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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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 Each Exchange on which Registered
NYSE MKT
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 ¨
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
$64,370,857. 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 29, 2016 was
22,541,890.
¨
Accelerated filer
Smaller reporting company x
Portions of this registrant’s definitive proxy statement for its 2016 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.
DOCUMENTS INCORPORATED BY REFERENCE
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
PART III
PART IV
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
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
Item 15. Exhibits, Financial Statement Schedules
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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.
Cautionary Statement About Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K are 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”). The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,”
“strategy,” “future,” “likely,” variations of such words, and other similar expressions, as they relate to the Company, are intended to
identify forward-looking statements. However, the absence of these words or similar expressions does not mean that a statement is not
forward-looking. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is
identifying certain factors that could cause actual results to differ, perhaps materially, from those indicated by these forward-looking
statements. InfuSystem does not intend, and does not undertake any obligation to update any forward looking statement to reflect future
events or circumstances after the date of such statements. Important factors that could cause our actual results and financial condition to
differ materially from the forward-looking statements include, without limitation, those described in “Risk Factors” and elsewhere in this
Annual Report on Form 10-K, and the following:
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our expectations regarding financial condition or results of operations in future periods;
our expectations regarding enacted and potential legislative and regulatory changes impacting, among other things, the level of
reimbursement received from the Medicare and state Medicaid programs including CMS competitive bidding;
changes in third-party reimbursement processes, rates, contractual relationships and payor mix;
our expectation of continued sales of products and competition for sales;
our expectations regarding the size and growth of the market for our products and services;
our ability to execute our business strategies to grow our business, including our ability to introduce new products and services;
our ability to protect our intellectual property;
our ability to execute on acquisition and joint-venture opportunities and integrate any acquired businesses;
our ability to implement both internally and externally information technology improvements and to respond to technological
changes, interruptions and security breaches;
our ability to hire and retain key employees;
our ability to acquire pumps;
our ability to remain in compliance with our credit facility;
our dependence on our Medicare Supplier Number;
availability of chemotherapy drugs used in our infusion pump systems;
periodic reviews and billing audits from governmental and private payors;
physicians’ acceptance of infusion pump therapy over alternative therapies and focus on early detection and diagnostics;
our dependence on a limited number of third party payors;
our ability to maintain relationships with health care professionals and organizations;
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our ability to maintain controls and processes over billing and collecting and the adequacy of our allowance for doubtful
accounts;
our ability to comply with changing health care regulations;
sequestration;
litigation in which we may be involved from time to time;
defective products manufactured by third-party suppliers;
natural disasters affecting us, our customers or our suppliers;
industry competition;
dependence upon our suppliers; and
general economic uncertainty.
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 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. All forward-looking statements made in this Annual Report on Form 10-K speak only as of the date of this
report. We do not intend, and do not undertake any obligation, to update any forward-looking statements to reflect future events or
circumstances after the date of such statements, except as required by law.
You should not rely upon forward-looking statements as predictions of future events. Our actual results and financial condition may
differ materially from those indicated in the forward-looking statements. We qualify all of our forward-looking statements by these
cautionary statements. 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. Therefore you should not rely on any of the forward-looking
statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act of 1995.
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Item 1.
Business.
Background
PART I
InfuSystem Holdings, Inc. (“InfuSystem”) is a Delaware corporation, formed in 2005. It operates through operating subsidiaries,
including InfuSystem Holdings USA, Inc., a Delaware corporation (“Holdings”), InfuSystem, Inc., a California corporation (“ISI”), First
Biomedical, Inc., a Kansas corporation (“First Biomedical”) and IFC, LLC, a Delaware limited liability company (“IFC”).
Business Concept and Strategy
We are a leading provider of infusion pumps and related products and services for patients in the home, oncology clinics, ambulatory
surgery centers, and other sites of care from five locations in the United States and Canada. We provide our products and services to
hospitals, oncology practices and facilities and other alternate site health care 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, Texas, Georgia and Ontario, Canada. ISI is accredited by the Community Health Accreditation Program (“CHAP”) while First
Biomedical is ISO certified.
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, pain
management and other disease states (“Oncology Business”). Colorectal cancer is the third most prevalent form of cancer in the United
States, according to the American Cancer Society, and the standard of care for the treatment of colorectal cancer relies upon continuous
chemotherapy infusions delivered via ambulatory infusion pumps.
In addition, 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. We also provide these products and services to customers in the
hospital market.
We purchase new and pre-owned pole mounted and ambulatory infusion pumps from a variety of sources on a non-exclusive basis.
We repair, refurbish and provide biomedical certification for the devices as needed. The pumps are then available for sale, rental or to be
used within our ambulatory infusion pump management service.
One aspect of our business strategy is to expand into treatment of other cancers. In 2015, our Oncology Business approximated 72%
of our total revenues. In 2015, we generated approximately 49% of our total revenues from treatments for colorectal cancer and 23% of our
revenues from treatments for non-colorectal disease states. There are a number of approved treatment protocols for pancreatic, head and
neck, esophageal and other cancers, as well as other disease states 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 diseases other than colorectal
cancer. Additional drugs or protocols currently in clinical trials may also obtain regulatory approval over the next several years. If these
new drugs or protocols obtain regulatory approval for use with continuous infusion protocols, we expect the pharmaceutical companies to
focus their sales and marketing efforts on promoting the new drugs and protocols to physicians.
Another aspect of our business is to seek opportunities to leverage our extensive billing capabilities, pump resources and networks of
oncology practices and insurers. This leverage may take the form of new products and/or services, strategic alliances, joint ventures and/or
acquisitions. One of these is providing our ambulatory pumps, products, and services in the area of post-surgical peripheral nerve block.
With regard to acquisitions, we
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believe there are additional opportunities, beyond our acquisition of Ciscura Holding Company, Inc., and its subsidiaries (“Ciscura”) that
was made in April 2015, to acquire smaller, regional competitors, in whole or part that perform similar services to us but do not have the
national market access, 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, including pain management
and smart pumps, and introducing key new information technology based services such as BlockPain Dashboard , EXPRESS , InfuBus
or InfuConnect
, InfuTrack , and PumpPortal
.
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We face the risk that other competitors can provide the same services as we provide. That risk is currently mitigated and barriers to
entry are created by our (i) growing number of third party payor networks under contract, which exceeded 340 third party payor networks
for the fiscal year ended December 31, 2015; (ii) economies of scale, which allow for predictable reimbursement and less costly purchase
and management of the pumps, respectively; (iii) established, long standing relationships as a provider of pumps to outpatient oncology
practices in the U.S.; (iv) established national presence with Accountable Care Organizations (“ACOs”); (v) pump fleet of ambulatory and
large volume infusion pumps for rent and for sale, which may allow us to be more responsive to the needs of physicians, outpatient
oncology practices, hospitals, outpatient surgery centers, homecare practices, patient rehabilitation centers and patients than a new market
entrant; (vi) six geographic locations in the U.S. and Canada that allow for same day or next day delivery of pumps with plans for a seventh
in the northeastern U.S.; and (vii) pump repair and service capabilities at all of these facilities. We do not perform any research and
development on pumps, but we have made, and continue to make, significant investments in developing our information technology as
described below.
Management is intent on extending its considerable breadth of payor networks under contract as patients move into different
insurance coverages, including Medicaid and Insurance Marketplace products. In some cases, this may slightly reduce our aggregate billed
revenues payment rate but result in an overall increase in collected revenues, as shown by a reduction in bad debt expense. Consequently,
we are increasingly focused on net collected revenues less bad debt.
In the midst of changes in the healthcare arena, we believe that we will support our overall business strategy discussed above by
(i) focusing on supporting recurring revenues by increasing our pump fleet; (ii) improving liquidity and strengthening the balance sheet by
keeping debt levels comparable to our operations; (iii) improving internal operational efficiencies; (iv) increasing our product and services
offerings; (v) enhancing our technology offerings to the patients and providers of care; and (vi) investigating synergistic acquisitions.
Continuous Infusion Therapy
Continuous infusion of chemotherapy involves the gradual administration of a drug via a small, lightweight, portable infusion pump
over a prolonged period of time. A cancer patient can receive his or her medicine anywhere from one 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 2015 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.
Significant recent 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
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cancer. In 2002, the FDA approved Eloxatin (the trade name for the generic chemotherapy drug Oxaliplatin), a drug developed by Sanofi-
Aventis, for use in combination with continuous infusion 5-Fluorouracil for the treatment of colorectal cancer. FOLFIRI, the chemotherapy
protocol which includes Camptosar in combination with continuous infusion 5-Fluorouracil and the drug Leucovorin, and FOLFOX, the
chemotherapy protocol which includes Eloxatin in combination with continuous infusion 5-Fluorouracil and Leucovorin, have resulted in
significantly improved overall survival rates for colorectal cancer patients at various stages of the disease state. We believe that Sanofi-
Aventis and Pfizer have each dedicated significant resources to educating physicians and promoting the use of FOLFOX and FOLFIRI.
Simultaneously, the NCCN has established these regimens as the standards of care for the treatment of colorectal cancer.
The use of continuous infusion has been demonstrated to decrease or alter the toxicity of a number of cytotoxic, or cell killing agents.
Higher doses of drugs can be infused over longer periods of time, leading to improved tolerance and decreased toxicity. For example, the
cardiotoxicity (heart muscle damage) of the chemotherapy drug Doxorubicin is decreased by schedules of administration according to The
Chemotherapy Source Book by Michael C. Perry. 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, going
shopping, and caring for family members. We believe that the partnering of physician management and patient autonomy provide for the
highest quality of care with the greatest patient satisfaction.
We believe that oncology practices have a heightened sensitivity to whether and how much they are reimbursed for services.
Simultaneously, the Center for Medicare and Medicaid Services (“CMS”) and private insurers are increasingly focusing on 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 our Oncology Business. After providing ambulatory pumps to oncology offices, infusion clinics and hospital and
outpatient chemotherapy clinics, we then directly bill and collect payment from payors and patients for the use of these pumps. At any
given time, our pumps are in the possession of these facilities, on a patient, in transport, or in our facilities for cleaning, calibration and
storage as reserves for increased demand.
After a physician determines that a patient is eligible for ambulatory infusion pump therapy, the physician arranges for the patient to
receive an infusion pump and provides the necessary chemotherapy drugs. The physician and nursing staff train the patient in the use of the
pump and initiate service. The physician bills the payors, which include Medicare, Medicaid, third party payor companies 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 (i) payors and (ii) patients for copays and deductibles, for the use of the pump and related disposable supplies.
Billing to payors requires coordination with patients and physicians who initiate the service, as physicians’ offices must provide us with
appropriate documentation (patient’s insurance information, physician’s order, an acknowledgement of benefits that shows receipt of
equipment by the patient, and, in some cases, physician’s progress notes) in order for us to submit a bill to the payors. We do provide
assistance to those that cannot afford our pumps via our financial hardship program — a program that usually matches what our physician
practices provide as long as the uninsured patients meet certain criteria. This billing process is handled from our Madison Heights,
Michigan location.
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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 a week (“24x7”) service and support. We employ oncology, pain, and Intravenous
Certified and Oncology 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.
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Physicians use our services to outsource the capital commitment, pump service, maintenance and billing and administrative
burdens associated with pump ownership. Our services also allow 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 provide methods for the physician offices to deliver the appropriate paperwork for billing through a number of electronic
means including EXPRESS and InfuConnect
TM
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— reducing the required effort on the employees of the physician offices.
We believe our services are attractive to payors because such services are generally less expensive than hospitalization or home
care.
Other services we offer include the rental, sale or leasing of pole mounted and ambulatory infusion pumps to oncology practices,
hospitals and other clinical settings. As of December 31, 2015, our rental fleet of pole mounted and ambulatory pumps had a historical cost
of $53.7 million, up from $43.2 million from the end of 2014, and included approximately 70 makes and models of equipment dedicated to
our rental services. These pumps are available for daily, weekly, monthly or annual rental periods. As of December 31, 2015 and 2014, we
had a fleet of new and used pole mounted and ambulatory pumps with a historical cost of $2.3 million 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 from us. We operate pump service and repair Centers of
Excellence from all of our locations across the United States and Canada and employ a staff of highly trained technicians to provide these
services. Our main Center of Excellence for service is our Lenexa, Kansas facility.
We also offer electronic ambulatory infusion pumps for post-operative pain management using our pumps along with a numbing
agent and a continuous nerve block catheter — continuous peripheral nerve block (“CPNB”). Using CPNB for the management of post-
operative pain, which usually lasts two to three days after surgery, can result in reduced pain for the patient, increased satisfaction scores
for the surgical center or hospital, and reduced need for post-operative medication.
Information Technology
The Company’s first Chief Information Officer was hired in 2013 to transform the Company’s Information Technology (“IT”)
platform and enhance business processes beginning in 2014. IT refocused on not only supporting our internal IT needs to reduce our
platforms and redundant systems from two IT platforms into a consolidated solution but also in supporting electronic medical record
technology (“EMR”) to be used by medical facilities using the Company’s infusion pumps and services via our solutions such as
EXPRESS and InfuConnect
electronically and automatically, bypassing the current methods of mail, email, and/or facsimile. We expect that this new focus will
continue to strengthen our relationships with our existing customers and result in additional investment in intangible software assets by the
Company. Additional IT customer focused solutions are PumpPortal
, InfuTrack (“Pump Fleet Lifecycle Management Solutions”) and
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BlockPain Dashboard . Our continued focus on IT efforts has resulted in the following new products:
. This focus has enabled current billing information to be transferred to the Company from these facilities
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EXPRESS , powered by InfuBus
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data integration platform, provides for paperless delivery of the appropriate information for
InfuSystem to bill payors:
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eliminating all paper;
providing an enhanced visibility as result of real time status and reporting;
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reducing risk of error;
automating treatment logs, pump assignments, tracking and physician’s orders;
providing a secure scanner for easy pumps assignment to patients; and
removing interruptions from physician practices daily schedules, and standardizing data flow for clinics and hospitals with
multiple locations
Pump Fleet Lifecycle Management Solutions, which provide interfaces for customers to keep their pump fleets right-sized and in
good condition by:
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scheduling service;
requesting a returned goods authorization;
approving price quotes;
printing shipping labels;
recertifying pumps annually;
accessing pump service and certification history;
tracking pumps by location;
accessing pump order and repair history; and
ordering rental pumps.
BlockPain Dashboard , which supports our new product solutions in providing our ambulatory pumps, products, and services in the
TM
area of post-surgical peripheral nerve block by:
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delivering patient real-time pain score reporting to the provider;
supporting high patient satisfaction; and
providing data online, anytime.
In 2015 and 2014, the Company capitalized in excess of $5.6 million and $3.4 million, respectively, into IT, with specific focus as
discussed above, plus other internal operational efficiencies and new products and support.
Relationships with Physician Offices
As of December 31, 2015, we had business relationships with clinical oncologists in excess of 1,700 outpatient oncology clinics.
Although this represents a substantial number 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 managing institutional constraints on capital and manpower due to the nature of limited resources in
hospitals and physician offices.
Physician practices in the oncology field are consolidating — similar to healthcare practices in general. However, as of December 31,
2015, we had gained more practices than we had lost due to consolidation. We expect this trend to continue in the near future.
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Employees
As of December 31, 2015, we had 261 employees, including 242 full-time employees and 19 part-time or contract 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 infusion pumps purchased from the following manufacturers, each of which supplies more than 10% of the
ambulatory pumps purchased by us: Smiths Medical, Inc. and WalkMed Infusion, LLC. We have supply agreements in place with these
suppliers. Certain “spot” purchases are made on the open market subject to individual negotiation.
Seasonality
Our business rental activity is not subject to seasonality. Revenues from this activity, net of bad debt, may be seasonal due to the
impact of co-pays and deductibles for patients’ insurance that traditionally reset each January. This has been further impacted by changes in
the insurance industry as it responds to increased government regulation. Also, rental customers tend to make buy versus rent decisions late
in the year as customer capital budgets are being finalized, impacting sales revenue in the second half of the year, predominantly in the
fourth quarter. Furthermore, as the Company’s liquidity has improved, opportunistic pump purchases are made from time to time. These
opportunistic pump purchases also allow for opportunistic pump sales, which could be material. The timing of such purchases and sales vary
within the course of a year.
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 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
health care services to enrolled members through participating providers such as us. A payor is any entity that pays on behalf of a member
patient.
As of December 31, 2015, we had contracts with more than 340 third party payor networks under contract. Material terms of contracts
with third party payor organizations are typically a set fee or rate, or a discount from billed charges for equipment provided. The majority
of these contracts generally provide for a term of one year, with automatic one-year renewals, unless we or the contracted payor elect not to
renew. For 2015 and 2014, our largest contracted payor was Medicare, which accounted for approximately 32% and 30% of our net
revenue from our Oncology Business for 2015 and 2014, respectively, and approximately 19% of our total revenues for both 2015 and
2014. Medicare represented 20% and 18% of our consolidated accounts receivable, net for the years ended December 31, 2015 and 2014,
respectively. For 2015 and 2014, our next largest contracted payor, was a national association comprised of multiple members, which, in
the aggregate, accounted for approximately 18% of our net revenue from our Oncology Business for both 2015 and 2014, and
approximately 12% of our total revenues for both 2015 and 2014. This same contracted payor represented 27% and 26% of our
consolidated accounts receivable, net for the years ended December 31, 2015 and 2014, respectively. We also contract with various other
third party payor organizations, Medicaid, commercial Medicare replacement plans, self-insured plans and numerous other insurance
carriers. Other than the payors noted above, no other single payor represented more than 9% of third-party payor net revenue.
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By 2016, CMS is required by regulation to begin the process of fully implementing some form of competitive bidding. On
October 31, 2014, CMS released a final rule entitled, “End-Stage Renal Disease Prospective Payment System, Quality Incentive Program,
and Durable Medical Equipment, Prosthetics, Orthotics, and Supplies” (“Final Rule”). This Final Rule was published in its entirety in the
Federal Register on November 6, 2014 and finalizes several provisions related to durable medical equipment, prosthetics, orthotics and
supplies (“DMEPOS”) including:
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Items and services subject to competitive bidding pricing in 10 or fewer Competitive Bidding Areas (“CBAs”) will be subject to
payment reductions where Single Payment Amounts (“SPAs”) will be equal to 110% of the unweighted average SPAs in those
areas outside of the current CBAs. This includes the category for external infusion pumps and supplies.
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Such adjustments would apply in non-CBAs for items furnished on or after January 1, 2016. CMS has adopted a six-month
phase-in of the adjustments to these payment amounts. For items and services with dates of service from January 1, 2016 through
June 30, 2016, the fee schedule amounts in non-CBAs will be based on 50% of the un-adjusted fee schedule amount and 50% of
the adjusted fee schedule amount. Beginning on July 1, 2016, the fully adjusted payment rates will apply.
In December 2015, CMS released the SPAs for 2016. These SPAs confirmed our interpretation of the Final Rule. Coupling the
impact of competitive bidding with the impact of the addition of new payor networks associated with the Patient Protection and Affordable
Care Act (the “ACA”) is complicated. Medicare Advantage plans managed by commercial payors and more Medicaid plans are now tied to
CMS pricing. Increases in networks under contract have now increased our net collected revenues as more revenues are the responsibility
of a third-party payor, as opposed to a patient which traditionally is associated with a higher rate of bad debt.
Based on the mix and billing levels of revenues and fee schedules for the fiscal year ended December 31, 2015, we estimate when
applying the Final Rule and the 2016 SPA’s that our revenues could be reduced by up to approximately $3.8 million in 2016 and an
additional $1.2 million in 2017, in each case, as compared to our revenue in 2015. These reductions are expected to be offset by an increase
in revenues related to our increase in networks under contract by $1.5 million in 2016 and management believes further increases and
improvements in its networks under contract can improve revenues in 2017, as well. The Company believes that its focus on growth in
recurring revenues, improving its commercial contracts, revenues from new products and services, improvements in IT, and other
operational improvements could also potentially offset these reductions.
Certain factors such as revenue mix, competitive responses, commercial and Medicaid contracts tied to CMS, and other potential
factors, could impact these estimates. As a result, there can be no assurances as to the actual impact of the Final Rule and the 2016 SPA’s
in 2016 and 2017, which could negatively impact the Company’s market share, negatively impact business with the Company’s customers
and other payors and significantly reduce revenues, earnings and cash flow beyond what is mentioned above.
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.
•
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
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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 limited 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 effort
to resubmit claims and receive payment for treatment. The numerous service and technical questions from patients may present
another significant cost to a physician provider’s staff.
•
Home Care Infusion Providers: Home care infusion providers provide chemotherapy drugs and services to allow for in-home
patient treatment. We believe that home care infusion treatment can be very costly and that many patients do not carry insurance
coverage that covers home-based infusion services, resulting in larger out-of-pocket costs. Because home care treatments may
take as long as six months, these costs can be high and can result in higher patient co-payments. We believe that home care
providers may also be reluctant to offer 24x7 coverage or additional patient visits, due to capped fees.
Regulation of Our Business
Our business is subject to certain regulations. Specifically, as a Medicare supplier of DME and related supplies, we must comply with
supplier standards established by CMS regulating Medicare suppliers of DMEPOS (“DMEPOS Supplier Standards”). 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 CMS agents 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 certain specified surety bond requirements.
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 regulations in the various states in
which we operate. We believe we are in material compliance with all such regulations.
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The health care industry is undergoing fundamental changes resulting from political, economic and regulatory influences. In 2010, the
ACA was enacted into law to reform the United States health care system and implemented in 2013. The legislation was intended to
expand access to health insurance coverage, improve quality and reduce costs over time. We believe the law has impacted and will continue
to impact various aspects of our business operations, including payor mix as our Medicaid and patient pay percentages increased in 2015
over 2014. However, it is unclear how the law will further impact reimbursement rates.
In addition, the ACA imposes a 2.3% excise tax on medical devices that applies to sales within the United States of a majority of our
pump products that we purchase. This law imposes an excise tax on the first sale of medical devices by a manufacturer, producer, or
importer equal to 2.3% of the sales price. This tax only applies directly to new pumps that we purchase from manufacturers. Taxable
medical devices include any device as defined in Section 201(h) of the Federal Food, Drug, and Cosmetic Act intended for humans, with
the exception of eyeglasses, contact lenses, hearing aids and any other device determined by the Secretary of Health and Human Services to
be a type which is generally purchased by the general public at retail for individual use. On December 18, 2015, under the Consolidated
Appropriations Act, 2016 (Pub. L. 114-113), this excise tax was given a two year moratorium on the medical device excise tax by
Section 4191 of the Internal Revenue Code (the “Code”). Thus, the medical device excess tax does not apply to the sale of a taxable
medical device by the manufacturer, producer, or importer of the device during the period beginning on January 1, 2016 and ending on
December 31, 2017. Future legislation could have a material effect on our business, cash flows, financial condition and results of
operations.
Recent Events in Our Business
CMS
On April 21, 2015 the CMS announced plans to recompete the supplier contracts awarded in Round 1 Recompete of the Medicare
DMEPOS Competitive Bidding Program. CMS is required by law to recompete contracts under the DMEPOS Competitive Bidding
Program at least once every three years. The Round 1 Recompete contract period for all product categories expires on December 31, 2016.
The Round 1 2017 product categories do not include a category for external infusion pumps as in the previous Round 1 Recompete.
See the additional discussion above under Item 1 — Business — Significant Customers.
Credit Facility
On March 23, 2015, we and our direct and indirect subsidiaries entered into the credit agreement (the “Credit Agreement”) with
JPMorgan Chase Bank, N.A., as lender (the “Lender”). The Credit Agreement consists of a $27.0 million Term Loan A, up to $8.0 million
Term Loan B and a $10.0 million revolving credit facility (the “Revolver”), all of which mature on March 23, 2020 (collectively, the
“Credit Facility”).
Under the terms of the Credit Agreement, principal payments equal to $1.0 million are due on Term Loan A on the last business day
of each quarter beginning with the last business day of September 2015 and are due until the maturity date of the Credit Facility. Principal
payments on Term Loan B are due on the last business day of each fiscal quarter beginning with the last business day of March 2016. The
value of each principal payment due on Term Loan B shall be equal to 3.575% of the principal balance of Term Loan B as of the Term
Loan B Draw Expiration Date for the first eight quarterly payments. Thereafter, the next 8 principal payments shall be equal to 4.475% of
the principal balance of Term Loan B as of the Term Loan B Draw Expiration Date. The entire outstanding balance of the revolver shall be
due at the maturity of the Credit Facility.
During the year ended December 31, 2015, we made optional pre-payments of $4.8 million on our Term Loan A, which we can apply
against future mandatory payments. Prepayments of $1.9 million were applied to September 30, 2015 and December 31, 2015 Term Loan
A principal payments. Remaining prepayments of $2.9 million are available towards 2016 future mandatory payments.
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Ciscura
On April 20, 2015 (the “Closing Date”), we closed on the acquisition of substantially all of the assets of Ciscura, a privately-held
Southeastern regional provider of ambulatory infusion pumps and services to medical facilities based in Alpharetta, Georgia.
We acquired approximately 1,800 infusion pumps from Ciscura, its four person field sales team, as well as its facilities management
personnel, which have become the foundation of the our new Southeast facility. With this new regional warehouse and service facility, we
will be in close proximity to a number of our largest existing customers, in addition to new customers previously serviced by Ciscura,
enabling same day service for equipment and supplies to much of the Southeast region.
The asset purchase agreement provided for an adjustment to the purchase price based on the final number of pumps acquired and the
associated treatments, which were generated during the 90 day period post-closing from the approximately 100 medical facility
relationships Ciscura had prior to the acquisition. The final total purchase price, which was based on the number of acquired pumps and
associated treatments, was approximately $6.2 million.
On the Closing Date, we made an initial payment of $3.8 million, an additional payment of $2.1 million was made in September 2015
and a final payment of $0.3 million was made in November 2015. The associated integration and transaction costs expended in 2015 were
$0.7 million.
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 charters of
our audit, nominating and governance and compensation committees and our Code of Business Conduct and Ethics Policy are also
available on our Web site and in print to any stockholder who requests them. The content on our Web site is not incorporated by reference
into this Annual Report on Form 10-K unless expressly noted.
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Item 1A. Risk Factors.
An investment in our securities involves a high degree of risk. You should consider carefully all of the material risks described below,
together with the other information contained in this Annual Report on Form 10-K. If any of the following events occur, our business,
financial condition, results of operations and cash flows may be materially adversely affected.
RISK FACTORS RELATING TO OUR BUSINESS AND THE INDUSTRY IN WHICH WE OPERATE
Our business is substantially dependent on third-party reimbursement. Any change in the overall health care reimbursement system
may adversely impact our business.
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 the use of 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 business, 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.
Changes in the health care reimbursement system often create financial incentives and disincentives that encourage or discourage the
use of a particular type of product, therapy or clinical procedure. Such changes may be impacted by the growth in ACOs, reduction of
providers by payors, the use of lower cost rental networks and other factors. Market acceptance of continuous infusion therapy may be
adversely affected by changes or trends within the health care reimbursement system. Changes to the health care reimbursement system that
favor other technologies or treatment regimens that reduce reimbursements to providers or treatment facilities, including increasing
competitive pressures from home health care and other companies that use our services, may adversely affect our ability to market our
services profitably. Overall, such dependency and potential changes could materially and adversely affect our business, financial condition,
results of operations and cash flows.
On April 21, 2015, the CMS announced plans to recompete the supplier contracts awarded in Round 1 Recompete of the Medicare
DMEPOS Competitive Bidding Program. CMS is required by law to recompete contracts under the DMEPOS Competitive Bidding
Program at least once every three years. The Round 1 Recompete contract period for all product categories expires on December 31, 2016.
The Round 1 2017 product categories do not include a category for external infusion pumps as in the previous Round 1 Recompete. There
is no assurance that this exclusion will remain in the future and there is not currently sufficient information available to determine how this
development may impact our future revenues and net income.
For additional information pertaining to CMS, refer to Item 1 — Business — Significant Customers and also Recent Events in Our
Business.
The loss of a relationship with one or more third party payors could negatively impact our business.
Our contracts for reimbursement with third party payors are often for a term of one year, with automatic one-year renewals, unless we
or the contracted payor elect not to renew. These evergreen contracts are subject to termination upon written notice. One or more
terminations could have a material and adverse effect on our business, financial condition, results of operations and cash flows.
Any federal government shutdown may adversely impact our business.
Our revenues are dependent on private insurers and governmental agencies. In the absence of any bipartisan agreement in the federal
government with respect to payments from governmental agencies, our revenues could be reduced. In addition, any federal government
shutdown could also have a material and adverse impact on our business, financial condition, results of operations and cash flows.
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Our business has and may continue to be adversely impacted by the U.S. federal government’s sequestration.
On March 1, 2013, most agencies of the U.S. federal government automatically reduced their budgets according to an agreement made
by Congress in 2012 known as “sequestration”. Originally devised as an incentive to force Congressional agreement on budget issues, the
sequestration order was approved on March 1, 2013 by the President of the United States. Beginning in 2013, we were impacted by the
sequestration order, which effects Medicare payments. For the year ended December 31, 2015, the impact on our revenue was $0.4 million,
which was consistent with the same twelve month period in 2014. As of the date of this report, it is our understanding that the mandatory
payment reduction of 2% will continue through March 31, 2016. We also believe that the cuts will likely continue until definitive action is
taken by the U.S federal government on this issue.
Payor concentration may adversely impact our business.
A substantial portion of our contracted payor revenues have been dependent on one payor or a limited concentration of payors. In
particular, Medicare represented approximately 32% and 30% of our net revenue from our Oncology Business for 2015 and 2014,
respectively, or approximately 19% of our total revenues for both 2015 and 2014. Medicare represented 20% and 18% of our consolidated
accounts receivable, net for the years ended December 31, 2015 and 2014, respectively. For 2015 and 2014, our next largest contracted
payor was a national association comprised of multiple members, which, in the aggregate accounted for approximately 18% of our net
revenue for our Oncology Business for both 2015 and 2014, and approximately 12% of our total revenues for both 2015 and 2014. This
same contracted payor represented 27% and 26% of our consolidated accounts receivable, net for the years ended December 31, 2015 and
2014, respectively. We also contract with various other third party payor organizations, Medicaid, commercial Medicare replacement plans,
self-insured plans and numerous other insurance carriers. Other than the payors noted above, no other single payor represented more than
9% of third-party payor net revenue. To the extent such dependency continues, significant fluctuations in revenues, results of operations
and liquidity could arise if Medicare or any other significant contracted payor reduces its reimbursement for the services we provide.
Our billing process is dependent on meeting payor claims processing guidelines which are subject to change at the discretion of the
payors. Such changes would materially impact our ability to bill and the timing of such billings, which could materially and adversely
impact our revenues, bad debt expense and cash flows, which impact would be even greater if such changes are made by one of our larger
payors.
The continued consolidation of physician practices, outpatient infusion clinics, oncology clinics, homecare providers and hospitals
increases the concentration of decision makers whom either choose to use our ambulatory electronic pumps within our Oncology Business
or directly rent, lease or purchase pumps or supplies directly from us.
While we make every effort to benefit from such concentration, such concentration could materially and adversely affect our business,
financial condition, results of operations and cash flows.
Increased focus on early detection and diagnostics may adversely affect our business.
An increased focus on lowering health care spending via improved diagnostic testing (i.e., defensive medicine) and patient monitoring
could materially and negatively affect our business. A large portion of our ambulatory infusion pumps are dedicated to a specific form of
cancer (i.e., colorectal). As a result of rising health care costs, there may be a demand for more cost-effective approaches to disease
management, specifically for colorectal cancer, as well as for emphasis on screening and accurate diagnostic testing to facilitate early
detection of potentially costly, severe afflictions. Any change in the approach to treatment of colorectal cancer could have a material and
adverse impact on our business, financial condition, results of operations and cash flows.
If future clinical studies demonstrate that oral medications or other therapies that do not use our electronic ambulatory pumps are at
least as effective as continuous infusion therapy, our business could be adversely affected.
Numerous ongoing clinical trials are currently evaluating and comparing the therapeutic benefits of current continuous infusion-based
regimens with various oral medication regimens. If these clinical trials demonstrate
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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
or other therapies that do not utilize our ambulatory electronic pumps are introduced to the market that are superior to existing oral
therapies, physicians’ willingness to prescribe continuous infusion-based regimens could decline, which would materially and adversely
affect our business, financial condition, results of operations and cash flows.
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. We are required to comply with
Medicare DMEPOS 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 revenues are
dependent upon our Medicare Supplier Number, the loss of which would materially and adversely affect our business, financial condition,
results of operations and cash flows.
The CMS requires that all DME providers must be accredited by a CMS approved accreditation organization. On February 17, 2009,
we initially received accreditation from the CHAP, and we have remained accredited to date. If we lost our accredited status, our business,
financial condition, revenues and results of operations would be materially and adversely affected.
Our success is impacted by the availability of the chemotherapy drugs that are used in our continuous infusion pump systems.
We primarily derive our revenues from the rental of ambulatory infusion pumps to oncology patients through physicians’ offices and
chemotherapy clinics. A shortage in the availability of chemotherapy drugs that are used in the continuous infusion pump system, which
has occurred in the past, could have a material and adverse effect on our business, financial condition, results of operations and cash flows.
The impact of United States health care reform legislation on us remains uncertain.
The ACA has perpetuated the development of alternative provider payment models by CMS and the major national commercial
payors. These payment models do not replace the current fee-for-service models nor replace current payor contracts, but rather provide
additional financial incentives to certain “accountable” providers to improve quality and lower cost. The implications for the Company will
come from the provider networks that are forming in order to integrate and coordinate care under these alternative models with CMS and
the commercial payors. These provider networks include ACOs, patient-centered primary care medical homes, specialty medical homes,
networks accepting bundled payment programs, and other “performance” networks that contract with CMS and commercial payors under
alternative payment models that financially reward improved quality and lower medical cost. The relationship between us and our provider
practices and facilities that are participating in these provider networks under alternative payment models will depend on (i) the extent to
which these provider networks give priority to the medical cost associated with our DME services and (ii) whether our services are seen as
part of a care delivery model that delivers higher value — higher quality at a lower cost.
Our failure to perform under these alternative payment models, or under similar models or conditions introduced by future legislation,
could have a material adverse impact on our business, financial condition, results of operations and cash flows.
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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 infusion pumps which are
supplied to us by two major suppliers: Smiths Medical, Inc. and WalkMed Infusion, LLC. The loss or disruption of our relationships with
outside vendors, including pump, parts, or supply recall or pump end of life announcements, could subject us to substantial delays in the
delivery or service of pumps to customers. Significant delays in the delivery or service 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 on our business, financial condition, results of operations and cash flows.
We face periodic reviews and billing audits from governmental and private payors and these audits could have adverse results that may
negatively impact our business.
As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental reviews and audits to
verify our compliance with these programs and applicable laws and regulations. We also are subject to audits under various government
programs in which third party firms engaged by CMS conduct extensive reviews of claims data and medical and other records to identify
potential improper payments under the Medicare program. Private pay sources also reserve the right to conduct audits. If billing errors are
identified in the sample of reviewed claims, the billing error can be extrapolated to all claims filed which could result in a larger
overpayment than originally identified in the sample of reviewed claims. Our costs to respond to and defend reviews and audits may be
significant and could have a material adverse effect on our business, financial condition, results of operations and cash flows. Moreover, an
adverse review or audit could result in:
•
•
•
•
required refunding or retroactive adjustment of amounts we have been paid by governmental or private payors;
state or Federal agencies imposing fines, penalties and other sanctions on us;
loss of our right to participate in the Medicare program, state programs, or one or more private payor networks; or
damage to our business and reputation in various markets.
Any one of these results could have a material adverse effect on our business, financial condition, results of operations and cash
flows.
We do not collect sales or consumption taxes in some jurisdictions.
Our core services are exempt from sales tax or its equivalent in many states. However, there are a several states that consider pump
rentals, sales and services taxable regardless of method of payment. We are collecting sales tax or its equivalent in several jurisdictions. A
successful assertion by one or more states or localities requiring us to collect taxes where we currently do not, could result in substantial tax
liabilities, including for past sales, as well as penalties and interest.
If we are unsuccessful in our efforts to implement and support information technology improvements or respond to technological
changes, our growth, prospects and results of operations could be adversely affected.
To remain competitive, we must continue to enhance and improve the functionality and features of our technology solutions and
services. We have implemented a service to support EMR technology with some of our outpatient infusion practices that enables billing
information to be transferred between us and medical facilities electronically and automatically, thus eliminating the current use of mail,
email and/or faxes. We have also implemented a web portal that supports our rental and service customers. If these efforts cease to be
successful, our reputation and ability to attract and retain customers and contributors will be adversely affected.
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Furthermore, we are likely to incur expenses in connection with continuously updating and improving our technology infrastructure and
services. Without such improvements, our operations might suffer from unanticipated system disruptions, slow application performance or
unreliable service levels, any of which could negatively affect our reputation and ability to attract and retain customers and contributors.
We may face significant delays in introducing new services, products and enhancements.
If competitors introduce new products and services using new technologies or if new industry standards and practices emerge, our
existing technology and systems may become obsolete or less competitive, and our business may be harmed. In addition, the expansion and
improvement of our systems and infrastructure will require us to commit substantial financial, operational and technical resources, with no
assurance that our business will improve.
All of these factors could have a material adverse impact on our business, financial condition, results of operations and cash flows.
Technological interruptions or the efficiency of our website and technology solutions would damage our reputation and brand and
adversely affect our results of operations.
The satisfactory performance, security, reliability and availability of our network infrastructure are critical to our reputation, our
ability to attract and retain customers and our ability to maintain adequate customer service levels. Any system interruptions, outside
intrusions, or security breaches could result in negative publicity, damage our reputation and brand or adversely affect our results of
operations. We may experience temporary system interruptions for a variety of reasons, including security breaches and other security
incidents, viruses, telecommunication and other network failures, power failures, software errors or data corruption. We rely upon third-
party service providers, such as co-location and cloud service providers, for our data centers and application hosting, and we are dependent
on these third parties to provide continuous power, cooling, internet connectivity and physical security for our servers. In the event that
these third-party providers experience any interruption in operations or cease business for any reason, or if we are unable to agree on
satisfactory terms for continued hosting relationships, our business could be harmed and we could be forced to enter into a relationship with
other service providers or assume hosting responsibilities ourselves. Although we operate two data centers in an active/standby
configuration for geographic and vendor redundancy and even though we maintain a third disaster recovery facility to back up our content
collection, a system disruption at the active data center could result in a noticeable disruption of our services. Even a disruption as brief as a
few minutes could have a negative impact on marketplace activities and could therefore result in a loss of revenues. Because some of the
causes of system interruptions may be outside of our control, we may not be able to remedy such interruptions in a timely manner, or at all.
All of these factors could have a material adverse impact on our business, financial condition, results of operations and cash flows.
Our failure to maintain controls and processes over billing and collecting could have a significant negative impact on our Consolidated
Financial Statements.
The collection of accounts receivable is a significant challenge, and requires constant focus and involvement by management and
ongoing enhancements to information systems and billing center operating procedures. If we are unable to properly bill and collect our
accounts receivable, our results could be materially and adversely affected. While management believes that controls and processes are
satisfactory, there can be no assurance that accounts receivable collectability will remain at current levels.
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, 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
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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 materially and adversely affected.
Our allowance for doubtful accounts may not be adequate to cover actual losses.
Our third-party payor contracts do not guarantee annual inflationary increases, typical of the DME payor contracting environment.
Contracted reimbursement rates are either subject to increases or decreases in CMS program rates or if not indexed to government rates, are
frozen until those payors contracts are reopened and renegotiated. While we monitor reimbursement levels to identify specific payor
reimbursement rates that have eroded and renegotiate such rates, we may not be able to maintain or improve overall reimbursement levels,
thereby compromising the adequacy of the predicted allowance for doubtful accounts.
We may also face reduced reimbursements from private third party payors. As a result, our customers may be unable to make timely
payments to us. Although we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers
to make required payments, we cannot guarantee that we will continue to experience the same loss rates that we have in the past. If we
begin to experience an increase in our loss rates in excess of our allowances for doubtful accounts it could materially and adversely impact
our business, financial condition, results of operations and cash flows.
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. This population of
patients 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.
Our business may be subject to natural forces beyond our control.
Natural disasters, including hurricanes, earthquakes, floods, excessive snowfall and other unfavorable weather conditions, may affect
our operations. Natural catastrophes may have a detrimental effect on our gross revenue, preventing many patients from visiting a facility to
obtain our ambulatory infusion pumps or receive treatment. Similarly, such events could impact key suppliers or vendors, disrupting the
services or materials they provide us. The severity of these occurrences, should they ever occur, will determine the extent to which and if
our business, financial condition, results of operations and cash flows is materially and adversely affected.
The industry in which we operate is intensely competitive and ever-changing. 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, including some of the practices
that we service, have significantly greater resources than we do for information technology, 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, smart pump licensing, our information technology solutions or our other
technological-based solutions at a competitive disadvantage. Furthermore, the healthcare industry, in general, is experiencing market
consolidation, reducing the number of decision makers. If we are unable to effectively compete in our market, our business, financial
condition, results of operations and cash flows may be materially and adversely affected.
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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 regarding CMS and other payors’ billing and documentation requirements.
Competitors, who do not meet the same standards of compliance that we do with respect to billing regulations, may put us at a potential
competitive disadvantage. We are a participating provider with Medicare and under contract with approximately 340 third party payor
networks, all of which have very stringent guidelines. If our competitors do not comply with these regulatory guidelines, we could be put at
a potential competitive disadvantage and our business, financial condition, results of operations and cash flows could be material and
adversely affected.
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 or serviced
by us, or a failure of pumps distributed by us to perform for the use specified, could have a material and adverse effect on our reputation in
the industry and subject us to claims of liability for injuries and otherwise. Misuse of the pumps distributed by us by a practitioner or
patient that results in injury could similarly subject us to liability. Any substantial underinsured loss could have a material and adverse
effect on our business, financial condition, results of operations and cash flows. Furthermore, any impairment of our reputation could have
a material and adverse effect on our revenues and prospects for future business.
We intend to continue to pursue opportunities for the further expansion of our business through strategic alliances and/or joint
ventures. Future strategic alliances and/or joint ventures may require significant resources and/or result in significant unanticipated
costs or liabilities to us.
We intend to continue to pursue opportunities for the further expansion of our business through strategic alliances and/or joint
ventures. Any future strategic alliances or joint ventures will depend on our ability to identify suitable partners, negotiate acceptable terms
for such transactions and obtain financing, if necessary. These investments require significant managerial attention, which may be diverted
from our other operations.
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 and services. In addition, we
could have difficulty integrating or retaining personnel and maintaining employee morale as we take steps to combine the personnel and
business cultures of separate organizations into one and to eliminate duplicate positions and functions. It may also be difficult for us to
preserve 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. 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’s and employees’ attention from our ongoing business operations, result in decreased
operating performance and increase our expenses. 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.
We may be unable to maintain adequate working relationships with health care professionals.
We seek to maintain close working relationships with respected physicians and medical personnel in hospitals and universities. We
rely on these professionals to assist us in the development of proprietary service
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and improvements to complement and expand our existing service and product lines. If we are unable to maintain these relationships, our
ability to market and sell new and improved products and services could decrease and future operating results could be unfavorably
affected.
If we fail to comply with applicable governmental or accrediting bodies’ regulations, we could face substantial penalties and our
business, operations and financial condition could be adversely affected.
Certain federal, state health care, and accreditation bodies’ laws and regulations, including those pertaining to fraud and abuse and
patients’ rights are applicable to our business. The laws that affect our ability to operate include:
•
the federal health care 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 health care 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;
•
HIPAA, which prohibits executing a scheme to defraud any health care benefit program or making false statements relating to
health care 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.
If our operations are found to be in violation of any of the laws described above or any other 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 materially and adversely affect our business, financial
condition, results of operations and cash flows. 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.
Failure to protect our intellectual property could substantially harm our business and operating results.
In order to protect our trade secrets and other confidential information, we rely in part on confidentiality agreements with our
employees, consultants and third parties with whom we have relationships. These agreements may not effectively prevent disclosure of
trade secrets and other confidential information and may not provide an adequate remedy in the event of misappropriation of trade secrets
or any unauthorized disclosure of trade secrets and other confidential information. In addition, others may independently discover our trade
secrets and confidential information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-
consuming litigation could be necessary to enforce or determine the scope of our trade secret rights and related confidentiality and
nondisclosure provisions. Failure to obtain or maintain trade secret protection, or our competitors’ acquisition of our trade secrets, could
materially and adversely affect our competitive business position.
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We are dependent upon executive officers and other key personnel. The loss of any of our executive officers or other key personnel
could reduce our ability to manage our businesses and achieve our business plan, which could cause our sales to decline and our
operating results and cash flows to suffer.
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 executive officers, managerial, finance, technical and sales and marketing personnel. Competition for these
individuals is intense. The loss of the services of any executive officer or other key employee, or our failure to attract and retain other
qualified and experienced personnel on acceptable terms, could have a material and adverse effect on our business, financial condition,
results of operations and cash flows.
Covenants in our current and any future debt agreement restrict our business.
Our Credit Agreement 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:
•
•
•
•
•
•
•
•
engage in a transaction that results in a change of control, as defined by the Credit 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 or acquisitions;
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;
repurchase outstanding stock from the open market; and
declare or make, directly or indirectly, any dividend or other restricted payment, or incur any obligation (contingent or
otherwise) to do so.
These covenants may restrict our ability to operate our business. Our failure to comply with these covenants could result in an event
of default that, if not cured or waived, could result in reduced liquidity for the Company and could have a material and adverse effect on
our business, financial condition, results of operations and cash flows. Additionally, our ability to pay interest and repay the principal for
our indebtedness is dependent upon our ability to manage our business operations, generate sufficient cash flows to service such debt and
the other factors discussed in this section. There can be no assurance that we will be able to manage any of these risks successfully.
Economic uncertainty or economic deterioration could adversely affect us.
While the global economy is improving, there are still uncertainties surrounding the strength of the recovery that may continue to
drive stock market and interest rate volatility and adversely impact consumer confidence, product demand, and our ability to refinance our
debt. Economic conditions, along with our operating performance, may also materially and adversely impact our ability to access the
financial markets. Accordingly, our future business and financial results are subject to uncertainty. If economic conditions deteriorate in the
future, our future revenues and financial results could be materially and adversely affected.
RISK FACTORS RELATING SPECIFICALLY TO OUR COMMON STOCK
The market price of our common stock has been, and is likely to remain, volatile, subject to low trading volume and may decline in
value.
The market price of our common stock has been and may continue to be volatile. Market prices for securities of health care services
companies, including ours, have historically been volatile, and the market has
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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 common stock:
•
•
•
•
•
•
•
•
•
•
•
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;
announcements or speculation regarding strategic alliances, mergers, acquisitions or other transactions;
developments in patent or other proprietary rights;
the liquidity of the market for our common stock;
news of other healthcare events or announcements;
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, our ability to pay dividends on our common stock is limited and we 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.
Restricted stock and the exercise of stock options may depress our stock price and may result in dilution to our common stockholders.
There are a significant number of shares of restricted stock and outstanding options to purchase our stock. If the market price of our
common stock rises above the exercise price of outstanding options, holders of those securities may be likely to exercise their options and
sell the common stock acquired upon exercise in the open market. Sales of a substantial number of shares of our common stock in the
public market by holders of options may depress the prevailing market price for our common stock and could impair our ability to raise
capital through the future sale of our equity securities. Additionally, if the holders of outstanding options exercise those options, our
common stockholders will incur dilution in their relative percentage ownership.
As of December 31, 2015, options to purchase 2.3 million shares of common stock were outstanding, at a weighted average exercise
price of $2.49 per share, of which 1.4 million were exercisable at a weighted average exercise price of $2.45 per share. In addition,
restricted stock of 0.2 million shares, with a weighted average grant date fair value of $2.09 per share, were outstanding and were issuable
upon the vesting of certain time restrictions.
We may be subject to limitations on net operating loss carryforwards and certain built-in losses following an ownership change.
If we experience an ownership change, either via a major transaction or a series of trades where a substantial percentage of our
ownership changes, which may be less than a majority of our ownership in certain cases, we may be limited in our ability to use our
deferred tax assets and may be required to record a valuation allowance against such assets.
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During the fourth quarter of 2015, we completed an update to our analysis of past ownership (as defined under Section 382 of the
Code), and as a result, we believe that, consistent with previously completed analyses, we have not experienced an ownership change from
December 31, 2010 through the date of such updated analysis. We have undertaken a definitive analysis necessary to quantify the effect of
ownership change as of December 31, 2010 on the net operating loss carryforwards generated prior to December 31, 2010. Based on the
analysis, we are subject to an annual limitation of $1.8 million on our use of remaining pre-ownership change net operating loss
carryforwards of $4.7 million (and certain other pre-change tax attributes). Our federal net operating loss carryforwards of approximately
$15.5 million will begin to expire in various years beginning in 2028. There can be no assurance that we will not experience an ownership
change in the future, in which case we may be limited in our ability to use our deferred tax assets and may be required to record a valuation
allowance against such assets.
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
Lenexa
League City
Houston
Santa Fe Springs
Mississauga
Alpharetta
Michigan
Kansas
Texas
Texas
California
Ontario, Canada
Georgia
We believe that such office and warehouse space is suitable and adequate for our business.
Item 3.
Legal Proceedings.
From time to time in the ordinary course of our business, we may be involved in legal proceedings, the outcomes of which may not be
determinable. We have insurance policies covering potential losses where such coverage is cost effective. We are not at this time involved
in any legal proceedings that we believe could have a material effect on our business, financial condition, results of operations or cash
flows.
Item 4.
Mine Safety Disclosures.
Not applicable.
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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The following tables set forth, for the calendar quarter indicated, the quarterly high and low bid information of our common stock,
respectively, as reported on the NYSE-MKT. 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, 2015
September 30, 2015
June 30, 2015
March 31, 2015
December 31, 2014
September 30, 2014
June 30, 2014
March 31, 2014
Holders of Common Equity
High
$3.09
$3.30
$3.42
$3.15
$4.50
$3.25
$2.99
$3.05
Low
$2.67
$2.22
$2.73
$2.43
$2.56
$2.60
$2.56
$2.06
As of February 29, 2016, we had approximately 350 stockholders of record of our common stock. This does not include beneficial
owners of our common stock. None of our preferred stock is issued or outstanding.
Dividends
We have not paid any dividends on our common stock in the two most recent fiscal years. 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
Facility, we are limited in our ability 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.
Common Share Repurchase Program
Stock repurchases may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as
we deem 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. For the years ending December 31, 2015 and 2014,
respectively, no shares were repurchased under this program.
Shares Forgone to Satisfy Minimum Statutory Withholdings
During the years ended December 31, 2015 and 2014, shares of common stock were issued to employees and directors as their
restricted stock awards vested or stock options were exercised. Under the terms of our stock plans, at the election of each employee, we can
authorize a net settlement of distributable shares to employees after satisfaction of an individual employees’ tax withholding obligations.
For the years ended December 31, 2015 and 2014, respectively, we received 0.1 million of shares from employees for tax withholding
obligations.
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Unregistered Sales of Equity Securities
We did not sell any unregistered securities during the fiscal year ended December 31, 2015.
Equity Compensation Plan Information
See Part III, Item 12 for information relating to securities authorized for issuance under our equity compensation plans.
Stock Performance Graph
InfuSystem 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.
Item 6.
Selected Financial Data.
InfuSystem 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.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this
Annual Report on Form 10-K. The forward-looking statements included in this discussion and elsewhere in this Annual Report on Form
10-K involve risks and uncertainties, including those set forth under “Cautionary Statement About Forward-Looking Statements.” Actual
results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking
statements as a result of a number of factors, including but not limited to those discussed in this Item and in Item 1A — “Risk Factors.”
Overview
We are a leading provider of infusion pumps and related products and services for patients in the home, oncology clinics, ambulatory
surgery centers, and other sites of care from five locations in the United States and Canada. We provide our products and services to
hospitals, oncology practices and facilities and other alternate site health care 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, Texas, Georgia and Ontario, Canada. ISI is accredited by the CHAP while First Biomedical is ISO certified.
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 and
other disease states. Colorectal cancer is the third most prevalent form of cancer in the United States, according to the American Cancer
Society, and the standard of care for the treatment of colorectal cancer relies upon continuous chemotherapy infusions delivered via
ambulatory infusion pumps.
In addition, 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. We also provide these products and services to customers in the small-
hospital market.
We purchase new and pre-owned pole mounted and ambulatory infusion pumps from a variety of sources on a non-exclusive basis.
We repair, refurbish and provide biomedical certification for the devices as needed. The pumps are then available for sale, rental or to be
used within our ambulatory infusion pump management service.
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We view our payor environment as changing. Management is intent on extending its considerable breadth of payor contracts as
patients move into different insurance coverages, including Medicaid and Insurance Marketplace products. In some cases, this may slightly
reduce our aggregate billed revenues payment rate but result in an overall increase in collected revenues, as shown by a reduction in bad
debt expense. Consequently, we are increasingly focused on net collected revenues less bad debt.
In the midst of changes in the healthcare arena, we believe that we will support our overall business strategy discussed above by
(i) focusing on supporting recurring revenues by increasing our pump fleet; (ii) improving liquidity and strengthening the balance sheet by
keeping debt levels comparable to our operations; (iii) improving internal operational efficiencies,; (iv) increasing our product and services
offerings,; (v) enhancing our technology offerings to the patients and providers of care; and (vi) investigating synergistic acquisitions.
For additional information pertaining to CMS, refer to Item 1 — Business — Significant Customers and also Recent Events in Our
Business.
Key Business Metrics
Our management monitors a number of financial and non-financial measures and ratios on a regular basis in order to track the
progress of our business and make adjustments as necessary. We believe that the most important of these measures and ratios include net
revenue, net rental revenue, net collected rental revenue, gross margin, operating margin, net income, non-GAAP net income, net income
per common share, non-GAAP net income per diluted share, EBITDA and Adjusted EBITDA, free cash flow, return on invested capital,
cash and cash equivalents, net working capital, and debt levels including available credit and leverage ratios. These measures and ratios are
compared to standards or objectives set by management, so that actions can be taken, as necessary, in order to achieve the standards and
objectives.
InfuSystem Holdings, Inc. Results of Operations for the Year ended December 31, 2015 compared to the Year ended December 31,
2014
Revenues
Net Revenues — Net revenues for the fiscal year ended December 31, 2015 were $72.1 million, which represents a 9% increase over
the prior year’s net revenues of $66.5 million, primarily due to continued growth in rentals, as further discussed below.
Rentals — Increased $5.8 million, or 10%, compared to the prior year, primarily related to the addition of larger customers and
increased penetration into our existing customer accounts offset by a higher mix of Medicaid and patient payors in our rental business,
which generally have lower net revenue rates than commercial payors. While billings increased 12%, mix of in and out of network billings
versus patient pay and payor mix hampered the increase in revenue dollars. Such shifts have occurred, we believe, due to the ACA. We
view our payor environment as changing. Management is intent on extending its considerable breadth of payor contracts as patients move
into different insurance coverages, including Medicaid and Insurance Marketplace products. In some cases, this may slightly reduce our
aggregate billed revenues payment rate but result in an overall increase in collected revenues, as shown by a reduction in bad debt expense.
Consequently, we are increasingly focused on net collected revenues less bad debt.
Product Sales — Decreased $0.2 million, or 2%, compared to the prior year. Included in the fourth quarter of 2015 was a large sale of
$0.9 million. The decrease in product sales compared to the prior year was largely attributable to our increased focus on rental revenues and
higher margin sales.
Gross Profit — Increased $3.8 million, or 8%, compared to the prior year, largely attributable to the increase in rental revenues during
2015, which was offset by a $1.8 million increase in supply costs associated with the increase in rental revenues and the deployment of
pumps to new therapy sites. Gross profit as a percentage of net revenues remained consistent with the prior year at 71%.
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Provision for Doubtful Accounts — Decreased $0.5 million compared to the prior year from 9% of net revenues to 7% of net
revenues. This change is the result of the Company’s increased number of third-party payor contracts that are now being billed at in-
network rates with lower rates of bad debt whereby previous insurance billings were billed at higher out-of-network rates and higher rates
of bad debt. Bad debt is primarily associated with rental revenues.
Couple this change with the impact of the ACA, we view our payor environment as changing. Management is intent on continuing to
extend its considerable breadth of payor contracts as patients move into different insurance coverages, including Medicaid and Insurance
Marketplace products. As of December 31, 2015, we had more than 340 third party payor networks under contract. In some cases, this may
slightly reduce our aggregate billed revenues payment rate but result in an overall increase in collected revenues, as shown by a reduction in
bad debt expense. Consequently, we are increasingly focused on net collected revenues less bad debt. This effect and the success of the
collection efforts and additional headcount put in place at the beginning of the year for patient receivables has contributed to the decrease in
bad debts.
Amortization of Intangible Assets — Increased $0.4 million compared to the prior year. This increase was largely attributable to the
completion of several IT projects, in turn increasing the related amortization, and the acquisition of Ciscura in April 2015 and the related
amortization of intangibles.
Selling and Marketing Expenses — For the year ended December 31, 2015, our selling and marketing expenses increased to $10.4
million, or 7%, compared to December 31, 2014 but had a slight decrease as a percentage of net revenues from 15% in 2014 to 14% in
2015. Selling and marketing expenses during these years consisted of sales personnel salaries, commissions and associated fringe benefit
and payroll-related items, marketing, share-based compensation, travel and entertainment and other miscellaneous expenses.
General and Administrative Expenses — General and administrative (“G&A”) expenses during 2015 and 2014 consisted primarily of
accounting, administrative, third party payor billing and contract services, customer service, nurses on staff, new product services, and
service center personnel salaries, fringe benefits and other payroll related items, professional fees, legal fees, stock-based compensation,
insurance and other miscellaneous items. During the year ended December 31, 2015, our G&A expenses were $23.8 million, an increase of
19% from $20.0 million for the year ended December 31, 2014. The increase in G&A expenses versus the same prior year period was
mainly attributable to increases in spending on IT and pain management initiatives of $0.9 million, increases in compensation and employee
personnel of $1.9 million, increases in stock-based compensation of $0.4 million and $0.7 million in expenses associated with the
acquisition, transition and integration for Ciscura. The Company has brought in-house certain services previously performed by outside
advisors and contractors, including tax, legal, information technology, internal audit and increased warehouse headcount in Atlanta and
Houston over the prior year period.
The following table includes additional details regarding our G&A expenses for the years ended December 31:
Strategic alternatives—legal costs (a)
Stock based compensation
Total
G&A—other than one-time costs & stock based comp
G&A—Total
2015
669
996
1,665
22,113
$23,778
2014
—
576
576
19,412
$19,988
Diff
669
420
1,089
2,701
$3,790
(a)
Strategic costs were attributable to the acquisition, transition and integration of Ciscura.
Other Income and Expenses — During the year ended December 31, 2015, we recorded interest expense of $1.7 million, compared to
$3.1 million for the year ended December 31, 2014. This is a direct result of the lower
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interest rates with our new Credit Facility. In addition, we had other expenses of $1.6 million in 2015, primarily related to the write-off of
deferred financing costs as a result of the early extinguishment of debt.
Provision for Income Taxes — During the year ended December 31, 2015, we recorded income tax expense of $1.8 million compared
to $2.9 million for the year ended December 31, 2014. The effective tax rate for the year ended December 31, 2015 was 32.8% compared
to 45.9% for the year ended December 31, 2014. The decrease in effective tax rate was primarily due to permanent differences of $0.2
million, less taxable income at the federal rate resulting in $0.2 million, foreign taxes of $0.2 million due to the completion of a transfer
price study and adjustment to our Canadian income tax liability and benefits from research and development credits pertaining to our
development of software that enables third parties to interact, initiate functions or review data on our system of $0.4 million. Refer to the
discussion under “Summary of Significant Accounting Policies — Income Taxes” included in Note 2 and “Income Taxes” included in Note
8 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Inflation — Management believes that there has been no material effect on our results of operations or financial condition as a result
of inflation or changing prices of our ambulatory infusion pumps during the period from January 1, 2014 through December 31, 2015.
Liquidity and Capital Resources
Overview:
We finance our operations and capital expenditures with internally generated cash from operations. As of December 31, 2015, we had
cash and cash equivalents of $0.8 million and $9.9 million of availability on our Revolver compared to $0.5 million of cash and cash
equivalents and $6.6 million of availability on our then existing revolving line-of-credit at December 31, 2014. Our liquidity and borrowing
plans are established to align with our financial and strategic planning processes and ensure we have the necessary funding to meet our
operating commitments, which primarily include the purchase of pumps, inventory, payroll and general expenses. We also take into
consideration our overall capital allocation strategy which includes investment for future growth and acquisitions. We believe we have
adequate sources of liquidity and funding available for at least the next year, however, there are a number of factors that may negatively
impact our available sources of funds. The amount of cash generated from operations will be dependent upon factors such as the successful
execution of our business plan and general economic conditions. As of December 31, 2015, we were in compliance with all such covenants
and expect to be in compliance over the next 12 months.
Long-Term Debt Activities:
On March 23, 2015, we and our direct and indirect subsidiaries entered into the Credit Agreement with the Lender. The borrowers
under the Credit Agreement are the Company, Holdings, ISI, First Biomedical and IFC (collectively, the “Borrowers”). The Credit
Agreement provides for the Credit Facility consisting of a $27.0 million Term Loan A, up to $8.0 million of a Term Loan B and a $10.0
million Revolver, all of which mature on March 23, 2020. In connection with these refinancing, we recorded a loss on extinguishment of
long-term debt of $1.6 million in our Consolidated Statement of Operations for the year ended December 31, 2015.
On March 23, 2015, we drew $27.0 million under the Term Loan A to repay and terminate our previously existing credit facility.
Term Loan B was unfunded at closing and beginning on April 20, 2015, the Closing Date of the acquisition of the assets of Ciscura, the
Borrowers drew on Term Loan B in several installments in accordance with the requirements of the asset purchase agreement governing
the acquisition to fund the acquisition and associated expenses. As of December 31, 2015, a total of approximately $6.3 million had been
drawn on Term Loan B, with an additional $1.7 million available to be drawn under certain conditions for acquisitions. We recorded a $1.6
million as loss on extinguishment of long-term debt in our consolidated statement of operations as of December 31, 2015 for the write-off
of deferred financing costs associated with the previous credit facility.
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During the year end December 31, 2015, we made optional pre-payments of $4.8 million on our Term Loan A, which we can apply
against a future mandatory payment. Prepayments of $1.9 million were applied to September 30, 2015 and December 31, 2015 Term Loan
A principal payments. Remaining prepayments of $2.9 million are available toward 2016 future mandatory payments.
As of December 31, 2015, interest on the Credit Facility was payable at our choice as a (i) Eurodollar Loan, which bears interest at a
per annum rate equal to LIBOR, plus a margin ranging from 2.00% to 2.50% or (ii) CBFR Loan, which bears interest at a per annum rate
equal to (a) the Lender’s prime rate or (b) LIBOR for a 30 day interest period, plus 2.50%, in each case, plus a margin ranging from -0.75%
to -0.25%. The actual rate at December 31, 2015 was 2.73% (LIBOR of 0.23% plus 2.50%).
The availability under the Revolver is based upon our eligible accounts receivable and eligible inventory and is computed as of
December 31 as follows (in thousands):
Gross availability
Outstanding draws
Letter of credit
Landlord Reserves
Availability on Revolver
2015
$10,000
—
(81)
(37)
$ 9,882
2014
$7,432
(566)
(282)
—
$6,584
To secure repayment of the obligations of the Borrowers, each Borrower has granted to the Lender, for the benefit of various secured
parties, a first priority security interest in substantially all of the personal property assets of each of the Borrowers. In addition, we have
pledged the shares of Holdings and Holdings has pledged the shares of each of ISI and First Biomedical and the equity interests of IFC to
the Lender, for the benefit of the secured parties, to further secure the obligations under the Credit Agreement.
The Credit Agreement contains certain affirmative and negative covenants typical for credit facilities of this type. These covenants
(subject to certain agreed and customary exceptions set forth in the Credit Agreement) restrict or limit subject to the Lender’s prior consent,
and in some cases prohibit, the Borrowers from engaging in certain actions, including its ability to, among other things: (i) incur
indebtedness; (ii) create liens; (iii) engage in mergers, consolidations, liquidations or dissolutions; (iv) engage in acquisitions; (v) dispose of
assets; (vi) pay dividends and distributions or repurchase capital stock or make other restricted payments; (vii) make investments, loans,
guarantees or advances; (viii) engage in certain transactions with affiliates; (ix) enter into sale and leaseback transactions; (x) enter into
hedging agreements; (xi) enter into agreements that restrict distributions from subsidiaries; and (xii) change their fiscal year.
In addition, the Credit Agreement requires us to maintain the following financial covenant obligations:
(i)
a minimum fixed charge coverage ratio of 1.25:1.00;
(ii)
a maximum total leverage ratio ranging from 3.00:1.00 to 2.25:1.00 during specified periods; and
(iii) a minimum net worth of $37.5 million.
Acquisition:
On April 20, 2015, we acquired substantially all of the assets of Ciscura Holding Company, Inc., and its subsidiaries (“Ciscura”) for
$6.2 million in cash and recorded approximately $0.7 million for integration, professional and other related expenses. See Note 3 –
Business Combinations for additional information pertaining to this acquisition.
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Cash Flows:
Net cash provided by operating activities for the year ended December 31, 2015 was $7.1 million compared to $7.3 million for the
year ended December 31, 2014. The decrease was primarily attributable to the cash flow effects of the changes in accounts receivable and
the impact of non-cash transactions, including loss on extinguishment of debt, depreciation and loss on disposal of medical equipment.
Net cash used in investing activities for the year ended December 31, 2015 was $11.9 million compared to $2.8 million for the year
ended December 31, 2014. The increase was primarily related to our acquisition of Ciscura for $6.2 million, a decrease of $1.7 million for
the purchases of non-pump assets offset by an increase in the purchases of intangible assets of $2.2 million, and a decrease of $2.3 million
in proceeds from the sale of medical equipment.
Net cash provided by financing activities for the year ended December 31, 2015 was $5.2 million compared to cash used of $5.0
million for the year ended December 31, 2014. This change is primarily attributable to the cash proceeds received as a result of our
decision to refinance our debt in the first quarter of 2015 and drawdowns on our Term Loan B for the recent acquisition of Ciscura for $6.2
million.
We occasionally enter into capital leases to finance the purchase of ambulatory infusion pumps. The pumps are capitalized into
medical equipment in rental service 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. The weighted average interest rate under capital leases was 4.8% as of December 31, 2015.
Contractual Obligations
InfuSystem is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide this
information.
Contingent Liabilities
We are not aware of 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 accounting principles generally accepted in the United States of America
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; sales return allowances; inventory reserves; long lived assets; intangible assets
valuations; and income tax valuations. Management relies on historical experience and other assumptions believed to be reasonable in
making its judgment and estimates. Actual results could differ materially from those estimates.
Management believes its application of accounting policies, and the estimates inherently required therein, are reasonable. These
accounting policies and estimates are periodically reevaluated, and adjustments are made when facts and circumstances dictate a change.
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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; 2) we have verified actual pump usage and insurance coverage; 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.
For 2015 and 2014, our largest contracted payor was Medicare, which accounted for approximately 32% and 30% of our net revenue
for ambulatory infusion pump services for the years ended December 31, 2015 and 2014, respectively. Medicare represented 20% and 18%
of our consolidated accounts receivable, net for the years ended December 31, 2015 and 2014, respectively. For 2015 and 2014, our second
largest contracted payor was a national association comprised of multiple members, which, in the aggregate, accounted for approximately
18% of our net revenue for ambulatory infusion pump services for both years ended December 31, 2015 and 2014. This same contracted
payor represented 27% and 26% of our consolidated accounts receivable, net for the years ended December 31, 2015 and 2014,
respectively. 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 those listed above, accounted for greater than approximately
9% of our ambulatory infusion pump services net revenue for 2015 or 2014.
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. 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 business, financial condition, results of operations and cash flows.
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Income Taxes
We recognize deferred income tax liabilities and assets based on (i) 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 and (ii) the tax
credit carry forwards. 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.
Provisions for federal, state and foreign taxes are calculated based on reported pre-tax earnings based on current tax law and include
the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Certain items
of income and expense are recognized in different time periods for financial reporting than for income tax purposes; thus, such provisions
differ from the amounts currently receivable or payable.
We estimate the impact of uncertain income tax positions on the income tax return. These estimates impact income taxes receivable,
accounts payable and accrued liabilities on the balance sheet and provision for income taxes on the income statement. We follow a two-step
approach for recognizing uncertain tax positions. First, management evaluates the tax position for recognition by determining if the weight
of available evidence indicates it is more-likely-than-not that the position will be sustained upon examination. Second, for positions that are
determined are more-likely-than-not to be sustained, we recognize the tax benefit as the largest benefit that has a greater than 50%
likelihood of being sustained. We establish a reserve for uncertain tax positions liability that is comprised of unrecognized tax benefits and
related interest and penalties. We adjust this liability in the period in which an uncertain tax position is effectively settled, the statute of
limitations expires for the relevant taxing authority to examine the tax position, or more information becomes available. For more
information, refer to the “Income Taxes” discussion included in Note 8 in the Notes to the Consolidated Financial Statements.
Intangible Asset Valuation
We evaluate the carrying value of long-lived assets for impairment by analyzing the operating performance and anticipated future
cash flows for those assets, whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be
recoverable. We evaluate the need to adjust the carrying value of the underlying assets if the sum of the expected cash flows is less than
the carrying value. Our projection of future cash flows, the level of actual cash flows, the methods of estimation used for determining fair
values and salvage values can impact impairment. Any changes in management’s judgments could result in greater or lesser annual
depreciation and amortization expense or impairment charges in the future. Depreciation and amortization of long-lived assets is calculated
using the straight-line method over the estimated useful lives of the assets.
We performed our annual impairment analysis in October 2015 and determined that the fair value of all indefinite-lived assets was
greater than the carrying value, resulting in no impairment of indefinite-lived assets.
For more information, refer to the “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 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.
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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 as of December 31, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
Notes to Consolidated Financial Statements
33
Page
34
35
36
37
38
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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, 2015 and 2014, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then
ended. 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 audits 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/BDO USA, LLP
Troy, Michigan
March 9, 2016
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(in thousands, except share and per share data)
ASSETS
Current Assets:
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2015
December 31,
2014
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $4,737 and $4,739 at December 31,
$
818
$
515
2015 and December 31, 2014, respectively
Inventories
Other current assets
Deferred income taxes
Total Current Assets
Medical equipment held for sale or rental
Medical equipment in rental service, net of accumulated depreciation
Property & equipment, net of accumulated depreciation
Deferred debt issuance costs, net
Intangible assets, net
Deferred income taxes
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Current portion of long-term debt
Other current liabilities
Total Current Liabilities
Long-term debt, net of current portion
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 and outstanding 22,739,550
and 22,541,890, as of December 31, 2015 and issued and outstanding 22,506,420 and 22,308,730, as
of December 31, 2014, respectively.
Additional paid-in capital
Retained deficit
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
14,206
1,916
861
2,743
20,544
2,277
27,837
2,370
134
31,534
11,502
251
96,449
6,586
5,060
3,641
15,287
29,884
45,171
$
$
10,300
1,758
633
2,252
15,458
2,255
19,814
2,451
1,194
25,073
13,756
212
80,213
5,215
6,452
3,062
14,729
19,032
33,761
$
$
—
—
2
91,238
(39,962)
51,278
96,449
$
2
90,155
(43,705)
46,452
80,213
$
See accompanying notes to consolidated financial statements.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per 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 and loss on disposal
Gross profit
Selling, general and administrative expenses:
Provision for doubtful accounts
Amortization of intangible assets
Selling and marketing
General and administrative
Total selling, general and administrative
Operating income
Other income (expense):
Interest expense
Loss on extinguishment of long-term debt
Other income
Total other expense
Income before income taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Year Ended
December 31,
2015
Year Ended
December 31,
2014
$
$
$
$
64,536
7,589
72,125
13,802
7,139
51,184
5,234
2,884
10,424
23,778
42,320
8,864
(1,705)
(1,599)
13
(3,291)
5,573
(1,830)
3,743
0.17
0.16
$
$
$
$
58,718
7,769
66,487
12,165
6,968
47,354
5,774
2,516
9,745
19,988
38,023
9,331
(3,134)
—
13
(3,121)
6,210
(2,853)
3,357
0.15
0.15
22,414,587
22,843,235
22,154,199
22,552,093
See accompanying notes to consolidated financial statements.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
Common Stock
Treasury Stock
(in thousands)
Balances at January 1, 2014
Restricted shares issued upon vesting
Stock-based compensation expense
Common stock repurchased to satisfy minimum statutory
withholding on stock-based compensation
Net income
Balances at December 31, 2014
Stock based shares issued upon vesting — gross
Stock-based compensation expense
Employee stock purchase plan
Cash proceeds — other stock plans
Common stock repurchased to satisfy minimum statutory
withholding on stock-based compensation
Net income
Balances at December 31, 2015
Par Value
$0.0001
Amount
Additional
Paid in
Capital
Retained
Deficit
Shares
Amount
Total
Stockholders’
Equity
2 $ 89,783 $(47,062)
—
—
—
576
—
—
(198) $ — $
—
—
—
—
42,723
—
576
Shares
22,158 $
452
—
(104)
—
22,506
155
—
98
25
—
—
2
—
—
—
—
(204)
—
90,155
—
996
268
38
—
3,357
(43,705)
—
—
—
—
—
—
(198)
—
—
—
—
—
—
—
—
—
—
—
(204)
3,357
46,452
—
996
268
38
(44)
—
22,740 $
—
—
(219)
—
—
3,743
2 $ 91,238 $(39,962)
—
—
—
—
(198) $ — $
(219)
3,743
51,278
See accompanying notes to consolidated financial statements.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on extinguishment of long-term debt
Provision for doubtful accounts
Depreciation
Loss/(gain) on disposal of medical equipment
Gain on sale of medical equipment
Amortization of intangible assets
Amortization of deferred debt issuance costs
Stock-based compensation expense
Deferred income tax expense
Changes in Assets — (Increase)/Decrease:
Accounts receivable
Inventories
Other current assets
Other assets
Changes in Liabilities — Increase/(Decrease):
Accounts payable and other liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Acquisitions
Purchases of medical equipment
Purchases of property
Purchases of intangible assets
Proceeds from sale of medical equipment
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Principal payments on term loans and capital lease obligations
Cash proceeds from bank loans and revolving credit facility
Debt Issuance Costs
Cash Proceeds — Stock Plans
Common stock repurchased to satisfy taxes on stock based compensation
NET CASH USED IN FINANCING ACTIVITIES
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Year Ended
December 31,
2015
Year Ended
December 31,
2014
$
3,743
$
3,357
1,599
5,234
5,359
591
(2,441)
2,884
127
996
1,763
(9,140)
(158)
(228)
(497)
(2,778)
7,054
(6,156)
(4,198)
(314)
(5,733)
4,494
(11,907)
(65,202)
70,429
(157)
265
(179)
5,156
303
515
818
$
—
5,774
3,626
281
(2,179)
2,516
623
576
2,588
(5,377)
(524)
(115)
140
(4,031)
7,255
—
(4,167)
(1,995)
(3,543)
6,867
(2,838)
(66,689)
61,853
—
—
(204)
(5,040)
(623)
1,138
515
$
See accompanying notes to consolidated financial statements.
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The following table presents certain supplementary cash flow information for the years ended December 31 (in thousands):
(in thousands)
SUPPLEMENTAL DISCLOSURES
Cash paid for interest
Cash paid for income taxes
NON-CASH TRANSACTIONS
Additions to medical equipment and property (a)
Medical equipment acquired pursuant to a capital lease
2015
2014
$1,508
$ 146
$2,351
$ 298
$1,415
$4,233
$ 920
$3,596
(a) Amounts consist of current liabilities for medical equipment that have not been included in investing activities. These amounts have
not been paid for as of December 31, 2015 and 2014, respectively, but will be included as a cash outflow from investing activities for
purchases of medical equipment and property when paid.
See accompanying notes to consolidated financial statements.
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INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Basis of Presentation and Nature of Operations
InfuSystem Holdings, Inc. and its consolidated subsidiaries (the “Company”), are a leading provider of infusion pumps and related
products and services for patients in the home, oncology clinics, ambulatory surgery centers, and other sites of care from five locations in
the United States and Canada. The Company provides products and services to hospitals, oncology practices and facilities and other
alternate site health care providers. Headquartered in Madison Heights, Michigan, the Company delivers local, field-based customer
support, and also operate pump service and repair Centers of Excellence in Michigan, Kansas, California, Texas, Georgia and Ontario,
Canada. InfuSystem Inc. (“ISI”), which is an operating subsidiary of the Company, is accredited by the Community Health Accreditation
Program (“CHAP”) while First Biomedical, Inc. (“First Biomedical”), which is an operating subsidiary of the Company, is ISO certified.
The Company’s 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, pain management and other disease states. The majority of the Company’s pumps are electronic infusion pumps
purchased from the following manufacturers, each of which supplies more than 10% of the ambulatory pumps purchased by the Company:
Smiths Medical, Inc. and WalkMed Infusion, LLC. The Company has supply agreements in place with these suppliers. Certain “spot”
purchases are made on the open market subject to individual negotiation.
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.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
2.
Summary of Significant Accounting Policies
Presentation in the Consolidated Statements
The Company both rents and sells medical equipment. Management believes that the predominant source of revenues and cash flows
from this medical equipment is from rentals and most equipment purchased is likely to be rented prior to being sold. Accordingly, the
Company has concluded that (i) the assets specifically supporting its two primary revenue streams should be separately disclosed on the
balance sheet; (ii) the purchase and sale of medical equipment should be classified solely in investing cash flows based on their
predominant source; and (iii) other activities ancillary to the rental process should be consistently classified.
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 reportable 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 its customer base,
utilizing a 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 valuations and income tax valuations.
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.
Business Combinations
The Company accounts for all business combinations using the acquisition method of accounting, which allocates the fair value of
the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The
excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When
determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The
Company may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject
to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related expenses and
transaction costs associated with business combinations are expensed as incurred.
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 insured with the Federal Deposit Insurance
Corporation.
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. Due to
continuing changes in the health care industry and third-party
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reimbursement, it is possible that management’s estimates could change in the near term, which could have a material impact on the
Company’s business, 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 (in thousands):
Allowance for doubtful accounts — 2015
Allowance for doubtful accounts — 2014
Balance at
beginning
of Year
$ 4,739
$ 4,774
Charged
to costs and
expenses
5,234
5,774
$
$
Deductions (1)
$
$
(5,236)
(5,809)
Balance
at end of
Year
$4,737
$4,739
(1) Deductions represent the write-off of uncollectible account receivable balances.
Inventories
The Company’s inventories consist of disposable products and related parts and supplies used in conjunction with medical equipment
and are stated at the lower of cost (first-in, first-out basis) or market. The Company periodically performs an analysis of slow moving
inventory and records a reserve based on estimated obsolete inventory, which was $0.1 million as of both December 31, 2015 and 2014.
Medical Equipment
Medical Equipment (“ME”) consists of equipment that the Company purchases from third-parties and is 1) held for sale or rent, and
2) used in service to generate rental revenue. ME, once placed into service, is depreciated using the straight-line method over the estimated
useful lives of the equipment which is typically seven years. The Company does not depreciate ME held for sale or rent. When assets are
sold, or otherwise disposed, the cost and related accumulated depreciation are removed from the accounts and a sale is recorded in the
current period. The Company periodically performs an analysis of slow moving ME held for sale or rent and records a reserve based on
estimated obsolescence, which was $0.2 million and $0.1 million, respectively, as of December 31, 2015 and 2014.
During the first quarter of 2014, the Company reassessed the estimated useful life of certain of its ME. As a result, the estimated
useful life of the Company’s ME was extended from five to seven years due to the determination that the Company was using these assets
longer than originally anticipated. A major factor in this change was the servicing of such equipment by the Company’s Kansas facility,
which was acquired in 2010. As a result, disposal of such equipment has decreased significantly since that acquisition.
The change in the estimated useful lives of the Company’s ME was accounted for as a change in accounting estimate, on a
prospective basis, effective January 1, 2014. The change in estimated useful lives resulted in $1.9 million less depreciation expense for the
year ended December 31, 2014 than otherwise would have been recorded. After-tax, net income would have been lower by $1.1 million for
the year ended December 31, 2014 if this change in estimate had not been made. The impact to basic and diluted income per share due to
this change in estimate would have been $0.05 per share for the year ended December 31, 2014.
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. Externally purchased information technology 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.
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Intangible Assets
Intangible assets consist of trade names, physician and customer relationships, non-compete agreements and software. The physician
and customer relationships and non-compete agreements arose primarily from the acquisitions of ISI and First Biomedical in 2010 and the
acquisition of assets from Ciscura Holding Company, Inc. and its subsidiaries (“Ciscura”) in 2015. The Company amortizes the value
assigned to the physician and customer relationships on a straight-line basis over the period of expected benefit, which ranges from fifteen
to twenty years. The acquired physician and customer relationship base represents a valuable asset of the Company 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. The useful lives of these relationships are 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 with the amortization periods
ranging from two to five years and acquired software is amortized on a straight-line basis over three years. Trade names associated with the
original acquisition of InfuSystem are not amortized while trade names from the Ciscura asset acquisition in 2015 are amortized over one
year.
Management tests trade names for impairment annually or as often as deemed necessary. The impairment test for intangible assets
with indefinite lives consists of a comparison of the fair value of the intangible assets with their carrying amounts. If the carrying value of
the intangible assets exceeds the fair value, an impairment loss is recognized in an amount equal to that excess. The Company determines
the fair value of the reporting unit for goodwill impairment testing based on a discounted cash flow model. The Company determines the
fair value of our intangibles assets with indefinite lives (trade names) through the royalty relief income valuation approach. The Company
performed its annual impairment analysis as of October 2015 and determined that the fair value of the intangible assets with indefinite lives
(trade names) was greater than their carrying value, resulting in no impairment.
Software Capitalization and Depreciation
We capitalize certain costs incurred in connection with obtaining or developing internal-use software, including payroll and payroll-
related costs for employees who are directly associated with the internal-use software project, external direct costs of materials and services
and interest costs while developing the software. Capitalized software costs are included in intangible assets, net and are amortized using
the straight-line method over the estimated useful life of three to five years. Capitalization of such costs ceases when the project is
substantially complete and ready for its intended purpose. Costs incurred during the preliminary project and post-implementation stages, as
well as software maintenance and training costs, are expensed in the period in which they are incurred. The company capitalized $5.6
million and $3.4 million of internal-use software for the years ended December 31, 2015 and 2014, respectively. Amortization expense for
capitalized software was $0.4 million in 2015 and $0.0 million in 2014.
Impairment of Long-Lived Assets
Long-lived assets held for use, which includes property and equipment and amortizable intangible assets, are reviewed for impairment
when events or changes in circumstances 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 or asset group. The Company did not record any impairment related expenses for the years ended December 31, 2015 and 2014,
respectively.
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Operating and Capital Leases
Leases for all of our corporate and other operating locations are under operating leases and the Company recognizes rent expense on a
straight-line basis over the lease terms. Rent holidays and rent escalation clauses, which provide for scheduled rent increases during the
lease term, are taken into account in computing straight-line rent expense included in our consolidated statements of operations. The
difference between the rent due under the stated periods of the leases compared to that of the straight-line basis is recorded as a component
of other long-term liabilities in the consolidated balance sheets. Landlord funded lease incentives, including tenant improvement
allowances provided for our benefit, are recorded as leasehold improvement assets and as deferred rent in the consolidated balance sheets
and are amortized to depreciation expense and as rent expense credits, respectively. The Company occasionally enters into capital leases to
finance the purchase of ambulatory infusion pumps. The pumps are capitalized into medical equipment in rental service 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. Under the
terms of all such capital leases, the Company does not hold title to these pumps and will not obtain title until such time as the capital lease
obligations are settled in full. The weighted average interest rate under capital leases was 4.8% as of December 31, 2015.
Revenue Recognition
The Company recognizes revenue for selling, renting and servicing new and pre-owned infusion pumps and other medical equipment
to oncology practices as well as other alternate site settings including home care and home infusion providers, skilled nursing facilities,
pain centers and others, when persuasive evidence of an arrangement exists; services have been rendered; the price to the customer is fixed
or determinable; and collectability is reasonably assured. Persuasive evidence of an arrangement is determined to exist, and collectability is
reasonably assured, when the Company (i) receives a physician’s written order and assignment of benefits, signed by the physician and
patient, respectively, and (ii) has verified actual pump usage and insurance coverage and (iii) receives patient acknowledgement of
assignment of benefits. 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
for returns when the related sale is recognized. 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 the estimates 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 a material impact on the Company’s results of operations and cash flows.
For 2015 and 2014, the Company’s largest contracted payor was Medicare, which accounted for approximately 32% and 30% of our
net revenue for ambulatory infusion pump services for the years ended December 31, 2015 and 2014, respectively. Medicare represented
20% and 18% of the Company’s consolidated accounts receivable, net for the years ended December 31, 2015 and 2014, respectively. For
2015 and 2014, the Company’s second largest contracted payor was a national association comprised of multiple members, which, in the
aggregate, accounted for approximately 18% of our net revenue for ambulatory infusion pump services for both years ended December 31,
2015 and 2014. This same contracted payor represented 27% and 26% of the Company’s consolidated accounts receivable, net for the years
ended December 31, 2015 and 2014, respectively. The Company also contracted with various other third party payor organizations,
commercial Medicare replacement plans, self-insured plans and numerous other insurance carriers. No individual payor, other than those
listed above, accounted for greater than approximately 9% of the Company’s ambulatory infusion pump services net revenue for 2015 or
2014.
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Income Taxes
The Company recognizes deferred income tax liabilities and assets based on: (1) 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 and (2) the tax credit carry forwards. 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.
Provisions for federal, state and foreign taxes are calculated based on reported pre-tax earnings based on current tax law and include
the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Certain items
of income and expense are recognized in different time periods for financial reporting than for income tax purposes; thus, such provisions
differ from the amounts currently receivable or payable.
The Company follows a two-step approach for recognizing uncertain tax positions. First it evaluates the tax position for recognition
by determining if the weight of available evidence indicates that it is more-likely-than-not to be sustained upon examination. Second, for
positions that are determined to be more-likely-than-not to be sustained, it recognizes the tax benefits as the largest benefit that has a greater
than 50% likelihood of being sustained. The Company establishes a reserve for uncertain tax positions liability that is comprised of
unrecognized tax benefits and related interest and penalties. The Company recognizes interest and penalties related to uncertain tax
positions in the provision of income taxes.
Share Based Payments
The determination of the fair value of stock option awards on the date of grant using option-pricing models is affected by the
Company’s stock price, as well as assumptions regarding a number of other inputs using the Black-Scholes pricing model. These variables
include the Company’s expected stock price volatility over the expected term of the awards, actual and projected employee stock option
exercise behaviors, risk-free interest rates and expected dividends. The expected volatility is based on the historical volatility. The
Company uses historical data to estimate stock option exercise and forfeiture rates. The expected term represents the period over which the
share-based awards are expected to be outstanding. The dividend yield is an estimate of the expected dividend yield on the Company’s
stock. The risk-free rate is based on U.S. Treasury yields in effect at the time of the grant for the expected term of the stock options. All
stock option awards are amortized based on their graded vesting over the requisite service period of the awards. Compensation costs are
recognized over the requisite service period using the accelerated method and included in selling expenses and general and administrative
expenses, based upon the department to which the associated employee or non-employee resides.
Deferred Debt Issuance Costs
Capitalized debt issuance costs as of December 31, 2015 relate to the Company’s current Credit Facility with JPMorgan Chase Bank,
N.A. Capitalized debt issuance costs as of December 31, 2014 relate to the Company’s previous Credit Facility with Wells Fargo, which
was repaid and terminated during 2015. The Company classified the costs related to these agreements as non-current assets and amortizes
them using the interest method through the maturity date of the underlying debt.
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Earnings Per Share
The Company reports its earnings per share in accordance with the “Earnings Per Share” topic of the FASB ASC, which requires the
presentation of both basic and diluted earnings per share on the statements of operations. The diluted weighted average common shares
includes adjustments for the potential effects of outstanding stock options but only in the periods in which such effect is dilutive under the
treasury stock method. Included in our basic and diluted weighted average common shares are those stock options and common stock shares
due to participants granted from the 2014 stock incentive plan. Antidilutive stock awards are comprised of stock options and unvested share
awards, which would have been antidilutive in the application of the treasury stock method in accordance with “Earnings Per Share” topic
of FASB ASC.
In accordance with this topic, the following table reconciles income and share amounts utilized to calculate basic and diluted net
income per common share (in thousands):
Numerator:
Net income (in thousands)
Denominator:
Weighted average common shares outstanding:
Basic
Dilutive effect of restricted shares, options and non-vested share awards
Diluted
Antidilutive awards
2015
2014
$
3,743
$
3,357
22,414,587
428,648
22,843,235
43,215
22,154,199
397,894
22,552,093
45,267
Stock options of 0.1 million were not included in the calculation for both of the years ended December 31, 2015 and 2014, because
they would have an anti-dilutive effect.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets as of December 31, 2015 and 2014 for cash, accounts receivable,
accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments (Level I). The carrying
value of the Company’s long-term debt with variable interest rates approximates fair value based on instruments with similar terms (Level
II).
The Company has adopted ASC 820, Fair Value Measurements which defines fair value, establishes a framework for assets and
liabilities being measured and reported at fair value and amends disclosures about fair value measurements.
For financial assets and liabilities measured at fair value on a recurring basis, fair value is the price the Company would receive to
sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. A three-level fair value
hierarchy prioritizes the inputs used to measure fair value as follows:
Level 1:
quoted prices in active markets for identical instruments;
Level 2:
quoted prices in active markets for similar instruments, quoted prices for identical instruments in markets that are not
active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of
the instrument; and
Level 3:
significant inputs to the valuation model are unobservable.
Recent Accounting Pronouncements and Developments
In April 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-03, Interest – Imputation of Interest
(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), and, in August 2015, the FASB issued ASU
No. 2015-15, Interest – Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs
Associated with Line-of-Credit Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF
Meeting (“ASU 2015-15”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance
sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
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discounts. ASU 2015-15 then clarified that debt issuance costs related to a line-of-credit arrangement can be presented as an asset on the
balance sheet, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. These ASUs are effective for
fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years. An entity should apply this new guidance
on a retrospective basis and is required to comply with applicable disclosures for a change in an accounting principle. The Company is
currently evaluating the impact, if any, that the adoption of this guidance will have on its financial position, results of operations, cash
flows and/or disclosures.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, requiring that
inventory be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary
course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective within annual periods
beginning on or after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the
impact, if any, that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or disclosures.
On May 28, 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers,
which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services
to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the
use of either a retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14, which defers the
effective date of ASU No. 2014-09 to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early
application is permitted for annual reporting periods beginning after December 15, 2016, which was the original effective date. The
Company is evaluating the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures. The
Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments, requiring that an acquirer recognize adjustments to provisional amounts that are identified during the
measurement period in the reporting period in which the adjustment amounts are determined. This ASU also requires an entity to present
separately on the face of the income statement, or disclose in the notes to the financial statements, the portion of the amount recorded in
current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional
amounts had been recognized as of the acquisition date. This ASU is effective within annual periods beginning on or after December 15,
2015, including interim periods within that reporting period, and will be applied prospectively to measurement-period adjustments that
occur after the effective date of this ASU. The Company does not believe this standard will not result in any impact on its financial
statements.
In November 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes, simplifying the balance sheet classification of deferred taxes by requiring all deferred taxes, along with
any related valuation allowance, to be presented as noncurrent. This ASU is effective for the Company beginning in the first quarter of
2017, allows for early adoption and may be applied either prospectively or retrospectively. This ASU is not expected to have a material
impact on the Company’s Consolidated Financial Statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments — Overall: Recognition and Measurement of Financial
Assets and Financial Liabilities” (“ASU 2016-01”). The guidance affects the accounting for equity investments, financial liabilities under
the fair value option and the presentation and disclosure requirements of financial instruments. The guidance is effective for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the effect that ASU
2016-01 will have on its consolidated financial statements and related disclosures.
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In February of 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, an entity
will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing
arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and
lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial
statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective
for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a
modified retrospective adoption, with early adoption permitted. We are in the process of evaluating the future impact of ASU 2016-02 on
our consolidated financial position, results of operations and cash flows.
3.
Business Combinations
Acquisitions Accounted for Using the Purchase Method
On April 20, 2015 (the “Closing Date”), the Company acquired substantially all of the assets of Ciscura for $6.2 million in cash,
based on the final number of pumps acquired and the associated treatments, which were generated during the 90 day period post-closing
from the approximately 100 medical facility relationships Ciscura had prior to the acquisition. The Company acquired approximately 1,800
infusion pumps, its four person field sales team, as well as its facilities management personnel, which have become the foundation of the
Company’s new Southeast facility. Ciscura, based in Alpharetta, GA, was a privately-held Southeastern regional provider of ambulatory
infusion pumps and services to medical facilities and will provide the Company with a new regional warehouse and service facility that will
be in close proximity to a number of our largest existing customers, in addition to new customers previously serviced by Ciscura, enabling
same day service for equipment and supplies to much of the Southeast region. The Company used available borrowings under our Credit
Facility to finance the acquisition and associated expenses. As of December 31 2015, $6.2 million of the purchase price was paid in cash
and approximately $0.7 million for integration, professional and other related expenses were expensed as incurred and are included in
General and Administrative expenses in the Company’s consolidated statements of operations. The Company did not disclose the revenue
and income of Ciscura for the period from the acquisition date through December 31, 2015 as it was not practical due to the fact that the
operations were substantially integrated. See Note 7 — Debt for additional information pertaining to this funding.
Final Purchase Price Allocation
Pursuant to ASC 805, “Business Combinations,” the final purchase price was allocated to the assets acquired and liabilities assumed
based upon their fair values as of the Closing Date. The final purchase price allocation was primarily based upon a valuation using income
and cost approaches and management’s estimates and assumptions. The allocation of the final purchase price to the fair values of the assets
acquired and liabilities assumed as of the Closing Date is presented below (in thousands):
Medical equipment in rental service
Trade names and Trademarks
Customer relationships
Furniture and fixtures
Leasehold improvements
Non-competition agreements
Total — final purchase price
Amount
$2,289
23
3,393
20
185
246
$6,156
Acquired property and equipment are being depreciated on a straight-line basis with estimated remaining lives ranging from 1 year to
7 years.
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Unaudited Pro Forma Financial Information
The following summary pro forma condensed consolidated financial information is based on the assumption that the acquisition of
Ciscura occurred on January 1, 2014 for purposes of the statement of operations (in thousands):
Net revenue
Net income
2015
Pro-
Forma
$73,339
$ 3,812
2014
Pro-
Forma
$69,684
$ 3,664
The pro forma financial information presented also includes the pro forma depreciation and amortization charges from acquired
tangible and intangible assets and related tax effects for the twelve months ended December 31, 2015 and 2014.
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 January 1, 2014 nor is it indicative of future results.
4. Medical Equipment
Medical equipment consisted of the following as of December 31 (in thousands):
Medical Equipment held for sale or rental
Medical Equipment in rental service
Medical Equipment in rental service — pump reserve
Accumulated depreciation
Medical Equipment in rental service — net
Total
2015
$ 2,277
53,681
(232)
(25,612)
27,837
$ 30,114
2014
$ 2,255
43,246
(121)
(23,311)
19,814
$ 22,069
Included in ME in rental service above are $11.2 million and $6.9 million, as of December 31, 2015 and 2014, respectively, of pumps
obtained under various capital leases. Included in accumulated depreciation above are $2.4 million and $1.3 million, as of December 31,
2015 and 2014, respectively, associated with the same capital leases.
Depreciation expense for the years ended December 31, 2015 and 2014 was $4.8 million and $3.3 million, respectively, which were
recorded in cost of revenues — pump depreciation and loss on disposal.
5.
Property and Equipment
Property and equipment consisted of the following as of December 31 (in thousands):
Furniture, fixtures, and equipment
Automobiles
Leasehold improvements
Furniture, fixtures, and equipment—accumulated depreciation
Automobiles—accumulated depreciation
Leasehold improvements—accumulated depreciation
Total
2015
$ 2,330
84
2,240
(1,382)
(76)
(826)
$ 2,370
2014
$ 2,274
96
1,991
(1,188)
(83)
(639)
$ 2,451
Depreciation expense for each of the years ended December 31, 2015 and 2014 was $0.6 million and $0.3 million, respectively, and
was recorded in general and administrative expenses.
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6.
Intangible Assets
The carrying amount and accumulated amortization of intangible assets as of December 31 are as follows (in thousands):
Nonamortizable intangible assets
Trade names
Amortizable intangible assets
Trade names
Physician and customer relationships
Physician and customer relationships — Ciscura
Non-compete agreements
Software
Total nonamortizable and amortizable intangible assets
Nonamortizable intangible assets
Trade names
Amortizable intangible assets
Physician and customer relationships
Non-compete agreements
Software
Total nonamortizable and amortizable intangible assets
Gross Assets
2015
Accumulated
Amortization
Net
$
2,000
$
—
$ 2,000
23
32,865
3,393
1,094
11,942
$ 51,317
Gross Assets
15
16,946
103
930
1,789
19,783
$
2014
Accumulated
Amortization
8
15,919
3,290
164
10,153
$31,534
Net
$
2,000
$
—
$ 2,000
32,865
848
6,299
$ 42,012
14,755
778
1,407
16,940
$
18,111
70
4,892
$25,073
The weighted average remaining lives of physician and customer relationships, non-compete agreements and software are 9-years, 1-
year and 2-years, respectively, as of December 31, 2015.
Amortization expense for intangible assets for the years ended December 31, 2015 and 2014 was $2.8 million and $2.5 million,
respectively, which was recorded in operating expenses. Expected annual amortization expense for the next five years for intangible assets
recorded as of December 31, 2015 are as follows (in thousands):
Amortization expense
7.
Debt
2016
$5,104
2017
$5,310
2018
$4,933
2019
$4,207
2020
$2,584
2021 and
thereafter
$ 7,396
On November 30, 2012, the Company entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”),
as Administrative Agent, and Wells Fargo and funds managed by PennantPark Investment Advisers, LLC (“PennantPark”) as Lenders (the
“WF Credit Agreement”). The WF Credit Agreement consisted of a $12.0 million Term Loan A (provided by Wells Fargo), a $14.5
million Term Loan B (provided by PennantPark) and a $10.0 million revolving credit facility, all of which were scheduled to mature on
November 30, 2016 (collectively the “WF Credit Facility”). Interest on the term loan was payable at the Company’s choice of LIBOR plus
7.25% (with a LIBOR floor of 2.0%) or the Wells Fargo prime rate plus 6.25% (with a prime rate floor of 3.0%). Proceeds from Term Loan
A and Term Loan B of the WF Credit Agreement were used for general corporate purposes as well as to repay the outstanding balance of
the Company’s prior Bank of America credit agreement.
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On April 18, 2014, the Company entered into the First Amendment to the WF Credit Agreement with Wells Fargo and PennantPark.
This amendment amended the definition of Eligible Inventory by specifically allowing for the inventory located at the Company’s Kansas
location to not be excluded from Eligible Inventory solely due to the lack of a collateral access agreement signed by the landlord so long as
a reserve is implemented against the Company’s revolver availability to provide for the payment of rent to the landlord in the event of
default.
On May 19, 2014, the Company entered into the Second Amendment to the WF Credit Agreement with Wells Fargo and
PennantPark. This amendment lowered both the effective floating rate and the effective fixed rate by 150 basis points each. As of
December 31, 2014, interest on the WF Credit Facility was payable at the Company’s choice of (i) LIBOR plus 6.75% (with a LIBOR floor
of 1.0%, for an effective fixed rate of 7.75%) or (ii) the Wells Fargo prime rate plus 4.75% (with a prime rate floor of 3.0%, for an effective
floating rate of 8.0%). As of December 31, 2014, the effective interest rate on all outstanding borrowings was 7.9%.
On January 23, 2015, the Company entered into the Third Amendment to the WF Credit Agreement with Wells Fargo and
PennantPark. This amendment increased the maximum Leverage Covenant ratio for the period ending December 31, 2014 and all
subsequent periods to 2.00:1.00. Prior to this amendment, the maximum Leverage Covenant ratio for the periods ending (a) December 31,
2014 through March 31, 2015 was 1.50:1.00, (b) June 30, 2015 through September 30, 2015 was 1.25:1.00, (c) December 31, 2015 through
September 30, 2016 was 1.00:1.00.
On March 23, 2015, the Company and its direct and indirect subsidiaries entered into a credit agreement (the “Chase Credit
Agreement”) with JPMorgan Chase Bank, N.A., as lender (the “Lender”). The borrowers under the Chase Credit Agreement are the
Company, InfuSystem Holdings USA, Inc. (“Holdings”), ISI, First Biomedical and IFC LLC (collectively, the “Borrowers”). The Chase
Credit Agreement consists of a $27.0 million Term Loan A, up to $8.0 million Term Loan B and a $10.0 million revolving credit facility
(the “Revolver”), all of which mature on March 23, 2020, (collectively, the “Chase Credit Facility”).
On March 23, 2015, the Borrowers drew $27.0 million under the Term Loan A to repay and terminate the previously existing WF
Credit Facility. Term Loan B was unfunded at closing and beginning on April 20, 2015, the Closing Date of the acquisition of the assets of
Ciscura, the Borrowers drew on Term Loan B in several installments in accordance with the requirements of the asset purchase agreement
governing the acquisition to fund the acquisition and associated expenses. As of December 31, 2015, a total of approximately $6.3 million
had been drawn on Term Loan B, with an additional $1.7 million available to be drawn under certain conditions for acquisitions. The
Company recorded a $1.6 million as loss on extinguishment of long-term debt in its consolidated statement of operations as of
December 31, 2015 for the write-off of deferred financing costs associated with the previous WF Credit Facility.
Under the terms of the Chase Credit Agreement, principal payments equal to $1.0 million are due on Term Loan A on the last
business day of each quarter beginning with the last business day of September 2015 and are due until the maturity date of the Chase Credit
Facility. Principal payments on Term Loan B are due on the last business day of each fiscal quarter beginning with the last business day of
March 2016. The value of each principal payment due on Term Loan B shall be equal to 3.575% of the principal balance of Term Loan B
as of the Term Loan B Draw Expiration Date for the first eight quarterly payments. Thereafter, the next 8 principal payments shall be equal
to 4.475% of the principal balance of Term Loan B as of the Term Loan B Draw Expiration Date. The entire outstanding balance of the
revolver shall be due at the maturity of the Credit Facility.
During the year end December 31, 2015, the Company made optional pre-payments of $4.8 million on its Term Loan A, which can be
applied against a future mandatory payment. Prepayments of $1.9 million were applied to September 30, 2015 and December 31, 2015
Term Loan A principal payments. Remaining prepayments of $2.9 million are available towards 2016 future mandatory payments.
As of December 31, 2015, interest on the Chase Credit Facility was payable at the Borrower’s choice as a (i) Eurodollar Loan, which
bears interest at a per annum rate equal to LIBOR, plus a margin ranging from 2.00%
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Table of Contents
to 2.50% or (ii) CBFR Loan, which bears interest at a per annum rate equal to (a) the Lender’s prime rate or (b) LIBOR for a 30 day interest
period, plus 2.50%, in each case plus a margin ranging from -0.75% to -0.25%. The actual rate at December 31, 2015 was 2.73% (LIBOR
of 0.23% plus 2.50%).
The availability under the Revolver is based upon the Borrower’s eligible accounts receivable and eligible inventory and is computed
as of December 31 as follows (in thousands):
Gross availability
Outstanding draws
Letter of credit
Landlord Reserves
Availability on Revolver
2015
$10,000
—
(81)
(37)
$ 9,882
2014
$7,432
(566)
(282)
—
$6,584
To secure repayment of the obligations of the Borrowers, each Borrower has granted to the Lender, for the benefit of various secured
parties, a first priority security interest in substantially all of the personal property assets of each of the Borrowers. In addition, the
Company has pledged the shares of Holdings and Holdings has pledged the shares of each of ISI and First Biomedical and the equity
interests of IFC LLC to the Lender, for the benefit of the secured parties, to further secure the obligations under the Chase Credit
Agreement.
The Chase Credit Agreement contains certain affirmative and negative covenants typical for credit facilities of this type. These
covenants (subject to certain agreed and customary exceptions set forth in the Chase Credit Agreement) restrict or limit subject to the
Lender’s prior consent, and in some cases prohibit, the Borrowers from engaging in certain actions, including its ability to, among other
things: (i) incur indebtedness; (ii) create liens; (iii) engage in mergers, consolidations, liquidations or dissolutions; (iv) engage in
acquisitions; (v) dispose of assets; (vi) pay dividends and distributions or repurchase capital stock or make other restricted payments;
(vii) make investments, loans, guarantees or advances; (viii) engage in certain transactions with affiliates; (ix) enter into sale and leaseback
transactions; (x) enter into hedging agreements; (xi) enter into agreements that restrict distributions from subsidiaries; and (xii) change their
fiscal year.
In addition, the Chase Credit Agreement requires the Borrowers to maintain the following financial covenant obligations:
(i)
a minimum fixed charge coverage ratio of 1.25:1.00;
(ii)
a maximum total leverage ratio ranging from 3.00:1.00 to 2.25:1.00 during specified periods; and
(iii) a minimum net worth of $37.5 million.
As of December 31, 2015, the Borrowers were in compliance with all such covenants.
The Company had approximate future maturities of loans and capital leases as of December 31, 2015 as follows (in thousands):
2016
2017
2018
2019
2020
Total
Term Loan A (a)
Term Loan B
Revolver
Capital Leases
Total
$ 965 $3,860 $3,860 $3,860 $ 9,630 $22,175
6,348
—
6,421
$5,060 $6,972 $5,987 $5,035 $11,890 $34,944
2,260
—
—
1,136
—
39
908
—
3,187
908
—
2,204
1,136
—
991
(a) The Company has prepaid its Term Loan A principal payments due on March 31, 2016, June 30, 2016 and September 30, 2016. Each
of these payments is $965, representing a total prepayment of $2,895.
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(a) The Company has prepaid its Term Loan A principal payments due on March 31, 2016, June 30, 2016 and September 30, 2016. Each
of these payments is $965, representing a total prepayment of $2,895
The following is a breakdown of the Company’s current and long-term debt (including capital leases) as of December 31, 2015 and
December 31, 2014 (in thousands):
December 31, 2015
Current
Portion of
Long-Term
Debt
$ 1,873
—
3,187
$ 5,060
Long-Term
Debt
$ 26,651
—
3,233
$ 29,884
Total
$28,524 Term Loans
— Revolver
6,420 Capital Leases
$34,944 Total
December 31, 2014
Current
Portion of
Long-Term
Debt
$ 4,238
—
2,214
$ 6,452
Long-Term
Debt
$ 15,849
566
2,617
$ 19,032
Total
$20,087
566
4,831
$25,484
Term Loans
Revolver
Capital Leases
Total
8.
Income Taxes
The following table summarizes income before income taxes for the years ended December 31 (in thousands):
U.S income
Non-U.S. income
Income before income taxes
2015
$5,336
237
$5,573
2014
$5,670
540
$6,210
The following table summarizes the components of the consolidated provision for income taxes for the years ended December 31 (in
thousands):
U.S Federal income tax expense
Current
Deferred
Total U.S. Federal income tax expense
State and local income tax expense
Current
Deferred
Total state and local income tax expense
Foreign income tax expense (benefit)
Current
Total income tax expense
53
2015
2014
$ —
(1,508)
(1,508)
(26)
$
(2,273)
(2,299)
(101)
(256)
(357)
(68)
(315)
(383)
35
$(1,830)
(171)
$(2,853)
Table of Contents
The following table summarizes a reconciliation of the effective income tax rate to the U.S. federal statutory rate for the years ended
December 31:
Income tax expense at the statutory rate
State and local income tax expense
Foreign income tax
Permanent differences
Research & Development Credits
Other adjustments
Effective income tax rate
2015
34.00%
5.41%
(0.24%)
0.75%
(7.56%)
0.46%
32.82%
2014
34.00%
4.06%
2.86%
2.06%
0.00%
2.96%
45.94%
The following table summarizes the temporary differences and carryforwards that give rise to deferred tax assets and liabilities as of
December 31 (in thousands):
Deferred Federal tax assets —
Bad debt reserves
Stock based compensation
Net operating loss
Accrued compensation
Alternative minimum tax credit
Inventories
Accrued rent
Goodwill and intangible assets
Research & Development Credits
Other Credits
Other
Total deferred Federal tax assets
Deferred Federal tax liabilities —
Depreciation and asset basis differences
Other
Total deferred Federal tax liabilities
Net deferred Federal tax assets
Net deferred state and local tax assets
Net deferred tax assets
2015
2014
$ 1,612 $ 1,618
383
5,058
184
73
44
39
9,186
—
—
—
16,585
636
5,110
624
73
52
51
7,919
418
3
79
16,577
(3,358)
(364)
(3,722)
12,855
1,390
(2,221)
—
(2,221)
14,364
1,644
$14,245 $16,008
The classification of net deferred income taxes as of December 31, 2015 is summarized (in thousands):
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
Current
$2,743
—
$2,743
Long-term
$ 16,652
(5,150)
$ 11,502
Total
$19,395
(5,150)
$14,245
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The classification of net deferred tax assets as of December 31, 2014 is summarized (in thousands):
Deferred tax assets
Deferred tax liabilities
Net deferred income taxes
Current
$2,252
—
$2,252
Long-term
$ 17,339
(3,583)
$ 13,756
Total
$19,591
(3,583)
$16,008
As of December 31, 2015 the Company recognized a benefit of $0.4 million for research and development credits pertaining to the
Company’s development of software that enables third parties to interact, initiate functions or review data on the Company’s system.
As of December 31, 2015 and 2014, the Company had federal and state net operating loss carryforward remaining of approximately
$15.5 million and $15.3 million, respectively.
The Company’s deferred tax asset related to net operating losses (“NOLs”) is less than the actual NOLs available for tax return
filings. The U.S. Federal NOL carryforwards include $0.3 million relating to deductions taken with respect to stock option exercises in
excess of amounts recognized for financial reporting purposes for which a benefit would be recorded in APIC when realized. This portion
of the NOL carryforwards is not included as a component of the Company’s deferred tax asset. Therefore, the Company did not recognize
the benefit of tax deductions allowed for stock option exercises in excess of compensation expense recognized for financial reporting
purposes, because the Company has NOL carryforwards available and it did not reduce income tax payable.
The U.S. 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 can be used for a period of 5 to 20 years and vary by state, and if unused, begin to expire in 2016, though a substantial
portion expires beyond 2017. Tax benefits of operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a
review of historical and projected future operating results, the eligible carryforward period, and other circumstances. The Company expects
to be able to utilize these net operating loss carryforwards and therefore has not recorded a valuation allowance which is described 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. 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. Based on historical performance, sufficient earnings 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.
The Company had no uncertain tax positions for the years ended December 31, 2015 and 2014.
The Company is subject to taxation for Federal and various state jurisdictions in the United States and Canada. The Federal income
tax returns of the Company for the years 2012 through 2015 are subject to examination by the Internal Revenue Service. 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. Canadian income tax returns of the Company for the years 2011 through 2015 are subject to
examination by the Canada Revenue Agency. There are currently no tax audits ongoing.
During the fourth quarter of 2015, the Company completed an update to its analysis of past ownership (as defined under Section 382
of the Code), and as a result, the Company believes that, consistent with previously completed analyses, it has not experienced an
ownership change since December 31, 2010. The Company has undertaken a definitive analysis necessary to quantify the effect of
ownership change as of December 31, 2010
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Table of Contents
on the net operating loss carryforwards generated prior to December 31, 2010. Based on the analysis, the Company is subject to an annual
limitation of $1.8 million on its use of remaining pre-ownership change net operating loss carryforwards of $4.7 million (and certain other
pre-change tax attributes). The Company’s federal net operating loss carryforwards of approximately $15.5 million will begin to expire in
various years beginning in 2028.
9.
Commitments and Contingencies
From time to time in the ordinary course of its business, the Company may be involved in legal proceedings, the outcomes of which
may not be determinable. The Company has insurance policies covering potential losses where such coverage is cost effective. The
Company is not at this time involved in any legal proceedings that the Company believes could have a material effect on the Company’s
financial condition, results of operations or cash flows.
The Company had approximate minimum future operating lease commitments, mainly related to its leased facilities, for the years
ending December 31 (in thousands):
2016
$1,006
2017
$837
2018
$677
2019
$513
2020
$178
Lease expense for the years ended December 31, 2015 and 2014 was $1.0 million and $0.6 million, respectively.
2021 and
thereafter
$ 1,120
10. Share-based Compensation
All stock option awards are amortized based on their graded vesting over the requisite service period of the awards. Compensation
costs are recognized over the requisite service period using the accelerated method and included in selling expenses and general and
administrative expenses, based upon the department to which the associated employee or non-employee resides.
Stock Incentive Plan
The Company has various stock option and stock-based incentive plans and agreements whereby stock options and restricted stock
awards were made available to certain employees, directors and others approved by the Company’s Board of Directors (the “Board) or
Compensation Committee. Stock options are granted at, or above, fair market value and generally expire in three to ten years from the grant
date. Restricted stock awards are granted at the fair market value on the date of grant and generally become exercisable over a period of up
to four years. Awards typically vest and are issued only if the participants remain employed by the Company through the vesting date.
Stock options and restricted stock awards are issued from shares under one of the Company’s plans described below. Grants may be made
in the form of stock options, restricted stock units or unrestricted common stock.
On April 23, 2014, the Company’s Board adopted the 2014 Amended and Restated Stock Incentive Plan (the “2014 Plan”). The 2014
Plan was approved by the Company’s shareholders at the 2014 Annual Meeting and became effective as of the date it was adopted by the
Board of Directors. The 2014 Plan provides 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. As of December 31, 2015, a total of 1.0 million common shares remained available for
future grant under the 2014 Plan. The 2014 Plan replaced our 2007 Stock Incentive Plan (the “Plan”) and provided 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 Plan. As of
December 31, 2015, the Plan is no longer in effect other than for stock options that were previously granted and remain outstanding.
Options representing approximately 0.5 million and rights representing approximately 0.1 million remain outstanding under this plan.
Restricted stock awards currently outstanding under the 2007 Plan will remain outstanding in accordance with the terms of that plan.
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Table of Contents
During the years ended December 31, 2015 and 2014, the Company granted restricted shares and stock options under the Plan and
2014 Plan.
Shares Forgone to Satisfy Minimum Statutory Withholdings
During the years ended December 31, 2015 and 2014, shares of common stock were issued to employees and directors as their
restricted stock awards vested or stock options were exercised. Under the terms of the Company’s stock plans, at the election of each
employee, the Company can authorize a net settlement of distributable shares to employees after satisfaction of an individual employees’
tax withholding obligations. For the years ended December 31, 2015 and 2014, respectively, the Company received 0.1 million of shares
from employees for tax withholding obligations.
Restricted Shares
During the years ended December 31, 2015 and 2014, the Company granted 0.1 million and 0.0 million restricted shares,
respectively, which vest over a three or four year period only if the participants remain employed by the Company through the vesting date.
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, excluding the Company’s employee stock purchase plan, for the
years ended December 31:
Unvested at December 31, 2013
Granted
Vested
Vested shares forgone to satisfy minimum statutory withholding
Forfeitures
Unvested at December 31, 2014
Granted
Vested
Vested shares forgone to satisfy minimum statutory withholding
Forfeitures
Unvested at December 31, 2015
Number of
shares
(In thousands)
454
—
(128)
(66)
(4)
256
62
(83)
(24)
(40)
171
Weighted
average
grant
date fair
value
$ 1.82
—
1.39
2.68
2.03
1.78
2.60
1.53
2.96
1.79
$ 2.09
Aggregate
fair value
(In thousands)
$
$
$
$
347
174
244
71
As of December 31, 2015, there was $0.1 million of pre-tax total unrecognized compensation cost related to non-vested restricted
shares, which will be adjusted for future forfeitures, if any. The Company expects to recognize such cost over the period ending in 2019.
Employee Stock Purchase Plan
In May 2014, the Company received approval from stockholders to adopt an employee stock purchase plan (“ESPP”) effective
October 2014. Under the ESPP, 200,000 shares of common stock are authorized for purchase by eligible employees at a 15% discount
through payroll deductions during the six month offering periods. Shares were purchased in whole numbers and generally would be the last
day of the offering period. No employee may purchase more than $25,000 worth of fair market value shares in any calendar year. As
allowed under the ESPP, a participant may elect to withdraw from the plan, effective for the purchase period in progress at the time of the
57
Table of Contents
election with all accumulated payroll deductions returned to the participant at the time of withdrawal. The following table summarizes the
activity relating to the Company’s ESPP program for the year ended December 31, 2015. No shares or expenses were recorded in 2014.
Shares of stock sold to employees
Compensation expense
Weighted average fair value per ESPP award
Stock Options
2015
98,070
$40,233
2.73
$
The Company calculates the fair value of stock option awards using the Black-Scholes option pricing model, which incorporates
various assumptions including volatility, expected term, risk-free interest rates and dividend yields. The expected volatility assumption is
based on historical volatility of the Company’s common stock over the most recent period commensurate with the expected life of the stock
option granted. The Company uses historical volatility because management believes such volatility is representative of prospective trends.
The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the stock option awarded.
The Company determines expected lives as the average of the vesting period and the contractual period. Dividend yields have not been a
factor in determining fair value of stock options granted as the Company has never issued cash dividends and does not anticipate issuing
cash dividends in the future.
During the year ended December 31, 2015, the Company granted 0.5 million stock options, of which 0.2 million were issued to Board
members, at exercise prices which were a preceding five-day average price on the date of grant and a vesting period of 12-months. During
the year ended December 31, 2014, the Company granted 0.8 million stock options, of which 0.2 million were issued to Board members, at
exercise prices which were a preceding five-day average price on the date of grant and a vesting period of 12-months. The following table
details the various stock option and inducement stock option activity for the years ended December 31:
2007 Plan (Options)
Outstanding at December 31, 2013
Granted
Exercised
Exercised shares forgone to satisfy minimum statutory withholding
Forfeited
Outstanding at December 31, 2014
Granted
Exercised
Exercised shares forgone to satisfy minimum statutory withholding
Cashless exercise
Forfeited
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Number of
Authorized
Shares
1,593,334
245,000
(212,949)
(38,029)
(992,356)
595,000
—
(52,030)
(7,688)
(41,950)
(5,000)
488,332
416,667
58
Weighted-
Average
Remaining
Contractual
Term (in Years)
3.09
1.39
Aggregate
Intrinsic
Value
$ 53,083
803,234
1.51
—
$571,717
140,368
0.41
$348,415
Weighted-
Average
Exercise
Price
$
2.11
2.83
2.59
2.00
2.23
2.19
$
—
1.64
1.76
1.70
1.93
2.31
2.33
$
$
Table of Contents
Aggregate Intrinsic Value = Excess of market value over the option exercise price of all in-the-money stock options.
2014 Plan (Options)
Outstanding at December 31, 2013
Granted
Exercised
Exercised shares forgone to satisfy minimum statutory
withholding
Forfeited
Outstanding at December 31, 2014
Exercisable at December 31, 2014
Granted
Exercised
Exercised shares forgone to satisfy minimum statutory
withholding
Forfeited
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Number
of
Authorized
Shares
—
530,000
—
—
—
530,000
—
470,000
—
—
(30,000)
970,000
410,903
Weighted-
Average Exercise
Price
$
$
$
$
$
$
—
2.69
—
2.69
—
2.90
2.69
2.79
2.85
Weighted-
Average
Remaining
Contractual
Term (in
Years)
—
5.00
Aggregate
Intrinsic
Value
$ —
$ —
5.00
$243,800
3.25
3.58
$222,200
Aggregate Intrinsic Value = Excess of market value over the option exercise price of all in-the-money stock options.
Inducement Options
Outstanding at December 31, 2013
Granted
Exercised
Forfeited
Outstanding at December 31, 2014
Granted
Exercised
Forfeited
Outstanding at December 31, 2015
Exercisable at December 31, 2015
Weighted-
Average
Remaining
Contractual
Term (in Years)
4.87
—
—
—
3.89
—
—
—
2.90
Aggregate
Intrinsic
Value
$156,000
—
—
—
$720,000
—
—
—
$616,000
Number of
Authorized
Shares
800,000
—
—
—
800,000
—
—
—
800,000
547,916
59
Weighted-
Average Exercise
Price
$
$
$
$
2.25
—
—
—
2.25
—
—
—
2.25
2.25
Table of Contents
The following table summarizes information about stock options outstanding at December 31, 2015:
2007 Plan (Options):
Range of Exercise Prices
$1.50 - $1.75
$1.76 - $2.00
$2.01 - $3.00
Outstanding at December 31, 2015
2014 Plan (Options):
Range of Exercise Prices
$2.01 - $3.00
Outstanding at December 31, 2015
Inducement Options:
Range of Exercise Prices
$1.50 - $1.75
$2.26 - $2.75
Outstanding at December 31, 2015
Options Outstanding
Weighted-
Average
Remaining
Contractual
Life
1.50
1.20
0.36
0.41
Options Outstanding
Weighted-
Average
Remaining
Contractual
Life
3.58
3.58
Options Outstanding
Weighted-
Average
Remaining
Contractual
Life
2.81
3.01
2.90
Number of
Shares
Outstanding
110,000
91,665
286,667
488,332
Number of
Shares
Outstanding
970,000
970,000
Number of
Shares
Outstanding
400,000
400,000
800,000
Weighted-
Average
Exercise
Price
$
$
1.51
1.93
2.71
2.31
Weighted-
Average
Exercise
Price
$
$
2.79
2.79
Weighted-
Average
Exercise
Price
$
$
1.75
2.75
2.25
Options Exercisable
Number of
Shares
Exercisable
73,333
84,167
259,167
416,667
Weighted-
Average
Exercise
Price
$
$
1.51
1.73
2.69
2.33
Options Exercisable
Number of
Shares
Exercisable
410,903
410,903
Weighted-
Average
Exercise
Price
$
$
2.85
2.85
Options Exercisable
Number of
Shares
Exercisable
272,916
275,000
547,916
Weighted-
Average
Exercise
Price
$
$
1.75
2.75
2.25
The following is the average fair value per share estimated on the date of grant and the assumptions used for options granted during
the years ended December 31:
Stock Options:
Expected volatility
Risk free interest rate
Expected lives at date of grant (in years)
Weighted average fair value of options granted
2015
50% to 54%
0.25% to 0.66%
4.43
2.90
$
2014
48% to 54%
0.25%
2.39
2.83
$
Stock-based compensation expense
The following table presents the total stock-based compensation expense, which is included in selling, general and administrative
expenses for the years ended December 31 (in thousands):
Restricted share expense
Stock option expense
Total stock-based compensation expense
60
2015
$107
889
$996
2014
$218
358
$576
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Common Share Repurchase Program
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, 2015 and
2014, the Company did not repurchase any shares in the open market.
11. Employee Benefit Plans
The Company has defined contribution plans in which the Company makes matching contributions for a certain percentage of
employee contributions. For the years ended December 31, 2015 and 2014, the Company’s matching contributions totaled $0.7 million and
$0.6 million, respectively. The Company does not provide other post-retirement or post-employment benefits to its employees.
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Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Eric K. Steen, our Chief Executive Officer (“CEO”), and Jonathan P. Foster, our Chief Financial Officer (“CFO”), have performed
an evaluation of the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Securities Exchange
Act of 1934, as amended (“Exchange Act”), as of December 31, 2015, and each has concluded that such disclosure controls and procedures
are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified by SEC rules and forms, and that such information is accumulated and
communicated to the CEO and CFO to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed 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.
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 with respect to financial statement preparation and presentation. 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 because the degree of compliance with policies or procedures may deteriorate.
Under the supervision and with the participation of the CEO and CFO, management conducted an assessment of the effectiveness of
our internal control over financial reporting as of December 31, 2015. The assessment was based on criteria established in the framework
Internal Control — Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on its evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2015.
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 smaller reporting companies 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
There have been no changes in our internal controls over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act, during the quarter ended December 31, 2015 identified in connection with our evaluation that has materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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Item 9B. Other Information.
Pursuant to the InfuSystem Holdings, Inc. Equity Plan (the “Equity Plan”), the Compensation Committee of the Board of Directors of
the Company granted, on March 11, 2015, equity awards in the form of stock options or restricted stock units vesting over a period of four
years to each of the Company’s officers, including the named executive officers identified in the Company’s proxy statement filed with the
Securities and Exchange Commission on April 9, 2015. The Company’s President and Chief Executive Officer, Eric Steen, was granted
16,666 restricted stock units; Executive Vice President and Chief Financial Officer, Jonathan Foster, was granted 13,333 restricted stock
units; and Executive Vice President and Chief Operating Officer, Janet Skonieczny, was granted 6,666 restricted stock units. The
Compensation Committee intends to grant equity awards to the Company’s officers under the Equity Plan on an annual basis at its
discretion.
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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 2016
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 2016
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
Equity Compensation Plan Information
The following table provides information as of December 31, 2015 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)
2007 Plan *
2014 Plan
Equity compensation plans not approved by
security holders (2)
Total
Number of securities
to be issued upon
exercise of
outstanding options
and rights
(a)
Weighted Average
Exercise Price of
options and rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securites reflected in
column (a))(3)
(c)
597
1,032
800
2,429
$
$
2.21
2.78
2.25
2.47
—
968
—
968
*
As of December 31, 2015, this plan is no longer in effect other than for stock options and rights that were previously granted and
remain outstanding. Options representing approximately 488k and rights representing approximately 109k remain outstanding under
this plan.
(1) This amount includes 0.2 million shares of common stock issuable upon the vesting of certain time restricted stock awards (the
“Restricted Stock Awards”) and 1.5 million shares of common stock issuable upon the exercise of vested stock option awards.
(2) We issued inducement stock options to purchase 700,000 shares of our Common Stock to our Chief Executive Officer (“CEO”),
pursuant to the terms of an Inducement Stock Option Agreement effective April 1, 2013 pursuant to which (i) 300,000 options have an
exercise price of $1.75 and 400,000 options have an exercise price of $2.75, (ii) all of the options vest over a four-year period, with
25% vesting on the first anniversary of the grant date and the remaining options vesting pro rata monthly in the thirty-six months
thereafter, and (iii) the options will expire on the tenth anniversary of their grant date. Under the terms of our CEO’s Employment
Agreement, effective as of April 1, 2013, as amended January 18, 2016, in the event that our CEO is involuntarily terminated by us
without cause or our CEO resigns for good reason, in each case, within two months prior to, or 12 months following, a change in
control of the Company, his
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options will immediately vest and become exercisable. Further, we issued inducement stock options to purchase 100,000 shares of the
Company’s Common Stock to our Chief Information Officer (“CIO”) pursuant to the terms of an Employment Agreement effective
April 29, 2013 pursuant to which (i) the options have an exercise price of $1.75 per share, (ii) vest one-third on each of the next three
(3) anniversaries of the grant date, provided that our CIO is employed by us on each of these dates, (iii) the options will expire on the
seventh anniversary of their grant date, and (iv) in the event that our CIO is involuntarily terminated (x) by us without cause within six
months of a change in control of the Company, his options will immediately accelerate and become exercisable, and (y) otherwise by
us without cause, his options will vest pro rata based on the length of his service in the year of the termination of his employment.
Includes 2.0 million shares authorized as part of our 2014 Annual Shareholder Meeting held in May 2014 less 1.0 million shares that
were made available to certain employees, directors and others.
(3)
The other information required by Part III, Item 12 is incorporated herein by reference to our definitive proxy statement relating to
the 2016 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 2016
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 2016
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, Financial Statement Schedules
(a) The following documents are filed or furnished as part of this Annual Report on Form 10-K:
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
Reference is made to the accompanying Exhibit Index immediately following the signature page to this Annual Report on Form
10-K. Pursuant to the rules and regulations of the Securities and Exchange Commission, the Company has filed, furnished or
incorporated by reference the documents referenced in the accompanying Exhibit Index as exhibits to this Annual Report on
Form 10-K. The documents include agreements to which the Company is a party or has a beneficial interest. The agreements
have been filed to provide investors with information regarding their respective terms. The agreements are not intended to
provide any other factual information about the Company or its business or operations. In particular, the assertions embodied in
any representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to
knowledge and materiality different from those applicable to investors and may be qualified by information in confidential
disclosure schedules not included with the exhibits. These disclosure schedules may contain information that modifies, qualifies
and creates exceptions to the representations, warranties and covenants set forth in the agreements. Moreover, certain
representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the
parties, rather than establishing matters as facts. In addition, information concerning the subject matter of the representations,
warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or
may not be fully reflected in the Company’s public disclosures. Accordingly, investors should not rely on the representations,
warranties and covenants in the agreements as characterizations of the actual state of facts about the Company or its business or
operations on the date hereof. The Company will furnish to any stockholder, upon written request, any exhibit listed in the
accompanying Exhibit Index upon payment by such stockholder of the Company’s reasonable expenses in furnishing any such
exhibit.
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Exhibit Index
Exhibit
Number
3.1
3.2
4.1
10.1**
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Description of Document
Amended and Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the
Company’s current report on Form 8-K (File No. 1-35020) filed on May 12, 2014).
Amended and Restated By-Laws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-
K (File No. 1-35020) filed on May 31, 2012).
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.2 to the Company’s Registration
Statement on Form S-1/A (File No. 333-129035) filed on March 3, 2006).
InfuSystem Holdings, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s
Registration Statement on Form S-8 (File No. 333-150066) filed on April 3, 2008).
Amended and Restated Registration Rights Agreement, dated as of October 17, 2007 by and among InfuSystem
Holdings, Inc., Wayne Yetter, John Voris, Jean-Pierre Millon, Erin Enright, Sean McDevitt, Pat LaVecchia and Great
Point Partners LLC (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K (File
No. 0-51902) filed on March 3, 2009).
Fifth Amendment to Credit Agreement, dated as April 24, 2012, by and among InfuSystem Holdings, Inc., InfuSystem,
Inc., and First Biomedical, Inc., Bank of America, N.A. as Administrative Agent and Lender and Keybank National
Association as Lender (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File
No. 1-35020) filed on April 26, 2012).
Credit Agreement by and among InfuSystem Holdings, Inc., InfuSystem, Inc., and First Biomedical, Inc., with Wells
Fargo Bank, National Association as Administrative Agent and Lender and PennantPark Investment Corporation,
PennantPark Credit Opportunities Fund, L.P. and PennantPark Floating Rate Capital Ltd as Lenders, dated as of
November 30, 2012 (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K (File
No. 1-35020) filed on March 28, 2013). †
Amendment Number One to Credit Agreement by and among InfuSystem Holdings, Inc., InfuSystem Holdings USA,
Inc., InfuSystem, Inc., and First Biomedical, Inc., with Wells Fargo Bank, National Association as Administrative Agent
and Lender and PennantPark Investment Corporation, PennantPark Credit Opportunities Fund, L.P. and PennantPark
Floating Rate Capital Ltd as Lenders, dated as of April 18, 2014 (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K (File No. 1-35020) filed on May 20, 2014).
Amendment Number Two to Credit Agreement by and among InfuSystem Holdings, Inc., InfuSystem Holdings USA,
Inc., InfuSystem, Inc., and First Biomedical, Inc., with Wells Fargo Bank, National Association as Administrative Agent
and Lender and PennantPark Investment Corporation, PennantPark Credit Opportunities Fund, L.P. and PennantPark
Floating Rate Capital Ltd as Lenders, dated as of May 19, 2014 (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K (File No. 1-35020) filed on May 20, 2014).
Credit Agreement by and among InfuSystem Holdings, Inc., its subsidiaries and JPMorgan Chase Bank, N.A., dated as
of March 23, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File
No. 1-35020) filed on May 12, 2015).
Pledge and Security Agreement by and among InfuSystem Holdings, Inc., its subsidiaries and JPMorgan Chase Bank,
N.A., dated as of March 23, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q (File No. 1-35020) filed on May 12, 2015).
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Exhibit
Number
10.9
10.10**
10.11
10.12**
10.13
10.14**
10.15**
10.16
10.17
10.18**
10.19**
Description of Document
Patent and Trademark Agreement by and among InfuSystem Holdings, Inc., its subsidiaries and JPMorgan Chase
Bank, N.A., dated as of March 23, 2015 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report
on Form 10-Q (File No. 1-35020) filed on May 12, 2015).
First Amended and Restated Employment Agreement by and between Jan Skonieczny and InfuSystem Holdings, Inc.,
effective January 2, 2013 (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K
(File No. 1-35020) filed on March 28, 2013).
Employment Agreement by and between InfuSystem Holdings, Inc. and Jonathan P. Foster, dated and effective as of
July 1, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-
32050) filed on July 8, 2013).
Employment Agreement by and between InfuSystem Holdings, Inc. and Eric K. Steen, effective April 1, 2013
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on
March 19, 2013).
Amendment to Employment Agreement by and between InfuSystem Holdings, Inc. and Erik K. Steen, effective
January 18, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on form 8-K (File No.
1-35020) filed on January 21, 2016).
Inducement Stock Option Agreement by and between InfuSystem Holdings, Inc. and Eric K. Steen, dated as of April 1,
2013 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 1-35020)
filed on March 19, 2013).
Stock Option Award Agreement by and between InfuSystem Holdings, Inc. and Eric K Steen, dated as of March 6,
2014 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-35020)
filed on May 5, 2014).
Lease Agreement by and between Research Park Development Co, LLC and InfuSystem, Inc., dated September 13,
2012, for facilities located at 31700 Research Park Drive, Madison Heights, Michigan (incorporated by reference to
Exhibit 10.30 to the Company’s Annual Report on Form 10-K (File No. 1-35020) filed on March 28, 2013).
First Amendment to Lease by and between College K, LLC and First Biomedical, Inc., dated June 25, 2014
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-35020) filed
on August 1, 2014).
Form of Stock Option Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q (File No. 1-35020) filed on November 10, 2014).
Inducement Stock Option Agreement by and between InfuSystem Holdings, Inc., and Mike McReynolds, dated as of
April 29, 2013 (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File
No. 333-196369) filed on May 29, 2014.
10.20**
InfuSystem Holdings, Inc. 2014 Equity Plan (incorporated by reference to Exhibit 99.1 to the Company’s Registration
Statement on Form S-8 (File No. 333-196369) filed on May 13, 2014.
10.21
10.22*
14.1
Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly
Report on Form 10-Q (File No. 1-35020) filed on May 12, 2015).
Amendment to Employment Agreement by and between InfuSystem Holdings, Inc. and Jonathan P. Foster, effective
March 8, 2016.
Code of Ethics (incorporated by reference to Exhibit 14 to the Company’s Registration Statement on Form S-1/A (File
No. 333-129035) filed on January 17, 2006).
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Exhibit
Number
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
Description of Document
Subsidiaries of InfuSystem Holdings, Inc.
Consent of BDO USA, LLP
Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended
Certification of Principal Accounting Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as
amended
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
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*
Filed herewith
*
** Management contract or compensatory plan, contract or arrangement. Portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange
Act of 1934, as amended.
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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 9, 2016
By:
/s/ ERIC K. STEEN
Eric K. Steen
Chief Executive Officer, President 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 9, 2016
By:
Date: March 9, 2016
Date: March 9, 2016
Date: March 9, 2016
Date: March 9, 2016
Date: March 9, 2016
Date: March 9, 2016
70
/s/ ERIC K. STEEN
Eric K. Steen
Chief Executive Officer, President and Director
(Principal Executive Officer)
/s/ JONATHAN P. FOSTER
Jonathan Foster
Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ GREGG LEHMAN
Gregg Lehman
Chairman of the Board
Director
/s/ DAVID DREYER
David Dreyer
Director
/s/ RYAN MORRIS
Ryan Morris
Director
/s/ JOSEPH WHITTERS
Joseph Whitters
Director
/s/ WAYNE YETTER
Wayne Yetter
Director
Amendment to Employment Agreement
Exhibit 10.22
This Amendment to Employment Agreement (this “Amendment”), dated March 8, 2016, amends the Employment Agreement by and
between InfuSystem Holdings, Inc., a Delaware corporation (“Corporation”), and Jonathan P. Foster (“Employee”), effective as of July 1,
2013 (the “Employment Agreement”).
WHEREAS, Corporation and Employee desire to amend the Employment Agreement to provide Employee with appropriate market-
based terms not addressed in the Employment Agreement;
NOW, THEREFORE, for such consideration as set forth herein, the sufficiency of which is acknowledged by Corporation and
Employee, Corporation and Employee agree to amend the Employment Agreement as follows:
A.
Section 2.B.i. shall be amended and restated to read as follows:
i.
If Employee’s employment with Corporation is terminated (a) by Employee for any reason (other than a Good Reason
Termination), (b) by Corporation for Cause (as defined below), or (c) by Corporation upon Employee’s Disability or as a
result of Employee’s death, then Employee (or Employee’s estate) shall be entitled to receive all Annual Base Salary, PTO
(as defined below), benefits and other compensation that has accrued but is unpaid as of the date of termination, including
any Incentive Compensation Plan award earned in respect of the immediately preceding calendar year but not yet paid as
of the date of termination. Any payments under this provision (except for any Incentive Compensation Plan payment) shall
be made within 30 days after the date on which employment terminates. Any Incentive Compensation Plan award payable
under this provision shall be made in accordance with Sections 3(B) and 2(B)ii of this Agreement, whichever is applicable.
B.
Section 2.B.ii. shall be amended and restated to read as follows:
ii.
If Employee’s employment with Corporation is terminated for any reason other than as set forth in Section 2.B.i. above
(including an involuntary termination without Cause and a Change of Control Termination), the employment relationship
created pursuant to this Agreement will terminate on the date ninety (90) days after notice of such termination has been
delivered (such later date, the “Termination Date”), and no further compensation will become payable to Employee,
except as set forth herein below, following the Termination Date. Employee shall be entitled to receive following the
Termination Date: (a) all Annual Base Salary, PTO, benefits and other compensation (except for any Incentive
Compensation Plan payments, which are addressed in clauses (c) and (d) below) that has accrued but is unpaid as of the
Termination Date, to be paid in regular installments in accordance with Corporation’s standard payroll practices; (b) a
severance payment in an aggregate amount equal to nine (9) months of the Employee’s then effective Annual Base
Salary, to be paid in regular installments in accordance with Corporation’s standard payroll practices; (c) any Incentive
Compensation Plan bonus or award earned in respect of the immediately preceding calendar year but not yet paid as of
the Termination Date, to be paid by no later than March 31 of the following year; (d) a prorated amount of the
Employee’s target bonus (assuming 100% of target) under Corporation’s Incentive Compensation Plan through and
including the Termination Date for the year in which the termination becomes effective, to be paid within thirty (30) days
after the Termination Date; (e) as noted below, vesting of certain stock options, restricted stock and other equity granted
to Employee under Corporation’s Equity Plan; (f) any PTO or unreimbursed expenses; and (g) continuation of all
COBRA health benefits as of the Termination Date, which benefits will be paid by Corporation for a period of nine
(9) months after the Termination Date; provided, however, receipt of the items set forth in subsections (b), (d) (e) and
(g) shall be contingent upon execution and delivery by Employee to Corporation of an unconditional general release, in
form reasonably satisfactory to Corporation, of all claims against Corporation, its subsidiaries, affiliates, officers,
directors, employees and agents, arising from or
in connection with this Agreement or Employee’s employment with Corporation. Except in connection with a Change of
Control Termination (which is addressed in Section 3.E.), that portion of any stock options, restricted stock or other equity
granted to Employee that shall vest or become exercisable in the six (6) month period following the Termination Date
shall become immediately exercisable and, along with any portion of the stock options, restricted stock or other equity that
has become exercisable or vested prior to the Termination Date, shall remain exercisable for a period of three (3) months
following the Termination Date.
C. A new Section 2.B.iv. is added to read as follows:
iv.
“Change of Control” shall mean:
(i) a majority of the members of Corporation’s board of directors is replaced during any twelve (12) month period with
directors whose appointment or election was not endorsed or approved by a majority of the members of the board of
directors, in office immediately prior to the date of such appointment or election; or
(ii) any person or group has acquired during a twelve (12) month period ending on the date of the most recent acquisition
by such person or group of ownership of stock of Corporation possessing 30% or more of the total voting power of the
outstanding stock of Corporation; or
(iii) any person or group has acquired ownership of stock of Corporation that, together with the stock held by such person
or group, constitutes more than 50% of the total fair market value or total voting power of the outstanding stock of
Corporation; or
(iv) any person or group has acquired during a twelve (12) month period ending on the date of the most recent acquisition
by such person or group assets of Corporation that have a total gross fair market value of more than 40% of the total gross
fair market value of all of the assets of Corporation immediately before such acquisition.
As used herein, “person” and “group” shall have the same meanings as those terms have in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934.
“Change of Control Termination” shall mean Employee’s employment with Corporation is terminated by Corporation for
any reason other than as set forth in Section 2.B.i. above or Employee’s Good Reason Termination within two (2) months
prior to, or twelve (12) months following, a Change of Control.
“Good Reason Termination” shall mean (i) a material change in the geographic location at which Employee must perform
services to Corporation, (ii) a material diminution in Employee’s title, authority, duties or responsibilities, or (iii) a
material diminution in Employee’s compensation.
D. A new Section 3.E. is added to read as follows:
E. Vesting in Equity Awards; Change of Control. Notwithstanding Section 3.C. or any other provision in this Agreement or any
other agreement to the contrary, upon Employee’s or Corporation’s receipt of notice of a Change of Control Termination, Employee’s
outstanding stock options, restricted stock units and all other equity-based awards shall become immediately vested and non-forfeitable and,
along with any portion of the stock options, restricted stock or other equity that has become exercisable or vested prior to the Termination
Date, shall remain exercisable for a period of six (6) months following the Termination Date.
E. A new Section 3.F. is added to read as follows:
F. Clawback. During the period of employment, and thereafter to the extent required by applicable law, Employee hereby
covenants and agrees to abide by the terms of Corporation’s “Policy on Clawback” once final rules are issued by the U.S. Securities and
Exchange Commission, listing standards are adopted by the New York Stock Exchange and such policy is then adopted by Corporation’s
board of directors.
F.
Section 14 is amended to read as follows:
14. Section 409A. This Agreement shall be interpreted and applied in all circumstances in a manner that is consistent with the
intent of the parties that, to the extent applicable, amounts earned and payable pursuant to this Agreement shall constitute short-term
deferrals exempt from the application of Section 409A and, if not exempt, that amounts earned and payable pursuant to this Agreement shall
not be subject to the premature income recognition or adverse tax provisions of Section 409A. Any payments to be made under this
Agreement upon a termination of employment shall only be made if such termination of employment constitutes a “separation from service”
under Section 409A. Notwithstanding the foregoing, Corporation makes no representations that the payments and benefits provided under
this Agreement comply with Section 409A and in no event shall Corporation be liable for all or any portion of any taxes, penalties, interest
or other expenses that may be incurred by Employee on account of non-compliance with Section 409A. Notwithstanding anything in the
Agreement to the contrary, if the Employee is determined to be a “specified employee” (as defined in Section 409A) for the year in which
Employee incurs a separation from service, any payment due under the Agreement that is not permitted to be paid on the date of such
separation without the imposition of additional taxes, interest and penalties under Section 409A shall be paid on the first business day
following the six-month anniversary of the Employee’s date of separation or, if earlier, Employee’s death. If the period for considering and
revoking the release described in Section 2.B.ii. spans two taxable years, payments will not commence until the second taxable year. Any
payments in respect of clauses (a) (other than with respect to Annual Base Salary due Employee through the date of separation or, if earlier,
Employee’s death), (b) or (c) of Section 2.B.ii. shall be made upon the expiration of the maximum period to review and revoke the release
referenced in Section 2.B.ii.
G.
In all other respects, the provisions of the Employment Agreement shall remain in full force and effect.
[Remainder of Page Intentionally Left Blank]
This Amendment is adopted on March 8, 2016.
InfuSystem Holdings, Inc.
By:
Name:
Title:
/s/ Eric K. Steen
Eric K. Steen
Chief Executive Officer
/s/ Jonathan P. Foster
Jonathan P. Foster
Name
InfuSystem, Inc.
First Biomedical, Inc.
IFC, LLC
InfuSystem Holdings USA, Inc.
Subsidiaries of the Registrant
Jurisdiction of Organization
California
Kansas
Delaware
Delaware
EXHIBIT 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference, in the Registration Statements on Form S-8 (Nos. 333-150066, 333-167914, 333-
174828, 333-195930, 333-195929 and 333-196369) of InfuSystem Holdings, Inc. and subsidiaries, of our report dated March 9, 2016,
relating to the consolidated financial statements, which appear in this Form 10-K.
Exhibit 23.1
/S/ BDO USA, LLP
Troy, Michigan
March 9, 2016
EXHIBIT 31.1
I, Eric Steen, 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, 2015 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 officer 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 9, 2016
By:
/S/ ERIC K. STEEN
Eric K. Steen
Chief Executive Officer and President
EXHIBIT 31.2
I, Jonathan Foster, 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, 2015 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 officer 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 9, 2016
By:
/S/ JONATHAN P. FOSTER
Jonathan P. Foster
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, 2015 (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 9, 2016
BY:
/S/ ERIC K. STEEN
Eric K. Steen
Chief Executive Officer and President
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, 2015 (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 9, 2016
By:
/s/ JONATHAN P. FOSTER
Jonathan P. Foster
Chief Financial Officer