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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 201 7
OR
☐ ANNUAL 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 American LLC
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
☒
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
☒
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 ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act. (check one)
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
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 registrants most recently completed second fiscal quarter, was
$31,478,640. In determining the market value of the voting equity held by non-affiliates, securities of the registrant beneficially owned
by directors and officers of the registrant have been excluded. This determination of affiliate status is not necessarily a conclusive
determination for other purposes. The number of shares of the registrant’s common stock outstanding as of March 2, 2018 was
22,805,775.
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the
solicitation of proxies for its 2018 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
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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
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item
7A.
Quantitative and Qualitative Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A.Controls and Procedures
Item 9B.Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15.Exhibits, Financial Statement Schedules
Item 16.Form 10-K Summary
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References in this Form 10-K to “we”, “us”, or the “Company” are to InfuSystem Holdings, Inc. (“InfuSystem”) and our wholly
owned subsidiaries, as appropriate to the context.
Cautionary Statement About Forward-Looking Statements
Certain statements contained in this 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, except as may be required by law. 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 Form 10-K, and the following:
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our dependence on estimates of collectible revenue from third-party reimbursement;
litigation in which we may be involved from time to time;
changes in third-party reimbursement processes, rates, contractual relationships and payor mix;
risks associated with the loss of a relationship with one or more third-party payors;
risks associated with a federal government shutdown;
risks associated with the federal government’s sequestration;
our dependence on a limited number of third-party payors;
physicians’ acceptance of infusion pump therapy over alternative therapies and focus on early detection and diagnostics;
our dependence on our Medicare Suppler Number;
availability of chemotherapy drugs used in our infusion pump systems;
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;
our dependence upon our suppliers;
periodic reviews and billing audits from governmental and private payors;
risks associated with the collection of sales or consumption taxes;
our ability to implement, both internally and externally, information technology improvements and to respond to technological
changes, interruptions and security breaches;
our ability to maintain controls and processes over billing and collection and the adequacy of our allowance for doubtful
accounts;
our ability to comply with state licensure laws for DME suppliers;
risks associated with our allowance for doubtful accounts;
our ability to execute our business strategies to grow our business, including our ability to introduce new products and
services;
natural disasters affecting us, our customers or our suppliers;
industry competition;
compliance with regulatory guidelines affecting our billing practices;
defective products manufactured by third-party suppliers;
our ability to execute on acquisition and joint-venture opportunities and integrate any acquired businesses;
our ability to maintain relationships with health care professionals and organizations;
our ability to comply with changing health care regulations;
our ability to protect our intellectual property;
our ability to hire and retain key employees;
our ability to remain in compliance with our credit facility or future debt agreements;
general economic uncertainty;
volatility in the market price of our stock;
the future price our stock may be negatively affected by not paying dividends;
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potential dilution to current stockholders from the issuance of equity awards; and
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• we may be subject to limitations on net operating loss carryforwards and certain built-in losses following an ownership
change.
These risks are not exhaustive. Other sections of this 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 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.
Market and Industry Data
This Form 10-K contains market, industry and government data and forecasts that have been obtained from publicly available information,
various industry publications and other published industry sources. We have not independently verified the information and cannot make
any representation as to the accuracy or completeness of such information. None of the reports and other materials of third party sources
referred to in this Form 10-K were prepared for use in, or in connection with, this report.
Trademarks and Tradenames
We have a number of registered trademarks, including EXPRESS™, InfuBus™ or InfuConnect™ and Pump Portal™. These and other
trademarks of ours appearing in this report are our property. Solely for convenience, trademarks and trade names of ours referred to in this
Form 10-K may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to
the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names. This report
may contain additional trade names and trademarks of other companies. We do not intend our use or display of other companies' trade
names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
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Item 1.
Business.
Background
PART I
The Company is a Delaware corporation, which was 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 six 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 2017, our Oncology Business approximated 64%
of our total revenues. In 2017, we generated approximately 37% of our total revenues from treatments for colorectal cancer and 27% 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 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
EXPRESS™, InfuBus™ or InfuConnect™ and Pump Portal™.
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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 520 third-party payor networks
for the fiscal year ended December 31, 2017, an increase of 70 networks, or 15%, over the prior year period; (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) 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; (v) 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 (vi) 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, due to 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
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.
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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.
In addition to providing high quality and convenient care, we believe that our business offers significant economic benefits for
patients, providers and payors.
● We provide patients with 24-hour by 7 days 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.
● 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.
● We provide methods for the physician offices to deliver the appropriate paperwork for billing through a number of electronic
means including EXPRESS™ and InfuConnect™– 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, 2017, our rental fleet of pole mounted and ambulatory pumps had a historical
gross cost of $58.0 million, down from $59.0 million from the end of 2016, 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, 2017 and 2016, we had a fleet of new and used pole mounted and ambulatory pumps with a historical cost of $1.6 million for sale or
rental.
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.
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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™. This focus has enabled current billing information to be transferred to the Company from these facilities
electronically and automatically, bypassing the current methods of mail, email, and/or facsimile. We expect that this focus will continue to
strengthen our relationships with our existing customers and result in additional investment in intangible software assets by the Company.
An additional IT customer focused solution is PumpPortal™. Our continued focus on IT efforts has resulted in the following new product:
EXPRESS™, powered by InfuBus data integration platform, provides for paperless delivery of the appropriate information for
InfuSystem to bill payors:
● eliminating all paper;
● providing an enhanced visibility as a result of real time status and reporting;
● 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
In 2017 and 2016, the Company capitalized $0.2 million and $3.5 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, 2017, we had business relationships with clinical oncologists in excess of 1,800 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,
2017, we had gained more facilities than we had lost. We expect this trend to continue in the near future.
Employees
As of December 31, 2017, we had 245 employees, including 234 full-time employees and 11 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. Smiths Medical, Inc. supplies more than 10% of the ambulatory pumps purchased by us. The
Company has a supply agreement in place with this supplier. 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.
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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, 2017, we had contracts with more than 520 third-party payor networks, an increase of 70 networks, or 15%,
over the prior year period. 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 2017, our largest contracted payor was a national association
comprised of multiple members, which in the aggregate, accounted for approximately 24% of our net revenues from our Oncology
Business and approximately 13% of our total revenues for the year ended December 31, 2017, respectively. For 2017, our next largest
contracted payor, was a national association comprised of multiple members, which, in the aggregate, accounted for approximately 6% of
our net revenues from our Oncology Business and approximately 6% of our total revenues for the year ended December 31, 2017,
respectively.
For 2016, our largest contracted payor was Medicare, which accounted for approximately 21% of our net revenues from our
Oncology Business and approximately 13% of our total revenues for the year ended December 31, 2016, respectively. Our next largest
contracted payor was a national association comprised of multiple members, which, in the aggregate, accounted for approximately 19% of
our net revenues from our Oncology Business and approximately 13% of our total revenues for the year ended December 31, 2016,
respectively. Effective July 1, 2016, we implemented Medical Learning Network (“MLN”) Matters Number SE1609 “Medicare Policy
Clarified for Prolonged Drug and Biological Infusions Started Incident to a Physician’s Service Using an External Pump” clarification
article (“SE1609”) from the Centers for Medicare and Medicaid Services (“CMS”). The implementation of SE1609 resulted in our
revenues being reduced by approximately $2.6 million for 2017 when compared to 2016.
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 10%
of third-party payor net revenue.
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 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.
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● 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.
In addition, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or
collectively 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), a two-year moratorium on the medical device excise tax was imposed by Section 4191 of the
Internal Revenue Code (the “Code”). On January 22, 2018, the H.R. 195: Extension of Continuing Appropriations Act Bill extended the
existing suspensions of the ACA’s medical device excise tax through 2019. Thus, the medical device excise 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, 2019. Future legislation could have a material effect on our business, cash flows, financial condition and results
of operations.
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Recent Events in Our Business
Management Changes
On November 16, 2017, the Company announced that Richard DiIorio had been appointed as the Company ’s Chief Executive
Officer and a member of the Board of Directors, effective November 15, 2017.
On February 7, 2018, the Company announced that its interim chief financial officer, Christopher Downs, had informed the
Company of his decision to resign his position with the Company, effective March 31, 2018. Mr. Downs’ resignation did not reflect any
dispute or disagreement with the Company, nor did it relate to any issues with respect to the Company’s financial performance. Mr.
Downs agreed to continue in his position as interim chief financial officer until the end of the first quarter of fiscal year 2018 in order to
assist the Company with the preparation and reporting of its annual financial statements. Following Mr. Downs’ departure, Trent Smith,
CPA, the Company’s executive vice president, corporate controller and chief accounting officer will assume Mr. Downs’ responsibilities
as treasurer and principal financial officer. The Company has begun a search for a new chief financial officer.
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 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 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 estimates of collectible revenue from third-party reimbursement.
Our revenues are substantially dependent on estimates of collectible revenue from third-party reimbursement. Due to the complex
nature of third-party reimbursement for the use of continuous infusion equipment and related disposable supplies provided to patients, we
must estimate, based upon historical averages, the amount of collectible revenue that may be derived from each patient treatment. If
average reimbursement diverges from historical levels, the estimates of such revenue may diverge from actual collections.
We utilize statistical methods to account for such changes, but there can be no assurance that the revenue reported in any period will
ultimately be collected. Any recognized revenue related to third-party reimbursement from prior periods, which remains uncollected until
written off from accounts receivable, will negatively impact revenues in the period in which it is written off. Thus, over time, recognized
revenue net of bad debt expense will approximate total collections.
We may become subject to legal proceedings that could have a material adverse impact on our business, results of operations and
financial condition.
From time to time and in the ordinary course of our business, we and certain of our subsidiaries may become involved in various
legal proceedings. All such legal proceedings are inherently unpredictable and, regardless of the merits of the claims, litigation may be
expensive, time-consuming and disruptive to our operations and distracting to management. If resolved against us, such legal proceedings
could result in excessive verdicts, injunctive relief or other equitable relief that may affect how we operate our business. Similarly, if we
settle such legal proceedings, it may affect how we operate our business. Future court decisions, alternative dispute resolution awards,
business expansion or legislative activity may increase our exposure to litigation and regulatory investigations. In some cases, substantial
non-economic remedies or punitive damages may be sought. Although we maintain liability insurance coverage, there can be no assurance
that such coverage will cover any particular verdict, judgment or settlement that may be entered against us, that such coverage will prove
to be adequate or that such coverage will continue to remain available on acceptable terms, if at all. If we incur liability that exceeds our
insurance coverage or that is not within the scope of the coverage in legal proceedings brought against us, it could have a material adverse
effect on our business, results of operations and financial condition.
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.
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.
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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.
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, 2017, the impact on our net
revenues was approximately $0.1 million compared to $0.4 million for the year ended December 31, 2016. For the period ending
December 31, 2017, sequestration mainly applied to payments received from Medicare Advantage plans by the Company. As of the date of
this report, it is our understanding that the mandatory payment reduction of 2% will continue until further notice. 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.
As of December 31, 2017, we had contracts with more than 520 third-party payor networks, an increase of 70 networks, or 15%,
over the prior year period. 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 2017, our largest contracted payor was a national association
comprised of multiple members, which in the aggregate, accounted for approximately 24% of our net revenues from our Oncology
Business and approximately 13% of our total revenues for the year ended December 31, 2017, respectively. For 2017, our next largest
contracted payor, was a national association comprised of multiple members, which, in the aggregate, accounted for approximately 6% of
our net revenues from our Oncology Business and approximately 6% of our total revenues for the year ended December 31, 2017,
respectively.
For 2016, our largest contracted payor was Medicare, which accounted for approximately 21% of our net revenues from our
Oncology Business and approximately 13% of our total revenues for the year ended December 31, 2016, respectively. Our next largest
contracted payor, was a national association comprised of multiple members, which, in the aggregate, accounted for approximately 19% of
our net revenues from our Oncology Business and approximately 13% of our total revenues for the year ended December 31, 2016,
respectively. The implementation of SE1609 resulted in our revenues being reduced by approximately $2.6 million for 2017 when
compared to 2016.
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 10%
of third-party payor net revenue. To the extent such dependency continues, significant fluctuations in revenues, results of operations and
liquidity could arise if 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.
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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 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 Community Health Accreditation Program (“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 one major supplier: Smiths Medical, Inc. 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 numerous 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. 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.
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Cyber security risks and cyber incidents could adversely affect our business and disrupt operations.
Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to,
gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing
operational disruption. The result of these incidents could include, but are not limited to, disrupted operations, misstated financial data,
liability for stolen assets or information, increased cyber security protection costs, litigation and reputational damage adversely affecting
customer or investor confidence. We have implemented systems and processes to focus on identification, prevention, mitigation and
resolution. However, these measures cannot provide absolute security, and our systems may be vulnerable to cyber-security breaches such
as viruses, hacking, and similar disruptions from unauthorized intrusions. In addition, we rely on third party service providers to perform
certain services, such as payroll and tax services. Any failure of our systems or third party systems may compromise our sensitive
information and/or personally identifiable information of our employees. While we have secured cyber insurance to potentially cover
certain risks associated with cyber incidents, there can be no assurance the insurance will be sufficient to cover any such liability.
Technological interruptions or the efficiency of our website and technology solutions could 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 our 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 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.
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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.
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 520 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.
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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 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 are applicable to our business 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.
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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.
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 existing 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. Our credit agreement also contains certain financial covenants. As of December 31, 2017, we
were in compliance with all such covenants, however, there can be no assurance that we will be able to manage any of the risks associated
with debt agreements 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.
Changes in tax laws, including the recently enacted federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017
(“Tax Act”), as well as other factors, could cause us to experience fluctuations in our tax obligations and effective tax rate in 2018 and
thereafter.
We are subject to income taxes as well as non-income based taxes in federal and various state jurisdictions. We are currently
evaluating the Tax Act with our professional advisers. We have recognized the provisional tax impacts, based on reasonable estimates,
related to the revaluation of deferred tax assets and liabilities and have included these amounts in our consolidated financial statements for
the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to among
other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be
issued, and actions we may take as a result of the Tax Act. In addition, because of the uncertainties relating to the future application of the
Tax Act and actions we may take in the future, the effect of the Tax Act on us in 2018 and future years may change significantly and
cannot be predicted.
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We are subject to audits by tax authorities from time to time in federal and state jurisdictions. Tax authorities may disagree with
certain positions we have taken and assess additional taxes and penalties. We regularly assess the likely outcomes of these audits in order
to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcomes of
these audits, and the actual outcomes of these audits could have a material impact on our results of operations.
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 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, 2017, options to purchase 2.1 million shares of common stock were outstanding, at a weighted average exercise
price of $2.41 per share, of which 1.1 million were exercisable at a weighted average exercise price of $2.60 per share. In addition,
restricted stock of less than 0.1 million shares, with a weighted average grant date fair value of $2.61 per share, were outstanding and were
issuable upon the vesting of certain time restrictions.
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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.
During the fourth quarter of 2017, 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
an 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
$34.9 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. During the fourth quarter of 2017, the
Company recorded a full valuation allowance for tax benefits of operating loss and tax credit carryforwards, which is described under the
heading “Income Taxes” in Note 7 to our Consolidated Financial Statements included in this Form 10-K.
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
Madison Heights
Lenexa
Houston
Santa Fe Springs
Mississauga
Alpharetta
State/Country
Michigan
Kansas
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. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time
consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. We
are not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not
probable and estimable, primarily for the following reasons: (i) many of the relevant legal proceedings are in preliminary stages, and until
such proceedings develop further, there is often uncertainty regarding the relevant facts and circumstances at issue and potential liability;
and (ii) many of these proceedings involve matters of which the outcomes are inherently difficult to predict. We have insurance policies
covering certain potential losses where such coverage is cost effective.
On January 29, 2018, we received notice that the U.S. District Court for the Central District of California (the “Court”) (Case No.
2:16-cv-08295-ODW) issued an order dismissing, with prejudice, a putative class-active lawsuit against the Company. The dismissal
relates to an action brought on November 8, 2016 by a purported shareholder of the Company against the Company and two individual
defendants: Eric Steen, the Company’s former Chief Executive Officer, President and Director; and Jonathan Foster, the Company’s
former Chief Financial Officer. The complaint asserted claims against all defendants under the antifraud provisions of the federal
securities laws and against Messrs. Steen and Foster as control persons. On June 19, 2017, the Company and all defendants filed a Motion
to Dismiss the amended complaint. On December 15, 2017, the Court dismissed the plaintiffs’ first amendment to the class action
compliant (“FAC”), with leave to amend. On December 20, 2017, the parties stipulated, and the Court extended, the plaintiffs time to
amend the FAC up to January 19, 2018. As of January 19, 2018, the plaintiff never filed an amended complaint and the Court dismissed
the lawsuit with prejudice on January 29, 2018. On February 28, 2018, the plaintiff filed a notice of appeal, on the motion to dismiss, to
the 9th Circuit Court of Appeals.
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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 sale prices of our common stock,
respectively, as reported on the NYSE-MKT.
Common Stock
Quarter ended
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
High
Low
2.45 $
2.30 $
2.30 $
2.60 $
2.80 $
3.48 $
3.67 $
3.75 $
1.90
1.65
1.20
2.00
1.55
2.34
2.52
2.66
$
$
$
$
$
$
$
$
Holders of Common Equity
As of March 2, 2018, we had approximately 322 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. Our Board of Directors does not anticipate declaring any dividends in the
foreseeable future.
Common Share Repurchase Program
On March 12, 2018, our Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 1
million shares of the Company’s outstanding stock. The repurchase program will be subject to market conditions, the periodic capital
needs of the Company’s operating activities, and the continued satisfaction of all covenants under the Company’s existing credit
agreement. Repurchases under the program may take place in the open market or in privately negotiated transactions, and may be made
under a Rule 10b5-1 plan. The repurchase program does not obligate the Company to repurchase shares and may be suspended,
terminated, or modified at any time. For the years ending December 31, 2017 and 2016, respectively, no shares were repurchased under
this program.
Shares Forgone to Satisfy Minimum Statutory Withholdings
During the years ended December 31, 2017 and 2016, 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, 2017 and 2016, respectively, we received less than 0.1 million shares from employees for
tax withholding obligations.
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During the year ended December 31, 2017, we acquired and cancelled shares of common stock surrendered by employees to pay income
taxes due upon the vesting of restricted stock as follows:
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
7,886 $
9,460
3,465
20,811 $
2.78
2.30
2.20
2.47
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
N/A
N/A
N/A
N/A
Maximum
Number
(or Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
N/A
N/A
N/A
N/A
Period
February 6, 2017
April 19, 2017
May 3, 2017
Total
During the year ended December 31, 2016, we acquired and cancelled shares of common stock surrendered by employees to pay
income taxes due upon vesting of restricted stock as follows:
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
11,373 $
798
5,111
17,282 $
2.90
3.26
3.25
3.02
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
N/A
N/A
N/A
N/A
Maximum
Number
(or Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
N/A
N/A
N/A
N/A
Period
March 9, 2016
July 5, 2016
July 7, 2016
Total
Unregistered Sales of Equity Securities
We did not sell any unregistered securities during the fiscal year ended December 31, 2017.
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Equity Compensation Plan Information
See Part III, Item 12 to this Form 10-K 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 Form 10-K. The forward-looking statements included in this discussion and elsewhere in this 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 six 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.
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, effectively lessening bad debt
expense on a micro level, but due to the mix of all payors may not have an impact on overall 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.
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For additional information pertaining to CMS, refer to Item 1 – Business – Significant Customers and also Regulation of 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
revenues, gross margin, operating margin, net income, cash and cash equivalents, 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, 2017 compared to the Year ended December 31,
2016
Revenues
Net Revenues – Net revenues for the fiscal year ended December 31, 2017 were $71.1 million, which was an increase compared to
the prior year’s net revenues of $70.5 million, primarily due to an increase in Product Sales partially offset by a decrease in rentals.
Rentals – Decreased $1.1 million, or 2%, compared to the prior year. During the second half of 2016, the Company
implemented SE1609 from CMS, which resulted in our rental revenues being reduced by approximately $2.6 million for 2017 when
compared to 2016, and this decrease in 2017 was partially offset by increases of approximately $1.5 million, primarily related to the
addition of larger customers and increased penetration into our existing commercial payor base, which generally have higher net revenue
rates than non-commercial payors. This is also evidenced by our increase in third-party payor networks from 450 to 520, or 15%,
compared to the prior year. 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.
increase of $1.4 million in the sales of disposable products and a $0.2 million increase in the sales of pumps.
Product Sales - Increased $1.7 million, or 21%, compared to the prior year. This increase was largely due to an
A substantial portion of our contracted payor revenues have been dependent on one payor or a limited concentration of payors. In
particular for 2017, our largest contracted payor was a national association comprised of multiple members, which in the aggregate,
accounted for approximately 24% of our net revenues from our Oncology Business and approximately 13% of our total revenues for the
year ended December 31, 2017, respectively. For 2017, our next largest contracted payor was a national association comprised of multiple
members, which, in the aggregate, accounted for approximately 6% of our net revenues from our Oncology Business and approximately
6% of our total revenues for the year ended December 31, 2017, respectively. For 2016, our largest contracted payor was Medicare, which
accounted for approximately 21% of our net revenues from our Oncology Business and approximately 13% of our total revenues for the
year ended December 31, 2016, respectively. Our next largest contracted payor, was a national association comprised of multiple
members, which, in the aggregate, accounted for approximately 19% of our net revenues from our Oncology Business and approximately
13% of our total revenues for the year ended December 31, 2016, respectively. The implementation of SE1609 resulted in our revenues
being reduced by approximately $2.6 million for 2017 when compared to 2016. 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 10% of third-party payor net revenue. To the extent such dependency
continues, significant fluctuations in revenues, results of operations and liquidity could arise if any other significant contracted payor
reduces its reimbursement for the services we provide.
Gross Profit - Decreased $1.4 million, or 3%, compared to the prior year. The decrease in gross profit for 2017 was largely
attributable to the increase in net revenues of $0.6 million for the period offset by an increase in cost of revenues – product, service and
supply costs of $2.2 million, broken down as supplies and material costs of $0.6 million, service costs of $0.4 million and disposable costs
of $1.2 million and a decrease in cost of revenues - pump depreciation, sales and disposals of $0.2 million, broken down as $0.3 million in
equipment disposals offset by an increase of $0.1 million in equipment depreciation and other. Gross profit as a percentage of net revenues
decreased to 61% compared to the prior year at 63%.
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Provision for Doubtful Accounts – Remained consistent compared to the prior year at $5.6 million. For 2017, we had a general
increase in bad debt due to a change in our billing structure in the second half of 2016 for a large payor, however, this increase was offset
by the Company’s increased number of third-party payor contracts, which have increased from 450 to 520, or 15%, 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.
We view our payor environment as rapidly 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, 2017, we had more than 520 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.
Amortization of Intangible Assets – Increased $1.7 million compared to the prior year. This increase was largely attributable to the
completion of several IT projects, in turn increasing the related amortization.
Asset Impairment Charges – Increased $1.0 million compared to the prior year. This increase was due to some internally
developed, internal-use software projects that were determined by management to be obsolete or no longer in use in 2017.
Selling and Marketing Expenses - For the year ended December 31, 2017, our selling and marketing expenses increased to $9.8
million, or 1%, compared to December 31, 2016 and remained consistent as a percentage of net revenues compared to the prior year at
14%. The increase of $0.1 million was largely due to an increase in salaries, benefits and related expenses of $0.4 million, which was
partially offset by a decrease in travel expenses of $0.2 million and advertising of $0.1 million. 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 2017 and 2016 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, 2017, our G&A expenses were $25.2 million, an increase
of 2% from $24.6 million for the year ended December 31, 2016. The increase in G&A expenses versus the same prior year period was
mainly attributable to increases in outside services of $0.5 million, stock based expenses of $0.2 million and dues and subscriptions of $0.1
million partially offset by telephone of $0.1 million and consulting of $0.1 million. The Company has brought in-house certain services
previously performed by outside advisors and contractors, including tax and information technology.
The following table includes additional details regarding our G&A expenses for the years ended December 31 (in thousands):
2017
2016
Difference
Strategic alternatives and other costs (a)
Restatement costs
Early termination fees for capital leases
Shareholder legal costs
Management reorganization
Stock based compensation
Total
G&A - other than one-time costs & stock based comp
G&A - Total
$
160
28
292
200
737
682
2,099
23,101
25,200 $
304
394
-
-
153
462
1,313
23,316
24,629 $
(144)
(366)
292
200
584
220
786
(215)
571
(a) Strategic costs - For 2017, we recorded expenses associated with other strategic opportunity costs of $160,000. Strategic
costs for 2016 were attributable to the acquisition, transition and integration of Ciscura of $177,000 and $280,000 was due to
other strategic opportunity costs.
Other Income and Expenses - During the year ended December 31, 2017, we recorded interest expense of $1.3 million, which
was consistent with the prior year’s interest expense of $1.3 million.
Provision for Income Taxes - During the year ended December 31, 2017, we recorded an income tax expense of $15.5 million
compared to an income tax benefit of $0.1 million for the year ended December 31, 2016. The effective tax rate for the year ended
December 31, 2017 was negative 293.89% compared to 39.1% for the year ended December 31, 2016. The decrease in effective tax rate
was primarily due to recording $5.6 million in net deferred tax assets in connection with the 2017 Tax Cuts and Jobs Act due to the
cumulative effect of changes in the federal tax rate to 21% from the previously used 34% in determining our net deferred tax assets. In
addition, as of December 31, 2017, management assessed the available positive and negative evidence regarding the recovery of our net
deferred tax assets. As a result of this assessment, it was determined it was more likely than not that the Company will not recognize the
benefits of its federal and state net deferred tax assets and recorded an $11.4 million valuation allowance against these net deferred tax
assets. Refer to the discussion under “Summary of Significant Accounting Policies — Income Taxes” included in Note 2 and “Income
Taxes” included in Note 7 to our Consolidated Financial Statements included in this Form 10-K.
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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, 2016 through December 31,
2017.
Liquidity and Capital Resources
Overview:
We finance our operations and capital expenditures with internally generated cash from operations. During the three and twelve
months ended December 31, 2017, we generated enough positive cash flow to reduce our debt by $1.2 million and $8.5 million,
respectively. As of December 31, 2017, we had cash and cash equivalents of $3.5 million and $9.2 million of availability on our revolving
credit facility compared to $3.4 million of cash and cash equivalents and $9.9 million of availability on our revolving credit facility at
December 31, 2016. 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 and share repurchases. 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.
Long-Term Debt Activities:
On March 23, 2015, the Company and its direct and indirect subsidiaries entered into a credit agreement with JPMorgan Chase Bank,
N.A., as lender (the "Chase Credit Agreement"). The Chase Credit Agreement originally provided for a Credit Facility consisting of a
$27.0 million Term Loan A, up to $8.0 million Term Loan B and a $10.0 million revolving credit facility and a maturity date of March 23,
2020. The Credit Facility is collateralized by substantially all of our assets and shares of our subsidiaries and requires us to comply with
certain covenants, including but not limited to, financial covenants relating to the satisfaction, on a quarterly and annual basis for the
duration of the Credit Facility, of a total leverage ratio, a fixed charge coverage ratio and a net worth level.
On December 5, 2016, we entered into a First Amendment to the Chase Credit Agreement to waive certain events of default then
existing thereunder, as well as to make certain amendments to the Credit Facility, including but not limited to: (i) restructuring of the
Credit Facility that effectively consolidated Term Loan A and Term Loan B into a new single term loan (“Term Loan”) resulting in a new
total drawn amount of $32 million under the Term Loan with the approximately $5 million excess over the current aggregate drawn
amounts under Term Loan A and Term Loan B to be available to reduce the Company’s drawings under the revolving credit line under the
Credit Facility; (ii) extending the maturity date of the Term Loan and the revolving credit line to December 5, 2021; (iii) setting the
quarterly mandatory principal payment due on the Term Loan to $1.3 million due on the last business day of each fiscal quarter with any
remaining unpaid and outstanding amount due at maturity; and (iv) amending the leverage ratio covenant to provide for the following
schedule of maximum permitted ratios: (a) 2.75 to 1.0 at any time on or after December 31, 2015 but prior to March 31, 2017, (b) 2.50 to
1.0 at any time on or after March 31, 2017 but prior to March 31, 2018 or (c) 2.25 to 1.00 at any time on or after March 31, 2018.
On March 22, 2017, we entered into a Second Amendment to the Chase Credit Agreement to make certain amendments to the Credit
Facility, including but not limited to: (i) amending the definition of "Fixed Charges" to increase the Company's ability to prepay its
indebtedness under the Credit Facility without negatively impacting its financial covenants; and (ii) amending the leverage ratio covenant
to provide for the following schedule of maximum permitted ratios: (a) 2.75 to 1.0 at any time on or after December 31, 2015 but prior to
March 31, 2018, (b) 2.50 to 1.0 at any time on or after March 31, 2018 but prior to March 31, 2019 or (c) 2.25 to 1.00 at any time on or
after March 31, 2019.
As of March 31, 2017, we breached a financial covenant under our Credit Facility, which resulted in an event of default under the
Credit Facility. Specifically, we were not in compliance with the leverage ratio covenant under the Credit Facility. The required maximum
leverage ratio under the Credit Facility as of March 31, 2017 was 2.75 compared to an actual ratio of 2.96. We subsequently received a
waiver from this breach from the lender on May 10, 2017, which provided a limited, specific and one-time waiver from this breach but did
not otherwise modify the terms of the Credit Facility. No fee was paid to the lender in connection with this waiver.
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On June 28, 2017, we entered into a Third Amendment to the Chase Credit Agreement to make certain amendments to the Credit
Facility, including but not limited to:
(i)
amendment of the chart within the definition of “Applicable Rate” in Section 1.01 of the Chase Credit
Agreement to read as follows:
Leverage
Ratio
Level I
< 1.5:1.0
Level II
< 2.0:1.0 to 1.0 but > 1.5:1.0
Level III
< 2.5:1.0 to 1.0 but > 2.0:1.0
Level IV
< 3.0:1.0 to 1.0 but > 2.5:1.0
Level V
≥ 3.0:1.0
CBFR
Spread
Eurodollar
Spread
Commitment
Fee Rate
- 1.00%
2.00%
0.25%
-0.75%
2.25%
0.25%
- 0.50%
2.50%
0.25%
0.00%
2.75%
0.25%
0.25%
3.00%
0.25%
and further amendment of the definition of “Applicable Rate” in Section 1.01 of the Chase Credit Agreement by
adding the following to the end thereof: “The Applicable Rate will be set at Level V as of the Third Amendment
Effective Date, and adjusted for the first time thereafter based on the financial statements required to be delivered
hereunder for the fiscal quarter ending June 30, 2017.”;
(ii)
(iii)
amendment of the definition of “Fixed Charge Coverage Ratio” in Section 1.01 of the Chase Credit Agreement
by adding the phrase “(it is acknowledged that, at all times, such unfinanced portion is either a deduction to
EBITDA or, if unfinanced portion is ever interpreted to be a negative number, then zero)” to follow the phrase
therein that reads “means, for any period, the ratio of (a) EBITDA minus the unfinanced portion of Capital
Expenditures.”;
amendment of clause (f)(ii) in the definition of “Permitted Acquisition” in Section 1.01 of the Chase Credit
Agreement by (a) replacing the reference therein to “$10,000,000” with “$5,000,000” and (b) by replacing the
reference therein to “$25,000,000” with “$12,500,000.”;
(iv)
addition of the following definition of “Excess Cash Flow” to Section 1.01 of the Chase Credit Agreement as
follows:
“Excess Cash Flow” means, for any fiscal year of the Company, (a) EBITDA for such fiscal year,
minus (b) Capital Expenditures made or incurred during such fiscal year minus (c) Fixed Charges for
such fiscal year.
(v)
amendment of Section 2.08(b) of the Chase Credit Agreement to read as follows:
(b) The Borrowers hereby unconditionally agree that the Term A Loans and the Term B Loans
shall be replaced and refinanced in full as of the First Amendment Effective Date with a Term Loan in
an aggregate amount equal to $32,000,000 made under Section 2.01(d), the Borrowers acknowledge
and agree that the principal balance of such Term Loan as of the Third Amendment Effective Date is
$30,665,999.98, and the Borrowers hereby unconditionally promise to pay to the Lender the principal
amount of the Term Loans made under Section 2.01(d) after the Third Amendment Effective Date as
follows: (i) on June 30, 2017, September 30, 2017 and December 31, 2017 in principal installments
each in the amount of $577,500 (as adjusted from time to time pursuant to Section 2.09(d) or 2.16(b)),
(ii) commencing with the last Business Day of March, 2018 and on the last Business Day of each
March, June, September and December thereafter, in consecutive quarterly principal installments each
in the amount of $766,650 (as adjusted from time to time pursuant to Section 2.09(d) or 2.16(b)) and
(iii) to the extent not previously paid, all unpaid Term Loans shall be paid in full in cash by the
Borrowers on the Term Maturity Date.
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(vi)
amendment of Section 2.09(d) of the Chase Credit Agreement to read as follows:
(d) All prepayments required to be made pursuant to Section 2.09(c) shall be applied, first to
prepay the Term Loans (and in the event Term Loans of more than one Class shall be outstanding at the
time, shall be allocated among the Term Loans pro rata based on the aggregate principal amounts of
outstanding Term Loans of each such Class), and such prepayments of the Term Loans shall be applied
to reduce the remaining scheduled repayments of Term Loans of each Class in the inverse order of
maturity (with any prepayments applied first to the payment at final maturity), second to prepay the
Revolving Loans without a corresponding reduction in the Revolving Commitment and third to cash
collateralize outstanding LC Exposure. Within each such category, such prepayments shall be applied
first to CBFR Loans and then to Eurodollar Loans in order of Interest Period maturities (beginning with
the earliest to mature).
All prepayments required to be made pursuant to Section 2.09(f) shall be applied, first to prepay
the Revolving Loans without a corresponding reduction in the Revolving Commitment, second to prepay
the Term Loans (and in the event Term Loans of more than one Class shall be outstanding at the time,
shall be allocated among the Term Loans pro rata based on the aggregate principal amounts of
outstanding Term Loans of each such Class), and such prepayments of the Term Loans shall be applied
to reduce the remaining scheduled repayments of Term Loans of each Class in the inverse order of
maturity (with any prepayments applied first to the payment at final maturity), and third to cash
collateralize outstanding LC Exposure. Within each such category, such prepayments shall be applied
first to CBFR Loans and then to Eurodollar Loans in order of Interest Period maturities (beginning with
the earliest to mature).
(vii)
addition of a new Section 2.09(f) to the Chase Credit Agreement as follows:
(f) Until the latest of the Revolving Credit Maturity Date, the Term A Maturity Date, the Term B
Maturity Date or the Term Maturity Date, as the case may be, the Borrowers shall prepay the
Obligations as set forth in Section 2.09(d) on the date that is ten days after the earlier of (i) the date on
which the Company’s annual audited financial statements for the immediately preceding fiscal year are
delivered pursuant to Section 5.01 or (ii) the date on which such annual audited financial statements
were required to be delivered pursuant to Section 5.01, in an amount equal to: (I) seventy-five percent
(75%) of the Company’s Excess Cash Flow for the immediately preceding fiscal year if the Company’s
Leverage Ratio is greater than or equal to 2.5 to 1.0 for the immediately preceding fiscal year, (II) fifty
percent (50%) of the Company’s Excess Cash Flow for the immediately preceding fiscal year if the
Company’s Leverage Ratio is less than 2.5 to 1.0 but greater than or equal to 2.0 to 1.0 for the
immediately preceding fiscal year, or (III) zero percent (0%) of the Company’s Excess Cash Flow for
the immediately preceding fiscal year if the Company’s Leverage Ratio is less than 2.0 to 1.0 for the
immediately preceding fiscal year. Each Excess Cash Flow prepayment shall be accompanied by a
certificate signed by a Financial Officer of the Company certifying the manner in which Excess Cash
Flow and the resulting prepayment was calculated, which certificate shall be in form and substance
satisfactory to the Lender.
(viii)
amendment of Section 6.04(c) of the Chase Credit Agreement by replacing the reference therein to
“$5,000,000” with “$2,500,000.”;
(ix)
amendment of Sections 6.12(a) and (b) of the Chase Credit Agreement to read as follows:
(a) Leverage Ratio. The Borrowers will not permit the Leverage Ratio to exceed (i) 4.0 to 1.0 at
any time on or after the Effective Date but prior to December 31, 2017, (ii) 3.75 to 1.0 at any time on or
after December 31, 2017 but prior to June 30, 2018, (iii) 3.50 to 1.0 at any time on or after June 30,
2018 but prior to December 31, 2018, or (iv) 3.00 to 1.00 at any time on or after December 31, 2018.
(b) Fixed Charge Coverage Ratio. The Borrowers will not permit the Fixed Charge Coverage
Ratio to be less than (i) 1.15:1.0 at any time on or after the Effective Date but prior to March 31, 2018,
or (ii) 1.25:1.0 at any time on or after March 31, 2018.
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As of December 31, 2017, we were in compliance with all such covenants.
Simultaneous with the execution of Third Amendment, we entered into a Patent and Trademark Security Agreement, which replaces
the Patent and Trademark Security Agreement entered into on March 23, 2015 at the time we entered into the original Chase Credit
Agreement. The new Patent and Trademark Security Agreement was revised to make reference to the Third Amendment and we have
provided the Lender with updated schedules listing our trademarks, patents, applications for trademarks and patents, and other intellectual
properties owned or licensed.
As a result of the changes to the definition of ‘Leverage Ratio” and “Fixed Charge Coverage Ratio” within the Third Amendment,
we will have increased flexibility to effect the changes necessary to return us to a strong financial position. The change to the definition of
“Applicable Rate” will effectively increase our interest rate under the Chase Credit Agreement by 50 basis points in the near term, while
allowing for us to reduce that rate as our Leverage Ratio declines. The addition of the provision that requires the prepayment of a
percentage of our annual “Excess Cash Flow” will ensure our primary goal remains to reduce the total debt outstanding.
As of December 31, 2017, the Company’s Term Loan under the Credit Facility had a balance of $28.5 million. The availability
under the revolving credit line under the Credit Facility is based upon our eligible accounts receivable and eligible inventory and is
computed as follows (in thousands):
Revolver:
Gross Availability
Outstanding Draws
Letter of Credit
Landlord Reserves
Availability on Revolver
December 31,
December 31,
2017
2016
$
$
10,000 $
-
(750)
(45)
9,205 $
10,000
-
-
(45)
9,955
As of December 31, 2017, interest on the Credit Facility is payable at our option as a (i) Eurodollar Loan, which bears interest at a
per annum rate equal to LIBOR Plus a margin ranging from 2.00% to 3.00% or (ii) CBFR Loan, which bears interest at a per annum rate
equal to the greater of (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 -1.00% to 0.25%. The actual rate at December 31, 2017 was 4.32% (LIBOR of 1.57% plus 2.75%).
As discussed above, on March 12, 2018, our Board of Directors approved a stock repurchase program authorizing the Company to
repurchase up to 1 million shares of the Company’s outstanding stock. The repurchase program will be subject to market conditions, the
periodic capital needs of the Company’s operating activities, and the continued satisfaction of all covenants under the Company’s existing
credit agreement. As of March 5, 2018, we had availability of $9.2 million under our Credit Facility, which a portion could be used to fund
stock repurchases, subject to the restrictions and limitations of our Chase Credit Agreement. The repurchase program does not obligate the
Company to repurchase shares and may be suspended, terminated, or modified at any time.
Cash Flows:
Operating Cash Flow. Net cash provided by operating activities for the year ended December 31, 2017 was $7.6 million compared
to $7.9 million for the year ended December 31, 2016. The decrease was primarily attributable to the cash flow effects of the changes in
net losses were partially offset by the impact of non-cash transactions, including amortization and deferred income taxes and also the
change in liabilities.
Investing Cash Flow. Net cash provided by investing activities was $1.1 million for the year ended December 31, 2017 compared to
cash used of $5.3 million for the year ended December 31, 2016. The increase in cash provided was primarily related to a decrease of $3.3
million for the purchases of intangible assets, mainly IT related assets, a $1.8 million decrease in the purchases of medical equipment and a
$0.8 million increase in the proceeds from the sale of medical equipment.
Financing Cash Flow. Net cash used in financing activities for the year ended December 31, 2017 was $8.6 million compared to
cash proceeds of less than $0.1 million for the year ended December 31, 2016. This change is primarily attributable to the cash proceeds
received as a result of our decision to borrow from the revolving credit line under our Credit Facility during 2016, as well as, our decision
to pay down a majority of our capital lease obligations during the first half of 2017.
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We periodically 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 3.6% as of December 31, 2017.
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.
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 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, and billing the oncology practice, or the third-party payor (“TPP”) or alternative site setting 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, (ii) has verified actual
pump usage via a patient treatment log (“PTL”) and insurance coverage and (iii) receives 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 while billings made directly to an oncology practice and alternative site setting are recorded at a pre-determined
amount with any uncollectible amount is recorded as bad debt expense in general & administrative expenses. We perform 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 we operate, certain estimates are required to record
net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised
or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the
uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.
Due to continuing changes in the health care industry and third-party reimbursement, it is possible that management’s estimates could
change in the near term, which could have an impact on our results of operations and cash flows.
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As of December 31, 2017, we had contracts with more than 520 third-party payor networks, an increase of 70 networks, or 15%,
over the prior year period. 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 2017, our largest contracted payor was a national association
comprised of multiple members, which in the aggregate, accounted for approximately 24% of our net revenues from our Oncology
Business and approximately 13% of our total revenues for the year ended December 31, 2017, respectively. For 2017, our next largest
contracted payor, was a national association comprised of multiple members, which, in the aggregate, accounted for approximately 6% of
our net revenues from our Oncology Business and approximately 6% of our total revenues for the year ended December 31, 2017,
respectively.
For 2016, our largest contracted payor was Medicare, which accounted for approximately 21% of our net revenues from our
Oncology Business and approximately 13% of our total revenues for the year ended December 31, 2016, respectively. Our next largest
contracted payor, was a national association comprised of multiple members, which, in the aggregate, accounted for approximately 19% of
our net revenues from our Oncology Business and approximately 13% of our total revenues for the year ended December 31, 2016,
respectively. The implementation of SE1609 resulted in our revenues being reduced by approximately $2.6 million for 2017 when
compared to 2016.
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 10%
of third-party payor net revenue. To the extent such dependency continues, significant fluctuations in revenues, results of operations and
liquidity could arise if any other significant contracted payor reduces its reimbursement for the services we provide.
Accounts Receivable, Allowance for Doubtful Accounts and Contractual Allowances
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 value. 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. We record an allowance for doubtful accounts and contractual allowance (to reduce gross billed
charges to a contractual or estimated net realizable value from third-party payors) based on management’s assessment of historical and
expected 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 for doubtful accounts for patients or
the contractual allowance for third-party payors. Our allowance for doubtful accounts and contractual allowance are a reduction to
accounts receivable on our consolidated financial position. Additions to the contractual allowance each period offset gross billed charges,
which are not publicly reported in our filings, to arrive at net revenue, which is publicly reported in our consolidated results of operations.
Additions to the allowance for doubtful accounts, however, impact the bad debt expense line item of our consolidated results of
operations.
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 our consolidated business, financial position, results of operations
and cash flows.
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.
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We estimate the impact of uncertain income tax position s 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 7 in the Notes to the Consolidated Financial Statements
included in this Form 10-K.
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 2017 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.
We also performed an impairment analysis in December 2017 related to our internally developed, internal-use software, specifically
looking at the effectiveness and useful lives of each project and sub-project. It was determined that certain projects and sub-projects were
no longer viable and did not provide any further service potential. This resulted in an impairment of approximately $1.0 million in 2017.
For more information, refer to the “Intangible Assets” discussion included in Note 5 in the Notes to the Consolidated Financial
Statements included in this Form 10-K.
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, 2017 and 2016
Consolidated Statements of Operations for the years ended December 31, 2017 and 2016
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016
Notes to Consolidated Financial Statements
33
Page
34
35
36
37
38
40
Table of Contents
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
InfuSystem Holdings, Inc.
Madison Heights, Michigan
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of InfuSystem Holdings, Inc. and subsidiaries (the “Company”) as of
December 31, 2017 and 2016, the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then
ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2017 and 2016,
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.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company ’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As
part of our audits we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/BDO USA, LLP
We have served as the Company's auditor since 2013.
Troy, Michigan
March 19, 2018
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Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
ASSETS
Current Assets:
December 31,
December 31,
2017
2016
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $6,514 and $4,989 at
$
3,469 $
December 31, 2017 and 2016, 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
Intangible assets, net
Deferred income taxes
Other assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Capital lease liability, current
Current portion of long-term debt
Other current liabilities
Total Current Liabilities
Long-term debt, net of current portion
Capital lease liability, long-term
Deferred income taxes
Other long-term liabilities
Total Long-Term Liabilities
Total Liabilities
Stockholders’ Equity:
Preferred stock, $.0001 par value: authorized 1,000,000 shares; none issued
Common stock, $.0001 par value: authorized 200,000,000 shares; issued and outstanding
22,978,398 and 22,780,738, as of December 31, 2017, respectively, and issued and outstanding
22,867,335 and 22,669,675, as of December 31, 2016, respectively.
Additional paid-in capital
Retained deficit
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
11,385
1,764
1,049
-
17,667
1,567
23,369
1,633
24,514
-
131
68,881 $
5,516 $
505
3,039
3,414
12,474
25,352
33
62
7
25,454
37,928
-
2
92,584
(61,633)
30,953
68,881 $
$
$
$
See accompanying notes to consolidated financial statements.
35
3,398
11,581
2,166
949
2,675
20,769
1,642
28,036
1,997
31,239
12,436
225
96,344
5,315
2,938
5,314
2,872
16,439
26,577
2,573
-
66
29,216
45,655
-
2
91,829
(41,142)
50,689
96,344
Table of Contents
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
Asset impairment charges
Selling and marketing
General and administrative
Total selling, general and administrative
Operating (loss) income
Other (expense) income:
Interest expense
Other (expense) income
Total other expense
Loss before income taxes
Income tax (expense) benefit
Net loss
Net loss per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Year Ended
December 31,
Year Ended
December 31,
2017
2016
$
$
$
$
61,085 $
9,992
71,077
18,367
9,349
43,361
5,641
5,560
993
9,779
25,200
47,173
(3,812)
(1,332)
(113)
(1,445)
(5,257)
(15,450)
(20,707) $
(0.91) $
(0.91) $
62,210
8,287
70,497
16,206
9,551
44,740
5,631
3,849
-
9,657
24,629
43,766
974
(1,344)
6
(1,338)
(364)
142
(222)
(0.01)
(0.01)
22,739,651
22,739,651
22,617,901
22,617,901
See accompanying notes to consolidated financial statements.
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Table of Contents
(in thousands)
Balances at January 1, 2016
Stock based shares issued upon
vesting - gross
Stock-based compensation expense
Employee stock purchase plan
Common stock repurchased to
satisfy minimum statutory
withholding on stock-based
compensation
Net loss
Balances at December 31, 2016
Stock based shares issued upon
vesting - gross
Stock-based compensation expense
Employee stock purchase plan
ASU 2016-09 adoption
Common stock repurchased to
satisfy minimum statutory
withholding on stock-based
compensation
Net loss
Balances at December 31, 2017
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
Common Stock
Additional
Shares Amount
Par Value Paid in Retained
Capital
2 $
Deficit
91,238 $ (40,920)
22,740 $
Treasury Stock
Shares Amount
(198) $
56
-
88
(17)
-
22,867
62
-
69
-
-
-
-
-
-
2
-
-
-
-
462
204
-
-
-
-
-
-
(75)
-
91,829
-
(222)
(41,142)
-
-
(198)
-
682
131
-
-
-
216
-
-
-
Total
Stockholders’
Equity
- $
50,320
-
-
-
-
-
-
-
-
-
-
462
204
(75)
(222)
50,689
-
682
131
216
(20)
-
22,978 $
-
-
2 $
(58)
-
-
(20,707)
92,584 $ (61,633)
-
-
(198) $
-
-
- $
(58)
(20,707)
30,953
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 loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts
Depreciation
Loss on disposal of medical equipment
Gain on sale of medical equipment
Amortization of intangible assets
Asset impairment charges
Amortization of deferred debt issuance costs
Stock-based compensation expense
Deferred income tax benefit (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 and equipment
Purchases of intangible assets
Proceeds from sale of medical equipment
NET CASH PROVIDED BY (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) PROVIDED BY FINANCING ACTIVITIES
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
See accompanying notes to consolidated financial statements.
38
Year Ended
December 31,
Year Ended
December 31,
2017
2016
$
(20,707) $
5,641
6,963
207
(1,797)
5,560
993
28
682
15,389
(5,445)
402
(100)
119
(352)
7,583
-
(3,299)
(104)
(192)
4,648
1,053
(37,466)
28,866
(38)
131
(58)
(8,565)
71
3,398
3,469 $
(222)
5,631
6,895
641
(1,231)
3,849
-
31
462
(240)
(4,589)
(250)
(88)
166
(3,146)
7,909
(370)
(5,101)
(168)
(3,526)
3,821
(5,344)
(66,999)
66,892
(7)
204
(75)
15
2,580
818
3,398
Table of Contents
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
2017
2016
$
$
$
$
1,200 $
139 $
549 $
137 $
1,234
105
429
2,675
(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, 2017 and 2016, 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 six 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.
Smiths Medical, Inc. supplies more than 10% of the ambulatory pumps purchased by the Company. The Company has a supply
agreement in place with this supplier. 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 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.
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’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. Based upon this business model, the chief
operating decision maker only reviews consolidated financial information.
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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 (“FDIC”). At times throughout the year, cash and cash equivalents balances might exceed FDIC insurance limits.
Accounts Receivable, Allowance for Doubtful Accounts and Contractual Allowances
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 value. 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. The Company records an allowance for doubtful
accounts and contractual allowance (to reduce gross billed charges to a contractual or estimated net realizable value from third-party
payors) based on management’s assessment of historical and expected 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 for doubtful accounts for patients or the contractual allowance for third-party payors. The Company’s
allowance for doubtful accounts and contractual allowance are a reduction to accounts receivable on the Company’s consolidated
financial position. Additions to the contractual allowance each period offset gross billed charges, which are not publicly reported in the
Company's filings, to arrive at net revenue, which is publicly reported in the Company's consolidated results of operations. Additions to
the allowance for doubtful accounts, however, impact the bad debt expense line item of the Company’s consolidated results of
operations.
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 consolidated business, financial position, results of
operations and cash flows.
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Table of Contents
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 — 2017
Allowance for doubtful accounts — 2016
Balance at
beginning of
Year
Charged
to costs and
expenses
Deductions
(1)
Balance
at end of
Year
$
$
4,989 $
4,737 $
5,641 $
5,631 $
(4,116) $
(5,379) $
6,514
4,989
(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 net realizable value. The Company periodically performs an
analysis of slow moving inventory and records a reserve based on estimated obsolete inventory, which was $0.1 million and $0.2 million,
respectively, as of December 31, 2017 and 2016.
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
ME in Rental Service 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 $0.5 million and $0.6 million, respectively, as of December 31,
2017 and 2016.
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 and five years, respectively. 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.
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.
Management tests indefinite life 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 its intangibles assets with indefinite lives (trade names) through the royalty relief income valuation
approach. The Company performed its annual impairment analysis as of October 2017 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.
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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 $0.2 million and $3.5 million of internal-use software for the years ended December 31, 2017 and 2016,
respectively. Amortization expense for capitalized software was $3.1 million in 2017 and $1.7 million in 2016.
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 performed an impairment analysis in December 2017 related to our internally developed, internal-use software,
specifically looking at the effectiveness and useful lives of each project and sub-project. It was determined that certain projects and sub-
projects were no longer viable and did not provide any further service potential. This resulted in an impairment of approximately $1.0
million for the year ended December 31, 2017. The Company did not record any impairment related expenses for the year ended
December 31, 2016.
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 periodically 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 3.6% as of December 31,
2017.
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, and billing the oncology practice, or the third-party payor (“TPP”) or alternative site setting 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, (ii) has verified actual pump usage via a patient treatment log (“PTL”) 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 while billings made directly to an oncology practice and
alternative site setting are recorded at a pre-determined amount with any uncollectible amount is recorded as bad debt expense in general
and administrative expenses. 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.
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Customer Concentration
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 2017, the Company’s largest contracted payor was a national association comprised of multiple members, which in the
aggregate, accounted for approximately 24% of the Company’s net revenues from our Oncology Business and approximately 13% of our
total revenues for the year ended December 31, 2017, respectively. For 2017, our next largest contracted payor, was a national
association comprised of multiple members, which, in the aggregate, accounted for approximately 6% of our net revenues from our
Oncology Business and approximately 6% of our total revenues for the year ended December 31, 2017, respectively.
For 2016, the Company’s largest contracted payor was Medicare, which accounted for approximately 21% of our net revenues
from our Oncology Business and approximately 13% of our total revenues for the year ended December 31, 2016, respectively. Our next
largest contracted payor, was a national association comprised of multiple members, which, in the aggregate, accounted for
approximately 19% of our net revenues from our Oncology Business and approximately 13% of our total revenues for the year ended
December 31, 2016, 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
10% of third-party payor net revenue.
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 and stock appreciation rights (collectively, “Share-Based 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 Share-Based 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 Share-Based Awards
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 Share-Based Awards. All Share-Based 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.
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Deferred Debt Issuance Costs
Capitalized debt issuance costs as of December 31, 2017 and 2016 relate to the Chase Credit Facility. The Company classified the
costs related to the agreement as both current and non-current liabilities and are netted against current and non-current debt. The
Company amortizes these costs using the interest method through the maturity date of the underlying debt.
Earnings Per Share
The Company reports its earnings per share in accordance with the “Earnings Per Share” topic of the Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”), which requires the presentation of both basic and diluted
earnings per share on the statements of operations. The diluted weighted average common shares include 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
loss per common share (in thousands, except shares):
Numerator:
Net loss (in thousands)
Denominator:
2017
2016
$
(20,707) $
(222)
Weighted average common shares outstanding:
Basic
Dilutive effect of restricted shares, options and non-vested share
awards
Diluted
Antidilutive awards:
22,739,651
22,617,901
-
22,739,651
490,428
-
22,617,901
90,715
Stock options of 0.5 million and 0.1 million were not included in the calculation for the years ended December 31, 2017 and 2016,
respectively, 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, 2017 and 2016 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 appends 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 I:
quoted prices in active markets for identical instruments;
Level II:
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 III:
significant inputs to the valuation model are unobservable.
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Recent Accounting Pronouncements and Developments
In May 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-09, “Stock Compensation - Scope of
Modification Accounting”, which provides guidance on which changes to the terms or conditions of a share-based payment award require
an entity to apply modification accounting in Topic 718. The new standard is effective for fiscal years beginning after December 15,
2017 (i.e. a January 1, 2018 effective date). The adoption will not have a material impact on its consolidated financial position, results of
operations, cash flows and/or disclosures.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment”, which changes the subsequent measurement of goodwill impairment by eliminating Step 2 from the impairment
test. Under the new guidance, an entity will measure impairment using the difference between the carrying amount and the fair value of
the reporting unit. The new standard is effective for fiscal years beginning after December 15, 2019 (i.e. a January 1, 2020 effective
date), with early adoption permitted for goodwill impairment tests with measurement dates after January 1, 2017. The Company believes
the adoption will not have a material impact on its consolidated financial position, results of operations, cash flows and/or disclosures.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic
606)”, which supersedes the revenue recognition requirements in Accounting Standard Codification (“ASC”) 605, (Topic 605), and most
industry-specific guidance. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or
services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In
addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash
flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers
– Deferral of the Effective Date”, which defers the effective date of ASU 2014-09 to annual reporting periods beginning after December
15, 2017, and interim periods therein. In 2016, the FASB issued ASU 2016-08, “Principal versus Agent Considerations (Reporting
Revenue Gross versus Net)”, ASU 2016-10, “Identifying Performance Obligations and Licensing”, and ASU 2016-12, “Revenue from
Contracts with Customers - Narrow-Scope Improvements and Practical Expedients”. Entities have the choice to adopt these updates
using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior
reporting period with the option to elect certain practical expedients, or (ii) a modified retrospective approach with the cumulative effect
of these standards recognized at the date of the adoption.
The Company’s approach to analyze the impact of the new standard on its revenue contracts included a review of existing
contracts with customers for each revenue stream, an evaluation of the specific terms of those contracts and the appropriate treatment
under the new standards, and a comparison of that new treatment to its existing accounting policies to identify differences. The Company
will adopt the requirements of the new standard on January 1, 2018 using the modified retrospective approach.
The Company identified the same performance obligation under Topic 606 as compared with deliverables and separate units of
account previously identified under Topic 605. The Company offers certain types of variable consideration to customers. The new
standard requires the Company to estimate these amounts. The Company anticipates that the timing and measurement of revenue will be
consistent with its current revenue recognition although its approach to revenue recognition will now be based on the transfer of control.
As a result, there will be no impact on its consolidated financial statements on its adoption of the new standard as of January 1, 2018.
The Company has determined the impact of adopting the standard on its control framework and notes minimal, insignificant
changes to its system and other controls process. The Company is finalizing the impact of Topic 606 on the disclosures for its
consolidated financial statement footnotes and expects the disclosures to be enhanced in the first quarter of 2018.
In February 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. The Company is currently evaluating the impact of the
pending adoption of the new standard on our consolidated financial statements, but the standard will result in the Company recording
right of use assets and liabilities on the consolidated statement of financial position for leases currently classified as operating leases.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation— Stock Compensation (Topic 718)” (“ASU 2016-09”). The
guidance changes how companies account for certain aspects of equity-based payments to employees. Entities will be required to
recognize income tax effects of awards in the income statement when the awards vest or are settled. The guidance also allows an
employer to repurchase more of an employee’s shares than it can under current guidance for tax withholding purposes providing for
withholding at the employee’s maximum rate as opposed to the minimum rate without triggering liability accounting and to make a
policy election to account for forfeitures as they occur. The updated guidance is effective for annual periods beginning after December
15, 2016. Effective January 1, 2017, the Company adopted the accounting guidance contained within ASU 2016-09. As a result, the
Company recorded a $0.2 million deferred tax asset and a $0.2 million increase to retained earnings on January 1, 2017 to recognize the
Company’s excess tax benefits that existed as of December 31, 2016 (modified retrospective application). The Company also elected to
account for forfeited stock based compensation expense as it occurs.
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In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments (Topic 326) Credit Losses” (“ASU 2016-13”). ASU
2016-13 changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding
financial assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the net
amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost
basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. ASU 2016-13 is
effective as of January 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-13.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments” (“ASU 2016-15”). The amendments in this ASU introduce clarifications to the presentation of certain cash
receipts and cash payments in the statement of cash flows. The primary updates include additions and clarifications of the classification
of cash flows related to certain debt repayment activities, contingent consideration payments related to business combinations, proceeds
from insurance policies, distributions from equity method investees and cash flows related to securitized receivables. ASU 2016-15 is
effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is
permitted, including in interim periods. ASU 2016-15 requires retrospective application to all prior periods presented upon adoption. The
adoption of this new standard on January 1, 2018 will not have a material impact on the Company’s consolidated financial position,
results of operations, cash flows and/or disclosures.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes” (“ASU 2015-17”), simplifying the balance sheet classification of deferred taxes by requiring all deferred taxes, along with any
related valuation allowance, to be presented as noncurrent. ASU 2015-17 is effective for the Company beginning in the first quarter of
2017 and may be applied either prospectively or retrospectively. The Company has chosen to apply this guidance prospectively, thus
prior periods were not retrospectively adjusted. The adoption of this guidance resulted in an initial balance sheet reclassification of $2.7
million of current deferred tax assets to noncurrent, however, as of December 31, 2017, the Company established a full valuation
allowance for all deferred tax assets, as management determined that it is more likely than not the Company will not recognize the
benefits of its federal and state deferred tax assets. Cumulative losses in recent years and no assurance of future taxable income is the
basis for the Company’s assessment that the deferred tax assets require a full valuation allowance. A valuation allowance of $11.4
million has been established at December 31, 2017.
3. 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
2017
2016
$
$
1,567 $
57,928
(482)
(34,077)
23,369
24,936 $
1,642
59,034
(551)
(30,447)
28,036
29,678
Depreciation expense for the years ended December 31, 2017 and 2016 was $6.5 million and $6.3 million, respectively, which were
recorded in cost of revenues – pump depreciation and loss on disposal.
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4. Property and Equipment
Property and equipment consisted of the following as of December 31 (in thousands):
Furniture, fixtures, and equipment
Automobiles
Leasehold improvements
Total
Furniture, fixtures, and equipment
Automobiles
Leasehold improvements
Total
2017
Accumulated
Depreciation
(3,277) $
(85)
(1,134)
(4,496) $
2016
Accumulated
Depreciation
(3,071) $
(83)
(964)
(4,118) $
Total
Total
547
33
1,053
1,633
738
46
1,213
1,997
3,824 $
118
2,187
6,129 $
3,809 $
129
2,177
6,115 $
Gross Assets
$
$
$
Gross Assets
$
Depreciation expense for each of the years ended December 31, 2017 and 2016 was $0.5 million and $0.6 million, respectively,
and was recorded in general and administrative expenses.
5. 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
Non-compete agreements
Software
Total nonamortizable and amortizable intangible assets
$
48
Gross Assets
2017
Accumulated
Amortization
Net
$
2,000 $
- $
23
36,534
1,136
11,230
50,923 $
23
21,801
1,125
3,460
26,409 $
2,000
-
14,733
11
7,770
24,514
Table of Contents
Nonamortizable intangible assets
Trade names
Amortizable intangible assets
Trade names
Physician and customer relationships
Non-compete agreements
Software
Gross Assets
2016
Accumulated
Amortization
Net
$
2,000 $
- $
23
36,534
1,136
13,745
23
19,427
1,064
1,685
Total nonamortizable and amortizable intangible assets
$
53,438 $
22,199 $
2,000
-
17,107
72
12,060
31,239
The weighted average remaining lives of physician and customer relationships, non-compete agreements and software are 4-years,
1-year and 2-years, respectively, as of December 31, 2017.
The Company performed an impairment analysis in December 2017 related to our internally developed, internal-use software,
specifically looking at the effectiveness and useful lives of each project and sub-project. It was determined that certain projects and sub-
projects were no longer viable and did not provide any further service potential. This resulted in an impairment of approximately $1.0
million in 2017.
Amortization expense for intangible assets for the years ended December 31, 2017 and 2016 was $5.6 million and $3.8 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, 2017 are as follows (in thousands):
Amortization expense
$
4,649 $
4,402 $
4,285 $
3,930 $
2,051 $
2018
2019
2020
2021
2022
2023 and
thereafter
3,197
6. Debt
On March 23, 2015, the Company and its direct and indirect subsidiaries (the “Borrowers”) entered into a credit agreement (the
“Chase Credit Agreement”) with JPMorgan Chase Bank, N.A., as lender (the “Lender”). The Chase Credit Agreement originally
provided for a $27.0 million Term Loan A, up to an $8.0 million Term Loan B and a $10.0 million revolving credit facility (the
“Revolver”) and a maturity date of March 23, 2020, collectively (the “Credit Facility”). The Borrowers drew $27.0 million under the
Term Loan A to repay and terminate the previously existing Credit Facility under the credit agreement dated November 30, 2012, as
amended, by and among the Company, its direct and indirect subsidiaries, Wells Fargo Bank, National Association, as administrative
agent, and certain lenders party thereto. 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 $8.0 million 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. The remaining
available amount on Term Loan B expired on March 23, 2016.
On December 5, 2016, the Company entered into a First Amendment to the Chase Credit Agreement to waive certain events of
default then existing thereunder, as well as to make certain amendments to the Credit Facility, including but not limited to: (i)
restructuring of the Credit Facility that effectively consolidated Term Loan A and Term Loan B into a new single term loan (the “Term
Loan”) resulting in a new total drawn amount of $32 million under the Term Loan with the approximately $5 million excess over the
current aggregate drawn amounts under Term Loan A and Term Loan B to be available to reduce the Company’s drawings under the
revolving credit line under the Credit Facility; (ii) extending the maturity date of the Term Loan and the revolving credit line to
December 5, 2021; (iii) setting the quarterly mandatory principal payment due on the Term Loan to $1.3 million due on the last business
day of each fiscal quarter with any remaining unpaid and outstanding amount due at maturity; and (iv) amending the leverage ratio
covenant to provide for the following schedule of maximum permitted ratios: (a) 2.75 to 1.0 at any time on or after December 31, 2015
but prior to March 31, 2017, (b) 2.50 to 1.0 at any time on or after March 31, 2017 but prior to March 31, 2018 or (c) 2.25 to 1.00 at any
time on or after March 31, 2018.
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On March 22, 2017, the Company entered into a Second Amendment to the Chase Credit Agreement to make certain amendments
to the Credit Facility, including but not limited to: (i) amending the definition of "Fixed Charges" to increase the Company's ability to
prepay its indebtedness under the Credit Facility without negatively impacting its financial covenants; and (ii) amending the leverage
ratio covenant to provide for the following schedule of maximum permitted ratios: (a) 2.75 to 1.0 at any time on or after December 31,
2015 but prior to March 31, 2018, (b) 2.50 to 1.0 at any time on or after March 31, 2018 but prior to March 31, 2019 or (c) 2.25 to 1.00 at
any time on or after March 31, 2019.
As of March 31, 2017, the Company breached a financial covenant under its Credit Facility, which resulted in an event of default
under the Credit Facility. Specifically, the Company was not in compliance with the leverage ratio covenant under the Credit Facility.
The required maximum leverage ratio under the Credit Facility as of March 31, 2017 was 2.75 compared to an actual ratio of 2.96. The
Company subsequently received a waiver from this breach from the Lender on May 10, 2017, which provided a limited, specific and one-
time waiver from this breach but did not otherwise modify the terms of the Credit Facility. No fee was paid to the Lender in connection
with this waiver.
On June 28, 2017, the Company entered into a Third Amendment to the Chase Credit Agreement to make certain amendments to
the Credit Facility, including but not limited to:
(i)
amendment of the chart within the definition of “Applicable Rate” in Section 1.01 of the Chase Credit
Agreement to read as follows:
Leverage
Ratio
Level I
< 1.5:1.0
Level II
< 2.0:1.0 to 1.0 but > 1.5:1.0
Level III
< 2.5:1.0 to 1.0 but > 2.0:1.0
Level IV
< 3.0:1.0 to 1.0 but > 2.5:1.0
Level V
≥ 3.0:1.0
CBFR
Spread
Eurodollar
Spread
Commitment
Fee Rate
- 1.00%
2.00%
0.25%
-0.75%
2.25%
0.25%
- 0.50%
2.50%
0.25%
0.00%
2.75%
0.25%
0.25%
3.00%
0.25%
and further amendment of the definition of “Applicable Rate” in Section 1.01 of the Chase Credit Agreement by
adding the following to the end thereof: “The Applicable Rate will be set at Level V as of the Third
Amendment Effective Date, and adjusted for the first time thereafter based on the financial statements required
to be delivered hereunder for the fiscal quarter ending June 30, 2017.”;
(ii)
(iii)
(iv)
amendment of the definition of “Fixed Charge Coverage Ratio” in Section 1.01 of the Chase Credit
Agreement by adding the phrase “(it is acknowledged that, at all times, such unfinanced portion is either a
deduction to EBITDA or, if unfinanced portion is ever interpreted to be a negative number, then zero)” to
follow the phrase therein that reads “means, for any period, the ratio of (a) EBITDA minus the unfinanced
portion of Capital Expenditures.”;
amendment of clause (f)(ii) in the definition of “Permitted Acquisition” in Section 1.01 of the Chase Credit
Agreement by (a) replacing the reference therein to “$10,000,000” with “$5,000,000” and (b) by replacing the
reference therein to “$25,000,000” with “$12,500,000.”;
addition of the following definition of “Excess Cash Flow” to Section 1.01 of the Chase Credit Agreement as
follows:
“Excess Cash Flow” means, for any fiscal year of the Company, (a) EBITDA for such fiscal
year, minus (b) Capital Expenditures made or incurred during such fiscal year minus (c) Fixed
Charges for such fiscal year.
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(v)
amendment of Section 2.08(b) of the Chase Credit Agreement to read as follows:
(b) The Borrowers hereby unconditionally agree that the Term A Loans and the Term B Loans
shall be replaced and refinanced in full as of the First Amendment Effective Date with a Term Loan in
an aggregate amount equal to $32,000,000 made under Section 2.01(d), the Borrowers acknowledge
and agree that the principal balance of such Term Loan as of the Third Amendment Effective Date is
$30,665,999.98, and the Borrowers hereby unconditionally promise to pay to the Lender the principal
amount of the Term Loans made under Section 2.01(d) after the Third Amendment Effective Date as
follows: (i) on June 30, 2017, September 30, 2017 and December 31, 2017 in principal installments
each in the amount of $577,500 (as adjusted from time to time pursuant to Section 2.09(d) or 2.16(b)),
(ii) commencing with the last Business Day of March, 2018 and on the last Business Day of each
March, June, September and December thereafter, in consecutive quarterly principal installments each
in the amount of $766,650 (as adjusted from time to time pursuant to Section 2.09(d) or 2.16(b)) and
(iii) to the extent not previously paid, all unpaid Term Loans shall be paid in full in cash by the
Borrowers on the Term Maturity Date.
(vi)
amendment of Section 2.09(d) of the Chase Credit Agreement to read as follows:
(d) All prepayments required to be made pursuant to Section 2.09(c) shall be applied, first to
prepay the Term Loans (and in the event Term Loans of more than one Class shall be outstanding at
the time, shall be allocated among the Term Loans pro rata based on the aggregate principal amounts
of outstanding Term Loans of each such Class), and such prepayments of the Term Loans shall be
applied to reduce the remaining scheduled repayments of Term Loans of each Class in the inverse
order of maturity (with any prepayments applied first to the payment at final maturity), second to
prepay the Revolving Loans without a corresponding reduction in the Revolving Commitment and third
to cash collateralize outstanding LC Exposure. Within each such category, such prepayments shall be
applied first to CBFR Loans and then to Eurodollar Loans in order of Interest Period maturities
(beginning with the earliest to mature).
All prepayments required to be made pursuant to Section 2.09(f) shall be applied, first to prepay
the Revolving Loans without a corresponding reduction in the Revolving Commitment, second to
prepay the Term Loans (and in the event Term Loans of more than one Class shall be outstanding at
the time, shall be allocated among the Term Loans pro rata based on the aggregate principal amounts
of outstanding Term Loans of each such Class), and such prepayments of the Term Loans shall be
applied to reduce the remaining scheduled repayments of Term Loans of each Class in the inverse
order of maturity (with any prepayments applied first to the payment at final maturity), and third to
cash collateralize outstanding LC Exposure. Within each such category, such prepayments shall be
applied first to CBFR Loans and then to Eurodollar Loans in order of Interest Period maturities
(beginning with the earliest to mature).
(vii)
addition of a new Section 2.09(f) to the Chase Credit Agreement as follows:
(f) Until the latest of the Revolving Credit Maturity Date, the Term A Maturity Date, the Term B
Maturity Date or the Term Maturity Date, as the case may be, the Borrowers shall prepay the
Obligations as set forth in Section 2.09(d) on the date that is ten days after the earlier of (i) the date
on which the Company’s annual audited financial statements for the immediately preceding fiscal year
are delivered pursuant to Section 5.01 or (ii) the date on which such annual audited financial
statements were required to be delivered pursuant to Section 5.01, in an amount equal to: (I) seventy-
five percent (75%) of the Company’s Excess Cash Flow for the immediately preceding fiscal year if
the Company’s Leverage Ratio is greater than or equal to 2.5 to 1.0 for the immediately preceding
fiscal year, (II) fifty percent (50%) of the Company’s Excess Cash Flow for the immediately preceding
fiscal year if the Company’s Leverage Ratio is less than 2.5 to 1.0 but greater than or equal to 2.0 to
1.0 for the immediately preceding fiscal year, or (III) zero percent (0%) of the Company’s Excess
Cash Flow for the immediately preceding fiscal year if the Company’s Leverage Ratio is less than 2.0
to 1.0 for the immediately preceding fiscal year. Each Excess Cash Flow prepayment shall be
accompanied by a certificate signed by a Financial Officer of the Company certifying the manner in
which Excess Cash Flow and the resulting prepayment was calculated, which certificate shall be in
form and substance satisfactory to the Lender.
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(viii)
amendment of Section 6.04(c) of the Chase Credit Agreement by replacing the reference therein to
“$5,000,000” with “$2,500,000.”;
(ix)
amendment of Sections 6.12(a) and (b) of the Chase Credit Agreement to read as follows:
(a) Leverage Ratio. The Borrowers will not permit the Leverage Ratio to exceed (i) 4.0 to 1.0 at
any time on or after the Effective Date but prior to December 31, 2017, (ii) 3.75 to 1.0 at any time on
or after December 31, 2017 but prior to June 30, 2018, (iii) 3.50 to 1.0 at any time on or after June 30,
2018 but prior to December 31, 2018, or (iv) 3.00 to 1.00 at any time on or after December 31, 2018.
(b) Fixed Charge Coverage Ratio. The Borrowers will not permit the Fixed Charge Coverage
Ratio to be less than (i) 1.15:1.0 at any time on or after the Effective Date but prior to March 31, 2018,
or (ii) 1.25:1.0 at any time on or after March 31, 2018.
As of December 31, 2017, the Company was in compliance with all such covenants.
Simultaneous with the execution of Third Amendment, the Company entered into a Patent and Trademark Security Agreement,
which replaces the Patent and Trademark Security Agreement entered into on March 23, 2015 at the time the Company entered into the
original Chase Credit Agreement. The new Patent and Trademark Security Agreement was revised to make reference to the Third
Amendment and the Company has provided the Lender with updated schedules listing the Company’s trademarks, patents, applications
for trademarks and patents, and other intellectual properties owned or licensed.
As a result of the changes to the definition of ‘Leverage Ratio” and “Fixed Charge Coverage Ratio” within the Third Amendment,
the Company will have increased flexibility. The change to the definition of “Applicable Rate” will effectively increase the Company’s
interest rate under the Chase Credit Agreement by 50 basis points in the near term, while allowing for the Company to reduce that rate as
its Leverage Ratio declines.
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 InfuSystem Holdings USA, Inc. (“Holdings USA”) and Holdings USA has pledged the shares of
each of InfuSystem, Inc. and First Biomedical, Inc. 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 availability under the Revolver is based upon the Borrowers’ eligible accounts receivable and eligible inventory and is
comprised as follows (in thousands):
Revolver:
Gross Availability
Outstanding Draws
Letter of Credit
Landlord Reserves
Availability on Revolver
December 31,
December 31,
2017
2016
$
$
10,000 $
-
(750)
(45)
9,205 $
10,000
-
-
(45)
9,955
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The Company had approximate future maturities of loans as of December 31, 2017 as follows (in thousands):
2018
2019
2020
2021
2022
Total
Term Loan
Unamortized value of debt
issuance costs
Total
$
$
3,067 $
3,067 $
3,067 $
19,310 $
(28)
3,039 $
(30)
3,037 $
(31)
3,036 $
(31)
19,279 $
- $
-
- $
28,511
(120)
28,391
The following is a breakdown of the Company’s current and long-term debt as of December 31, 2017 and December 31, 2016 (in
thousands):
December 31, 2017
December 31, 2016
Current
Portion of
Long-Term
Debt
Long-Term
Debt
Total
Current
Portion of
Long-Term
Debt
Long-Term
Debt
Total
Term Loan $
3,067 $
25,444 $
Unamortized
value of debt
issuance
costs
Revolver
Total
$
$
(28) $
-
3,039 $
(92)
-
25,352 $
28,511
Term Loans $
Unamortized
value of
debt
issuance
costs
- Revolver
Total
$
$
(120)
28,391
5,336 $
26,664 $
32,000
(22) $
-
5,314 $
(87)
-
26,577 $
(109)
-
31,891
As of December 31, 2017, interest on the Credit Facility is payable at our option as a (i) Eurodollar Loan, which bears interest at a per
annum rate equal to LIBOR Plus a margin ranging from 2.00% to 3.00% or (ii) CBFR Loan, which bears interest at a per annum rate
equal to the greater of (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 -1.00% to 0.25%. The actual rate at December 31, 2017 was 4.32% (LIBOR of 1.57% plus 2.75%).
7. Income Taxes
In December 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act includes many changes to
existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% for tax
years beginning after December 31, 2017. The 2017 Tax Act also provides for a one-time transition tax on certain foreign earnings and
the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning
in 2018, including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and
development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest.
The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with Staff
Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC Topic 740, Income Taxes, in the reporting
period in which the 2017 Tax Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the
2017 Tax Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects
of the 2017 Tax Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined. The
ultimate impact of the 2017 Tax Act on our financial statements and related disclosures for 2017 and beyond may differ from our current
provisional amounts, possibly materially, due to, among other things, changes in interpretations and assumptions we have made,
guidance that may be issued, and other actions we may take as a result of the 2017 Tax Act that differ from those presently contemplated.
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Table of Contents
The changes to existing U.S. tax laws as a result of the 2017 Tax Act, which we believe have the most significant impact on the
Company’s federal income taxes are as follows:
Reduction of the U.S. Corporate Income Tax Rate
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in
which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets
and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting
in a $5.6 million increase in income tax expense for the year ended December 31, 2017 and a corresponding $5.6 million
decrease in net deferred tax assets as of December 31, 2017.
The following table summarizes loss before income taxes for the years ended December 31 (in thousands):
U.S loss
Non-U.S. income
Loss before income taxes
2017
2016
$
$
(5,419) $
162
(5,257) $
(600)
236
(364)
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The following table summarizes the Company’s components of the consolidated provision for income taxes for the years ended
December 31 (in thousands):
U.S Federal income tax (expense) benefit
Current
Deferred
Total U.S. Federal income tax (expense) benefit
State and local income tax (expense) benefit
Current
Deferred
Total state and local income tax (expense) benefit
Foreign income tax (expense) benefit
Current
Total income tax (expense) benefit
2017
2016
$
$
73 $
(13,830)
(13,757)
(45)
(1,560)
(1,605)
(88)
(15,450) $
-
157
157
(58)
83
25
(40)
142
The following table summarizes activity related to the Company’s valuation allowance for the years ended December 31 (in
thousands):
Valuation allowance at the Beginning of Period
Income tax expense
Release of valuation allowance
Valuation allowance at the End of Period
2017
2016
$
$
- $
(11,435)
-
(11,435) $
-
-
-
-
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
Increase in valuation allowance
Impacts related to the 2017 Tax Act
Other adjustments
Effective income tax rate
55
2017
2016
34.00%
4.60%
(1.17%)
(8.25%)
0.00%
(217.49%)
(105.95%)
0.37%
(293.89%)
34.00%
9.16%
(3.79%)
(38.40%)
37.81%
0.00%
0.00%
0.31%
39.09%
Table of Contents
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
Less: valuation allowance
Net deferred 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
Less: valuation allowance
Net deferred tax (liabilities) assets
2017
2016
$
$
1,375 $
305
7,319
249
-
18
30
3,323
533
5
103
13,260
(9,599)
3,661
(3,672)
(51)
(3,723)
(62)
1,836
(1,836)
(62) $
1,710
668
8,184
280
73
69
46
6,675
534
5
189
18,433
-
18,433
(4,725)
(157)
(4,882)
13,551
1,560
-
15,111
As of December 31, 2017 and 2016, the Company recognized a tax benefit of $0.0 million and $0.6 million, respectively, 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, 2017 and 2016, the Company had federal net operating loss carryforwards remaining of approximately $34.9
million and $24.1 million, respectively.
The Company’s federal net operating loss carryforwards of approximately $34.9 million will begin to expire in various years
beginning in 2028. The state net operating losses of approximately $1.4 million can be used for a period of 5 to 20 years and vary by
state, and if unused, begin to expire in 2018, though a substantial portion expires beyond 2018. 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 recorded a full valuation allowance for tax benefits of operating loss and
tax credit carryforwards, 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. As of December 31, 2017, the Company established a full
valuation allowance for all deferred tax assets, as management determined that it is more likely than not the Company will not recognize
the benefits of its federal and state deferred tax assets. Cumulative losses in recent years and no assurance of future taxable income is the
basis for the Company’s assessment that the deferred tax assets require a full valuation allowance. A valuation allowance of $11.4
million has been established at December 31, 2017.
The Company had no uncertain tax positions for the years ended December 31, 2017 and 2016.
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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 2014 through 2017 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 2013 through 2017 are
subject to examination by the Canada Revenue Agency.
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 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).
8.
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 results of litigation are inherently unpredictable. Any claims against the Company, whether
meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in
diversion of significant resources. The Company is not able to estimate an aggregate amount or range of reasonably possible losses for
those legal matters for which losses are not probable and estimable, primarily for the following reasons: (i) many of the relevant legal
proceedings are in preliminary stages, and until such proceedings develop further, there is often uncertainty regarding the relevant facts
and circumstances at issue and potential liability; and (ii) many of these proceedings involve matters of which the outcomes are
inherently difficult to predict. The Company has insurance policies covering potential losses where such coverage is cost effective.
On January 29, 2018, the Company received notice that the U.S. District Court for the Central District of California (the “Court”)
(Case No. 2:16-cv-08295-ODW) issued an order dismissing, with prejudice, a putative class-active lawsuit against the Company. The
dismissal relates to an action brought on November 8, 2016 by a purported shareholder of the Company against the Company and two
individual defendants: Eric Steen, the Company’s former Chief Executive Officer, President and Director; and Jonathan Foster, the
Company’s former Chief Financial Officer. The complaint asserted claims against all defendants under the antifraud provisions of the
federal securities laws and against Messrs. Steen and Foster as control persons. On June 19, 2017, the Company and all defendants filed a
Motion to Dismiss the amended complaint. On December 15, 2017, the Court dismissed the plaintiffs’ first amendment to the class action
compliant (“FAC”), with leave to amend. On December 20, 2017, the parties stipulated, and the Court extended, the plaintiffs time to
amend the FAC up to January 19, 2018. As of January 19, 2018, the plaintiff never filed an amended complaint and the Court dismissed
the lawsuit with prejudice on January 29, 2018. On February 28, 2018, the plaintiff filed a notice of appeal, on the motion to dismiss, to
the 9th Circuit Court of Appeals.
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.
9. Leases
The Company leases office space, service facility centers and equipment under non-cancelable capital and operating lease
arrangements. The Company periodically 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 3.6% as of
December 31, 2017. The leases for office space and service facility centers used in the Company’s logistics operations are operating
leases. In most cases, we expect our facility leases will be renewed or replaced by other leases in the ordinary course of business.
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Future minimum rental payments pursuant to leases that have an initial or remaining non-cancelable lease term in excess of one
year as of December 31, 2017 are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total require payments
Less amounts representing interest (3.5%)
Present value of minimum lease payments
Less current maturities
Long-term capital lease liability
Capital
Leases
Operating
Leases
Total
1,326 $
1,225
695
181
191
747
4,365 $
1,840
1,258
695
181
191
747
4,912
$
$
$
514 $
33
-
-
-
-
547 $
(9)
538
(505)
33
At December 31, 2017 and 2016, pump assets obtained under capital leases, had a cost of approximately $14.0 million and $13.9
million, respectively, and accumulated depreciation of $6.1 million and $4.2 million, respectively.
The Company had minimum future operating lease commitments, mainly related to its leased facilities. Related rental expense for
facilities and other equipment from third parties under operating leases approximated $1.0 million for the years ended December 31,
2017 and 2016, respectively.
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, restricted stock
awards, and stock appreciation rights (“SARs”) 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. SARs are granted at the fair market value on the date of grant and
generally become exercisable over a period of up to 1 year. Awards typically vest and are issued only if the participants remain employed
by the Company through the vesting date. Stock options, restricted stock awards and SARs 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.
In 2007, the Company adopted the 2007 Stock Incentive Plan (the “Plan”) providing for the issuance of a maximum of 2.0 million
shares of common stock in connection with the grant of stock-based or stock-denominated awards. On May 27, 2011, the Company’s
stockholders approved the reservation of an additional 3.0 million shares to be issued under the Plan. The Plan is no longer in effect other
than for stock options that were previously granted and remain outstanding. Options representing approximately 0.1 million remain
outstanding under this plan. Restricted stock awards currently outstanding under the Plan will remain outstanding in accordance with the
terms of that plan. 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, 2017, a total of less than 0.1 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.
The Company granted stock options under the 2014 Plan during the years ended December 31, 2017 and 2016, respectively.
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Table of Contents
Shares Forgone to Satisfy Minimum Statutory Withholdings
During the years ended December 31, 2017 and 2016, 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, 2017 and 2016, respectively, the Company received less than 0.1 million
shares from employees for tax withholding obligations.
Stock Appreciation Rights (“SARs”)
As of December 31, 2017, approximately 200,000 SARs were outstanding and could be settled in cash or units of the Company’s
common stock as follows:
(1) 100,000 SARs will vest and become exercisable during the period beginning on December 31, 2018, and ending on the
Expiration Date, if the shares have a closing public market price on the New York Stock Exchange of $3.00 or more for any period of
ten (10) consecutive trading days during the period beginning on January 1, 2018, and ending on December 31, 2018; and
(2) 100,000 SARs will vest and become exercisable during the period beginning on December 31, 2018, and ending on the
Expiration Date, if the Compensation Committee certifies that the Company achieved ninety percent (90%) or more of target on both
elements of the Company’s corporate objectives under the 2018 Employee Incentive Compensation Plan.
As of December 31, 2017, less than $0.1 million of expense was recorded for outstanding SARs.
Restricted Shares
During the years ended December 31, 2017 and 2016, respectively, the Company did not grant any restricted shares. Restricted
shares entitle the holder to receive, upon meeting certain vesting criteria, a specified number of shares of the Company’s common stock.
Stock-based compensation cost of restricted shares is measured by the market value of the Company’s common stock on the date of
grant. Compensation cost associated with certain restricted share grants also takes into account market conditions in its measurement.
The following table summarizes restricted share activity, excluding the Company’s employee stock purchase plan, for the years ended
December 31:
Unvested at December 31, 2015
Granted
Vested
Vested shares forgone to satisfy minimum statutory
withholding
Forfeitures
Unvested at December 31, 2016
Granted
Vested
Vested shares forgone to satisfy minimum statutory
withholding
Forfeitures
Unvested at December 31, 2017
Weighted
average
grant
date fair
value
Number of
shares
Aggregate
fair value
170,832 $
-
(64,182)
(16,484)
(32,833)
57,333
-
(15,730)
(20,811)
(8,333)
12,459 $
2.09
-
1.74 $
2.81 $
2.18
2.21
-
0.88 $
2.80 $
2.60
2.61
236,161
49,592
83,003
51,304
As of December 31, 2017, there was less than $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 2020.
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Table of Contents
Employee Stock Purchase Plan
In May 2014, the Company received approval from stockholders to adopt an employee stock purchase plan ("ESPP") effective
October 2014 (collectively the “Original ESPP”). Under the Original 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. On September 7, 2016, the Company received approval from
shareholders for an additional 350,000 shares. 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 election with all accumulated payroll deductions returned to the participant at the time of withdrawal. As of
December 31, 2017, there were 294,863 shares remaining available for future issuance. The following table summarizes the activity
relating to the Company’s ESPP program for the years ended December 31:
Compensation expense
Shares of stock sold to employees
Weighted average fair value per ESPP award
2017
2016
49,150 $
68,958
2.21 $
113,531
88,109
2.73
$
$
Stock Options
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.
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Table of Contents
During the year ended December 31, 2017, the Company granted 1.1 million stock options, of which 0.3 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, 2016, the Company granted 0.6 million stock options, none of which were issued to Board
members. The following table details the various stock option and inducement stock option activity for the years ended December 31:
Number
of
Authorized
Weighted-
Average
Exercise
2007 Plan (Options)
Shares
Price
Weighted-
Average
Remaining Aggregate
Contractual
Term (in
Years)
Intrinsic
Value
Outstanding at December 31, 2015
Granted
Exercised
Exercised shares forgone to satisfy minimum
statutory withholding
Cashless exercise
Forfeited
Outstanding at December 31, 2016
Granted
Exercised
Exercised shares forgone to satisfy minimum
statutory withholding
Cashless exercise
Forfeited
Outstanding at December 31, 2017
Exercisable at December 31, 2017
488,332 $
-
-
-
-
-
488,332 $
-
(25,037)
(13,245)
(71,718)
(245,000)
133,332 $
133,332 $
2.31
-
-
-
-
-
2.31
-
1.51
2.32
2.32
2.83
1.99
1.95
0.25 $
118,899
0.25 $
118,899
86,900
- $
40,716
Aggregate Intrinsic Value = Excess of market value over the option exercise price of all in-the-money stock options.
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Table of Contents
Number
of
Weighted-
Average
Exercise
Authorized
2014 Plan (Options)
Shares
Price
Weighted-
Average
Remaining Aggregate
Contractual
Term (in
Years)
Outstanding at December 31, 2015
Granted
Exercised
Exercised shares forgone to satisfy minimum
statutory withholding
Cashless exercise
Forfeited
Outstanding at December 31, 2016
Exercisable at December 31, 2016
Granted
Exercised
Exercised shares forgone to satisfy minimum
statutory withholding
Cashless exercise
Forfeited
Outstanding at December 31, 2017
Exercisable at December 31, 2017
970,000 $
600,000 $
(1,866)
(798)
(12,614)
(304,723)
1,249,999 $
616,597 $
1,087,500
-
-
-
(374,999)
1,962,500 $
955,868 $
62
2.79
2.76
2.69
2.69
2.69
2.70
2.80
2.87
2.09
-
-
-
2.61
2.44
2.69
3.58 $
4.60
4.26 $
3.13
3.18 $
Intrinsic
Value
222,200
-
-
Table of Contents
Number
of
Inducement
Options
Outstanding at December 31, 2015
Granted
Exercised
Forfeited
Outstanding at December 31, 2016
Granted
Exercised
Forfeited
Outstanding at December 31, 2017
Exercisable at December 31, 2017
Weighted-
Average
Exercise
Authorized
Shares ( 1 )
Price
Weighted-
Average
Remaining Aggregate
Contractual
Term (in
Years)
Intrinsic
Value
800,000 $
-
-
-
800,000 $
-
-
(800,000)
- $
- $
2.25
-
-
-
2.25
-
-
-
-
-
2.90 $
-
-
-
2.26 $
-
-
-
- $
616,000
-
-
-
240,000
-
-
-
-
Aggregate Intrinsic Value = Excess of market value over the option exercise price of all in-the-money stock options.
(1) Represents inducement stock options to purchase 800,000 shares of the Company's Common Stock to former
executive level managers.
The following table summarizes information about stock options outstanding at December 31, 2017:
Options Outstanding
Options Exercisable
2007 Plan (Options):
Range of Exercise Prices
$1.76 - $2.00
$2.01 - $3.00
Outstanding at December 31, 2017
2014 Plan (Options):
Range of Exercise Prices
$2.01 - $3.00
Outstanding at December 31, 2017
Number of
Shares
Outstanding
91,666
41,666
133,332
Weighted-
Average
Remaining
Contractual Life
-
-
- $
Weighted-
Average
Exercise Price
1.93
2.01
2.31
Number of
Shares
Exercisable
91,666
41,666
133,332 $
Weighted-
Average
Exercise Price
1.93
2.01
1.95
Options Outstanding
Options Exercisable
Weighted-
Average
Remaining
Contractual
Life
Weighted-
Average
Exercise Price
2.44
2.44
Number of
Shares
Exercisable
955,868 $
955,868 $
Weighted-
Average
Exercise Price
2.69
2.69
3.18 $
3.18 $
Number of
Shares
Outstanding
1,962,500
1,962,500
63
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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
2017
30% to 69%
0.69% to 2.05%
3.93
$2.09
2016
35%
0.69%
5.01
$2.76
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
Common Share Repurchase Program
2017
2016
$
$
48 $
634
682 $
151
311
462
On March 12, 2018, our Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 1
million shares of the Company’s outstanding stock. The repurchase program will be subject to market conditions, the periodic capital
needs of the Company’s operating activities, and the continued satisfaction of all covenants under the Company’s existing credit
agreement. Repurchases under the program may take place in the open market or in privately negotiated transactions, and may be made
under a Rule 10b5-1 plan. The repurchase program does not obligate the Company to repurchase shares and may be suspended,
terminated, or modified at any time. During the years ended December 31, 2017 and 2016, the Company did not repurchase any shares in
the open market.
11. Employee Benefit Plans
The Company has defined contribution plan in which the Company makes matching contributions for a certain percentage of
employee contributions. For the years ended December 31, 2017 and 2016, the Company’s matching contributions were $0.6 million and
$0.7 million, respectively. The Company does not provide other post-retirement or post-employment benefits to its employees.
64
Table of Contents
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
Management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) evaluated the
effectiveness of our disclosure controls and procedures as of December 31, 2017. The term “disclosure controls and procedures,” as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other
procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives. Based on this evaluation, management, including our CEO and CFO,
concluded as of December 31, 2017 that our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
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 (“US GAAP”).
Internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, is a process designed
by, or under the supervision of, the CEO and CFO and is effected by the Board of Directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting
purposes in accordance with US GAAP. Internal control over financial reporting includes those policies and procedures that:
● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with US GAAP, and that the receipts and expenditures of the Company are being made only in accordance
with appropriate authorization of management and the board of directors; and
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company’s assets that could have a material effect on the financial statements.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation under the criteria set forth in Internal Control — Integrated Framework (2013), our management concluded
that, as of December 31, 2017, our internal control over financial reporting was effective.
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, 2017 identified in connection with our evaluation that has materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information.
None.
65
Table of Contents
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required by Part III, Item 10 is incorporated herein by reference to the sections titled “Election of Directors”,
“Board of Directors and Committees of the Board of Directors”, “Executive Officers”, and “Security Ownership of certain Beneficial
Owners and Management” in our definitive proxy statement relating to the 2018 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 the sections titled “Advisory Vote Regarding
Executive Compensation”, and “Executive Compensation” in our definitive proxy statement relating to the 2018 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, 2017 with respect to compensation plans, including individual
compensation arrangements, under which our equity securities are authorized for issuance (in thousands):
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)) (2)
( c )
Plan Category:
Equity compensation plans
approved by security holders:
(1)
2007 Plan *
2014 Plan
Total
133,293 $
1,974,999
2,108,292 $
2.00
2.44
2.42
25,001
25,001
* 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 133k remain outstanding
under this plan.
(1) This amount includes less than 0.1 million shares of common stock issuable upon the vesting of certain time restricted stock
awards (the “Restricted Stock Awards”) and 2.0 million shares of common stock issuable upon the exercise of vested stock option
awards.
(2) Includes 2.0 million shares authorized as part of our 2014 Annual Meeting of Stockholders held in May 2014 less just over 1.9
million shares that were made available to certain employees, directors and others.
The other information required by Part III, Item 12 is incorporated herein by reference to the section titled “Security Ownership of
certain Beneficial Owners and Management” in our definitive proxy statement relating to the 2018 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 the sections titled “Election of Directors –
Director Independence” and “Certain Relationships and Related Party Transactions”, our definitive proxy statement relating to the 2018
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 the sections titled “Ratification of Independent
Registered Public Accounting Firm” and “Independent Auditor’s Fees” in our definitive proxy statement relating to the 2018 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.
66
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PART IV
Item 15.
Exhibits, Financial Statement Schedules
(a) The following documents are filed or furnished as part of this 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 set forth below. 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 Exhibit
Index as exhibits to this 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 Exhibit Index upon
payment by such stockholder of the Company's reasonable expenses in furnishing any such exhibit.
67
Table of Contents
Exhibit Index
Exhibit
Number
3.1
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).
3.2
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).
4.1
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).
10.1**
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).
10.2
10.3
10.4
10.5
10.6
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).
10.7
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).
10.8
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).
10.9
10.10
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 Amendment to Credit Agreement and Waiver, dated as of December 5, 2016, among the InfuSystem Holdings, Inc.,
and its direct and indirect subsidiaries, with JPMorgan Chase Bank, N.A. as Lender (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on December 9, 2016).
68
Table of Contents
Exhibit
Number
Description of Document
10.11**
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).
10.12**
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).
10.13**
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).
10.14**
10.15**
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).
10.16**
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).
10.17
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).
10.18
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).
10.19**
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).
10.20** 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.
10.21**
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. 333-195929) filed on May 13, 2014.
10.22**
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).
10.23**
Amendment to Employment Agreement by and between InfuSystem Holdings, Inc. and Jonathan P. Foster, effective March 8,
2016 (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K (File No. 1-35020) filed on
March 9, 2016).
10.24* ** Composite Copy of InfuSystem Holdings, Inc. Employee Stock Purchase Plan, as amended (incorporated by reference to
Exhibit 10.24 to the Company’s Annual Report on Form 10-K (File No. 1-35020) filed on March 22, 2017).
10.25**
Employment Agreement by and between InfuSystem Holdings, Inc. and Richard DiIorio, effective November 15, 2017
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on
November 20, 2017).
69
Table of Contents
Exhibit
Number
10.26**
Description of Document
Stock Option Award Agreement by and between InfuSystem Holdings, Inc. and Richard DiIorio, dated as of November 15,
2017 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on
November 20, 2017).
10.27**
Stock Appreciation Right Award Agreement by and between InfuSystem Holdings, Inc. and Richard DiIorio, dated as of
November 15, 2017 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 1-
35020) filed on November 20, 2017).
10.28
Second Amendment to Credit Agreement by and between InfuSystem Holdings, Inc., InfuSystem Holdings USA, Inc.,
InfuSystem, Inc., First Biomedical, Inc., IFC LLC and JPMorgan Chase Bank, N.A. as the Lender, dated March 22, 2017
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on March
23, 2017).
10.29
Limited Waiver by and between InfuSystem Holdings, Inc., InfuSystem Holdings USA, Inc., InfuSystem, Inc., First
Biomedical, Inc., IFC LLC and JPMorgan Chase Bank, N.A. as the Lender, dated May 10, 2017 (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on May 11, 2017).
10.30**
Separation Agreement and General Release by and between InfuSystem Holdings, Inc. and Eric Steen, dated June 7, 2017
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A (File No. 1-35020) filed on
June 14, 2017).
10.31
Third Amendment to Credit Agreement by and between InfuSystem Holdings, Inc., InfuSystem Holdings USA, Inc.,
InfuSystem, Inc., First Biomedical, Inc., IFC LLC and JPMorgan Chase Bank as the Lender, dated June 28, 2017
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on June
29, 2017).
10.32
Patent and Trademark Security Agreement by and between InfuSystem Holdings, Inc., InfuSystem Holdings USA, Inc.,
InfuSystem, Inc., First Biomedical, Inc. and JPMorgan Chase Bank, N.A. as the Lender, dated June 28, 2017 (incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 1-35020) filed on June 29, 2017).
14.1
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).
21.1*
Subsidiaries of InfuSystem Holdings, Inc.
23.1*
Consent of BDO USA, LLP
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended
31.2*
Certification of Principal Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended
32.1*
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
Certification of Principal Financial 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.
Item 16.
10-K Summary
None.
70
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 19, 2018
INFUSYSTEM HOLDINGS, INC.
By:
/s/ RICHARD DiIORIO
Richard DiIorio
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 19, 2018
Date: March 19, 2018
Date: March 19, 2018
Date: March 19, 2018
Date: March 19, 2018
Date: March 19, 2018
Date: March 19, 2018
Date: March 19, 2018
Date: March 19, 2018
By:
/s/ RICHARD DiIORIO
Richard DiIorio
Chief Executive Officer, President and Director
(Principal Executive Officer)
/s/ CHRISTOPHER DOWNS
Christopher Downs
Chief Financial Officer (Interim)
(Principal Financial Officer)
/s/ TRENT N. SMITH
Trent N. Smith
Chief Accounting Officer
(Principal Accounting Officer)
/s/ GREGG LEHMAN
Gregg Lehman
Executive Chairman of the Board
Director
/s/ DAVID DREYER
David Dreyer
Director
/s/ DARRELL MONTGOMERY
Darrell Montgomery
Director
/s/ CHRISTOPHER SANSON
Christopher Sansone
Director
/s/ SCOTT SHUDA
Scott Shuda
Director
/s/ JOSEPH WHITTERS
Joseph Whitters
Director
71
EXHIBIT 21.1
Name
Jurisdiction of Organization
Subsidiaries of the Registrant
InfuSystem, Inc.
California
First Biomedical, Inc.
Kansas
IFC, LLC
Delaware
InfuSystem Holdings USA, Inc.
Delaware
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, 333-195929, 333-195930 and 333-217090) of InfuSystem Holdings, Inc. and subsidiaries, of our report dated March 19, 2018,
relating to the consolidated financial statements, which appear in this Form 10-K.
EXHIBIT 23.1
/s/ BDO USA, LLP
Troy, Michigan
March 19, 2018
EXHIBIT 31.1
1.
2.
3.
4.
I, Richard DiIorio, certify that:
CERTIFICATION BY OFFICER
I have reviewed this Form 10-K for the year ended December 31, 2017 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 15d-15(f)) for the registrant and 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; and
5.
The registrant’s other certifying officer 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 19, 2018
By:
/s/ RICHARD DiIORIO
Richard DiIorio
Chief Executive Officer, President and Director
EXHIBIT 31.2
1.
2.
3.
4.
I, Christopher Downs, certify that:
CERTIFICATION BY OFFICER
I have reviewed this Form 10-K for the year ended December 31, 2017 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 15d-15(f)) for the registrant and 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; and
5.
The registrant’s other certifying officer 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 19, 2018
By:
/s/ CHRISTOPHER DOWNS
Christopher Downs
Chief Financial Officer (Interim)
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 Form 10-K for the year ended December 31, 2017 (the “Report”) 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 Report fairly presents, in all
material respects, the financial condition and results of operations of the Company.
Date: March 19, 2018
By:
/s/ RICHARD DiIORIO
Richard DiIorio
Chief Executive Officer, President and Director
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 Form 10-K for the year ended December 31, 2017 (the “Report”) 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 Report fairly presents, in all
material respects, the financial condition and results of operations of the Company.
Date: March 19, 2018
By:
/s/ CHRISTOPHER DOWNS
Christopher Downs
Chief Financial Officer (Interim)