Certain prior period reclassifications were made to conform with the current period presentation. These reclassifications had effect on reported (loss) income, overall cash flows, total assets, total liabilities or stockholders’ equity as previously reported.

 

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 the company adopted, on a retrospective basis, ASU Topic (“ASU ) 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 primary revenue streams should be separately disclosed on the balance sheet; (ii) in accordance with ASU 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.

 

 

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.

The Company operates in 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.

 

 

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.

 

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 utilize -party valuation specialists to assist the Company in the allocation. Initial purchase price allocations are subject to revision within the measurement period, to exceed year from the date of acquisition. Acquisition-related expenses and transaction costs associated with business combinations are expensed as incurred.

 

 

The Company considers all highly liquid investments with original maturities of months or less to be cash equivalents. The Company maintains its cash and cash equivalents primarily with 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.

 

Amounts billed that have 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 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 material as of

 

 

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 (-in, -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 million as of and respectively.

 

 

Medical Equipment (“Equipment”) consists of equipment that the Company purchases from -parties and is () for sale or rent, and () 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 years. The Company does 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 million as of and respectively.

 

 

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 to years. Externally purchased information technology software and hardware are depreciated over and 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 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 to 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 to years and acquired software is amortized on a straight-line basis over years. Trade names associated with the original acquisition of InfuSystem are 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 and determined that the fair value of the trade names with indefinite lives was greater than their carrying value, resulting in impairment.

 

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 to 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 capitalize any internal-use software for the year ended and capitalized million of internal-use software for the year ended Amortization expense for capitalized software was million in and million in

 

 

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 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 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 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 the Company performed an impairment analysis which resulted in an impairment of approximately million in In the Company re-assessed the impairment indicators and found to be present.

 

 

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 hold title to these pumps and will obtain title until such time as the capital lease obligations are settled in full. The weighted average interest rate under capital leases was as of

 

On the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic - Revenue from Contracts with Customers (“ASC ) and concluded that, consistent with prior reporting, the Company has separate revenue streams: rentals and product sales. The adoption of ASC requires certain customer concessions associated with rental revenues reported in accordance with ASC - 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 was adopted on a modified retrospective method.

 

ASC 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 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 there is a written contract.

 

The Company has 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 These performance obligations are related to separate revenue streams and at 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 -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 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 -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 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 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.

 

 

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 -party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors result in adjustments to amounts originally recorded. Due to continuing changes in the health care industry and -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 and our largest contracted payor was a national payor which accounted for approximately and of our net revenues from our -party payor Oncology Business for and respectively, and approximately of our total net revenues for each of and

 

We also contract with various other -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, other single payor represented more than of -party payor net revenue.

 

The Company recognizes deferred income tax liabilities and assets based on: () the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years the differences are expected to reverse and () 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 that some or all of any deferred tax assets will 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 -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- to be sustained upon examination. Second, for positions that are determined to be more-likely-than- to be sustained, it recognizes the tax benefits as the largest benefit that has a greater than 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.

 

 

The Company periodically repurchases shares of its common stock. These repurchases take place either as part of a board-authorized program, which include open market transactions or privately negotiated transactions and be made under a Rule - 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.

 

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.

 

Capitalized debt issuance costs as of and 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.

 

 

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 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):

 

		2018				2017
Numerator:
Net loss (in thousands)		$	(1,095	)		$	(20,707	)
Denominator:
Weighted average common shares outstanding:
Basic			21,417,628				22,739,651
Dilutive effect of restricted shares, options and non-vested share awards			-				-
Diluted			21,417,628				22,739,651

 

Stock options of million and million shares were included in the calculation for the years ended and respectively, because they would have an anti-dilutive effect.

 

 

The carrying amounts reported in the consolidated balance sheets as of and 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 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 -level fair value hierarchy prioritizes the inputs used to measure fair value as follows:

 

 

 

 

 

In the FASB issued Accounting Standards Update (“ASU”) - “Intangibles - Goodwill and Other (Topic ): Simplifying the Test for Goodwill Impairment”, which changes the subsequent measurement of goodwill impairment by eliminating Step 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 i.e., a effective date), with early adoption permitted for goodwill impairment tests with measurement dates after The Company believes the adoption will have a material impact on its consolidated balance sheets, statements of operations, statements of cash flows and related disclosures.

 

In the FASB issued ASU - “Leases (Topic )”. Under Topic 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 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 is effective for annual reporting periods beginning after including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. In the FASB issued ASU - “Codification Improvements to Topic 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 the FASB issued ASU - “Leases (Topic ): 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 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 apply hindsight to the evaluation of lease options (e.g., renewal) and, accordingly, will 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 expect material changes to the recognition of operating lease expense in our consolidated statements of operations. The Company believes the adoption of Topic 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 is expected to have a material impact on the Company’s accounting for rental revenues.

 

In the FASB issued ASU - “Financial Instruments (Topic ) Credit Losses”. Topic 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 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 is effective as of Early adoption is permitted. The Company is currently evaluating the impact of Topic on its consolidated balance sheets, statements of operations, statements of cash flows and related disclosures.

 

In the FASB issued ASU which provides specific guidance on cash flow classification issues specifically addressed by U.S. GAAP. The ASU is effective for annual and interim periods beginning after 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 using a retrospective transition method for each period presented, resulted in reclassifying million for the year ended on our consolidated financial statements. Additionally, the result on the consolidated financial statements of adopting on a retrospective basis was million for the year ended