Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the
50
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effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this Annual Report on Form 10-K, were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). All internal control systems, no matter how well designed, have inherent limitations.
We conducted an assessment of the effectiveness of our system of internal control over financial reporting as of December 31, 2022, the last day of our fiscal year. This assessment was based on criteria established in the framework Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission and included an evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. GAAP. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
ITEM 9B. OTHER INFORMATION
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by this Item 10 will be included in the Proxy Statement to be filed within 120 days after the fiscal year covered by this annual report on Form 10-K and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be included in the Proxy Statement, and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12, including Equity Compensation Plan Information, will be included in the Proxy Statement, and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 will be included in the Proxy Statement, and such information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 will be included in the Proxy Statement, and such information is incorporated herein by reference.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
1.
Financial Statements: See “Index to Financial Statements” in Part II, Item 8 of this annual report on Form 10-K.
2.
Financial Statement Schedule: Not applicable.
3.
Exhibits: The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Form 10-K.
ITEM 16. FORM 10-K SUMMARY
None.
EXHIBIT INDEX
Incorporated by Reference
Exhibit
Filing
Filed
Number
Description of Exhibit
Form
File No.
Date
Herewith
3.1
Amended and Restated Certificate of Incorporation
14C
001-36534
10/9/2015
3.2
Third Amended and Restated Bylaws of the Registrant
8-K
001-36534
9/19/2018
4.1
Specimen common stock certificate
S-1A
333-196875
7/9/2014
4.2
Description of Registrant’s Securities
10-K
001-36534
3/6/2020
10.1+
Form of Stock Option Agreement for Iradimed Corp. 2005 Incentive Stock Plan
S-1
333-196875
6/18/2014
10.2+
Iradimed Corporation Amended and Restated 2014 Equity Incentive Plan
10-Q
001-36534
8/6/2020
10.3+
Form of Stock Option Agreement for Iradimed Corporation 2014 Equity Incentive Plan
S-1
333-196875
6/18/2014
10.4+
Form of Restricted Stock Award Agreement for Iradimed Corporation 2014 Equity Incentive Plan
S-8
333-198971
9/26/2014
10.5+
Form of Restricted Stock Unit Agreement (Time-Vesting) for Iradimed Corporation 2014 Equity Incentive Plan
S-8
333-198971
9/26/2014
10.6+
Form of Restricted Stock Unit Agreement (Performance-Vesting) for Iradimed Corporation 2014 Equity Incentive Plan
S-8
333-198971
9/26/2014
10.7
Lease Agreement regarding 1025 Willa Springs Dr. between Susi, LLC and the Registrant, dated January 17, 2014
S-1
333-196875
6/18/2014
10.8+
Employment Agreement between the Registrant and John F Glenn, dated May 21, 2022
8-K
001-36534
7/8/2021
10.9†
Supply Agreement between the Registrant and Fukoku Co., Ltd. entered into on January 26, 2014
S-1
333-196875
6/18/2014
10.10†
Amendment Agreement to Supply Agreement between the Registrant and Fukoku Co., Ltd. entered into on March 26, 2019
8-K
001-36534
3/26/2019
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10.11+
Employment Agreement between the Registrant and Roger Susi, dated July 24, 2019
8-K
001-36534
7/29/2019
23.1
Consent of RSM US LLP, Independent Registered Public Accounting Firm
X
24.1
Power of Attorney (included on signature page)
X
31.1
Certification of Chief Executive Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of Chief Financial Officer pursuant to Exchange Act Rule, 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1*
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 I.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS
XBRL Instance Document
X
101.SCH
XBRL Taxonomy Extensions Schema Document
X
101.CAL
XBRL Taxonomy Extension Label Calculation Linkbase Document
X
101.DEF
XBRL Taxonomy Extension Definition Document
X
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
X
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
X
104
Inline XBRL for the cover page of this Annual Report on Form 10-K, included as part of this Exhibit 101 inline XBRL Document set
X
+ Indicates a management contract or compensatory plan or arrangement.
† Confidential treatment has been granted for portions of this exhibit. These portions have been omitted from the exhibit filed with the Securities and Exchange Commission and submitted separately to the Securities and Exchange Commission.
* The certification attached as Exhibit 32.1 that accompanies this Form 10-K is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Iradimed Corporation under the Securities Act or the Exchange Act, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Winter Springs, State of Florida, on March 2, 2023.
IRADIMED CORPORATION
(Registrant)
Dated: March 2, 2023
/s/ Roger Susi
By: Roger Susi
Chief Executive Officer and President
(Principal Executive Officer)
Each person whose signature appears below constitutes and appoints Roger Susi and John Glenn as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Roger Susi
Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)
March 2, 2023
Roger Susi
/s/ John Glenn
Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)
March 2, 2023
John Glenn
/s/ Monty Allen
Director
March 2, 2023
Monty Allen
/s/ Anthony Vuoto
Director
March 2, 2023
Anthony Vuoto
/s/ James Hawkins
Director
March 2, 2023
James Hawkins
/s/ Hilda Scharen-Guivel
Director
March 2, 2023
Hilda Scharen-Guivel
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IRADIMED CORPORATION FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID: 49 )
F-2
Balance Sheets
F-3
Statements of Operations
F-4
Statements of Comprehensive Income
F-5
Statements of Stockholders’ Equity
F-6
Statements of Cash Flows
F-7
Notes to Financial Statements
F-8
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders’ and the Board of Directors of IRADIMED CORPORATION
Opinion on the Financial Statements
We have audited the accompanying balance sheets of IRADIMED CORPORATION (the Company) as of December 31, 2022 and 2021, the related statements of operations, comprehensive income, stockholders’ equity and cash flows for the years ended December 31, 2022 and 2021, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years ended December 31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Deferred Revenue Recorded on the Sale of Extended Warranties
As discussed in Notes 1 and 2 to the financial statements, the Company recorded deferred revenue related to the sale of extended warranty agreements of $3,837,006 at December 31, 2022. The Company records contract liabilities, or deferred revenue, when it has an obligation to provide a product or service to the customer and payment is received in advance. Payments received on the sale of extended warranty agreements are deferred and recognized in revenue ratably over the agreement period, which is typically one to four years after control of the related product is transferred to the customer.
We identified deferred revenue recorded on the sale of extended warranties as a critical audit matter because of the complexities of the manual calculations performed by management in estimating the deferred revenue to recognize on the sale of extended warranties at year end. Auditing management’s estimates of deferred revenue to record on the sale of extended warranties required auditor judgment and an increase in audit effort due to the complexities of management’s manual calculations.
F-2
Table of Contents
Our audit procedures related to deferred revenue recorded on the sale of extended warranties included the following, among others:
● We obtained an understanding of the relevant controls related to deferred revenue recorded on the sale of extended warranties and tested such controls for design and operating effectiveness, including controls related to management’s review of the manual calculations.
● We performed a test of details by agreeing a sample of extended warranty sales transactions to underlying customer contracts. For each selection, we recalculated the revenue recognized for the year ended December 31, 2022, and the expected deferred revenue balance at year end.
● We tested the mathematical accuracy of management’s deferred revenue calculations and the timing of revenue recognized.
/s/ RSM US LLP
We have served as the Company’s auditor since 2013.
Orlando, Florida
March 2, 2023
F-3
Table of Contents
IRADIMED CORPORATION
BALANCE SHEETS
December 31,
December 31,
2022
2021
ASSETS
Current assets:
Cash and cash equivalents
$
57,960,864
$
61,999,550
Investments
—
501,855
Accounts receivable, net
13,274,521
5,136,599
Inventory, net
5,369,233
4,299,799
Prepaid expenses and other current assets
630,960
1,000,716
Prepaid income taxes
254,093
3,306,438
Total current assets
77,489,671
76,244,957
Property and equipment, net
2,399,812
2,069,376
Intangible assets, net
2,069,439
1,118,584
Operating lease right-of-use asset, net
2,205,286
2,482,084
Deferred tax asset, net
700,867
765,096
Other assets
648,672
201,325
Total assets
$
85,513,747
$
82,881,422
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
1,799,316
$
782,903
Accrued payroll and benefits
2,871,890
2,814,560
Other accrued taxes
121,919
140,315
Warranty reserve
94,030
108,880
Deferred revenue
3,373,122
2,553,096
Current portion of operating lease liability
293,466
276,568
Other current liability
—
146,435
Total current liabilities
8,553,743
6,822,757
Deferred revenue
1,375,197
1,679,343
Operating lease liability, less current portion
1,911,820
2,205,516
Total liabilities
11,840,760
10,707,616
Stockholders’ equity:
Common Stock
1,259
1,254
Additional paid-in capital
26,407,446
25,160,618
Retained earnings
47,264,282
46,994,922
Accumulated other comprehensive income
—
17,012
Total stockholders’ equity
73,672,987
72,173,806
Total liabilities and stockholders’ equity
$
85,513,747
$
82,881,422
See accompanying notes to financial statements.
F-3
Table of Contents
iRadimed Corporation
STATEMENTS OF OPERATIONS
For the year ended December 31,
2022
2021
Revenue
$
53,303,145
$
41,814,581
Cost of revenue
12,020,742
9,764,656
Gross profit
41,282,403
32,049,925
Operating expenses:
General and administrative
10,697,067
9,771,462
Sales and marketing
12,679,610
10,555,738
Research and development
2,278,081
1,905,043
Total operating expenses
25,654,758
22,232,243
Income from operations
15,627,645
9,817,682
Other income, net
553,104
18,605
Income before income taxes
16,180,749
9,836,287
Provision for income tax expense
3,352,262
510,816
Net income
$
12,828,487
$
9,325,471
Net income per share
Basic
$
1.02
$
0.76
Diluted
$
1.02
$
0.74
Weighted average shares outstanding
Basic
12,562,856
12,346,173
Diluted
12,635,971
12,590,853
See accompanying notes to financial statements.
F-4
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iRadimed Corporation
STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
2022
2021
Net income
$
12,828,487
$
9,325,471
Other comprehensive (loss):
Change in fair value of available-for-sale securities, net of tax expense (benefit) of $ 9,098 and $( 11,486 ), respectively
( 10,953 )
( 6,027 )
Realized gain on available-for-sale securities reclassified to net income, net of tax expense of $ 1,966 and $ 4,545 , respectively
( 6,059 )
( 14,048 )
Other comprehensive loss
( 17,012 )
( 20,075 )
Comprehensive income
$
12,811,475
$
9,305,396
See accompanying notes to financial statements.
F-5
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iRadimed Corporation
STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Additional
Other
Common Stock
Paid-in
Retained
Comprehensive
Stockholders’
Shares
Amount
Capital
Earnings
(Loss) Income
Equity
Balances, December 31, 2020
12,308,432
$
1,231
$
23,676,843
$
37,669,451
$
37,087
$
61,384,612
Net income
—
—
—
9,325,471
—
9,325,471
Other comprehensive loss
—
—
—
—
( 20,075 )
( 20,075 )
Stock-based compensation
—
—
1,459,373
—
—
1,459,373
Net share settlement of restricted stock units
44,658
4
( 598,821 )
—
—
( 598,817 )
Exercise of stock options
190,934
19
623,223
—
—
623,242
Balances, December 31, 2021
12,544,024
$
1,254
$
25,160,618
$
46,994,922
$
17,012
$
72,173,806
Net income
—
—
—
12,828,487
—
12,828,487
Dividends paid
—
—
—
( 12,559,127 )
—
( 12,559,127 )
Other comprehensive loss
—
—
—
—
( 17,012 )
( 17,012 )
Stock-based compensation
—
—
1,394,106
—
—
1,394,106
Net share settlement of restricted stock units
31,414
3
( 293,984 )
—
—
( 293,981 )
Exercise of stock options
15,566
2
146,706
—
—
146,708
Balances, December 31, 2022
12,591,004
$
1,259
$
26,407,446
$
47,264,282
$
—
$
73,672,987
See accompanying notes to financial statements.
F-6
Table of Contents
iRadimed Corporation
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
2022
2021
Operating activities:
Net income
$
12,828,487
$
9,325,471
Adjustments to reconcile net income to net cash provided by operating activities:
Change in allowance for doubtful accounts
102,767
13,876
Change in provision for excess and obsolete inventory
55,737
118,217
Depreciation and amortization
670,673
1,406,823
Disposal of property and equipment
( 1,741 )
5,544
Stock-based compensation
1,394,106
1,459,373
Deferred income taxes, net
57,097
523,607
Gain on maturity of investments
( 8,025 )
( 18,593 )
Changes in operating assets and liabilities:
Accounts receivable
( 8,240,688 )
( 575,543 )
Inventory
( 1,308,956 )
( 393,316 )
Prepaid expenses and other current assets
305,936
( 1,038,047 )
Other assets
( 398,224 )
26,557
Accounts payable
1,124,972
30,414
Accrued payroll and benefits
57,330
1,099,778
Other accrued taxes
( 18,396 )
36,334
Warranty reserve
( 14,850 )
18,826
Deferred revenue
530,576
48,062
Other current liabilities
( 146,435 )
—
Prepaid income taxes
3,052,345
( 829,227 )
Net cash provided by operating activities
$
10,042,711
11,258,156
Investing activities:
Proceeds from maturity of investments
$
500,000
1,390,000
Purchases of property and equipment
( 823,019 )
( 482,325 )
Capitalized intangible assets
( 1,051,978 )
( 259,434 )
Net cash (used in) provided by investing activities
$
( 1,374,997 )
648,241
Financing activities:
Dividends
$
( 12,559,127 )
—
Proceeds from stock option exercises
146,708
623,242
Taxes paid for net share settlement of restricted stock units
( 293,981 )
( 598,817 )
Net cash (used in) provided by financing activities
$
( 12,706,400 )
24,425
Net (decrease) increase in cash and cash equivalents
$
( 4,038,686 )
11,930,822
Cash and cash equivalents, beginning of year
61,999,550
50,068,728
Cash and cash equivalents, end of year
$
57,960,864
$
61,999,550
Supplemental disclosure of cash flow information:
Cash paid for income taxes
$
1,711,500
$
970,000
Right-of-use asset recognized in exchange for new lease obligation
$
—
$
27,713
Operating and short-term lease payments recorded within cash flow from operating activities
$
534,469
$
490,108
See accompanying notes to financial statements.
F-7
Table of Contents
iRadimed Corporation
NOTES TO FINANCIAL STATEMENTS
1 — Organization and Significant Accounting Policies
Organization
IRADIMED CORPORATION (“IRADIMED”, the “Company”, “we”, “our”) was incorporated in Oklahoma in July 1992 and reincorporated in Delaware in April 2014. We develop, manufacture, market and distribute a Magnetic Resonance Imaging (“MRI”) compatible intravenous (“IV”) infusion pump system and MRI compatible patient vital signs monitoring systems and related accessories, disposables and services.
We are a leader in the development of innovative MRI compatible medical devices. We are the only known provider of a non-magnetic IV infusion pump system that is specifically designed to be safe for use during MRI procedures. We were the first to develop an infusion delivery system that largely eliminates many of the dangers and problems present during MRI procedures. Standard infusion pumps contain magnetic and electronic components which can create radio frequency interference and are dangerous to operate in the presence of the powerful magnet that drives an MRI system. Our patented MRidium® MRI compatible IV infusion pump system has been designed with a non-magnetic ultrasonic motor, uniquely designed non-ferrous parts and other special features to safely and predictably deliver anesthesia and other IV fluids during various MRI procedures. Our pump solution provides a seamless approach that enables accurate, safe and dependable fluid delivery before, during and after an MRI scan, which is important to critically ill patients who cannot be removed from their vital medications, and children and infants who must generally be sedated to remain immobile during an MRI scan.
Each IV infusion pump system consists of an MRidium® MRI compatible IV infusion pump, non-magnetic mobile stand, proprietary disposable IV tubing sets and many of these systems contain additional optional upgrade accessories.
Our 3880 MRI compatible patient vital signs monitoring system has been designed with non-magnetic components and other special features to safely and accurately monitor a patient’s vital signs during various MRI procedures. The IRADIMED 3880 system operates dependably in magnetic fields up to 30,000 gauss, which means it can operate virtually anywhere in the MRI scanner room. The IRADIMED 3880 has a compact, lightweight design allowing it to travel with the patient from their critical care unit, to the MRI and back, resulting in increased patient safety through uninterrupted vital signs monitoring and decreasing the amount of time critically ill patients are away from critical care units. The features of the IRADIMED 3880 include: wireless ECG with dynamic gradient filtering; wireless SpO2 using Masimo® algorithms; non-magnetic respiratory CO2; invasive and non-invasive blood pressure; patient temperature, and optional advanced multi-gas anesthetic agent unit featuring continuous Minimum Alveolar Concentration measurements. The IRADIMED 3880 MRI compatible patient vital signs monitoring system has an easy-to-use design and allows for the effective communication of patient vital signs information to clinicians.
Our headquarters is located in Winter Springs, Florida.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the financial statements and the reported amount of revenue and expenses during the reporting period. Such estimates include allowances for potentially uncollectible accounts receivable, valuation of inventory, intangible assets, stock-based compensation, deferred income taxes, reserves for warranty obligations, and the provision for income taxes. Actual results could differ from those estimates.
F-8
Table of Contents
Revenue Recognition
We generate revenue from the sale of MRI compatible medical devices and accessories, extended warranty agreements, services related to maintaining our products and the sale of disposable products used with our devices. The principal customers for our MRI compatible products include hospitals and acute care facilities, both in the U.S. and internationally. In the U.S. we sell our products through our direct sales force and outside of the U.S. we sell our products through third-party distributors who resell our products to end users.
For many domestic sales, we enter into agreements with integrated delivery health systems and healthcare supply contracting companies, commonly referred to as Group Purchasing Organizations (“GPOs”).
GPO agreements enable us to sell and distribute our products to their member hospitals. Our agreements with GPOs typically include negotiated pricing for all group members established at the time of GPO contract execution. Under these agreements, we are required to pay the GPOs a fee of three percent of the sales of our products to members of the GPO. We do not sell to GPOs. Hospitals, group practices and other acute care facilities that are members of a GPO, purchase products directly from us under the terms of our GPO agreements.
We recognize revenue when all of the following criteria are met: we have a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount we expect to receive, is determinable and we have transferred control of the promised products or services to the customer. We consider transfer of control evidenced upon the passage of title and risks and rewards of ownership to the customer, which is typically at a point in time, except for our extended warranty agreements. We allocate the transaction price using the relative standalone selling price method.
Customer sale prices for our medical devices and related disposables and services are contractually fixed over the contract term. We recognize a receivable at the point in time we have an unconditional right to payment. Payment terms are typically within 45 days after transferring control to U.S. customers. Most international distributors are required to pay a portion of the transaction price in advance and the remaining amount within 30 days of receiving the related products. Accordingly, we have elected to use the practical expedient that allows us to ignore the possible existence of a significant financing component within the contract.
We have elected to account for shipping and handling charges billed to customers as revenue and shipping and handling related expenses as cost of revenue.
In certain U.S. states we are required to collect sales taxes from our customers. We have elected to exclude the amounts collected for these taxes from revenue and record them as a liability until remitted to the taxing authority.
Contract Liabilities
We record contract liabilities, or deferred revenue, when we have an obligation to provide a product or service to the customer and payment is received in advance of our performance. When we sell a product or service with a future performance obligation, we defer revenue allocated to the unfulfilled performance obligation and recognize this revenue when, or as, the performance obligation is satisfied.
Our deferred revenue consists of advance payments received from customers prior to the transfer of products or services, shipments that are in-transit at the end of a period and sales of extended warranty agreements. Advance payments received from customers and shipments in-transit are recognized in revenue at the time control of the related products has been transferred to the customer or services have been delivered. Amounts related to extended warranty agreements are deferred and recognized in revenue ratably over the agreement period, which is typically one to four years after control of the related products is transferred to the customer, as we believe this recognition pattern best depicts the transfer of services being provided.
Deferred revenue is classified as current or long-term deferred revenue in our Balance Sheets, depending on the expected timing of satisfying the related performance obligations.
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Capitalized Contract Costs
We capitalize commissions paid to our sales managers related to contracts with customers when the associated revenue is expected to be earned over a period of time. Deferred commissions are primarily related to the sale of extended warranty agreements. Capitalized commissions are included in Prepaid Expenses and Other Current Assets in our Balance Sheets when the associated expense is expected to be recognized in one year or less, or in Other Assets when the associated expense is expected to be recognized in greater than one year. The associated expense is included in Sales and Marketing expenses in our Statements of Operations.
Variable Consideration
Our sales are typically subject to 30 to 60 -day customer-specified acceptance provisions primarily for purposes of ensuring products were not damaged during the shipping process. Historically, we have experienced immaterial product returns and, when experienced, we typically exchange the affected products with new products. Accordingly, variable consideration from contracts with customers is immaterial to our financial statements.
Cash Equivalents
All highly liquid instruments purchased with an original maturity of three months or less are classified as cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable is recorded at the transaction price of the related products and services. We regularly assess the sufficiency of the allowance for estimated uncollectible accounts receivable. Estimates are based on historical collection experience and other customer-specific information, such as bankruptcy filings or known liquidity problems of our customers. When it is determined that an account receivable is uncollectible, it is written off and relieved from the allowance. Any future determination that the allowance for estimated uncollectible accounts receivable is not properly stated could result in changes in operating expense and results of operations. As of December 31, 2022 and 2021, our allowance for doubtful accounts was $ 160,498 and $ 60,361 , respectively.
Investments
Our investments consisted of corporate debt securities and are considered available-for-sale. The specific identification method is used to determine the cost basis of investments sold. Our investments are recorded in our Balance Sheets at fair value. We classified our investments as current based on the nature of the investments and their availability for use in current operations. Unrealized gains and losses on our investments are included in accumulated other comprehensive income (loss), net of tax. Realized gains or losses and impairment losses that are determined to be other-than-temporary are recorded in other income, net in our Statements of Operations. We currently do not own any corporate bonds but should direct debt securities be utilized in the future, we would treat them as described above.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels of inputs are:
● Level 1 — quoted prices (unadjusted) in active markets for an identical asset or liability.
● Level 2 — quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.
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● Level 3 — unobservable and significant to the fair value measurement of the asset or liability.
Financial instruments include cash and cash equivalents, investments, accounts receivable, accounts payable and accrued expenses. Cash and cash equivalents and investments are reported at their respective fair values on the balance sheet dates. The recorded carrying amount of accounts receivable, accounts payable and accrued expenses approximates their fair values due to their short-term nature.
Inventory
Inventory is stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We may be exposed to a number of factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage. These factors include, but are not limited to, technological changes, competitive pressures in products and prices, and the introduction of new product lines. We regularly evaluate our ability to realize the value of inventory based on a combination of factors, including historical usage rates, forecasted sales, product life cycles, and market acceptance of new products. When inventory that is obsolete or in excess of anticipated usage is identified, it is written down to net realizable value or an inventory valuation allowance is established.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed using the straight-line method over estimated useful lives of the respective assets, which are generally three to five years for computer software and hardware and five to seven years for furniture, fixtures, machinery and equipment . Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the improvements.
Repair and maintenance costs that do not extend the useful life of our property and equipment are expensed as incurred.
Intangible Assets
Intangible assets include application and legal costs incurred to obtain patents. We capitalize these costs when we determine that probable future economic benefits exist. In making this determination, we consider the projected future operating results associated with the patents, industry and economic trends, and the entry of new products in the market. Costs incurred prior to this determination are expensed in the period they are incurred. We amortize capitalized patent costs using the straight-line method over their useful lives, which is typically 20 years . Periodic costs incurred to maintain existing patents are expensed as incurred.
Research & Development and Capitalized Software Development Costs
Research and development costs are expensed as incurred. Some of our products include embedded software which is essential to the products’ functionality. Costs incurred in the research and development of new software components and enhancements to existing software components are expensed as incurred until technological feasibility has been established. We capitalize software development costs when the project reaches technological feasibility and cease capitalization when the project is ready for release. Capitalized software development costs are included in intangible assets and are amortized on a straight-line basis over the estimated useful life of the product and included in cost of revenue. Amortization begins when the product is available for general release to the customer.
Long-lived Assets
Long-lived assets, including right-of-use assets, are tested for impairment whenever changes in circumstances indicate the carrying value of these assets may be impaired. Impairment indicators include, but are not limited to, technological obsolescence, unfavorable court rulings, significant negative industry and economic trends, and significant underperformance relative to historical and projected future operating results. Impairment is considered to have occurred when the estimated undiscounted future cash flows related to the asset groups are less than its carrying value. Estimates of future cash flows involve consideration of many factors including the marketability of new products, product acceptance and lifecycle, competition, appropriate discount rates and operating
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margins. An impairment is recognized as the amount by which the carrying value is greater than the fair value of the asset or asset group.
Warranty
The Company provides for the estimated cost of product warranties at the time revenue is recognized. While we engage in product quality programs and processes, including actively monitoring and evaluating the quality of our suppliers, the estimated warranty obligation is affected by ongoing product failure rates, material usage costs and direct labor incurred in correcting a product failure. Actual product failure rates, material usage costs and the amount of labor required to repair products that differ from estimates result in revisions to the estimated liability. We warrant for a limited period of time that our products will be free from defects in materials and workmanship. We estimate warranty allowances based on historical warranty experience. The estimates we use in projecting future product warranty costs may prove to be incorrect. Any future determination that our provision for product warranty is understated could result in increases to our cost of revenue and a reduction in our operating profits and results of operations. Historically, warranty expenses have not been material to our financial statements.
Stock-Based Compensation
Historically, we have granted three types of employee equity awards, stock options, restricted stock units and performance-based restricted stock units.
We recognize stock-based compensation expense associated with employee equity awards on a straight-line basis over the requisite service period for stock options and restricted stock units, which is generally four years for employees and two years for the board of directors. Expense related to our performance-based restricted stock units is recognized straight-line over the requisite performance period, which is three years.
The grant date fair value of our restricted stock units is based on the closing price of our common stock on the date of grant.
In December 2022 and 2021, the Company granted Performance-Based Restricted Stock Units (“PSUs”) to certain employees under the Company’s Long-Term Incentive Pan (“LTIP”), which was adopted under the Company’s Amended and Restated 2014 Equity Incentive Plan. Payouts of the PSUs will be based on the Company’s total shareholder return compared to a peer group or index total shareholder return. For purposes of the LTIP, total shareholder return is calculated as the share price at the end of the performance period, which is three years, including the reinvestment of any dividends during the performance period, as compared to the share price at the beginning of the performance period. The payout range for participants will be between 0 percent and 200 percent, depending on the Company’s performance.
The grant date fair value of our PSUs is based on a Monte Carlo simulation, the closing price of our common stock, and other pertinent factors on the grant date. Compensation expense for the PSUs is recognized on a straight-line basis over the requisite performance period, which is three years from the grant date.
We elect to recognize forfeitures as they occur.
We issue new shares of common stock upon exercise of stock options or vesting of restricted stock units and PSUs.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is recorded
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to offset net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
We recognize the tax benefit of uncertain tax positions in the financial statements based on the technical merits of the position. When the tax position is deemed more likely than not of being sustained, we recognize the largest amount of tax benefit that is greater than 50 percent likely of being ultimately realized upon settlement.
Foreign Currency
Gains and losses from transactions denominated in currencies other than our functional currency are included in other income, net. Foreign currency gains and losses result primarily from fluctuations in the exchange rate between the U.S. Dollar and the Japanese Yen.
Comprehensive Income
Comprehensive income includes net income and other comprehensive income items that are excluded from net income under U.S. GAAP. Comprehensive income included unrealized gains and losses on our investments classified as available for sale while those investments were held.
Basic and Diluted Net Income per Share
Basic net income per share is based on the weighted-average number of common shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The stock options, restricted stock units, and performance-based restricted stock units granted by us represent the only dilutive effect reflected in diluted weighted average shares outstanding.
The following table presents the computation of basic and diluted net income per share:
For the Years Ended December 31,
2022
2021
Net income
$
12,828,487
$
9,325,471
Weighted-average shares outstanding — Basic
12,562,856
12,346,173
Effect of dilutive securities:
Stock options
20,106
172,792
Restricted stock units
43,037
59,996
Performance-based restricted stock units
9,972
11,892
Weighted-average shares outstanding — Diluted
12,635,971
12,590,853
Basic net income per share
$
1.02
$
0.76
Diluted net income per share
$
1.02
$
0.74
Stock options to purchase shares of our common stock and restricted stock units excluded from the calculation of diluted net income per share because the effect would have been anti-dilutive are as follows:
As of December 31,
2022
2021
Anti-dilutive stock options and restricted stock units
22,744
4,597
Certain Significant Risks and Uncertainties
We market our products to end users in the United States and to third-party distributors internationally. Sales to end users in the United States are generally made on open credit terms. Management maintains an allowance for potential credit losses.
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We have deposited our cash and cash equivalents with various financial institutions. Our cash and cash equivalents balances exceed federally insured limits periodically throughout the year. We have not incurred any losses related to these balances.
Our medical devices require clearance from the Food and Drug Administration and international regulatory agencies prior to commercialized sales. Our future products may not receive required approvals. If we were denied such approvals, or if such approvals were revoked or delayed or if we were unable to timely renew certain approvals for existing products, it would have a materially adverse impact on our business, results of operations and financial condition.
Certain key components of our products essential to their functionality are sole-sourced. Any disruption in the availability of these components would have a materially adverse impact on our business, results of operations and financial condition.
Pandemic Considerations
We continue to monitor developments associated with the recent evolving pandemic and its effects on our employees, customers, supply chain and distribution channels. The ongoing impact of the recent and potential future pandemics depends on several factors including the severity and duration of the pandemic and the extent and severity of the impact on our customers, which is uncertain and unpredictable. Our future results of operations and cash flows may suffer adverse effects from disruptions in our supply chain and manufacturing operations, delays in payments on outstanding accounts receivable, uncertain demand for our products, and effects of any actions we may take to address financial and operational challenges our customers may face. Our future results may potentially be heavily determined by global vaccination rates, duration of the pandemic, its geographic spread, further business disruptions and the overall impact on the global economy.
We are actively managing our response to the recent pandemic and continue to work with our customers, distributors, vendors, and suppliers and assessing the potential effects to our financial position, results of operations and cash flows. As of the date of the issuance of these financial statements, the extent to which a pandemic, may materially impact our financial condition, liquidity, or results of operations in future periods remains uncertain.
Recent Accounting Pronouncements
Accounting Pronouncements Implemented in 2022
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the option to deduct research and experimental expenditures in the current year and requires taxpayers to amortize them over five years pursuant to IRC Section 174. This change is applied from 2022 onward prospectively and impacts the timing of the related cash tax payments as the deductions are disallowed for tax in the year incurred but allowed for tax purposes to be amortized and deducted over 5 years . The mandatory capitalization requirement increases our deferred tax assets and cash tax liabilities by approximately $ 0.5 million . In the future, Congress may consider legislation that would defer the amortization requirement to later years, possibly with a retroactive effect. In the meantime, we expect to continue to make additional Federal tax payments based on current Section 174 tax law. The impact on Section 174 on our cash from operations depends on the amount of research and experimental expenditures incurred by the company and whether the IRS issues guidance on the provision which differs from current interpretation, among other things.
Recently Issued Accounting Pronouncements to be Implemented
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which requires the Company to measure and recognize expected credit losses for financial assets held and not accounted for at fair value through net income. In November 2018, April 2019 and May 2019, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses , ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses and ASU 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief , which provided additional implementation guidance on ASU 2016-03. The previously mentioned ASUs are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We do not expect the adoption of these ASUs to have a material impact on our financial condition, results of operations or cash flows.
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2 - Revenue
Disaggregation of Revenue
We disaggregate revenue from contracts with customers by geographic region and revenue type as we believe it best depicts the nature, amount, timing and uncertainty of our revenue and cash flow.
Revenue information by geographic region is as follows:
For the Years Ended December 31,
2022
2021
United States
$
43,898,735
$
33,462,659
International
9,404,410
8,351,922
Total revenue
$
53,303,145
$
41,814,581
Revenue information by type is as follows:
For the Years Ended December 31,
2022
2021
Devices:
MRI compatible IV infusion pump system
$
14,526,017
$
13,289,064
MRI compatible patient vital signs monitoring systems
21,721,720
13,781,098
Ferro Magnetic Detection Systems
257,112
—
Total Devices revenue
36,504,849
27,070,162
Disposables, service and other
14,622,327
12,797,605
Amortization of extended warranty agreements
2,175,969
1,946,814
Total revenue
$
53,303,145
$
41,814,581
Contract Liabilities
Our contract liabilities consist of:
As of December 31,
2022
2021
Advance payments from customers
$
896,617
$
551,267
Shipments in-transit
14,696
70,295
Extended warranty agreements
3,837,006
3,610,877
Total
$
4,748,319
$
4,232,439
Changes in the contract liabilities during the period are as follows:
Deferred
Revenue
Contract liabilities, December 31, 2020
$
4,254,672
Increases due to cash received from customers
4,421,712
Decreases due to recognition of revenue
( 4,443,945 )
Contract liabilities, December 31, 2021
$
4,232,439
Increases due to cash received from customers
5,094,184
Decreases due to recognition of revenue
( 4,578,304 )
Contract liabilities, December 31, 2022
$
4,748,319
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Capitalized Contract Costs
Our capitalized contract costs totaled $ 340,044 and $ 357,810 as of December 31, 2022 and 2021, respectively.
3 — Inventory, net
Inventory consists of:
As of December 31,
2022
2021
Raw materials
$
4,827,113
$
3,777,846
Work in process
369,761
191,722
Finished goods
411,647
513,782
Inventory before allowance for excess and obsolete
5,608,521
4,483,350
Allowance for excess and obsolete
( 239,288 )
( 183,551 )
Total
$
5,369,233
$
4,299,799
4 — Property and Equipment, net
Property and equipment consist of:
As of December 31,
2022
2021
Computer software and hardware
$
1,121,455
$
837,826
Furniture and fixtures
1,573,587
1,252,434
Leasehold improvements
259,146
237,086
Machinery and equipment
2,210,181
2,066,003
Tooling in-process
665,773
537,043
5,830,142
4,930,392
Accumulated depreciation
( 3,430,330 )
( 2,861,016 )
Total
$
2,399,812
$
2,069,376
Depreciation and amortization expense of property and equipment was $ 569,551 and $ 532,275 for the years ended December 31, 2022 and 2021, respectively.
Property and equipment, net by geographic region is as follows:
As of December 31,
2022
2021
United States
$
2,248,308
$
1,855,012
International
151,504
214,364
Total property and equipment, net
$
2,399,812
$
2,069,376
Long-lived assets held outside of the United States consist principally of tooling, which is a component of machinery and equipment, net.
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5 — Intangible Assets, net
The following table summarizes the components of intangible asset balances:
As of December 31,
2022
2021
Patents — in use
$
321,873
$
302,338
Patents — Fully Amortized
70,164
70,164
Patents — in process
123,153
111,593
Internally developed software — in use
872,218
872,218
Internally developed software — in process
1,489,322
468,441
Trademarks
27,697
27,697
2,904,427
1,852,451
Accumulated amortization
( 834,988 )
( 733,867 )
Total
$
2,069,439
$
1,118,584
Amortization expense of intangible assets was $ 101,122 and $ 101,735 for the two years ended December 31, 2022, and 2021, respectively.
Expected annual amortization expense for the next five years related to intangible assets is as follows (excludes in-process intangible assets):
2023
$
100,946
2024
$
100,544
2025
$
97,374
2026
$
85,658
2027
$
11,945
6 — Investments
Our investments consist of bonds that we have classified as available-for-sale and are summarized in the following tables:
As of December 31, 2022
Gross
Gross
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
U.S. corporations
$
—
$
—
$
—
$
—
As of December 31, 2021
Gross
Gross
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
U.S. corporations
$
491,975
$
9,880
$
—
$
501,855
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7 — Fair Value Measurements
The fair value of our assets and liabilities subject to recurring fair value measurements are as follows:
Fair Value at December 31, 2022
Quoted Prices
Significant
in Active
Other
Significant
Market for
Observable
Unobservable
Fair
Identical Assets
Inputs
Inputs
Value
(Level 1)
(Level 2)
(Level 3)
U.S. corporations
$
—
$
—
$
—
$
—
Fair Value at December 31, 2021
Quoted Prices
Significant
in Active
Other
Significant
Market for
Observable
Unobservable
Fair
Identical Assets
Inputs
Inputs
Value
(Level 1)
(Level 2)
(Level 3)
U.S. corporations
$
501,855
$
—
$
501,855
$
—
Our corporate bonds are valued by the third-party custodian at closing prices from national exchanges or pricing vendors on the valuation date.
8 — Accumulated Other Comprehensive Income
The only component of accumulated other comprehensive income related to unrealized gains and (losses) on our investments was as follows:
Unrealized Gains
(Losses) on
Available-For-Sale
Securities
Balance at December 31, 2020
$
37,087
Losses, net
( 6,027 )
Reclassification realized in net earnings
( 14,048 )
Balance at December 31, 2021
$
17,012
Losses, net
( 10,953 )
Reclassification realized in net earnings
( 6,059 )
Balance at December 31, 2022
$
—
9 — Stock-Based Compensation
In April 2014, our Board of Directors adopted and our shareholders approved the 2014 Equity Incentive Plan (“2014 Plan”). Upon adoption and approval of the 2014 Plan, the previous equity incentive plan was terminated and the remaining shares available for future awards were canceled. The 2014 Plan initially reserved 1,000,000 shares of our common stock for awards of incentive stock options, non-qualified stock option, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based and cash awards. On June 12, 2020, the shareholders approved an amendment to the 2014 Plan, which reserved an additional 1,000,000 shares of our common stock for the various equity awards mentioned above. As of December 31, 2022, there were 1,030,987 shares available for future awards under the 2014 Plan.
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Stock-based compensation was recognized as follows in the Statements of Operations:
For the Years Ended December 31,
2022
2021
Cost of revenue
$
195,574
$
249,227
General and administrative
604,626
681,557
Sales and marketing
438,864
372,046
Research and development
155,042
156,543
Total stock-based compensation expense
$
1,394,106
$
1,459,373
Stock Options
The following table presents a summary of our stock option activity as of and for the year ended December 31, 2022:
Weighted-Average
Weighted-Average
Remaining
Aggregate
Exercise Price
Contractual
Intrinsic
Options
Per Share
Life (Yrs.)
Value
Outstanding beginning of period
39,576
$
8.92
—
$
—
Options granted
—
—
—
—
Options exercised
( 15,566 )
9.42
—
—
Options cancelled
—
—
—
—
Options expired
—
—
—
—
Outstanding end of period
24,010
$
8.59
1.87
$
472,885
Exercisable
24,010
$
8.59
1.87
$
472,885
The total intrinsic value of options exercised during the year ended December 31, 2022 and 2021 was $ 598,967 and $ 7,104,183 respectively.
No options were granted during the years ended December 31, 2022 and December 31, 2021.
Restricted Stock Units
The following table presents a summary of our restricted stock unit activity as of and for the year ended December 31, 2022:
Restricted
Weighted-Average
Stock
Grant Date
Units
Fair Value
Unvested at December 31, 2021
131,182
$
30.18
Granted
90,084
$
29.85
Vested
( 40,758 )
$
27.98
Cancelled/Forfeited
( 29,171 )
$
30.23
Unvested at December 31, 2022
151,337
$
30.57
As of December 31, 2022, we had $ 4,122,217 of unrecognized compensation cost related to the unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2.8 years.
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Performance-Based Restricted Stock Units
The following table presents a summary of our Performance-Based Restricted Stock Unit (“PSU”) activity as of and for the year ended December 31, 2022:
Performance-Based
Weighted-Average
Restricted
Grant Date
Stock Units
Fair Value
Unvested at December 31, 2021
18,301
$
43.31
Granted
18,819
$
28.56
Vested
—
$
—
Cancelled/Forfeited
( 9,236 )
$
42.16
Unvested at December 31, 2022
27,884
$
33.74
During the year ended December 31, 2022, the Company awarded 18,819 PSUs. The awards will vest three years from the award date based on the achievement of certain performance criteria approved by the Compensation Committee.
During the year ended December 31, 2021, the Company awarded 8,956 PSUs. The awards will vest three years from the award date based on the achievement of certain performance criteria approved by the Compensation Committee.
Based on the level of achievement of the performance criteria at the end of the three years for each of the PSUs awarded, the number of shares earned can range from 0 percent to 200 percent of the remaining shares outstanding; therefore, the maximum number of shares that can be issued under these awards is twice the original remaining outstanding awards of 27,884 PSUs, or 55,768 shares. Currently, for accounting purposes, we assume the full 55,768 are probable.
For the year ended December 31, 2022, the Company recognized $ 12,249 in stock compensation expense related to the 18,819 PSUs granted in December 2022 compared to $ 11,775 in stock compensation expense for the same period recognized in 2021 related to the 8,956 PSUs granted in December 2021. The fair value of the December 2022 grants will be calculated using a Monte-Carlo simulation model with a three-year term and an applicable risk-free interest rate. The resulting difference in stock compensation expense is expected to be immaterial and will be recorded in the first quarter of 2023.
For the year ended December 31, 2021, the grant date fair value of the PSUs was $ 57.69 per unit, which was calculated using a Monte-Carlo simulation model with an expected term of three years and a risk-free interest rate of 1.0 %. The Monte-Carlo simulation incorporated the volatility and dividend yield for the Company and each member of the peer group individually. Peer group volatilities ranged from 38.4 % to 94.0 % and dividend yields ranged from 0.0 % to 1.1 %. The volatility and dividend yield used for the Company was 50.7 % and 0.0 %, respectively.
As of December 31, 2022, we had $ 743,237 of unrecognized compensation cost related to the unvested PSUs, which is expected to be recognized over a weighted-average period of 2.59 years.
10 — Other Income, Net
Other income, net consists of:
For the Years Ended December 31,
2022
2021
Interest income
$
581,852
$
34,806
Realized gains on maturities of investments
8,025
18,593
Foreign currency exchange losses
( 36,773 )
( 34,794 )
Total other income, net
$
553,104
$
18,605
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11 — Income Taxes
The components of the provision for income taxes are as follows:
For the Years Ended December 31,
2022
2021
Current taxes:
U.S. federal
$
2,936,394
$
—
State
349,669
14,632
Foreign
1,789
1,439
Total current tax expense
3,287,852
16,071
Deferred taxes:
U.S. federal
( 105,068 )
399,512
State
169,478
95,233
Total deferred tax expense
64,410
494,745
Provision for income tax expense
$
3,352,262
$
510,816
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the deferred tax assets and liabilities were as follows:
As of December 31,
2022
2021
Deferred income tax assets (liabilities):
Stock compensation
$
227,682
$
208,149
Deferred revenue
533,600
570,156
Reserves and allowances
258,016
232,967
Research and development credits carryforward
—
195,481
Net operating loss carryforward
—
215,133
Depreciation and amortization
( 400,869 )
( 496,981 )
Accrued expenses
( 16,565 )
( 33,340 )
Other, net
99,005
( 126,469 )
Total deferred income taxes, net
$
700,869
$
765,096
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At December 31, 2022 the Company expects to fully utilize their carryforward net operating losses for state tax purposes. Many states follow the 20 -year carryforward period for net operating losses; however, a select few have a shorter expiration period.
A reconciliation of the statutory U.S. federal tax rate to our effective rate is as follows:
For the Years Ended December 31,
2022
2021
Statutory U.S. federal tax rate
21.0
%
21.0
%
CARES Act NOL carryback
( 0.1 )
( 0.2 )
Incentive stock options
—
—
Stock compensation expense and tax windfalls upon exercises and vesting
( 0.7 )
( 15.2 )
State taxes, net of federal benefit
3.2
1.1
Permanent items
0.4
0.3
Provision to return adjustments
( 0.3 )
( 0.8 )
Compensation limitations
—
—
Foreign taxes
—
—
Foreign derived intangible income
( 1.3 )
( 0.2 )
Research and development credits
( 1.1 )
( 0.8 )
Other
( 0.4 )
—
Effective rate
20.7
%
5.2
%
As of December 31, 2022 and December 31, 2021, we did not identify or accrue for any uncertain tax positions. We are currently not aware of any uncertain tax positions that could result in significant payments, accruals or other material deviations in this estimate over the next 12 months.
The Company does not have any outstanding U.S. federal income tax or material state and local tax matters for years through 2022. There are no federal income tax returns currently under examination by the Internal Revenue Service. The Company remains subject to income tax examinations for our United States Federal and certain U.S. state income taxes for 2018 and subsequent years and various other U.S. state income taxes for 2017 and subsequent years.
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Management has evaluated the need for a valuation allowance for deferred tax assets, considering the reversal of temporary differences, and believes it is more likely than not that the Company will realize the net deferred income tax assets as of December 31, 2022.
12 — Leases
We have one material lease contract outstanding. In January 2014, we entered into a non-cancelable operating lease, commencing July 1, 2014, for our manufacturing and headquarters facility in Winter Springs, Florida owned by Susi, LLC, an entity controlled by our President, Chief Executive Officer, and Chairman of the Board, Roger Susi. Pursuant to the terms of our lease for this property, the monthly base rent is $ 34,133 , adjusted annually for changes in the consumer price index. For the year ended December 31, 2022 and 2021, the Company paid Susi, LLC $ 492,643 and $ 461,874 respectively related to this lease. Under the terms of the lease, we are responsible for property taxes, insurance and maintenance expenses. Prior to May 31, 2019, the expiration date of the initial lease term, and pursuant to the terms of the lease contract, we renewed the lease for an additional five years , resulting in a new lease expiration date of May 31, 2024. Unless advance written notice of termination is timely provided, the lease will automatically renew for one additional successive term of five years beginning in 2024, and thereafter, will be renewed for successive terms of one year each. At the time we adopted ASU 2016-02, Leases (Topic 842), we concluded that we will exercise the remaining five-year option, resulting in a remaining lease term of 7.4 years as of December 31, 2022. This lease agreement does not contain any residual value guarantee or material restrictive covenants.
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Operating lease cost recognized in the Statements of Operations is as follows:
For the Years Ended
December 31,
2022
2021
Cost of revenue
$
223,880
$
209,897
General and administrative
263,346
213,383
Sales and marketing
12,529
11,747
Research and development
34,713
32,545
Total
$
534,468
$
467,572
Lease costs for short-term leases were immaterial for the years ended December 31, 2022 and 2021.
Maturity of Operating lease liability as of December 31, 2022, is as follows:
2023
$
415,294
2024
415,294
2025
415,294
2026
409,596
2027
409,596
Thereafter
989,856
Total lease payments
3,054,930
Imputed interest
( 441,230 )
Present value of lease liability
$
2,613,700
We used a discount rate of 6.0 % to determine the present value of the operating lease liability on January 1, 2019. We will reassess the lease accounting terms and assumptions once the details regarding completion of new manufacturing facility and planned departure of the current facility is finalized.
13 — Employee Benefit Plan
We sponsor a 401(k) tax-deferred savings plan under which eligible employees may elect to have a portion of their salary deferred and contributed to the plan. Employer matching contributions are determined by management and are discretionary. Employer matching contributions were $ 479,155 and $ 434,904 , respectively, for the years ended December 31, 2022, and 2021. Employer contributions vest immediately.
14 — Commitments and Contingencies
Purchase commitments. We had various purchase orders for goods or services totaling approximately $ 8,021,403 and $ 5,604,456 as of December 31, 2022 and 2021, respectively. No amounts related to these purchase orders have been recognized in our balance sheet.
Indemnifications. Under our amended and restated bylaws, we have agreed to indemnify our officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. We have a director and officer liability insurance policy that limits our exposure under these indemnifications and enables us to recover a portion of any future loss arising out of them.
In addition, in the normal course of business, we enter into contracts that contain indemnification clauses whereby the Company indemnifies our customers against damages associated with product failures. We have determined that these agreements fall within the scope of ASC 460, Guarantees . We have obtained liability insurance providing coverage that limits our exposure for these indemnified matters. We have not incurred costs to defend lawsuits or settle claims related to these indemnities. We believe the estimated fair value of these indemnities is immaterial and have not recorded a liability for these agreements as of December 31, 2022.
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Legal matters. We may from time to time become a party to various legal proceedings or claims that arise in the ordinary course of business.
15 — Capital Stock
The rights and privileges of our Series A Preferred Stock and Common Stock are as follows:
Series A Preferred Stock
We are authorized to issue 3,500,000 shares of preferred stock, of which 800,000 of these shares shall be designated as Series A Preferred Stock (“Preferred Stock”) with a par value of $ 0.0001 per share. As of December 31, 2022, there was no preferred stock issued or outstanding .
Voting and Dividends. The holder of each share of Preferred Stock has the right to one vote for each share of Common Stock into which such Preferred Stock could then be converted. The holders of the Preferred Stock are entitled to receive dividends from legally available assets prior to any declaration or payment of dividends to the holders of Common Stock. Dividends on each share of Preferred Stock are initially at $ 0.06429 per year payable when and as declared by the Board and are non-cumulative. After payment of such dividends, any additional dividends or distributions are distributed among all holders of Common Stock and Preferred Stock in proportion to the number of shares of Common Stock that would be held by each holder if all shares of Preferred Stock were converted to Common Stock at the then effective conversion rate. To date, no dividends have been declared.
Liquidation. In the event of any liquidation, dissolution or winding up of our Company, either voluntary or involuntary, the holders of the Preferred Stock are entitled to receive, prior and in preference to any distribution of the proceeds resulting from such liquidation event to holders of the Common Stock, an amount equal to $ 1.07143 plus declared but unpaid dividends. If, upon occurrence of such liquidation event, the proceeds are insufficient to permit the payment of the aforementioned amount in full, then the entire proceeds shall be distributed ratably among all holders of the Preferred Stock in proportion to the full amount each holder would otherwise receive.
Conversion. Each share of Preferred Stock is convertible at any time, at the option of the holder, into such number of fully paid non-assessable shares of Common Stock as is determined by dividing the original issue price of each share of Preferred Stock by the applicable conversion price. The initial conversion price per share is $ 1.07143 . Adjustments to the initial conversion price may result from a recapitalization event or changes in the number of common shares outstanding. Each share of Preferred Stock automatically converts into shares of fully paid non-assessable shares of Common Stock, at the then applicable conversion rate, upon the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Preferred Stock, voting as a single class on an as-converted basis.
Redemption. Upon a majority vote of the then outstanding shares of Preferred Stock, we may, at our discretion, redeem or purchase shares of Preferred Stock. We also have a first right of refusal to repurchase shares of the Preferred Stock arising from a holder's proposal to sell such Preferred Stock.
Common Stock
We are authorized to issue 31,500,000 shares of Common Stock with a par value of $ 0.0001 per share.
Voting and Dividends. Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Company for their vote except for matters related to potential amendments to our Certificate of Incorporation or matters that solely relate to the terms of one or more outstanding series of our Preferred Stock. Holders of our Common Stock are entitled to receive, when, as and if declared by the Board, dividends pro rata based on the number of shares of Common Stock held. These dividend rights are junior to those of the holders of Preferred Stock.
Liquidation. Liquidation preference to the holders of Common Stock is junior to that of the holders of Preferred Stock.
Redemption. The Common Stock is not redeemable.
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16 — Subsequent Events
On February 2, 2023, the Board of Directors declared a special cash dividend of $ 1.05 per share on the Company’s common stock. On February 21, 2023, we paid $ 13,222,907 to shareholders of record at the close of business on February 17, 2023.
On February 2, 2023, the Company entered into a reinstatement and amendment to the previously announced sale and purchase agreement with O Property, Ltd., a Florida limited partnership dated as of November 1, 2022, pursuant to which the parties agreed to consummate a sale of real property located in Orange County, Florida. Pursuant to the terms of the Reinstatement, the parties consummated the sale of approximately 26.518 acres of land to the Company for a purchase price of $ 6,200,000 . The property was acquired as a site for future office space development to accommodate our increased operations and anticipated growth.
F-25
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.