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IRADIMED CORP - Quarter Report: 2020 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File No.:  001-36534

IRADIMED CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware

    

73-1408526

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number

1025 Willa Springs Drive
Winter Springs, Florida

32708

(Address of principal executive offices)

(Zip Code)

(407) 677-8022

(Registrant’s telephone number, including area code)

N/A

(Former Name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common stock, par value $0.0001

IRMD

NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

Indicate by check mark whether the registrant has submitted electronically pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

The registrant had 12,242,757 shares of common stock, par value $0.0001 per share, outstanding as of August 1, 2020.

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IRADIMED CORPORATION

Table of Contents

Page

Cautionary Note Regarding Forward-Looking Statements

3

Part I

Financial Information

5

 

Item 1

Condensed Financial Statements

5

 

(a)     Condensed Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019

5

 

(b)     Condensed Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

6

 

(c)     Condensed Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

7

 

(d)     Condensed Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

8

 

(e)     Condensed Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited)

9

 

(f)      Notes to Unaudited Condensed Financial Statements

10

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

26

 

Item 4

Controls and Procedures

26

Part II

Other Information

27

 

Item 1

Legal Proceedings

27

 

Item 1A

Risk Factors

27

 

Item 2

Unregistered Sale of Equity Securities and Use of Proceeds

28

 

Item 3

Default Upon Senior Securities

28

 

Item 4

Mine Safety Disclosures

28

 

Item 5

Other Information

28

 

Item 6

Exhibits

29

Signatures

30

2

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements include, but are not limited to, statements about:

our ability to respond and adapt to unexpected hospital, legal and regulatory changes resulting from the ongoing COVID-19 pandemic, such as changes in hospital treatment and financial practices, shelter-in-place orders, travel, social distancing and quarantine policies, curtailment of trade, and other business restrictions affecting our ability to assemble and sell our products;
our ability to receive 510(k) clearance for our products and product candidates, complete inspections conducted by the FDA or other regulatory bodies resulting in favorable outcomes, additional actions by or requests from the U.S. Food & Drug Administration (“FDA”), including a request to cease domestic distribution of products, or other regulatory bodies and unanticipated costs or delays associated with the resolution of these matters;
the timing and likelihood of regulatory approvals or clearances from the FDA or other regulatory bodies and regulatory actions on our product candidates and product marketing activities;
unexpected costs, expenses and diversion of management attention resulting from actions or requests posed to us by the FDA or other regulatory bodies;
our primary reliance on a limited number of products;
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
our expectations regarding the sales and marketing of our products, product candidates and services;
our expectations regarding the integrity of our supply chain for our products;
the potential for adverse application of environmental, health and safety and other laws and regulations of any jurisdiction on our operations;
our expectations for market acceptance of our new products;
the potential for our marketed products to be withdrawn due to recalls, patient adverse events or deaths;
our ability to establish and maintain intellectual property on our products and our ability to successfully defend these in cases of infringement;
the implementation of our business strategies;
the potential for exposure to product liability claims;
our financial performance expectations and interpretations thereof by securities analysts and investors;
our ability to compete in the development and marketing of our products and product candidates with other companies in our industry;

3

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difficulties or delays in the development, production, manufacturing and marketing of new or existing products and services, including difficulties or delays associated with obtaining requisite regulatory approvals or clearances associated with those activities;
changes in laws and regulations or in the interpretation or application of laws or regulations, as well as possible failures to comply with applicable laws or regulations as a result of possible misinterpretations or misapplications;
cost-containment efforts of our customers, purchasing groups, third-party payers and governmental organizations;
costs associated with protecting our trade secrets and enforcing our patent, copyright and trademark rights, and successful challenges to the validity of our patents, copyrights or trademarks;
actions of regulatory bodies and other government authorities, including the FDA and foreign counterparts, that could delay, limit or suspend product development, manufacturing or sales or result in recalls, seizures, consent decrees, injunctions and monetary sanctions;
costs or claims resulting from potential errors or defects in our manufacturing that may injure persons or damage property or operations, including costs from remediation efforts or recalls;
the results, consequences, effects or timing of any commercial disputes, patent infringement claims or other legal proceedings or any government investigations;
interruption in our ability to manufacture our products or an inability to obtain key components or raw materials or increased costs in such key components or raw materials;
uncertainties in our industry due to the effects of government-driven or mandated healthcare reform;
competitive pressures in the markets in which we operate;
the loss of, or default by, one or more key customers or suppliers; and
unfavorable changes to the terms of key customer or supplier relationships.

Forward-looking statements are not guarantees of future performance and are subject to substantial risks and uncertainties that could cause the actual results to differ materially from those that we predicted in the forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission (“SEC”). In light of the significant risks and uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking statements. Except as required by law, we undertake no obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. You should read this Quarterly Report on Form 10-Q and the documents we file with the SEC with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Unless expressly indicated or the context requires otherwise, references in this Quarterly Report to “IRADIMED,” the “Company,” “we,” “our,” and “us” refer to IRADIMED CORPORATION.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

IRADIMED CORPORATION

CONDENSED BALANCE SHEETS

    

June 30, 

    

December 31, 

2020

2019

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

45,457,652

$

43,481,781

Accounts receivable, net of allowance for doubtful accounts of $107,820 as of June 30, 2020 and $69,093 as of December 31, 2019

 

4,505,599

 

7,293,303

Investments

 

2,326,186

 

2,768,287

Inventory, net

 

4,868,721

 

3,641,561

Prepaid expenses and other current assets

 

657,679

 

407,802

Prepaid income taxes

 

2,268,898

 

1,370,947

Total current assets

 

60,084,735

 

58,963,681

Property and equipment, net

 

2,227,020

 

2,053,806

Intangible assets, net

 

937,131

 

860,087

Operating lease right-of-use asset

2,837,253

2,955,873

Deferred income taxes, net

 

2,492,124

 

1,663,415

Other assets

 

246,474

 

232,002

Total assets

$

68,824,737

$

66,728,864

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

703,530

$

993,742

Accrued payroll and benefits

 

1,693,504

 

2,166,209

Other accrued taxes

 

508,125

 

596,576

Warranty reserve

 

88,372

 

81,761

Deferred revenue

 

1,873,090

 

1,671,420

Current portion of operating lease liability

248,159

240,843

Other current liability

139,562

108,421

Total current liabilities

 

5,254,342

 

5,858,972

Deferred revenue

 

2,617,075

 

2,630,467

Operating lease liability, less current portion

2,589,094

2,715,030

Total liabilities

 

10,460,511

 

11,204,469

Stockholders’ equity:

Common stock; $0.0001 par value; 31,500,000 shares authorized; 12,197,837 shares issued and outstanding as of June 30, 2020 and 11,765,875 shares issued and outstanding as of December 31, 2019

 

1,220

 

1,177

Additional paid-in capital

 

22,351,673

 

19,192,394

Retained earnings

 

35,957,391

 

36,300,450

Accumulated other comprehensive income

 

53,942

 

30,374

Total stockholders’ equity

 

58,364,226

 

55,524,395

Total liabilities and stockholders’ equity

$

68,824,737

$

66,728,864

See accompanying notes to unaudited condensed financial statements.

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IRADIMED CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three Months Ended

For the Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

Revenue

$

6,794,692

$

9,225,596

$

15,472,233

$

17,663,189

Cost of revenue

 

1,864,587

 

1,858,288

 

4,078,317

 

3,906,115

Gross profit

 

4,930,105

 

7,367,308

 

11,393,916

 

13,757,074

Operating expenses:

General and administrative

 

5,002,427

 

2,460,372

 

7,865,154

 

4,873,068

Sales and marketing

 

2,374,134

 

2,199,823

 

4,807,701

 

4,310,475

Research and development

 

482,654

 

331,310

 

912,936

 

683,883

Total operating expenses

 

7,859,215

 

4,991,505

 

13,585,791

 

9,867,426

(Loss) income from operations

 

(2,929,110)

 

2,375,803

 

(2,191,875)

 

3,889,648

Other income, net

 

17,852

 

78,025

 

116,354

 

170,599

(Loss) income before provision for income taxes

 

(2,911,258)

 

2,453,828

 

(2,075,521)

 

4,060,247

Provision for income tax (benefit) expense

 

(798,988)

 

364,987

 

(1,732,462)

 

125,841

Net (loss) income

$

(2,112,270)

$

2,088,841

$

(343,059)

$

3,934,406

Net (loss) income per share:

Basic

$

(0.17)

$

0.19

$

(0.03)

$

0.35

Diluted

$

(0.17)

$

0.17

$

(0.03)

$

0.32

Weighted average shares outstanding:

Basic

 

12,076,399

 

11,163,506

 

11,983,913

 

11,096,942

Diluted

 

12,076,399

 

12,226,660

 

11,983,913

 

12,227,949

See accompanying notes to unaudited condensed financial statements.

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IRADIMED CORPORATION

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

For the Three Months Ended

For the Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

Net (loss) income

$

(2,112,270)

$

2,088,841

$

(343,059)

$

3,934,406

Other comprehensive income:

Change in fair value of available-for-sale securities, net of tax expense of $4,227 and $8,671 for the three months ended June 30, 2020 and 2019, respectively, and $7,669 and $20,327 for the six months ended June 30, 2020 and 2019, respectively

 

19,797

 

27,301

 

30,230

 

62,618

Realized (gain) loss on available-for-sale securities reclassified to net income, net of tax expense (benefit) of $2,199 and $12 for the three months ended June 30, 2020 and 2019, respectively, and $2,199 and $(937) for the six months ended June 30, 2020 and 2019, respectively

 

(6,662)

 

(36)

 

(6,662)

 

2,841

Other comprehensive income

 

13,135

 

27,265

 

23,568

 

65,459

Comprehensive (loss) income

$

(2,099,135)

$

2,116,106

$

(319,491)

$

3,999,865

See accompanying notes to unaudited condensed financial statements.

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IRADIMED CORPORATION

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

Accumulated

Additional

Other

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

Income

    

Equity

Balances, December 31, 2019

 

11,765,875

$

1,177

$

19,192,394

$

36,300,450

$

30,374

$

55,524,395

Net income

 

 

 

 

1,769,211

 

 

1,769,211

Other comprehensive income

 

 

 

 

 

10,433

 

10,433

Stock-based compensation expense

 

 

 

568,958

 

 

 

568,958

Net share settlement of restricted stock units

 

14,521

 

1

 

(133,873)

 

 

 

(133,872)

Exercise of stock options

 

190,541

 

19

 

322,160

 

 

 

322,179

Balances, March 31, 2020

 

11,970,937

$

1,197

$

19,949,639

$

38,069,661

$

40,807

$

58,061,304

Net loss

 

 

 

 

(2,112,270)

 

 

(2,112,270)

Other comprehensive income

 

 

 

 

 

13,135

 

13,135

Stock-based compensation expense

 

 

 

2,658,632

 

 

 

2,658,632

Net share settlement of restricted stock units

 

76,381

 

8

 

(725,393)

 

 

 

(725,385)

Exercise of stock options

 

150,519

 

15

 

468,795

 

 

 

468,810

Balances, June 30, 2020

 

12,197,837

$

1,220

$

22,351,673

$

35,957,391

$

53,942

$

58,364,226

Accumulated

 

Additional

Other

 

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Earnings

    

Income

    

Equity

Balances, December 31, 2018

10,989,111

 

$

1,099

 

$

15,317,335

 

$

26,669,491

 

$

(42,192)

 

$

41,945,733

Net income

 

 

 

1,845,565

 

 

1,845,565

Other comprehensive income

 

 

 

 

38,194

 

38,194

Stock-based compensation expense

 

 

382,353

 

 

 

382,353

Net share settlement of restricted stock units

4,322

 

 

(22,507)

 

 

 

(22,507)

Exercise of stock options

150,763

 

15

 

456,724

 

 

 

456,739

Balances, March 31, 2019

11,144,196

 

$

1,114

 

$

16,133,905

 

$

28,515,056

 

$

(3,998)

 

$

44,646,077

Net income

 

 

 

2,088,841

 

 

2,088,841

Other comprehensive income

 

 

 

 

27,265

 

27,265

Stock-based compensation expense

 

 

468,436

 

 

 

468,436

Net share settlement of restricted stock units

23,331

 

3

 

(125,708)

 

 

 

(125,705)

Exercise of stock options

28,875

 

3

 

43,505

 

 

 

43,508

Balances, June 30, 2019

 

11,196,402

 

$

1,120

 

$

16,520,138

 

$

30,603,897

 

$

23,267

 

$

47,148,422

See accompanying notes to unaudited condensed financial statements.

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IRADIMED CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

June 30, 

    

2020

    

2019

Operating activities:

Net (loss) income

$

(343,059)

$

3,934,406

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Change in allowance for doubtful accounts

40,029

15,124

Change in provision for excess and obsolete inventory

 

35,376

 

115,600

Depreciation and amortization

 

668,823

 

672,676

Stock-based compensation

 

3,227,590

 

850,789

Deferred income taxes, net

(834,179)

35,574

(Gain) loss on maturities of investments

(8,861)

3,778

Changes in operating assets and liabilities:

Accounts receivable

 

2,747,675

 

(1,682,525)

Inventory

 

(1,360,074)

 

(494,108)

Prepaid expenses and other current assets

 

(674,047)

 

(600,485)

Other assets

 

(26,402)

 

(10,830)

Accounts payable

 

(319,583)

 

178,912

Accrued payroll and benefits

 

(472,705)

 

(243,044)

Other accrued taxes

 

(88,451)

 

(80,451)

Warranty reserve

 

6,611

 

533

Deferred revenue

 

255,298

 

371,317

Other current liability

31,141

(Prepaid ) accrued income taxes

 

(897,951)

 

78,366

Net cash provided by operating activities

 

1,987,231

 

3,145,632

Investing activities:

Proceeds from maturity of investments

480,000

1,050,000

Purchases of property and equipment

 

(300,558)

 

(118,962)

Capitalized intangible assets

 

(122,534)

 

(34,399)

Net cash provided by investing activities

 

56,908

 

896,639

Financing activities:

Proceeds from exercises of stock options

 

790,989

 

500,247

Taxes paid related to the net share settlement of equity awards

(859,257)

(148,212)

Net cash (used in) provided by financing activities

 

(68,268)

 

352,035

Net increase in cash and cash equivalents

 

1,975,871

 

4,394,306

Cash and cash equivalents, beginning of period

 

43,481,781

 

28,027,688

Cash and cash equivalents, end of period

$

45,457,652

$

32,421,994

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$

$

12,000

Right-of-use asset recognized in exchange for new lease obligation

$

$

3,182,724

Operating and short-term lease payments recorded within cash flow from operating activities

$

214,877

$

213,336

See accompanying notes to unaudited condensed financial statements.

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IRADIMED CORPORATION

Notes to Unaudited Condensed Financial Statements

1 — Basis of Presentation

The accompanying interim condensed financial statements of IRADIMED CORPORATION (“IRADIMED”, the “Company”, “we”, “our”) have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. The interim financial information is unaudited, but reflects all normal adjustments that are, in the opinion of management, necessary for the fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

These accompanying interim condensed financial statements should be read with the financial statements and related footnotes to financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. The accounting policies followed in the preparation of these interim condensed financial statements, except as described in Note 1, are consistent in all material respects with those described in Note 1 of our Form 10-K.

We operate in one reportable segment which is the development, manufacture and sale of MRI compatible medical devices, related accessories, disposables and services for use by hospitals and acute care facilities during MRI procedures.

Certain Significant Risks and Uncertainties

We market our products to end users in the U.S. and to distributors internationally. Sales to end users in the U.S. are generally made on open credit terms. Management maintains an allowance for potential credit losses.

COVID-19 Considerations

We are subject to risks and uncertainties as a result of the spread of COVID-19. We have experienced a decline in operating results, which has limited our generation of capital resources. The extent of the impact of COVID-19 on our business is highly uncertain and difficult to predict. Our future results of operations and liquidity could be adversely impacted by delays in payments from customers, supply chain disruptions, and uncertain demand. As of the date of the issuance of these financial statements, the extent to which COVID-19 may materially impact our financial condition, liquidity, or results of operations in future periods is uncertain.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements to be Implemented

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. We do not expect ASU 2019-12 to have a material impact on financial condition, results of operations or cash flows.

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 Recognition

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:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

(unaudited)

(unaudited)

United States

$

4,642,916

$

7,561,054

$

10,965,022

$

14,634,788

International

 

2,151,776

 

1,664,542

 

4,507,211

 

3,028,401

Total revenue

$

6,794,692

$

9,225,596

$

15,472,233

$

17,663,189

Revenue information by type is as follows:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

(unaudited)

(unaudited)

Devices:

  

 

  

 

  

 

  

MRI Compatible IV Infusion Pump Systems

$

1,875,159

$

4,550,542

$

4,539,993

$

8,743,296

MRI Compatible Patient Vital Signs Monitoring Systems

 

1,927,473

 

1,891,031

 

4,546,988

 

3,657,639

Total Devices Revenue

 

3,802,632

 

6,441,573

 

9,086,981

 

12,400,935

Disposables, services and other

 

2,535,548

 

2,313,755

 

5,467,449

 

4,350,428

Amortization of extended warranty agreements

 

456,512

 

470,268

 

917,803

 

911,826

Total revenue

$

6,794,692

$

9,225,596

$

15,472,233

$

17,663,189

Contract Liabilities

Our contract liabilities consist of:

    

June 30, 

    

December 31, 

2020

2019

(unaudited)

Advance payments from customers

$

19,471

$

12,765

Shipments in-transit

67,021

4,250

Extended warranty agreements

 

4,403,673

 

4,284,872

Total

$

4,490,165

$

4,301,887

Changes in the contract liabilities during the periods presented are as follows:

    

Deferred

Revenue

Contract liabilities, December 31, 2019

$

4,301,887

Increases due to cash received from customers

 

1,236,658

Decreases due to recognition of revenue

 

(1,048,380)

Contract liabilities, June 30, 2020

$

4,490,165

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Deferred 

Revenue

Contract liabilities, December 31, 2018

$

3,605,789

Increases due to cash received from customers

 

1,646,638

Decreases due to recognition of revenue

 

(1,396,920)

Contract liabilities, June 30, 2019

$

3,855,507

Capitalized Contract Costs

Our capitalized contract costs consist of:

June 30, 

December 31, 

    

2020

    

2019

(unaudited)

Capitalized contract costs

$

378,652

$

352,250

Expense related to the amortization of capitalized contract costs for the three and six months ended June 30, 2020 and 2019 were immaterial to our financial statements.

3 — Basic and Diluted Net (Loss) Income per Share

Basic net (loss) income per share is based upon 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. Stock options and 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 (loss) income per share:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

    

2020

    

2019

(unaudited)

(unaudited)

Net (loss) income

$

(2,112,270)

$

2,088,841

$

(343,059)

$

3,934,406

Weighted-average shares outstanding — Basic

 

12,076,399

 

11,163,506

 

11,983,913

 

11,096,942

Effect of dilutive securities:

Underwriters’ warrants

92,898

96,482

Stock Options

 

 

880,908

 

 

938,135

Restricted Stock Units

89,348

96,390

Weighted-average shares outstanding — Diluted

 

12,076,399

 

12,226,660

 

11,983,913

 

12,227,949

Basic net (loss) income per share

$

(0.17)

$

0.19

$

(0.03)

$

0.35

Diluted net (loss) income per share

$

(0.17)

$

0.17

$

(0.03)

$

0.32

Stock options 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:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

(unaudited)

(unaudited)

Anti-dilutive stock options and restricted stock units

 

399,772

6,639

479,499

6,895

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4 — Inventory

Inventory consists of:

    

June 30, 

    

December 31, 

2020

2019

(unaudited)

Raw materials

$

3,819,597

$

2,939,451

Work in process

 

315,133

 

229,479

Finished goods

 

908,411

 

697,483

Inventory before allowance for excess and obsolete

5,043,141

3,866,413

Allowance for excess and obsolete

(174,420)

(224,852)

Total

$

4,868,721

$

3,641,561

5 — Property and Equipment

Property and equipment consist of:

    

June 30, 

    

December 31, 

2020

2019

(unaudited)

Computer software and hardware

$

667,609

$

627,624

Furniture and fixtures

 

1,233,227

 

1,112,550

Leasehold improvements

 

225,841

 

225,841

Machinery and equipment

 

1,801,315

 

1,778,524

Tooling in-process

 

407,119

 

163,105

 

4,335,111

 

3,907,644

Accumulated depreciation

 

(2,108,091)

 

(1,853,838)

Total

$

2,227,020

$

2,053,806

Depreciation expense of property and equipment was $127,945 and $126,653 for the three months ended June 30, 2020 and 2019, respectively, and $254,253 and $250,994 for the six months ended June 30, 2020 and 2019, respectively.

Property and equipment, net, information by geographic region is as follows:

    

June 30, 

    

December 31, 

2020

2019

(unaudited)

United States

$

1,899,118

$

1,689,740

International

 

327,902

 

364,066

Total property and equipment, net

$

2,227,020

$

2,053,806

Long-lived assets held outside of the United States consist principally of tooling and machinery and equipment, which are components of property and equipment, net.

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6 — Intangible Assets

The following table summarizes the components of intangible asset balances:

    

June 30, 

    

December 31, 

2020

2019

(unaudited)

Patents — in use

$

325,434

$

304,270

Patents — in process

 

127,369

 

120,581

Internally developed software — in use

 

867,569

 

867,569

Internally developed software — in process

174,414

80,721

Trademarks

27,022

26,133

 

1,521,808

 

1,399,274

Accumulated amortization

 

(584,677)

 

(539,187)

Total

$

937,131

$

860,087

Amortization expense of intangible assets was $22,999 and $22,490 for the three months ended June 30, 2020 and 2019, respectively, and $45,490 and $44,981 for the six months ended June 30, 2020 and 2019, respectively.

Expected annual amortization expense for the remaining portion of 2020 and the next five years related to intangible assets is as follows (excludes in process intangible assets):

Six months ending December 31, 2020

    

$

45,999

2021

$

91,998

2022

$

91,427

2023

$

90,775

2024

$

90,474

2025

$

89,481

7 — Investments

Our investments consist of corporate bonds that we have classified as available-for-sale and are summarized in the following tables:

June 30, 2020

Gross

Gross

Unrealized

Unrealized

Fair

    

Cost

    

Gains

    

Losses

    

Value

Corporate bonds:

U.S. corporations

$

2,258,686

$

67,500

$

$

2,326,186

Total

$

2,258,686

$

67,500

$

$

2,326,186

December 31, 2019

Gross

Gross

Unrealized

Unrealized

Fair

    

Cost

    

Gains

    

Losses

    

Value

Corporate bonds:

U.S. corporations

$

2,258,686

$

29,123

$

$

2,287,809

International corporations

471,139

9,339

480,478

Total

$

2,729,825

$

38,462

$

$

2,768,287

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8 — Fair Value Measurements

The fair values of cash equivalents, accounts receivables, net and accounts payable approximate their carrying amounts due to their short duration.

The fair value of our assets and liabilities subject to recurring fair value measurements are as follows:

Fair Value at June 30, 2020

    

    

Quoted Prices

    

Significant

    

in Active

Other

Significant

Market for

Observable

Unobservable

Fair

Identical Assets

Inputs

Inputs

Value

(Level 1)

(Level 2)

(Level 3)

Corporate bonds:

U.S. corporations

$

2,326,186

$

$

2,326,186

$

Total

$

2,326,186

$

$

2,326,186

$

Fair Value at December 31, 2019

    

    

Quoted Prices

    

Significant

    

in Active

Other

Significant

Market for

Observable

Unobservable

Fair

Identical Assets

Inputs

Inputs

Value

(Level 1)

(Level 2)

(Level 3)

Corporate bonds:

U.S. corporations

$

2,287,809

$

$

2,287,809

$

International corporations

480,478

480,478

Total

$

2,768,287

$

$

2,768,287

$

Our corporate bonds are valued by a third-party custodian at closing prices from secondary exchanges or pricing vendors on the valuation date.

There were no transfers into or out of any Levels during the six months ended June 30, 2020 or the year ended December 31, 2019.

9 — Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, net of tax, for the three months ended June 30, 2020 and 2019 are as follows:

    

Unrealized

(Losses)

Gains on

Available-For-Sale

    

Securities

Balance at March 31, 2020

$

40,807

Gains on available-for-sale securities, net

 

19,797

Reclassification realized in net earnings

 

(6,662)

Balance at June 30, 2020

$

53,942

 

  

Balance at March 31, 2019

$

(3,998)

Gains on available-for-sale securities, net

 

27,301

Reclassification realized in net earnings

 

(36)

Balance at June 30, 2019

$

23,267

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The components of accumulated other comprehensive income, net of tax, for the six months ended June 30, 2020 and 2019 are as follows:

Unrealized (Losses) 

Gains on

Available-For-Sale

    

Securities

Balance at December 31, 2019

 

$

30,374

Gains on available-for-sale securities, net

 

30,230

Reclassification realized in net earnings

(6,662)

Balance at June 30, 2020

 

$

53,942

Balance at December 31, 2018

$

(42,192)

Gains on available-for-sale securities, net

 

62,618

Reclassification realized in net earnings

2,841

Balance at June 30, 2019

$

23,267

10 — Stock-Based Compensation

Stock-based compensation was recognized as follows in the Condensed Statements of Operations:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

(unaudited)

(unaudited)

Cost of revenue

$

58,253

$

58,319

$

116,507

$

120,843

General and administrative

 

2,500,634

 

303,375

 

2,862,786

 

523,080

Sales and marketing

 

77,572

 

87,168

 

208,527

 

169,299

Research and development

 

22,173

 

19,574

 

39,770

 

37,567

Total

$

2,658,632

$

468,436

$

3,227,590

$

850,789

As of June 30, 2020, we had $2,599,720 of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2.7 years.

The following table presents a summary of our stock-based compensation activity for the six months ended June 30, 2020 (shares):

Stock

Restricted

    

Options

    

Stock Units

Outstanding beginning of period

638,860

297,048

Awards granted

18,129

Awards exercised/vested

(341,059)

(128,878)

Awards canceled

(3,500)

(27,851)

Outstanding end of period

294,301

158,448

11 — Income Taxes

For the three and six months ended June 30, 2020, we recorded a provision for income tax benefit of $(798,988) and $(1,732,462), respectively. Our effective tax rate was 27.4 percent and 83.5 percent, respectively, and differed from the U.S. Federal statutory rate primarily due to discrete items related to tax benefits associated with stock-based compensation and a U.S. state tax benefit, partially offset by a limitation on the deductibility of certain executive compensation associated with the separation of our former Chief Executive Officer. Additionally, we recognized a benefit in our effective tax rate resulting from the Coronavirus Aid, Relief, and Economic Security Act, which allowed us to carryback net operating losses to years prior to the enactment of the Tax Cuts and Jobs Act.

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For the three and six months ended June 30, 2019, we recorded a provision for income tax expense of $364,987 and $125,841, respectively. Our effective tax rate was 14.9 percent and 3.1 percent, respectively, and differed from the U.S. Federal statutory rate primarily due to discrete items related to tax benefits associated with stock-based compensation and the foreign derived intangible income deduction, partially offset by U.S. state tax expense.

As of June 30, 2020 and December 31, 2019, we had not identified or accrued for any uncertain tax positions. We are currently unaware of any uncertain tax positions that could result in significant payments, accruals or other material deviations in this estimate over the next 12 months. We believe that our tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from ours, which could result in the imposition of additional taxes and penalties.

We file tax returns in the U.S. Federal jurisdiction and many U.S. state jurisdictions. The Company is subject to income tax examinations for our U.S. Federal and certain U.S. state income taxes for 2016 and subsequent years and various other U.S. state income taxes for 2015 and subsequent years.

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. 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. For purposes of Topic 842, we concluded that we will exercise both of the five-year options, resulting in a remaining lease term of 8.9 years as of June 30, 2020. This lease agreement does not contain any residual value guarantee or material restrictive covenants.

Operating lease cost recognized in the Condensed Statements of Operations is as follows:

Three Months Ended

Six Months Ended

June 30,

June 30,

    

2020

    

2019

    

2020

    

2019

(unaudited)

(unaudited)

Cost of revenue

$

46,535

$

46,534

    

$

93,070

    

$

93,069

General and administrative

 

46,044

46,045

92,088

92,089

Sales and marketing

 

2,603

2,604

5,208

5,209

Research and development

 

7,215

7,216

14,430

14,431

Total

$

102,397

$

102,399

$

204,796

$

204,798

Lease costs for short-term leases were immaterial for the three and six months ended June 30, 2020 and 2019.

Maturity of Operating Lease Liability as of June 30, 2020 is as follows:

Six months ending December 31, 2020

    

$

204,798

2021

 

409,596

2022

 

409,596

2023

 

409,596

2024

 

409,596

Thereafter

 

1,809,050

Total lease payments

 

3,652,232

Imputed interest

 

(814,979)

Present value of lease liability

$

2,837,253

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13 — Commitments and Contingencies

Purchase commitments. We had various purchase orders for goods or services totaling $2,258,175 and $3,208,174 as of June 30, 2020 and December 31, 2019, respectively. No amounts related to these purchase orders have been recognized in our balance sheet.

Legal matters. We may from time to time become party to various legal proceedings or claims that arise in the ordinary course of business.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our condensed financial statements and the related notes to those statements included in this Quarterly Report, the discussion of certain risks and uncertainties contained in Part II, Item 1A of this Quarterly Report, the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” included in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2019 and the cautionary information regarding forward-looking statements at the beginning of this Quarterly Report.

Our Business

We develop, manufacture, market and distribute Magnetic Resonance Imaging (“MRI”) compatible medical devices and accessories and services relating to them.

We are a leader in the development of innovative MRI compatible medical devices. We are the only known provider of a non-magnetic intravenous (“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.

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.

Historical selling cycles for our devices have varied widely and are typically three to six months in duration. We also enter into agreements with healthcare supply contracting companies in the U.S., which enable us to sell and distribute our products to their member hospitals. Under these agreements, we are required to pay these group purchasing organizations (“GPOs”) a fee of three percent of the sales of our products to their member hospitals. Our current GPO contracts effectively give us the ability to sell to more than 95 percent of all U.S. hospitals and acute care facilities.

Financial Highlights

Our revenue decreased $(2.4) million, or (26.3) percent, to $6.8 million for the second quarter ended June 30, 2020, compared to $9.2 million for the second quarter last year. Net loss was $(2.1) million, or $(0.17) per diluted share in the second quarter ended June 30, 2020, compared to net income of $2.1 million, or $0.17 per diluted share in the second quarter last year.

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COVID-19 Impact

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic, which continues to spread throughout the U.S. and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, business limitations and shutdowns. While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our customers and suppliers, for an indefinite period of time. Considering the significant uncertainties created by COVID-19, we have withdrawn our 2020 financial guidance.

We have taken several steps to support the health and well-being of our employees as a result of the pandemic, including:

Restricted the travel of our field sales and clinical support teams;
Implemented remote and flexible working arrangements where possible for a portion of our staff;
Adopted more stringent cleaning procedures at our headquarters and manufacturing facility; and
Adopted a policy guaranteeing a portion of compensation for employees that are subject to variable compensation plans for the three months ended June 30, 2020. We also adopted a policy allowing all employees to donate their accrued time off to other employees unable to work due to COVID-19 issues.

The COVID-19 pandemic has resulted in significant economic disruption across the globe and has and will likely continue to adversely affect our business. Many of our hospital customers have and will likely continue to restrict access to healthcare workers only, diminishing our ability to generate sales, which may delay the timing of future orders and may result in declining revenue for the remaining portion of 2020. Resulting from hospitals restricting access to their facilities, we have made certain investments in equipment to facilitate virtual meetings to enhance our selling process and perform product demonstrations and training.

Our business may also be adversely impacted as a result of the pandemic’s global economic impact. For example, hospitals may curtail their overall capital spending, or we may be unable to collect receivables from customers significantly impacted by COVID-19. Also, a decrease in orders in a given period could negatively affect our revenues in future periods from sales of our disposables and extended maintenance contracts, particularly if experienced on a sustained basis.

We believe that our current cash, investments and any cash generated from operations will be sufficient to meet our ongoing operating requirements for at least the next 12 months. We do not anticipate requiring additional capital; however, if required or desirable, we may seek to obtain a credit facility, raise debt or issue additional equity in private or public markets.

We will continue to monitor the situation and may take further actions altering our business operations that we determine are in the best interest of our employees, customers, partners, suppliers, and stockholders, or as required by federal, state, or local authorities.

Application of Critical Accounting Policies

We prepare our financial statements in conformity with GAAP. The preparation of these financial statements requires us to make estimates and use assumptions that affect the reported amounts of assets, liabilities and related disclosures at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

We believe that the following critical accounting policies require the use of significant estimates, assumptions, and judgments:

Revenue recognition;
Accounts receivable and allowance for doubtful accounts;

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Inventory carried at the lower of cost or net realizable value;
Stock-based compensation; and
Income taxes.

These critical accounting policies are described in more detail in our Annual Report filed on Form 10-K, under Management’s Discussion and Analysis and Results of Operations. Except as disclosed in Note 1 to the unaudited condensed financial statements contained herein related to the adoption of recent accounting pronouncements, there have been no changes to these policies during the three and six months ended June 30, 2020.

The use of different estimates, assumptions, and judgments could have a material effect on the reported amounts of assets, liabilities and related disclosures as of the date of the financial statements and revenue and expenses during the reporting period.

Results of Operations

The following table sets forth selected statements of operations data as a percentage of total revenue for the periods indicated. Our historical operating results are not necessarily indicative of the results for any future period.

Percent of Revenue

 

Percent of Revenue

 

Three Months

 

Six Months

 

Ended June 30,

 

Ended June 30,

 

    

2020

    

2019

    

2020

    

2019

 

Revenue

 

100.0

%  

100.0

%

100.0

%  

100.0

%

Cost of revenue

 

27.4

 

20.1

26.4

 

22.1

Gross profit

 

72.6

 

79.9

73.6

 

77.9

Operating expenses:

 

 

 

General and administrative

 

73.6

 

26.7

50.8

 

27.6

Sales and marketing

 

34.9

 

23.8

31.1

 

24.4

Research and development

 

7.1

 

3.6

5.9

 

3.9

Total operating expenses

 

115.7

 

54.1

87.8

 

55.9

(Loss) income from operations

 

(43.1)

 

25.8

(14.2)

 

22.0

Other income, net

 

0.3

 

0.8

0.8

 

1.0

(Loss) income before provision for income taxes

 

(42.8)

 

26.6

(13.4)

 

23.0

Provision for income tax (benefit) expense

 

(11.8)

 

4.0

(11.2)

 

0.7

Net (loss) income

 

(31.1)

%  

22.6

%

(2.2)

%  

22.3

%

Revenue by Geographic Region

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

    

2020

    

2019

    

Change

    

2020

    

2019

    

Change

 

United States

$

4,642,916

$

7,561,054

 

(38.6)

%

$

10,965,022

$

14,634,788

 

(25.1)

%

International

 

2,151,776

 

1,664,542

 

29.3

%

 

4,507,211

 

3,028,401

 

48.8

%

Total Revenue

$

6,794,692

$

9,225,596

 

(26.3)

%

$

15,472,233

$

17,663,189

 

(12.4)

%

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Revenue by Type

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

    

2020

    

2019

    

Change

    

2020

    

2019

    

Change

 

Devices:

 

  

 

  

 

  

  

 

  

 

  

MRI Compatible IV Infusion Pump Systems

$

1,875,159

$

4,550,542

 

(58.8)

%

$

4,539,993

$

8,743,296

 

(48.1)

%

MRI Compatible Patient Vital Signs Monitoring Systems

 

1,927,473

 

1,891,031

 

1.9

%

 

4,546,988

 

3,657,639

 

24.3

%

Total Devices Revenue

 

3,802,632

 

6,441,573

 

(41.0)

%

 

9,086,981

 

12,400,935

 

(26.7)

%

Disposables, services and other

 

2,535,548

 

2,313,755

 

9.6

%

 

5,467,449

 

4,350,428

 

25.7

%

Amortization of extended warranty agreements

 

456,512

 

470,268

 

(2.9)

%

 

917,803

 

911,826

 

0.7

%

Total revenue

$

6,794,692

$

9,225,596

 

(26.3)

%

$

15,472,233

$

17,663,189

 

(12.4)

%

For the three months ended June 30, 2020, revenue decreased $(2.4) million, or (26.3) percent, to $6.8 million from $9.2 million for the same period in 2019.

Revenue from sales in the U.S. decreased $(3.0) million, or (38.6) percent, to $4.6 million for the second quarter 2020, from $7.6 million for the second quarter 2019. Revenue from sales internationally increased $0.5 million, or 29.3 percent, to $2.2 million for the second quarter 2020, from $1.7 million for the second quarter 2019. Domestic sales accounted for 68.3 percent of revenue for the second quarter 2020, compared to 82.0 percent for the second quarter 2019.

Revenue from sales of devices decreased $(2.6) million, or (41.0) percent, to $3.8 million for the three months ended June 30, 2020, from $6.4 million for the same period in 2019.

The average selling price of our MRI compatible IV infusion pump system during the three months ended June 30, 2020 was approximately $30,200, compared to approximately $35,300 for the same period in 2019. The decrease in ASP relates to higher international sales of our MRI compatible IV infusion pump recognized in revenue when compared to the same period in 2019.

The average selling price of our MRI compatible patient vital signs monitoring system during the three months ended June 30, 2020 was approximately $30,600, compared to approximately $32,200 for the same period in 2019. The decrease in ASP relates to higher international sales of our 3880 MRI compatible patient vital signs monitoring system recognized in revenue when compared to the same period in 2019.

Revenue from sales of our disposables, services and other increased $0.2 million, or 9.6 percent, to $2.5 million from $2.3 million for the same period in 2019. Revenue from the amortization of extended maintenance contracts was consistent at $0.5 million for the three months ended June 30, 2020 and 2019.

For the six months ended June 30, 2020, revenue decreased $(2.2) million, or (12.4) percent, to $15.5 million from $17.7 million for the same period in 2019.

Revenue from sales in the U.S. decreased $(3.6) million, or (25.1) percent, to $11.0 million for the six months ended June 30, 2020, from $14.6 million for the same period in 2019. Revenue from sales internationally increased $1.5 million, or 48.8 percent, to $4.5 million for the six months ended June 30, 2020, from $3.0 million for the same period in 2019. Domestic sales accounted for 70.9 percent of revenue for the six months ended June 30, 2020, compared to 82.9 percent for the same period 2019.

Revenue from sales of devices decreased $(3.3) million, or (26.7) percent, to $9.1 million for the six months ended June 30, 2020, from $12.4 million for the same period in 2019.

The average selling price of our MRI compatible IV infusion pump system during the six months ended June 30, 2020 was approximately $30,100, compared to approximately $35,500 for the same period in 2019. The decrease in ASP relates to higher international sales of our MRI compatible IV infusion pump recognized in revenue when compared to the same period in 2019.

The average selling price of our MRI compatible patient vital signs monitoring system during the six months ended June 30, 2020 was approximately $33,100, compared to approximately $34,600 for the same period in 2019. The decrease in ASP relates to higher international sales of our 3880 MRI compatible patient vital signs monitoring system recognized in revenue when compared to the same period in 2019.

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Revenue from sales of our disposables, services and other increased $1.1 million, or 25.7 percent, to $5.5 million from $4.4 million for the same period in 2019. Revenue from the amortization of extended maintenance contracts was consistent at $0.9 million for the six months ended June 30, 2020 and 2019.

Cost of Revenue and Gross Profit

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

    

2020

    

2019

    

2020

    

2019

 

Revenue

$

6,794,692

$

9,225,596

$

15,472,233

$

17,663,189

Cost of revenue

 

1,864,587

 

1,858,288

 

4,078,317

 

3,906,115

Gross profit

$

4,930,105

$

7,367,308

$

11,393,916

$

13,757,074

Gross profit percentage

 

72.6

%  

 

79.9

%

 

73.6

%  

 

77.9

%

For the three months ended June 30, 2020 and 2019, cost of revenue was consistent at $1.9. Gross profit decreased $(2.5) million, or (33.1) percent, to $4.9 million for the second quarter 2020 from $7.4 million for the same period in 2019. The decrease in gross profit is primarily due to lower revenue and unfavorable overhead variances.

Gross profit margin was 72.6 percent for second quarter 2020, compared to 79.9 percent for the second quarter 2019. The decrease in gross profit margin is due to higher international revenue as a percent of total revenue and unfavorable overhead variances.

For the six months ended June 30, 2020, cost of revenue increased $0.2 million, or 4.4 percent, to $4.1 million from $3.9 million for the same period in 2019. Gross profit decreased $(2.4) million, or (17.2) percent, to $11.4 million for the six months ended June 30, 2020 from $13.8 million for the same period in 2019. The increase in cost of revenue and decrease in gross profit is primarily due to lower revenue and unfavorable overhead variances.

Gross profit margin was 73.6 percent for the six months ended June 30, 2020, compared to 77.9 percent for the same period in 2019. The decrease in gross profit margin is due to higher international revenue as a percent of total revenue and unfavorable overhead variances.

Operating Expenses

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

    

2020

    

2019

    

2020

    

2019

 

General and administrative

$

5,002,427

$

2,460,372

$

7,865,154

$

4,873,068

Percentage of revenue

 

73.6

%  

 

26.7

%

 

50.8

%  

 

27.6

%

Sales and marketing

$

2,374,134

$

2,199,823

$

4,807,701

$

4,310,475

Percentage of revenue

 

34.9

%  

 

23.8

%

 

31.1

%  

 

24.4

%

Research and development

$

482,654

$

331,310

$

912,936

$

683,883

Percentage of revenue

 

7.1

%  

 

3.6

%

 

5.9

%  

 

3.9

%

General and Administrative

For the three months ended June 30, 2020, general and administrative expense increased $2.5 million, or 103.3 percent, to $5.0 million from $2.5 million for the same period last year. This increase is primarily due to higher expenses from stock and cash compensation related to the separation of our former Chief Executive Officer, and partially offset by lower legal and professional expenses. During the three months ended June 30, 2020, the Company recognized total general and administrative expense of $2.8 million related to our former Chief Executive Officer, of which $2.7 million relates to the separation.

For the six months ended June 30, 2020, general and administrative expense increased $3.0 million, or 61.4 percent, to $7.9 million from $4.9 million for the same period last year. This increase is primarily due to higher expenses from stock and cash compensation related to the separation of our former Chief Executive Officer, higher payroll and benefits costs related to higher headcount, partially offset by lower legal and professional expenses. During the six months ended June 30, 2020, the Company recognized total general and administrative expense of $3.2 million related to our former Chief Executive Officer, of which $2.7 million relates to the separation.

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Sales and Marketing

For the three months ended June 30, 2020, sales and marketing expense increased $0.2 million, or 7.9 percent, to $2.4 million from $2.2 million for the same period last year. This increase is primarily the result of higher payroll and employee benefits costs resulting from increased headcount and higher sales commissions expense, partially offset by lower sales activities expenses.

For the six months ended June 30, 2020, sales and marketing expense increased $0.5 million, or 11.5 percent, to $4.8 million from $4.3 million for the same period last year. This increase is primarily the result of higher payroll and employee benefits costs resulting from increased headcount, partially offset by lower sales activities expenses.

Research and Development

For the three months ended June 30, 2020 and 2019, research and development expense increased $0.2 million, or 45.7 percent, to $0.5 million from $0.3 million for the same period last year. This increase is primarily the result of higher expenses related to payroll and employee benefits costs due to increased headcount.

For the six months ended June 30, 2020 and 2019, research and development expense increased $0.2 million, or 33.5 percent, to $0.9 million from $0.7 million for the same period last year. This increase is primarily the result of higher expenses related to payroll and employee benefits costs due to increased headcount and higher employee recruiting expenses, partially offset by lower consulting expenses.

Other Income, Net

Other income, net consists of interest income, foreign currency gains and losses, and other miscellaneous income. For the three months ended June 30, 2020 and 2019, we reported other income of approximately $18,000 and $78,000, respectively. This decrease is primarily due to lower interest income.

For the six months ended June 30, 2020 and 2019, we reported other income of approximately $116,000 and $171,000, respectively. This decrease is primarily due to lower interest income.

Income Taxes

For the three and six months ended June 30, 2020, we recorded a provision for income tax benefit of $(798,988) and $(1,732,462), respectively. Our effective tax rate was 27.4 percent and 83.5 percent, respectively, and differed from the U.S. Federal statutory rate primarily due to discrete items related to tax benefits associated with stock-based compensation and a U.S. state tax benefit, partially offset by a limitation on the deductibility of certain executive compensation associated with the separation of our previous Chief Executive Officer. Additionally, we recognized a benefit in our effective tax rate resulting from the Coronavirus Aid, Relief, and Economic Security Act, which allowed us to carryback net operating losses to years prior to the enactment of the Tax Cuts and Jobs Act.

For the three and six months ended June 30, 2019, we recorded a provision for income tax expense of $364,987 and $125,841, respectively. Our effective tax rate was 14.9 percent and 3.1 percent, respectively, and differed from the U.S. Federal statutory rate primarily due to discrete items related to tax benefits associated with stock-based compensation and the foreign derived intangible income deduction, partially offset by U.S. state tax expense.

As of June 30, 2020 and December 31, 2019, we had not identified or accrued for any uncertain tax positions. We are currently unaware of any uncertain tax positions that could result in significant payments, accruals or other material deviations in this estimate over the next 12 months. We believe that our tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from ours, which could result in the imposition of additional taxes and penalties.

We file tax returns in the U.S. Federal jurisdiction and many U.S. state jurisdictions. The Company is subject to income tax examinations for our U.S. Federal and certain U.S. state income taxes for 2016 and subsequent years and various other U.S. state income taxes for 2015 and subsequent years.

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Table of Contents

Liquidity and Capital Resources

Our principal sources of liquidity have historically been our cash and cash equivalents balances, our investments, cash flow from operations and access to the financial markets. Our principal uses of cash are operating expenses, working capital requirements and capital expenditures.

As of June 30, 2020, we had cash and investments of $47.8 million, stockholders’ equity of $58.4 million, and working capital of $54.8 million. As of December 31, 2019, we had cash and investments of $46.3 million, stockholders’ equity of $55.5 million, and working capital of $53.1 million.

We believe that our current cash, investments and any cash generated from operations will be sufficient to meet our ongoing operating requirements for at least the next 12 months. We do not anticipate requiring additional capital; however, if required or desirable, we may seek to obtain a credit facility, raise debt or issue additional equity in private or public markets.

Six Months Ended

June 30,

    

2020

    

2019

Net cash provided by operating activities

$

1,987,231

$

3,145,632

Net cash provided by investing activities

 

56,908

 

896,639

Net cash (used in) provided by financing activities

 

(68,268)

 

352,035

Cash provided by operating activities decreased $(1.1) million to $2.0 million for the six months ended June 30, 2020, compared to $3.1 million for the same period in 2019. During the six months ended June 30, 2020, cash provided by operations was positively impacted by cash inflows from accounts receivable and deferred revenue, and negatively impacted by inventory, prepaid income taxes, prepaid expenses and other current assets, accrued payroll and benefits, and accounts payable.

Cash provided by investing activities decreased $(0.8) million to $0.1 million for the six months ended June 30, 2020, compared to $0.9 million for the same period in 2019. This decrease is due to proceeds from the maturity of investments, partially offset by purchases of property and equipment and the capitalization of intangible assets.

Cash used in financing activities was $(0.1) million for the six months ended June 30, 2020 resulting from taxes paid for the net share settlement of restricted stock units, partially offset by proceeds from the exercise of stock options. For the six months ended June 30, 2019, cash provided by financing activities was $0.4 million resulting from proceeds from the exercise of stock options, partially offset by taxes paid for the net share settlement of restricted stock units.

We market our products to end users in the U.S. and to distributors internationally. Sales to end users in the U.S. are generally made on open credit terms. Management maintains an allowance for potential credit losses.

Our manufacturing and headquarters facility has been leased from Susi, LLC, an entity controlled by our Chairman of the Board and Chief Executive Officer, Roger Susi. Pursuant to the terms of our lease, the monthly base rent is $34,133, adjusted annually for changes in the consumer price index.

Off-Balance Sheet Arrangements

As of June 30, 2020 and December 31, 2019, we did not have any off-balance sheet arrangements, as such term is defined under Item 303 of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Contractual Obligations

There have been no material changes outside the ordinary course of business to our contractual obligations and commercial commitments since December 31, 2019.

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Table of Contents

Recent Accounting Pronouncements

See Note 1 to the unaudited condensed financial statements contained herein for a full description of recent accounting pronouncements including the respective expected dates of adoption and status of evaluation of expected effects on results of our operations and financial condition.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. Dollar, principally the Japanese yen (“Yen”). The volatility of the Yen depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our net income because of transaction gains (losses) related to revaluing Yen denominated accounts payable balances. In the event our Yen denominated accounts payable or expenses increase, our operating results may be affected by fluctuations in the Yen exchange rate. If the U.S. Dollar uniformly increased or decreased in strength by 10 percent relative to the Yen, our net income would have correspondingly increased or decreased by an immaterial amount for the three and six months ended June 30, 2020 and 2019.

Interest Rate Risk

When able, we invest excess cash in bank money-market funds, corporate debt securities or discrete short-term investments. The fair value of our cash equivalents and short-term investments is sensitive to changes in the general level of interest rates in the U.S., and the fair value of these investments will decline if market interest rates increase. As of June 30, 2020, we had $2.3 million in corporate bonds, with $1.0 million maturing in less than 1 year and $1.3 million maturing between 1 and 3 years. These corporate bonds have fixed interest rates and semi-annual interest payment dates. If market interest rates were to change by 100 basis points from levels at June 30, 2020, we expect the corresponding change in fair value of our investments would be approximately $27,000. This is based on sensitivity analyses performed on our financial position as of June 30, 2020. Actual results may differ as our analysis of the effects of changes in interest rates does not account for, among other things, sales of securities prior to maturity and repurchase of replacement securities, the change in mix or quality of the investments in the portfolio, and changes in the relationship between short-term and long-term interest rates.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We may from time to time become party to various legal proceedings or claims that arise in the ordinary course of business. Our management reviews these matters if and when they arise and believes that the resolution of any such matters currently known will not have a material effect on our results of operations or financial position.

Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In evaluating the Company and its business, you should carefully consider the information included in this Quarterly Report on Form 10-Q and the factors discussed under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as well as in other documents we file with the SEC. Except as described below, there have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. 

Our business, financial condition and operations may be materially adversely affected by the COVID-19 pandemic or other public health crises.

The COVID-19 pandemic, and the resulting restrictions intended to slow the spread of COVID-19, including stay-at-home orders, business shut downs and other restrictions, has and will likely continue to adversely affect our business in a number of ways. To respond to the demands of managing COVID-19 and the resulting economic uncertainties, healthcare organizations may be forced to adjust spending priorities by increased spending related to COVID-19, which may have a significant effect on the demand and available budget for our products and related services. The financial strains on healthcare systems may also lead to an increased risk of delays in customer payments. In addition, a recession resulting from the spread of COVID-19 could materially affect our business, especially if a recession results in higher unemployment causing potential patients to not have access to health insurance. Our ability to generate sales may be further disrupted by hospitals restricting access to hospital workers only. A decline in operating results has limited and could further limit our generation of capital resources and cause financial stress if we are unable to increase revenues or adjust our costs appropriately to changes in revenue. We believe that COVID-19’s adverse impact on our operating results, cash flows and financial condition will be primarily driven by the severity and duration of the pandemic and its impact on the U.S. and global economy.

In addition to adversely impacting demand for our products, COVID-19 or other public health crises could have an adverse impact on our manufacturing capacity, supply chains, and distribution systems as we and other businesses and governments take preventative and precautionary measures designed to slow the spread of COVID-19. We could experience other negative impacts of COVID-19 relating to lack of availability of our key personnel or temporary closures of our office or the facilities of our suppliers or third-party service providers.

The future progression of the COVID-19 pandemic and its resulting impacts on our customers, sales activity, supply chain and distribution networks are highly uncertain at this time. However, the foregoing and other disruptions as a result of COVID-19 could have a material adverse effect on our business, operating results and financial condition, especially to the extent these impacts persist or exacerbate over an extended period of time.

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Table of Contents

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

None.

Item 3. Default Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information

None.

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Table of Contents

Item 6. Exhibits

Exhibit
Number

     

Description of Document

10.1+

Iradimed Corporation Amended and Restated 2014 Equity Incentive Plan.

10.2+

Separation Agreement and General Release, dated May 28, 2020, by and between Iradimed Corporation and Leslie McDonnell (incorporated by reference to Exhibit 10.1 the Company’s Current Report on Form 8-K filed on June 18, 2020).

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.

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.

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.

101.INS**

 

XBRL Instance Document

101.SCH**

 

XBRL Taxonomy Extension Schema Document

101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**

 

XBRL Taxonomy Extension Label Linkbase Document

101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase Document

+

Indicates a management contract or compensatory plan arrangement.

*

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

**

In accordance with Rule 402 of Regulation S-T, this interactive data file is deemed not filed or part of this Quarterly Report on Form 10-Q for purposes of Sections 11 or 12 of the Securities Act or Section 18 of the Exchange Act and otherwise is not subject to liability under these sections.

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Table of Contents

IRADIMED CORPORATION

SIGNATURES

Pursuant to the requirements 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.

 

IRADIMED CORPORATION

 

 

 

Dated: August 6, 2020

/s/ Roger Susi

 

By:

Roger Susi

 

Its:  

Chief Executive Officer and President (Principal Executive Officer and Authorized Officer)

 

 

 

 

/s/ Chris Scott

 

By:

Chris Scott

 

Its:

Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

30