NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
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Basis of Presentation and Nature of Operations
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InfuSystem Holdings, Inc. and its consolidated subsidiaries (the Company) are a leading provider of infusion pumps and related products and services for patients in the home, oncology clinics,
ambulatory surgery centers, and other sites of care from five locations in the United States and Canada. The Company provides products and services to hospitals, oncology practices and facilities and other alternate site health care providers.
Headquartered in Madison Heights, Michigan, the Company delivers local, field-based customer support, and also operate pump service and repair Centers of Excellence in Michigan, Kansas, California, Texas, Georgia and Ontario, Canada. InfuSystem Inc.
(ISI), which is an operating subsidiary of the Company, is accredited by the Community Health Accreditation Program (CHAP) while First Biomedical, Inc. (First Biomedical), which is an operating subsidiary of the
Company, is ISO certified.
The Companys 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 Companys pumps are electronic infusion pumps purchased from the following manufacturers, each of which supplies more than 10% of the ambulatory pumps purchased by the Company: Smiths Medical, Inc. and WalkMed Infusion, LLC. The Company has
supply agreements in place with one 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 small-hospital market.
The Company purchases new and pre-owned pole mounted and ambulatory infusion pumps from a variety of sources on a
non-exclusive basis. The Company repairs, refurbishes and provides biomedical certification for the devices as needed. The pumps are then available for sale, rental or to be used within the Companys 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.
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Summary of Significant Accounting Policies
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Reclassifications
Certain prior period reclassifications were made to conform with the current period presentation. These reclassifications had no effect on
reported (loss) income, cash flows, total assets, or stockholders equity as previously reported.
Presentation in the Consolidated
Statements
The Company rents and sells medical equipment. Management believes that the predominant source of revenues and
cash flows from this medical equipment is from rentals and most equipment purchased is likely to be rented prior to being sold. Accordingly, the Company has concluded that (i) the assets specifically supporting its two primary revenue streams
should be separately disclosed on the balance sheet; (ii) the purchase and sale of medical equipment should be classified solely in investing cash flows based on their predominant source; and (iii) other activities ancillary to the rental
process should be consistently classified.
46
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 managements view of its business for purposes of evaluating performance and
making operating decisions.
The Company utilizes shared services including but not limited to, human resources, payroll,
finance, sales, pump repair and maintenance services, as well as certain shared assets and selling, general and administrative costs. The Companys approach is to make operational decisions and assess performance based on delivering products
and services that together provide solutions to its customer base, utilizing a functional management structure and shared services where possible. Based upon this business model, the chief operating decision maker only reviews consolidated financial
information.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements, including the
notes thereto. The Company considers critical accounting policies to be those that require more significant judgments and estimates in the preparation of its consolidated financial statements, including the following: revenue recognition, which
includes contractual adjustments, accounts receivable and allowance for doubtful accounts, sales return allowances, inventory reserves, long lived assets, intangible assets valuations and income tax valuations. Management relies on historical
experience and other assumptions believed to be reasonable in making its judgment and estimates. Actual results could differ materially from those estimates.
Business Combinations
The Company accounts for all business combinations
using the acquisition method of accounting, which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase
consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. The Company
may utilize third-party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, not to exceed one year from the date of acquisition. Acquisition-related
expenses and transaction costs associated with business combinations are expensed as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company
maintains its cash and cash equivalents primarily with two financial institutions and is insured with the Federal Deposit Insurance Corporation.
Accounts Receivable, Allowance for Doubtful Accounts and Contractual Allowances
Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable
value. Accounts receivable are reported at the estimated net realizable amounts from patients, third-party payors and other direct pay customers for goods provided and services rendered. The Company performs periodic analyses
47
to assess the accounts receivable balances. The Company records an allowance for doubtful accounts and contractual allowance (to reduce gross billed charges to a contractual or estimated net
realizable value from third-party payors) based on managements assessment of historical and expected estimated collectability of the accounts such that the recorded amounts reflect estimated net realizable value. Upon determination that an
account is uncollectible, the account is written-off and charged to the allowance for doubtful accounts for patients or the contractual allowance for third-party payors. The Companys allowance for doubtful accounts and contractual allowance
are a reduction to accounts receivable on the Companys consolidated financial position. Additions to the contractual allowance each period offset gross billed charges, which are not publicly reported in the Companys filings, to arrive at
net revenue, which is publicly reported in the Companys consolidated results of operations. Additions to the allowance for doubtful accounts, however, impact the bad debt expense line item of the Companys consolidated results of
operations.
Due to continuing changes in the health care industry and third-party reimbursement, it is possible that
managements estimates could change in the near term, which could have a material impact on the Companys consolidated business, financial position, results of operations and cash flows.
Following is an analysis of the allowance for doubtful accounts for the Company for the years ended December 31 (in thousands):
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|
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Balance at
beginning
of Year
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Charged
to costs and
expenses
|
|
|
Deductions (1)
|
|
|
Balance
at end of
Year
|
|
Allowance for doubtful accounts 2016
|
|
$
|
4,737
|
|
|
$
|
5,631
|
|
|
$
|
(5,379
|
)
|
|
$
|
4,989
|
|
Allowance for doubtful accounts 2015
|
|
$
|
4,739
|
|
|
$
|
5,234
|
|
|
$
|
(5,236
|
)
|
|
$
|
4,737
|
|
(1)
|
Deductions represent the write-off of uncollectible account receivable balances.
|
Inventories
The Companys inventories consist of disposable products
and related parts and supplies used in conjunction with medical equipment and are stated at the lower of cost (first-in, first-out basis) or market. The Company periodically performs an analysis of slow moving inventory and records a reserve based
on estimated obsolete inventory, which was $0.2 million and $0.1 million, respectively, as of December 31, 2016 and 2015.
Medical
Equipment
Medical Equipment (ME) consists of equipment that the Company purchases from third-parties and is 1)
held for sale or rent, and 2) used in service to generate rental revenue. ME, once placed into service, is depreciated using the straight-line method over the estimated useful lives of the equipment which is typically seven years. The Company does
not depreciate ME held for sale or rent. When ME in Rental Service assets are sold, or otherwise disposed, the cost and related accumulated depreciation are removed from the accounts and a sale is recorded in the current period. The Company
periodically performs an analysis of slow moving ME held for sale or rent and records a reserve based on estimated obsolescence, which was $0.6 million and $0.2 million, respectively, as of December 31, 2016 and 2015.
Property and Equipment
Property and equipment is stated at acquired cost and depreciated using the straight-line method over the estimated useful lives of the
related assets, ranging from three to seven years. Externally purchased information technology software and hardware are depreciated over three years. Leasehold improvements are amortized using the straight-line method over the life of the asset or
the remaining term of the lease, whichever is shorter. Maintenance and minor repairs are charged to operations as incurred. When assets are sold, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts
and any gain or loss is recorded in the current period.
48
Intangible Assets
Intangible assets consist of trade names, physician and customer relationships, non-compete agreements and software. The physician and customer relationships and non-compete agreements arose primarily
from the acquisitions of ISI and First Biomedical in 2010 and the acquisition of assets from Ciscura Holding Company, Inc. and its subsidiaries (Ciscura) in 2015. The Company amortizes the value assigned to the physician and customer
relationships on a straight-line basis over the period of expected benefit, which ranges from fifteen to twenty years. The acquired physician and customer relationship base represents a valuable asset of the Company due to the expectation of future
business opportunities to be leveraged from the existing relationship with each physician and customer. The Company has long-standing relationships with numerous oncology clinics, physicians, home care and home infusion providers, skilled nursing
facilities, pain centers and others. The useful lives of these relationships are based on minimal attrition experienced to date by the Company and expectations of continued minimal attrition. Non-compete agreements are amortized on a straight-line
basis with the amortization periods ranging from two to five years and acquired software is amortized on a straight-line basis over three years. Trade names associated with the original acquisition of InfuSystem are not amortized while trade names
from the Ciscura asset acquisition in 2015 are amortized over one year.
Management tests trade names for impairment annually
or as often as deemed necessary. The impairment test for intangible assets with indefinite lives consists of a comparison of the fair value of the intangible assets with their carrying amounts. If the carrying value of the intangible assets exceeds
the fair value, an impairment loss is recognized in an amount equal to that excess. The Company determines the fair value of the reporting unit for goodwill impairment testing based on a discounted cash flow model. The Company determines the fair
value of its intangibles assets with indefinite lives (trade names) through the royalty relief income valuation approach. The Company performed its annual impairment analysis as of October 2016 and determined that the fair value of the intangible
assets with indefinite lives (trade names) was greater than their carrying value, resulting in no impairment.
Software Capitalization and
Depreciation
We capitalize certain costs incurred in connection with obtaining or developing internal-use software,
including payroll and payroll-related costs for employees who are directly associated with the internal-use software project, external direct costs of materials and services and interest costs while developing the software. Capitalized software
costs are included in intangible assets, net and are amortized using the straight-line method over the estimated useful life of three to five years. Capitalization of such costs ceases when the project is substantially complete and ready for its
intended purpose. Costs incurred during the preliminary project and post-implementation stages, as well as software maintenance and training costs, are expensed in the period in which they are incurred. The company capitalized $3.5 million and $5.7
million of internal-use software for the years ended December 31, 2016 and 2015, respectively. Amortization expense for capitalized software was $1.7 million in 2016 and $0.4 million in 2015.
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 managements best estimates, appropriate assumptions and projections at the time. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is deemed
impaired and an impairment loss would be recognized to the extent the carrying value exceeded the estimated fair market value of the asset or asset group. The Company did not record any impairment related expenses for the years ended
December 31, 2016 and 2015, respectively.
49
Operating and Capital Leases
Leases for all of our corporate and other operating locations are under operating leases and the Company recognizes rent expense on a straight-line basis over the lease terms. Rent holidays and rent
escalation clauses, which provide for scheduled rent increases during the lease term, are taken into account in computing straight-line rent expense included in our consolidated statements of operations. The difference between the rent due under the
stated periods of the leases compared to that of the straight-line basis is recorded as a component of other long-term liabilities in the consolidated balance sheets. Landlord funded lease incentives, including tenant improvement allowances provided
for our benefit, are recorded as leasehold improvement assets and as deferred rent in the consolidated balance sheets and are amortized to depreciation expense and as rent expense credits, respectively. The Company periodically enters into capital
leases to finance the purchase of ambulatory infusion pumps. The pumps are capitalized into medical equipment in rental service at their fair market value, which equals the value of the future minimum lease payments, and are depreciated over the
useful life of the pumps. Under the terms of all such capital leases, the Company does not hold title to these pumps and will not obtain title until such time as the capital lease obligations are settled in full. The weighted average interest rate
under capital leases was 5.1% as of December 31, 2016.
Revenue Recognition
The Company recognizes revenue for selling, renting and servicing new and pre-owned infusion pumps and other medical equipment to oncology
practices as well as other alternate site settings including home care and home infusion providers, skilled nursing facilities, pain centers and others, and billing the oncology practice, or the third-party payor (TPP) or alternative
site setting when persuasive evidence of an arrangement exists; services have been rendered; the price to the customer is fixed or determinable; and collectability is reasonably assured. Persuasive evidence of an arrangement is determined to exist,
and collectability is reasonably assured, when the Company (i) receives a physicians written order and assignment of benefits, signed by the physician and patient, respectively, (ii) has verified actual pump usage via a patient
treatment log (PTL) and insurance coverage and (iii) receives patient acknowledgement of assignment of benefits. The Company recognizes rental revenue from electronic infusion pumps as earned, normally on a month-to-month basis.
Pump rentals are billed at the Companys established rates, which often differ from contractually allowable rates provided by third-party payors such as Medicare, Medicaid and commercial insurance carriers. All billings to third-party payors
are recorded net of provision for contractual adjustments to arrive at net revenues while billings made directly to an oncology practice and alternative site setting are recorded at a pre-determined amount with any uncollectible amount is recorded
as bad debt expense in general and administrative expenses. The Company performs an analysis to estimate sales returns and records an allowance for returns when the related sale is recognized. This estimate is based on historical sales returns.
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 managements estimates could change in the near term, which could have a material impact on the Companys results of operations and cash flows.
For 2016 and 2015, the Companys largest contracted payor was Medicare, which accounted for approximately 21% and 32% of our net
revenue from our Oncology Business for the years ended December 31, 2016 and 2015, respectively. Medicare represented 5% and 23% of the Companys consolidated accounts receivable, net for the years ended December 31, 2016 and 2015,
respectively. For 2016 and 2015, the Companys second largest contracted payor was a national association comprised of multiple members, which, in the aggregate, accounted for approximately 19% and 18% of our net revenue from our Oncology
Business for
50
the years ended December 31, 2016 and 2015, respectively. This same contracted payor represented 26% and 31% of the Companys consolidated accounts receivable, net for the years ended
December 31, 2016 and 2015, respectively. The Company also contracted with various other third-party payor organizations, commercial Medicare replacement plans, self-insured plans and numerous other insurance carriers. No individual payor,
other than those listed above, accounted for greater than approximately 10% of the Companys Oncology Business net revenue for 2016 or 2015.
Income Taxes
The Company recognizes deferred income tax liabilities and
assets based on: (1) the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years the differences are expected to reverse and (2) the tax credit
carry forwards. Deferred income tax (expense) benefit results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all
of any deferred tax assets will not be realized.
Provisions for federal, state and foreign taxes are calculated based on
reported pre-tax earnings based on current tax law and include the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Certain items of income and expense are recognized in
different time periods for financial reporting than for income tax purposes; thus, such provisions differ from the amounts currently receivable or payable.
The Company follows a two-step approach for recognizing uncertain tax positions. First it evaluates the tax position for recognition by determining if the weight of available evidence indicates that it is
more-likely-than-not to be sustained upon examination. Second, for positions that are determined to be more-likely-than-not to be sustained, it recognizes the tax benefits as the largest benefit that has a greater than 50% likelihood of being
sustained. The Company establishes a reserve for uncertain tax positions liability that is comprised of unrecognized tax benefits and related interest and penalties. The Company recognizes interest and penalties related to uncertain tax positions in
the provision of income taxes.
Share Based Payments
The determination of the fair value of stock option awards on the date of grant using option-pricing models is affected by the Companys stock price, as well as assumptions regarding a number of
other inputs using the Black-Scholes pricing model. These variables include the Companys expected stock price volatility over the expected term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest
rates and expected dividends. The expected volatility is based on the historical volatility. The Company uses historical data to estimate stock option exercise and forfeiture rates. The expected term represents the period over which the share-based
awards are expected to be outstanding. The dividend yield is an estimate of the expected dividend yield on the Companys stock. The risk-free rate is based on U.S. Treasury yields in effect at the time of the grant for the expected term of the
stock options. All stock option awards are amortized based on their graded vesting over the requisite service period of the awards. Compensation costs are recognized over the requisite service period using the accelerated method and included in
selling expenses and general and administrative expenses, based upon the department to which the associated employee or non-employee resides.
Deferred Debt Issuance Costs
Capitalized debt issuance costs as of December 31, 2016 and 2015 relate to the Chase Credit Facility. The Company classified the costs related to the agreement as non-current liabilities and
amortizes them using the interest method through the maturity date of the underlying debt.
51
Earnings Per Share
The Company reports its earnings per share in accordance with the Earnings Per Share topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC), which requires the presentation of both basic and diluted earnings per share on the statements of operations. The diluted weighted average common shares include adjustments for the potential effects of outstanding stock options
but only in the periods in which such effect is dilutive under the treasury stock method. Included in our basic and diluted weighted average common shares are those stock options and common stock shares due to participants granted from the 2014
stock incentive plan. Antidilutive stock awards are comprised of stock options and unvested share awards, which would have been antidilutive in the application of the treasury stock method in accordance with Earnings Per Share topic of
FASB ASC.
In accordance with this topic, the following table reconciles income and share amounts utilized to calculate basic
and diluted net (loss) income per common share (in thousands, except shares):
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2016
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2015
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Numerator:
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Net (loss) income
(in thousands)
|
|
$
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(222
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)
|
|
$
|
2,785
|
|
Denominator:
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|
|
|
|
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Weighted average common shares outstanding:
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|
|
|
|
|
|
|
|
Basic
|
|
|
22,617,901
|
|
|
|
22,414,587
|
|
Dilutive effect of restricted shares, options and non-vested share awards
|
|
|
|
|
|
|
428,648
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
22,617,901
|
|
|
|
22,843,235
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|
|
|
|
|
|
|
|
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Antidilutive awards:
|
|
|
90,715
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|
|
|
43,215
|
|
Stock options of 0.1 million were not included in the calculation for both of the years ended
December 31, 2016 and 2015, 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, 2016 and 2015 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 Companys 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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52
Recent Accounting Pronouncements and Developments
In August 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-15 Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU introduce clarifications to the presentation of certain cash receipts and cash payments in the statement of cash flows. The primary updates include additions and
clarifications of the classification of cash flows related to certain debt repayment activities, contingent consideration payments related to business combinations, proceeds from insurance policies, distributions from equity method investees and
cash flows related to securitized receivables. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of this ASU is permitted, including in interim
periods. The ASU requires retrospective application to all prior periods presented upon adoption. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on its cash flows and/or disclosures, however, the
Company does not anticipate that the adoption of this new standard will have a material impact on the Companys financial position, results of operations or statements of cash flow upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments (Topic 326) Credit Losses. ASU 2016-13 changes the
impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the
net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on
the financial asset. ASU 2016-13 is effective as of January 1, 2020. Early adoption is permitted. The Company is currently evaluating the impact of ASU 2016-13. The adoption of this standard is not expected to have a material impact on the
Companys consolidated financial statements or footnote disclosures.
In March 2016, the FASB issued ASU
No. 2016-09, Compensation Stock Compensation (Topic 718) (ASU 2016-09). The guidance changes how companies account for certain aspects of equity-based payments to employees. Entities will be required to recognize
income tax effects of awards in the income statement when the awards vest or are settled. The guidance also allows an employer to repurchase more of an employees shares than it can under current guidance for tax withholding purposes providing
for withholding at the employees maximum rate as opposed to the minimum rate without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The updated guidance is effective for annual periods
beginning after December 15, 2016. Early adoption is permitted. Under todays guidance, the Company does not recognize the income tax effects of awards that have vested or are settled until they actually reduce taxes payable. This standard
will require the Company to recognize these effects when they are vested or are settled. The adoption of this standard is not expected to have a material impact on the Companys financial position, results of operations or statements of cash
flows upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)
(ASU 2016-02). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific
accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess
the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period,
and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact that the adoption of this guidance will have on its financial position, results of operations, cash flows and/or
disclosures. However, the Company expects that the adoption of the provisions of ASU 2016-02 will have a material impact on its consolidated balance sheet, as currently most of its real estate is leased via operating leases.
In April 2015, the FASB issued ASU No. 2015-03, Interest Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs (ASU 2015-03), and, in August 2015, the FASB issued
53
ASU No. 2015-15, Interest Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit
Arrangements Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (ASU 2015-15). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented
in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-15 then clarified that debt issuance costs related to a line-of-credit arrangement can be presented as an asset
on the balance sheet, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. These ASUs are effective for fiscal years beginning after December 15, 2015, and for interim periods within those fiscal years.
The Company adopted this guidance as of January 1, 2016, and as a result, has recast the December 31, 2015 consolidated balance sheet to conform to the current period presentation. The adoption of this standard reduced previously presented
other assets and long-term debt by $0.1 million, based upon the balance of unamortized debt issuance costs relating to its credit facility as of December 31, 2015.
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers
(ASU 2014-09),
which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will supersede the existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits
the use of either a retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14, deferring the effective date of ASU 2014-09 for public companies to annual reporting periods beginning after
December 15, 2017. Early adoption is permitted but only beginning after December 15, 2016. The Company plans to adopt ASU 2014-09 on January 1, 2018. The Company is evaluating the effect that ASU 2014-09 will have on its
financial position, results of operations, cash flows and/or disclosures and has not yet selected a transition method.
Acquisitions
Accounted for Using the Purchase Method
On April 20, 2015 (the Closing Date), the Company acquired
substantially all of the assets of Ciscura for $6.2 million in cash, based on the final number of pumps acquired and the associated treatments, which were generated during the 90-day period post-closing from the approximately 100 medical facility
relationships Ciscura had prior to the acquisition. The Company acquired approximately 1,800 infusion pumps, its four-person field sales team, as well as its facilities management personnel, which have become the foundation of the Companys new
Southeast facility. Ciscura, based in Alpharetta, GA, was a privately-held Southeastern regional provider of ambulatory infusion pumps and services to medical facilities and will provide the Company with a new regional warehouse and service facility
that will be in close proximity to a number of our largest existing customers, in addition to new customers previously serviced by Ciscura, enabling same day service for equipment and supplies to much of the Southeast region. The Company used
available borrowings under our credit facility to finance the acquisition and associated expenses. As of December 31 2015, $6.2 million of the purchase price was paid in cash and approximately $0.7 million for integration, professional and
other related expenses were expensed as incurred and are included in General and Administrative expenses in the Companys consolidated statements of operations. The Company did not disclose the revenue and income of Ciscura for the period from
the acquisition date through December 31, 2015 as it was not practical due to the fact that the operations were substantially integrated. See Note 7 Debt of the Notes to the Consolidated Financial Statements included in this Form 10-K
for additional information pertaining to this funding.
54
Final Purchase Price Allocation
Pursuant to ASC 805,
Business Combinations,
the final purchase price was allocated to the assets acquired and
liabilities assumed based upon their fair values as of the Closing Date. The final purchase price allocation was primarily based upon a valuation using income and cost approaches and managements estimates and assumptions. The allocation of the
final purchase price to the fair values of the assets acquired and liabilities assumed as of the Closing Date is presented below (in thousands):
|
|
|
|
|
|
|
Amount
|
|
Medical equipment in rental service
|
|
$
|
2,289
|
|
Trade names and Trademarks
|
|
|
23
|
|
Customer relationships
|
|
|
3,393
|
|
Furniture and fixtures
|
|
|
20
|
|
Leasehold improvements
|
|
|
185
|
|
Non-competition agreements
|
|
|
246
|
|
|
|
|
|
|
Total final purchase price
|
|
$
|
6,156
|
|
|
|
|
|
|
Acquired property and equipment are being depreciated on a straight-line basis with estimated remaining
lives ranging from 1 year to 7 years.
Medical equipment consisted of the following as of December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Medical Equipment held for sale or rental
|
|
$
|
1,642
|
|
|
$
|
2,277
|
|
Medical Equipment in rental service
|
|
|
59,034
|
|
|
|
53,681
|
|
Medical Equipment in rental service pump reserve
|
|
|
(551
|
)
|
|
|
(232
|
)
|
Accumulated depreciation
|
|
|
(30,447
|
)
|
|
|
(25,612
|
)
|
|
|
|
|
|
|
|
|
|
Medical Equipment in rental service net
|
|
|
28,036
|
|
|
|
27,837
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,678
|
|
|
$
|
30,114
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2016 and 2015 was $6.3 million and $4.8
million, respectively, which were recorded in cost of revenues pump depreciation and loss on disposal.
5.
|
Property and Equipment
|
Property and equipment consisted of the following as of December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
Gross
Assets
|
|
|
Accumulated
Depreciation
|
|
|
Total
|
|
Furniture, fixtures, and equipment
|
|
$
|
3,809
|
|
|
$
|
(3,071
|
)
|
|
$
|
738
|
|
Automobiles
|
|
|
129
|
|
|
|
(83
|
)
|
|
|
46
|
|
Leasehold improvements
|
|
|
2,177
|
|
|
|
(964
|
)
|
|
|
1,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,115
|
|
|
$
|
(4,118
|
)
|
|
$
|
1,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
Gross
Assets
|
|
|
Accumulated
Depreciation
|
|
|
Total
|
|
Furniture, fixtures, and equipment
|
|
$
|
2,330
|
|
|
$
|
(1,382
|
)
|
|
$
|
948
|
|
Automobiles
|
|
|
84
|
|
|
|
(76
|
)
|
|
|
8
|
|
Leasehold improvements
|
|
|
2,240
|
|
|
|
(826
|
)
|
|
|
1,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,654
|
|
|
$
|
(2,284
|
)
|
|
$
|
2,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for each of the years ended December 31, 2016 and 2015 was $0.6 million and was
recorded in general and administrative expenses.
The
carrying amount and accumulated amortization of intangible assets as of December 31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
Gross Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Nonamortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
$
|
2,000
|
|
|
$
|
|
|
|
$
|
2,000
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
23
|
|
|
|
23
|
|
|
|
|
|
Physician and customer relationships
|
|
|
36,534
|
|
|
|
19,427
|
|
|
|
17,107
|
|
Non-compete agreements
|
|
|
1,136
|
|
|
|
1,064
|
|
|
|
72
|
|
Software
|
|
|
13,745
|
|
|
|
1,685
|
|
|
|
12,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonamortizable and amortizable intangible assets
|
|
$
|
53,438
|
|
|
$
|
22,199
|
|
|
$
|
31,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
Gross Assets
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Nonamortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
$
|
2,000
|
|
|
$
|
|
|
|
$
|
2,000
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
23
|
|
|
|
15
|
|
|
|
8
|
|
Physician and customer relationships
|
|
|
36,258
|
|
|
|
17,049
|
|
|
|
19,209
|
|
Non-compete agreements
|
|
|
1,094
|
|
|
|
930
|
|
|
|
164
|
|
Software
|
|
|
11,942
|
|
|
|
1,789
|
|
|
|
10,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonamortizable and amortizable intangible assets
|
|
$
|
51,317
|
|
|
$
|
19,783
|
|
|
$
|
31,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining lives of physician and customer relationships, non-compete agreements and
software are 8-years, 1-year and 3-years, respectively, as of December 31, 2016.
Amortization expense for intangible
assets for the years ended December 31, 2016 and 2015 was $3.8 million and $2.8 million, respectively, which was recorded in operating expenses. Expected annual amortization expense for the next five years for intangible assets recorded as of
December 31, 2016 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022 and
thereafter
|
|
Amortization expense
|
|
$
|
5,649
|
|
|
$
|
5,274
|
|
|
$
|
4,841
|
|
|
$
|
4,298
|
|
|
$
|
3,943
|
|
|
$
|
5,234
|
|
56
On January 23,
2015, the Company entered into the third amendment (Third Amendment) to the credit agreement with Wells Fargo Bank, National Association (Wells Fargo), as Administrative Agent, and Wells Fargo and funds managed by PennantPark
Investment Advisers, LLC (PennantPark) as Lenders (the WF Credit Agreement). The WF Credit Agreement consisted of a $12.0 million Term Loan A (provided by Wells Fargo), a $14.5 million Term Loan B (provided by PennantPark)
and a $10.0 million revolving credit facility, all of which were scheduled to mature on November 30, 2016 (collectively the WF Credit Facility). This Third Amendment increased the maximum Leverage Covenant ratio for the period
ending December 31, 2014 and all subsequent periods to 2.00:1.00. Prior to this amendment, the maximum Leverage Covenant ratio for the periods ending (a) December 31, 2014 through March 31, 2015 was 1.50:1.00,
(b) June 30, 2015 through September 30, 2015 was 1.25:1.00, (c) December 31, 2015 through September 30, 2016 was 1.00:1.00.
On March 23, 2015, the Company and its direct and indirect subsidiaries entered into a credit agreement (the Chase Credit Agreement) with JPMorgan Chase Bank, N.A., as lender (the
Lender). The borrowers under the Chase Credit Agreement are the Company, InfuSystem Holdings USA, Inc. (Holdings), ISI, First Biomedical and IFC LLC (collectively, the Borrowers). The Chase Credit Agreement
consists of a $27.0 million Term Loan A, up to $8.0 million Term Loan B and a $10.0 million revolving credit facility (the Revolver), all of which mature on March 23, 2020, (collectively, the Chase Credit Facility).
On March 23, 2015, the Borrowers drew $27.0 million under the Term Loan A to repay and terminate the WF Credit Facility.
Term Loan B was unfunded at closing and beginning on April 20, 2015, the Closing Date of the acquisition of the assets of Ciscura, the Borrowers drew on Term Loan B in several installments in accordance with the requirements of the asset
purchase agreement governing the acquisition to fund the acquisition and associated expenses. As of December 31, 2015, a total of approximately $6.3 million had been drawn on Term Loan B, with an additional $1.7 million available to be drawn
under certain conditions for acquisitions. The Company recorded a $1.6 million as loss on extinguishment of long-term debt in its consolidated statement of operations as of December 31, 2015 for the write-off of deferred financing costs
associated with the WF Credit Facility.
Under the terms of the Chase Credit Agreement, principal payments equal to $1.0
million are due on Term Loan A on the last business day of each quarter beginning with the last business day of September 2015 and are due until the maturity date of the Chase Credit Facility. Principal payments on Term Loan B are due on the last
business day of each fiscal quarter beginning with the last business day of March 2016. The value of each principal payment due on Term Loan B shall be equal to 3.575% of the principal balance of Term Loan B as of the Term Loan B Draw Expiration
Date for the first eight quarterly payments. Thereafter, the next eight principal payments shall be equal to 4.475% of the principal balance of Term Loan B as of the Term Loan B Draw Expiration Date. The entire outstanding balance of the revolver
shall be due at the maturity of the Chase Credit Facility.
During the year ended December 31, 2015, the Company made
optional pre-payments of $4.8 million on our Term Loan A, which was applied against a future mandatory payment. Prepayments of $1.9 million were applied to the September 30, 2015 and December 31, 2015 Term Loan A required principal
payments and prepayments of $2.9 million were applied to the March 31, 2016, June 30, 2016 and September 30, 2016 Term Loan A required principal payments.
The restatement error and the Companys decision to prepay debt, would have resulted in the Company being non-compliant with its fixed charge coverage ratio covenant under its credit facility as of
March 31, 2016, however, as of June 30, 2016, the Company would have been in compliance with this ratio covenant. As a result of the Companys restatement of prior consolidated financial statements described herein, the following
Events of Default occurred under the Chase Credit Agreement:
|
(i)
|
an Event of Default resulting from our breach of the Fixed Charge Coverage covenant as of March 31, 2016 as required under Section 6.12(b); and
|
57
|
(ii)
|
an Event of Default resulting from the unintentional misrepresentations made prior to the date of the First Amendment in connection with the certification as to the
accuracy of the financial statements and compliance certificate delivered pursuant to Section 5.01 as they relate solely to the source of the error that has necessitated the restatement discussed herein.
|
The Company also experienced an Event of Default due to the delay in filing its Form 10-Q for the quarter ended September 30, 2016
because of its financial restatement.
In order to cure these violations, the Company entered into the first amendment to
credit agreement and waiver (First Amendment) on December 5, 2016. This First Amendment amends the Chase Credit Agreement in the following material respects:
|
(i)
|
a waiver of the Event of Default that resulted from the failure to timely deliver the unaudited financial statements for the fiscal quarter ended September 30,
2016 as required under Section 5.01(b) and (c);
|
|
(ii)
|
a waiver of the Event of Default that resulted from breach of the Fixed Charge Coverage covenant as of March 31, 2016 as required under Section 6.12(b);
|
|
(iii)
|
a waiver of the Event of Default that resulted from the unintentional misrepresentations made prior to the date of the First Amendment in connection with the
certification as to the accuracy of the financial statements and compliance certificate delivered pursuant to Section 5.01 as they relate solely to the source of the error that has necessitated the restatement discussed herein;
|
|
(iv)
|
a restructuring of the credit facility that effectively consolidated Term Loan A and Term Loan B into a single Term Loan resulting in a new total drawn amount of $32
million under the Term Loan with the approximately $5 million excess over the current aggregate drawn amounts under Term Loan A and Term Loan B to be available to reduce the Companys drawings under the revolving credit line;
|
|
(v)
|
set the maturity of the new Term Loan described in item (iv) and the revolving credit line to five years from the effective date of the First Amendment;
|
|
(vi)
|
set the quarterly mandatory principal payment due on the Term Loan to $1.3 million due on the last business day of each fiscal quarter with any remaining unpaid and
outstanding amount due at maturity;
|
|
(vii)
|
amend the deadline for delivery of consolidated financial statements to allow for the delivery of such statements for the quarter ended September 30, 2016 by
December 16, 2016;
|
|
(viii)
|
amend the deadline for delivery of the Companys annual financial plan and forecast to 30 days after the end of each fiscal year;
|
|
(ix)
|
amend the Leverage Ratio covenant to provide for the following schedule of maximum permitted ratios: (i) 3.0 to 1.0 at any time on or after the effective date but
prior to December 31, 2015, (ii) 2.75 to 1.0 at any time on or after December 31, 2015 but prior to March 31, 2017, (iii) 2.50 to 1.0 at any time on or after March 31, 2017 but prior to March 31, 2018 or
(iv) 2.25 to 1.00 at any time on or after March 31, 2018;
|
|
(x)
|
amend the definition of EBITDA to provide for the exclusion of certain one-time expenses directly related to the financial restatement described herein; and
|
|
(xi)
|
amend Section 8.01(a) to replace references to Jonathan Foster with Christopher Downs.
|
As of December 31, 2016, interest on the Chase Credit Facility was payable at the Borrowers choice as a (i) Eurodollar
Loan, which bears interest at a per annum rate equal to LIBOR, plus a margin ranging from 2.00% to 2.50% or (ii) CBFR Loan, which bears interest at a per annum rate equal to (a) the Lenders prime rate or (b) LIBOR for a 30-day
interest period, plus 2.50%, in each case plus a margin ranging from -0.75% to -0.25%. The actual rate at December 31, 2016 was 3.27% (LIBOR of 0.77% plus 2.50%).
58
The availability under the Revolver is based upon the Borrowers eligible accounts
receivable and eligible inventory and is computed as of December 31 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Gross availability
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
Outstanding draws
|
|
|
|
|
|
|
|
|
Letter of credit
|
|
|
|
|
|
|
(81
|
)
|
Landlord Reserves
|
|
|
(45
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
Availability on Revolver
|
|
$
|
9,955
|
|
|
$
|
9,882
|
|
|
|
|
|
|
|
|
|
|
To secure repayment of the obligations of the Borrowers, each Borrower has granted to the Lender, for the
benefit of various secured parties, a first priority security interest in substantially all of the personal property assets of each of the Borrowers. In addition, the Company has pledged the shares of Holdings and Holdings has pledged the shares of
each of ISI and First Biomedical and the equity interests of IFC LLC to the Lender, for the benefit of the secured parties, to further secure the obligations under the Chase Credit Agreement.
The Chase Credit Agreement contains certain affirmative and negative covenants typical for credit facilities of this type. These
covenants (subject to certain agreed and customary exceptions set forth in the Chase Credit Agreement) restrict or limit subject to the Lenders prior consent, and in some cases prohibit, the Borrowers from engaging in certain actions,
including its ability to, among other things: (i) incur indebtedness; (ii) create liens; (iii) engage in mergers, consolidations, liquidations or dissolutions; (iv) engage in acquisitions; (v) dispose of assets;
(vi) pay dividends and distributions or repurchase capital stock or make other restricted payments; (vii) make investments, loans, guarantees or advances; (viii) engage in certain transactions with affiliates; (ix) enter into
sale and leaseback transactions; (x) enter into hedging agreements; (xi) enter into agreements that restrict distributions from subsidiaries; and (xii) change their fiscal year.
In addition, the Chase Credit Agreement requires the Borrowers to maintain the following financial covenant obligations:
|
(i)
|
a minimum fixed charge coverage ratio of 1.25:1.00;
|
|
(ii)
|
a maximum total leverage ratio ranging from 3.00:1.00 to 2.25:1.00 during specified periods; and
|
|
(iii)
|
a minimum net worth of $37.5 million.
|
As of December 31, 2016, the Company was in compliance with all such covenants.
The Company had approximate future maturities of loans and capital leases as of December 31, 2016 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Total
|
|
Term Loan A
|
|
$
|
5,336
|
|
|
$
|
5,336
|
|
|
$
|
5,336
|
|
|
$
|
5,336
|
|
|
$
|
10,656
|
|
|
$
|
32,000
|
|
Unamortized value of the debt issuance costs (a)
|
|
|
(22
|
)
|
|
|
(22
|
)
|
|
|
(22
|
)
|
|
|
(22
|
)
|
|
|
(21
|
)
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,314
|
|
|
$
|
5,314
|
|
|
$
|
5,314
|
|
|
$
|
5,314
|
|
|
$
|
10,635
|
|
|
$
|
31,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes the reclassification of the debt issuance costs as a result of the Company adopting ASU 2015-03 (see Note 2)
|
59
The following is a breakdown of the Companys current and long-term debt (including
capital leases) as of December 31, 2016 and December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31, 2015
|
|
|
|
Current
Portion of
Long-Term
Debt
|
|
|
Long-Term
Debt
|
|
|
Total
|
|
|
|
|
|
Current
Portion of
Long-Term
Debt
|
|
|
Long-Term
Debt
|
|
|
Total
|
|
Term Loans
|
|
$
|
5,336
|
|
|
$
|
26,664
|
|
|
$
|
32,000
|
|
|
|
Term Loans
|
|
|
$
|
1,873
|
|
|
$
|
26,651
|
|
|
$
|
28,524
|
|
Unamortized value of the debt issuance costs (a)
|
|
|
(22
|
)
|
|
|
(87
|
)
|
|
|
(109
|
)
|
|
|
Unamortized value of
the debt issuance
costs (a)
|
|
|
|
(31
|
)
|
|
|
(103
|
)
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,314
|
|
|
$
|
26,577
|
|
|
$
|
31,891
|
|
|
|
Total
|
|
|
$
|
1,842
|
|
|
$
|
26,548
|
|
|
$
|
28,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes the reclassification of the debt issuance costs as a result of the Company adopting ASU 2015-03 (see Note 2)
|
The
following table summarizes (loss) income before income taxes for the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
U.S (loss) income
|
|
$
|
(600
|
)
|
|
$
|
3,752
|
|
Non-U.S. income
|
|
|
236
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
$
|
(364
|
)
|
|
$
|
3,989
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the components of the consolidated provision for income taxes for the
years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
U.S Federal income tax benefit (expense)
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
|
|
|
$
|
|
|
Deferred
|
|
|
157
|
|
|
|
(970
|
)
|
|
|
|
|
|
|
|
|
|
Total U.S. Federal income tax benefit (expense)
|
|
|
157
|
|
|
|
(970
|
)
|
State and local income tax (expense) benefit
|
|
|
|
|
|
|
|
|
Current
|
|
|
(58
|
)
|
|
|
(101
|
)
|
Deferred
|
|
|
83
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
Total state and local income tax benefit (expense)
|
|
|
25
|
|
|
|
(269
|
)
|
|
|
|
|
|
|
|
|
|
Foreign income tax (expense) benefit
|
|
|
|
|
|
|
|
|
Current
|
|
|
(40
|
)
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit (expense)
|
|
$
|
142
|
|
|
$
|
(1,204
|
)
|
|
|
|
|
|
|
|
|
|
60
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:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Income tax expense at the statutory rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
State and local income tax expense
|
|
|
9.16
|
%
|
|
|
5.81
|
%
|
Foreign income tax
|
|
|
(3.79
|
%)
|
|
|
(0.33
|
%)
|
Permanent differences
|
|
|
(38.40
|
%)
|
|
|
1.05
|
%
|
Research & Development Credits
|
|
|
37.81
|
%
|
|
|
(10.47
|
%)
|
Other adjustments
|
|
|
0.31
|
%
|
|
|
0.14
|
%
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
39.09
|
%
|
|
|
30.20
|
%
|
|
|
|
|
|
|
|
|
|
The following table summarizes the temporary differences and carryforwards that give rise to deferred tax
assets and liabilities as of December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Deferred Federal tax assets
|
|
|
|
|
|
|
|
|
Bad debt reserves
|
|
$
|
1,710
|
|
|
$
|
1,612
|
|
Stock based compensation
|
|
|
668
|
|
|
|
636
|
|
Net operating loss
|
|
|
8,184
|
|
|
|
5,649
|
|
Accrued compensation
|
|
|
280
|
|
|
|
624
|
|
Alternative minimum tax credit
|
|
|
73
|
|
|
|
73
|
|
Inventories
|
|
|
69
|
|
|
|
52
|
|
Accrued rent
|
|
|
46
|
|
|
|
51
|
|
Goodwill and intangible assets
|
|
|
6,675
|
|
|
|
7,919
|
|
Research & Development Credits
|
|
|
534
|
|
|
|
418
|
|
Other Credits
|
|
|
5
|
|
|
|
3
|
|
Other
|
|
|
189
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
Total deferred Federal tax assets
|
|
|
18,433
|
|
|
|
17,116
|
|
|
|
|
|
|
|
|
|
|
Deferred Federal tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and asset basis differences
|
|
|
(4,725
|
)
|
|
|
(3,358
|
)
|
Other
|
|
|
(157
|
)
|
|
|
(364
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred Federal tax liabilities
|
|
|
(4,882
|
)
|
|
|
(3,722
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred Federal tax assets
|
|
|
13,551
|
|
|
|
13,394
|
|
Net deferred state and local tax assets
|
|
|
1,560
|
|
|
|
1,477
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
15,111
|
|
|
$
|
14,871
|
|
|
|
|
|
|
|
|
|
|
The classification of net deferred income taxes as of December 31, 2016 is summarized (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
Deferred tax assets
|
|
$
|
2,675
|
|
|
$
|
19,067
|
|
|
$
|
21,742
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
(6,631
|
)
|
|
|
(6,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
2,675
|
|
|
$
|
12,436
|
|
|
$
|
15,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
The classification of net deferred tax assets as of December 31, 2015 is summarized (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Long-term
|
|
|
Total
|
|
Deferred tax assets
|
|
$
|
2,743
|
|
|
$
|
17,278
|
|
|
$
|
20,021
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
(5,150
|
)
|
|
|
(5,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income taxes
|
|
$
|
2,743
|
|
|
$
|
12,128
|
|
|
$
|
14,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016 the Company recognized a benefit of $0.6 million for research and
development credits pertaining to the Companys development of software that enables third parties to interact, initiate functions or review data on the Companys system.
As of December 31, 2016 and 2015, the Company had federal net operating loss carryforwards remaining of approximately $24.1 million
and $15.5 million, respectively.
The Companys deferred tax asset related to net operating losses (NOLs) is
less than the actual NOLs available for tax return filings. The U.S. Federal NOL carryforwards include $0.6 million relating to deductions taken with respect to stock option exercises in excess of amounts recognized for financial reporting purposes
for which a benefit would be recorded in APIC when realized. This portion of the NOL carryforwards is not included as a component of the Companys deferred tax asset. Therefore, the Company did not recognize the benefit of tax deductions
allowed for stock option exercises in excess of compensation expense recognized for financial reporting purposes, because the Company has NOL carryforwards available and it did not reduce income tax payable.
The Companys federal net operating loss carryforwards of approximately $24.1 million will begin to expire in various years
beginning in 2028. The state net operating losses of approximately $0.8 million can be used for a period of 5 to 20 years and vary by state, and if unused, begin to expire in 2017, though a substantial portion expires beyond 2017. Tax benefits of
operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. The Company expects to be able to
utilize these net operating loss carryforwards and therefore has not recorded a valuation allowance which is described in more detail below.
The Companys realization of its deferred tax assets is dependent upon many factors, including, but not limited to, the Companys ability to generate sufficient taxable income. Management
assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Based on historical performance, sufficient earnings history exists to support the
realization of the deferred tax assets. In addition, the Company has significant future reversals of taxable temporary differences such as depreciation and amortization that will provide a source of taxable income. The evidenced ability to generate
sufficient taxable income such as cumulative earnings in recent years and significant future reversals of taxable temporary differences is the basis for the Companys assessment that the deferred tax assets are more likely than not to be
realized.
The Company had no uncertain tax positions for the years ended December 31, 2016 and 2015.
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 2013 through 2016 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 2012 through 2016 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
62
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).
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.
As a result of the restatement of the Companys financial statements as of December 31, 2015 and the first and second quarter of 2016, the Company is currently involved in a class-action lawsuit
filed by shareholders. On November 8, 2016, a purported shareholder of the Company filed a putative class action in the U.S. District Court for the Central District of California (the Court) (Case No. 2:16-cv-08295-ODW) against the
Company and two individual defendants: Eric Steen, the Companys current Chief Executive Officer, President and director; and Jonathan Foster, the Companys former Chief Financial Officer. The complaint alleges that the defendants issued
materially false and misleading statements in and/or omitted material facts from documents filed with the SEC between May 12, 2015 and November 7, 2016. The complaint asserts claims against all defendants under the antifraud provisions of the
federal securities laws and against Messrs. Steen and Foster as control persons. The complaint seeks compensatory damages for the putative class, prejudgment and post-judgment interest, attorneys fees and other costs. Two other shareholders
subsequently filed motions for appointment as lead plaintiff and for appointment of their attorneys as lead counsel for the putative class. On February 17, 2017, the Court appointed a lead plaintiff for the putative class. The parties have entered
into a stipulation, adopted by the Court, pursuant to which it is expected that the lead plaintiff will file a consolidated amended complaint that will be the operative complaint going forward.
The Company has not determined that losses related to the foregoing matters are probable. Because the allegations of the operative
complaint are not yet known, together with the inherent difficulty of predicting the outcome of litigation generally, the Company does not have sufficient information to determine the amount or range of reasonably possible loss with respect to these
matters. The Companys assessments are based on estimates and assumptions that have been deemed reasonable by management, but that may prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause
the Company to change those estimates and assumptions. The Company and the individual defendants intend to vigorously defend the claims asserted against them in these matters, but there can be no assurances as to the outcome for such matters.
The Company is not at this time involved in any additional legal proceedings that the Company believes could have a material
effect on the Companys financial condition, results of operations or cash flows.
The Company
leases office space, service facility centers and equipment under non-cancelable capital and operating lease arrangements. The Company periodically enter into capital leases to finance the purchase of ambulatory infusion pumps. The pumps are
capitalized into medical equipment in rental service at their fair
63
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 5.1%
as of December 31, 2016. The leases for office space and service facility centers used in the Companys 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, 2016 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
|
Total
|
|
2017
|
|
$
|
3,114
|
|
|
$
|
990
|
|
|
$
|
4,104
|
|
2018
|
|
|
1,826
|
|
|
|
831
|
|
|
|
2,657
|
|
2019
|
|
|
571
|
|
|
|
562
|
|
|
|
1,133
|
|
2020
|
|
|
274
|
|
|
|
178
|
|
|
|
452
|
|
2021
|
|
|
|
|
|
|
181
|
|
|
|
181
|
|
Thereafter
|
|
|
|
|
|
|
938
|
|
|
|
938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total require payments
|
|
$
|
5,785
|
|
|
$
|
3,680
|
|
|
$
|
9,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest (3.1% to 10.5%)
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
5,511
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
(2,938
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term capital lease liability
|
|
$
|
2,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016 and 2015, pump assets obtained under capital leases, had a cost of
approximately $13.9 million and $11.2 million, respectively, and accumulated depreciation of $3.9 million and $2.4 million, respectively. Included in depreciation expense for the years ended December 31, 2016 and 2015 was $6.3 million and
$4.8 million, respectively, which were recorded in cost of revenues pump depreciation and loss on disposal.
The
Company had minimum future operating lease commitments, mainly related to its leased facilities. Related rental expense for facilities and other equipment from third parties under operating leases approximated $1.0 million.
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 and restricted stock awards were
made available to certain employees, directors and others approved by the Companys Board of Directors (the Board) or Compensation Committee. Stock options are granted at, or above, fair market value and generally expire in three to ten
years from the grant date. Restricted stock awards are granted at the fair market value on the date of grant and generally become exercisable over a period of up to four years. Awards typically vest and are issued only if the participants remain
employed by the Company through the vesting date. Stock options and restricted stock awards are issued from shares under one of the Companys plans described below. Grants may be made in the form of stock options, restricted stock units or
unrestricted common stock.
64
On April 23, 2014, the Companys Board adopted the 2014 Amended and Restated Stock
Incentive Plan (the 2014 Plan). The 2014 Plan was approved by the Companys shareholders at the 2014 Annual Meeting and became effective as of the date it was adopted by the Board of Directors. The 2014 Plan provides for the
issuance of a maximum of 2.0 million shares of common stock in connection with the grant of stock-based or stock-denominated awards. As of December 31, 2016, a total of 0.7 million common shares remained available for future grant
under the 2014 Plan. The 2014 Plan replaced our 2007 Stock Incentive Plan (the Plan) and provided for the issuance of a maximum of 2.0 million shares of common stock in connection with the grant of stock-based or stock-denominated
awards. On May 27, 2011, the Companys stockholders approved the reservation of an additional 3.0 million shares to be issued under the Plan. The Plan is no longer in effect other than for stock options that were previously granted
and remain outstanding. Options representing approximately 0.5 million and rights representing less than 0.1 million remain outstanding under this plan. Restricted stock awards currently outstanding under the Plan will remain outstanding
in accordance with the terms of that plan.
The Company granted restricted shares and stock options under the Plan and 2014
Plan during the year ended December 31, 2015 and stock options under the 2014 Plan during the year ended December 31, 2016.
Shares Forgone to Satisfy Minimum Statutory Withholdings
During the years ended December 31, 2016 and 2015, 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 Companys 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, 2016 and 2015, respectively, the Company received 0.1 million shares from employees for tax withholding obligations.
Restricted Shares
During the year ended December 31, 2016, the
Company did not grant any restricted shares. During the year ended December 31, 2015, the Company granted 0.1 million restricted shares, which vest over a three- or four-year period only if the participants remain employed by the Company
through the vesting date. Restricted shares entitle the holder to receive, upon meeting certain vesting criteria, a specified number of shares of the Companys common stock. Stock-based compensation cost of restricted shares is measured by the
market value of the Companys 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 Companys employee stock purchase plan, for the years ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
shares
|
|
|
Weighted
average
grant
date fair
value
|
|
|
Aggregate
fair value
|
|
Unvested at December 31, 2014
|
|
|
256,003
|
|
|
$
|
1.78
|
|
|
|
|
|
Granted
|
|
|
61,663
|
|
|
|
2.60
|
|
|
|
|
|
Vested
|
|
|
(83,029
|
)
|
|
|
1.53
|
|
|
$
|
244,319
|
|
Vested shares forgone to satisfy minimum statutory withholding
|
|
|
(24,031
|
)
|
|
|
2.96
|
|
|
$
|
71,445
|
|
Forfeitures
|
|
|
(39,774
|
)
|
|
|
1.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2015
|
|
|
170,832
|
|
|
|
2.09
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(64,182
|
)
|
|
|
1.74
|
|
|
$
|
236,161
|
|
Vested shares forgone to satisfy minimum statutory withholding
|
|
|
(16,484
|
)
|
|
|
2.81
|
|
|
$
|
49,592
|
|
Forfeitures
|
|
|
(32,833
|
)
|
|
|
2.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2016
|
|
|
57,333
|
|
|
$
|
2.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
As of December 31, 2016, there was less than $0.1 million of pre-tax total unrecognized
compensation cost related to non-vested restricted shares, which will be adjusted for future forfeitures, if any. The Company expects to recognize such cost over the period ending in 2019.
Employee Stock Purchase Plan
In May 2014, the Company received approval
from stockholders to adopt an employee stock purchase plan (ESPP) effective October 2014 (collectively the Original ESPP). Under the Original ESPP, 200,000 shares of common stock are authorized for purchase by eligible
employees at a 15% discount through payroll deductions during the six month offering periods. Shares were purchased in whole numbers and generally would be the last day of the offering period. On September 7, 2016, the Company received approval
from shareholders for an additional 350,000 shares. No employee may purchase more than $25,000 worth of fair market value shares in any calendar year. As allowed under the ESPP, a participant may elect to withdraw from the plan, effective for the
purchase period in progress at the time of the election with all accumulated payroll deductions returned to the participant at the time of withdrawal. As of December 31, 2016, there were 363,821 shares remaining available for future issuance.
The following table summarizes the activity relating to the Companys ESPP program for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Compensation expense
|
|
$
|
113,531
|
|
|
$
|
40,233
|
|
Shares of stock sold to employees
|
|
|
88,109
|
|
|
|
98,070
|
|
Weighted average fair value per ESPP award
|
|
$
|
2.73
|
|
|
$
|
2.73
|
|
Stock Options
The Company calculates the fair value of stock option awards using the Black-Scholes option pricing model, which incorporates various assumptions including volatility, expected term, risk-free interest
rates and dividend yields. The expected volatility assumption is based on historical volatility of the Companys 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.
66
During the year ended December 31, 2016, the Company granted 0.6 million stock
options, none of which were issued to Board members. During the year ended December 31, 2015, the Company granted 0.5 million stock options, of which 0.2 million were issued to Board members, at exercise prices which were a preceding
five-day average price on the date of grant and a vesting period of 12-months. The following table details the various stock option and inducement stock option activity for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Plan (Options)
|
|
Number of
Authorized
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term (in Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2014
|
|
|
595,000
|
|
|
$
|
2.19
|
|
|
|
1.51
|
|
|
$
|
571,717
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(52,030
|
)
|
|
|
1.64
|
|
|
|
|
|
|
|
140,368
|
|
Exercised shares forgone to satisfy minimum statutory withholding
|
|
|
(7,688
|
)
|
|
|
1.76
|
|
|
|
|
|
|
|
|
|
Cashless exercise
|
|
|
(41,950
|
)
|
|
|
1.70
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
|
1.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
488,332
|
|
|
$
|
2.31
|
|
|
|
0.41
|
|
|
$
|
348,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised shares forgone to satisfy minimum statutory withholding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
488,332
|
|
|
$
|
2.31
|
|
|
|
0.25
|
|
|
$
|
118,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
483,332
|
|
|
$
|
2.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Intrinsic Value = Excess of market value over the option
exercise price of all in-the-money stock options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 Plan (Options)
|
|
Number
of Authorized
Shares
|
|
|
Weighted-
Average Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term (in
Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2014
|
|
|
530,000
|
|
|
$
|
2.69
|
|
|
|
5.00
|
|
|
$
|
243,800
|
|
Granted
|
|
|
470,000
|
|
|
$
|
2.90
|
|
|
|
3.25
|
|
|
$
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised shares forgone to satisfy minimum statutory withholding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(30,000
|
)
|
|
|
2.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
970,000
|
|
|
$
|
2.79
|
|
|
|
3.58
|
|
|
$
|
222,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2015
|
|
|
410,903
|
|
|
$
|
2.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
600,000
|
|
|
|
2.76
|
|
|
|
4.60
|
|
|
|
|
|
Exercised
|
|
|
(1,866
|
)
|
|
|
2.69
|
|
|
|
|
|
|
|
|
|
Exercised shares forgone to satisfy minimum statutory withholding
|
|
|
(798
|
)
|
|
|
2.69
|
|
|
|
|
|
|
|
|
|
Cashless exercise
|
|
|
(12,614
|
)
|
|
|
2.69
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(304,723
|
)
|
|
|
2.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
1,249,999
|
|
|
$
|
2.80
|
|
|
|
4.26
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
616,597
|
|
|
$
|
2.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
Aggregate Intrinsic Value = Excess of market value over the option exercise price of all in-the-money stock
options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inducement Options
|
|
Number of
Authorized
Shares
|
|
|
Weighted-
Average Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Term (in Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2014
|
|
|
800,000
|
|
|
$
|
2.25
|
|
|
|
3.89
|
|
|
$
|
720,000
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
800,000
|
|
|
$
|
2.25
|
|
|
|
2.90
|
|
|
$
|
616,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
800,000
|
|
|
$
|
2.25
|
|
|
|
2.26
|
|
|
$
|
240,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
756,250
|
|
|
$
|
2.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Intrinsic Value = Excess of market value over the option
exercise price of all in-the-money stock options.
The following table summarizes information about stock options outstanding
at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Plan (Options):
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number of
Shares
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number of
Shares
Exercisable
|
|
|
Weighted-
Average
Exercise
Price
|
|
$1.50 - $1.75
|
|
|
110,000
|
|
|
|
|
|
|
$
|
1.51
|
|
|
|
110,000
|
|
|
$
|
1.51
|
|
$1.76 - $2.00
|
|
|
91,666
|
|
|
|
|
|
|
|
1.93
|
|
|
|
91,666
|
|
|
|
1.70
|
|
$2.01 - $3.00
|
|
|
286,666
|
|
|
|
0.25
|
|
|
|
2.71
|
|
|
|
281,666
|
|
|
|
2.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
488,332
|
|
|
|
0.25
|
|
|
$
|
2.31
|
|
|
|
483,332
|
|
|
$
|
2.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 Plan (Options):
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number of
Shares
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number of
Shares
Exercisable
|
|
|
Weighted-
Average
Exercise
Price
|
|
$2.01 - $3.00
|
|
|
1,249,999
|
|
|
|
4.26
|
|
|
$
|
2.80
|
|
|
|
616,597
|
|
|
$
|
2.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
1,249,999
|
|
|
|
4.26
|
|
|
$
|
2.80
|
|
|
|
616,597
|
|
|
$
|
2.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inducement Options:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number of
Shares
Outstanding
|
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number of
Shares
Exercisable
|
|
|
Weighted-
Average
Exercise
Price
|
|
$1.50 - $1.75
|
|
|
400,000
|
|
|
|
2.26
|
|
|
$
|
1.75
|
|
|
|
381,250
|
|
|
$
|
1.75
|
|
$2.26 - $2.75
|
|
|
400,000
|
|
|
|
2.26
|
|
|
|
2.75
|
|
|
|
375,000
|
|
|
|
2.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
800,000
|
|
|
|
2.26
|
|
|
$
|
2.25
|
|
|
|
756,250
|
|
|
$
|
2.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
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:
|
|
2016
|
|
|
2015
|
|
Expected volatility
|
|
|
35%
|
|
|
|
50% to 54%
|
|
Risk free interest rate
|
|
|
0.69%
|
|
|
|
0.25% to 0.66%
|
|
Expected lives at date of grant (in years)
|
|
|
5.01
|
|
|
|
4.43
|
|
Weighted average fair value of options granted
|
|
$
|
2.76
|
|
|
|
$ 2.90
|
|
Stock-based compensation expense
The following table presents the total stock-based compensation expense, which is included in selling, general and administrative expenses for the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Restricted share expense
|
|
$
|
151
|
|
|
$
|
107
|
|
Stock option expense
|
|
|
311
|
|
|
|
889
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
462
|
|
|
$
|
996
|
|
|
|
|
|
|
|
|
|
|
Common Share Repurchase Program
Stock repurchases may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as our management deems to be appropriate. The timing and actual number of
shares repurchased will depend on a variety of factors, including price, financing and regulatory requirements, as well as other market conditions. The program does not require us to repurchase any specific number of shares or to complete the
program within a specific period of time. During the years ended December 31, 2016 and 2015, the Company did not repurchase any shares in the open market.
12.
|
Employee Benefit Plans
|
The Company has defined contribution plan in which the Company makes matching contributions for a certain percentage of employee
contributions. For both of the years ended December 31, 2016 and 2015, the Companys matching contributions were $0.7 million. The Company does not provide other post-retirement or post-employment benefits to its employees.
69