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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 8
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 every Interactive Data File required to be submitted 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 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.
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 $60,990,253. 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 and persons who hold 10% or more of the outstanding common stock 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 8, 2019 was 19,577,024.
DOCUMENTS INCORPORATED BY REFERENCE
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 2019 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.
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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;
physicians’ acceptance of infusion pump therapy over alternative therapies and focus on early detection and diagnostics;
our dependence on our Medicare Suppler Number, which allows us to bill Medicare for services provided to Medicare patients;
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 the Center for Medicare and Medicaid Services
(“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 and
customer concessions;
our ability to comply with state licensure laws for durable medical equipment (“DME”) suppliers;
risks associated with our allowance for doubtful accounts and customer concessions;
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 agreement or future debt agreements;
general economic uncertainty;
changes in tax laws or challenges to our tax positions;
volatility in the market price of our stock;
the future price our stock may be negatively affected by not paying dividends;
potential dilution to current stockholders from the issuance of equity awards; and
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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 Ambulatory Infusion Made Easy®, Biomed Made Easy®, BlockPain Dashboard®,
EXPRESSTech® and Infusion Made Easy®. 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, InfuSystem, Inc., a California corporation (“ISI”), First Biomedical, Inc., a Kansas corporation (“First
Biomedical”) and IFC, LLC, a Delaware limited liability company.
Business Concept and Strategy
We are a leading provider of infusion pumps and related products and services for patients in the home, oncology clinics, ambulatory surgery
centers, and other sites of care from five locations in the United States and Canada. We provide our products and services to hospitals, oncology
practices and facilities and other alternate site health care providers. Headquartered in Madison Heights, Michigan, we deliver local, field-based
customer support as well as operate pump service and repair Centers of Excellence in Michigan, Kansas, California, Massachusetts 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 private oncology clinics, infusion
clinics and hospital outpatient oncology 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 goal of our business strategy is to expand into treatment of other cancers. In 2018, our Oncology Business approximated 60% of our total
revenues. In 2018, we generated approximately 34% of our total revenues from treatments for colorectal cancer and 26% 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 for pain management 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”) 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, InfuSystem Mobile, InfuBus or InfuConnect, Pump Portal and BlockPain
Dashboard®.
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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 included nearly 600 third-party payor networks for the fiscal
year ended December 31, 2018, an increase of 13% 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. and Canada; (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) five geographic locations in the U.S. and Canada that allow for
same day or next day delivery of pumps; 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
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 our 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 providing quality service and whether they are reimbursed for services
they provide. Simultaneously, CMS and private insurers are increasingly focused 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’ recognition of this
benefit is reflected in their relative reimbursement policies 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 may 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, (ii) facilities of our Medicare patients and (iii) patients 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 support our patients throughout the treatment process by providing patients with 24x7 service and support. InfuSystem Mobile provides
patients with secure, two-way communication with our clinical support team, the latest infusion safety technology, and infusion therapy
expertise in a convenient and easy-to-use app. Our clinical support team employs oncology, pain, 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, 2018, our rental fleet of pole-mounted and ambulatory pumps had a historical gross cost of $61.4 million,
up from $57.9 million at the end of 2017, and included approximately 120 makes and models of equipment dedicated to our rental services. These
pumps are available for daily, weekly, monthly or annual rental periods. As of both December 31, 2018 and 2017, 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 pain management services via 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 opioid pain medication. These services include our patient care call center
interaction offering support to patients and the review and collection of pain score patient outcome data for outpatient surgery centers using our
proprietary BlockPain Dashboard®.
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Information Technology
Our Information Technology (“IT”) department is focused on not only supporting our internal IT infrastructure needs, but also supports
InfuSystem Mobile as well as our electronic medical record technology (“EMR”) that allows medical facilities to use our infusion pumps and
services via our solutions such as EXPRESS and InfuConnect. This focus has enabled current billing information to be transferred to us from
participating 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 focus on IT solutions resulted in the development of EXPRESS, a product powered
by our InfuBus data integration platform, and provides for paperless delivery of the appropriate information for InfuSystem to bill payors that:
● eliminates all paper;
● provides an enhanced visibility as a result of real time status and reporting;
● reduces risk of error;
● automates treatment logs, pump assignments, tracking and physician’s orders;
● provides a secure scanner for easy pump assignment to patients; and
● removes interruptions from physician practices’ daily schedules, and standardizes data flow for clinics and hospitals with multiple
locations
In 2018 and 2017, we capitalized less than $0.1 million and $0.2 million, respectively, of IT projects as we successfully leveraged prior
capitalized investments.
Relationships with Physician Offices
As of December 31, 2018, we had business relationships with clinical oncologists in over 1,800 outpatient oncology clinics. Although this
represents a substantial number of the oncologists in the United States, we believe that 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 following the overall healthcare practices trend to consolidate. However, as of December 31,
2018, we had gained more facilities than we had lost. We expect this trend to continue for the foreseeable future.
Employees
As of December 31, 2018, we had 251 employees, including 237 full-time employees and 14 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. and Moog Medical Devices Group each supply more than 10% of the ambulatory pumps purchased
by us. The Company has a supply agreement in place with each of these suppliers. Certain “spot” purchases are made on the open market subject to
individual negotiation.
Seasonality
Our business rental activity is not subject to seasonality. Revenues from this activity, net of bad debt, may be seasonal due to the impact of co-
pays and deductibles for patients’ insurance that traditionally reset each January. This has been further impacted by changes in the insurance industry
as it responds to increased government regulation. Also, rental customers tend to make buy versus rent decisions late in the year as customer capital
budgets are being finalized, impacting sales revenue in the second half of the year, predominantly in the fourth quarter. Furthermore, as the
Company’s liquidity has improved, opportunistic pump purchases are made from time to time. These opportunistic pump purchases also allow for
opportunistic pump sales, which could be material. The timing of such purchases and sales vary within the course of a year.
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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, 2018, we had contracts with nearly 600 third-party payor networks, an increase of 13% over the prior year period.
Material terms of contracts with third-party payor organizations are typically a pre-negotiated fee schedule rate or a then-current proprietary fee
schedule rate for equipment and supplies 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 2018 and 2017, our largest contracted payor was a national payor which
accounted for approximately 7% and 6% of our net revenues from our third-party payor Oncology Business for 2018 and 2017, respectively, and
approximately 4% of our total net revenues for each of 2018 and 2017.
We also contract with various other third-party payor organizations, Medicaid, commercial Medicare replacement plans, self-insured plans,
facilities of our Medicare patients and numerous other insurance carriers. Other than the payor noted above, no other single payor represented more
than 7% of third-party payor net revenue.
Competitors
We believe that our competition is primarily comprised of national, regional, and hospital-owned DME providers, physician providers and
home care infusion providers and the competitive products and services they offer. 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.
● National DME Providers: Other national providers with offerings similar to us. These products and service offerings include, but are not
limited to, third-party reimbursement, direct rental and sale of infusion electronic and disposal pumps and related products and services for
patients in the home, oncology clinics, ambulatory surgery centers, and other sites of care.
● 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.
● 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.
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Regulation of Our Business
Our business is subject to certain regulations. Specifically, as a registered Medicare supplier of DME and related supplies, we must comply
with supplier standards established by CMS regulating Medicare suppliers of Durable Medical Equipment, Prosthetics, Orthotics and Supplies
(“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 protected health information. Under HIPAA, we must provide patients access to certain records and
must notify patients of our use of protected health 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
Credit Agreement
On February 5, 2019, we entered into the fifth amendment to our credit agreement (the “Fifth Amendment”) with JPMorgan Chase Bank,
N.A., as lender (the “Lender”), which amends the Credit Agreement between the Lender and us, entered into on March 23, 2015 (as amended, the
“Credit Agreement”). Capitalized terms used but not otherwise defined herein have the meaning set forth in the Fifth Amendment. The Fifth
Amendment amended the Credit Agreement to, among other things:
● increase the Capital Expenditure Loan Commitment to $8,000,000;
● increase the Revolving Commitment to $11,000,000;
● revise the definition of earnings before interest taxes, depreciation and amortization to include the following additional add-back
adjustments: (i) fees and charges in an aggregate amount not to exceed $250,000 incurred prior to December 31, 2019 relating to the
Company's integration of business previously served by another major provider of electronic oncology pumps; and (ii) lease buyout
expenses not to exceed: (x) $100,000 incurred on or prior to December 31, 2018; and (y) $180,000 incurred after December 31, 2018 but
on or prior to March 31, 2019;
● revise the definition of Fixed Charge Coverage Ratio to provide that, in determining such ratio for the 2019 fiscal year, the unfinanced
portion of Capital Expenditures will be calculated as the unfinanced portion of Capital Expenditures minus up to $7,000,000 in the
unfinanced portion of Capital Expenditures made from cash on hand;
● revise Section 6.01(e) of the Credit Agreement, which governs the amount of permitted indebtedness to finance the acquisition,
construction or improvement of any fixed or capital assets, to limit such indebtedness to the sum of: (i) $33,096.05 (the approximate
aggregate outstanding principal amount of such indebtedness at December 31, 2018); plus (ii) an additional amount of $2,025,000
incurred after December 31, 2018, as such amount may be reduced from time to time; and
● revise Section 6.12(a) of the Credit Agreement, which governs the permitted Leverage Ratio, to provide that the Company will not
permit the Leverage Ratio to exceed: (i) 3.25 to 1.0 at any time on or after December 31, 2018 but prior to March 31, 2019, (ii) 3.75 to
1.0 at any time on or after March 31, 2019 but prior to June 30, 2019, (iii) 3.50 to 1.0 at any time on or after June 30, 2019 but prior to
September 30, 2019, or (iv) 3.25 to 1.00 at any time on or after September 30, 2019.
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
affects Medicare payments. For the years ended December 31, 2018 and 2017, the impact on our net revenues was approximately $0.1 million,
respectively. 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, 2018, we had contracts with nearly 600 third-party payor networks, an increase of 13% over the prior year period.
Material terms of contracts with third-party payor organizations are typically a pre-negotiated fee schedule rate or a then-current proprietary fee
schedule rate for equipment and supplies 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 2018 and 2017, our largest contracted payor was a national payor which
accounted for approximately 7% and 6% of our net revenues from our third-party payor Oncology Business for 2018 and 2017, respectively, and
approximately 4% of our total net revenues for each of 2018 and 2017.
We also contract with various other third-party payor organizations, Medicaid, commercial Medicare replacement plans, self-insured plans,
facilities of our Medicare patients and numerous other insurance carriers. Other than the payor noted above, no other single payor represented more
than 7% 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, it 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 have the ability 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. Without such 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 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.
We rely on independent suppliers for our products. Any delay or disruption in the supply of products, particularly our supply of electronic
ambulatory pumps, may negatively impact our operations.
Our infusion pumps are obtained from outside vendors. The majority of our new pumps are electronic infusion pumps which are supplied to
us by two major suppliers: Smiths Medical, Inc. and Moog Medical Devices Group. The loss or disruption of our relationships with outside vendors,
including pump, parts, or supply recall or pump end-of-life announcements or availability of related proprietary consumable supplies, could subject
us to substantial delays in the delivery of pumps or services provided to customers. Significant delays in the delivery or service of pumps or related
proprietary consumable supplies 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.
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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 Medicaid program and our registration in the Medicare program, 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.
Cybersecurity 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 cybersecurity 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 cybersecurity 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 or patient
health information subject to HIPAA confidentiality requirements. 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.
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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, communicate with 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. 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, billing center operating procedures and proper staffing levels. 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 staffing, 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 and customer concessions 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
payor 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 and customer concessions.
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 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, it could materially and adversely impact our business, financial condition, results of operations and cash flows.
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Our growth strategy includes expanding into treatment for cancers other than colorectal cancer. 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 cancers. 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 nearly 600 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, clinical, customer service and sales and marketing personnel. Competition for these
individuals is intense, more so in the current labor market. 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;
● 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 ability to operate
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, 2018, we were in compliance
with the covenants contained in the Credit Agreement, 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 continues to grow, there is uncertainty surrounding the duration and strength of the U.S. and global economy 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.
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Changes in tax laws or challenges to our tax positions could adversely affect our business, results of operations and financial condition.
We are subject to income taxes as well as non-income based taxes in federal and various state jurisdictions. Changes in tax laws, including, for
example, those resulting from the U.S. 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 rates in 2019 and thereafter and otherwise adversely
affect our tax positions and/or our tax liabilities. Although our accounting for the effects of the enactment of the Tax Act is now complete, we may
become subject to additional regulations. The full impact of the Tax Act on us may change significantly as regulations, interpretations and rulings
relating to the Tax Act are issued and additional changes in U.S. federal and state tax laws are made in the future. There can be no assurance that our
effective tax rates, tax payments, tax credits or incentives will not be adversely affected by these or other initiatives.
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 awards 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 awards (“RSUs”) 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, 2018, options to purchase 2.2 million shares of common stock were outstanding, at a weighted average exercise price of
$2.67 per share, of which 1.1 million were exercisable at a weighted average exercise price of $2.52 per share. In addition, RSUs of 0.1 million
shares, with a weighted average grant date fair value of $1.42 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 net operating loss
carryforwards.
During the fourth quarter of 2018, 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 $34.8 million will begin to expire in various years beginning in
2028, $3.4 million of our federal net operating loss carryforward has an indefinite life. 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. At December 31, 2018, we continue to
carry a full valuation allowance for tax benefits of operating loss and tax credit carryforwards, which is described under the heading “Income Taxes”
in Note 8 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
Canton
Santa Fe Springs
Mississauga
State/Country
Michigan
Kansas
Massachusetts
California
Ontario, Canada
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.
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.
Our common stock is listed on the NYSE American under the symbol INFU.
Holders of Common Equity
As of March 8, 2019, we had approximately 310 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.
Common Share Repurchase Program
On March 12, 2018, our Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to one million
shares of the Company’s outstanding common stock (the “Repurchase Program”). Repurchases under 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 December 31, 2018, we had availability of $9.2 million under our revolving credit facility (the
“Revolver”) in our Credit Agreement, of which $8.4 million could be used to fund stock repurchases, subject to the restrictions and limitations of our
Credit Agreement. The repurchase program does not obligate the Company to repurchase shares and may be suspended, terminated, or modified at
any time. 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 Company has repurchased approximately 0.5 million shares under the Repurchase Program through December 31, 2018 in addition to the
approximately 2.1 million shares repurchased under the First Stock Purchase Agreement (as defined below) and approximately 0.7 million shares
repurchased under the Second Stock Purchase Agreement (as defined below). This total of approximately 3.3 million shares represents a 15%
reduction in the shares outstanding at December 31, 2017. During the year ended December 31, 2017, the Company did not repurchase any shares in
the open market.
Stock Purchase and Settlement Agreement and Stock Purchase Agreement
On July 31, 2018, the Company and an individual shareholder and his affiliates (the “Sellers”) entered into a stock purchase and settlement
agreement (the “First Stock Purchase Agreement”) for the purchase by the Company of the approximately 2.2 million shares of the Company's
common stock cumulatively owned by the Sellers for $3.10 per share, equaling approximately $6.7 million in total. The First Stock Purchase
Agreement contains customary representations and warranties, an agreement by the Sellers not to purchase any shares of the Company's common
stock for three years following closing, a mutual non-disparagement agreement and a mutual release of claims between the Company and the Sellers.
The closing of the stock purchases under the First Stock Purchase Agreement occurred in full during the third quarter of 2018 with respect to
approximately 2.1 million shares, and the Sellers sold approximately 36,000 of the remaining shares to third parties on the open market. The
Company funded the purchase price for the shares with the proceeds from the Term Loan C described below under “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Long-Term Debt Activities”.
On July 31, 2018, the Company and a shareholder entered into a stock purchase agreement (the “Second Stock Purchase Agreement”) for the
purchase by the Company of approximately 0.7 million shares of the Company's common stock owned by a shareholder for $3.10 per share, equaling
approximately $2.1 million in total. The Second Stock Purchase Agreement contains customary representations and warranties, and the closing of the
stock purchases under the stock purchase agreement occurred during the third quarter of 2018. The Company funded the purchase price for the
shares with cash-on-hand and the proceeds from the Term Loan C described below under “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Liquidity and Capital Resources – Long-Term Debt Activities”.
Shares Forgone to Satisfy Minimum Statutory Withholdings
During the years ended December 31, 2018 and 2017, 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 both the years ended
December 31, 2018 and 2017, we received less than 0.1 million shares from employees for tax withholding obligations.
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During the year ended December 31, 2018, 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 as
Part of
Publicly
Announced
Plans or
Programs
N/A
N/A
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
2,134 $
2,134 $
2.20
2.20
Maximum Number
(or Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plans or
Programs
N/A
N/A
Period
March 12, 2018
Total
During the year ended December 31, 2017, 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 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
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
Period
February 6, 2017
April 19, 2017
May 3, 2017
Total
Unregistered Sales of Equity Securities and Use of Proceeds
The table below provides information with respect to common stock purchases by the Company during the year ended December 31, 2018:
Period
March 12, 2018 - March 31, 2018
April 1, 2018 - April 30, 2018
May 1, 2018 - May 31, 2018
June 1, 2018 - June 30, 2018
July 1, 2018 - July 31, 2018
August 1, 2018 - August 31, 2018
September 1, 2018 - September 30, 2018
October 1, 2018 - October 31, 2018
November 1, 2018 - November 30, 2018
Total
Total Number of
Shares
Purchased (a)
Average Price
Paid per Share
Total Number of
Shares
Purchased as Part of
Publicly Announced
Plans or Programs
(b)
Approximate Dollar Value
of Shares That May Yet
Be Purchased Under the
Plans or Programs (b)
32,264 $
39,878
23,400
285,000
31,303
2,834,689
41,699
25,391
7,205
3,320,829 $
2.57
2.74
2.91
3.13
3.20
3.10
3.31
3.22
3.07
3.10
32,264 $
39,878
23,400
285,000
31,303
48,119
41,699
25,391
7,205
534,259
2,417,012
2,307,857
2,239,717
1,348,717
1,248,675
1,097,661
959,684
877,822
870,617
(a) In addition to the 534,259 shares repurchased as part of the Repurchase Program during the year ended December 31, 2018, the Company
also repurchased approximately 2,100,000 and 700,000 shares as part of the First and Second Stock Purchase Agreements, respectively,
which are included in the total number of shares purchased in the table above.
(b) On March 12, 2018, our Board of Directors authorized a Repurchase Program that allowed the Company to repurchase up to the lesser of
1,000,000 shares or $2,500,000 of our common stock through December 31, 2018. The repurchases were to be effectuated in the open
market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan. During the year ended December 31, 2018, we
repurchased 534,259 shares for a total consideration of $1,644,333 under the program.
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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 five locations in the United States and Canada. We provide our products and services to hospitals, oncology
practices and facilities and other alternate site health care providers. Headquartered in Madison Heights, Michigan, we deliver local, field-based
customer support, and also operate pump service and repair Centers of Excellence in Michigan, Kansas, California, Massachusetts 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.
Our payor environment is in a constant state of change. 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
revenues, which include a reduction for 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 our 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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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 and our order-to-
cash process, gross margin, operating margin, operating expenses, profitability, 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, 2018 compared to the year ended December 31, 2017
Net Revenues – Net revenues for the year ended December 31, 2018 were $67.1 million, a decrease of $4.0 million, or 5.5%, compared to
the prior year’s net revenues of $71.1 million. Net revenues for the fiscal year ended December 31, 2018 were impacted by a $6.3 million change in
recording of bad debt expense (“Bad Debt”) as part of net revenue from rentals related to the implementation of Accounting Standards Codification
Topic 606: Revenue from Contracts with Customers (“ASC 606”). Absent the implementation of ASC 606, total net revenues for the fiscal year
ended December 31, 2018 would have been $73.5 million compared to $71.1 million in the same prior year period, an increase of $2.4 million, or
3.3%. This increase was due to increases in rental revenues, absent the implementation of ASC 606, of $1.8 million and product sales of $0.6 million.
Rental Revenues – Decreased $4.5 million, or 7.4%, compared to the prior year. Absent the implementation of ASC 606, net
revenues from rentals for the year ended December 31, 2018 would have increased $1.8 million, or 3.0%, compared to the same prior year period.
This increase was primarily attributable to the Company’s ongoing program to expand its number of third-party payors under contract, thereby
increasing our net reimbursement rate, and the Company’s efforts to reduce claims rejected by third-party payors. This is also evidenced by our
increase in third-party payor networks to nearly 600, or a 13% increase, compared to the prior year. We view our payor environment as in a constant
state of change. 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.
Product Sales - Increased $0.6 million, or 5.6%, compared to the prior year. This increase was largely due to an
increase of $1.0 million in the sales of disposable products and a $0.2 million increase in the sales of accessories, which was partially offset by a
decrease of $0.6 million in the sales of pumps.
Gross Profit – Gross profit for the year ended December 31, 2018 decreased $4.3 million, or 10.0%, from $43.4 million for the year ended
December 31, 2017 to $39.0 million. Gross profit as a percentage of net revenues decreased to 58.1% compared to the prior year at 61.0%. Gross
profit for the year ended December 31, 2018 was impacted by a $6.3 million change in recording bad debt as part of net revenue from rentals related
to the implementation of ASC 606. Absent the implementation of ASC 606, gross profit for the year ended December 31, 2018 would have increased
$2.0 million, or 4.6%, compared to the same prior year period. This increase was driven mainly by the increase in net revenues, absent the
implementation of ASC 606, as well as an improvement in profitability over the prior year. Absent the implementation of ASC 606, gross profit, as a
percentage of revenues, for the year ended December 31, 2018 would have been 61.7%, an increase of 71 basis points from 61.0% in the same prior
year period. Profitability was helped by lower incremental costs for pumps sold, service costs and equipment depreciation expense.
Third-party Payor Provision for Doubtful Accounts – Due to the implementation of ASC 606, the Company did not record any Bad Debt for
the year ended December 31, 2018 compared to $5.6 million for the same prior year period. Absent the implementation of ASC 606, Bad Debt for
the year ended December 31, 2018 would have been $6.3 million, an increase of $0.7 million, or 12.5%, compared to the same prior year period.
This increase is mainly due to an increased number of self-pay payor billings in 2018 as compared to 2017, as the self-pay payors historically have
higher rates of Bad Debt in comparison to our third-party payors. However, this increase was partially offset by the Company’s increased number of
third-party payor contracts, which have increased to nearly 600, or a 13% increase, 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.
23
Table of Contents
Amortization of Intangible Assets – Decreased $0.9 million compared to the prior year. This decrease was attributable to the impairment of
some internally-developed, internal-use software assets that was recorded in the fourth quarter of 2017; therefore, the related amortization of those
projects no longer existed during 2018.
Asset Impairment Charges – Decreased $1.0 million compared to the prior year. This decrease was due to some internally-developed,
internal-use software projects that were determined by management to be obsolete or no longer in use and impaired in 2017.
Selling and Marketing Expenses – Selling and marketing expenses for the year ended December 31, 2018 were $9.1 million, a decrease of
$0.7 million, or 6.9%, compared to the year ended December 31, 2017 of $9.8 million. Selling and marketing expenses as a percentage of net
revenues, absent the implementation of ASC 606, decreased to 12% compared to the prior year at 14%. The decrease of $0.7 million was largely due
to a decrease in salaries and related expenses of $0.8 million, which was partially offset by an increase in travel and related expenses 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, overall travel and entertainment and other miscellaneous expenses.
General and Administrative Expenses – General and administrative (“G&A”) expenses for the year ended December 31, 2018 were $24.8
million, a decrease of 1.5% from $25.2 million for the year ended December 31, 2017. The decrease in general and administrative expenses versus
the comparable prior year period was primarily due to decreases in outside services expense of $1.2 million and capital lease retirement charges of
$0.3 million, partially offset by an increase in employee compensation-related expenses of $0.8 million, legal and shareholder costs of $0.2 million
and corporate insurance expense of $0.1 million. The increase in employee compensation related expenses was primarily attributable to a $0.7
million increase in salaries and related expenses, a $0.4 million net increase in the incentive bonus accrual and $0.3 million of stock compensation
expense. These increases were partially offset by a $0.6 million decrease in severance expenses. G&A expenses during the years ended December 31,
2018 and 2017 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.
The following table includes additional details regarding our G&A expenses for the years ended December 31 (in thousands):
2018
2017
Difference
Stock compensation costs
Restatement costs
Early termination fees for capital leases
Contested proxy and other shareholder costs
Management reorganization/transition costs
Exited facility costs
Certain other non-recurring costs (a)
Total
G&A - other than one-time costs & stock based
compensation
G&A - Total
$
$
957 $
-
-
251
250
44
476
1,978
682 $
28
292
200
737
-
160
2,099
22,869
24,847 $
23,127
25,226 $
275
(28)
(292)
51
(487)
44
316
(121)
(258)
(379)
(a) Strategic costs – For 2018, we recorded expenses associated with other strategic opportunity costs of $397,000 and revenue cycle
management restructuring initiatives of $79,000. For 2017, we recorded expenses associated with other strategic opportunity costs of
$160,000.
Other Income and Expenses - During the year ended December 31, 2018, we incurred interest expense of $1.4 million, an increase of $0.1
million, or 6.6%, compared to December 31, 2017. This is a net result of the new term debt that was entered into during 2018, partially offset by
payments of the previous term debt as well as higher interest rates in 2018 as compared to 2017.
24
Table of Contents
Provision for Income Taxes - During the year ended December 31, 2018, we recorded a provision for income taxes of $0.1 million
compared to a provision for income taxes of $15.5 million for the year ended December 31, 2017. The effective tax rate for the year ended
December 31, 2018 was negative 5.0% compared to a negative 293.9% for the year ended December 31, 2017. The significant reduction in the
provision in 2018 was due to recording a $5.6 million decrease in net deferred tax assets in 2017 in connection with the 2017 Tax Cuts and Jobs Act
reduction 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 8 to our Consolidated Financial
Statements included in this Form 10-K.
Inflation - Management believes that there has been no material effect on our results of operations or financial condition as a result of
inflation or changing prices of our ambulatory infusion pumps during the period from January 1, 2017 through December 31, 2018.
Liquidity and Capital Resources
Overview:
We finance our operations and capital expenditures with internally-generated cash from operations and borrowings under our Credit
Agreement. As of December 31, 2018, we had cash and cash equivalents of $4.3 million and $9.2 million of availability on our Revolver compared to
$3.5 million of cash and cash equivalents and $9.2 million of availability on our Revolver at December 31, 2017. 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, share repurchases and potential acquisitions. We believe we have adequate
sources of liquidity and funding available for at least the next year, however, there are a number of factors that may negatively impact our available
sources of funds. The amount of cash generated from operations will be dependent upon factors such as the successful execution of our business plan
and general economic conditions.
Long-Term Debt Activities:
On July 31, 2018, the Company entered into the fourth amendment to its Credit Agreement (“Fourth Amendment”). The Fourth Amendment
allowed for, among other things, a loan to the Company for the repurchase of up to approximately 2.8 million shares of capital stock from an
individual shareholder, his affiliates, and a second shareholder, in an aggregate amount not to exceed $8.6 million (“Term Loan C”); and allows for
capital expenditure financing to the Company for the sole purpose of purchasing medical equipment in an aggregate amount not to exceed $6.4
million (the “Equipment Line”). There are no principal payments due on the Equipment Line until December 31, 2019 at which time it will convert
to an additional term loan. The Fourth Amendment also made changes to certain covenants, specifically, to exclude borrowings used to fund the
stock repurchases referenced above from the definition of fixed charges, as defined by the Credit Agreement, and to reduce the ratio of earnings
before depreciation, income taxes and amortization to fixed charges from 1.25:1.0 to 1.15:1.0. In addition, the Fourth Amendment eliminates the net
worth covenant and the excess cash flow provisions while modifying the quarterly principal payment amounts. Term Loan C matures on December
6, 2021, and the Equipment Line matures on December 31, 2024.
As of December 31, 2018, the Company was in compliance with all debt-related covenants under the Credit Agreement.
As of December 31, 2018, our term loans and Equipment Line under the Credit Agreement had balances of $31.3 million and $2.6 million,
respectively. The availability under the Revolver 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,
2018
2017
$
$
9,973 $
-
(750)
(70)
9,153 $
10,000
-
(750)
(45)
9,205
25
Table of Contents
As of December 31, 2018, interest on the loans as part of the Credit Agreement is payable at our option as a (i) Eurodollar Loan, which bears
interest at a per annum rate equal to the applicable 30-day London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 2.00% to 3.00% or
(ii) CB Floating Rate (“CBFR”) Loan, which bears interest at a per annum rate equal to the greater of (a) the lender’s prime rate or (b) LIBOR plus
2.50%, in each case, plus a margin ranging from -1.00% to 0.25%. The actual Eurodollar Loan rate at December 31, 2018 was 5.13% (LIBOR of
2.38% plus 2.75%). The actual CBFR Loan rate at December 31, 2018 was 5.50% (lender’s prime rate of 5.50%).
Subsequent to the end of 2018, we entered into a fifth amendment to the Credit Agreement as discussed in Note 13 in the Notes to the
Consolidated Financial Statements included in this Form 10-K.
Share Repurchases
As described previously, on March 12, 2018, our Board of Directors approved the Repurchase Program. Additionally, on July 31, 2018, the
Company and the Sellers entered into the First Stock Purchase Agreement and, also on July 31, 2018, the Company and a shareholder entered the
Second Stock Purchase Agreement.
Cash Flows:
Operating Cash Flow. Net cash provided by operating activities for the year ended December 31, 2018 was $11.4 million compared to $7.7
million for the year ended December 31, 2017. This $3.7 million, or 47.6%, increase was primarily attributable to the cash flow effect of the
operating improvement resulting in a reduced net loss and profitability, net of non-cash adjustments, for the year ended December 31, 2018
compared to the year ended December 31, 2017 and improved working capital, primarily decreased accounts receivable and increased accounts
payable and other liabilities partially offset by increased inventories.
Investing Cash Flow. Net cash used in investing activities was $5.0 million for the year ended December 31, 2018 compared to cash provided
by investing activities of $0.9 million for the year ended December 31, 2017. The increase in net cash used was due to a $5.4 million increase in cash
used to purchase medical equipment and a $0.5 million decrease in cash proceeds from the sale of medical equipment.
Financing Cash Flow. Net cash used in financing activities for the year ended December 31, 2018 was $5.6 million compared to cash used of
$8.6 million for the year ended December 31, 2017. The decrease in net cash used was primarily attributable to our decision to pay down our term
loan debt in the first half of 2018 and the repurchase of common stock, partially offset by additional borrowings under the credit facility compared
with our cash proceeds from borrowings under our revolving credit facility in 2017 and the decision to pay down a majority of our capital lease
obligations during the first half of 2017.
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 3.5% as of December 31, 2018.
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.
26
Table of Contents
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; 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 judgments 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
On January 1, 2018 the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 606 - Revenue from Contracts with Customers (“ASC 606”) and concluded that, consistent with prior reporting, the Company has two separate
revenue streams: rentals and product sales. The adoption of ASC 606 requires certain customer concessions associated with rental revenues reported
in accordance with ASC 605 - Revenue Recognition, previously reported in selling, general and administrative expenses as “provision for doubtful
accounts” to now be recorded as a reduction of net rental revenues as they are considered price concessions of the transaction price under the new
revenue guidance. ASC 606 was adopted on a modified retrospective method.
ASC 606 stipulates revenue recognition at the time and in an amount that reflects the consideration expected to be received for the
performance obligations that have been provided. ASC 606 defines contracts as written, oral and through customary business practice. Under this
definition, the Company considers contracts to be created at the time that the rental service is authorized or an order to purchase product is agreed
upon regardless of whether or not there is a written contract.
The Company has two separate and distinct performance obligations offered to its customers: a rental service performance obligation or a
product sale performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is
defined as the unit of account for revenue recognition under ASC 606. These performance obligations are related to separate revenue streams and at
no point are they combined into a single transaction. Sources of net revenues include commercial insurance payors, government insurance payors,
medical facilities and patients.
The Company generates the majority of its revenue from the rental of infusion pumps to its customers and a minority of its revenue from
product sales. For the rental service performance obligation, revenue is based on its standalone price, determined by using reimbursement rates
established by third-party payor or other contracts. Revenue is recognized in the period in which the related performance obligation is satisfied,
which is typically at the point in time that a patient concludes a treatment, or in certain arrangements, based on the number of pumps that a facility
has onsite. The Company’s revenues related to product sales is recognized at the time that control of the product has been transferred to the
customer; either at the time the product is shipped or the time the product has been received by the customer, depending on the delivery terms. The
Company does not commit to long-term contracts to sell customers a certain minimum quantity of products.
The Company employs certain significant judgments to estimate the dollar amount of revenue, and related concessions, allocated to the rental
service and sale of products. These judgments include, among others, the estimation of variable consideration. Variable consideration, specifically
related to the Company’s third-party payor rental revenues, is estimated as implied price concessions resulting from differences between the rates
charged for services performed and the expected reimbursements for commercial payors and other implied customer concessions. The estimates for
variable consideration are based on historical collections with similar payors, aged accounts receivable by payor class and payor correspondence
using the portfolio approach, which provide a reasonable basis for estimating the variable portion of a transaction. The Company doesn’t believe it is
probable that a significant reversal of revenue will occur in future periods because (i) there is no significant uncertainty about the amount of
considerations that are expected to be collected based on collection history and (ii) the large number of sufficiently similar contracts allows the
Company to adequately estimate the component of variable consideration.
Net revenues are adjusted when changes in estimates of variable consideration occur. Changes in estimates typically arise as a result of new
information obtained, such as actual payment receipt or denial, or pricing adjustments by payors. Subsequent changes to estimates of transaction
prices are recorded as adjustments to net revenue in the period of the change. Subsequent changes that are determined to be the result of an adverse
change in the payors ability to pay are recorded as an allowance for doubtful accounts.
27
Table of Contents
Accounts Receivable and Allowance for Doubtful Accounts
Amounts billed that have not yet been collected that also meet the conditions for unconditional right to payment are presented as accounts
receivable. Accounts receivable related to rental service and delivery of products are reported at their estimated transaction prices, inclusive of
adjustments for variable consideration, based on the amounts expected to be collected from payors. The Company writes off accounts receivable
once collection efforts have been exhausted and an account is deemed to be uncollectible. Subsequent to the adoption of ASC 606, an allowance for
doubtful accounts is established only as a result of an adverse change in the Company’s payors’ ability to pay outstanding billings. The allowance for
doubtful accounts was not material as of December 31, 2018.
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
carryforwards. 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.
To make this assessment, we consider the historical and projected future taxable income or loss in different tax jurisdictions and we review our tax
planning strategies. We have recorded a full valuation allowance against the deferred tax assets as realization has been determined to be uncertain.
Since future financial results may differ from previous estimates, periodic adjustments to our valuation allowances may be necessary.
Provisions for federal, state and foreign taxes are calculated based on reported pre-tax earnings based on current tax law and include the
cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Certain items of income
and expense are recognized in different time periods for financial reporting than for income tax purposes; thus, such provisions differ from the
amounts currently receivable or payable.
We estimate the impact of uncertain income tax positions on the income tax return. These estimates impact income taxes receivable, accounts
payable and accrued liabilities on the balance sheet and provision for income taxes on the income statement. We follow a two-step approach for
recognizing uncertain tax positions. First, management evaluates the tax position for recognition by determining if the weight of available evidence
indicates it is more-likely-than-not that the position will be sustained upon examination. Second, for positions that are determined to be 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.
Long-lived 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 of all indefinite-lived intangible assets in October 2018 and determined that the fair value of all
the assets was greater than the carrying value, resulting in no impairment of indefinite-lived assets.
In 2017, we assessed the impairment indicators related to our internally-developed, internal-use software, specifically looking at the
effectiveness and useful lives of each project and sub-project and concluded that impairment indicators were present. In December 2017, we
performed an impairment analysis which resulted in an impairment of approximately $1.0 million in 2017. In 2018, we re-assessed the impairment
indicators and found none to be present.
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.
28
Table of Contents
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, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018 and 2017
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017
Notes to Consolidated Financial Statements
29
Page
30
31
32
33
34
36
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. (the “Company”) and subsidiaries as of December 31,
2018 and 2017, 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, 2018 and 2017, 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.
Change in Accounting Principle Related to Revenue Recognition
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition for the
year ended December 31, 2018 due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.
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 22, 2019
30
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Table of Contents
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Medical equipment for sale or rental
Medical equipment in rental service, net of accumulated depreciation
Property & equipment, net of accumulated depreciation
Intangible assets, net
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 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 23,095,513 and
19,577,024, as of December 31, 2018, respectively, and issued and outstanding 22,978,398 and 22,780,738,
as of December 31, 2017, respectively.
Additional paid-in capital
Retained deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
31
December 31, December 31,
2018
2017
$
$
$
$
$
4,318 $
9,593
2,254
1,372
17,537
1,601
23,488
1,445
19,865
137
64,073 $
7,091 $
33
4,903
2,763
14,790
28,842
-
-
-
43,632 $
3,469
11,284
1,764
1,150
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
37,928
-
-
2
83,167
(62,728)
20,441
64,073 $
2
92,584
(61,633)
30,953
68,881
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 disposals
Gross profit
Selling, general and administrative expenses:
Third-party payor provision for doubtful accounts
Amortization of intangibles
Asset impairment charges
Selling and marketing
General and administrative
Total selling, general and administrative
Operating income (loss)
Other expense:
Interest expense
Other expense
Total other expense
Loss before income taxes
Provision for income taxes
Net loss
Net loss per share:
Basic and diluted
Weighted average shares outstanding:
Basic and diluted
See accompanying notes to consolidated financial statements.
32
Year Ended Year Ended
December 31, December 31,
2018
2017
$
56,584 $
10,554
67,138
19,332
8,788
39,018
-
4,649
-
9,107
24,847
38,603
61,085
9,992
71,077
18,367
9,349
43,361
5,615
5,560
993
9,779
25,226
47,173
415
(3,812)
(1,420)
(37)
(1,457)
(1,042)
(53)
(1,095) $
(1,332)
(113)
(1,445)
(5,257)
(15,450)
(20,707)
(0.05) $
(0.91)
21,417,628
22,739,651
$
$
Table of Contents
(in thousands)
Balances at January 1, 2017
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
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
Common stock repurchased as part of
Repurchase Program
Net loss
Balances at December 31, 2018
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
Common Stock
Additional
Par Value Paid in Retained
Treasury Stock
Total
Par Value Stockholders’
Shares Amount
22,867 $
Capital
2 $
Deficit
91,829 $ (41,142)
Shares Amount
(198) $
62
-
69
-
(20)
-
22,978
103
-
44
-
-
-
-
-
-
2
-
-
-
682
131
-
-
-
-
216
-
-
-
-
(58)
-
92,584
-
(20,707)
(61,633)
-
-
(198)
-
957
91
-
-
-
-
(29)
-
(70)
-
-
-
-
23,096 $
-
-
2 $
(10,395)
-
-
(1,095)
83,167 $ (62,728)
(3,320)
-
(3,518) $
See accompanying notes to consolidated financial statements.
33
Equity
- $
50,689
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
682
131
216
(58)
(20,707)
30,953
-
957
91
(70)
(10,395)
(1,095)
20,441
Table of Contents
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
Purchases of medical equipment
Purchases of property and equipment
Purchases of intangible assets
Proceeds from sale of medical equipment
NET CASH (USED IN) PROVIDED BY 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 as part of Repurchase Program
Common stock repurchased to satisfy taxes on stock based compensation
NET CASH USED IN FINANCING ACTIVITIES
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to consolidated financial statements.
34
Year Ended Year Ended
December 31, December 31,
2018
2017
$
(1,095) $
(20,707)
6,104
6,659
434
(1,340)
4,649
-
33
957
(62)
(4,413)
(490)
(222)
(6)
183
11,391
(8,022)
(281)
-
3,319
(4,984)
(6,319)
11,162
(27)
91
(10,395)
(70)
(5,558)
849
3,469
4,318 $
5,641
6,963
207
(1,662)
5,560
993
28
682
15,389
(5,344)
402
(201)
119
(352)
7,718
(2,652)
(104)
(192)
3,866
918
(37,466)
28,866
(38)
131
-
(58)
(8,565)
71
3,398
3,469
$
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
2018
2017
$
$
1,383 $
159
998 $
-
1,200
139
549
137
(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, 2018 and 2017, 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.
35
Table of Contents
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Basis of Presentation and Nature of Operations
InfuSystem Holdings, Inc. and its consolidated subsidiaries (the “Company”) are a leading provider of infusion pumps and related products
and services for patients in the home, oncology clinics, ambulatory surgery centers, and other sites of care from five locations in the United States
and Canada. The Company provides products and services to hospitals, oncology practices and facilities and other alternate site health care
providers. Headquartered in Madison Heights, Michigan, the Company delivers local, field-based customer support, and also operates pump service
and repair Centers of Excellence in Michigan, Kansas, California, Massachusetts and Ontario, Canada. InfuSystem Inc., which is an operating
subsidiary of the Company, is accredited by the Community Health Accreditation Program while First Biomedical, Inc., 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. and Moog
Medical Devices Group each supply more than 10% of the ambulatory pumps purchased by the Company. The Company has a supply agreement
in place with each of these suppliers. Certain “spot” purchases are made on the open market subject to individual negotiation.
In addition, the Company sells or rents new and pre-owned pole-mounted and ambulatory infusion pumps to, and provides biomedical
recertification, maintenance and repair services for, oncology practices, as well as other alternate site settings including home care and home
infusion providers, skilled nursing facilities, pain centers and others. The Company also provides these products and services to customers in the
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
Reclassifications
Certain prior period reclassifications were made to conform with the current period presentation. These reclassifications had no effect on
reported (loss) income, overall cash flows, total assets, total liabilities or stockholders’ equity as previously reported.
Presentation in the Consolidated Statements
The Company rents and sells medical equipment. The Company purchases medical equipment directly for sale as well as medical equipment
that is purchased for either rental or sale and that is unallocated at the time of purchase (“Unallocated Assets”). Management believes that the
predominant source of revenues and cash flows from the Unallocated Assets is from rentals and most equipment purchased is likely to be rented
prior to being sold. Additionally, during the year ended December 31, 2018, the company adopted, on a retrospective basis, ASU Topic 230:
Statement of Cash Flows, Classification of Certain Cash Receipts and Cash Payments (“ASU 230”) which gives specific guidance for the treatment
of cash payments related to multiple revenue streams. 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) in accordance with ASU 230, the purchase and sale of
Unallocated Assets should be classified solely in investing cash flows based on their predominant source while medical equipment purchased
specifically for sales activity should be classified in operating cash flows; 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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Table of Contents
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, 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 judgments 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 who are 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 and Allowance for Doubtful Accounts
Amounts billed that have not yet been collected that also meet the conditions for unconditional right to payment are presented as accounts
receivable. Accounts receivable related to rental service and delivery of products are reported at their estimated transaction prices, inclusive of
adjustments for variable consideration, based on the amounts expected to be collected from payors. The Company writes off accounts receivable
once collection efforts have been exhausted and an account is deemed to be uncollectible. Subsequent to the adoption of ASC 606, an allowance for
doubtful accounts is established only as a result of an adverse change in the Company’s payors’ ability to pay outstanding billings. The allowance
for doubtful accounts was not material as of December 31, 2018.
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 as of December 31, 2018 and 2017, respectively.
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Medical Equipment
Medical Equipment (“Equipment”) consists of equipment that the Company purchases from third-parties and is (1) for sale or rent, and (2)
used in service to generate rental revenue. Equipment, 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 Equipment held for sale or rent. When Equipment
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 Equipment held for sale or rent and records a
reserve based on estimated obsolescence, which was $0.5 million as of December 31, 2018 and 2017, respectively.
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 previous acquisitions. 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 for trade names with indefinite lives through the royalty relief income valuation approach. The Company performed its annual impairment
analysis as of October 2018 and determined that the fair value of the trade names with indefinite lives was greater than their carrying value,
resulting in no impairment.
Software Capitalization and Depreciation
We capitalize certain costs incurred in connection with obtaining or developing internal-use software, including payroll and payroll-related
costs for employees who are directly associated with the internal-use software project, external direct costs of materials and services and interest
costs while developing the software. Capitalized software costs are included in intangible assets, net and are amortized using the straight-line
method over the estimated useful life of three to five years. Capitalization of such costs ceases when the project is substantially complete and ready
for its intended purpose. Costs incurred during the preliminary project and post-implementation stages, as well as software maintenance and
training costs, are expensed in the period in which they are incurred. The company did not capitalize any internal-use software for the year ended
December 31, 2018 and capitalized $0.2 million of internal-use software for the year ended December 31, 2017. Amortization expense for
capitalized software was $2.3 million in 2018 and $3.1 million in 2017.
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.
In 2017, the Company assessed the impairment indicators related to its internally-developed, internal-use software, specifically looking at
the effectiveness and useful lives of each project and sub-project and concluded that impairment indicators were present. In December 2017, the
Company performed an impairment analysis which resulted in an impairment of approximately $1.0 million in 2017. In 2018, the Company re-
assessed the impairment indicators and found none to be present.
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Operating and Capital Leases
Leases for all of our corporate and other operating locations are under operating leases and the Company recognizes rent expense on a
straight-line basis over the lease terms. Rent holidays and rent escalation clauses, which provide for scheduled rent increases during the lease term,
are taken into account in computing straight-line rent expense included in our consolidated statements of operations. The difference between the
rent due under the stated periods of the leases compared to that of the straight-line basis is recorded as a component of other long-term liabilities in
the consolidated balance sheets. Landlord funded lease incentives, including tenant improvement allowances provided for our benefit, are recorded
as leasehold improvement assets and as deferred rent in the consolidated balance sheets and are amortized to depreciation expense and as rent
expense credits, respectively. The Company periodically enters into capital leases to finance the purchase of ambulatory infusion pumps. The
pumps are capitalized into 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
3.5% as of December 31, 2018.
Revenue Recognition
On January 1, 2018 the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 606 - Revenue from Contracts with Customers (“ASC 606”) and concluded that, consistent with prior reporting, the Company has
two separate revenue streams: rentals and product sales. The adoption of ASC 606 requires certain customer concessions associated with rental
revenues reported in accordance with ASC 605 - Revenue Recognition, previously reported in selling, general and administrative expenses as
“provision for doubtful accounts” to now be recorded as a reduction of net rental revenues as they are considered price concessions of the
transaction price under the new revenue guidance. ASC 606 was adopted on a modified retrospective method.
ASC 606 stipulates revenue recognition at the time and in an amount that reflects the consideration expected to be received for the
performance obligations that have been provided. ASC 606 defines contracts as written, oral and through customary business practice. Under this
definition, the Company considers contracts to be created at the time that the rental service is authorized or an order to purchase product is agreed
upon regardless of whether or not there is a written contract.
The Company has two separate and distinct performance obligations offered to its customers: a rental service performance obligation or a
product sale performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and
is defined as the unit of account for revenue recognition under ASC 606. These performance obligations are related to separate revenue streams and
at no point are they combined into a single transaction. Sources of net revenues include commercial insurance payors, government insurance
payors, medical facilities and patients.
The Company generates the majority of its revenue from the rental of infusion pumps to its customers and a minority of its revenue from
product sales. For the rental service performance obligation, revenue is based on its standalone price, determined by using reimbursement rates
established by third-party payor or other contracts. Revenue is recognized in the period in which the related performance obligation is satisfied,
which is typically at the point in time that a patient concludes a treatment, or in certain arrangements, based on the number of pumps that a facility
has onsite. The Company’s revenues related to product sales are recognized at the time that control of the product has been transferred to the
customer; either at the time the product is shipped or the time the product has been received by the customer, depending on the delivery terms. The
Company does not commit to long-term contracts to sell customers a certain minimum quantity of products.
The Company employs certain significant judgments to estimate the dollar amount of revenue, and related concessions, allocated to the
rental service and sale of products. These judgments include, among others, the estimation of variable consideration. Variable consideration,
specifically related to the Company’s third-party payor rental revenues, is estimated as implied price concessions resulting from differences
between the rates charged for services performed and the expected reimbursements for commercial payors and other implied customer
concessions. The estimates for variable consideration are based on historical collections with similar payors, aged accounts receivable by payor
class and payor correspondence using the portfolio approach, which provide a reasonable basis for estimating the variable portion of a transaction.
The Company doesn’t believe it is probable that a significant reversal of revenue will occur in future periods because (i) there is no significant
uncertainty about the amount of considerations that are expected to be collected based on collection history and (ii) the large number of sufficiently
similar contracts allows the Company to adequately estimate the component of variable consideration.
Net revenues are adjusted when changes in estimates of variable consideration occur. Changes in estimates typically arise as a result of new
information obtained, such as actual payment receipt or denial, or pricing adjustments by payors. Subsequent changes to estimates of transaction
prices are recorded as adjustments to net revenue in the period of the change. Subsequent changes that are determined to be the result of an adverse
change in the payors ability to pay are recorded as an allowance for doubtful accounts.
Cost of Revenues
Cost of revenues include the costs of servicing and maintaining pumps, products sold, shipping and other direct and indirect costs related to
net revenues. Shipping and handling costs incurred after control over a product has transferred to a customer are accounted for as a fulfillment cost.
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Table of Contents
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 2018 and 2017, our largest contracted payor was a national payor which accounted for approximately 7% and 6% of our net revenues
from our third-party payor Oncology Business for 2018 and 2017, respectively, and approximately 4% of our total net revenues for each of 2018
and 2017
We also contract with various other third-party payor organizations, Medicaid, commercial Medicare replacement plans, self-insured plans,
facilities of our Medicare patients and numerous other insurance carriers. Other than the payor noted above, no other single payor represented more
than 7% 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
loss and 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 for income taxes.
Treasury Stock
The Company periodically repurchases shares of its common stock. These repurchases take place either as part of a board-authorized
program, which may include open market transactions or privately negotiated transactions and may be made under a Rule 10b5-1 plan, or in
targeted stock purchase agreements approved by the board. The shares that are repurchased are held as treasury stock, accounted for as additional
paid-in capital.
Share Based Payments
The determination of the fair value of stock option awards, restricted stock 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 and marketing expenses and general and administrative expenses, based upon the department to which the associated employee or non-
employee resides.
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Table of Contents
Deferred Debt Issuance Costs
Capitalized debt issuance costs as of December 31, 2018 and 2017 relate to the 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 FASB ASC, which requires the
presentation of both basic and diluted earnings per share on the statements of operations. The diluted weighted average common shares 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. Anti-dilutive stock awards are comprised of stock options and unvested share awards, which would
have been anti-dilutive in the application of the treasury stock method in accordance with “Earnings Per Share” topic of FASB ASC. In periods
where the Company records a net loss, the diluted per share amount is the same as the basic per share amount.
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:
2018
2017
$
(1,095) $
(20,707)
Weighted average common shares outstanding:
Basic
Dilutive effect of restricted shares, options and non-vested share
awards
Diluted
21,417,628
22,739,651
-
21,417,628
-
22,739,651
Stock options of 0.1 million and 0.5 million shares were not included in the calculation for the years ended December 31, 2018 and 2017,
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, 2018 and 2017 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 January 2017, the FASB issued Accounting Standards Update (“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 balance sheets, statements of operations, statements of cash flows and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. Under Topic 842, 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. Topic 842 offers 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, Topic 842 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. In July 2018, the FASB
issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”. This ASU makes various targeted amendments to the leasing standard
and we are evaluating this ASU in connection with adoption of the standard. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842):
Targeted Improvements.” This standard allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative-
effect adjustment to the opening balance of retained earnings in the period of adoption. The Company will adopt the standard on January 1, 2019
using the optional transition method. The standard also provides for certain practical expedients. With respect to the available practical expedients,
the Company will elect the primary package of expedients whereby we will reassess neither the existence, nor the classification nor the amount and
treatment of initial direct costs of existing leases. The Company will not apply hindsight to the evaluation of lease options (e.g., renewal) and,
accordingly, will not utilize the practical expedient that would allow such an approach. Finally, the Company will elect the “combining lease and
non-lease components” expedient for both lessors and lessees. The Company continues to evaluate and is in the process of documenting the impact
of the pending adoption of the new standard on its consolidated financial position, disclosures and/or internal controls process. The Company does
not expect material changes to the recognition of operating lease expense in our consolidated statements of operations. The Company believes the
adoption of Topic 842 will have a material impact on the consolidated balance sheets upon the recognition of right-of-use assets and liabilities for
leases currently classified as operating leases, along with enhanced disclosures of lease activity. The Company is still in the process of calculating
the present value of its current lease obligations. Topic 842 is not expected to have a material impact on the Company’s accounting for rental
revenues.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments (Topic 326) Credit Losses”. Topic 326 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. Topic 326 is effective as of January 1, 2020. Early adoption is permitted. The Company is
currently evaluating the impact of Topic 326 on its consolidated balance sheets, statements of operations, statements of cash flows and related
disclosures.
In August 2016, the FASB issued ASU 230, which provides specific guidance on eight cash flow classification issues not specifically
addressed by U.S. GAAP. The ASU is effective for annual and interim periods beginning after December 15, 2017. The standard should be applied
using a retrospective transition method unless it is impractical to do so for some of the issues. In such case, the amendments for those issues would
be applied prospectively as of the earliest date practicable. Our adoption of this standard on January 1, 2018, using a retrospective transition
method for each period presented, resulted in reclassifying $0.3 million for the year ended December 31, 2018 on our consolidated financial
statements. Additionally, the result on the consolidated financial statements of adopting on a retrospective basis was $0.1 million for the year
ended December 31, 2017.
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3.
Revenue Recognition
Adoption of ASC 606
Except for the changes related to the adoption of ASC 606, we have consistently applied the accounting policies to all periods in these
consolidated financial statements. The overall financial impact of adopting this standard did not have a material impact on our balance sheets and
cash flows. The following table presents the financial impact of ASC 606 on the Consolidated Statements of Operations for the year ended
December 31, 2018 (in thousands):
2018
Net revenues:
Net rental revenues
Net revenues
Gross profit
Selling, general and administrative expenses:
Provision for doubtful accounts
Total selling, general and administrative
As Reported Adjustments
$
56,584 $
67,138
39,018
-
38,603
6,319 $
6,319
6,319
6,319
6,319
The following table presents disaggregated revenue by offering type:
Third-Party Payor Rentals
Direct Payor Rentals
Product Sales
Total - Net revenues
Pro-Forma as if
Previous
Accounting
Guidance Was in
Effect
(Unaudited)
62,903
73,457
45,337
6,319
44,922
2018
47.6%
36.7%
15.7%
100.0%
4.
Medical Equipment
Equipment consisted of the following as of December 31 (in thousands):
Medical Equipment 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
2018
2017
$
$
1,601 $
61,429
(530)
(37,411)
23,488
25,089 $
1,567
57,928
(482)
(34,077)
23,369
24,936
Depreciation expense for the years ended December 31, 2018 and 2017 was $6.2 million and $6.5 million, respectively, which were
recorded in cost of revenues – pump depreciation and disposals.
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5.
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
Gross Assets
$
3,717 $
118
2,219
6,054 $
$
$
Gross Assets
$
3,824 $
118
2,187
6,129 $
2018
Accumulated
Depreciation
(3,257) $
(95)
(1,257)
(4,609) $
2017
Accumulated
Depreciation
(3,277) $
(85)
(1,134)
(4,496) $
Total
460
23
962
1,445
Total
547
33
1,053
1,633
Depreciation expense for each of the years ended December 31, 2018 and 2017 was $0.4 million and $0.5 million, respectively, and was
recorded in general and administrative expenses.
6.
Intangible Assets
The carrying amount and accumulated amortization of intangible assets as of December 31, 2018 and 2017 were as follows (in thousands):
Nonamortizable intangible assets
Trade names
Amortizable intangible assets
Trade names
Physician and customer relationships
Non-compete agreements
Software
Gross Assets
2018
Accumulated
Amortization
Net
$
2,000 $
- $
2,000
23
36,534
1,136
11,230
(23)
(24,175)
(1,136)
(5,724)
-
12,359
-
5,506
19,865
Total nonamortizable and amortizable intangible assets
$
50,923 $
(31,058) $
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Nonamortizable intangible assets
Trade names
Amortizable intangible assets
Trade names
Physician and customer relationships
Non-compete agreements
Software
Gross Assets
2017
Accumulated
Amortization
Net
$
2,000 $
- $
2,000
23
36,534
1,136
11,230
(23)
(21,801)
(1,125)
(3,460)
-
14,733
11
7,770
24,514
Total nonamortizable and amortizable intangible assets
$
50,923 $
(26,409) $
The weighted average remaining lives of physician and customer relationships, non-compete agreements and software were 4-years, 0-years
and 2-years, respectively, as of December 31, 2018.
In 2017, the Company assessed the impairment indicators related to its internally-developed, internal-use software, specifically looking at
the effectiveness and useful lives of each project and sub-project and concluded that impairment indicators were present. In December 2017, the
Company performed an impairment analysis which resulted in an impairment of approximately $1.0 million in 2017. In 2018, the Company re-
assessed the impairment indicators and found none to be present.
Amortization expense for intangible assets for the years ended December 31, 2018 and 2017 was $4.6 million and $5.6 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, 2018 is as follows (in thousands):
Amortization expense
$
4,402 $
4,285 $
3,930 $
2,051 $
548 $
2019
2020
2021
2022
2023
2024 and
thereafter
2,649
7.
Debt
On July 31, 2018, the Company entered into the Fourth Amendment (the “Fourth Amendment”) to its Credit Agreement, entered into on
March 23, 2015 (the “Credit Agreement”). The Fourth Amendment allows for, among other things, a loan to the Company for the repurchase of up
to approximately 2.8 million shares of capital stock from an individual shareholder, his affiliates, and a second shareholder, in an aggregate amount
not to exceed $8.6 million (“Term Loan C”); and allows for capital expenditure financing to the Company for the sole purpose of purchasing
medical equipment in an aggregate amount not to exceed $6.4 million (the “Equipment Line”). There are no principal payments due on the
Equipment Line until December 31, 2019 at which time it will convert to an additional term loan. The Fourth Amendment also made changes to
certain covenants, specifically, to exclude borrowings used to fund the stock repurchases referenced above from the definition of fixed charges, as
defined by the Credit Agreement, and to reduce the ratio of earnings before depreciation, income taxes and amortization to fixed charges from
1.25:1.0 to 1.15:1.0. In addition, the Amendment eliminates the net worth covenant and the excess cash flow provisions while modifying the
quarterly principal payment amounts. Term Loan C matures on December 6, 2021, and the Equipment Line matures on December 31, 2024.
As of December 31, 2018, the Company was in compliance with all debt-related covenants under the Credit Agreement. Subsequent to the
end of 2018, the Company entered into a fifth amendment to the Credit Agreement as discussed in Note 13 in the Notes to the Consolidated
Financial Statements included in this Form 10-K.
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The net availability under the revolving credit facility under the Credit Agreement (the “Revolver”) is based upon the Company’s eligible
accounts receivable and eligible inventory and was comprised as follows (in thousands):
Revolver:
Gross Availability
Outstanding Draws
Letter of Credit
Landlord Reserves
Availability on Revolver
December 31,
December 31,
2018
2017
$
$
9,973 $
-
(750)
(70)
9,153 $
10,000
-
(750)
(45)
9,205
The Company had future maturities of loans as of December 31, 2018 as follows (in thousands):
Term Loan A
Term Loan C
Equipment Line
Unamortized value of debt issuance costs
Total
2019
2020
$
$
3,584 $
1,229
128
(38)
4,903 $
3,584 $
1,229
512
(38)
5,287 $
2021
16,143 $
5,528
512
(38)
22,145 $
2022
2023 and
thereafter Total
- $
-
512
-
512 $
- $
-
898
-
898 $
23,311
7,986
2,562
(114)
33,745
The following is a breakdown of the Company’s current and long-term debt as of December 31, 2018 and December 31, 2017 (in thousands):
Current
Portion
December 31, 2018
Long-Term
Portion
Total
Current
Portion
December 31, 2017
Long-Term
Portion
Total
Term Loan A
Term Loan C
Equipment Line
Unamortized value of debt
issuance costs
Revolver
Total
$
$
3,584 $
1,229
128
(38)
-
4,903 $
19,727 $
6,757
2,434
(76)
-
28,842
23,311 $
7,986
2,562
(114)
-
33,745 $
3,067 $
-
-
(28)
-
3,039 $
25,444 $
-
-
(92)
-
25,352
28,511
-
-
(120)
-
28,391
As of December 31, 2018, 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 the applicable 30-day London Interbank Offered Rate (“LIBOR”) plus an applicable margin ranging from 2.00% to 3.00% or (ii) CB
Floating Rate (“CBFR”) Loan, which bears interest at a per annum rate equal to the greater of (a) the lender’s prime rate or (b) LIBOR plus 2.50%,
in each case, plus a margin ranging from -1.00% to 0.25%. The actual Eurodollar Loan rate at December 31, 2018 was 5.13% (LIBOR of 2.38%
plus 2.75%). The actual CBFR Loan rate at December 31, 2018 was 5.50% (lender’s prime rate of 5.50%).
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8.
Income Taxes
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
2018
2017
(1,138) $
96
(1,042) $
(5,419)
162
(5,257)
$
$
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 benefit (expense)
Current
Deferred
Total U.S. Federal income tax benefit (expense)
State and local income tax expense
Current
Deferred
Total state and local income tax expense
Foreign income tax expense
Current
Total income tax expense
2018
2017
- $
62
62
(84)
-
(84)
(31)
(53) $
73
(13,830)
(13,757)
(45)
(1,560)
(1,605)
(88)
(15,450)
$
$
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
2018
2017
(11,435) $
-
65
(11,370) $
-
(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
Increase in valuation allowance
Impacts related to the 2017 Tax Act
Other adjustments
Effective income tax rate
47
2018
21.0%
(14.0%)
(2.2%)
(9.4%)
(0.3%)
0.0%
(0.1%)
(5.0%)
2017
34.0%
4.6%
(1.2%)
(8.3%)
(217.5%)
(106.0%)
0.4%
(293.9%)
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
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 (liabilities)
Net deferred state and local tax assets
Less: valuation allowance
Net deferred tax assets (liabilities)
2018
2017
1,178 $
393
8,025
218
27
31
2,507
533
25
114
13,051
(9,724)
3,327
(3,335)
8
(3,327)
-
1,646
(1,646)
- $
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)
$
$
As of December 31, 2018 and 2017, the Company had federal net operating loss carryforwards remaining of approximately $38.2 million
and $34.9 million, respectively.
The Company’s federal net operating loss carryforwards of approximately $34.8 million will begin to expire in various years beginning in
2028 through 2038 and $3.4 million of the federal net operating loss carryforwards have an indefinite life. The state net operating losses of
approximately $1.3 million can be used for a period of 5 to 20 years and vary by state, and if unused, begin to expire in 2019, though a substantial
portion expires beyond 2019 through 2038. 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.
At December 31, 2018, the Company continues to carry a full valuation allowance for tax benefits of operating loss and tax credit
carryforwards. 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. 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 continue to require a full valuation allowance.
The Company had no uncertain tax positions for the years ended December 31, 2018 and 2017.
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 2015 through 2018 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 2014 through 2018 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).
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9.
Commitments and Contingencies
From time to time in the ordinary course of its business, the Company may be involved in legal proceedings, the outcomes of which may not
be determinable. The 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.
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.
10.
Leases
The Company leases office space, service facility centers and equipment under non-cancelable capital and operating lease arrangements.
The Company periodically enters into capital leases to finance the purchase of ambulatory infusion pumps (“Pump Assets”). The Pump Assets 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 3.5% as of December 31, 2018. 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.
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, 2018 are as follows (in thousands):
2019
2020
2021
2022
2023
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
1,866 $
1,717
1,107
1,016
1,040
5,599
12,345 $
1,899
1,717
1,107
1,016
1,040
5,599
12,378
$
$
$
33 $
-
-
-
-
-
33 $
-
33
(33)
-
At December 31, 2018 and 2017, Pump Assets obtained under capital leases had a cost of approximately $0.6 million and $1.7 million,
respectively, and accumulated depreciation of $0.2 million and $0.5 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 $1.5 million and $1.0 million for the years ended December 31, 2018
and 2017, respectively.
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Table of Contents
11.
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
(“RSUs”), 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 five
to ten years from the grant date. RSUs are granted at the fair market value on the date of grant and generally become exercisable over a period of
up to four years. In 2018, new RSUs were granted that become exercisable over a period of three years based on market conditions. 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, RSUs 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. As of December 31, 2018, the Plan is no longer in effect as all the
stock options that were previously granted and remained outstanding were issued in the fourth quarter of 2018.
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 replaced our 2007 Stock Incentive Plan (the “Plan”) and provided for the issuance of a maximum of 2.0 million shares of
common stock in connection with the grant of stock-based or stock-denominated awards. On July 19, 2018, the Company’s stockholders approved
the reservation of an additional 1.0 million shares to be issued under the Plan. As of December 31, 2018, a total of less than 0.1 million common
shares remained available for future grant under the 2014 Plan.
The Company granted stock options under the 2014 Plan during the years ended December 31, 2018 and 2017, respectively.
Shares Forgone to Satisfy Minimum Statutory Withholdings
During the years ended December 31, 2018 and 2017, 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, 2018 and 2017, respectively, the Company received less than 0.1 million shares from employees for
tax withholding obligations.
Stock Appreciation Rights (“SARs”)
As of December 31, 2018, approximately 0.2 million SARs were vested and outstanding and could be settled in cash or units of the
Company’s common stock as follows:
(1) 0.1 million SARs vested and became exercisable during the period beginning on December 31, 2018, and ending on March 31,
2019, 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) 0.1 million SARs vested and became exercisable during the period beginning on December 31, 2018, and ending on March 31,
2019, 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, 2018, $0.3 million of expense was recorded for outstanding SARs.
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The following table summarizes SARs share activity for the years ended December 31:
Weighted
average
grant
date fair
value
Number of
shares
Aggregate
fair value
Unvested at December 31, 2016
Granted
Vested
Vested shares forgone to satisfy minimum statutory withholding
Forfeitures
Unvested at December 31, 2017
Granted
Vested (1)
Vested shares forgone to satisfy minimum statutory withholding
Forfeitures
Unvested at December 31, 2018
- $
200,000
-
-
-
200,000
-
(200,000)
-
-
- $
-
1.26 $
-
-
-
1.26 $
-
1.26 $
-
-
- $
60,000
60,000
288,000
-
(1) SARs were vested on December 31, 2018 and can be exercised during the period beginning on December 31, 2018 and ending on
March 31, 2019
Restricted Shares
During the year ended December 31, 2018, the Company granted 0.1 million restricted shares. During the year ended December 31, 2017,
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:
Weighted
average
grant
date fair
value
Number of
shares
Aggregate
fair value
Unvested at December 31, 2016
Granted
Vested
Vested shares forgone to satisfy minimum statutory withholding
Forfeitures
Unvested at December 31, 2017
Granted
Vested
Vested shares forgone to satisfy minimum statutory withholding
Forfeitures
Unvested at December 31, 2018
57,333 $
-
(15,730)
(20,811)
(8,333)
12,459
125,000
(4,116)
(2,134)
(1,626)
129,583 $
2.21
-
0.88 $
2.80 $
2.60
2.61
1.37
2.60 $
2.60 $
2.60
1.42
83,003
51,304
13,749
4,695
As of December 31, 2018, there was $0.1 million of pre-tax total unrecognized compensation cost related to non-vested restricted shares,
which will be adjusted for future forfeitures, if any. The Company expects to recognize such cost over the period ending in 2021.
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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 were 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, 2018, there were 251,430 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
Stock Options
2018
2017
33,874 $
43,433
2.45 $
49,150
68,958
2.21
$
$
The Company calculates the fair value of stock option awards using the Black-Scholes option pricing model, which incorporates various
assumptions including volatility, expected term, risk-free interest rates and dividend yields. The expected volatility assumption is based on
historical volatility of the Company’s common stock over the most recent period commensurate with the expected life of the stock option granted.
The Company uses historical volatility because management believes such volatility is representative of prospective trends. The risk-free interest
rate assumption is based upon observed interest rates appropriate for the expected life of the stock option awarded. The Company determines
expected lives as the average of the vesting period and the contractual period. Dividend yields have not been a factor in determining fair value of
stock options granted as the Company has never issued cash dividends and does not anticipate issuing cash dividends in the future.
During the year ended December 31, 2018, the Company granted 0.8 million stock options, of which 0.2 million were issued to Board
members, at exercise prices based on a preceding five-day average price on the date of grant with a vesting period of 12 months. 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
based on a preceding five-day average price on the date of grant with a vesting period of 12 months. The following table details the various stock
option and inducement stock option activity for the years ended December 31:
Number
of
Authorized
Weighted-
Average
Exercise
Weighted-
Average
Remaining
Aggregate
Contractual
Intrinsic
2007 Plan (Options)
Shares
Price
Outstanding at December 31, 2016
Granted
Exercised
Exercised shares forgone to satisfy minimum statutory
withholding
Cashless exercise
Forfeited
Outstanding at December 31, 2017
Granted
Exercised
Exercised shares forgone to satisfy minimum statutory
withholding
Cashless exercise
Forfeited
Outstanding at December 31, 2018
Exercisable at December 31, 2018
488,332 $
-
(25,037)
(13,245)
(71,718)
(245,000)
133,332 $
-
(33,576)
(14,255)
(65,501)
(20,000)
- $
- $
2.31
-
1.51
2.32
2.32
2.83
1.99
-
1.96
1.96
1.96
1.93
-
-
Term (in
Years)
Value
0.25 $
118,899
86,900
$
40,716
162,134
- $
-
Aggregate Intrinsic Value = Excess of market value over the option exercise price of all in-the-money stock options.
52
Table of Contents
Number
of
Weighted-
Average
Exercise
Authorized
Price
2014 Plan (Options)
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
Granted
Exercised
Exercised shares forgone to satisfy minimum statutory
withholding
Cashless exercise
Forfeited
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Shares
1,249,999 $
1,087,500 $
-
-
-
(374,999)
1,962,500 $
955,868 $
825,000
(10,953)
(5,134)
(33,079)
(514,167)
2,224,167 $
1,101,910 $
Weighted-
Average
Remaining
Aggregate
Contractual
Intrinsic
Term (in
Years)
Value
2.80
2.09
-
-
-
2.61
2.44
2.69
3.14
2.15
2.15
2.15
2.62
2.67
2.52
4.26 $
3.13
3.18 $
3.64
-
-
12,159
3.01 $ 1,719,584
Inducement
Options
Outstanding at December 31, 2016
Granted
Exercised
Forfeited
Outstanding at December 31, 2017
Granted
Exercised
Forfeited
Outstanding at December 31, 2018
Exercisable at December 31, 2018
Number
of
Authorized
Weighted-
Average
Exercise
Weighted-
Average
Remaining
Aggregate
Contractual
Intrinsic
Shares ( 1 )
Price
Term (in
Years)
800,000 $
-
-
(800,000)
- $
125,000
-
-
125,000 $
- $
2.25
-
-
-
-
2.55
-
-
2.55
-
2.26 $
-
-
-
- $
5.42
-
-
5.42 $
Value
240,000
-
-
-
-
111,250
-
-
111,250
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 shares of the Company's Common Stock to executive level managers.
The following table summarizes information about stock options outstanding at December 31, 2018:
2014 Plan (Options):
Number of
Shares
Weighted-
Average
Remaining
Range of Exercise Prices
Outstanding
Contractual Life
Weighted-
Average
Exercise Price
Number of
Shares
Exercisable
Weighted-
Average
Exercise
Price
Options Outstanding
Options Exercisable
$2.01 - $3.00
$3.01 - $4.00
Outstanding at December 31, 2018
1,519,167
705,000
2,224,167
2.48 $
3.39 $
3.01 $
2.41
3.22
2.67
1,040,243 $
61,667 $
1,101,910 $
2.48
3.18
2.52
53
Table of Contents
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
Stock-based compensation expense
2018
2017
35% to 49%
30% to 69%
2.43% to 2.88% 0.69% to 2.05%
3.83
$1.00
3.93
$2.09
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 and SARs expense
Total stock-based compensation expense
Share Repurchase Program
2018
2017
78 $
879
957 $
48
634
682
$
$
On March 12, 2018, our Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to one million
shares of the Company’s outstanding common stock (the “Share Repurchase Program”). Repurchases under 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. The repurchase program does not obligate the Company to repurchase shares and may be suspended,
terminated, or modified at any time. 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.
During the year ended December 31, 2018, the Company repurchased approximately 0.5 million shares under the Share Repurchase
Program in addition to the approximately 2.1 million shares repurchased under the First Stock Purchase Agreement (as defined below) and
approximately 0.7 million shares repurchased under the Second Stock Purchase Agreement (as defined below). This total of approximately 3.3
million shares represents a 15% reduction in the shares outstanding at December 31, 2017. During the year ended December 31, 2017, the
Company did not repurchase any shares in the open market.
Stock Purchase and Settlement Agreement and Stock Purchase Agreement
On July 31, 2018, the Company and an individual shareholder and his affiliates (the “Sellers”) entered into a stock purchase and settlement
agreement (the “First Stock Purchase Agreement”) for the purchase by the Company of the approximately 2.2 million shares of the Company's
common stock cumulatively owned by the Sellers for $3.10 per share, equaling approximately $6.7 million in total. The First Stock Purchase
Agreement contains customary representations and warranties, an agreement by the Sellers not to purchase any shares of the Company's common
stock for three years following closing, a mutual non-disparagement agreement and a mutual release of claims between the Company and the
Sellers. The closing of the stock purchases under the First Stock Purchase Agreement occurred in full during the third quarter of 2018 with respect
to approximately 2.1 million shares, and the Sellers sold approximately 36,000 of the remaining shares to third parties on the open market. The
Company funded the purchase price for the shares with the proceeds from the Term Loan C, which is described in Note 7 in the Notes to the
Consolidated Financial Statements included in this Form 10-K.
On July 31, 2018, the Company and a shareholder entered into a stock purchase agreement (the “Second Stock Purchase Agreement”) for
the purchase by the Company of approximately 0.7 million shares of the Company's common stock owned by a shareholder for $3.10 per share,
equaling approximately $2.1 million in total. The Second Stock Purchase Agreement contains customary representations and warranties, and the
closing of the stock purchases under the stock purchase agreement occurred during the third quarter of 2018. The Company funded the purchase
price for the shares with the proceeds from the Term Loan C, which is described in Note 7 in the Notes to the Consolidated Financial Statements
included in this Form 10-K, and cash-on-hand.
12.
Employee Benefit Plans
The Company has a defined contribution plan in which the Company makes matching contributions for a certain percentage of employee
contributions. For each of the years ended December 31, 2018 and 2017, the Company’s matching contributions were $0.6 million. The Company
does not provide other post-retirement or post-employment benefits to its employees.
13.
Subsequent Events
On February 5, 2019, the Company entered into the fifth amendment to its Credit Agreement (the “Fifth Amendment”) with JPMorgan
Chase Bank, N.A., as lender, which amends the Credit Agreement among the Company and the lender. The Fifth Amendment amended the Credit
Agreement to, among other things, (1) increase our Equipment Line, (2) revise the definition of earnings before interest, taxes, depreciation and
amortization to include additional add-back adjustments for the years ended December 31, 2018 and 2019, (3) revise the definition of fixed charge
coverage ratio for the year ended December 31, 2019 to include an unfinanced portion of capital expenditures, (4) revise the Credit Agreement’s
maximum permitted indebtedness to finance the acquisition, construction or improvement of any fixed or capital assets and (5) revise maximum
leverage ratio for each of the quarters December 31, 2018 to December 31, 2019.
54
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, 2018. 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, 2018 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, 2018, 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, 2018 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.
55
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 2019 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 2019 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, 2018 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)) (3)
( c )
Plan Category:
Equity compensation plans approved by security
holders:
2007 Plan *
2014 Plan
Equity compensation plans not approved by
security holders:
Total
(1)
(2)
-
2,553,750 $
125,000
2,678,750 $
-
2.67
2.55
2.66
-
261,100
261,100
* As of December 31, 2018, this plan is no longer in effect. All of the outstanding stock option awards that were
previously granted were exercised in 2018.
(1) This amount includes 0.1 million shares of common stock issuable upon the vesting of certain time-restricted stock awards, 0.2 million
shares of common stock related to stock appreciation rights which are vested and issuable (or can be settled in cash), pending certain
stipulation criteria being met and 2.4 million shares of common stock issuable upon the exercise of vested stock option awards.
(2) We issued inducement stock options to purchase 0.1 million shares of our common stock to our Chief Financial Officer (“CFO”), pursuant
to the terms of an Inducement Stock Option Agreement effective May 7, 2018 pursuant to which (i) the options have an exercise price of
$2.55 per share, (ii) all of the options vest over a four-year period, with 25% vesting on the first anniversary of the grant date and the
remaining options vesting on each monthly anniversary of the effective date, provided that our CFO remains employed by the Company
through such vesting dates, and (iii) the options will expire on, and may not be exercised after, the fifth anniversary of their effective date.
(3) Includes 2.0 million shares authorized as part of our 2014 Annual Meeting of Stockholders held in May 2014, 1.0 million shares
authorized as part of our 2017 Annual Meeting of Stockholders held in August 2018 less just over 2.7 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 2019 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” in our definitive proxy statement relating to the 2019 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 2019 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.
56
Table of Contents
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.
57
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 July 9, 2018).
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
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).
10.3
10.4
Credit Agreement by and among InfuSystem Holdings, Inc., its subsidiaries and JPMorgan Chase Bank, N.A., dated as of March 23,
2015 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-35020) filed on May
12, 2015).
Pledge and Security Agreement by and among InfuSystem Holdings, Inc., its subsidiaries and JPMorgan Chase Bank, N.A., dated as
of March 23, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-35020)
filed on May 12, 2015).
10.5
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).
10.6
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).
10.7**
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).
10.8**
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).
10.9**
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).
10.10**
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).
10.11**
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).
10.12**
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).
58
Table of Contents
Exhibit
Number
Description of Document
10.13**
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).
10.14
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).
10.15
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).
10.16**
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).
10.17
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).
10.18
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).
10.19**
Employment Agreement by and between InfuSystem Holdings, Inc. and Gregory Schulte, effective May 7, 2018 (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-35020) filed on May 14, 2018).
10.20**
Equity Settlement Agreement by and between InfuSystem Holdings, Inc. and Christopher Downs, effective May 11, 2018
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-35020) filed on May 14,
2018).
10.21**
Inducement Stock Option Award Agreement by and between InfuSystem Holdings, Inc. and Gregory Schulte, effective May 7, 2018
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 1-35020) filed on May 14,
2018).
10.22**
Equity Settlement Agreement by and between InfuSystem Holdings, Inc. and Jan Skonieczny, effective June 5, 2018 (incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-35020) filed on August 14, 2018).
10.23**
Equity Settlement Agreement by and between InfuSystem Holdings, Inc. and Trent Smith, effective June 5, 2018 (incorporated by
reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-35020) filed on August 14, 2018).
10.24
10.25
Fourth Amendment to the Credit Agreement, dated as of July 31, 2018, among InfuSystem Holdings, Inc. and its direct 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 August 2, 2018).
Stock Purchase and Settlement Agreement, dated as of July 31, 2018, among InfuSystem Holdings, Inc., Ryan J. Morris and Meson
Capital, L.P. (incorporated by reference to Exhibit 10.2 to the company’s Current Report on Form 8-K (File No. 1-35020) filed on
August 2, 2018).
59
Table of Contents
Exhibit
Number
Description of Document
10.26**
InfuSystem Holdings, Inc. 2014 Equity Plan (as amended through July 19, 2018) (incorporated by reference to Exhibit 10.1 to the
company’s Current Report on Form 8-K (File No. 1-35020) filed on July 23, 2018).
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.
Item 16.
10-K Summary
None.
60
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INFUSYSTEM HOLDINGS, INC.
Date: March 22, 2019
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 22, 2019
By:
/s/ RICHARD DiIORIO
Date: March 22, 2019
Date: March 22, 2019
Date: March 22, 2019
Date: March 22, 2019
Date: March 22, 2019
Date: March 22, 2019
Date: March 22, 2019
Date: March 22, 2019
Richard DiIorio
Chief Executive Officer , President and Director
(Principal Executive Officer)
/s/ GREGORY SCHULTE
Gregory Schulte
Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ SCOTT SHUDA
Scott Shuda
Chairman of the Board
Director
/s/ GREGG LEHMAN
Gregg Lehman
Vice Chairman of the Board
Director
/s/ TERRY ARMSTRONG
Terry Armstrong
Director
/s/ DARRELL MONTGOMERY
Darrell Montgomery
Director
/s/ RON PEELE JR.
Ron Peele Jr.
Director
/s/ CHRISTOPHER SANSONE
Christopher Sansone
Director
/s/ JOSEPH WHITTERS
Joseph Whitters
Director
61
Name
InfuSystem, Inc.
First Biomedical, Inc.
IFC, LLC
InfuSystem Holdings USA, Inc.
Subsidiaries of the Registrant
Jurisdiction of Organization
California
Kansas
Delaware
Delaware
EXHIBIT 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference, in the Registration Statements on Forms S-8 (Nos. 333-150066, 333-167914, 333-174828,
333-195929, 333-195930, 333-217090 and 333-226872) of InfuSystem Holdings, Inc. and subsidiaries, of our report dated March 22, 2019, relating
to the consolidated financial statements, which appears in this Form 10-K.
EXHIBIT 23.1
/s/ BDO USA, LLP
Troy, Michigan
March 22, 2019
EXHIBIT 31.1
1.
2.
3.
4.
CERTIFICATION BY OFFICER
I, Richard DiIorio, certify that:
I have reviewed this Form 10-K for the year ended December 31, 2018 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 22, 2019
By:
/s/ RICHARD DiIORIO
Richard DiIorio
Chief Executive Officer , President and Director
EXHIBIT 31.2
1.
2.
3.
4.
CERTIFICATION BY OFFICER
I, Gregory Schulte, certify that:
I have reviewed this Form 10-K for the year ended December 31, 2018 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 22, 2019
By:
/s/ GREGORY SCHULTE
Gregory Schulte
Chief Financial Officer
CERTIFICATION OF OFFICER
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
EXHIBIT 32.1
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States
Code), the undersigned officer of InfuSystem Holdings, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s
knowledge, that:
The Form 10-K for the year ended December 31, 2018 (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 22, 2019
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, 2018 (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 22, 2019
By:
/s/ GREGORY SCHULTE
Gregory Schulte
Chief Financial Officer