charges
Selling and marketing
General and administrative
Total sales, general and administrative:
Operating (loss) income
Other income (loss):
Gain (loss) on derivatives
Interest expense
Gain on extinguishment of long term debt
Other expense
Total other loss
(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,
2011
Year Ended
December 31,
2010
Year Ended
December 31,
2009
$
$
$
$
46,795
7,842
54,637
9,128
10,154
35,355
4,099
2,662
67,592
9,371
17,987
101,711
(66,356)
83
(2,193)
—
(111)
(2,221)
(68,577)
23,134
(45,443)
(2.16)
(2.16)
$
$
$
$
43,384
3,845
47,229
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)
$
$
$
$
38,606
358
38,964
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
21,074,093
21,074,093
19,721,378
19,721,378
18,609,797
18,931,356
See accompanying notes to consolidated financial statements
32
Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
Common Stock
Accumulated
Treasury Stock
(in thousands, except share data)
Balances at January 1, 2009
Gross restricted shares issued upon vesting
Common stock issued to employees
Amortization of stock-based compensation
Par Value
$0.0001
Amount
Additional
Paid in
Capital
2 $ 80,792 $
Shares
18,513
(721) $
265 — — —
8 — — —
Retained
(Deficit)
Earnings
Other
Comprehensive
Loss
Shares Amount
Total
Stockholders’
Equity
— (1,234) $ — $
— —
— —
—
—
80,073
—
—
expense
Issuance of treasury stock for services
Common stock repurchased to satisfy
— —
753 —
— — — —
— —
— 1,234
—
—
753
—
minimum statutory withholding on stock-
based compensation
(52) —
(135) —
774
Net income
Balances at December 31, 2009
53 $
Gross restricted shares issued upon vesting 1,476 — — —
Common stock issued to employees
5 — — —
Stock issued from warrant exchange
Amortization of stock-based compensation
— — —
2 $ 81,410 $
18,734 $
1,015
2,015
—
—
— —
— —
— — $ — $
— —
— —
—
—
— —
— —
3,860 —
(114) —
— —
(46)
—
—
—
expense
Treasury shares repurchased
Common stock repurchased to satisfy
minimum statutory withholding on stock-
based compensation
Net loss
Unrealized loss on interest rate swap
Total comprehensive loss
Balances at December 31, 2010
Gross restricted shares issued upon vesting
Common stock issued to employees
Amortization of stock-based compensation
(67) —
— — —
(167) —
(1,852)
— — — —
2 $ 87,004 $ (1,799) $
21,163 $
219 — — —
— — — —
— —
— —
(64)
— —
(64)
— —
— —
—
—
—
—
—
(46) $ — $
expense
Treasury shares repurchased
Common stock repurchased to satisfy
minimum statutory withholding on stock-
based compensation
Net loss
Unrealized loss on interest rate swap
Total comprehensive loss
Balances at December 31, 2011
— —
— —
970 —
(331) —
— —
(152)
—
—
—
(52) —
(102) —
— — (45,443)
— — — —
2 $ 87,541 $(47,242) $
21,330
— —
— —
(72)
— —
(136)
—
—
—
(198) $ — $
Components of accumulated other comprehensive loss consisted of the following at December 31, 2011:
Unrealized loss on interest rate swap
See accompanying notes to consolidated financial statements
33
(135)
774
81,465
—
—
2,015
3,860
(114)
(167)
(1,852)
(64)
(1,916)
85,143
—
—
970
(331)
(102)
(45,443)
(72)
(45,515)
40,165
$(136)
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
Net book value of pumps sold from fixed assets
Amortization of intangible assets
Asset impairment charges
Amortization of deferred debt issuance costs
Stock-based compensation
Deferred income taxes
Changes in assets—(Increase)/Decrease, exclusive of effects of
acquisitions:
Accounts receivable, net of provision
Other current assets
Other assets
Changes in liabilities—Increase/(Decrease), exclusive of effects of
acquisitions:
Accounts payable and other liabilities
Derivative liabilities from termination of interest rate swap
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Acquisition of intangible assets
Cash paid for acquisition, net of cash acquired
Proceeds from sale of property
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Principal payments on term loan
Principal payments on capital lease obligations
Cash proceeds from loans
Proceeds from draw on revolving credit facility
Payments on revolving credit facility
Capitalized debt issuance costs
Common stock repurchased to satisfy statutory withholding on stock
based compensation
Treasury shares repurchased
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Year Ended
December 31,
2011
Year Ended
December 31,
2010
Year Ended
December 31,
2009
$ (45,443)
$
(1,852)
$
774
(83)
—
4,099
6,386
4,227
2,662
67,592
238
1,185
(23,423)
(4,868)
(1,702)
273
(3,971)
—
7,172
(4,155)
(1,398)
—
—
(5,553)
(4,518)
(1,435)
584
1,750
(1,750)
—
(102)
(363)
(5,834)
(4,215)
5,014
(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)
(822)
30,000
—
—
(808)
(167)
(68)
5,512
(2,736)
7,750
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)
(160)
—
—
(135)
—
(8,860)
(3,763)
11,513
$
799
$
5,014
$
7,750
See accompanying notes to consolidated financial statements
34
Table of Contents
The following table presents certain supplementary cash flow information for the years ended December 31, 2011, 2010 and 2009:
(in thousands)
SUPPLEMENTAL DISCLOSURES
Cash paid for interest (including swap payments)
Cash paid for income taxes
NON-CASH TRANSACTIONS
Additions to property (a)
Property acquired pursuant to a capital lease
Tender offer to exchange warrants
Origination of long term debt
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)
2011
2010
2009
$1,934
$ 249
$2,372
21
$
$2,933
18
$
$ 103
$2,300
$ —
$ —
$ —
$ —
$ —
$ —
219
$ 903
$1,869
$2,016
$ 750
$2,352
$ 438
$2,754
30
$
46
1,476
$ 291
$2,198
$ —
$ —
$ —
$ —
$ —
$ —
1,234
265
(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, 2011, 2010 and 2009, but will be included as a cash outflow from investing activities for capital expenditures
when paid.
(b) See Note 4 — Acquisitions
See accompanying notes to consolidated financial statements
35
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, 2011 and 2010, the results of its operations and cash flows for the years ended
December 31, 2011, 2010 and 2009, and stockholders’ equity from January 1, 2009 to December 31, 2011. In the opinion of the Company,
the consolidated statements for the all periods presented include all 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 clinics 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 4.
The Company supplies electronic ambulatory infusion pumps and associated disposable supply kits to oncology clinics, 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 approximately 1,400 oncology clinics
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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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.
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’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; long lived assets; intangible assets; 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).
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. 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 the Company for the years ended December 31, 2011, 2010 and
2009 (in thousands):
Allowance for doubtful accounts — 2011
Allowance for doubtful accounts — 2010
Allowance for doubtful accounts — 2009
Balance at
beginning
of Period
$ 1,796
$ 1,842
$ 1,552
Acquired
in acquisition
—
$
37
$
—
$
Charged
to costs and
expenses
4,099
4,515
4,006
$
$
$
Deductions (1)
(4,122)
$
(4,598)
$
(3,716)
$
Balance
at end of
Period
$1,773
$1,796
$1,842
(1) Deductions represent the write-off of uncollectible account receivable balances.
37
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Inventory
Our inventory consists of infusion pumps and related parts and supplies and is stated at a cost that approximates the lower of cost or
market method utilizing the first in, first out (FIFO) approach. The Company periodically performs an analysis of slow moving inventory and
records a reserve based on estimated obsolete inventory, which was $0.2 million for each of the years ended December 31, 2011 and 2010.
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 a period of 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 the accounting standard which
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. As a result of this assessment, the Company recognized a non-cash charge of approximately $1.4 million in property and
equipment and inventory, of which $1.2 million was recorded in cost of revenues for the year ended December 31, 2011.
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.
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.
At June 30, 2011, the Company determined that there may be market conditions relating to the stock price, elimination of warrants, and
business forecasts to conclude that the carrying value of the Company’s single reporting unit exceeds the fair market value, and therefore could
indicate impairment of goodwill. As a result of the triggering events, the Company performed an impairment test of goodwill as of June 30,
2011 and concluded that impairment of goodwill existed. For more information, refer to the “Goodwill and Intangible Assets” discussion
included in Note 6.
Additionally, at September 30, 2011, based on a significant decline in the Company’s market capitalization the Company concluded that
there was an additional indicator to require the Company to perform an interim goodwill
38
Table of Contents
impairment analysis and as a result, the Company concluded that an impairment loss was probable and could be reasonably estimated. For
more information, refer to the “Goodwill and Intangible Assets” discussion included in Note 6.
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 primarily 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 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. The Company
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 annually.
As of June 30, 2011, the Company determined that there may be market conditions relating to the stock price, elimination of warrants,
and business forecasts to conclude that there may be impairment of the Company’s indefinite lived intangibles relating to trade names. As a
result, the Company performed an impairment test of its indefinite lived intangibles as of June 30, 2011 and concluded that there was
impairment of its trade names. For more information, refer to the “Goodwill and Intangible Assets” discussion included in Note 6.
As of September 30, 2011, based on a significant decline in our market capitalization, the Company concluded that there was an
additional indicator to require an interim indefinite lived intangibles impairment analysis relating to trade names and as a result, the Company
concluded that an impairment loss was probable and could be reasonably estimated. For more information, refer to the “Goodwill and
Intangible Assets” discussion included in Note 6.
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,
2011 and 2010, net of taxes. For more information on the interest rate swap, refer to Note 7. There was an other comprehensive loss of $0.2
million and $0.1 million related to the unrealized loss on the swap for the years ended December 31, 2011 and 2010, respectively. The tax
impact on the loss was less than $0.1 million and $0.1 million, leaving a net accumulated other comprehensive loss of $0.1 million for each of
the years ended December 31, 2011 and 2010, respectively. The following table summarizes comprehensive loss for the year ended
December 31, 2011 and 2010 (in thousands):
Net loss
Accumulated other comprehensive loss on derivatives, net of taxes
Total comprehensive income (loss)
Revenue Recognition
2011
$(45,443)
(72)
$(45,515)
2010
$(1,852)
(64)
$(1,916)
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
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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. The Company performs an analysis to
estimate sales returns and records an allowance. This estimate is based on historical sales returns.
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.
The Company’s largest payor is Medicare, which accounted for approximately 31% of its gross billings for ambulatory infusion pump
services for each of the years ended December 31, 2011, 2010 and 2009, respectively. The Company has contracts with various individual
Blue Cross/Blue Shield affiliates which in the aggregate accounted for approximately 21%, 23% and 22% of its gross billings for ambulatory
infusion pump services for the years ended December 31, 2011, 2010 and 2009, 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, 2011, 2010 and 2009.
Income Taxes
The Company recognizes 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 9.
Share Based Payment
All entities are required to recognize stock 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 2.0 million
shares of common stock in connection with the grant of stock-based or stock-denominated awards. In addition, the Company has made certain
grants of restricted stock outside of the Plan. On May 27, 2011, the Company’s stockholders approved the reservation of an additional
3.0 million shares to be issued under the 2007 Stock Incentive Plan.
During the year ended December 31, 2011, the Company granted 0.7 million restricted shares, of which 0.1 million shares vested
immediately, with the remaining shares entitling the holder to receive at the end of a vesting period, a specified number of shares of the
Company’s stock.
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During the year ended December 31, 2010, the Company granted 3.4 million restricted shares. Of the total shares granted, 1.4 million
shares 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
2.0 million 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, 2011, 2010 and 2009 was $1.2 million, $5.9 million
and $0.8 million, respectively.
Warrants and Derivative Financial Instruments
On April 18, 2006, the Company consummated its initial public offering (“IPO”) of 16.7 million units. Each unit consisted of one share
of common stock and two redeemable common stock purchase warrants expiring April 11, 2011. Each warrant entitled 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 0.2 million
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 overallotment option. The Warrant Agreement provided 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.
Freestanding derivative contracts required to be settled in a company’s own stock, including common stock warrants, are required to be
designated as equity instruments, assets or liabilities. Under the provisions of the accounting standards, 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 35.1 million 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, 25.6 million Warrants were properly tendered; 24.8 million were tendered for shares of
Common Stock subject to a lock-up, and 0.9 million were tendered for unrestricted shares of Common Stock. Under the terms of the
Exchange Offer, the Company issued an aggregate 1.0 million shares of Common Stock in exchange for the tendered Warrants. After the
exchange, there were 8.3 million publicly held warrants and 1.1 million privately held warrants outstanding. The Company recognized a loss
of $0.5 million as a result of the exchange.
The 8.3 million remaining warrants expired on April 11, 2011 and the Company recorded a realized gain of $0.1 million, which is
included on the gain in derivatives line item on the income statement, during the year ended December 31, 2011.
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. The fair value of the swap is presented 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, 2011 and 2010 relate to the Company’s Bank of America credit facility. 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 8.
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 for
the years ended December 31, 2011, 2010 and 2009:
Numerator:
Net (loss) income (in thousands)
Denominator:
Weighted average common shares outstanding:
Basic
Dilutive effect of non-vested awards
Diluted
Net (loss) earnings per share:
Basic
Diluted
2011
2010
2009
$
(45,443)
$
(1,852)
$
774
21,074,093
—
21,074,093
19,721,378
—
19,721,378
18,609,797
321,559
18,931,356
$
$
(2.16)
(2.16)
$
$
(0.09)
(0.09)
$
$
0.04
0.04
For the year ended December 31, 2011, 2.6 million unvested restricted shares were not included in the calculation because they would
have an anti-dilutive effect. 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: 8.3 million outstanding warrants issued in
connection with the IPO, 1.1 million warrants issued privately, less than 0.1 million vested stock options and 2.2 million in unvested restricted
shares. For the years ended December 31, 2009 the following warrants were not included in the calculation because they would have an anti-
dilutive effect: 33.8 million outstanding warrants issued in connection with the IPO and 1.4 million warrants issued privately. For the year
ended December 31, 2009, there were 0.1 million 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.
Recently Issued Accounting Standards
In May 2011, the FASB issued Accounting Standards Update, or ASU, No. 2011-04, “Fair Value Measurement (Topic 820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial
Reporting Standards”, or IFRS. This update amends Accounting Standards Codification Topic 820, “Fair Value Measurement and
Disclosure.” ASU 2011-04 clarifies the application of certain existing fair value measurement guidance and expands the disclosures for fair
value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 is effective for annual and interim
reporting periods beginning on or after December 15, 2011, which means that it will be effective for the fiscal quarter beginning January 1,
2012. The new guidance is to be adopted prospectively and early adoption is not permitted. The Company does not believe that adoption of
ASU 2011-04 will have a significant impact on financial position, results of operations or cash flows.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to
report other comprehensive income and its components in the statement of changes in
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stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of
other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company believes the adoption of
ASU 2011-05 concerns presentation and disclosure only and will not have an impact on the Company’s consolidated financial position or
results of operations.
On September 15, 2011, the FASB issued an ASU 2011-08, Intangibles — Goodwill and Other (Topic 350) Testing Goodwill for
Impairment. The Board’s objective was to simplify goodwill impairment testing by permitting assessment of qualitative factors to determine
whether events and circumstances lead to the conclusion that it is necessary to perform the two-step goodwill impairment test currently
required under Topic 350, Intangibles — Goodwill and Other. Currently, Topic 350 requires entities to test goodwill on an annual basis by
comparing the fair value of a reporting unit to its carrying value including goodwill (Step one). The second part of the test must be performed
to measure the amount of impairment if the carrying value of a reporting unit exceeds the fair value under Step one. Under the amendment,
entities are not required to calculate the fair value of a reporting unit unless they conclude that it is more likely than not that the unit’s carrying
value is greater than its fair value based on an assessment of events and circumstances. The “more likely than not” threshold is when there is a
likelihood of more than 50% that a reporting unit’s carrying value is greater than its fair value. The Company does not anticipate adoption to
have a material impact to the Company’s consolidated financial statements.
Subsequent Events
An activist stockholder group consisting of Kleinheinz Capital Partners, Meson Capital Partners, Boston Avenue Capital and certain of
their affiliates (the “Kleinheinz Dissident Group”) is seeking to gain control of the Board of Directors of the Company. The Kleinheinz
Dissident Group has circulated to stockholders a consent solicitation requesting written agent designations from our stockholders to enable
them to call a special meeting of stockholders to consider the removal of our current Board of Directors without cause, and to replace the
Board with individuals nominated by the Kleinheinz Dissident Group. On February 27, 2012, the Kleinheinz Dissident Group delivered
documentation to the Company purporting to contain agent designations from a majority of stockholders and demanding that the Company call
a special meeting. In addition, on February 27, 2012, the Kleinheinz Dissident Group delivered notice to the Company stating its intention to
nominate a competing slate for election to our Board of Directors at the Company’s regular 2012 annual meeting. On March 5, 2012 the
Company announced that it had determined that the demand for a call of a special meeting met the Company’s by-law requirement and that the
Company would reschedule such meeting on or before May 12, 2012. The Company cannot predict the outcome of this matter at this time. On
March 5, 2012 the Company announced that it had determined that the demand for a call of a special meeting met the Company’s by-law
requirement.
Other than listed above, the Company has evaluated subsequent events after December 31, 2011 and concluded that no material
transactions occurred subsequent to that date that require adjustment to the Consolidated Financial Statements.
3. Going Concern and Management’s Plan
The accompanying consolidated financial statements for the year ended December 31, 2011, have been prepared assuming that the
Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of
business. As described in Note 2, in February 2012, stockholders representing approximately 54% of the outstanding shares of the Company
requested a special stockholders’ meeting to consider the following matters:
•
To amend the Company’s Bylaws in order to allow stockholders to fill any vacancies, however caused, on its Board of Directors
(the “Board”);
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•
•
•
•
To remove, without cause each of the seven members of the current Board, as well as any person or persons appointed by the
Board without stockholder approval between January 18, 2012 and up through and including the date of the special meeting;
To elect its own slate of seven directors;
To repeal any provision of the Bylaws that may be adopted by the Board subsequent to the last public filing on January 22, 2009 of
the Bylaws prior to the special meeting; and
To transact such other business as may properly come before the special meeting
If these stockholders were successful in electing their own slate of directors, it would result in a change in the majority of the Company’s
Board. Under the terms of the Company’s credit facility with Bank of America, N.A. and KeyBank National Association (the “lenders) (Note
8), a change in the majority of the Board would constitute a change in control and an event of default, which would allow the lenders to cause
the debt to be immediately due and payable. Given the Company’s cash balance at December 31, 2011 of approximately $0.8 million and
estimated 2012 liquidity, the Company would be unable to repay the $24.0 million in debt if it became due in May 2012.
Management has attempted to negotiate with these stockholders to reach an agreement prior to the Company’s annual meeting and/or the
special meeting demanded by the Kleinheinz Dissident Group, which are currently scheduled to be held in May 2012.
If a change in control were to occur as a result of the above action, the Company’s Credit Facility with Bank of America would allow the
lenders to make the debt immediately due and payable. This would require the Company to reclassify its debt as a current liability unless a
waiver of such covenant violation was obtained. In addition the Company would be required to reassess the recoverability of certain assets,
such as intangible assets and deferred tax assets, as well as reassess the appropriate classification and disclosures for other financial statement
items. Furthermore, a change in control would cause certain restricted stock grants to vest immediately, which would result in significant
compensation expense.
The possibility of a change in the majority representation of the Board, and consequent event of default under the credit facility, which
would allow the lenders to cause the debt of $24.0 million to become immediately due and payable, raises substantial doubt about the
Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments, if any, that might
result from the outcome of this uncertainty.
4.
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 $16.6 million paid in cash and a $0.8 million 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, 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.
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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
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 $0.2 million,
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.
The goodwill recorded as part of the purchase price was fully impaired during the year ended December 31, 2011. For additional
information see Note 6.
Fees
During the year ended December 31, 2010, the Company incurred legal and professional fees directly related to the First Biomedical
acquisition totaling approximately $1.0 million. 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)
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in the amount of $0.8 million. 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, 2011 and 2010 the outstanding principal due on the note was $0.2 million and $0.6
million, respectively.
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 for the years ended December 31, 2011 and 2010 (in thousands):
Net revenues
Net (loss) income
(Loss) earnings per share — basic
(Loss) earnings per share — diluted
2010
$52,316
(1,511)
(0.08)
(0.08)
2009
$48,741
1,305
0.07
0.07
5.
Property and Equipment
Property and equipment consisted of the following as of December 31, 2011 and 2010 (in thousands):
Pump equipment
Furniture, fixtures, and equipment
Accumulated depreciation
Total
2011
$ 31,734
2,226
(18,196)
$ 15,764
2010
$ 28,037
1,894
(13,259)
$ 16,672
Included in pump equipment above is $7.4 million and $4.6 million, as of December 31, 2011 and 2010, respectively, worth of pumps
obtained under various capital leases. Included in accumulated depreciation above are $2.2 million and $0.7 million, as of December 31, 2011
and 2010, 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 2011, 2010 and 2009 was $6.4 million, $5.4 million and $4.1 million, respectively, which was recorded in cost
of revenues and general and administrative expenses, for pump equipment and other fixed assets, respectively.
6. Goodwill and Intangible Assets
Impairment Testing
The Company applies a fair value based impairment test to the net book value of goodwill and indefinite-lived assets on an annual basis
and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. The analysis of potential
impairments of goodwill requires a two-step process. The first step is an estimation of fair value of the Company. If step one indicates that
impairment potentially exists, the second step is performed to measure the amount of impairment, if any. Impairment exists when the fair value
of goodwill or indefinite-lived assets is less than the carrying value.
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As of June 30, 2011, based on a combination of factors, including a decline in our market capitalization, updated business forecasts, and
the expiration of our warrants, the Company concluded that there were sufficient indicators to require us to perform an interim goodwill and
indefinite lived intangibles impairment analysis. For the purposes of the analysis performed during the second quarter of 2011, our estimates
of fair value were based on a combination of the income approach, which estimates the fair value based on the future discounted cash flows,
and the market approach, which estimates the fair value based on comparable market prices. The Company concluded that an impairment loss
was probable and could be reasonably estimated. Accordingly, a $44.2 million non-cash asset impairment charge was recorded.
As of September 30, 2011, based on a significant decline in our market capitalization, we concluded that there was an indicator to require
us to perform an interim goodwill and indefinite lived intangibles impairment analysis and as a result, we concluded that an impairment loss
was probable and could be reasonably estimated. For the purposes of the analysis performed during the third quarter of 2011, estimates of fair
value were based on a combination of the income approach, which estimates the fair value based on the future discounted cash flows, and the
market approach, which estimates the fair value based on comparable market prices. Accordingly, $23.4 million was recorded for non-cash
asset impairment charges representing the Company’s best estimate of the loss. This estimate was based on significant unobservable inputs
and would have been considered a level 3 under the fair value accounting guidance.
Based on the impairment analyses performed by the Company during the year ended December 31, 2011 the following table outlines the
impairment charges by asset category as of December 31, 2011 (in thousands):
Value as of December 31, 2010
Impairment charges
Value as of December 31, 2011
Identifiable Intangible Assets
Goodwill
$ 64,092
(64,092)
$ —
Trade
Names
$ 5,500
(3,500)
$ 2,000
The carrying amount and accumulated amortization of intangible assets as of December 31, 2011 and 2010 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
47
Gross
Assets
2011
Accumulated
Amortization
Net
$ 2,000
$
—
$ 2,000
32,865
848
1,593
$37,306
$
8,182
258
645
9,085
24,683
590
948
$28,221
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Nonamortizable intangible assets
Trade names
Amortizable intangible assets
Physician and customer relationships
Non-competition agreements
Software
Total nonamortizable and amortizable intangible assets
Gross
Assets
2010
Accumulated
Amortization
Net
$ 5,500
$
—
$ 5,500
32,400
760
980
$39,640
$
5,995
82
311
6,388
26,405
678
669
$33,252
Amortization expense for intangible assets for the years ended December 31, 2011 and 2010 was $2.7 million and $2.3 million,
respectively, which was recorded in operating expenses. Expected annual amortization expense for intangible assets recorded as of
December 31, 2011 is as follows (in thousands):
Amortization expense
2012
$2,728
2013
$2,594
2014
$2447
2015
$2,261
2016
2,191
7. 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 when outstanding. 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 35.1 million 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, 25.6 million Warrants were properly tendered; 24.8 million were tendered for shares of
Common Stock subject to a lock-up and 0.9 million were tendered for unrestricted shares of Common Stock. Under the terms of the Exchange
Offer, the Company issued an aggregate of 1.0 million shares of Common Stock in exchange for the tendered Warrants. There were 8.3
million publicly held warrants (issued in connection with the IPO) and 1.1 million privately held warrants remaining after the exchange.
The fair value of the Company’s 8.3 million warrants issued in connection with the IPO outstanding at December 31, 2010 were
liabilities of less than $0.1 million or $0.01 per warrant and are included in derivative liabilities within the Company’s balance sheet.
These remaining 8.3 million publicly held warrants (issued in connection with the IPO) and 1.1 million privately held warrants expired
on April 11, 2011 and the Company recorded a realized gain of $0.1 million as a result of the expiration.
On June 11, 2010, the Company terminated the single interest rate swap agreement that fixed its LIBOR-based variable rate on a then
outstanding loan. The interest rate swap was terminated through a cash settlement in the amount of $0.4 million, 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 $0.6
48
Table of Contents
million. The Company elected not to designate the swap as a cash flow hedge. 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 $15.6 million and $18.3 million on December 31, 2011 and 2010, respectively,
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, 2011 and 2010 was a liability of $0.3 million and $0.1 million, respectively. The Company has designated the
swap as a cash flow hedge. The fair value of the swap is presented on the Company’s consolidated balance sheet within derivative liabilities,
unrealized changes in the value are included in other comprehensive loss 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 December 31, 2011 and 2010 (in thousands):
Description
Derivative Designated as a Cash Flow
Hedge
Interest rate swap
Derivatives Not Designated as Hedging
Instruments
Warrants
Total
Balance Sheet Location
2011
2010
Derivative liabilities
$258
$100
Derivative liabilities
—
$258
83
$183
The following table presents the pretax impact that changes in the fair values of derivatives designated as hedging instruments had on
Accumulated Other Comprehensive Loss (“AOCL”) and earnings during the year ended December 31, 2011 (in thousands):
Description
Interest rate swap
Total
Loss Recognized
in OCL
$
$
158
158
Location of
Gain (Loss)
Reclassified from
AOCL into Income
(Effective Portion)
Gain (loss) on
derivatives
Gain (Loss)
Reclassified from
AOCL 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, 2011 and 2010 (in thousands):
Description
Warrants
Interest rate swap
Total
Location of Gain (Loss) Recognized
in Income
Gain (loss) on derivatives
Gain (loss) on derivatives
49
December 31,
2011
December 31,
2010
$
$
83
—
—
$
(73)
280
207
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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)
$
$
—
—
—
Significant
Other
Observable
Inputs
(Level 2)
$
$
—
258
258
Significant
Unobservable
Inputs
(Level 3)
$
$
—
—
—
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)
$
$
—
—
—
December 31,
2011
$
$
—
258
258
December
31,
2010
$
$
83
100
183
8.
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 initially consisted 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, 2011 and 2010, interest was payable at LIBOR plus 4.5%, which equaled approximately
4.78% and 4.76%, respectively.
Proceeds from the term loan were used to repay the outstanding balance of the Company’s then outstanding loan agreement, as well as
contribute to the acquisition consideration for First Biomedical.
As of December 31, 2011, the Company had a letter of credit in the amount of $0.1 million 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. The Company obtained a waiver as of December 31, 2011 for the going concern audit opinion
as this is also an event of default under the terms of the Credit Facility with the lenders. As of December 31, 2011, the Company was in
compliance with all other such covenants.
The Company is required to satisfy certain financial covenants on a quarterly and annual basis comprised of a fixed charge coverage ratio
and leverage ratio for the duration of the Credit Facility.
In connection with the Credit Facility, the Company has the following covenant obligations for the duration of the facility:
a)
The fixed charge coverage ratio is calculated in accordance with the agreement governing the Credit Facility and has a minimum ratio
at December 31, 2011 of 1.25:1. The required ratio for the remainder of the facility duration is 1.25:1.
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b)
c)
The leverage ratio is calculated in accordance with the agreement governing the Credit Facility and has a maximum ratio at December
31, 2011 of 2.5:1. The required ratio varies quarterly for the remainder of the facility duration, from 2.5:1 to 1.75:1.
The Credit Facility includes an annual limitation on capital expenditures in accordance with the agreement governing the Credit
Facility that were $7.5 million for the year ended December 31, 2011. The limitation varies annually for the remainder of the facility
duration from $7.5 million to $8.8 million.
In conjunction with the new credit facility, the Company incurred deferred debt issuance costs of $0.8 million. 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 years
ended December 31, 2011 and 2010 were $0.3 and $0.1 million, respectively, which was recorded in interest expense. Also, the Company
incurred deferred debt issuance costs in 2007 in conjunction with a prior loan agreement. The remaining unamortized debt costs, in respect to
the previous loan agreement 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 $1.0 million.
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 $0.8 million. 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, 2011 and 2010 the outstanding
principal due on the note was $0.2 and $0.6 million, respectively.
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.
As of December 31, 2011, the Company had approximate future maturities of loans and capital as follows (in thousands):
Term Loan
Seller Note
Capital Leases
Total
2012
$4,500
195
1,881
$6,576
2013
$4,875
—
1,869
$6,744
2014
$14,625
—
930
$15,555
2015
$—
—
252
$252
Total
$24,000
195
4,932
$29,127
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9.
Income Taxes
The components of consolidated provision for income taxes for the years ended December 31, 2011, 2010, and 2009 are as follows (in
thousands):
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
2011
2010
2009
$
(236)
(20,009)
(21,245)
$ (248)
(1,618)
(1,866)
$(1,306)
2,205
899
205
(2,409)
(2,204)
92
346
438
29
49
78
315
—
315
$(23,134)
57
—
57
$(1,371)
—
—
—
977
$
The significant components of net deferred income taxes as of December 31, 2011 and 2010 are as follows (in thousands):
Deferred Federal income tax assets —
Bad debt reserves
Stock based compensation
Net operating loss
Accrued compensation
Alternative minimum tax credit
Inventory
Accrued rent
Amortization
Mark to market
Other
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
2011
2010
$
126
703
4,585
94
42
80
18
12,820
87
16
18,571
(1,529)
—
—
(1,529)
17,042
1,827
$18,869
98
$
1,078
2,762
273
42
80
—
—
—
5
4,338
(1,998)
(6,367)
(33)
(8,398)
(4,060)
(581)
$(4,641)
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The classification of net deferred income taxes as of December 31, 2011 is summarized as follows (in thousands):
Deferred tax assets
Deferred tax liabilities
Net deferred income taxes
Current
$ 682
—
$ 682
Long-term
$ 22,122
(3,935)
$ 18,187
Total
$22,804
(3,935)
$18,869
The classification of net deferred income taxes as of December 31, 2010 is summarized as follows (in thousands):
Deferred tax assets
Deferred tax liabilities
Net deferred income taxes
The reconciliations of the effective income tax rate to the federal statutory rate are as follows:
Current
$1,185
(38)
$1,147
Long-term
$ 3,661
(9,449)
$ (5,788)
Total
$ 4,846
(9,487)
$(4,641)
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
FIN48 reversal
Prior year adjustments
Effective income tax rate
2011
34.00%
3.33%
(0.28%)
—
(3.71%)
—
—
—
(0.05%)
0.17%
0.17%
33.63%
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%
As of December 31, 2011, the Company had generated federal and state operating loss carryforwards of approximately $13.5 million
and $6.9 million, respectively. The federal net operating losses can be used for a 20-year period, and if unused, will begin to expire in 2028.
The state net operating losses have expiration periods that vary by state, which range from 5 to 20 years. The Company expects to be able to
utilize these net operating loss carryforwards and therefore has not recorded a valuation allowance which is discussed in more detail below.
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 at
that time. 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.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use
the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-
year period ended December 31, 2011. After adjusting the historical losses for non-recurring items, including the goodwill impairment,
sufficient earnings
53
Table of Contents
history exists to support the realization of the deferred tax assets. This evidenced ability to generate sufficient taxable income is the basis for
the Company’s assessment that the deferred tax assets are more likely than not to be realized.
As indicated in Note 3, there is substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial
statements do not include any adjustments, if any, that might result from the outcome of this uncertainty. The Company has concluded that this
doubt does not change the expectation that the deferred tax assets are more likely than not to be realized. In the event of a default on the
Company’s debt, it is possible that a series of actions could occur that would result in the recognition of a valuation allowance, resulting in a
charge to tax expense. Furthermore, actions resulting in a change of control for income tax purposes under Internal Revenue Code section 382,
could limit the amount of net operating losses and certain other deductions available for use on an annual basis, thus potentially impairing the
ability of the Company to realize the deferred tax assets.
Following is an analysis of the deferred tax asset valuation allowance for the years ended December 31, 2010, and 2009 (in thousands).
A valuation allowance did not exist during the year ended December 31, 2011:
Valuation Allowance — 2010
Valuation Allowance — 2009
Balance at
beginning
of Period
940
$
785
$
Charged
to costs
and
expenses
$ (940)
$ (458)
Deductions
$ —
613
$
Balance
at end
of Period
$ —
940*
$
* Includes $0.9 million and $0.1 million in valuation allowance for federal and state income taxes, respectively.
Beginning balance
Additions based on tax positions taken in prior years
Reductions for tax positions taken in prior years
Reductions for lapse in statute of limitations
Ending balance
2011
$ 247
109
(13)
(103)
$ 240
2010
$
0
247
—
—
$247
As of December 31, 2011, the Company had gross unrecognized tax benefits of $0.2 million that, if recognized, would result in a net tax
benefit of less than $0.1 million and would favorably affect the Company’s effective tax rate. It is expected that the amount of unrecognized
tax benefits will decrease in the next twelve months due to the lapse in the statute of limitations. The penalties and interest associated with
uncertain tax positions are not recorded due to the immateriality of the amount.
The federal income tax returns of the Company for the years 2008 through 2011 are subject to examination by the IRS, generally for
three years after the latter of their extended due date or when they are filed. The state income tax returns and other state tax filings of the
Company are subject to examination by the state taxing authorities, for various periods generally up to four years after they are filed.
10. Related Party Transactions
During the year ended December 31, 2011, the Company granted 100 shares to an Officer of the Company, all of which vested
immediately. During the year ended December 31, 2010, the Company granted 3.2 million shares to members of the Board of Directors and
Officers and 1.3 million 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 0.2 million shares vested and were
issued to members of the Board of Directors and Officers. The Company recognized $0.7 million, $5.4 million and $0.4 million in stock based
compensation related to members of the Board of Directors and Officers during the years ended December 31, 2011, 2010 and 2009,
respectively.
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Table of Contents
During the year ended December 31, 2011, the Company purchased pumps from Adepto Medical, a company that is controlled by a
family member of Mr. Tom Creal Executive Vice-President of First Biomedical. Total purchases during 2011 amounted to $0.1 million.
Outstanding payables associated with the purchases as of December 31, 2011 was less than $0.1 million and have been shown separately as
Accounts Payable—Related Parties in the Consolidated Balance Sheets. The Company also provided pumps to Adepto Medical during the
year ended December 31, 2011. Total revenue earned during the year ended December 31, 2011 was $0.4 million. Outstanding receivables
associated with the revenue were less than $0.1 million as of 2011 and has been shown separately as Current Assets—Related Parties in the
Consolidated Balance Sheets.
On October 19, 2010, the Company facilitated the sale, on behalf of Kimberly-Clark (I-Flow), a large stockholder, of 2.8 million
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 7, three present Company board members exchanged 0.2 million privately
held warrants under the lock-up provision for 7,451 shares of common stock during the year ended December 31, 2010.
As described in Note 8, in accordance with the terms of the Stock Purchase Agreement with First Biomedical, the Company entered into
a subordinated promissory note (the “Note”) with Thomas Creal, the former majority shareholder of First Biomedical (the Seller) in the
amount of $0.8 million. 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, 2011 and 2010 the outstanding principal due on the note was $0.2 million and $0.6 million,
respectively. 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 less than $0.1 million to Jan-Mar LLC and $0.1 million to the CW Investment Group LLC.
11. 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 had an exercise price of $5.00 per share of common stock and became exercisable commencing on
October 25, 2007, the acquisition date, and expired on April 11, 2011. The Company had the right to call the warrants for redemption in whole
and not in part at a price of $0.01 per warrant at any time after the warrant became exercisable. There were 1,142,858 privately held warrants
remaining after the exchange as discussed in Note 7 that expired in April 2011.
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 effect on the Company’s consolidated financial position, results of operations or cash flows.
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Table of Contents
As of December 31, 2011, the Company had approximate minimum future operating lease commitments of (in thousands):
2012
$605
2013
$448
2014
$296
2015
$302
2016
$ 48
Lease expense for the years ended December 31, 2011, 2010 and 2009 was $0.5 million, $0.2 million and $0.2 million, respectively.
12. 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 2.0 million shares of common
stock in connection with the grant of stock-based or stock-denominated awards. On May 27, 2011, the Company’s stockholders approved the
reservation of an additional 3.0 million shares to be issued under the 2007 Stock Incentive Plan.
As of December 31, 2011, 2.4 million common shares remained available for future grant under the 2007 Stock Incentive Plan.
Restricted Shares
During the year ended December 31, 2011 the Company granted restricted shares and stock options under the 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, 2011, the Company granted 0.7 million restricted shares, of which 0.1 million shares vested
immediately with the remaining shares to be received at the end of a vesting period only if the participants remain employed by the Company
through the vesting date and the number of shares earned will be based on the proportion of the length of service for a period of three years.
During the year ended December 31, 2010, the Company granted 3.4 million restricted shares. Of the total shares granted, 1.4 million
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
2.0 million 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.
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Table of Contents
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, 2011 and 2010:
Unvested at January 1, 2010
Granted
Vested
Vested shares forgone to satisfy minimum statutory withholding
Forfeitures
Unvested at December 31, 2010
Granted
Vested
Vested shares forgone to satisfy minimum statutory withholding
Forfeitures
Unvested at December 31, 2011
Number of
shares
(In thousands)
324
3,440
(1,408)
(67)
(115)
2,174
682
(168)
(51)
(1)
2,636
Weighted
average
grant
date fair
value
$ 2.86
2.50
2.56
2.78
2.66
$ 2.51
1.64
1.90
2.19
2.58
$ 1.88
As of December 31, 2011, there was $6.6 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 13 years.
Stock Options
There were no stock options granted during the years ended December 31, 2011 and 2010. During the year ended December 31, 2009,
the Company granted less than 0.1 million stock options at an exercise price of $1.85 per share which was the market price on the date of
grant.
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
There was no stock option activity for the years ended December 31, 2011 and 2010.
57
2009
2.5 years
1.38% -1.42%
35% - 37%
0%
Table of Contents
Stock-based compensation expense
The following table presents the total stock-based compensation expense, which is included in selling, general and administrative
expenses, related to all of the Company’s equity for the years ended December 31, 2011, 2010 and 2009 (in thousands):
Restricted share expense
Stock option expense
Total stock-based compensation expense
2011
$1,185*
—
$1,185
2010
$5,853**
—
$5,853
2009
$700
53
$753
*
**
Includes $0.2 million expense for a tax gross-up liability associated with certain restricted share grants.
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, the Company’s Board of Directors authorized a share repurchase program of up to $2.0 million of 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 years ended December 31, 2011 and 2010, the Company repurchased less than 0.2 million and less than 0.1 million shares at
an average price of $2.18 and $2.46 per share at a cost of approximately $0.3 million and $0.1 million, respectively.
13. Employee Benefit Plans
The Company has defined contribution plans in which the Company contributes a certain percentage of employee contributions. The
Company matching contributions totaled $0.2 million, $0.2 million and $0.1 million for the years ended December 31, 2011, 2010 and 2009,
respectively. The Company does not provide other post-retirement or post-employment benefits to its employees.
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14. Unaudited Quarterly Information
(in thousands, except per share data)
Net revenues
Gross profit
Sales, general and administrative expenses
Asset impairment charges
Total other expense
Loss before income taxes
Net loss
Loss per share — basic
Loss per share — diluted
(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
March 31,
2011
$ 12,957
9,053
8,826
—
(544)
(317)
(171)
(0.01)
(0.01)
March 31,
2010
$ 10,934
8,120
6,628
(1,194)
298
(12)
—
Quarter Ended
June 30,
2011
$ 13,133
8,988
8,167
44,213
(479)
(43,871)
(27,886)
(1.32)
(1.32)
$
September 30,
2011
14,505
9,232
8,347
23,379
(659)
(23,153)
(16,623)
(0.79)
(0.79)
Quarter Ended
June 30,
2010
$ 10,487
7,520
7,774
(319)
(573)
144
0.01
$
September 30,
2010
12,733
8,897
8,069
(359)
469
174
0.01
$
December 31,
2011
14,042
8,082
8,779
—
(539)
(1,236)
(763)
(0.04)
(0.04)
$
December 31,
2010
13,075
9,009
12,013
(412)
(3,416)
(2,158)
(0.11)
The significant increase in net loss for the three month periods ended June 30, 2011 and September 30, 2011 are due to the asset
impairment charges of $44.2 million and $23.4 million, respectively, recorded by the Company. See Note 6 for additional explanation of asset
impairment charges.
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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, 2011. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that our disclosure
controls and procedures were not effective because of the material weaknesses described below in Management’s Report on Internal Control
Over Financial Reporting related to procedures and internal controls at our First Biomedical office location.
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, 2011. 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, our Chief Executive Officer and Chief Financial Officer concluded that such
disclosure controls and procedures , as of December 31, 2011, were not effective due to a material weakness in our internal controls over
financial reporting identified during the second quarter of fiscal 2011, as described below. Notwithstanding this material weakness, based on
additional procedures performed after its discovery, management believes that the financial statements included in this report fairly present in
all material respects our financial condition, results of operations, and cash flows for the periods presented.
During the second quarter of 2011, our management identified a material weakness in the Company’s internal control over financial
reporting relating to limited finance staffing levels that are not commensurate with the Company’s increased complexity and its financial
accounting and reporting requirements in light of the Company’s continued growth. The Company has grown due to acquisitions and internal
growth. The growth of
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the Company has led the financial reporting staff to rely increasingly on outsourced work and outside specialists, without adequate resources
to thoroughly review, understand and, where necessary, challenge the assumptions, utilized by such outside specialists.
To address this material weakness, our management has reassessed its finance staffing needs and taken steps to assure that adequate
staffing and resources are available for the financial reporting process at the corporate office. Additional experienced personnel were hired in
the accounting and finance department during the year at the corporate office. New procedures were implemented and internal controls were
documented surrounding the month end financial closing and financial reporting processes to ensure proper and thorough review of journal
entries, account reconciliations and financial statements.
However, the new procedures and internal controls were not fully implemented as of December 31, 2011 at our First Biomedical office
location. Our management intends to initiate measures to remediate the identified material weakness by implementing the new procedures and
internal controls that were implemented at the corporate office at our First Biomedical office. These include, but are not limited to, applying a
more rigorous review of the monthly close processes to ensure that the performance of the control is evidenced through appropriate
documentation, which is consistently maintained and evaluating necessary changes to the Company’s acquisition process and the
establishment of a formalized process to ensure key controls are identified, control design is appropriate, and appropriate evidentiary
documentation is maintained throughout the process.
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.
Changes in Internal Control Over Financial Reporting
Other than as described above, there have not been any changes in our internal control over financial reporting during the fourth quarter
ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information.
None.
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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 2012
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 2012
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 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 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 2012
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.
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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)
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Exhibit Index
Exhibit
Number
3.1
Description of Document
Amended and Restated Certificate of Incorporation (1)
3.2
Certificate of Amendment to Amended and Restated Certificate of Incorporation (2)
3.3
Certificate of Amendment to Amended and Restated Certificate of Incorporation (3)
3.4
Certificate of Designation of Rights, Preferences and Privileges of Series A Junior Participating Preferred Stock (4)
3.5
Amended and Restated By-Laws (5)
4.1
Specimen Common Stock Certificate (6)
4.2
Rights Agreement, dated as of November 12, 2010, between the Registrant and Mellon Services, LLC as Rights Agent (4)
10.1
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 (7)
10.2
Form of Stock Transfer Agency Agreement (8)
10.3
Employment Agreement, dated as of November 12, 2007, by and between Registrant and Janet Skonieczny (9)
10.4
InfuSystem Holdings, Inc. 2007 Stock Incentive Plan (10)
10.5
Share Award Agreement between the InfuSystem Holdings, Inc. and Sean McDevitt (11)
10.6
Restricted Stock Award Agreement between Jan Skonieczny and InfuSystem Holdings, Inc. (12)
10.7
Restricted Stock Award Agreement between Scott Chesky and InfuSystem Holdings, Inc. (12)
10.8
Restricted Stock Award Agreement between David Haar and InfuSystem Holdings, Inc. (12)
10.9
Restricted Stock Award Agreement between Timothy Kopra and InfuSystem Holdings, Inc. (12)
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Stock Purchase Agreement, dated as of June 15, 2010, among Registrant, the Stockholders of First Biomedical, Inc. and
Thomas F. Creal II, as Representative (13)
Credit Agreement, dated as of June 15, 2010, among Registration, InfuSystem, Inc. and First Biomedical, Inc. (the
“Borrowers”), Bank of America, N.A. as Administrative Agent and Lender and Keybank National Association as Lender (13)
First Amendment to Credit Agreement, dated as of January 27, 2011, by and between InfuSystem Holdings, Inc., InfuSystem,
Inc., and First Biomedical, Inc. (the “Borrowers”), Bank of America, N.A. as Administrative Agent and Lender and Keybank
National Association as Lender.*
Second Amendment to Credit Agreement, dated as of April 1, 2011, by and between InfuSystem Holdings, Inc., InfuSystem,
Inc., and First Biomedical, Inc. (the “Borrowers”), Bank of America, N.A. as Administrative Agent and Lender and Keybank
National Association as Lender. (14)
Third Amendment to Credit Agreement, dated as of May 20, 2011, by and between InfuSystem Holdings, Inc., InfuSystem,
Inc., and First Biomedical, Inc. (the “Borrowers”), Bank of America, N.A. as Administrative Agent and Lender and Keybank
National Association as Lender.*
Fourth Amendment to Credit Agreement, dated as of July 21, 2011, by and between InfuSystem Holdings, Inc., InfuSystem,
Inc., and First Biomedical, Inc. (the “Borrowers”), Bank of America, N.A. as Administrative Agent and Lender and Keybank
National Association as Lender. (15)
Waiver to Credit Agreement, dated as of March 15, 2012, by and between InfuSystem Holdings, Inc., InfuSystem, Inc., and
First Biomedical, Inc. (the “Borrowers”), Bank of America, N.A. as Administrative Agent and Lender and Keybank National
Association as Lender.*
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Exhibit
Number
Description of Document
14.1
Code of Ethics (16)
21.1
23.1
31.1
31.2
Subsidiaries of Registrant *
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 *
32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
32.2
101.INS
Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
XBRL Instance Document**
101.SCH
XBRL Taxonomy Extension Schema Document**
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB
XBRL Taxonomy Extension Label Linkbase Document**
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document**
*
**
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Filed herewith
In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be
incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as
expressly set forth by specific reference in such filing.
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 Registrant’s Current Report on Form 8-K filed on April 24, 2006.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed October 31, 2007.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on November 12, 2010.
Incorporated by reference to Registrant’s Current Report on Form 8-K filed on January 22, 2009.
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 Annual Report on Form 10-K filed on March 3, 2009.
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 Registrant’s Current Report on Form 8-K filed on November 16, 2007.
(9)
(10) Incorporated by reference to Registrant’s Registration Statement on Form S-8 (File No. 333-150066) filed on April 3, 2008.
(11) Incorporated by reference to Registrant’s Current Report on Form 8-K filed April 9, 2010.
(12) Incorporated by reference to Registrant’s Registration Statement on Form S-8 (File No. 333-167914) filed on July 1, 2010.
(13) Incorporated by reference to Registrant’s Current Report on Form 8-K filed June 18, 2010.
(14) Incorporated by reference to Registrant’s Current Report on Form 8-K filed on April 1, 2011.
(15) Incorporated by reference to Registrant’s Current Report on Form 8-K filed on July 21, 2011.
(16) 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.
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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 16, 2012
By:
/s/ SEAN MCDEVITT
Sean McDevitt
Chairman of the Board
Chief Executive Officer and Director
(Principal 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 16, 2012
Date: March 16, 2012
Date: March 16, 2012
Date: March 16, 2012
Date: March 16, 2012
Date: March 16, 2012
Date: March 16, 2012
Date: March 16, 2012
/S/ SEAN MCDEVITT
Sean McDevitt
Chairman of the Board
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ JAMES FROISLAND
James Froisland
Chief Financial Officer
(Principal Accounting and Financial Officer)
/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/ TIM KOPRA
Tim Kopra
Director
66
Exhibit 10.12
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of January 27, 2011, is entered into by
and among INFUSYSTEM HOLDINGS, INC., a Delaware corporation (“Holdings”), INFUSYSTEM, INC., a California corporation
(“InfuSystem”) and FIRST BIOMEDICAL, INC., a Kansas corporation (“FBI” and together with Holdings and InfuSystem, the
“Borrowers” and each individually a “Borrower”), BANK OF AMERICA, N.A. in its capacity as an Administrative Agent and as a Lender
(“Agent”) and the other lenders party hereto (collectively, together with the Agent in its capacity as a Lender, the “Lenders”).
WHEREAS, the Borrowers and the Agent and the Lenders are parties to that certain Credit Agreement dated as of June 15, 2010 (the
“Existing Credit Agreement” and as such Existing Credit Agreement is amended by this Amendment, the “Amended Credit
Agreement”); and
WHEREAS, the Borrowers, Agent and Lenders desire to amend the terms of the Existing Credit Agreement on the terms and
conditions set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows.
SECTION 1
DEFINED TERMS
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Existing Credit Agreement.
SECTION 2
AMENDMENT TO EXISTING CREDIT AGREEMENT
Section 6.12(b) of the Existing Credit Agreement is hereby amended by deleting the Section in its entirety and substituting the following
therefor:
“(b) Fixed Charge Coverage Ratio. Maintain on a consolidated basis a Fixed Charge Coverage Ratio of at least 1.25:1:0.
This ratio will be calculated at the end of each Fiscal Quarter during the term of this Agreement commencing with the Fiscal Quarter ended
September 30, 2010, using the results of (i) with respect to the calculation for the Fiscal Quarter ended September 30, 2010, the three
(3) month period then ended, (ii) with respect to the calculation for the Fiscal Quarter ended December 31, 2010, the six (6) month period
then ended, (iii) with respect to the calculation for the Fiscal Quarter ended March 31, 2011, the nine (9) month period then ended and
(iv) with respect to the calculation for the Fiscal Quarter ended June 30, 2011 and for the calculation as of each Fiscal Quarter thereafter,
the twelve (12) month period then ended.”
SECTION 3
REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to the Agent and Lenders that:
3.1 Due Authorization, etc. The execution and delivery by it of this Amendment and the performance by it of its obligations under the
Existing Credit Agreement are duly authorized by all necessary corporate action, do not require any filing or registration with or approval or
consent of any governmental agency or authority, do not and will not conflict with, result in any violation of or constitute any default under
any provision of its certificate
First Amendment to Credit Agreement
or articles of incorporation, as applicable, or by-laws or those of any of its Subsidiaries or any material agreement or other document binding
upon or applicable to it or any of its Subsidiaries (or any of their respective properties) or any material law or governmental regulation or court
decree or order applicable to it or any of its Subsidiaries, and will not result in or require the creation or imposition of any Lien in any of its
properties or the properties of any of its Subsidiaries pursuant to the provisions of any agreement binding upon or applicable to it or any of its
Subsidiaries.
3.2 Validity. This Amendment has been duly executed and delivered by such Borrower and, together with the Existing Credit
Agreement, are the legal, valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their
respective terms subject, as to enforcement only, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforceability of the rights of creditors generally.
3.3 Representations and Warranties. The representations and warranties contained in Article V of the Existing Credit Agreement are
true and correct on the date of this Amendment in all material respects (except for those that are qualified by “materiality” or “Material Adverse
Effect”, in which case such representations and warranties shall have been true and correct in all respects), except to the extent (a) that such
representations and warranties solely relate to an earlier date or (b) have been changed by circumstances permitted by the Existing Credit
Agreement.
SECTION 4
CONDITIONS PRECEDENT
The amendment to the Existing Credit Agreement set forth in Section 2 of this Amendment shall become effective upon satisfaction of all
of the following conditions precedent:
4.1 Receipt of Documents. Agent shall have received a counterpart original of this Amendment duly executed by Borrowers and the
Lenders referenced on the signature page hereto.
4.2 Other Conditions. No Event of Default or Default shall have occurred and be continuing.
SECTION 5
MISCELLANEOUS
5.1 Warranties and Absence of Defaults. In order to induce the Agent and Lenders to enter into this Amendment, Borrowers hereby
warrant to the Agent and each Lender, as of the date of the actual execution of this Amendment (a) no Event of Default or Default has
occurred which is continuing as of such date and (b) the representations and warranties in Section 3 of this Amendment are true and correct.
5.2 Documents Remain in Effect. Except as amended and modified by this Amendment, the Existing Credit Agreement and the other
documents executed pursuant to the Existing Credit Agreement remain in full force and effect and each Borrower hereby ratifies, adopts and
confirms its representations, warranties, agreements and covenants contained in, and obligations and liabilities under, the Existing Credit
Agreement and the other documents executed pursuant to the Existing Credit Agreement.
5.3 Reference to Loan Agreement. On and after the effective date of this Amendment, each reference in the Existing Credit Agreement
to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import, and each reference to the “Loan Agreement” in any Loan
Documents, or other agreements, documents or other instruments executed and delivered pursuant to the Existing Credit Agreement, shall
mean and be a reference to the Amended Credit Agreement.
First Amendment to Credit Agreement
5.4 Headings. Headings used in this Amendment are for convenience of reference only, and shall not affect the construction of this
Amendment.
5.5 Counterparts. This Amendment may be executed in any number of counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Amendment.
5.6 Intentionally Omitted.
5.7 Governing Law. This Amendment shall be a contract made under and governed by the internal laws of the State of Illinois.
Wherever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable laws,
but if any provision of this Amendment shall be prohibited by or invalid under such laws, such provisions shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment.
5.8 Successors. This Amendment shall be binding upon Borrowers, Agent, each Lender and their respective successors and assigns,
and shall inure to the benefit of Borrowers, Agent, each Lender and the successors and assigns of the Agent and such Lender.
First Amendment to Credit Agreement
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly
authorized and delivered at Chicago, Illinois as of the date first above written.
BORROWERS:
INFUSYSTEM HOLDINGS, INC.
FIRST BIOMEDICAL, INC.
By:
Name:
Title:
/s/ James M. Froisland
James M. Froisland
Chief Financial Officer
By:
Name:
Title:
/s/ James M. Froisland
James M. Froisland
Chief Financial Officer
INFUSYSTEM, INC.
By:
Name:
Title:
/s/ James M. Froisland
James M. Froisland
Chief Financial Officer
AGENTS AND LENDERS:
BANK OF AMERICA, N.A., in its
capacity as Administrative Agent,
By:
Name:
Title:
/s/ Rosanne Parcill
Rosanne Parcill
Assistant Vice-President
BANK OF AMERICA, N.A., in its
capacity as a Lender
By:
Name:
Title:
/s/ Sophia Love
Sophia Love
Senior Vice President
KEYBANK NATIONAL ASSOCIATION, in its capacity as a
Lender
By:
Name:
Title:
/s/ Thomas J. Purcell
Thomas J. Purcell
Senior Vice-President
First Amendment to Credit Agreement
Exhibit 10.14
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of May 20, 2011, is entered into by
and among INFUSYSTEM HOLDINGS, INC., a Delaware corporation (“Holdings”), INFUSYSTEM, INC., a California corporation
(“InfuSystem”) and FIRST BIOMEDICAL, INC., a Kansas corporation (“FBI” and together with Holdings and InfuSystem, the
“Borrowers” and each individually a “Borrower”), BANK OF AMERICA, N.A. in its capacity as an Administrative Agent and as a Lender
(“Agent”) and the other lenders party hereto (collectively, together with the Agent in its capacity as a Lender, the “Lenders”).
WHEREAS, the Borrowers and the Agent and the Lenders are parties to that certain Credit Agreement dated as of June 15, 2010 as
amended by (i) that certain First Amendment to Credit Agreement dated as of January 27, 2011 and (ii) that certain Second Amendment to
Credit Agreement dated as of April 1, 2011 (the “Existing Credit Agreement” and as such Existing Credit Agreement is amended by this
Amendment, the “Amended Credit Agreement”);
WHEREAS, the Borrowers have requested that the Agent and the Lenders modify the Existing Credit Agreement in certain respects
and the Agent and Lenders have agreed to amend the terms of the Existing Credit Agreement on the terms and conditions set forth in this
Amendment.
NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows.
SECTION 1
DEFINED TERMS
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Existing Credit Agreement.
SECTION 2
AMENDMENT TO EXISTING CREDIT AGREEMENT
The definition of “EBITDA” contained in Section 1.01 of the Existing Credit Agreement is hereby amended by deleting the definition in
its entirety and substituting the following therefor:
““EBITDA” means, with respect to any Person, during any period, net income, less income or plus loss from discontinued
operations and extraordinary items, plus, to the extent deducted in computing net income and without duplication, the sum of (i) income
taxes, (ii) Interest Charges, (iii) depreciation, (iv) depletion and amortization, (v) non-cash compensation expense, (vi) all other non-cash
charges, provided that, for purposes of this subclause (vi), any non-cash charges or losses shall be treated as cash charges or losses in any
subsequent period during which cash disbursements attributable thereto are made (but excluding, for the avoidance of doubt, amortization
of a prepaid cash item that was paid in a prior period), (vii) out of pocket expenses incurred in connection with the FBI Purchase, this
Agreement and the other Loan Documents in an amount not to exceed $1,000,000, (viii) charges in connection with severance payments
made during such period to the extent such charges are acceptable to the Required Lenders; plus or minus (as applicable) any non-cash
losses or gains from unrealized changes in the fair market value of warrants, Swap Contracts and other derivatives, which gains or losses
would be reflected on the Consolidated statement of operations of Holdings and its Subsidiaries plus (ix) with respect to EBITDA of the
Borrowers for the fiscal quarter ended September 30, 2009, an aggregate amount equal to $877,285.00 in respect of severance payments
made by the Borrowers during such fiscal quarter plus (x) with respect to EBITDA of the Borrowers for the fiscal
quarter ended June 30, 2011, an aggregate amount of up to $1,900,000.00 in respect of one-time tax reimbursement compensation
payments by Holdings to certain of its directors to the extent such payments were accrued during the quarter ended December 31, 2010
and paid in cash during the quarter ended June 30, 2011.”
SECTION 3
REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to the Agent and Lenders that:
3.1 Due Authorization, etc. The execution and delivery by it of this Amendment and the performance by it of its obligations under the
Existing Credit Agreement are duly authorized by all necessary corporate action, do not require any filing or registration with or approval or
consent of any governmental agency or authority, do not and will not conflict with, result in any violation of or constitute any default under
any provision of its certificate or articles of incorporation, as applicable, or by-laws or those of any of its Subsidiaries or any material
agreement or other document binding upon or applicable to it or any of its Subsidiaries (or any of their respective properties) or any material
law or governmental regulation or court decree or order applicable to it or any of its Subsidiaries, and will not result in or require the creation
or imposition of any Lien in any of its properties or the properties of any of its Subsidiaries pursuant to the provisions of any agreement
binding upon or applicable to it or any of its Subsidiaries.
3.2 Validity. This Amendment has been duly executed and delivered by such Borrower and, together with the Existing Credit
Agreement, are the legal, valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their
respective terms subject, as to enforcement only, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforceability of the rights of creditors generally.
3.3 Representations and Warranties. The representations and warranties contained in Article V of the Existing Credit Agreement are
true and correct on the date of this Amendment in all material respects (except for those that are qualified by “materiality” or “Material Adverse
Effect”, in which case such representations and warranties shall have been true and correct in all respects), except to the extent (a) that such
representations and warranties solely relate to an earlier date or (b) have been changed by circumstances permitted by the Existing Credit
Agreement.
SECTION 4
CONDITIONS PRECEDENT
The amendment to the Existing Credit Agreement set forth in Section 2 of this Amendment shall become effective upon satisfaction of all
of the following conditions precedent:
4.1 Receipt of Documents. Agent shall have received all of the following, each in form and substance satisfactory to Agent:
(a) Amendment. A counterpart original of this Amendment duly executed by Borrowers.
(b) Secretary’s Certificate. A certificate of the secretary of each Borrower dated the date hereof or such other date as shall be
acceptable to Agent, substantially in the form of Exhibit A to this Amendment.
4.2 Other Conditions. No Event of Default or Default shall have occurred and be continuing.
5.1 Warranties and Absence of Defaults. In order to induce the Agent and Lenders to enter into this Amendment, Borrowers hereby
warrant to the Agent and each Lender, as of the date of the actual execution of
SECTION 5
MISCELLANEOUS
this Amendment (a) no Event of Default or Default has occurred which is continuing as of such date and (b) the representations and
warranties in Section 3 of this Amendment are true and correct.
5.2 Documents Remain in Effect. Except as amended and modified by this Amendment, the Existing Credit Agreement and the other
documents executed pursuant to the Existing Credit Agreement remain in full force and effect and each Borrower hereby ratifies, adopts and
confirms its representations, warranties, agreements and covenants contained in, and obligations and liabilities under, the Existing Credit
Agreement and the other documents executed pursuant to the Existing Credit Agreement.
5.3 Reference to Loan Agreement. On and after the effective date of this Amendment, each reference in the Existing Credit Agreement
to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import, and each reference to the “Loan Agreement” in any Loan
Documents, or other agreements, documents or other instruments executed and delivered pursuant to the Existing Credit Agreement, shall
mean and be a reference to the Amended Credit Agreement.
5.4 Headings. Headings used in this Amendment are for convenience of reference only, and shall not affect the construction of this
Amendment.
5.5 Counterparts. This Amendment may be executed in any number of counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Amendment.
5.6 Expenses. Borrowers agree, jointly and severally, to pay on demand all reasonable out-of-pocket costs and expenses of Agent
(including reasonable fees, charges and disbursements of Agent’s attorneys) in connection with the preparation, negotiation, execution,
delivery and administration of this Amendment and all other instruments or documents provided for herein or delivered or to be delivered
hereunder or in connection herewith. In addition, Borrowers agree, jointly and severally, to pay, and save Agent and each Lender harmless
from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Amendment, the
borrowings under the Amended Credit Agreement, and the execution and delivery of any instruments or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith, in each case to the same extent required under the Credit Agreement. All
obligations provided in this Section 6.6 shall survive any termination of this Amendment or the Amended Credit Agreement.
5.7 Governing Law. This Amendment shall be a contract made under and governed by the internal laws of the State of Illinois.
Wherever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable laws,
but if any provision of this Amendment shall be prohibited by or invalid under such laws, such provisions shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment.
5.8 Successors. This Amendment shall be binding upon Borrowers, Agent, each Lender and their respective successors and assigns,
and shall inure to the benefit of Borrowers, Agent, each Lender and the successors and assigns of the Agent and such Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly
authorized and delivered at Chicago, Illinois as of the date first above written.
BORROWERS:
INFUSYSTEM HOLDINGS, INC.
FIRST BIOMEDICAL, INC.
By:
Name:
Title:
/s/ JAMES FROISLAND
James Froisland
CFO
By:
Name:
Title:
/s/ JAMES FROISLAND
James Froisland
CFO
INFUSYSTEM, INC.
By:
Name:
Title:
/s/ JAMES FROISLAND
James Froisland
CFO
AGENTS AND LENDERS:
BANK OF AMERICA, N.A., in its
capacity as Administrative Agent,
By:
Name:
Title:
/s/ ROSANNE PARSILL
Rosanne Parsill
Vice President
BANK OF AMERICA, N.A., in its
capacity as a Lender
By:
Name:
Title:
/s/ SOPHIA LOVE
Sophia Love
Senior Vice President
KEYBANK NATIONAL ASSOCIATION, in its
capacity as a Lender
By:
Name:
Title:
/s/ SUKANYA V. RAJ
Sukanya V. Raj
Vice President & Portfolio Manager
To: Bank of America, N.A., as administrative agent
SECRETARY’S CERTIFICATE
This Certificate is being furnished pursuant to Section 4.1(b) of that certain Third Amendment to Credit Agreement (the
“Amendment”), dated as of May 20, 2011 by and among INFUSYSTEM HOLDINGS, INC., a Delaware corporation (“Holdings”),
INFUSYSTEM, INC., a California corporation (“InfuSystem”) and FIRST BIOMEDICAL, INC., a Kansas corporation (“FBI” and
together with Holdings and InfuSystem, the “Borrowers” and each individually a “Borrower”), BANK OF AMERICA, N.A. in its capacity
as an Administrative Agent and as a Lender (“Agent”) and the other lenders party thereto (collectively, together with the Agent in its capacity
as a Lender, the “Lenders”), which amends that certain Credit Agreement dated as of June 15, 2010 as amended by (i) that certain First
Amendment to Credit Agreement dated as of January 27, 2011 and (ii) that certain Second Amendment to Credit Agreement dated as of
April 1, 2011 (the “Existing Credit Agreement” and as the Existing Credit Agreement is amended and modified by the Amendment, the
“Amended Credit Agreement”). Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the
Amendment.
The undersigned, Secretary of each Borrower, hereby certifies on behalf of such Borrower, that:
1. Such Borrower has adopted resolutions sufficient to authorize the proper officers of such Borrower to execute and deliver the
Amendment in the name and on behalf of such Borrower, and each of them is authorized to cause such Borrower to borrow funds under the
Amended Credit Agreement. Such resolutions have not been rescinded or amended and are in full force and effect on and as of the date hereof.
2. Other than the resolutions referred to in clause 1 above, there is no corporate action, consent or governmental approval required for the
execution, delivery and performance by such Borrower of the Amendment or any other document, instrument or agreement contemplated by
the Amendment.
3. The following named persons were duly elected to, and are validly acting in, the offices listed opposite each of their names and are
authorized to execute on behalf of and in the name of each Borrower the Amendment and any and all other agreements, instruments or
documents contemplated by the Amendment, and their respective signatures set forth below are their genuine signatures.
Name
James Froisland
Janet Skonieczny
Sean McDevitt
Title
Chief Financial Officer
Secretary
Chief Executive Officer
Signature
/s/ James M.
Froisland
/s/ Janet
Skonieczny
/s/ Sean
McDevitt
4. I know of no proceeding for the dissolution or liquidation of any Borrower or threatening the existence of any Borrower.
5. There have been no amendments to the Articles or Certificates of Incorporation or to the By-laws of any Borrower since the date of
the certified copies thereof provided to you in connection with the execution of the Existing Credit Agreement.
6. Agent and the Lenders may rely on this Certificate until advised by a like certificate of any changes herein.
IN WITNESS WHEREOF, I have executed this Certificate on May 20, 2011.
I, the undersigned, Chief Executive Officer of each Borrower, DO HEREBY CERTIFY that Janet Skonieczny is the duly elected and
qualified Secretary of such Borrower, and the signature above is a genuine signature.
WITNESS my hand this 20 day of May, 2011.
/s/ Janet Skonieczny
By:
Name: Janet Skonieczny
Secretary
Title:
/s/ Sean McDevitt
By:
Name: Sean McDevitt
Title:
Chief Executive Officer
Exhibit 10.16
WAIVER AGREEMENT
THIS WAIVER AGREEMENT (this “Agreement”), dated as of March 15, 2012, is entered into by and among INFUSYSTEM
HOLDINGS, INC., a Delaware corporation (“Holdings”), INFUSYSTEM, INC., a California corporation (“InfuSystem”), and FIRST
BIOMEDICAL, INC., a Kansas corporation (“FBI” and together with Holdings and InfuSystem, the “Borrowers” and each individually a
“Borrower”), BANK OF AMERICA, N.A. in its capacity as an Administrative Agent and as a Lender (“Agent”) and the other lenders party
hereto (collectively, together with Agent in its capacity as a Lender, the “Lenders”).
WHEREAS, the Borrowers, Agent and the Lenders are parties to that certain Credit Agreement dated as of June 15, 2010 as amended
by (i) that certain First Amendment to Credit Agreement dated as of January 27, 2011, (ii) that certain Second Amendment to Credit
Agreement dated as of April 1, 2011, (iii) that certain Third Amendment to Credit Agreement dated as of May 20, 2011 and (iv) that certain
Fourth Amendment to Credit Agreement dated as of July 21, 2011 (as so amended, the “Credit Agreement”);
WHEREAS, Borrowers have advised Agent and the Lenders that Meson Capital Partners, Kleinheinz Capital Partners and Boston
Avenue Capital (collectively, the “Kleinheinz Dissident Group”) have (i) delivered to the Company, on behalf of stockholders having a
majority of shares of the Company’s Common Stock, a demand that the Company call a special meeting of the stockholders of Holdings at
which they would seek to remove the seven members of the Board of Directors of Holdings and replace them with the Kleinheinz Dissident
Group’s nominees and (ii) delivered notice to the Company of the intent to nominate, and solicit proxies in support of, a competing slate of
Director nominees, at the Company’s Annual Meeting (such proposed actions, together or separate, the “Board Replacement Proposal”);
WHEREAS, without limiting any other Change of Control that may occur in connection with the actions of the Kleinheinz Dissident
Group, if stockholders of Holdings approve the Board Replacement Proposal and the Board Replacement Proposal is effected, a Change of
Control would result therefrom, thereby constituting an Event of Default under Section 8.01(k) of the Credit Agreement;
WHEREAS, it is anticipated that, solely as a result of the potential for a Change of Control and Event of Default to occur resulting from
an approval of the Board Replacement Proposal, auditing standard AU341 will require that the independent certified public accountant of the
Borrowers issue a “going concern opinion” that will include an explanatory paragraph (the “Explanatory Paragraph”) referenced to
disclosure in the audited financial statements of Holdings and its Subsidiaries for the Fiscal Year ended December 31, 2011 which describe
the possibility of a Change of Control as a matter that raises substantial doubt about Holdings and its Subsidiaries ability to continue as a
going concern (a “2011 Qualified Audit”);
WHEREAS, Section 6.01(a) of the Credit Agreement requires the Borrowers to deliver audited financial statements of Holdings and its
Subsidiaries for each Fiscal Year which are audited and, among other things, are not subject to any “going concern” or like qualification or
exception or any qualification or exception as to the scope of such audit;
WHEREAS, in light of the foregoing requirement, delivery of a 2011 Qualified Audit would constitute an Event of Default under
Section 8.01(b) of the Credit Agreement (the “Designated Default”);
WHEREAS, notwithstanding the foregoing, the Borrowers have requested that the Lenders prospectively waive the Designated
Default, and Agent and the Lenders have agreed to prospectively waive the Designated Default subject to and on the terms and conditions set
forth in this Agreement; and
WHEREAS, as of the close of business March 14, 2012, the aggregate unpaid principal balance of the Revolving Loans was
$2,500,000; the aggregate amount of the L/C Obligations was $80,580, and the aggregate unpaid principal balance of the Term Loans was
$24,000,000.
NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows.
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Credit Agreement.
SECTION 1
DEFINED TERMS
SECTION 2
WAIVER
In reliance upon the representations, warranties and covenants of the Borrowers contained herein, and subject to the effectiveness and the
terms and conditions of this Agreement, including, without limitation, those set forth in Section 4 hereof, Lenders hereby prospectively waive
the Designated Default solely to the extent and on the condition, however, that: (i) any 2011 Qualified Audit which is delivered to Agent
indicates with specificity and certainty (as determined by Agent) that it is subject to a “going concern opinion” qualification solely as a result of
the possibility that the Board Replacement Proposal will be approved by stockholders of Holdings, resulting in the occurrence of a Change of
Control and hence an Event of Default (for the avoidance of doubt, the draft Explanatory Paragraph delivered to the Agent on March 14, 2012
establishes the foregoing requirement; provided that the foregoing waiver shall be deemed rescinded and of no effect if the final Explanatory
Paragraph issued in the 2011 Qualified Audit is not in a form that is identical to such draft); and (ii) no other Default shall exist as of the date
on which such 2011 Qualified Audit is delivered to Agent. Other than with respect to the express and specific waiver of the Designated
Default set forth above, the foregoing shall not (a) be deemed a waiver of any Default which may now exist or which may occur after the date
hereof, (b) establish a custom or course of dealing among Agent, the Lenders and the Borrowers, (c) operate as a waiver of any other right,
power, or remedy of Agent or the Lenders under the Credit Agreement, (d) be construed as an agreement or understanding by the Lenders to
grant any other waiver or other accommodation in the future with respect to any provision of the Credit Agreement or any of the other Loan
Documents, or (e) modify any of the Borrowers’ obligations to comply with the covenants set forth in the Credit Agreement, including,
without limitation, Section 6.01(a) thereof. For the avoidance of doubt, and without limiting the generality of the immediately preceding
sentence, nothing contained herein shall be construed waive, prejudice, impair or otherwise adversely affect any right, power or remedy of
Agent or the Lenders as it relates to the Board Replacement Proposal or, if it occurs, any Change of Control or resulting Event of Default, all
of which rights, powers and remedies are hereby expressly reserved.
SECTION 3
REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to Agent and the Lenders that:
3.1 Due Authorization, etc. The execution and delivery by it of this Agreement and the performance by it of its obligations under the
Credit Agreement are duly authorized by all necessary corporate action, do not require any filing or registration with or approval or consent of
any governmental agency or authority, do not and will not conflict with, result in any violation of or constitute any default under any provision
of its certificate or articles of incorporation, as applicable, or by-laws or those of any of its Subsidiaries or any material agreement or other
document binding upon or applicable to it or any of its Subsidiaries (or any of their respective properties) or any material law or governmental
regulation or court decree or order applicable to it or any of its Subsidiaries, and will not result in or require the creation or imposition of any
Lien in any of its properties or the properties of any of its Subsidiaries pursuant to the provisions of any agreement binding upon or applicable
to it or any of its Subsidiaries.
-2-
3.2 Validity. This Agreement has been duly executed and delivered by such Borrower and, together with the Credit Agreement, are the
legal, valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms subject, as
to enforcement only, to bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of the rights of
creditors generally.
3.3 Representations and Warranties. The representations and warranties contained in Article V of the Credit Agreement are true and
correct on the date of this Agreement in all material respects (except for those that are qualified by “materiality” or “Material Adverse Effect”,
in which case such representations and warranties shall have been true and correct in all respects), except to the extent (a) that such
representations and warranties solely relate to an earlier date or (b) have been changed by circumstances permitted by the Credit Agreement.
SECTION 4
CONDITIONS PRECEDENT
The waiver set forth in Section 2 of this Agreement shall become effective upon satisfaction of all of the following conditions precedent:
4.1 Receipt of Documents. Agent shall have received all of the following, each in form and substance satisfactory to Agent:
(a) Amendment. Counterparts original of this Agreement duly executed by Borrowers and by the Required Lenders;
(b) Secretary’s Certificate. A certificate of the secretary of each Borrower dated the date hereof or such other date as shall be
acceptable to Agent, substantially in the form of Exhibit A to this Agreement; and
(c) Guarantor Joinder. The joinder attached hereto duly executed by by IFC LLC (the “Guarantor”).
4.2 Waiver Fee. Agent shall have received from Borrowers a waiver fee in the amount of $72,500.00 to be allocated ratably among each
Lender based on the Applicable Percentage of such Lender’s Commitment.
4.3 Other Conditions. No Default shall have occurred and be continuing other than the Designated Default.
Notwithstanding the foregoing, if this Agreement has not by its terms become effective on or before March 15, 2012, this Agreement
(other than Sections 5.6 and 5.7 hereof, which shall be and remain effective in any event) shall not become effective and shall be deemed of no
further force and effect.
SECTION 5
MISCELLANEOUS
5.1 Warranties and Absence of Defaults. In order to induce Agent and Lenders to enter into this Agreement, Borrowers hereby
warrant to Agent and each Lender, as of the date of the actual execution of this Agreement and as of the date on which this Agreement
becomes effective (a) no Default has occurred which is continuing as of such date other than the Designated Default and (b) the
representations and warranties in Section 3 of this Agreement are true and correct.
5.2 Documents Remain in Effect. Except as expressly amended and modified by this Agreement, the Credit Agreement and the other
documents executed pursuant to the Credit Agreement remain unmodified and in full force and effect, and each Borrower hereby ratifies,
adopts and confirms its representations, warranties, agreements and covenants contained in, and obligations and liabilities under, the Credit
Agreement and the other documents executed pursuant to the Credit Agreement.
-3-
5.3 Reference to Loan Agreement. On and after the effective date of this Agreement, each reference in the Credit Agreement to “this
Agreement,” “hereunder,” “hereof,” “herein” or words of like import, and each reference to the “Loan Agreement” in any Loan Documents, or
other agreements, documents or other instruments executed and delivered pursuant to the Credit Agreement, shall mean and be a reference to
the Credit Agreement as supplemented by this Agreement; and this Agreement shall be deemed to be a Loan Document.
5.4 Headings. Headings used in this Agreement are for convenience of reference only, and shall not affect the construction of this
Agreement.
5.5 Counterparts. This Agreement may be executed in any number of counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Agreement. Any party hereto may execute and deliver a counterpart of this Agreement by delivering
by facsimile or email transmission a signature page of this Agreement signed by such party, and any such facsimile or email signature shall be
treated in all respects as having the same effect as an original signature. Any party delivering by facsimile or email transmission a counterpart
executed by it shall promptly thereafter also deliver a manually signed counterpart of this Agreement.
5.6 Expenses. Borrowers agree, jointly and severally, to pay on demand all reasonable out-of-pocket costs and expenses of Agent and
each Lender (including reasonable fees, charges and disbursements of Agent’s and each Lender’s attorneys) in connection with the
preparation, negotiation, execution, delivery and administration of this Agreement and all other instruments or documents provided for herein
or delivered or to be delivered hereunder or in connection herewith. In addition, Borrowers agree, jointly and severally, to pay, and save Agent
and each Lender harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of
this Agreement, the borrowings under the Credit Agreement, and the execution and delivery of any instruments or documents provided for
herein or delivered or to be delivered hereunder or in connection herewith, in each case to the same extent required under the Credit
Agreement. All obligations provided in this Section 5.6 shall survive any termination of this Agreement or the Credit Agreement.
5.7 Confirmation of Obligations; Release.
(a) Each Borrower (and by joinder hereto, the Guarantor) hereby confirms that the Borrowers are jointly and severally indebted to
the Lenders for the Loans and L/C Obligations in the amounts and as of the date set forth in last “Whereas” recital hereof, and is also
obligated to the Lenders in respect of other Obligations as set forth in the Credit Agreement and the other Loan Documents. Each
Borrower (and by joinder hereto, the Guarantor) further acknowledges and agrees that as of the date hereof, it has no claim, defense or
set-off right against any Lender or Agent of any nature whatsoever, whether sounding in tort, contract or otherwise, and has no claim,
defense or set-off of any nature whatsoever to the enforcement by any Lender or Agent of the full amount of the Loans and other
obligations of the Borrowers and the Guarantor under the Credit Agreement and the other Loan Documents.
(b) Notwithstanding the foregoing, to the extent that any claim, cause of action, defense or set-off against any Lender or Agent or
their enforcement of the Credit Agreement or any other Loan Document, of any nature whatsoever, known or unknown, fixed or
contingent, does nonetheless exist or may exist on the date hereof, in consideration of the Lenders’ and Agent’s entering into this
Agreement, each Borrower (and by joinder hereto, the Guarantor) hereby irrevocably and unconditionally waives and releases fully each
and every such claim, cause of action, defense and set-off which exists or may exist on the date hereof.
(c) All obligations provided in this Section 5.7 shall survive any termination of this Agreement or the Credit Agreement.
-4-
5.8 Governing Law; Certain Other Matters.
(a) This Agreement shall be a contract made under and governed by the internal laws of the State of Illinois. Wherever possible, each
provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable laws, but if any provision of
this Agreement shall be prohibited by or invalid under such laws, such provisions shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
(b) This Agreement and all other agreements and documents executed in connection herewith have been prepared through the joint
efforts of all of the parties. Neither the provisions of this Agreement or any such other agreements and documents nor any alleged
ambiguity shall be interpreted or resolved against any party on the ground that such party’s counsel drafted this Agreement or such other
agreements and documents, or based on any other rule of strict construction. Each of the parties hereto represents and declares that such
party has carefully read this Agreement and all other agreements and documents executed in connection herewith and therewith, and that
such party knows the contents thereof and signs the same freely and voluntarily. The parties hereby acknowledge that they have been
represented by legal counsel of their own choosing in negotiations for and preparation of this Agreement and all other agreements and
documents executed in connection therewith and that each of them has read the same and had their contents fully explained by such
counsel and is fully aware of their contents and legal effect.
5.9 Successors. This Agreement shall be binding upon Borrowers, Agent, each Lender and their respective successors and assigns, and
shall inure to the benefit of Borrowers, Agent, each Lender and the successors and assigns of Agent and such Lender.
5.10 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO HEREBY
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATION IN THIS SECTION.
[signature page attached]
-5-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly
authorized and delivered at Chicago, Illinois as of the date first above written.
BORROWERS:
INFUSYSTEM HOLDINGS, INC.
FIRST BIOMEDICAL, INC.
By:
Name:
Title:
/s/ James M. Froisland
James Froisland
CFO
By:
Name:
Title:
/s/ James M. Froisland
James Froisland
CFO
INFUSYSTEM, INC.
By:
Name:
Title:
/s/ James M. Froisland
James Froisland
CFO
AGENTS AND LENDERS:
BANK OF AMERICA, N.A., in its
capacity as Administrative Agent,
By:
Name:
Title:
/s/ Rosanne Parsill
Rosanne Parsill
Vice President
BANK OF AMERICA, N.A., in its
capacity as a Lender
By:
Name:
Title:
/s/ Sophia Love
Sophia Love
Senior Vice President
KEYBANK NATIONAL ASSOCIATION, in its capacity as a
Lender
By:
Name:
Title:
/s/ Sukanya Raj
Sukanya Raj
Vice President
Waiver Agreement Signature Page
The undersigned hereby joins in this Agreement, as of the date first above written, to acknowledge, consent and agree to the terms and
conditions thereof, including, without limitation, Sections 5.7 and 5.10 thereof, and to confirm that this Agreement shall not impair or
otherwise affect its Obligations and grants of Liens under any of the Loan Documents to which it is a party.
GUARANTOR JOINDER
Waiver Agreement—Guarantor Joinder
IFC LLC
By:
Name:
Title:
/S/ SEAN MCDEVITT
Sean McDevitt
Chief Executive Officer
Exhibit A
Secretary’s Certificate
[see attached]
To: Bank of America, N.A., as administrative agent
SECRETARY’S CERTIFICATE
This Certificate is being furnished pursuant to Section 4.1(b) of that certain Waiver Agreement (the “Agreement”), dated as of March
15, 2012 by and among INFUSYSTEM HOLDINGS, INC., a Delaware corporation (“Holdings”), INFUSYSTEM, INC., a California
corporation (“InfuSystem”) and FIRST BIOMEDICAL, INC., a Kansas corporation (“FBI” and together with Holdings and InfuSystem,
the “Borrowers” and each individually a “Borrower”), BANK OF AMERICA, N.A. in its capacity as an Administrative Agent and as a
Lender (“Agent”) and the other lenders party thereto (collectively, together with Agent in its capacity as a Lender, the “Lenders”), which
amends that certain Credit Agreement dated as of June 15, 2010 as amended by (i) that certain First Amendment to Credit Agreement dated as
of January 27, 2011, (ii) that certain Second Amendment to Credit Agreement dated as of April 1, 2011, (iii) that certain Third Amendment to
Credit Agreement dated as of May 20, 2011 and (iv) that certain Fourth Amendment to Credit Agreement dated as of July 21, 2011 (the
“Credit Agreement”). Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Agreement.
The undersigned, Secretary of each Borrower, hereby certifies on behalf of such Borrower, that:
1. Such Borrower has adopted resolutions sufficient to authorize the proper officers of such Borrower to execute and deliver the
Agreement in the name and on behalf of such Borrower, and each of them is authorized to cause such Borrower to borrow funds under the
Credit Agreement. Such resolutions have not been rescinded or amended and are in full force and effect on and as of the date hereof.
2. Other than the resolutions referred to in clause 1 above, there is no corporate action, consent or governmental approval required for the
execution, delivery and performance by such Borrower of the Amendment or any other document, instrument or agreement contemplated by
the Amendment.
[certificate continues on following page]
3. The following named persons were duly elected to, and are validly acting in, the offices listed opposite each of their names and are
authorized to execute on behalf of and in the name of each Borrower the Amendment and any and all other agreements, instruments or
documents contemplated by the Amendment, and their respective signatures set forth below are their genuine signatures.
Name
James Froisland
Janet Skonieczny
Sean McDevitt
Title
Chief Financial Officer
Secretary/Assistant Secretary
1
Chief Executive Officer
Signature
/s/ James M.
Froisland
/s/ Janet
Skonieczny
/s/ Sean
McDevitt
4. I know of no proceeding for the dissolution or liquidation of any Borrower or threatening the existence of any Borrower.
5. There have been no amendments to the Articles or Certificates of Incorporation or to the By-laws of any Borrower since the date of
the certified copies thereof provided to you in connection with the execution of the Credit Agreement.
6. Agent and the Lenders may rely on this Certificate until advised by a like certificate of any changes herein.
1
Janet Skonieczny is the Secretary of Holdings, the Secretary of InfuSystem and the Assistant Secretary of FBI.
[signature page attached]
IN WITNESS WHEREOF, I have executed this Certificate on March 15, 2012.
/s/ Janet Skonieczny
By:
Name: Janet Skonieczny
Title:
Secretary/Assistant Secretary
I, the undersigned, Chief Executive Officer of each Borrower, DO HEREBY CERTIFY that Janet Skonieczny is the duly elected and
qualified Secretary/Assistant Secretary of such Borrower, and the signature above is a genuine signature.
WITNESS my hand this 15th day of March, 2012.
/s/ Sean McDevitt
By:
Name: Sean McDevitt
Title:
Chief Executive Officer
Subsidiaries of the Registrant
EXHIBIT 21.1
Name
Jurisdiction of Organization
InfuSystem, Inc.
First Biomedical, Inc.
IFC, LLC
California
Kansas
Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference, in Registration Statement Nos. 333-150066, 333-167914, and 333-174828 on Form S-8, of our
report dated March 16, 2012, relating to the consolidated financial statements of Infusystem Holdings, Inc. and subsidiaries (which report
expresses an unqualified opinion and includes an explanatory paragraph relating to the existence of substantial doubt about Infusystem
Holdings, Inc. and subsidiaries’ ability to continue as a going concern) appearing in the Annual Report on Form 10-K of Infusystem
Holdings, Inc. for the year ended December 31, 2011.
/S/ DELOITTE & TOUCHE LLP
Detroit, Michigan
March 16, 2012
EXHIBIT 31.1
I, Sean McDevitt, certify that:
CERTIFICATION BY OFFICER
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2011 of InfuSystem Holdings, Inc.;
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;
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;
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 16, 2012
By:
/s/ SEAN MCDEVITT
Sean McDevitt
Chief Executive Officer
EXHIBIT 31.2
I, James Froisland, certify that:
CERTIFICATION BY OFFICER
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2011 of InfuSystem Holdings, Inc.;
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;
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;
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 16, 2012
By:
/s/ JAMES M. FROISLAND
James M. Froisland
Chief Financial Officer
CERTIFICATION OF 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, 2011 (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 16, 2012
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 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, 2011 (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 16, 2012
By:
/s/ JAMES M. FROISLAND
James M. 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.