UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019
OR
(cid:133) 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
(State or other jurisdiction of
incorporation or organization)
1025 Willa Springs Drive
Winter Springs, Florida
(Address of principal executive offices)
73-1408526
(I.R.S. Employer
Identification No.)
32708
(Zip Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Registrant’s telephone number, including area code: (407) 677-8022
Title of each class:
Common stock, par value $0.0001
Trading Symbol
IRMD
Name of each exchange on which registered:
Nasdaq Capital Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No (cid:95)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:95)
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 (cid:95) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 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 (cid:95) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. Yes (cid:133) No (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:133)
Non-accelerated filer (cid:133)
Accelerated filer (cid:95)
Smaller reporting company (cid:95)
Emerging growth company (cid:133)
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. (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No (cid:95)
As of June 30, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of its shares
held by non-affiliates was approximately $106,525,318.
There were 11,919,669 shares outstanding of the registrant’s common stock, par value $0.0001 per share, as of February 28, 2020. The registrant’s
common stock is listed on the Nasdaq Capital Market under the stock symbol “IRMD.”
DOCUMENTS INCORPORATED BY REFERENCE
The information that is required to be included in Part III of this Annual Report on Form 10-K is incorporated by reference from the registrant’s
definitive proxy statement for the 2020 Annual Meeting of Stockholders to be filed by the registrant within 120 days of December 31, 2019. Only those
portions of any such definitive proxy statement that are specifically incorporated by reference herein shall constitute a part of this Annual Report on
Form 10-K.
TABLE OF CONTENTS
IRADIMED CORPORATION.
TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2019
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT INDEX
SIGNATURES
INDEX TO FINANCIAL STATEMENTS
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1
1
17
34
34
34
34
35
35
38
38
49
49
50
51
52
53
53
53
53
53
53
54
54
54
54
56
F-1
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” that involve substantial risks and uncertainties. The forward-looking
statements are contained principally in the sections entitled “Business,” “Risk Factors” and “Management’s Discussion and Analysis 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:
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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;
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;
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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. Investors should carefully review the information contained under
the caption “Risk Factors” contained in Item 1A for a description of risks and uncertainties that could cause actual results to differ from those that we
predicted. All forward-looking statements are based on information available to us on the date hereof, and we assume no obligation to update forward-looking
statements, except as required by Federal Securities laws.
iii
ITEM 1.
BUSINESS
Overview
PART I
IRADIMED CORPORATION (“IRADIMED”, the “Company”, “we”, “us”, “our”) develops, manufactures, markets and distributes Magnetic
Resonance Imaging (“MRI”) compatible medical devices and accessories and services relating to them. We were incorporated in Oklahoma in July 1992 and
reincorporated in Delaware in April 2014.
MRidium 3860+ MRI Compatible IV Infusion Pump System
We are the only known provider of a non-magnetic Intravenous (“IV”) infusion pump system that is specifically designed for safe 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 (“RF”) 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 in order 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.
IRadimed 3880 MRI Compatible Patient Vital Signs Monitoring System
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 3880 MRI compatible patient vital signs monitoring system received FDA 510(k) clearance in October 2017 and is currently
available to all domestic and international customers.
With the expanding use of MRI procedures, both traditional procedures and new intraoperative and interventional procedures, safe and reliable
infusion delivery and patient monitoring in an MRI environment is becoming increasingly important to hospitals and other medical providers. Our founder,
Chief Technology Officer and Chairman of the Board of Directors, Roger Susi, is a pioneer in the MRI compatible medical device industry, having invented
the first MRI compatible patient monitoring system in 1986 and the first non-magnetic MRI compatible IV infusion system in 2004.
We sell our products primarily to hospitals and acute care facilities, both in the United States and internationally. We currently employ a direct sales
strategy in the United States and as of December 31, 2019, our direct sales force consisted of 29 field sales representatives, supported by 4 regional sales
directors and supplemented by 6 clinical support representatives. Internationally, we market our products into approximately 50 countries through the use of
independent distributors.
As of December 31, 2019, we have sold approximately 5,515 MRI compatible IV infusion pump systems globally. In December 2016, we began
shipping our 3880 Monitor in small quantities to certain of our international customers. In October 2017, we received FDA 510(k) clearance for our 3880
Monitor and immediately began our selling efforts in the United States. As of December 31, 2019, we have sold approximately 539 of our 3880 MRI
compatible patient vital signs monitoring systems.
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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. In fiscal year 2019, our revenue was $38.5 million and our income from
operations profit was $8.6 million representing an operating profit margin of 22.5 percent. Refer to the information contained under the caption “Financial
Highlights and Outlook” regarding our outlook for 2020.
Our internet website is www.iradimed.com. We make available on the Investors section of our website, free of charge, our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements, and amendments to those reports, as soon as reasonably
practicable after filing such documents with, or furnishing such documents to, the SEC. We include our website address throughout this filing for reference
only. The information contained on our website is not incorporated by reference to this report.
History and Development
Mr. Susi founded Invivo Research Inc. in 1979 where he developed the first MRI compatible patient monitoring system. Mr. Susi served as the
President of Invivo Research Inc. from 1979 until 1998, and as its Chairman of the Board of Directors from 1998 until 2000. Under Mr. Susi’s
leadership, Invivo Research matured from a start-up medical device company into a leading producer of vital signs monitoring devices used during MRI
procedures. Invivo Research was acquired by Invivo Corporation in 1992, which began trading on the Nasdaq Stock Exchange in 1994. Mr. Susi served as a
Director of Invivo Corporation from 1998 until 2000 and oversaw technical areas from 2000 to 2004. Invivo Corporation was acquired by Intermagnetics
General Corporation in 2004, which was later acquired by Koninklijke Philips NV (NYSE: PHG).
Mr. Susi began exploring the market for an MRI compatible IV infusion pump while at Invivo. Invivo subsequently disclaimed any interest in the
infusion pump and acknowledged that Mr. Susi was free to pursue the infusion pump development for his own account. Accordingly, Mr. Susi began the
formal and detailed development of what subsequently has become our MRidium MRI compatible IV infusion pump system. This first-generation MRI
compatible IV infusion pump system and its associated proprietary IV tubing sets obtained FDA 510(k) clearance in March 2005 after which we began our
sales and marketing efforts.
We commenced international sales through a network of distributors and in 2006, we signed an exclusive distribution agreement with
Mallinckrodt/Tyco Healthcare (now part of Medtronic plc (NYSE: MDT)) for domestic and Canadian distribution of our products including the MRidium
3850 MRI compatible IV infusion pump system (the predecessor to our current 3860+ model). The exclusive arrangement ended in 2010, allowing us to
implement a direct marketing strategy with our own sales force in the U.S.
In 2009, we introduced our second-generation MRI compatible IV infusion pump system, the MRidium 3860+ which improved upon the previous
3850 version in a number of areas, including the addition of blood oxygen saturation monitoring (“SpO2”), and remote wireless monitoring capability. An
SpO2 monitor can signal when an insufficient level of oxygen is being supplied to the body. Our MRidium 3860+ is the only MRI compatible IV infusion
pump system on the market today.
In 2014, we began developing our own MRI compatible patient vital signs monitoring system (“3880 Monitor”). Through the use of current and new
technologies, and our trade secrets, we believe our 3880 Monitor improves on the design of other MRI compatible vital signs monitors. Our 3880 Monitor is
compact and lightweight, overcoming many of the workflow issues created by other larger and heavier MRI compatible monitors currently in the market. In
December 2016, we made our first shipments of the 3880 Monitor to international customers. In October 2017, we received FDA 510(k) clearance for our
3880 Monitor and immediately began our direct selling efforts in the United States.
Industry
We currently compete in the MRI compatible medical device market.
Need for MRI Compatible IV Infusion Pumps and Vital Signs Monitors
MRI is a widely used, non-invasive medical imaging technique to visualize vital organs, bodily function and to identify blockages, abnormalities and
growths. MRI is generally considered safer than other scanning techniques that expose the body to radiation. This is particularly true for children. As such,
practitioners at hospitals and other medical facilities have been increasingly developing and using MRI for new procedures. These procedures include cardiac
stress testing, intraoperative MRI and neurology MRI techniques. Our MRI compatible products offer a way to continuously deliver essential IV fluids safely
and accurately while also monitoring the vital signs of critically ill or sedated patients, thereby allowing the expanded use of MRI procedures, better or
quicker diagnoses and treatments that may lead to shorter hospital stays resulting in lower health care costs.
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While the benefits and uses of interventional magnetic resonance (“MR”) are known, there are hazards intrinsic to the MR environment which must
be respected. These hazards may be attributed to a powerful static magnetic field, pulsed gradient magnetic fields, and pulsed radio frequency fields. The MRI
suite is a harsh place for medical devices, and safe and proper patient care requires specialty equipment that is specifically designed and built for the MR
environment. Many of the dangers and problems present in the MR environment can be solved through use of non-magnetic equipment that have operational
safeguards and that maintain performance standards within a harsh magnetic environment while simultaneously maintaining patient safety. Designing MRI
compatible medical devices that operate safely and effectively in the MR environment requires overcoming significant technical hurdles.
Intravenous fluids and vital signs monitoring are needed during MRI procedures for many different reasons. Infusion pumps provide sedation to
patients who are not able to remain immobile during an MRI scan and a continuous flow of critical medications to seriously ill patients, including those from
critical care departments. Given the benefits to patient safety, radiology departments performing the scan, anesthesia departments delivering sedation and
critical care specialists responsible for delivering critical medications during MRI procedures often initiate requests for an MRI compatible IV infusion pump.
Additionally, the Joint Commission on Accreditation of Healthcare Organizations requires monitoring of a patient’s vital signs while under sedation. Further,
vital signs monitoring is also required when the patient’s condition prevents them from alerting clinicians when experiencing pain, respiratory problems,
cardiac distress or other difficulties that may arise during an MRI scan.
Standard Infusion Pumps and Other Inadequate Alternatives
For those medical facilities that do not currently own an MRI compatible IV infusion pump, there are five general methods that are used to deal with
patients undergoing an MRI who require IV medications during their imaging procedure: (1) do not offer MRI treatment to patients requiring IV delivered
medications or sedation; (2) use standard (magnetic) pumps with long IV lines that extend outside the MRI scanner room; (3) proceed and accept patients for
an MRI procedure but stop the flow of IV fluids during the procedure; (4) allow the gravity controlled free drip of IV fluids; and (5) attempt to shield a
conventional IV infusion pump. All of these approaches have drawbacks, introduce safety risks and may result in deficient patient care.
Use of multiple lengths of extension tubing can cause infusion inaccuracies, unnecessary waste of costly medications and false alarms or, more
seriously, delayed alarms for equipment issues such as occlusion, especially when low flow rates are being used. Such makeshift extension sets can also affect
the effectiveness of fluid delivery. A clinician’s adjustment of dosage and other settings may take longer to reach the patient due to the over-extended tubing.
Further, there are risks in using a standard IV infusion pump that is mistakenly believed to be at a safe distance from the MR scanner. The powerful
magnetic fields may cause metal objects in the MR environment to be drawn with great force into the bore of the MRI system, resulting in potentially deadly
projectiles. Moreover, an MRI scanner’s gradient magnetic field and RF fields can send electrical currents through cables and other conductive materials that
are near the MRI system and cause the cables to heat, which may result in burns if they come into contact with the patient or facility staff.
Other problems include devices malfunctioning if they are not properly designed for use in the harsh MR environment and low-quality MR images
due to artifacts caused by RF interference emitted from ancillary equipment.
To deal with the harsh environment of MR, some manufacturers have offered a “shielded box” solution (also known as a Faraday cage) for use with
their standard IV pumps, but the approach has not been widely accepted by customers. The major problem with this approach is that a highly magnetic
standard IV infusion pump is still being introduced into a hazardous MRI environment which can lead to projectile accidents. Additionally, placing a highly
magnetic standard IV infusion pump inside a shielded box hinders an operator’s ability to determine the pump’s status and creates inefficiencies when
addressing an alarm or revising a pump’s flow rate. Moreover, a Faraday cage with a standard IV infusion pump must be kept approximately 5 to 10 feet from
the scanner, which may result in the use of long IV lines. By contrast, our MRI compatible IV infusion pump system can be safely placed anywhere in the
scanner room including next to the scanner. We are not aware of any “shielded box” installations in use in the U.S. or any with a FDA 510(k) clearance and
hence, we expect little current competition from this approach in the U.S.
We believe that our MRidium MRI compatible IV infusion pump system is the first and only product to provide an easy-to-operate, non-magnetic,
safe and RF-quiet solution and hence a truly MRI compatible product.
3
Market Opportunities
Addressable Market
MRI Compatible IV Infusion Pump
We view our MRI compatible IV infusion pump primarily as a patient safety device. Accordingly, we do not actively market our IV infusion pump
system in countries that we believe do not have a minimum level of patient safety standards to warrant a device like ours. We estimate there is the potential for
the sale of approximately 27,400 MRI compatible IV infusion pump systems based on the number of MRI scanners installed globally in acute care facilities of
sufficient sophistication as to be considered supporting favorable market conditions for utilization of our MRI compatible IV infusion pump system.
Additionally, based on historical sales data and customer purchasing behaviors, we believe, through the use of our direct U.S. sales team, there is potential for
sales of our MRI compatible IV infusion pump system within critical care departments of U.S. hospitals (refer to the section below titled Expansion of Intra-
Hospital Use of MRI Compatible Devices). Based on an estimate of the number of critical care departments in the U.S., we believe there is the potential for the
sale of an additional 10,450 of our MRI compatible IV infusion pump systems. The combination of sales based on the number of targeted MRI scanners and
critical care departments of U.S. hospitals results in a current global target market of approximately 37,850 of our MRI compatible IV infusion pump systems.
MRI Compatible Patient Vital Signs Monitor
The market for MRI compatible multi-parameter vital signs monitors is well-developed and more subject to replacement cycles than new adoptions.
As with our MRI compatible IV infusion pump, we also consider our MRI compatible multi-parameter vital signs monitor primarily as a patient safety device.
Accordingly, we do not actively market our MRI vital signs monitor in countries that we believe do not have a minimum level of patient safety standards to
warrant a device like ours. We estimate there is the potential for the sale of approximately 27,400 MRI vital signs monitoring systems based on the number of
MRI scanners installed globally in acute care facilities of sufficient sophistication as to be considered supporting favorable market conditions for utilization of
our MRI vital signs monitoring system. Additionally, based on historical sales data and customer purchasing behaviors, we believe, through the use of our
direct U.S. sales team, there is potential for sales of our MRI vital signs monitoring system within critical care departments of U.S. hospitals (refer to the
section below titled Expansion of Intra-Hospital Use of MRI Compatible Devices). Based on an estimate the number of critical care departments in the U.S.
and an estimate of the anticipated adoption rate in these critical care departments, we believe there is potential for the sale of an additional 5,250 of our MRI
vital signs monitoring systems. The combination of sales based on the number of targeted MRI scanners and critical care departments of U.S. hospitals results
in a current global target market of approximately 32,650 of our MRI patient vital signs monitoring systems.
Expansion of Intra-Hospital Use of MRI Compatible Devices
Historically, we marketed our MRI compatible IV infusion pump system primarily to the MRI departments of U.S. hospitals. We believe, however,
based on feedback and successes from certain customers, that there is potential for expanded deployment of our MRI compatible IV infusion pumps and MRI
compatible monitors within the Intensive Care Unit (“ICU”), Emergency Room (“ER”), and other critical care departments within U.S. hospitals where there
is a high probability that MRI procedures will need to be performed on these patients. Expanded use of our MRI compatible medical devices would serve as a
type of transport package and allow for consistent and uninterrupted administration of IV fluids and monitoring of vital signs, allowing for easier and safer
intra-hospital transport of patients to and from the MRI scanner.
It is often necessary for a patient in a critical care department of the hospital who is connected to a standard vital signs monitor and a standard IV
infusion pump that is delivering critical medications to be quickly moved to the MRI facility for immediate imaging. The presence of our MRI compatible
medical devices in those critical care departments enables the orderly and rapid transfer between those standard medical devices to our 3880 Monitor and
MRidium MRI compatible IV infusion pump in the critical care department prior to transporting the patient for an MRI. Seriously ill patients are generally at
higher risk when they are away from the resources of critical care departments, and efficient transfers to MRI compatible devices while the patient is in the
critical care environment minimizes the time the patient spends away from the critical care department.
We believe there is a higher occurrence of equipment-related adverse events during the intra-hospital transport of critically ill patients. We therefore
believe that placing our MRI compatible devices in critical care departments could reduce patient adverse events associated with vital signs monitors and IV
pump transfers typically performed within MRI departments.
Some hospitals have begun to use MRI during surgical procedures. Neurosurgical interventions have been at the forefront of this development in
image-guided surgery, followed by otolaryngological procedures. As MR-guided intervention during surgery has been deployed, the degree of complexity in
supplemental devices has increased markedly. Much of the effort required for successful implementation of intraoperative MRI has been in development and
testing of anesthesia equipment, patient monitoring devices, infusion pumps and surgical instruments and accessories, all of which need to be MRI compatible
if used near the MRI scanner. Intraoperative MRI is expanding demand for our MRI compatible devices from the MRI suite to the surgical suite of the
hospital.
4
Strategy
Company Objective
Our objective is to become the leader in providing safe and effective care for all patients undergoing MRI procedures through the development and
commercialization of a portfolio of MRI compatible products, accessories and related services. By increasing the safety parameters of equipment operating
within the harsh magnetic environment of the MRI scanner room, we hope to enable hospitals and other healthcare providers to offer the MRI diagnostic
procedures patients require. We believe our current products increase the safety of performing MRI diagnostics for patients by minimizing potential
complications with IV infusions and vital signs monitoring.
We seek to grow our business by, among other things:
Driving market awareness of our MRI compatible IV infusion pump and the safety risks associated with using conventional IV pumps with long IV
lines
We believe that the largest potential market for our MRI compatible IV infusion pumps is the segment of the market that is currently using
workaround solutions. Such solutions include using conventional pumps outside the MRI scanner room and attaching multiple extension lines of IV tubing
sets through the wall or under the door into the MRI scanner room to reach the patient. This practice of makeshift setups is fraught with risks to the patient and
unnecessary costs and inefficiencies. These risks and inefficiencies include:
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Infection risk from running lengthy IV tubing sets with multiple extensions through the wall or under the door;
Risk of inaccuracy from using a conventional IV infusion pump with multiple extension lines;
Potential medication occlusion and lengthy alarm notification delays due to multiple extension lines, posing great risks to patients on critical
medications;
Excess medication costs due to the disposal of multiple extension IV tubing sets filled with unused medication at the end of the procedure; and
Lost productivity and MRI scanning time due to the lengthy set up time required for multiple extension lines.
We believe that increased market awareness and education will be required for potential customers to appreciate the value for patients and the
hospital of an efficient and patient-safe MRI environment which includes MRI compatible IV infusion pumps.
Driving market awareness of our MRI compatible patient vital signs monitoring system
We believe our 3880 MRI compatible patient vital signs monitoring system creates customer value by resolving significant workflow issues through
the additional utilization that is not possible with other MRI monitors. Our 3880 Monitor’s compact and lightweight design facilitates the transportation of
patients 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. Because of the transport capabilities that only our 3880 Monitor offers, we believe
multiple departments within a hospital will be interested in purchasing our device. Other MRI monitors are too large and heavy for use in patient transport
scenarios are therefore typically only located in the MRI departments of hospitals. We began marketing our 3880 Monitor internationally in December 2016
and received U.S. FDA 510(k) clearance in October 2017. Upon receipt of FDA 510(k) clearance, we immediately began marketing the 3880 Monitor to
domestic customers.
Continuing to innovate with MRI compatible patient care products
Our management team collectively has more than 100 years of experience developing and commercializing MRI compatible products. We have
entrenched relationships with several of the industry’s top thought leaders and we have, and will continue to, closely collaborate with them to build upon
IRADIMED’s innovative MRI compatible technologies. We intend to leverage this experience and collaboration to innovate and commercialize other
technologically advanced MRI compatible patient care products.
5
When reasonably available, acquiring synergistic MRI patient care companies, products or technology licenses to accelerate our product development
and leverage our existing sales organization
We have an experienced team of engineering and operations managers committed to improving on existing MRI patient care designs through our
internal development efforts and the acquisition of technologies and intellectual property of others. We have a developing direct sales organization in the U.S.
and a team of experienced international distributors that we believe can effectively go to market with additional MRI compatible patient care products. While
we have not completed an acquisition, we continue to analyze such opportunities to improve our product mix and profitability.
Commercial Strategy
We believe that the MRI compatible IV infusion pump market continues to have growth potential given the low rate of market penetration, and we
aim to drive increased awareness, adoption and utilization of our MRI compatible products by:
Continued development of our MRI-focused U.S. direct sales force and our international sales efforts
We believe the most meaningful aspect of our commercialization strategy in the U.S. is the continued development of our direct sales force. Since
there is no current direct competitor for an MRI compatible IV infusion pump, our focus is on expanding the market through better education on the
advantages to patients, clinicians and hospitals of our infusion pump solution and the shortcomings of current workaround practices. Additionally, with the
launch of our 3880 Monitor, we focus on educating customers on the total workflow benefits our devices offer and how our devices increase patient safety
through their combined transport capabilities.
Since 2011, our U.S. sales team has grown from 1 field sales representative and 1 clinical support representative to a team of 29 direct field sales
representatives, 4 regional sales directors and 6 clinical support representatives. As business progress dictates, we intend to continue to add to our specialized,
MRI product-focused sales team, including clinical support representatives. We believe that we can significantly increase sales of our MRI compatible
medical devices by also calling on critical care departments, which may help influence hospitals’ purchasing decisions. We believe that this strategy is likely
expanding the number of acute care facilities using our MRI compatible products and increasing the average number of MRI compatible IV infusion pumps
and monitors per MRI scanner.
Internationally, our focus is to continue working with our distributors in key target markets, such as Europe and Asia, to expand the business and
augment our market penetration rates. During 2020, and as business progress dictates, we plan to continue the expansion of our internal capacity to serve high
potential markets by adding dedicated resources located outside the U.S. to oversee our relationships at the local level.
Supporting commercial efforts with evidence-based information
We focus our sales team on educating customers on the safety and efficiency benefits of using our MRI compatible products. To assist in the
education process, we have developed materials that document the risks and additional costs associated with using a workaround solution of running long
lines from conventional IV pumps outside the MRI scanner room. We are also continuing the development of and enhancing our materials documenting the
benefits of uninterrupted vital signs monitoring that allows for easy transfer of critically ill patients from ICU or ER to the MRI scanner room and back. We
believe this kind of evidence-based documentation will help us provide widespread education to the clinicians that are driving clinical practice. We also
believe that documented evidence will serve to inform the quality and risk management leaders in these organizations, which in turn may help drive the
overall adoption of our MRI compatible products.
Providing best in class customer service and user experience
We believe that the expectations of our customers for service and a superior user experience have risen with the advancement of technology. Once a
customer purchases our products, it is imperative that they receive first-class clinical education and support to encourage usage of our products. We devote a
significant amount of time and training to ensure that this educational experience is a success. This training is performed most commonly by our sales staff
and is augmented by our clinical support representatives; however, we intend to hire more clinical support specialists to strengthen our initial training
experience and increase ongoing customer support. We believe that a positive user experience is critical to driving increased rates of utilization of our
products.
6
Our Products
Typical MRI Scanner Room
The following diagram is representation of an aerial view of a typical MRI scanner room with a top-of-the-line 3T magnet. The gauss-lines illustrate
the distance from the magnet where various types of medical devices can safely operate. Our 3880 MRI compatible patient vital signs monitor is the only MRI
monitor that can operate safely and reliably in very close proximity to the bore of the powerful magnet used to operate the MRI (area shown in red).
Additionally, our MRidium MRI compatible IV infusion pump is the only pump on the market approved to operate safely and reliably near the patient (area
shown in blue). All other pumps must be placed at a distance from the MRI scanner, which may include being outside of the scanner room entirely.
We currently offer two primary products for sale: (1) our MRidium 3860+ MRI compatible IV infusion pump system with associated disposable IV
tubing sets, and (2) our 3880 MRI compatible patient vital signs monitoring system with associated disposable products.
7
MRidium MRI Compatible IV Infusion Pump System
The patented MRidium MRI compatible IV infusion pump system is based upon a non-magnetic, ultrasonic motor and other uniquely designed non-
ferrous parts in order to provide accurate and dependable fluid delivery to patients undergoing an MRI procedure. Our MRidium MRI compatible IV infusion
pump system has been designed to offer numerous advantages to hospitals, clinicians and patients. MRidium’s strengths include the following:
(cid:120)
The only non-magnetic MRI compatible IV infusion pump system specifically designed and built to operate inside the MR environment.
(cid:120) A mobile, rugged, easy-to-operate, and reliable system with a strong safety record.
(cid:120) Able to operate virtually anywhere in the MRI scanner room; approved for use in the presence of 0.2T to 3T magnets and fully operational up to
the 10,000 gauss-line.
(cid:120) Available with a Dose Error Reduction System (“DERS”) to reduce the risk of medication errors and simplify clinician monitoring.
(cid:120) Available with a wireless remote display/control providing clinicians and technicians control and visibility from outside of the MRI scanner
room.
(cid:120) Available with an add-on channel allowing for the easy addition of a second IV line for patients requiring multiple IV medications at a low
incremental cost to the hospital.
(cid:120) Available with a built-in SpO2 monitor using Masimo SET® technology and a specially designed fiber optic SpO2 sensor allowing one device
to monitor oxygen saturation levels while safely providing IV infusion during an MRI procedure.
Our MRI compatible IV infusion pump system includes the 3860+ MRI compatible IV infusion pump, proprietary single-use IV tubing sets, a non-
magnetic pole and a lithium battery. In addition, we offer optional upgrade systems including the 3861 Side Car, 3865 Remote Display/Control, DERS and an
SpO2 monitor as discussed below.
MRidium 3860+ MRI Compatible IV Infusion Pump
The MRidium 3860+ MRI compatible IV infusion pump was introduced in 2009 and improved upon the performance and features of our first
generation MRidium 3850 MRI compatible IV infusion pump. The MRidium 3860+ pump system can operate dependably in the presence of 0.2T to 3T
magnets and is fully operational up to the 10,000 gauss-line. This means our MRidium 3860+ is highly versatile and can operate virtually anywhere in the
MRI scanner room, including close to the MRI scanner. The MRidium 3860+ MRI compatible IV infusion pump system has a 10-key numeric input keypad
making our system easy to accurately program and operate. Our pumping range of 0.1 mL per hour to 1,400 mL per hour provides a broad range of fluid flow
control. Our broad range of infusion rates support differing patient needs including low levels for pediatric sedation, mid-levels for continued IV infusion of
medications to critically ill patients and high levels in the event of emergency situations. Our MRidium 3860+ MRI compatible IV infusion pump system
offers a dose rate calculator, bolus dose programming, full alarm settings, and a rechargeable battery with a 12-hour life.
MRidium 3860+ IV Tubing Sets
The MRidium 3860+ MRI compatible IV infusion pump system utilizes proprietary fluid delivery tubing sets, each known as an “IV tubing set.”
Each use of our MRI compatible IV infusion pump requires a disposable IV tubing set. We offer a variety of IV tubing sets for varying infusion scenarios and
these include our standard “spike” infusion set, syringe adapter infusion set and extension infusion set. Each of our IV tubing sets is latex-free and DEHP-free.
(cid:120) MRidium 1056 Standard Infusion Set. Our standard “spike” infusion set features the ability to accurately deliver liquids from either a bottle or IV
bag. The 1056 standard infusion set contains two needle-free injection ports and is typically used when starting a new infusion from a bottle or
bag.
(cid:120) MRidium 1057 Syringe Adapter Infusion Set. Our syringe adapter IV set enables users to provide accurate delivery of IV fluids directly from
standard syringes. The 1057 vented syringe adapter set benefits from a low priming volume of 4 ml, which minimizes inefficient waste of
medication. This product is most commonly used for cardiac medications, anesthesia, and pediatric drug delivery.
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(cid:120) MRidium 1058 Extension Infusion Set. Our extension infusion set allows users to transfer a patient on a non-MRI infusion pump to our MRidium
MRI compatible IV infusion pump. The user simply disconnects the existing IV tubing at the patient site and connects and primes the MRidium
extension set to the existing IV tubing. Once removed from the conventional infusion pump and connected to our MRidium MRI compatible IV
infusion pump, the user can program the pump and begin the infusion. The 1058 extension set includes one needle-free injection port and is
typically used to provide uninterrupted critical medications to a severely ill patient during an MRI procedure.
MR IV Pole
We offer a fully functional and weighted non-magnetic IV pole that is designed for mobility within the hospital and the MRI scanner room. The IV
pole can support two MRidium 3860+ MRI compatible IV infusion pumps, each with a 3861 Side Car Pump Module. The IV pole is 66 inches (1.68 meters)
high, stabilized with a wide pole radius and mobilized with five casters designed to roll easily during transport. The IV pole is equipped with four hooks for
holding fluid bags.
Optional Features
Our 3860+ MRI compatible IV infusion pump system gives customers the ability to adapt their systems to meet their specific needs. In addition to
our standard product features, we also offer system upgrades which include a modular add-on second IV channel through our 3861 Side Car, a wireless remote
control/display, DERS and an imbedded SpO2 monitor. We also offer rechargeable lithium polymer battery packs which have 12-hour life when not
connected to an electrical outlet.
3861 Side Car Pump Module
Our Side Car Pump Module can be attached to our 3860+ MRidium MRI compatible IV infusion pump to provide a second channel for infusion
delivery. This flexible option allows hospitals to convert their single-channel infusion pump into a dual-channel system designed to deliver both large and
small volume fluids in the MRI scanner room. The side car is fully functional with our 3865 MRidium Wireless Remote, allowing clinicians the ability to
control both channels with one remote control unit outside of the MRI scanner room. The additional delivery line has all of the same features and benefits as
the 3860+ MRidium MRI compatible IV infusion pump, as described above.
3865 MRidium Wireless Remote Display/Control
Our wireless remote control unit allows for complete control and monitoring of the MRidium MRI compatible IV infusion pump system from the
control room (outside of the MRI scanner room). The 3865 MRidium Wireless Remote relays all commands and displays information bi-directionally between
the MRI compatible IV infusion pump and the remote control unit. Utilizing the same user interface and large bright display as the MRidium pump, our
wireless remote control unit permits clinicians to adjust all pump parameters, including SpO2 monitoring parameters, rates, dose, volume, pump run/stop,
alarms (adjust or reset), as well as real-time titration. Our remote control unit utilizes a proven MRI compatible 2.4 GHz frequency hopping spread spectrum
radio technology for artifact-free operation that does not disturb the MRI imaging process. Clinicians may also use the remote control unit to adjust a second
pump channel when used in combination with our Side Car unit discussed above. Our 3865 MRidium Wireless Remote also functions as a battery charger for
our MRidium battery pack.
Dose Error Reduction System (“DERS”)
Our DERS software for use with our MRidium 3860+ MRI compatible IV infusion pump system incorporates the latest dosing safety features for
patients. The DERS system enables users to create a unique drug library and establish nominal values and limits for dose and concentration for specified
infusion protocols. With DERS, patient safety and user convenience are supported by user-programmed infusion hard limits (maximum and minimum) and
soft limits (high and low limits that require user confirmation to exceed). The dose applied via DERS is displayed and can be adjusted directly on the running
screen at any time during the infusion. The memory card port allows for easy archiving and updating of the drug library.
SpO2 Monitoring with Sensor and Accessories
Our MRidium 3860+ MRI compatible IV infusion pump system also offers state-of-the-art Masimo SET® SpO2™ capability providing a unique
ability to have SpO2 monitoring and IV delivery combined in one unit. This feature offers users the ability to start sedations outside of the MRI scanner room,
transport to the scanner, and then back to recovery without having to discontinue SpO2 monitoring of the patient. In addition, our fiber optic MRI SpO2
sensor and accessories provide a safe connection between the patient and our MRI compatible IV infusion pumps. This fiber optic-based SpO2 sensor delivers
outstanding performance while avoiding potentially hazardous heating or image artifact during MRI scans. The method of patient attachment uses a medical-
grade silicone rubber sensor grip that allows easy and convenient attachment to the patient’s hand or foot, and accommodates pediatric, adult, and infant
patients with various size grips.
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We believe our MRidium 3860+ MRI compatible IV infusion pump system and its customizable features comprehensively and uniquely address the
needs of MRI departments within hospitals and other medical facilities.
MRI Compatible Patient Vital Signs Monitoring System
Our 3880 Monitor has been designed with non-magnetic components and other special features in order to safely and accurately monitor a patient’s
vital signs during various MRI procedures. The 3880 Monitor system operates dependably in magnetic fields up to 30,000 gauss, which means it can operate
virtually anywhere in the MRI scanner room (see above diagram).
Our 3880 Monitor 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 basic configuration of the 3880 Monitor includes wireless ECG with dynamic gradient filtering; wireless SpO2 using Masimo® algorithms, and
non-invasive blood pressure. Optional features include all or a combination of non-magnetic respiratory CO2; invasive blood pressure; patient temperature,
and/or; optional advanced multi-gas anesthetic agent unit featuring continuous Minimum Alveolar Concentration measurements.
The MRI compatible patient vital signs monitoring system also includes: (1) an extended range remote tablet that allows for remote monitoring from
outside the MRI scanner room; (2) a base station control center that facilitates printing, wireless communications between the remote tablet and the monitor,
and acts as a battery charger for the remote tablet, and; (3) wireless ECG, SpO2 and invasive blood pressure pods that facilitate the respective monitoring
modalities. We are also currently working on interoperability features that will be offered in the future.
Intellectual Property
We protect our proprietary technology through a combination of patents, trade secrets and confidentiality agreements. During the development of our
products, our founder, Roger Susi, obtained a number of patents regarding our MRI compatible IV infusion pump and related systems. Mr. Susi has
irrevocably assigned these patents to us. We consider our patents important but do not believe our future success is materially dependent upon patents.
We have 12 issued U.S. patents and 4 issued foreign patents with remaining lives that range from 3 to 14 years. We also have a number of U.S.
patent applications pending. These patents and patent applications relate to several of our products, including our MRI compatible IV infusion pump system
and its components and our MRI compatible patient vital signs monitoring system. We intend to file patent applications with respect to future patentable
developments and improvements when we believe that such protection is in our best interest.
We also rely on trade secrets, copyright and other laws and on confidentiality agreements to protect our technology, but we believe that neither our
patents nor other legal rights will necessarily prevent third parties from developing or using similar or related technology to compete against our products.
Moreover, our technology may be viewed as improvements or adaptations of known MRI infusion or monitoring technology, which might be duplicated or
discovered through our patents, reverse engineering or both.
Sales and Marketing
We sell our MRI compatible products through our direct sales force in the U.S. and independent distributors internationally. In the U.S., we sell our
products through our 29 direct field sales representatives, 4 regional sales directors and 6 clinical support representatives. We have distribution agreements for
our products with independent distributors selling our products internationally. We have developed an experienced team of international distributors that have
a strong MRI/radiology product portfolio and focus. Our international distributors are managed by our international sales team.
10
The percentage of total revenue generated by geographic region was as follows:
United States
International
The percentage of total revenue generated by product type was as follows:
Devices
Disposables, services and other
Amortization of extended warranty agreements
Percent of Revenue
Years Ended December 31,
2018
2019
80.3%
19.7%
80.5%
19.5%
2017
84.5%
15.5%
Percent of Revenue
Years Ended December 31,
2018
2019
2017
72.1%
23.1%
4.8%
69.6%
25.4%
5.0%
67.0%
28.7%
4.3%
We define backlog as of a particular date to mean firm purchase orders from customers for which we have not yet fulfilled. As part of our
commitment to customer service, our goal is to ship products to meet the customers’ requested shipment dates. Our backlog is occasionally subject to
cancellation or rescheduling by the customer on short notice with little or no penalty. Because of the uncertainty of order cancellations or rescheduling, we do
not believe our backlog as of any particular date is indicative of actual sales for any future period and, therefore, should not be used as a measure of future
revenue.
For the years ended December 31, 2019, 2018 and 2017, backlog was approximately:
(In millions)
Backlog
Years ended December 31,
2018
2019
2017
$
1.6 $
2.6 $
2.7
Historical selling cycles for our devices have varied widely and are typically three to six months in duration.
The principal customers for our MRI compatible products include hospitals and acute care facilities. The key decision maker in a purchase varies on
the hospital department making the purchase. We serve these customers through our sales and service specialists and believe that our specialists are well-
positioned to build upon these customer relationships. We communicate with our customers on a regular basis in an attempt to understand potential issues or
concerns as well as to improve our products and services in response to their needs. Product orders and inquiries are handled by trained service representatives
who communicate with customers after equipment shipments, installations and service repair calls. We have implemented various other programs which
enable us to assess our customers’ needs. These programs include surveys and visits to customer sites.
We enter into agreements with healthcare supply contracting companies, commonly referred to as Group Purchasing Organizations (“GPOs”) in the
U.S., which enable us to sell and distribute our products to their member hospitals. GPOs negotiate volume purchase prices for hospitals, group practices, and
other clinics that are members of a GPO. Our agreements with GPOs typically include the following provisions:
(cid:120) Negotiated pricing for all group members;
(cid:120) Volume discounts and other preferential terms on member purchases from us;
(cid:120)
(cid:120)
Promotion of our products by the GPO to its members; and
Payment of administrative fees by us to the GPO, based on purchases of our products by group members.
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. 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.
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Manufacturing and Suppliers
We assemble our products in our facility in Winter Springs, Florida, from components and sub-assemblies purchased from outside suppliers. We
perform final assembly, testing and packaging to control quality and manufacturing efficiency. We purchase components and sub-assemblies from qualified
suppliers that are subject to our stringent quality specifications and inspections by us. We conduct quality audits of our key suppliers, several of which are
experienced in the supply of components to manufacturers of finished medical devices or disposables for use with these medical devices. Our historical track
record of producing MRI compatible products has been good; however, there can be no assurance that this trend will continue or that we will be able to
produce sufficient units to reach our expected revenue growth rates.
Some of the raw materials and parts that are critical to the production and operation of our products are sourced from single suppliers and some
components we or our suppliers utilize are from Chinese manufacturers. We have never encountered a significant supply interruption from any sole supplier;
however, the operations of our third-party suppliers could be disrupted by conditions unrelated to our business operations or that are beyond our control,
including but not limited to international trade restrictions and conditions related to COVID-19 (commonly referred to as coronavirus) or other epidemics. We
are unsure whether an extended period of general supplier disruption caused by COVID-19 will affect us directly or through our suppliers; however, we are
monitoring our supply chain regarding the matter. We typically maintain no less than a three-month supply of raw materials and parts that are sourced from
sole suppliers and make efforts to identify additional suppliers who may be able to provide such raw materials or parts. For example, the non-magnetic,
ultrasonic motor which drives our MRI compatible IV infusion pump is sole sourced from a major multinational Japanese manufacturing company with whom
we have an excellent long-term relationship. This company has exclusively provided us with these motors since 2005. Our exclusive supply agreement with
this company was renewed in March 2019 and extends through February 25, 2024.
We place significant emphasis on providing quality products and services to our customers. Quality management and oversight play an essential role
in understanding and meeting customer requirements, effectively resolving quality issues and improving our products and services. We have a network of
quality systems throughout our facilities that relate to the design, development, assembly, packaging, sterilization, handling, distribution and labeling of our
products.
To assess and facilitate compliance with applicable requirements, we periodically review our quality systems to determine their effectiveness and
identify areas for improvement.
We also conduct compliance training programs for our sales and marketing personnel and perform assessments of our suppliers of raw materials,
components and finished goods. In addition, we conduct quality management reviews designed to inform management of key issues that may affect the
quality of our products. From time to time, we may determine that products manufactured or marketed by us do not meet our specifications, published
standards or regulatory requirements. When a quality issue is identified, we investigate the issue and seek to take appropriate corrective action, such as
withdrawal of the product from the market, correction of the product at the customer location, notice to the customer of revised labeling or a combination of
these or other corrective actions.
In January 2007, we received ISO 13485 certification and met the requirements under the European Medical Device Directive to use the CE Mark,
thereby allowing us to continue to market our products in the European Community. In January 2018 we underwent an audit to update our ISO 13485:2016
and Medical Device Single Audit Program certifications and received our certificates in November 2018. These certificates will need renewal again in
January 2022.
Competition
The medical products industry is generally characterized by intense competition and extensive research and development. The market for medical
products is subject to rapid change due to an increasingly competitive, cost-conscious environment and to government programs intended to reduce the cost of
medical care. Many manufacturers and distributors of medical equipment are large, well-established companies whose resources, reputations and ability to
leverage existing customer relationships might give them a competitive advantage over us. We believe that a company’s reputation for producing accurate,
reliable and technologically-advanced products, references from users, features (speed, safety, ease of use, patient convenience and range of applicability),
product effectiveness and price are the principal competitive factors in the medical products industry.
Our SpO2 products, which measure blood oxygen saturation and included in our MRI compatible IV infusion pump and our MRI compatible vital
signs monitor, also compete indirectly with many other methods currently used to measure blood oxygen levels or the effects of low blood oxygen levels.
12
MRidium MRI Compatible IV Infusion Pump System
We do not believe there is currently any direct competition for our MRI compatible IV infusion pump system. Historically, our only direct competitor
in the MRI compatible IV infusion pump market, Bayer Radiology, formerly MEDRAD, Inc., announced during 2013 its decision to remove its competing
Continuum pump system from the market, and discontinued support throughout the world in June 2015 due to ongoing regulatory issues. As a result, we
believe that our MRidium 3860+ MRI compatible IV infusion pump is the only true MRI compatible IV infusion pump available today.
The medical device and IV infusion market is highly regulated and is typically one of the areas that the FDA scrutinizes closely for new market
introductions. Because of this, the FDA 510(k) clearance process for new infusion pumps is usually long and requires significant testing and documentation.
This long development timeline coupled with the low market penetration to date may discourage new competitors from undertaking a complex project like
building an MRI compatible IV infusion pump. We believe that the market for MRI compatible IV infusion pump products is in relatively early stages of
development and may become highly competitive if, and when, the market develops further.
Outside of the U.S., we also compete with manufacturers of “shielded box” solutions that are intended to permit use of conventional IV pumps inside
the MRI scanner room. The providers of shielded boxes include B. Braun, Fresenius Kabi, MIPM Mammendorfer Institut für Physik und Medizin and
Arcomed.
Another potential competitor may be CareFusion Corporation (now part of Becton, Dickinson and Company (NYSE: BDX)). CareFusion is a major
medical device manufacturer that has a dominant position in the conventional IV infusion pump market and made an investment in Caesarea Medical
Electronics (“CME”) in December 2013. CME manufactured Bayer Radiology’s Continuum Pump System, which was withdrawn from the U.S. market in
2014. CME markets this pump in international markets as MR compatible. In addition, B. Braun may seek to obtain FDA clearance for its SpaceStation MRI
Trolley, currently only available outside the U.S., which allows traditional B. Braun IV infusion pumps to be used in the MR environment.
Many of our potential customers opt not to purchase our MRI compatible IV infusion pump systems and instead use makeshift workarounds, such as
placing conventional IV infusion devices outside of the MRI scanning room and utilizing extension tubing to reach the patient. To this extent, we are in
competition with conventional IV infusion pump manufacturers and distributors.
There are many manufacturers of conventional IV infusion pump devices, and if any of these manufacturers, or other potential competitors, decide to
enter into the MRI compatible IV infusion pump market, they may have competitive advantages over us. Many of these potential competitors have established
reputations, customer relationships and marketing, distribution and service networks. In addition, they have substantially longer histories in the medical
products industry, larger product lines and greater financial, technical, manufacturing, management, and research and development budgets. Many of these
potential competitors may have long-term product supply relationships with our potential customers.
MRI Compatible Patient Vital Signs Monitoring System
There are several manufacturers that have developed competing MRI compatible vital signs monitoring systems that are currently on the market. We
believe the dominant competitor with a market-leading position in MRI compatible vital signs monitoring is Invivo Research, Inc., which was founded by
Roger Susi, our founder, Chief Technology Officer and Chairman of the Board of Directors. Invivo is now owned by Koninklijke Philips NV (NYSE: PHG).
Other large and well-known companies such as General Electric (NYSE: GE) and Schiller AG, also have competing products as do other smaller
privately held companies. Each of these manufacturers have competitive advantages over us as they may have established customer relationships, product
supply agreements, longer histories in the MRI monitoring market and several have greater financial, technical, manufacturing, management, and research and
development budgets. Additionally, our 3880 MRI compatible patient vital signs monitor is new to the market, which may result in customers being reluctant
to switch from other well-known and established MRI compatible monitoring systems to ours.
Seasonality
Our business is seasonal. Our third quarter sales have typically been lower, compared to other fiscal quarters, principally because the fiscal quarter
coincides with the summer vacation season, in the U.S., Europe and Japan.
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Segment Information and Geographic Data
Our business operates as one reportable segment. Financial information about geographic areas is presented in Notes 2 and 4 in the Notes to Financial
Statements of this Annual Report on Form 10-K.
Research and Development
Our research and development efforts focus on developing innovative products by utilizing our established core competencies in MRI compatible
technologies and feedback from strategic relationships with hospitals, acute medical facilities and medical equipment manufacturers for new product ideas.
Our research and development efforts are driven by the leadership of our founder, Roger Susi, assisted by engineers and technical professionals with
significant experience in product design.
Our research and development expenses were $1.4 million or 3.7 percent of revenue in 2019, $1.5 million or 5.0 percent of revenue in 2018 and $1.7
million or 7.5 percent of revenue in 2017.
Employees
As of December 31, 2019, we had 114 full-time employees, including 35 in manufacturing and service, 49 in sales, marketing and customer support
services, 10 in regulatory affairs and quality assurance, 12 in finance and administration and 8 in research and development. No employees are represented by
a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good.
Regulatory Matters
Governmental Regulation and Other Matters
Our medical device products are subject to extensive, complex and increasing oversight and regulation by the FDA, and other domestic and foreign
governmental authorities. Our manufacturing facility, and those of our suppliers, are subject to periodic inspections to verify compliance with current FDA
and other governmental regulatory requirements. If it were determined that we were not in compliance with these laws and regulations, we could be subject to
criminal or civil liability, or both, and other material adverse effects. We have compliance programs in place to support and monitor compliance with these
laws and regulations. All of our products and facilities and those of our suppliers are subject to drug and medical device laws and regulations promulgated by
the FDA and national and supranational regulatory authorities outside the U.S., including, for example, Health Canada’s Health Products and Foods Branch,
the U.K.’s Medicines and Healthcare Products Regulatory Agency, and Australia’s Therapeutic Goods Agency. These authorities regulate a range of activities
including, among other matters, manufacturing, post-marketing studies in humans, advertising and promotion, product labeling, post-marketing surveillance
and adverse event reporting.
Regulation of Medical Devices in the United States
The development, manufacture, sale and distribution of our medical device products are subject to comprehensive governmental regulation. Most
notably, all of our medical devices sold in the United States are subject to the Food, Drug, and Cosmetic Act of 1938, as amended (“FDC Act”), as
implemented and enforced by the FDA. The FDA, and in some cases other government agencies, such as the U.S. Federal Communications Commission
(“FCC”), administer requirements covering the design, testing, safety, effectiveness, manufacturing, labeling, promotion and advertising, distribution and
post-market surveillance of our products.
Unless an exemption applies, each medical device that we market must first receive either premarket notification clearance (by making what is
commonly called “a 510(k) submission”) or premarket approval (by filing a premarket approval application (“PMA”) from the FDA pursuant to the FDC Act.
In addition, certain modifications made to marketed devices also may require 510(k) clearance or approval of a PMA supplement. The FDA’s 510
(k) clearance process varies in length and can extend beyond twelve months. The process of obtaining PMA approval is much more costly, lengthy and
uncertain. It generally takes from two to three years or even longer. All of our current products that are available in the U.S. were originally cleared through
the 510(k) process. We cannot be sure that future products or modifications of current products, will qualify for the 510(k) pathway or whether 510
(k) clearance or PMA approval will be obtained for any future product that we propose to market.
In December 2014, the FDA issued guidance entitled “Infusion Pumps Total Product Life Cycle.” This guidance established substantial additional
pre-market requirements for new and modified infusion pumps. Through this guidance, the FDA indicated more data demonstrating product safety will be
required for future 510(k) submissions for infusion pumps, including the potential for more clinical and human factors data. The impact of this guidance is
likely to result in a more time consuming and costly process to obtain regulatory clearance to market infusion pumps. In addition, new requirements beyond
the 2014 guidance document could result in longer delays for the clearance of new products, modification of existing infusion pump products or remediation
of existing products in the market. Future delays in the receipt of, or failure to obtain, approvals could result in delayed or no realization of product revenues.
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After a device is placed on the market, numerous regulatory requirements continue to apply. Those regulatory requirements include the following:
product listing and establishment registration; adherence to the Quality System Regulation (“QSR”), which requires stringent design, testing, control,
documentation and other quality assurance procedures; labeling requirements and FDA prohibitions against the promotion of off-label uses or indications;
adverse event reporting; post-approval restrictions or conditions, including post-approval study commitments; post-market surveillance requirements; the
FDA’s recall authority, whereby it can ask for, or require, the recall of products from the market; and requirements relating to voluntary corrections or
removals.
All aspects of our manufacturing and distribution of regulated products and those of our suppliers are subject to substantial governmental oversight.
Facilities used for the production, packaging, labeling, storage and distribution of medical devices must be registered with the FDA and other regulatory
authorities. All manufacturing activities for these products must be conducted in compliance with current good manufacturing practices (“cGMPs”). Our
manufacturing facilities and those of our suppliers are subject to periodic, routine and for-cause inspections to verify compliance with cGMPs. If, upon
inspection, the FDA or another regulatory agency finds that a manufacturer has failed to comply with cGMPs, it could institute a wide variety of enforcement
actions, ranging from a public warning letter to more severe sanctions, such as product recalls or seizures, monetary sanctions, consent decrees, injunctions to
halt manufacturing and distributing products, civil or criminal sanctions, refusal to grant clearances or approvals or delays in granting such clearances or
approvals, import detentions of products made outside of the United States, restrictions on operations or withdrawal or suspension of existing approvals. The
FDA also has the authority to request repair, replacement or refund of the cost of any medical device manufactured or distributed by us. These actions could
result in, among other things, substantial modifications to our business practices and operations; a total or partial shutdown of production in one or more
facilities while we or our suppliers remedy the alleged violation; the inability to obtain future pre-market clearances or approvals; and withdrawals or
suspensions of current products from the market. Any of these events could disrupt our business and have a material adverse effect on our revenues,
profitability and financial condition.
Close-Out of FDA Warning Letter
As announced on October 8, 2019, we received a close-out letter from the FDA with respect to the FDA warning letter previously received in
August 2014. We received this warning letter following a routine inspection of our prior facility between April 7 and April 16, 2014. The close-out letter
confirmed that all issues cited in the August 2014 warning letter have been resolved.
Product Recalls and Software Updates
We have made substantial investments in quality systems and we will continue to make improvements to our products and systems to further reduce
potential issues related to patient safety and avoid recalls in the future. Product quality plays a critical role in our success. While we believe that we have made
significant improvements to our product quality and overall quality systems, further quality concerns, whether real or perceived, could adversely affect our
results. Conversely, improving quality can be a competitive advantage and improve our results. For more information about risks related to these matters, see
the section captioned “Defects or failures associated with our products and/or our quality control systems could lead to the filing of adverse event reports,
recalls or safety alerts and negative publicity and could subject us to regulatory actions” in the “Risk Factors” section.
MRidium 3860+ Software Field Update. We are fielding updated software for our MRidium 3860+ IV infusion pump to existing customers. We have
accrued for all expected expenses related to this action and believe these expenses will not be significant to our operations or financial results.
Healthcare Fraud and Abuse Laws
As a manufacturer and distributor of medical devices to hospitals and other healthcare providers, we and our customers are subject to laws which
apply to Medicare, Medicaid, and other federal and state healthcare programs in the U.S. One such law, the Anti-kickback Statute, prohibits the solicitation,
offer, payment or receipt of remuneration in return for referral or purchase, or in return for the recommending or arranging for the referral or purchase, of
products covered by the programs. The Anti-kickback Statute provides a number of exceptions or “safe harbors” for particular types of transactions. While we
generally do not file claims for reimbursement from government payers, the U.S. federal government has asserted theories of liability against manufacturers
under the Federal False Claims Act, which prohibits the submission of false claims to Medicare, Medicaid, and other state and federal programs. Many states
have similar fraud and abuse laws which may apply to us. Violations of these fraud and abuse-related laws are punishable by criminal or civil sanctions,
including substantial fines, imprisonment and exclusion from participation in healthcare programs such as Medicare and Medicaid and health programs
outside the United States. We have developed and implemented business practices and processes to train our personnel to perform their duties in compliance
with healthcare fraud and abuse laws. While we conduct informal oversight to detect and prevent these types of fraud and abuse, we lack formal written
policies and procedures at this time. If we were unable to document and implement the controls and procedures required in a timely manner or otherwise
violate such laws, we might suffer adverse regulatory consequences or face criminal sanctions, which could harm our operations, financial reporting or
financial results.
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Regulation of Medical Devices Outside of the United States
Medical device laws also are in effect in many of the non-U.S. markets in which we do business. These laws range from comprehensive device
approval requirements for some or all of our products to requests for product data or certifications. Inspection of and controls over manufacturing, as well as
monitoring of device-related adverse events, also are components of most of these regulatory systems. Most of our business is subject to varying degrees of
governmental regulation in the countries in which we operate, and the general trend is toward increasingly stringent regulation balanced with a goal of
optimizing international harmonization. For example, the European Union (“EU”), which currently relies on independent third parties, (called “Notified
Bodies”) rather than governmental authorities to review and certify medium and high-risk medical devices, is moving to more governmental oversight of
medical devices. Currently, the regulatory requirements for a broad spectrum of medical devices are covered in three European Medical Device Directives
(adopted in the 1990’s) with which manufacturers must comply in order to receive a CE Certificate of Conformity (“CE Mark”) from a Notified Body. Only
certified medical devices bearing a CE Mark can be sold in the EU and European Free Trade Association (“EFTA”) countries and Turkey. EFTA includes
Iceland, Norway, Principality of Liechtenstein and Switzerland.
In May 2017, the European Union (the "EU") implemented a new regulatory scheme for medical devices under the Medical Device Regulation
("MDR"). The MDR becomes fully effective in 2020 and will bring significant new requirements for many medical devices, including enhanced requirements
for clinical evidence and documentation, increased focus on device identification and traceability, new definitions and registration of economic operators
throughout the distribution chain, and additional post-market surveillance and vigilance. Compliance with the MDR will require re-certification of our
products to the enhanced standards and may result in substantial additional expense. If these measures are unable to be taken, it may no longer be possible to
place such devices on the EU market. Additionally, we may lose our current quality system certification due to ISO Registrar difficulties as European
authorities increase regulatory pressure or increased scrutiny resulting from MDR. The loss of the quality system certification may prevent product shipments
to the EU and to other foreign markets, such as Canada, which could significantly lower our revenues from foreign sales while we take remedial measures.
The EU has enacted legislation restricting the use of hazardous substances in electronic equipment (Directive 2011/65/EU, referred to as “RoHS 2”),
such as our devices. The application of RoHS 2 to medical devices became effective as of July 22, 2014. Our products are compliant with RoHS 2. If we are
unable to remain compliant with RoHS 2, there may be an interruption of sales to the EU, which could significantly lower our revenues from foreign sales
while we take remedial measures.
Additionally, on June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the EU, commonly referred to as “Brexit.” The United
Kingdom officially withdrew from the EU on January 31, 2020. This referendum has created political and economic uncertainty that could persist for years,
particularly in the United Kingdom and the EU, as many of the details of the separation have yet to be addressed. Since a significant portion of the regulatory
framework in the United Kingdom is derived from EU directives and regulations, the referendum could materially impact the regulatory regime with respect
to our products in the United Kingdom or the EU. Any delay in obtaining, or an inability to obtain, any device certifications, product marketing approvals, or
other regulatory authorizations as a result of Brexit or otherwise, could prevent us from commercializing our products in the United Kingdom and/or the EU
and affect our operations and financial results.
The ultimate effects of Brexit are uncertain and will depend on any agreements the United Kingdom makes to retain access to EU markets either
during a transitional period or more permanently. Brexit could adversely affect European and worldwide economic and market conditions and could
contribute to instability in global financial and foreign exchange markets. Uncertainty over the terms of the United Kingdom’s departure from the EU could
harm our business and financial results. In addition, other EU member countries may consider referendums regarding their EU membership. Any of these
effects of Brexit, and others we cannot anticipate, could adversely affect our business, results of operations and financial condition.
Anti-Bribery Laws
Our global activities are subject to the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other countries’ anti-bribery laws that have
been enacted in support of the Organization for Economic Cooperation and Development’s Anti-bribery Convention. These laws generally prohibit companies
and their intermediaries from making improper payments to non-U.S. government officials with the intent to inappropriately gain a business advantage. They
also require companies to maintain accurate books and records and internal financial controls. The U.K. Bribery Act also prohibits commercial bribery and
makes it a crime for a company to fail to prevent bribery. Companies have the burden of proving that they have adequate procedures in place to prevent
bribery. The enforcement of such laws in the U.S. and elsewhere has increased dramatically in the past few years, and authorities have indicated that the
pharmaceutical and medical device industry is a significant focus for enforcement efforts.
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Because of the predominance of government-sponsored healthcare systems around the world, many of our customer relationships outside of the
United States are with governmental entities. Our policies mandate strict compliance with the anti-bribery laws. We operate in many parts of the world that
have experienced governmental corruption to some degree, and in certain circumstances strict compliance with anti-bribery laws may conflict with local
customs and practices.
Transparency Laws in the U.S. and Other Countries
There are numerous requirements imposed by states in the U.S. on the interaction of pharmaceutical and medical device companies with physicians.
For example, several states and the District of Columbia either require the tracking and reporting of specific types of interactions with healthcare professionals
or restrict such interactions. A similar requirement was imposed at the federal level under the “sunshine” provision of Patient Protection and Affordable Care
Act, (the “Sunshine Provisions”), to track and report payments and “transfers of value” to U.S. physicians or teaching hospitals by manufacturers of medical
products that are available for reimbursement by a federal insurer.
Other Laws
We are also subject to a variety of other laws, directives and regulations in and outside of the U.S., including those related to the following:
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environmental laws and regulations;
the safety and health laws of the U.S. Occupational Safety and Health Act, which sets forth requirements for workplace conditions;
California’s Proposition 65, which sets forth a list of substances that are deemed by the State of California to pose a risk of carcinogenicity or
birth defects; and
various customs, export control, anti-boycott and trade embargo laws and regulations administered by U.S. and foreign government agencies,
including the U.S. Customs and Border Protection, the Bureau of Industry and Security, the Department of Commerce and the Office of Foreign
Assets Control Treasury Department, as well as others.
Despite our training and compliance program, our internal control policies and procedures may not always protect us from reckless or criminal acts
committed by our employees or agents in violation of any of these laws.
ITEM 1A.
RISK FACTORS
Risks Relating to Our Business and Financial Condition
Our financial performance is significantly dependent on a limited number of products, and disruptions in our ability to sell these products may have a
material adverse effect on our business.
Our current revenue and profitability are significantly dependent on the sale of the MRidium 3860+ MRI compatible IV infusion pump system, the
3880 MRI compatible patient vital signs monitoring system (both Class II medical devices) and the ongoing sale of related disposables and services.
In the past, the FDA issued us a warning letter that impacted our ability to commercially distribute our MRidium 3860+ MRI compatible IV infusion
pump system. Although we have resolved this warning letter and resumed commercial distribution of the MRidium 3860+ MRI compatible IV infusion pump
system, there can be no guarantee that the FDA will not take similar action in the future. The FDA could require us to cease shipment of our products, notify
health professionals and others that the devices present unreasonable risk or substantial harm to public health, order a recall, repair, replacement, or refund of
the devices, detain or seize adulterated or misbranded medical devices, or ban the medical devices. The FDA may also issue further warning letters or untitled
letters, refuse future requests for 510(k) submission or premarket approval, revoke existing 510(k) clearances or premarket approvals previously granted,
impose operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices and assess civil or criminal penalties
against our officers, employees, or us.
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Our products could be rendered obsolete or economically impractical by numerous factors, many of which are beyond our control, including but not
limited to:
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entrance of new competitors into our markets;
technological advancements of MRI scanners;
technological developments such as new imaging modalities which render MRI procedures obsolete or reduce the instances where MRI
imaging is utilized;
loss of key relationships with suppliers, group purchasing organizations, or end-user customers;
manufacturing or supply interruptions;
product liability claims;
our reputation and product market acceptance;
loss of existing regulatory approvals or the imposition of new requirements to maintain such approvals; and
product recalls or safety alerts.
Any major factor adversely affecting the sale of our products or services would cause our revenues to decline and have a material adverse impact on
our business, financial condition and our common stock.
We have significant international sales as well as international supply chain links and we face risks related to health epidemics that could adversely affect
our revenue.
Our business could be adversely impacted by the effects of COVID-19 (more commonly referred to as coronavirus) or other epidemics, particularly
since we have experienced an increasing concentration of sales in the Asia-Pacific region. The recent COVID-19 outbreak may negatively impact our revenue
in the future. With respect to our international distributors, some customers that are implementing heightened security policies may inhibit the inability of our
international distributors to access hospitals for purposes of selling our products and may cause delays of orders for our products and negatively affect our
revenues.
Our materials suppliers could also be disrupted by conditions related to COVID-19, or other epidemics, possibly resulting in disruption to our supply
chain. If our suppliers are unable or fail to fulfill their obligations to us for any reason, we may not be able to manufacture our products and satisfy customer
demand or our obligations under sales agreements in a timely manner, and our business could be harmed as a result.
At this point in time, there is uncertainty relating to the potential effect of COVID-19 on our business. Infections may become more widespread and
should that limit our ability to timely sell and distribute our products or cause supply disruptions it would have a negative impact on our business, financial
condition and operating results. In addition, a significant health epidemic could adversely affect the economies and financial markets of many countries,
resulting in an economic downturn that could affect demand for our products which could have a material adverse effect on our business, operating results and
financial condition.
We have been subject to securities class action litigation and derivative litigation and we may be subject to similar or other litigation in the future.
In the past, following adverse action by the FDA or volatility in our stock price, securities class action litigation has been brought against us. There
can be no assurance that we will not face other securities litigation in the future. With respect to any litigation, our insurance may not reimburse us or may not
be sufficient to reimburse us for the expenses or losses we may suffer in contesting and concluding such lawsuits. A decision adverse to our interests on these
actions or resulting from these matters could result in the payment of substantial damages and could have a material adverse effect on our business, financial
condition and our common stock. Regardless of the outcome, these claims may result in injury to our reputation, significant costs, diversion of management’s
attention and resources, and loss of revenue.
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There is no assurance that our internal and external sources of liquidity will at all times be sufficient for our cash requirements.
We must have sufficient sources of liquidity to fund our working capital requirements, our capital improvement plans, and execute on our strategic
initiatives. Our decline in operating results during 2017 limited our generation of capital resources and that situation could return if we are unable to continue
to increase revenues or adjust our costs appropriately to changes in revenue. Further, future new product launches may demand increased working capital
before any long-term return is realized from increased revenue. Our ability to achieve our business and cash flow plans is based on a number of assumptions
which involve significant judgments and estimates of future performance, borrowing capacity and credit availability, which cannot at all times be assured.
Accordingly, there is no assurance that cash flows from operations and other internal and external sources of liquidity will at all times be sufficient for our
cash requirements. If necessary, we may need to consider actions and steps to improve our cash position and mitigate any potential liquidity shortfall, such as
modifying our business plan, pursuing additional financing to the extent available, reducing capital expenditures, pursuing and evaluating other alternatives
and opportunities to obtain additional sources of liquidity and other potential actions to reduce costs. There can be no assurance that any of these actions
would be successful, sufficient or available on favorable terms. Any inability to generate or obtain sufficient levels of liquidity to meet our cash requirements
at the level and times needed could have a material adverse impact on our business and financial position.
Our continued success depends on the integrity of our supply chain, including multiple single-source suppliers, the disruption of which could negatively
impact our business.
Many of the component parts of our products are obtained through supply agreements with third parties. Some of these parts require our partners to
engage in complex manufacturing processes and involve long lead times or delivery periods. Considering our dependence on third-party suppliers, several of
which are single-source suppliers, we are subject to inherent uncertainties and risks related to their ability to produce or deliver parts on a timely basis, to
comply with product safety and other regulatory requirements and to provide quality parts to us at a reasonable price.
For example, we are dependent upon a single vendor for the ultrasonic motor at the core of our devices. If this vendor fails to meet our volume
requirements, which we anticipate will increase over time, or if the vendor becomes unable or unwilling to continue supplying motors to us, this would impact
our ability to supply our devices to customers until a replacement source is secured. Our executed agreement with this vendor provides that the price at which
we purchase products from the vendor is determined by agreement from time to time or should material costs change. Although we have had a long history of
stable pricing with this supplier, this provision may make it difficult for us to continue to receive motors from this vendor on favorable terms or at all if we do
not agree on pricing in the future. In such event, it could materially and adversely affect our commercial activities, operating results and financial condition.
In the near term, we do not anticipate finding alternative sources for our primary suppliers, including single source suppliers. Therefore, if our
primary suppliers become unable or unwilling to manufacture or deliver materials, or manufacture or deliver such materials later than anticipated, we could
experience protracted delays or interruptions in the supply of materials which would ultimately delay our manufacture of products for commercial sale, which
could materially and adversely affect our development programs, commercial activities, operating results and financial condition.
Additionally, any failure by us to forecast demand for, or to maintain an adequate supply of raw materials, parts, or finished products, could result in
an interruption in the supply of certain products and a decline in our sales.
We rely on third-party suppliers for certain of our raw materials and components.
We rely on unaffiliated third-party suppliers for certain raw materials and components necessary for the manufacturing and operation of our products.
Certain of those raw materials and components are proprietary products of those unaffiliated third-party suppliers and are specifically cited in our applications
with regulatory agencies so that they must be obtained from that specific sole source or sources and could not be obtained from another supplier unless and
until an appropriate application amendment is approved by the regulatory agency.
Among the reasons we may be unable to obtain these raw materials and components include, but are not limited to:
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a supplier’s inability or unwillingness to continue supplying raw materials and/or components;
regulatory requirements or action by regulatory agencies or others, including changes in international trade treaties and/or tariffs;
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adverse financial or other strategic developments at or affecting the supplier, including bankruptcy;
unexpected demand for or shortage of raw materials or components;
failure of the supplier to comply with quality standards which results in quality and product failures, product contamination and/or recall;
discovery of previously unknown or undetected imperfections in raw materials or components;
labor disputes or shortages, including from natural disasters and the effects of health emergencies such as COVID-19; and
political instability and actual or anticipated military or political conflicts.
These events could negatively impact our ability to satisfy demand for our products, which could have a material adverse effect on our products’ use
and sales and our business and results of operations. We may experience these or other shortages in the future resulting in delayed shipments, supply
constraints, contract disputes and/or stock-outs of our products.
The manufacture of our products requires strict adherence to regulatory requirements governing medical devices and if we or our suppliers encounter
problems our business could suffer.
The manufacture of our products must comply with strict regulatory requirements governing Class II medical devices in the U.S. and other regulatory
requirements in foreign locations. Problems may arise during manufacturing, quality control, storage or distribution of our products for a variety of reasons,
including equipment malfunction, failure to follow specific protocols and procedures, manufacturing quality concerns, or problems with raw materials,
electromechanical, software and other components, supplier issues, and natural disasters. If problems arise during production, the affected products may have
to be discarded. Manufacturing problems or delays could also lead to increased costs, lost sales, damage to customer relations, failure to supply penalties, time
and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches of products. If problems are not discovered
before the product is released to the market, voluntary recalls, corrective actions or product liability related costs may also be incurred. Should we encounter
difficulties in the manufacture of our products or be subject to a product recall, our business could suffer materially.
Our markets are very competitive and we sell certain of our products in a mature market.
The market for our 3880 MRI compatible patient vital signs monitoring system is well-developed and sales growth for our monitor could be slow.
Our vital signs monitoring system could face difficult competition, including competitors offering lower prices, which could have an adverse effect on our
revenue and margins. Our competitors may have certain advantages, which include the ability to devote greater resources to the development, promotion, and
sale of their products. Consequently, we may need to increase our efforts, and related expenses for research and development, marketing, and selling to
maintain or improve our position. We may not realize the per unit revenue we have planned for and expect. Continued sales to our existing customers are
expected to be significant to our revenue in the future, and if our existing customers do not continue to purchase from us, our revenue may decline.
We manufacture and store our products at a single facility in Florida.
We manufacture and store our products at a single facility in Winter Springs, Florida. If by reason of fire, hurricane or other natural disaster, or for
any other reason, the facility is destroyed or seriously damaged or our access to it is limited, our ability to provide products to our customers would be
seriously interrupted or impaired and our operating results and financial condition would be materially and negatively affected.
Our inability to collect on our accounts receivables held by customers may have an adverse effect on our business operations and financial condition.
We market our products to end users in the United States and to 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. From time to time, we have had, and may in the future have,
accounts receivables from one or more customers that accounted for 10 percent or more of our gross accounts receivable. As a result, we may be exposed to a
certain level of concentration of credit risk. If a major customer experiences financial difficulties, the effect on us could be material and have an adverse effect
on our business, financial condition and results of operations.
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If we fail to maintain relationships with Group Purchasing Organizations, sales of our products could decline.
Our ability to sell our products to U.S. hospitals, acute care facilities and outpatient imaging centers depends in part on our relationships with Group
Purchasing Organizations (“GPOs”). Many existing and potential customers for our products are members of GPOs. GPOs negotiate pricing arrangements and
contracts, which are sometimes exclusive, with medical supply manufacturers and distributors, and these negotiated prices are made available to a GPO’s
affiliated hospitals and other members. We pay the GPOs an administrative fee in the form of a percentage of the volume of products sold to their affiliated
hospitals and other members. If we are not an approved provider selected by a GPO, affiliated hospitals and other members may be less likely to purchase our
products. Should a GPO negotiate a sole source or bundling contract covering a future or current competitor’s products, we may be precluded from making
sales of our competing products to members of that GPO for the duration of the contractual arrangement. For example, even if we have an existing contract
with a GPO for sales of our MRidium 3860+ MRI compatible IV infusion pump, we may encounter difficulties in selling, or be unable to sell, our 3880 MRI
compatible patient vital signs monitoring system to that GPO’s affiliated hospitals and other members, which may result in a longer sales cycle or an inability
to sell. Our failure to renew contracts with GPOs may cause us to lose market share and could have a material adverse effect on our sales, financial condition
and results of operations. In the future, if another competitive supplier emerges, and we fail to keep our relationships and develop new relationships with
GPOs, our competitive position would likely suffer.
Cost-containment efforts of our customers and purchasing groups could adversely affect our sales and profitability.
Our MRI compatible medical devices are considered capital equipment by many potential customers, and hence changes in the budgets of healthcare
organizations and the timing of spending under these budgets and conflicting spending priorities can have a significant effect on the demand for our products
and related services. Any decrease in expenditures by these healthcare facilities could decrease demand for our products and related services and reduce our
revenue. Additionally, changes to reimbursement policies by third-party payors could also decrease demand for our products and related services and reduce
our revenue.
Any failure in our efforts to educate clinicians, anesthesiologists, radiologists, and hospital administrators regarding the advantages of our products could
significantly limit our product sales.
We believe our future success will require us to educate a sufficient number of clinicians, anesthesiologists, radiologists, hospital administrators and
other purchasing decision-makers about our products and the costs and benefits of our products. If we fail to demonstrate the safety, reliability and economic
benefits of our products to hospitals and acute medical facilities, our products may not be adopted and our expected and actual sales would suffer.
The lengthy sales cycle for medical devices could delay our sales.
The decision-making process of customers is often complex and time-consuming. Based on our experience, we believe the period between initial
discussions with customers regarding our products and a customer’s purchase of our products is typically three to six months. Sales cycles can also be delayed
because of capital budgeting procedures. Moreover, even if one or two units are sold to a hospital, we believe that it will take additional time and experience
with our products before other medical professionals routinely use them for other procedures and in other departments of the hospital. Such time would delay
potential sales of additional units and disposable products or additional optional accessories to that medical facility or hospital. These delays could have an
adverse effect on our business, financial condition and results of operations.
Because we rely on distributors to sell our products outside of the U.S., our revenues could decline if our existing distributors do not continue to purchase
products from us or if our relationship with any of these distributors is terminated.
We rely on distributors for all our sales outside the U.S. and hence do not have direct control over foreign sales activities. These distributors also
assist us with regulatory approvals and the education of physicians and government agencies. Our revenues outside the U.S. have recently represented
approximately one-fifth of our net revenues. If our existing international distributors fail to sell our products or sell at lower levels than we anticipate, we
could experience a decline in revenues or fail to meet our forecasts. We cannot be certain that we will be able to attract new international distributors nor
retain existing ones that market our products effectively or provide timely and cost-effective customer support and service. None of our existing distributors
are obligated to continue selling our products.
If we do not successfully develop and commercialize enhanced products or new products that remain competitive, we could lose revenue opportunities and
customers, and our ability to achieve growth would be impaired.
The medical device industry is characterized by rapid product development and technological advances, which places our products at risk of
obsolescence. Our long-term success depends upon the development and successful commercialization of new products, new or improved technologies and
additional applications for MRI compatible infusion, therapeutic, diagnostic and safety products and services. The research and development process is time-
consuming and costly and may not result in products or applications that we can successfully commercialize. If we do not successfully adapt our technology,
products and applications, we could lose revenue opportunities and customers. In addition, we may not be able to improve our products or develop new
products or technologies quickly enough to maintain a competitive position in our markets and continue to grow our business.
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We are highly dependent on our founder, Chairman and Chief Technology Officer, Roger Susi.
We believe that Mr. Susi will play a significant role in the development of new products. Our current and future operations could be adversely
impacted if we were to lose his services. Accordingly, our success will be dependent on appropriately managing the risks related to maintaining his continued
services.
If we fail to attract and retain the talent required for our business, our business could be materially harmed.
Competition for highly skilled personnel is often intense in the medical device industry, including in the MRI compatible medical device segment. If
our current employees with experience in the MRI compatible device industry leave our company, we may have difficulty finding replacements with an
equivalent amount of experience and skill, which could harm our operations. Our future success will also depend in part on our ability to identify, hire and
retain additional personnel, including executives, skilled engineers to develop new products and sales and production staff. We may not be successful in
attracting, integrating or retaining qualified personnel to meet our current growth plans or future needs. Our productivity may be adversely affected if we do
not integrate and train our new employees quickly and effectively.
Any one of our executive officers or other key employees could terminate his or her relationship with us at any time. The loss of one or more of our
executive officers or key employees, and any failure to have in place and execute an effective succession plan for key executive officers, could significantly
delay or prevent us from achieving our business and/or development objectives and could materially harm our business. Changes in our executive
management team may also cause disruptions in, and harm to, our business. As previously disclosed, Roger Susi, our founder and our former chief executive
officer, transitioned to his new role as chief technology officer and Leslie McDonnell was appointed to replace him as chief executive officer effective
August 19, 2019. Although we strive to reduce the challenges of this transition and the appointment of our new chief executive officer, failure to ensure
effective transfer of knowledge and a smooth transition could disrupt or adversely affect our business, results of operations, financial condition and prospects.
We may also have difficulty finding and retaining qualified Board members. Any failure to do so could be perceived negatively and could adversely
affect our business.
Also, to the extent we hire personnel from competitors, we may be subject to allegations that we have improperly solicited, or that they have divulged
proprietary or other confidential information, or that their former employers own their inventions or work product.
We may be unable to scale our operations successfully.
We are working to expand our size and scale via more penetration of existing markets and the launch of new complementary products. This growth,
if it occurs as planned, will place significant demands on our management and manufacturing capacity, as well as our financial, administrative and other
resources. We cannot guarantee that any of the personnel, systems, procedures and controls we put in place will be adequate to support the manufacture and
distribution of our products. Our operating results will depend substantially on the ability of our officers and key employees to manage changing business
conditions and to implement and improve our financial and administrative systems and manage other resources. If we are unable to respond to and manage
changing business conditions, or the scale of our products, services and operations, then the quality of our services, our ability to retain key personnel and our
business could be harmed.
We engage in related party transactions, which result in a conflict of interest involving our management.
We have engaged in the past, and continue to engage, in related party transactions, particularly between our company and Roger Susi and his
affiliates. The only significant ongoing related party transaction is the lease agreement between our company and Susi, LLC, an affiliate of Roger Susi, with
respect to our sole production and headquarters facility in Winter Springs, Florida. Related party transactions present difficult conflicts of interest, could result
in disadvantages to our company and may impair investor confidence, which could materially and adversely affect us. Related party transactions could also
cause us to become materially dependent on related parties in the ongoing conduct of our business, and related parties may be motivated by personal interests
to pursue courses of action that are not necessarily in the best interests of our company and our stockholders.
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Any acquisitions of technologies, products and businesses, may be difficult to integrate, could adversely affect our relationships with key customers,
and/or could result in significant charges to earnings.
We plan to periodically review potential acquisitions of technologies, products and businesses that are complementary to our products and that could
accelerate our growth. However, our company has never completed an acquisition and there can be no assurance that we will be successful in finding any
acquisitions in the future. The process of identifying, executing and realizing attractive returns on acquisitions involves a high degree of uncertainty.
Acquisitions typically entail many risks and could result in difficulties in integrating operations, personnel, technologies and products. If we are not able to
successfully integrate our acquisitions, we may not obtain the advantages and synergies that the acquisitions were intended to create, which may have a
material adverse effect on our business, results of operations, financial condition and cash flows, our ability to develop and introduce new products and the
market price of our stock.
The environment in which we operate makes it increasingly difficult to accurately forecast our business performance.
Significant changes and volatility in most aspects of the current business environment, including financial markets, consumer behavior, speed of
technological, regulatory and competitive changes, make it increasingly difficult for us to predict our revenues and earnings into the future. Our quarterly sales
and profits depend substantially on the volume and timing of orders fulfilled during the quarter, and such orders are difficult to forecast. Product demand is
dependent upon the capital spending budgets of our customers and prospects as well as government funding policies and matters of public policy as well as
product and economic cycles that can affect the spending decisions of these entities. As a result, any revenue, earnings or financial guidance or outlook which
we have given or might give may turn out to be inaccurate. Though we will endeavor to give reasonable estimates of future revenues, earnings and financial
information at the time we give such guidance, based on then-current conditions, there is a significant risk that such guidance or outlook will turn out to be
incorrect. Historically, companies that have overstated their operating guidance have suffered significant declines in their stock price when such results are
announced to the public.
There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with
United States Generally Accepted Accounting Principles (“GAAP”). Furthermore, portions of GAAP require the use of fair value models which are
variable in application and methodology from appraiser to appraiser. Any changes in estimates, judgments and assumptions used could have a material
adverse effect on our business, financial position and operating results.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Such assumptions and estimates include those related to revenue recognition, accruals for
product returns, allowances for doubtful accounts, valuation of inventory, impairment of intangibles and long-lived assets, accounting for leases, accounting
for income taxes and stock-based compensation and allowances for uncertainties. These factors are also influenced by regular changes to GAAP, some of
which are material to most companies. These changes introduce risk to our financial reporting processes due to implementation and internal control
implications.
We base the aforementioned estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances, as discussed in greater detail in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our actual operating results may differ and fall below our assumptions and the financial forecasts of securities analysts and investors, resulting in a significant
decline in our stock price.
Changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results.
We are subject to the continuous examination of our income tax returns by the Internal Revenue Service, or IRS, and other tax authorities. It is
possible that tax authorities may disagree with certain positions we have taken, and any adverse outcome of such a review or audit could have a negative
effect on our financial position and operating results. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine
the adequacy of our provision for income taxes, but the determination of our provision for income taxes and other tax liabilities requires significant judgment
by management, and there are transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the
ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods
for which such determination is made. There can be no assurance that the outcomes from continuous examinations will not have an adverse effect on our
business, financial condition, and results of operations.
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We are subject to various privacy and consumer protection laws.
Our privacy policy is posted on our website, and any failure by us or our vendor or other business partners to comply with it or with federal, state or
international privacy, data protection or security laws or regulations could result in regulatory or litigation-related actions against us, legal liability, fines,
damages and other costs. Substantial expenses and operational changes may be required in connection with maintaining compliance with such laws, and in
particular certain emerging privacy laws are still subject to a high degree of uncertainty as to their interpretation and application. For example, in May 2018,
the General Data Protection Regulation (the “GDPR”) began to fully apply to the processing of personal information collected from individuals located in the
European Union. The GDPR has created new compliance obligations and has significantly increased fines for noncompliance. Although we take steps to
protect the security of our customers’ personal information, we may be required to expend significant resources to comply with data breach requirements if
third parties improperly obtain and use the personal information of our customers or we otherwise experience a data loss with respect to customers’ personal
information. A breach of our network security and systems could have negative consequences for our business and future prospects, including possible fines,
penalties and damages, reduced customer demand for our products, and harm to our reputation and brand.
Political and economic uncertainty arising from the outcome of the United Kingdom’s referendum on its membership in the European Union could
adversely affect our business and results of operations.
On June 23, 2016, the United Kingdom (“UK”) held a referendum in which voters approved a withdrawal from the European Union (“EU”),
commonly referred to as “Brexit.” The United Kingdom officially withdrew from the EU on January 31, 2020. The terms of the withdrawal are subject to
ongoing negotiation that has created significant uncertainty about the future relationship between the UK and the EU. It is possible that the level of economic
activity in this region will be adversely impacted and that there will be increased regulatory and legal complexities, including those relating to tax, trade,
security and employees. In addition, Brexit could lead to economic uncertainty, including significant volatility in global stock markets and currency exchange
rates, which may adversely impact our business. Although the specific terms of the separation are unknown, it is possible that these changes could adversely
affect our business and results of operations. To attempt to reduce the impact of a potential Brexit on our ability to sell our products in the EU, we have
changed from a UK-based notified body, to notified bodies located within the EU.
Risks Related to Our Industry
We are subject to substantial government regulation that is subject to change and could force us to make modifications to how we develop, manufacture,
market and price our products.
The medical device industry is regulated extensively by governmental authorities, principally the FDA in the U.S. and corresponding state and
foreign regulatory agencies. The majority of our manufacturing processes are required to comply with quality systems regulations, including current good
manufacturing practice requirements that cover the methods and documentation of the design, testing, production, control, quality assurance, labeling,
packaging and shipping of our products. Failure to comply with applicable medical device regulatory requirements could result in, among other things,
warning letters, fines, injunctions, civil penalties, repairs, replacements, refunds, recalls or seizures of products, total or partial suspensions of production,
refusal of the FDA or other regulatory agencies to grant pre-market clearances or approvals for our products, withdrawals or suspensions of future or current
clearances or approvals and criminal prosecution.
In addition, our products are subject to pre-clearance requirements by the FDA and similar international agencies that govern a wide variety of
product activities from design and development to labeling, manufacturing, promotion, sales and distribution. Compliance with these regulations may be time
consuming, burdensome and expensive for us. The failure to obtain, or the loss or suspension of any such pre-approval, would negatively affect our ability to
sell our products and harm our anticipated revenues.
Foreign governmental authorities that regulate the manufacture and sale of medical devices have become increasingly stringent and, to the extent we
sell our products in foreign countries, we may be subject to rigorous regulation in the future. Regulatory changes could result in restrictions on our ability to
carry on or expand our operations, higher than anticipated costs or lower than anticipated revenue.
If we fail to obtain, or experience significant delays in obtaining, FDA clearances or other necessary approvals to commercially distribute new products,
our ability to maintain profitability or grow will suffer.
Our current products are Class II medical devices and hence require regulatory pre-market approval by the FDA and other federal and state
authorities prior to their sale in the U.S. Similar approvals are required by foreign governmental authorities for sale of our products outside of the U.S.,
including the EU. We are responsible for obtaining the applicable regulatory approval for the commercial distribution of our products. As part of our strategy,
we plan to seek approvals for new MRI compatible products. The process of obtaining approvals is costly and time consuming, and there can be no assurance
that we will obtain the required approvals on a timely basis, or at all. Failure to receive approvals for new products will hurt our ability to grow.
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We are subject to risks associated with doing business outside of the U.S.
Sales to customers outside of the U.S. have historically comprised of approximately one-tenth to one-third of our net revenues and we expect that
non-U.S. sales will contribute to future growth. A majority of our international sales originate from Europe and Japan, and we also make sales in Canada,
Hong Kong, Australia, Mexico and certain parts of the Middle East. The risks associated with operations outside the U.S. include:
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foreign regulatory and governmental requirements that could change and restrict our ability to manufacture and sell our products;
possible failure to comply with anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other
jurisdictions;
foreign currency fluctuations that can impact our financial statements when foreign denominations are translated into U.S. dollars;
different local product preferences and product requirements, which might increase with increasing nationalism;
trade protection and restriction measures under international trade treaties and via tariffs, and import or export licensing requirements;
difficulty in establishing, staffing and managing non-U.S. operations;
failure to maintain relationships with distributors, especially those who have assisted with foreign regulatory or government clearances;
changes in labor, environmental, health and safety laws;
potentially negative consequences from changes in or interpretations of tax laws, including U.S. state and foreign tax jurisdiction responses
to recent changes in U.S. federal tax laws;
political instability and actual or anticipated military or political conflicts, including instability related to war and terrorist attacks and to
political matters such as Brexit;
economic instability, inflation, deflation, recession or interest rate fluctuations;
uncertainties regarding judicial systems and procedures; and
minimal or diminished protection of intellectual property.
These risks, individually or in the aggregate, could have an adverse effect on our results of operations and financial condition.
We may incur product liability losses, or become subject to other lawsuits related to our products, business, and insurance coverage could be inadequate
or unavailable to cover these losses.
Our business is subject to potential product liability risks that are inherent in the design, development, manufacture and marketing of our medical
devices and consumable products. We carry third-party product liability insurance coverage to protect against such risks, but there can be no assurance that
our policy is adequate. In the ordinary course of business, we may become the subject of product liability claims and lawsuits alleging that our products have
resulted or could result in an unsafe condition or injury to patients. Any product liability claim brought against us, with or without merit, could be costly to
defend and could result in settlement payments and adjustments not covered by or in excess of our product liability insurance. We currently have third-party
product liability insurance with maximum coverage of $5,000,000; however, such coverage requires a substantial deductible that we must pay before
becoming eligible to receive any insurance proceeds. The deductible amount is currently equal to $50,000 per occurrence and $150,000 in the aggregate. We
will have to pay for defending product liability or other claims that are not covered by our insurance. These payments could have a material adverse effect on
our profitability and financial condition. Product liability claims and lawsuits, safety alerts, recalls or corrective actions, regardless of their ultimate outcome,
could have a material adverse effect on our business, financial condition, reputation and on our ability to attract and retain customers. In addition, we may not
be able to obtain insurance in the future on terms acceptable to us or at all.
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Defects or failures associated with our products and/or our quality control systems could lead to the filing of adverse event reports, recalls or safety alerts
and negative publicity and could subject us to regulatory actions.
Safety problems associated with our products could lead to a product recall or the issuance of a safety alert relating to such products and result in
significant costs and negative publicity. An adverse event involving one of our products could require us to file an adverse event report with the FDA. Such
disclosure could result in reduced market acceptance and demand for all our products, and could harm our reputation and our ability to market our products in
the future. In some circumstances, adverse events arising from or associated with the design, manufacture or marketing of our products could result in the
suspension or delay of regulatory reviews of our applications for new product approvals or clearances.
We may also voluntarily undertake a recall of our products or temporarily shut down production lines based on internal safety, quality monitoring
and testing data. To avoid future product recalls we have made and continue to invest in our quality systems, processes and procedures. We will continue to
make improvements to our products and systems to further reduce issues related to patient safety.
However, there can be no assurance our efforts or systems will be sufficient. Future quality concerns, whether real or perceived, could adversely
affect our operating results.
Our products or product types, or MR imaging could be subject to negative publicity, which could have a material adverse effect on our financial position
and results of operations and could cause the market value of our common stock to decline.
The market’s perception of our products could be harmed if any of our products or similar products offered by others in our industry become the
subject of negative publicity due to a product safety issue, withdrawal, recall, or are proven or are claimed to be harmful to patients. The harm to market
perception may have a material adverse effect on our business, financial position and results of operations and could cause the market value of our common
stock to decline.
Our products are designed for use around MRI scanners. MRI has been an important imaging diagnostic for some time now, however, should MRI
technology change materially or decline in usage due to new technologies or concerns about costs or efficacy of MR imaging, our products would suffer as
MRI usage and installations declined. Such a matter may also have a material adverse effect on our business, financial position and results of operations and
could cause the market value of our common stock to decline.
U.S. healthcare policy and changes thereto, including the Affordable Care Act and PPACA, may have a material adverse effect on our financial condition
and results of operations.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the
“PPACA”), enacted in 2010, implemented changes that significantly impacted the medical device industry. Beginning on January 1, 2013, the Affordable
Care Act imposed a 2.3 percent excise tax on sales of products defined as “medical devices” by the regulations of the FDA. We believe that all our current
products are “medical devices” within the meaning of the FDA regulations. On December 18, 2015, under the Consolidated Appropriations Act of 2015, the
medical device excise tax was suspended for two years beginning on January 1, 2016. New legislation passed in January 2018 further suspended the medical
device excise tax through December 31, 2019. While this tax was suspended by legislation for 2018 and 2019, its return beginning on January 1, 2020 and
potential increases from the 2.3 percent level in future years would negatively impact our operating results. We cannot currently foresee that the suspension
will be reinstated.
Other significant measures contained in the PPACA include research on the comparative clinical effectiveness of different technologies and
procedures, initiatives to revise Medicare payment methodologies, such as bundling of payments across the continuum of care by providers and physicians,
and initiatives to promote quality indicators in payment methodologies. The PPACA also includes significant new fraud and abuse measures, including
required disclosures of financial payments to and arrangements with physician customers, lower thresholds for violations and increasing potential penalties for
such violations.
Since its enactment, there have been judicial and Congressional challenges to certain aspects of PPACA. In January 2017, Congress voted to adopt a
budget resolution for fiscal year 2017, or the Budget Resolution, that authorizes the implementation of legislation that would repeal portions of PPACA. The
Budget Resolution is not a law; however, it was widely viewed as the first step toward the passage of legislation that would repeal certain aspects of PPACA.
Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under PPACA to
waive, defer, grant exemptions from, or delay the implementation of any provision of PPACA that would impose a fiscal or regulatory burden on states,
individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In addition, with enactment of the Tax Cuts and
Jobs Act of 2017, in December 2017, Congress repealed the “individual mandate” portion of PPACA. The repeal of this provision, which requires most
Americans to carry a minimal level of health insurance, became effective in January 2019. The potential impact of these efforts to repeal or defer and delay
enforcement of PPACA on our business remains unclear. Congress also could consider subsequent legislation to replace elements of PPACA that are repealed.
Because of the continued uncertainty about the implementation of the PPACA, including the potential for further legal challenges or repeal of PPACA, we
cannot quantify or predict with any certainty the likely impact of the PPACA or its repeal on our business, prospects, financial condition or results of
operations.
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We are subject to healthcare fraud and abuse regulations that could result in significant liability, require us to change our business practices and restrict
our operations in the future.
We and our customers are subject to various U.S. federal, state and local laws targeting fraud and abuse in the healthcare industry, including anti-
kickback and false claims laws. Violations of these laws are punishable by criminal or civil sanctions, including substantial fines, imprisonment and exclusion
from participation in healthcare programs such as Medicare and Medicaid, and Veterans’ Administration health programs and health programs outside the
U.S. These laws and regulations are broad in scope and are subject to evolving interpretations, which could require us to alter one or more of our sales or
marketing practices. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on
our sales, profitability and financial condition. Furthermore, since many of our customers rely on reimbursement from Medicare, Medicaid and other
governmental programs to cover a substantial portion of their expenditures, if we or our customers are excluded from such programs as a result of a violation
of these laws, it could have an adverse effect on our results of operations and financial condition.
We have developed and implemented business practices and processes to train our personnel to perform their duties in compliance with healthcare
fraud and abuse laws and conduct informal oversight to detect and prevent these types of fraud and abuse. However, we lack formal written policies and
procedures at this time. If we are unable to formally document and implement the controls and procedures required in a timely manner or we are otherwise
found to be in violation of such laws, we might suffer adverse regulatory consequences or face criminal sanctions, which could harm our operations, financial
reporting or financial results.
We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.
The U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making
improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We intend to adopt policies for compliance with these anti-bribery
laws, which often carry substantial penalties.
We cannot assure you that our internal control policies and procedures always will protect us from reckless or other inappropriate acts committed by
our affiliates, employees or agents. Violations of these laws, or allegations of such violations, could have a material adverse effect on our business, financial
position and results of operations and could cause the market value of our common stock to decline.
We and our suppliers and customers are required to obtain regulatory approvals to comply with regulations applicable to medical devices and infusion
pumps, and these approvals could result in delays or increased costs in developing new products.
In December 2014, the FDA issued guidance entitled “Infusion Pumps Total Product Life Cycle.” This guidance established substantial additional
pre-market requirements for new and modified infusion pumps. Through this guidance, the FDA indicated more data demonstrating product safety will be
required for future 510(k) submissions for infusion pumps, including the potential for more clinical and human factors data. The process for obtaining
regulatory approvals to market infusion pumps and related accessories have become more costly and time consuming. The impact of this guidance is likely to
result in a more time consuming and costly process to obtain regulatory clearance to market infusion pumps. In addition, new requirements could result in
longer delays for the clearance of new products, modification of existing infusion pump products or remediation of existing products in the market. Future
delays in the receipt of, or failure to obtain, approvals could result in delayed or no realization of product revenues.
We and our suppliers and customers are required to maintain compliance with regulations applicable to medical devices and infusion pumps, and it could
be costly to comply with these regulations and to develop compliant products and processes. Failure to comply with these regulations could subject us to
sanctions and could adversely affect our business.
Even if we are able to obtain approval for introducing new products to the market, we and our suppliers may not be able to remain in compliance
with applicable FDA and other material regulatory requirements once clearance or approval has been obtained for a product. These requirements include,
among other things, regulations regarding manufacturing practices, product labeling, off-label marketing, advertising and post-marketing reporting, adverse
event reports and field alerts. Compliance with these FDA requirements is subject to continual review and is monitored through periodic inspections by the
FDA. For example, the FDA conducted routine inspections of our facility in Winter Springs, Florida in July 2016. The FDA issued a Form 483 on July 18,
2016 resulting from an inspection of our facility between July 11 and July 18, 2016 that identified three observations. These observations were related to
procedural and documentation issues associated with the CAPA system, vendor requirements and complaint investigation.
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We submitted responses to the Form 483 in August 2016 and October 2016 in which we described our proposed corrective and preventative actions
to address each of the observations. As part of our response, on October 13, 2016 we initiated a customer follow up to our August 2012 Safety Alert and made
available an updated instruction card for customers. This Safety Alert was closed in August 2019.
In addition, manufacturing flaws, component failures, design defects, off-label uses or inadequate disclosure of product related information could
result in an unsafe condition or the injury or death of a patient. All of these events could harm our sales, margins and profitability in the affected periods and
may have a material adverse effect on our business. Any adverse regulatory action or action taken by us to maintain appropriate regulatory compliance, with
respect to these laws and regulations could disrupt our business and have a material adverse effect on our sales, profitability and financial condition.
Furthermore, an adverse regulatory action with respect to any of our products or operating procedures or to our suppliers’ manufacturing facilities could
materially harm our reputation in the marketplace.
Our operations are subject to environmental laws and regulations, with which compliance is costly and which exposes us to penalties for non-compliance.
Our business, products, and product candidates are subject to federal, state, and local laws and regulations relating to the protection of the
environment, worker health and safety and the use, management, storage, and disposal of hazardous substances, waste, and other regulated materials. These
environmental laws and regulations could require us to pay for environmental remediation and response costs at third-party locations where we dispose of or
recycle hazardous substances. The costs of complying with these various environmental requirements, as they now exist or as may be altered in the future,
could adversely affect our financial condition and results of operations.
Risks Relating to our Intellectual Property
Our success depends on our ability to protect our intellectual property.
We intend to rely on a combination of patents, trademarks, trade secrets, know-how, license agreements and contractual provisions to establish and
protect our proprietary rights to our technologies and products. We cannot guarantee that the steps we have taken or will take to protect our intellectual
property rights will be adequate or that they will deter infringement, misappropriation or violation of our intellectual property. We may fail to secure patents
that are important to our business, and we cannot guarantee that any pending U.S. trademark or patent application, if ultimately issued, will provide us some
relative competitive advantage. Litigation may be necessary to enforce our intellectual property rights and to determine the validity and scope of our
proprietary rights.
Any litigation could result in substantial expenses and may not adequately protect our intellectual property rights. In addition, the laws of some of the
countries in which our products may in the future be sold may not protect our products and intellectual property to the same extent as U.S. laws, or at all. We
may be unable to protect our rights in trade secrets and unpatented proprietary technology in these countries. If our trade secrets become known, we may lose
our competitive advantages.
Even if we are able to secure necessary patents in the U.S., we may not be able to secure necessary patents and trademarks in foreign countries in
which we sell our products or plan to sell our products. In 2013, the U.S. transitioned to a “first inventor to file” system for patents in which, assuming the
other requirements for patentability are met, the first inventor to file a patent application is entitled to a patent. We may be subject to a third-party pre-issuance
submission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition, derivation, reexamination, inter parties review or
interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation
could reduce the scope of, or invalidate our patent rights, allow third parties to commercialize our technology or products and compete directly with us,
without payment to us, or result in our inability to manufacture or commercialize products without infringing third party patent rights.
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Our unpatented trade secrets, know-how, confidential and proprietary information, and technology may be inadequately protected.
We rely on unpatented trade secrets, know-how and technology. This intellectual property is difficult to protect, especially in the medical device
industry, where much of the information about a product must be submitted to regulatory authorities during the regulatory approval process. We seek to
protect trade secrets, confidential information and proprietary information, in part, by entering into confidentiality and invention assignment agreements with
employees, consultants, and others. These parties may breach or terminate these agreements, and we may not have adequate remedies for such breaches.
Furthermore, these agreements may not provide meaningful protection for our trade secrets or other confidential or proprietary information or result in the
effective assignment to us of intellectual property, and may not provide an adequate remedy in the event of unauthorized use or disclosure of confidential
information or other breaches of the agreements. Despite our efforts to protect our trade secrets and our other confidential and proprietary information, we or
our collaboration partners, board members, employees, consultants, contractors, or scientific and other advisors may unintentionally or willfully disclose our
proprietary information to competitors.
There is a risk that our trade secrets and other confidential and proprietary information could have been, or could, in the future, be shared by any of
our former employees with, and be used to the benefit of, any company that competes with us.
If we fail to maintain trade secret protection or fail to protect the confidentiality of our other confidential and proprietary information, our
competitive position may be adversely affected. Competitors may also independently discover our trade secrets. Enforcement of claims that a third party has
illegally obtained and is using trade secrets is expensive, time consuming and uncertain. If our competitors independently develop equivalent knowledge,
methods and know-how, we would not be able to effectively assert our trade secret protections against them, which could have a material adverse effect on
our business.
There can be no assurance of timely patent review and approval to minimize competition and generate sufficient revenues.
There can be no assurance that the Patent and Trademark Office will have sufficient resources to review our patent applications in a timely manner.
Consequently, even if our patent applications are ultimately successful, our patent applications may be delayed, which would prevent intellectual property
protection for our products. If we fail to successfully commercialize our products due to the lack of intellectual property protection, we may be unable to
generate sufficient revenues to meet or grow our business according to our expected goals and this may have a materially adverse effect on our profitability,
financial condition, and operations.
We may become involved in patent litigation or other intellectual property proceedings relating to our future product approvals, which could result in
liability for damages or delay or stop our development and commercialization efforts.
The medical device industry has been characterized by significant litigation and other proceedings regarding patents, patent applications, and other
intellectual property rights. The situations in which we may become parties to such litigation or proceedings may include any third parties (which may have
substantially greater resources than we have) initiating litigation claiming that our products infringe their patent or other intellectual property rights; in such
case, we will need to defend against such proceedings.
The large number of patents, the rapid rate of new patent applications and issuances, the complexities of the technologies involved and the
uncertainty of litigation significantly increase the risks related to any patent litigation. Any potential intellectual property litigation also could force us to do
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stop selling, making, or using products that use the disputed intellectual property;
obtain a license from the intellectual property owner to continue selling, making, licensing, or using products, which license may require
substantial royalty payments and may not be available on reasonable terms, or at all;
pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing;
pay the attorney fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing; or
redesign those products that contain the allegedly infringing intellectual property, which could be costly, disruptive and/or infeasible.
If any of the foregoing events occur, we may have to withdraw existing products from the market or may be unable to commercialize one or more of
our products, all of which could have a material adverse effect on our business, results of operations and financial condition. As the number of participants in
our industry grows, the possibility of intellectual property infringement claims against us increases.
Furthermore, the costs of resolving any patent litigation or other intellectual property proceeding, even if resolved in our favor, could be substantial.
Uncertainties resulting from the initiation and continuation of patent litigation or other intellectual property proceedings could have a material adverse effect
on our ability to compete in the marketplace. Patent litigation and other intellectual property proceedings may also consume significant management time.
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In the event that a competitor infringes upon our patent or other intellectual property rights, enforcing those rights may be costly, difficult, and time-
consuming. Even if successful, litigation to enforce our intellectual property rights or to defend our patents against challenge could be expensive and time-
consuming and could divert our management’s attention. We may not have sufficient resources to enforce our intellectual property rights or to defend our
patent or other intellectual property rights against a challenge. If we are unsuccessful in enforcing and protecting our intellectual property rights and protecting
our products, it could materially harm our business.
There may also be situations where we use our business judgment and decide to market and sell products, notwithstanding the fact that allegations of
patent infringement(s) have not been finally resolved by the courts (i.e., an “at-risk launch”). The risk involved in doing so can be substantial because the
remedies available to the owner of a patent for infringement may include, among other things, damages measured by the profits lost by the patent owner and
not necessarily by the profits earned by the infringer. In the case of a willful infringement, the definition of which is subjective, such damages may be
increased up to three times. An adverse decision could have a material adverse effect on our business, financial position and results of operations and could
cause the market value of our common stock to decline.
In addition, we may indemnify our customers and distributors with respect to infringement by our products of the proprietary rights of third parties.
Third parties may assert infringement claims against our customers or distributors. These claims may require us to initiate or defend protracted and costly
litigation on behalf of our customers or distributors, regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages
on behalf of our customers or distributors or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on
commercially reasonable terms, our customers may be forced to stop using our products.
We may be subject to claims that we, our board members, employees or consultants have used or disclosed alleged trade secrets or other proprietary
information belonging to third parties and any such individuals who are currently affiliated with one of our competitors may disclose our proprietary
technology or information.
As is commonplace in the medical device industry, some of our board members, employees and consultants are or have been associated with other
medical device companies that compete with us. For example, Mr. Susi and a number of our other employees are former employees of Invivo Corporation
and/or other medical device firms. While associated with such other companies, these individuals may have been exposed to research and technology similar
to the areas of research, technology, sales methodology, pricing models and other such matters in which we are engaged. We may become subject to future
claims that we, our employees, board members, or consultants have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary
information of those companies. Litigation may be necessary to defend against such claims.
We have entered into confidentiality agreements with our executives and key consultants. However, we do not have, and are not planning to enter
into, any confidentiality agreements with our non-executive directors because they have a fiduciary duty of confidentiality as directors.
There is the possibility that any of our former board members, employees, or consultants who are currently or who may be employed at, or associated
with, one of our competitors may unintentionally or willfully disclose our proprietary technology or information.
Risks Related to Ownership of Our Common Stock
Our common stock price has been and will likely continue to be subject to significant fluctuations and volatility, and you may be unable to sell your shares
at a fair price, or at all.
Our stock could be subject to wide fluctuations in price in response to various factors, including the following:
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(cid:120)
(cid:120)
(cid:120)
a lack of liquidity in the public trading of our common stock;
the commercial success or failure of our key products;
delayed or reduced orders from our customers;
manufacturing or supply interruptions;
30
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
changes or developments in laws or regulations applicable to our products and product candidates;
introduction of competitive products or technologies;
poorly executed acquisitions or acquisitions whose projected potential is not realized;
actual or anticipated variations in quarterly operating results;
failure to meet or exceed our own estimates and projections or the estimates and projections of securities analysts or investors;
new or revised earnings estimates or guidance by us or securities analysts or investors;
varying economic and market conditions in the U.S.;
negative developments impacting the medical device industry in general and changes in the market valuations of companies deemed similar
to us;
negative developments concerning our sources of manufacturing supply;
disputes or other developments relating to patents, trademarks or other proprietary rights;
litigation or investigations involving us, our industry, or both;
issuances of debt, equity or convertible securities at terms deemed unfavorable by the market;
major catastrophic events;
sales of large blocks of our stock;
changes in our Board of Directors, management or key personnel; or
the other factors described in this “Risk Factors” section.
Any one of the factors above, or the cumulative effect of some of the factors referred to above, may result in significant fluctuations in our quarterly
or annual operating results, fluctuations in our share price and investors’ perception of our business. If we fail to meet or exceed such expectations, our
business and stock price could be materially adversely affected.
Any use of capital to repurchase shares of our common stock could have a material adverse effect on our stock price and our business.
Our Board of Directors has historically authorized stock repurchase programs and, pursuant to these authoriations, we have used a significant amount
of cash to repurchase shares of common stock of our company. Historically, we have opportunistically repurchased additional shares of common stock from
time to time at prices that we believe are attractive. While our stock repurchase program has expired, should our Board of Directors authorize another stock
repurchase program, there can be no assurance that we will be able to repurchase shares on favorable terms or, if we do repurchase shares, that such
repurchases will increase shareholder value. Additionally, if we use a significant portion of our capital to repurchase shares, our financial flexibility will be
reduced, and we may not be able to execute on other strategic initiatives or tolerate periods of operating losses. If we repurchase shares on unfavorable terms
or if our use of capital to repurchase shares inhibits our ability to pursue other strategic initiatives or tolerate periods of operating losses, it could have a
material adverse effect on our stock price and our business.
We may need or choose to raise additional capital in the future, which could result in dilution to our stockholders and adversely affect stock price.
While we believe that our cash and investment balances and prospective cash flow from our operations will provide us with adequate capital to fund
operations for at least the next 12 months from the date of the issuance of the financial statements included herein, we may need or choose to raise additional
funds prior to that time. We may seek to sell additional equity or debt securities or to obtain a credit facility, which we may not be able to do on favorable
terms, or at all. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. If additional funds are raised
through the issuance of debt securities or preferred stock, these securities could have rights that are senior to holders of common stock and any debt securities
could contain covenants that would restrict our operations. The sale of such securities could hurt demand for our common stock and lead our share price to
decline.
31
Roger Susi, who serves as our Chairman of the Board of Directors and Chief Technology Officer, owns a significant percentage of our stock and will be
able to exert significant influence over matters subject to stockholder approval.
Mr. Susi, our founder, who serves as our Chairman of the Board of Directors, Chief Technology Officer, and his affiliates, beneficially owns a
significant percentage of our outstanding common stock. Mr. Susi may be able to significantly influence matters requiring approval by our stockholders,
including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. He may also have interests that differ from
yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of
delaying or deterring a change of control of our company.
We do not intend to pay dividends for the foreseeable future.
We do not anticipate that we will pay any cash dividends on shares of our common stock for the foreseeable future. Any determination to pay
dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, contractual
restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant. Investors seeking cash dividends should not
purchase our common stock.
Accordingly, if you purchase shares, realization of a gain on your investment will depend solely on the appreciation of the price of our common
stock, which may never occur.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive
management and qualified board members.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”), the
Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the Nasdaq Stock Market and other applicable securities rules and regulations. Pursuant
to Section 404 of the Sarbanes-Oxley Act, our independent registered public accounting firm is required to deliver an attestation report on the effectiveness of
our internal control over financial reporting. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some
activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that
we file annual, quarterly and current reports with respect to our business and operating results. As a result, management’s attention may be diverted from other
business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside
consultants to monitor and advise us regarding compliance, which will increase our costs and expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public
companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are
subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new
guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We are investing additional resources to comply with evolving laws, regulations and
standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-
generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by
regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and
our business may be adversely affected.
We believe that being a public company and compliant with these new rules and regulations has made it more expensive for us to obtain director and
officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also
make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our audit committee and compensation
committee, and qualified executive officers.
32
As a result of being a public company, we are obligated to establish and maintain adequate internal controls. Failure to develop and maintain adequate
internal controls or to implement new or improved controls could have a material adverse effect on our business, financial position and results of
operations and could cause the market value of our common stock to decline.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial
statements on a timely basis is a costly and time-consuming effort. Our internal controls over financial reporting are designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. During the evaluation and testing process,
if we identify one or more material weaknesses in our internal controls over financial reporting, we will be unable to assert that our internal controls are
effective.
We are required to disclose changes made in our internal controls and procedures on a quarterly basis. Our independent registered public accounting
firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our
remediation efforts may not enable us to avoid a material weakness in the future.
Our business practices have become more visible as a public company, and this could impact our competitive environment and our risk of potential
litigation.
As a result of disclosure of information in filings required of a public company, our business and financial condition have become more visible
potentially exposing us to new competition and threatened or actual litigation, including by competitors and other third parties. New competition could result
in reduced sales of our products and adversely impact our profitability. If lawsuits prevail against us, our business and operating results could be adversely
affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them,
could divert the resources of our management and adversely affect our business and operating results.
We may and have become involved in securities class action litigation that could divert management’s attention from our business and adversely affect
our business and could subject us to significant liabilities.
The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices of small
capitalization medical device companies. These broad market fluctuations as well a broad range of other factors, including the realization of any of the risks
described in this “Risk Factors” section, may cause the market price of our common stock to decline. In the past, securities class action litigation has often
been brought against a company following a decline in the market price of its securities. We have become, and may in the future, become involved in this type
of litigation. Litigation is expensive and could divert management’s attention and resources from our primary business, which could adversely affect our
operating results. Any adverse determination in any such litigation or any amounts paid to settle any such actual or threatened litigation could require us to
make significant payments. Such payment could have a material impact on how investors view our company and result in a decline in our stock price.
If securities or industry analysts fail to initiate research coverage of our stock, downgrade our stock, or discontinue coverage, our trading volume might
be reduced and our stock price could decline.
The trading market for our common stock depends, in part, on the research reports that securities or industry analysts publish about our business. If
securities or industry analysts do not commence or continue coverage of our company, the trading market for our stock may not be robust and the price of our
stock could likely be negatively impacted. In the event securities or industry analysts initiate coverage, and later downgrade our stock or discontinue such
coverage, our stock price could decline.
Our charter documents and Delaware law have provisions that may discourage an acquisition of us by others and may prevent attempts by our
stockholders to replace or remove our current management.
Provisions in our charter documents, as well as provisions of the Delaware General Corporation Law (“DGCL”), could depress the trading price of
our common stock by making it more difficult for a third party to acquire us at a price favorable to our shareholders. These provisions include:
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(cid:120)
authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without
stockholder approval to defend against a takeover attempt; and
establishing advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted
upon at stockholder meetings.
33
In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it
more difficult for stockholders to replace members of our Board of Directors. We are subject to Section 203 of the DGCL, which generally prohibits a
Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the
date on which the stockholder became an interested stockholder, unless such transactions are approved by our Board of Directors. This provision could have
the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders, which could also affect the price that
some investors are willing to pay for our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal offices are currently located in a leased facility of approximately 23,100 square feet located in Winter Springs, Florida. This facility has
been leased from an entity controlled by our founder, Chief Technology Officer and Chairman of the Board of Directors, Roger Susi. Pursuant to the terms of
our lease, the current monthly base rent is $34,133, adjusted annually for changes in the consumer price index. 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.
We do not own any real property.
ITEM 3. LEGAL PROCEEDINGS
From time to time we are involved in legal proceedings arising in the ordinary course of business. We believe that adequate reserves for these
liabilities have been made and that there is no litigation pending that could have a material adverse effect on our results of operations and financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
34
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market for Common Stock
Our common stock has been publicly traded on the Nasdaq Capital Market under the stock symbol “IRMD” since July 16, 2014. Prior to that date,
there was no public market for our common stock. The following table summarizes, for the periods indicated, the high and low sale price per share of our
common stock as reported by the Nasdaq:
Year ended December 31, 2019
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year ended December 31, 2018
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$
$
26.48 $
25.56
29.80
28.95
38.78 $
37.50
20.75
15.85
20.67
16.68
19.20
22.52
19.88
20.00
14.00
12.51
The stock market in general has experienced significant stock price fluctuations in the past few years. In some cases, these fluctuations have been
unrelated to the operating performance of the affected companies. Therefore, many companies have experienced dramatic volatility in the market prices of
their common stock. We believe that a number of factors, both within and outside our control, could cause the price of our common stock to fluctuate, perhaps
substantially. Factors such as the following could have a significant adverse impact on the market price of our common stock:
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(cid:120)
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(cid:120)
(cid:120)
Our financial position and results of operations;
Our ability to obtain additional financing and, if available, the terms and conditions of the financing;
Concern as to, or other evidence of, the reliability and efficiency of our proposed products or our competitors’ products;
Announcements of innovations or new products by us or our competitors;
Federal, state, and international governmental regulatory actions and the impact of such requirements on our business;
The development of litigation against us;
Period-to-period fluctuations in our operating results;
Changes in estimates of our performance by any securities analysts;
The issuance of new equity securities pursuant to a future offering or acquisition;
Poorly executed acquisitions or acquisitions whose projected potential is not realized;
Changes in interest rates;
Competitive developments, including announcements by competitors of new products or significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
Sales of large blocks of our stock;
Investor perceptions of our company; and
General economic and other national and international conditions.
35
Stockholders
As of February 28, 2020, we had 4 stockholders of record. This number is significantly less than and does not include “street name” or beneficial
holders, whose shares are held by banks, brokers, financial institutions and other nominees.
Dividends
We do not expect to declare or pay any cash dividends on our common stock in the foreseeable future, and we currently intend to retain future
earnings, if any, to finance the expansion of our business. The decision whether to pay cash dividends on our common stock will be made by our board of
directors, at its discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors
considers significant.
We have never declared or paid cash dividends on our capital stock.
Unregistered Sales of Securities; Use of Proceeds from Registered Securities
None.
Purchases of Equity Securities by the Issuer
In April 2017, the Board of Directors authorized a stock repurchase program of up to $8 million of the Company’s common stock pursuant to a stock
repurchase program. This program was publicly announced on April 28, 2017 and expired on April 28, 2018. During the program period, we expended $1.8
million for such repurchases.
The following table provides information regarding repurchases of common stock for the year ended December 31, 2019.
January 1, 2019—January 31, 2019
February 1, 2019—February 28, 2019
March 1, 2019—March 31, 2019
April 1, 2019—April 30, 2019
May 1, 2019—May 31, 2019
June 1, 2019—June 30, 2019
July 1, 2019—July 31, 2019
August 1, 2019—August 31, 2019
September 1, 2019—September 30, 2019
October 1, 2019—October 31, 2019
November 1, 2019—November 30, 2019
December 1, 2019—December 31, 2019
Total
Total
Number of
Shares
Purchased
(1)
Average Price
Paid per Share
(2)
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Dollar Value of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
878 $
— $
— $
3,959 $
89 $
385 $
39 $
— $
20 $
187 $
24 $
13,528 $
19,109 $
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) The number of shares purchased reflects shares withheld for taxes on vesting of restricted stock. There were no shares repurchased pursuant to
the open market repurchase authorization.
(2) The average price paid per share does not include the withheld shares discussed in (1).
Transfer Agent
The transfer agent and registrar for our common stock is EQ by Equiniti, which acquired our former transfer agent, Corporate Stock Transfer, Inc., in
November 2019.
36
Equity Compensation Plan Information
Our equity compensation plan information is provided as set forth in Part III, Item 11 herein.
Additional Information
Copies of our annual reports, quarterly reports, current reports, and any amendments to those reports, are available free of charge on the Internet at
www.sec.gov. All statements made in any of our filings, including all forward-looking statements, are made as of the date of the document, in which the
statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by
law.
Stock Performance Graph
The following information of Part II Item 5 is being furnished and shall not be deemed to be “soliciting material” or to be “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor will it be deemed incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we
specifically incorporate such information by reference thereto.
The following graph shows a comparison, from December 31, 2014 through December 31, 2019, of cumulative total return for our common stock,
the Russell 2000 Index and the Nasdaq Medical Equipment Index. Such returns are based on historical results and are not intended to suggest future
performance. Data for the Russell 2000 Index and the Nasdaq Medical Equipment Index assumes reinvestment of dividends.
37
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth certain selected financial data for each of the years in the five-year period ended December 31, 2019, and is derived
from the audited Financial Statements of IRADIMED CORPORATION. The statements of operations data for each of the years in the three-year period ended
December 31, 2019 are included elsewhere in this report. The statements of operations data for the years ended December 31, 2016 and 2015 and balance
sheet data as of December 31, 2017, 2016 and 2015 are derived from our audited financial statements not included in this report. The selected financial data
set forth below is qualified in its entirety by, and should be read in conjunction with, the Financial Statements and Notes thereto and “Management’s
Discussion and Analysis and Results of Operations” included elsewhere in this report.
Statements of Operations Data:
Revenue
Cost of revenue
Gross profit
Operating expenses:
General and administrative
Sales and marketing
Research and development
Total operating expenses
Income from operations
Other income, net
Income before provision for income taxes
Provision for income tax (benefit) expense
Net income
Net income per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
Balance Sheets Data:
Cash and cash equivalents
Investments
Working capital
Total assets
Total stockholders’ equity
$
$
$
$
$
2019
Years ended December 31,
2017
2016
2018
$
38,517,141
8,816,161
29,700,980
$
30,438,983
7,211,633
23,227,350
$
23,081,592
5,569,896
17,511,696
$
32,496,548
6,154,836
26,341,712
10,451,266
9,169,590
1,432,719
21,053,575
8,647,405
395,912
9,043,317
(587,642)
9,630,959
0.85
0.78
11,282,214
12,276,444
2019
43,481,781
2,768,287
53,104,709
66,728,864
55,524,395
$
$
$
$
8,710,882
6,995,586
1,517,112
17,223,580
6,003,770
193,537
6,197,307
(106,143)
6,303,450
0.59
0.52
$
$
$
9,001,164
5,502,959
1,722,564
16,226,687
1,285,009
111,377
1,396,386
896,622
499,764
0.05
0.04
10,758,752
12,110,117
10,638,858
11,720,316
2018
28,027,688
6,349,915
39,852,197
48,442,258
41,945,733
As of December 31,
2017
$
18,205,976
8,135,123
31,029,638
39,012,534
32,930,877
$
$
$
$
8,795,703
5,278,448
1,347,507
15,421,658
10,920,054
32,680
10,952,734
3,738,189
7,214,545
0.67
0.60
10,818,427
11,989,681
2016
17,713,871
7,965,521
30,194,520
37,194,484
31,889,125
$
$
$
$
2015
31,593,720
5,840,407
25,753,313
7,769,881
4,705,977
1,764,306
14,240,164
11,513,149
121,385
11,634,534
4,104,614
7,529,920
0.68
0.60
11,003,272
12,556,887
2015
19,368,114
7,602,204
30,913,633
35,244,207
31,933,025
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion and analysis together with our audited financial statements, the notes to such statements and the other financial
information included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors,
such as those set forth under the section entitled “Risk Factors” and elsewhere in this Form 10-K, our actual results may differ materially from those
anticipated in these forward-looking statements. See “CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS” for a discussion
of the uncertainties, risks and assumptions associated with these statements.
Our Business
We develop, manufacture, market and distribute Magnetic Resonance Imaging (“MRI”) compatible medical devices and accessories and services
relating to them.
38
We are a leader in the development of innovative magnetic resonance imaging (“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 United States and internationally. As of December 31, 2019, our direct U.S. sales force consisted of 29 field
sales representatives, 4 regional sales directors and supplemented by 6 clinical support representatives. Internationally, we have distribution agreements with
independent distributors selling our products.
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 MRidium MRI compatible IV infusion pump system 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.
U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (“2017 Act”) was enacted. The 2017 Act represents major tax reform that, among other
provisions, reduced the U.S. corporate tax rate. Certain income tax effects of the 2017 Act, including $0.5 million of tax expense recorded principally due to
the remeasurement of our net deferred tax assets as of December 31, 2017, are reflected in our Financial Statements in accordance with Staff Accounting
Bulletin No. 118 (“SAB 118”), which provides SEC staff guidance regarding the application of Accounting Standards Codification (“ASC”) Topic
740, Income Taxes, in the reporting period in which the 2017 Act became law. See Note 11 to the Financial Statements for further information on the financial
impact of the 2017 Act.
Financial Highlights and Outlook
Our revenue was $38.5 million in 2019, $30.4 million in 2018 and $23.1 million in 2017. Our diluted earnings per share was $0.78 in 2019, $0.52 in
2018 and $0.04 in 2017. Our cash provided by operations was $10.2 million in 2019, $7.4 million in 2018 and $3.4 million in 2017.
Our estimated installed base of medical devices is as follows:
IV Infusion Pump Systems
Patient Vital Signs Monitoring Systems
39
Years Ended December 31,
2018
2017
2019
5,515
539
5,000
261
4,500
75
In 2020, we expect our revenues to increase due to higher sales of our medical devices and related accessories, disposables and services through the
continued execution of our critical care strategy and headcount growth of our sales team.
We intend to continue targeting an increased number of hospitals and acute care facilities that have yet to adopt our technology and furthering our
penetration into the Intensive Care Unit, Emergency Room and other critical care locations within hospitals where there is a high probability that
interventional radiology procedures will need to be performed on patients. We expect operating expenses to increase in 2020 due to growth in headcount and
higher sales commission costs due to anticipated higher sales.
Application of Critical Accounting Policies
We prepare our financial statements in conformity with U.S. 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.
Our significant accounting policies are more fully described in Note 1 to the Financial Statements. However, we believe that the following critical
accounting policies require the use of significant estimates, assumptions and judgments. 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.
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 most domestic sales, we enter into agreements with healthcare supply contracting companies, commonly referred to as Group Purchasing
Organizations (“GPOs”), which 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 time of GPO contract execution.
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 MRI compatible IV infusion pump systems and related disposables and services are contractually fixed over
the GPO 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.
40
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.
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
Most of our sales are 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.
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.
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.
The estimates we use in projecting future product demand may prove to be incorrect. Any future determination that our inventory is overvalued could
result in increases to our cost of sales and decreases to our operating margins and results of operations.
Warranty
We provide 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.
41
Stock-based Compensation
We apply the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 718,
Compensation — Stock Compensation (“ASC 718”). Determining the amount of stock-based compensation to be recorded for stock options that we grant
requires us to develop estimates of the fair value as of the grant date. Calculating the fair value of stock option awards requires that we make highly subjective
assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make
assumptions as to the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the
expected term of our stock options and our expected dividend yield. As we completed our IPO in July 2014, we utilize the historical stock price volatility from
a representative group of public companies, which includes the Company, to estimate expected stock price volatility. We selected companies from the medical
device industry with market capitalizations that are similar to ours. We intend to continue to utilize the historical volatility of the same or similar public
companies to estimate expected volatility until a sufficient amount of historical information regarding the price of our publicly traded stock becomes available.
We use the simplified method as prescribed by ASC 718 to calculate the expected term of stock options granted to employees as we do not have sufficient
historical exercise data to provide a reasonable basis upon which to estimate the expected term of our stock option awards. The risk-free interest rate used for
each grant is based on the U.S. Treasury yield curve in effect at the time of the grant for instruments with a similar expected life. We utilize a dividend yield
of zero as we have no current intention to pay cash dividends. We elect to recognize forfeitures as they occur.
As stock-based compensation is an important part of our employee compensation reward strategy, we expect the future impact of stock-based
compensation expense on our financial results to grow due to additional stock grants and increased headcount.
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 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.
On December 22, 2017, the Tax Cuts and Jobs Act (“2017 Act”) was enacted. As a result of the 2017 Act, we were required to revalue our deferred
tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates on these deferred amounts. The reduction in the federal
corporate tax rate increased our income tax expense for the year ended December 31, 2017. See Note 11 for further information on the financial impact of the
2017 Act.
42
Results of Operations
The following table sets forth for the periods indicated selected statements of operations data as a percentage of total revenue. Our historical
operating results are not necessarily indicative of the results for any future period.
Revenue
Cost of revenue
Gross profit
Operating expenses:
General and administrative
Sales and marketing
Research and development
Total operating expenses
Income from operations
Other income, net
Income before provision for income taxes
Provision for income tax (benefit) expense
Net income
Comparison of the Years Ended December 31, 2019 and 2018
Revenue by Geographic Region
(In millions, except percent change)
United States
International
Total revenue
Revenue by Type
(In millions, except percent change)
Devices:
MRI compatible IV infusion pump system
MRI compatible patient vital signs monitoring system
Total Devices revenue
Disposables, services and other
Amortization of extended warranty agreements
Total revenue
Percent of Revenue
Years Ended December 31,
2018
2019
2017
100.0%
22.9
77.1
27.1
23.8
3.7
54.7
22.5
1.0
23.5
(1.5)
25.0%
100.0%
23.7
76.3
28.6
23.0
5.0
56.6
19.7
0.6
20.4
(0.3)
20.7%
100.0%
24.1
75.9
39.0
23.8
7.5
70.3
5.6
0.5
6.0
3.9
2.2%
Years Ended December 31,
2018
Change
2019
30.9 $
7.6
38.5 $
24.5
5.9
30.4
26.2%
27.9%
26.5%
Years Ended December 31,
2018
Change
2019
18.1 $
9.7
27.8
8.9
1.8
38.5 $
14.5
6.7
21.2
7.7
1.5
30.4
24.2%
45.9%
31.0%
15.3%
21.3%
26.5%
$
$
$
$
Revenue increased $8.1 million, or 26.5 percent, to $38.5 million from $30.4 million for the same period in 2018. This increase is primarily due to an
increase in the number of our MRI compatible medical devices that we recognized in revenue, higher revenue from our disposables, services and other, and a
higher average selling price for our infusion pump system.
During the year ended December 31, 2019, we recognized revenue on 519 MRI compatible IV infusion pumps compared to 451 pumps in 2018. The
average selling price for our MRI compatible IV infusion pump systems recognized in revenue during the year ended December 31, 2019 was approximately
$34,800, compared to $32,200 for the same period in 2018. The increase in average selling price is the result of higher domestic unit sales and a favorable
product sales mix during 2019 when compared to 2018.
We recognized revenue on 278 MRI compatible patient vital signs monitoring systems during the year ended December 31, 2019, compared to 186
systems for the same period in 2018. The average selling price for our MRI compatible patient vital signs monitoring systems recognized in revenue was
approximately $34,700 during the year ended December 31, 2019, compared to $35,100 for the same period in 2018. The decrease in average selling price is
due to higher international unit sales in 2019 when compared to 2018.
43
Revenue from sales in the U.S. increased $6.4 million, or 26.2 percent, to $30.9 million from $24.5 million for the same period in 2018. Revenue
from sales internationally increased $1.7 million, or 27.9 percent, to $7.6 million from $5.9 million for the same period in 2018. Domestic sales accounted for
80.3 percent of total revenue for the year ended December 31, 2019, compared to 80.5 percent for the same period in 2018.
Revenue from sales of devices increased $6.6 million, or 31.0 percent, to $27.8 million from $21.2 million for the same period in 2018. Revenue
from sales of our disposables, services and other increased $1.2 million, or 15.3 percent, to $8.9 million from $7.7 million for the same period in 2018.
Revenue from the amortization of our extended maintenance contracts increased $0.3 million, or 21.3 percent, to $1.8 million from $1.5 million for the same
period in 2018.
Cost of Revenue and Gross Profit
(In millions, except gross profit percentage)
Revenue
Cost of revenue
Gross profit
Gross profit percentage
Years Ended December 31,
2019
2018
$
$
$
$
38.5
8.8
29.7
77.1%
30.4
7.2
23.2
76.3%
Cost of revenue increased approximately $1.6 million, or 22.2 percent, to $8.8 million for the year ended December 31, 2019, from $7.2 million for
the same period in 2018. Gross profit increased approximately $6.5 million, or 27.9 percent, to $29.7 million for the year ended December 31, 2019 from
$23.2 million for the same period in 2018. The increase in cost of revenue and gross profit is due to higher sales during the year ended December 31, 2019,
compared to the same period in 2018. Gross profit margin was 77.1 percent and 76.3 percent for the years ended December 31, 2019 and 2018, respectively.
The increase in gross profit margin is the result of favorable overhead variance adjustments, partially offset by unfavorable pricing adjustments in 2019
compared to 2018.
Operating Expenses
(In millions, except percentage of revenue)
General and administrative
Percentage of revenue
Sales and marketing
Percentage of revenue
Research and development
Percentage of revenue
General and Administrative
Years Ended December 31,
2019
2018
$
$
$
10.5
27.1%
9.2
23.8%
1.4
3.7%
$
$
$
8.7
28.6%
7.0
23.0%
1.5
5.0%
General and administrative expense increased approximately $1.8 million, or 20.0 percent, to $10.5 million for the year ended December 31, 2019,
from $8.7 million for the same period last year. This increase is primarily due to higher expenses for payroll and benefits, legal and professional costs,
employee relocation and recruiting costs, regulatory approval and certification costs, GPO administrative fees due to higher sales and stock compensation
expense.
Sales and Marketing
Sales and marketing expense increased approximately $2.2 million, or 31.1 percent, to $9.2 million for the year ended December 31, 2019, from
$7.0 million for the same period in 2018. This is primarily the result of higher salary and commissions expenses resulting from the increased size of our sales
team and higher sales during 2019 when compared to 2018.
Research and Development
Research and development expense decreased approximately $(0.1) million, or (5.6) percent, to $1.4 million for the year ended December 31, 2019,
from $1.5 million for the same period in 2018. This is primarily due to lower expenses for payroll and stock compensation expense.
44
Other Income, Net
Other income, net consists of interest income, foreign currency transactional gains and losses, and other miscellaneous income. We reported other
income of approximately $0.4 million and $0.2 for the years ended December 31, 2019 and 2018, respectively. This increase is primarily the result of higher
interest income and gains on maturities of investments during the year ended December 31, 2019 compared to the same period in 2018.
Income Taxes
We recorded a provision for income tax benefit of approximately $(0.6) million and $(0.1) million for the years ended December 31, 2019 and 2018,
respectively. Our effective tax rate for the year ended December 31, 2019 was (6.5) percent compared to (1.7) percent for the same period in 2018. The
decrease in our provision for income taxes and effective tax rate is primarily the result of discrete items related to tax benefits associated with the exercise and
sale of employee options and vesting of restricted stock units.
Comparison of the Years Ended December 31, 2018 and 2017
Revenue by Geographic Region
(In millions, except percent change)
United States
International
Total revenue
Revenue by Type
(In millions, except percent change)
Devices:
MRI compatible IV infusion pump system
MRI compatible patient vital signs monitoring systems
Total Devices revenue
Disposables, services and other
Amortization of extended warranty agreements
Total revenue
Years Ended December 31,
2017
Change
2018
24.5 $
5.9
30.4 $
19.5
3.6
23.1
25.7%
65.6%
31.9%
Years Ended December 31,
2017
Change
2018
14.5 $
6.7
21.2
7.7
1.5
30.4 $
13.6
1.9
15.5
6.6
1.0
23.1
6.7%
260.0%
37.0%
16.9%
52.2%
31.9%
$
$
$
$
Revenue increased $7.3 million, or 31.9 percent, to $30.4 million from $23.1 million for the same period in 2017. This increase is primarily due to an
increase in the number of our MRI compatible medical devices that we recognized in revenue and higher revenue from our disposables, services and other.
The increase was partially offset by a lower average selling price for our infusion pump system resulting from higher international sales as a percent of total
sales in 2018 compared to 2017.
During the year ended December 31, 2018, we recognized revenue on 451 MRI compatible IV infusion pumps compared to 392 pumps in 2017. The
average selling price for our MRI compatible IV infusion pump systems recognized in revenue during the year ended December 31, 2018 was approximately
$32,200, compared to $34,700 for the same period in 2017. The decrease in average selling price is the result of higher international unit sales and an
unfavorable product sales mix during 2018 when compared to 2017.
We recognized revenue on 186 MRI compatible patient vital signs monitoring systems during the year ended December 31, 2018, compared to 70
systems for the same period in 2017. The average selling price for our MRI compatible patient vital signs monitoring systems recognized in revenue was
approximately $35,100 during the year ended December 31, 2018, compared to $25,200 for the same period in 2017. The increase in average selling price is
due to higher domestic unit sales in 2018 when compared to 2017.
Revenue from sales in the U.S. increased $5.0 million, or 25.7 percent, to $24.5 million from $19.5 million for the same period in 2017. Revenue
from sales internationally increased $2.3 million, or 65.6 percent, to $5.9 million from $3.6 million for the same period in 2017. Domestic sales accounted for
80.5 percent of total revenue for the year ended December 31, 2018, compared to 84.5 percent for the same period in 2017.
45
Revenue from sales of devices increased $5.7 million, or 37.0 percent, to $21.2 million from $15.5 million for the same period in 2017. Revenue
from sales of our disposables, services and other increased $1.1 million, or 16.9 percent, to $7.7 million from $6.6 million for the same period in 2017.
Revenue from the amortization of our extended maintenance contracts increased $0.5 million, or 52.2 percent, to $1.5 million from $1.0 million for the same
period in 2017.
Cost of Revenue and Gross Profit
(In millions, except gross profit percentage)
Revenue
Cost of revenue
Gross profit
Gross profit percentage
Years Ended December 31,
2018
2017
$
$
$
$
30.4
7.2
23.2
76.3%
23.1
5.6
17.5
75.9%
Cost of revenue increased approximately $1.6 million, or 29.5 percent, to $7.2 million for the year ended December 31, 2018, from $5.6 million for
the same period in 2017. Gross profit increased approximately $5.7 million, or 32.6 percent, to $23.2 million for the year ended December 31, 2018 from
$17.5 million for the same period in 2017. The increase in cost of revenue and gross profit is due to higher sales during the year ended December 31, 2018,
compared to the same period in 2017. Gross profit margin was 76.3 percent and 75.9 percent for the years ended December 31, 2018 and 2017, respectively.
The increase in gross profit margin is the result of favorable overhead variance adjustments and higher domestic revenue as a percent of total revenue in 2018
compared to 2017.
Operating Expenses
(In millions, except percentage of revenue)
General and administrative
Percentage of revenue
Sales and marketing
Percentage of revenue
Research and development
Percentage of revenue
General and Administrative
Years Ended December 31,
2018
2017
$
$
$
8.7
28.6%
7.0
23.0%
1.5
5.0%
$
$
$
9.0
39.0%
5.5
23.8%
1.7
7.5%
General and administrative expense decreased approximately $(0.3) million, or (3.2) percent, to $8.7 million for the year ended December 31, 2018,
from $9.0 million for the same period last year. This decrease is primarily due to lower stock compensation expense primarily related to a one-time charge for
the modification of the underwriters’ warrants recognized in 2017, the write-off of non-trade accounts receivable during 2017 and lower consulting expenses
during 2018, partially offset by higher expenses for payroll and benefits, computer software and supplies, legal and professional expenses.
Sales and Marketing
Sales and marketing expense increased approximately $1.5 million, or 27.1 percent, to $7.0 million for the year ended December 31, 2018, from
$5.5 million for the same period in 2017. This is primarily the result of higher salary and commissions expenses resulting from the increased size of our sales
team and higher sales during 2018 when compared to 2017, partially offset by lower stock compensation expense.
Research and Development
Research and development expense decreased approximately $(0.2) million, or (11.9) percent, to $1.5 million for the year ended December 31, 2018,
from $1.7 million for the same period in 2017. This is primarily due to lower expenses for consulting and outside engineering services, partially offset by
higher payroll and stock compensation expense.
Other Income, Net
Other income, net consists of interest income, foreign currency transactional gains and losses, and other miscellaneous income. We reported other
income of approximately $0.2 million and $0.1 million for the years ended December 31, 2018 and 2017, respectively. This increase is primarily the result of
higher interest income, partially offset by higher losses on maturities of investments during the year ended December 31, 2018 compared to the same period in
2017.
46
Income Taxes
We recorded a provision for income tax benefit of approximately $(0.1) million for the year ended December 31, 2018. For the year ended
December 31, 2017, we recorded a provision for income tax expense of approximately $0.9 million. Our effective tax rate for the year ended December 31,
2018 was (1.7) percent compared to 64.2 percent for the same period in 2017. The decrease in our provision for income taxes and effective tax rate is
primarily the result of discrete items related to tax benefits associated with the exercise and sale of employee options and underwriters’ warrants during 2018
and $0.5 million of tax expense recorded during the year ended December 31, 2017 due to a one-time remeasurement of net deferred tax assets resulting from
the 2017 Act, enacted on December 22, 2017. See Note 11 to the Financial Statements for further information on the financial statement impact of the 2017
Act.
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 December 31, 2019, we had cash and cash equivalents and investments of $46.3 million, stockholders’ equity of $55.5 million, and working
capital of $53.1 million compared to cash and cash equivalents and investments of $34.4 million, stockholders’ equity of $41.9 million, and working capital of
$39.9 million as of December 31, 2018.
(In millions)
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Comparison of the Years Ended December 31, 2019, 2018 and 2017
Operating Activities
For the Years Ended December 31,
2018
2019
2017
$
$
$
10.2
3.2
2.0
$
$
$
7.4
1.5
0.9
$
$
$
3.4
(1.0)
(1.9)
For the year ended December 31, 2019, cash provided by operations increased $2.8 million to $10.2 million, from $7.4 million in 2018. During 2019,
cash provided by operations was positively impacted by higher net income, deferred revenue, other accrued taxes and accounts payable, partially offset by
negative impacts from accounts receivable and other assets.
For the year ended December 31, 2018, cash provided by operations increased $4.0 million to $7.4 million, from $3.4 million in 2017. During 2018,
cash provided by operations was positively impacted by higher net income, prepaid expenses and other current assets, and accounts payable, partially offset by
negative impacts from prepaid income taxes and deferred revenue.
Investing Activities
For the year ended December 31, 2019, cash provided by investing activities increased $1.7 million to $3.2 million, from $1.5 million in 2018.
During 2019, cash provided by investing activities was positively impacted by maturities of investments, partially offset by negative impacts from purchases
of property and equipment, and capitalized intangible assets.
For the year ended December 31, 2018, cash provided by investing activities increased $2.5 million to $1.5 million, from cash used in investing
activities of $(1.0) million in 2017. During 2018, cash provided by investing activities was positively impacted by maturities of investments, partially offset by
negative impacts from purchases of securities, purchases of property and equipment, and capitalized intangible assets.
Financing Activities
For the year ended December 31, 2019, cash provided by financing activities increased $1.1 million to $2.0, from $0.9 million in 2018. During 2019,
cash provided by financing activities was positively impacted by proceeds from the exercise of stock options and warrants, partially offset by taxes paid for
the net share settlement of restricted stock units.
47
For the year ended December 31, 2018, cash provided by financing activities increased $2.8 million to $0.9, from cash used in financing activities of
$(1.9) million in 2017. During 2018, cash provided by financing activities was positively impacted by proceeds from the exercise of stock options and
warrants, partially offset by taxes paid for the net share settlement of restricted stock units.
Sales to end users in the United States are generally made on open credit terms. Management maintains an allowance for potential credit losses.
Our manufacturing operations and headquarters facility is approximately 23,100 square feet located in Winter Springs, Florida. This facility has been
leased from Susi, LLC, an entity controlled by our Chief Technology Officer and Chairman, 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.
We believe our sources of liquidity, including cash flow from operations, existing cash, investments, and available financing sources will be
sufficient to meet our projected cash requirements for at least the next 12 months from the date the financial statements are issued. Any equity financing may
be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants that increase our costs. We monitor our capital requirements to
ensure our needs are in line with available capital resources. From time to time, we may explore additional financing sources to meet our working capital
requirements, make continued investment in research and development, expand our business and acquire products or businesses that complement our current
business. These actions would likely affect our future capital requirements and the adequacy of our available funds. Our future liquidity and capital
requirements will depend on numerous factors, including the:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Amount and timing of revenue and expenses;
Extent to which our existing and new products gain market acceptance;
Extent to which we make acquisitions;
Cost and timing of product development efforts and the success of these development efforts;
Cost and timing of selling and marketing activities; and
Availability of borrowings or other means of financing.
Contractual Obligations
In the normal course of business, we enter into obligations and commitments that require future contractual payments. The commitments result
primarily from purchase orders with vendors that supply components used in our medical devices and related disposables and commitments for our building
and office equipment leases. The following table summarizes our contractual obligations and commercial commitments as of December 31, 2019:
Unconditional purchase obligations
Operating lease obligations
Total
Total
3,208,174
3,857,029
7,065,203
$
$
$
$
Less than
1 Year
Payments due by Period
1-3 Years
3-5 Years
More than
5 Years
3,189,242
409,596
3,598,838
$
$
18,932
819,192
838,124
$
$
— $
819,192
819,192
$
—
1,809,049
1,809,049
Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding. Included in the purchase
obligations category above are obligations related to purchase orders for inventory purchases under our standard terms and conditions and under negotiated
agreements with vendors. We expect to receive consideration (products or services) for these purchase obligations. The purchase obligation amounts do not
represent all anticipated purchases in the future, but represent only those items for which we are contractually obligated. The table above does not include
obligations under employment agreements for services rendered in the ordinary course of business.
Off-Balance Sheet Arrangements
During the periods presented, we did not have and we do not currently have any off-balance sheet arrangements, as defined under SEC rules.
48
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop our products in the U.S. and sell those products into more than 50 countries throughout the world. We also purchase certain components
for our products from foreign vendors. Most of our sale and purchase transactions are denominated in the U.S. Dollar. As a result, our financial results could
be affected by factors such as foreign currency exchange rates relative to the U.S. Dollar or weak economic conditions in foreign markets. In addition, changes
in exchange rates may also affect the end-user prices of our products compared to those of our competitors, who may be selling their products in local
currencies, making our products less competitive in some countries.
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenue and cost of revenue 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 as a result of transaction gains and 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 year ended December 31, 2019.
Interest Rate Risk
When able, we invest excess cash in bank money-market funds, corporate debt securities or discrete short-term investments. Our interest income is
sensitive to changes in the general level of interest rates in the U.S. If market interest rates were to change by 100 basis points from levels at December 31,
2019, we expect a corresponding change of approximately $335,000 in interest income earned on our excess cash held in interest bearing accounts.
The fair value of our corporate bonds held as 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 December 31, 2019, our corporate bonds consisted of the following:
Corporate bonds:
U.S. corporations
International corporations
Total
Fair Value
2020
Expected Maturity Dates
2021
2022
$
$
2,287,809
480,478
2,768,287
$
$
— $
480,478
480,478
$
1,788,169
—
1,788,169
$
$
499,640
—
499,640
Our 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 December 31, 2019, we expect the corresponding change in fair value of our investments would be approximately $40,000. This is based on
sensitivity analyses performed on our financial position as of December 31, 2019. 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data required by this Item 8 are incorporated by reference to information beginning on Page F-1 of this
Form 10-K.
Selected Quarterly Financial Data (Unaudited)
The following tables present our operating results for each of the eight quarters in the period ending December 31, 2019. The information for each of
these quarters is unaudited and has been prepared on the same basis as our audited financial statements appearing elsewhere in this report.
In the opinion of our management, all necessary adjustments, including normal recurring adjustments, have been included to present fairly the
unaudited quarterly results when read in conjunction with our audited Financial Statements and the related notes appearing elsewhere in this report. These
operating results are not necessarily indicative of the results of any future period.
49
Revenue
Cost of revenue
Gross profit
Operating expenses:
General and administrative
Sales and marketing
Research and development
Total operating expenses
Income from operations
Other income, net
Income before provision for income taxes
Provision for income tax (benefit) expense
Net income
Net income per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
Revenue
Cost of revenue
Gross profit
Operating expenses:
General and administrative
Sales and marketing
Research and development
Total operating expenses
Income from operations
Other income, net
Income before provision for income taxes
Provision for income tax expense (benefit)
Net income
Net income per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
$
December
31, 2019
10,890,653
2,741,838
8,148,815
Quarters Ended
September
30, 2019
June
30, 2019
March
31, 2019
$
$
9,963,299
2,168,208
7,795,091
$
9,225,596
1,858,288
7,367,308
8,437,593
2,047,827
6,389,766
2,968,476
2,562,113
379,310
5,909,899
2,238,916
115,249
2,354,165
(887,518)
3,241,683
0.28
0.26
11,559,526
12,345,968
December
31, 2018
8,339,392
1,982,492
6,356,900
2,147,155
2,049,188
367,715
4,564,058
1,792,842
83,072
1,875,914
168,901
1,707,013
0.16
0.14
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,609,722
2,297,002
369,526
5,276,250
2,518,841
110,064
2,628,905
174,035
2,454,870
0.22
0.20
$
$
$
2,460,372
2,199,823
331,310
4,991,505
2,375,803
78,025
2,453,828
364,987
2,088,841
0.19
0.17
11,369,404
12,309,948
11,163,506
12,226,660
Quarters Ended
September
30, 2018
June
30, 2018
$
7,614,655
1,826,716
5,787,939
2,181,839
1,784,418
373,583
4,339,840
1,448,099
42,555
1,490,654
(909,619)
2,400,273
0.22
0.20
$
$
$
7,376,785
1,710,890
5,665,895
2,078,356
1,516,044
395,988
3,990,388
1,675,507
27,838
1,703,345
348,377
1,354,968
0.13
0.11
2,412,696
2,110,652
352,573
4,875,921
1,513,845
92,574
1,606,419
(239,146)
1,845,565
0.17
0.15
11,029,639
12,227,696
March
31, 2018
7,108,151
1,691,535
5,416,616
2,303,532
1,645,936
379,826
4,329,294
1,087,322
40,072
1,127,394
286,198
841,196
0.08
0.07
$
$
$
$
$
$
$
10,946,149
12,224,505
10,824,421
12,195,870
10,651,619
12,011,475
10,608,387
11,879,889
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
50
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 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, 2019, 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.
The effectiveness of our internal control over financial reporting as of December 31, 2019, has been audited by RSM US LLP, an independent
registered public accounting firm, as stated in their report included herein.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2019 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.
51
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of IRADIMED CORPORATION
Opinion on the Internal Control Over Financial Reporting
We have audited IRADIMED CORPORATION's (the Company) internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial
statements of the Company and our report dated March 6, 2020 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ RSM US LLP
Orlando, Florida
March 6, 2020
ITEM 9B. OTHER INFORMATION
Not applicable.
52
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
PART III
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.
53
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
PART IV
1.
2.
3.
Financial Statements: See “Index to Financial Statements” in Part II, Item 8 of this annual report on Form 10-K.
Financial Statement Schedule: Not applicable.
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
Number
3.1
3.2
4.1
4.2
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7
10.8+
10.9+
10.10†
10.11†
10.12+
EXHIBIT INDEX
Description of Exhibit
Amended and Restated Certificate of Incorporation
Bylaws of Iradimed Corporation, as amended and restated as of September 13,
2018
Specimen common stock certificate
Description of Registrant’s Securities
Form of Stock Option Agreement for Iradimed Corp. 2005 Incentive Stock Plan
Iradimed Corporation 2014 Equity Incentive Plan
Form of Stock Option Agreement for Iradimed Corporation 2014 Equity
Incentive Plan
Form of Restricted Stock Award Agreement for Iradimed Corporation 2014
Equity Incentive Plan
Form of Restricted Stock Unit Agreement (Time-Vesting) for Iradimed
Corporation 2014 Equity Incentive Plan
Form of Restricted Stock Unit Agreement (Performance-Vesting) for Iradimed
Corporation 2014 Equity Incentive Plan
Lease Agreement regarding 1025 Willa Springs Dr. between Susi, LLC and the
Registrant, dated January 17, 2014
Employment Agreement between the Registrant and Christopher K. Scott, dated
December 16, 2013
Employment Agreement between the Registrant and Brent Johnson, dated
December 7, 2011
Supply Agreement between the Registrant and Fukoku Co., Ltd. entered into on
January 26, 2014
Amendment Agreement to Supply Agreement between the Registant and Fukoku
Co., Ltd. entered into on March 26, 2019
Employment Agreement between the Registrant and John McCreery, dated
March 28, 2017
54
Incorporated by Reference
Form
14C
8-K
File No.
001-36534
001-36534
Filed
Herewith
Filing
Date
10/9/2015
9/19/2018
X
S-1
S-1
S-1
S-1
S-8
S-8
S-8
S-1
S-1
S-1
S-1
8-K
8-K
333-196875
7/9/2014
333-196875
333-196875
333-196875
6/18/2014
6/18/2014
6/18/2014
333-198971
9/26/2014
333-198971
9/26/2014
333-198971
9/26/2014
333-196875
6/18/2014
333-196875
6/18/2014
333-196875
6/18/2014
333-196875
6/18/2014
001-36534
3/26/2019
001-36534
3/30/2017
8-K
8-K
8-K
8-K
8-K
8-K
001-36534
7/29/2019
001-36534
7/29/2019
001-36534
9/24/2018
001-36534
9/24/2018
001-36534
8/26/2019
001-36534
9/24/2018
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
23.1
24.1
31.1
31.2
32.1*
Employment Agreement between the Registrant and Leslie McDonnell, dated
July 24, 2019
Employment Agreement between the Registrant and Roger Susi, dated July 24,
2019
Employment Agreement Modification between the Registrant and John
McCreery, dated September 14, 2018
Employment Agreement between the Registrant and Louis Waldman, dated
September 18, 2018
First Amended and Restated Separation Agreement between the Registrant and
John McCreery, dated August 23, 2019
Employment Agreement between the Registrant and Francis Casey, dated
September 21, 2018
Consent of RSM US LLP, Independent Registered Public Accounting Firm
Power of Attorney (included on signature page)
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
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
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 Extensions Schema Document
101.CAL XBRL Taxonomy Extension Label Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
X
X
X
X
X
X
X
X
X
X
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.
55
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 6, 2020.
SIGNATURES
Dated: March 6, 2020
IRADIMED CORPORATION
(Registrant)
/s/ Leslie McDonnell
By: Leslie McDonnell
Chief Executive Officer and President
(Principal Executive Officer)
Each person whose signature appears below constitutes and appoints Leslie McDonnell and Chris Scott 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
/s/ Leslie McDonnell
Leslie McDonnell
/s/ Chris Scott
Chris Scott
/s/ Roger Susi
Roger Susi
/s/ Monty Allen
Monty Allen
/s/ Anthony Vuoto
Anthony Vuoto
/s/ James Hawkins
James Hawkins
Chief Executive Officer and President (Principal Executive
Officer)
Chief Financial Officer and Secretary (Principal Financial and
Accounting Officer)
Chairman of the Board
Director
Director
Director
56
Date
March 6, 2020
March 6, 2020
March 6, 2020
March 6, 2020
March 6, 2020
March 6, 2020
IRADIMED CORPORATION FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Comprehensive Income
Statements of Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-8
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, 2019 and 2018, the related
statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 6, 2020 expressed an unqualified opinion on the
effectiveness of the Company's internal control over financial reporting.
Adoption of New Accounting Standard
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method for accounting for leases effective January 1, 2019 due
to the adoption of ASC 842, Leases.
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 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 audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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.
/s/ RSM US LLP
We have served as the Company's auditor since 2013.
Orlando, Florida
March 6, 2020
F-2
IRADIMED CORPORATION
BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Investments
Inventory, net
Prepaid expenses and other current assets
Prepaid income taxes
Total current assets
Property and equipment, net
Intangible assets, net
Operating lease right-of-use asset, net
Deferred income taxes, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued payroll and benefits
Other accrued taxes
Warranty reserve
Deferred revenue
Current portion of operating lease liability
Other current liability
Total current liabilities
Deferred revenue
Operating lease liability, less current portion
Total liabilities
Stockholders’ equity:
Common stock; $0.0001 par value; 31,500,000 shares authorized; 11,765,875 shares issued and outstanding as of
December 31, 2019 and 10,989,111 shares issued and outstanding as of December 31, 2018
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to financial statements.
F-3
As of December 31,
2019
2018
43,481,781
7,293,303
2,768,287
3,641,561
407,802
1,370,947
58,963,681
2,053,806
860,087
2,955,873
1,663,415
232,002
66,728,864
993,742
2,166,209
596,576
81,761
1,671,420
240,843
108,421
5,858,972
2,630,467
2,715,030
11,204,469
1,177
19,192,394
36,300,450
30,374
55,524,395
66,728,864
$
$
$
$
28,027,688
4,209,992
6,349,915
4,059,443
526,787
1,367,892
44,541,717
1,869,561
832,519
—
1,088,702
109,759
48,442,258
772,470
1,802,321
133,000
74,524
1,798,784
—
108,421
4,689,520
1,807,005
—
6,496,525
1,099
15,317,335
26,669,491
(42,192)
41,945,733
48,442,258
$
$
$
$
Revenue
Cost of revenue
Gross profit
Operating expenses:
General and administrative
Sales and marketing
Research and development
Total operating expenses
Income from operations
Other income, net
Income before provision for income taxes
Provision for income tax (benefit) expense
Net income
Net income per share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
IRADIMED CORPORATION
STATEMENTS OF OPERATIONS
$
$
$
$
See accompanying notes to financial statements.
F-4
For the Years Ended December, 31
2018
30,438,983
7,211,633
23,227,350
2019
38,517,141
8,816,161
29,700,980
$
$
2017
23,081,592
5,569,896
17,511,696
10,451,266
9,169,590
1,432,719
21,053,575
8,647,405
395,912
9,043,317
(587,642)
9,630,959
0.85
0.78
$
$
$
8,710,882
6,995,586
1,517,112
17,223,580
6,003,770
193,537
6,197,307
(106,143)
6,303,450
0.59
0.52
$
$
$
9,001,164
5,502,959
1,722,564
16,226,687
1,285,009
111,377
1,396,386
896,622
499,764
0.05
0.04
11,282,214
12,276,444
10,758,752
12,110,117
10,638,858
11,720,316
IRADIMED CORPORATION
STATEMENTS OF COMPREHENSIVE INCOME
Net income
Other comprehensive income (loss):
Change in fair value of available-for-sale securities, net of tax expense (benefit) of $24,713,
$(1,168) and $(10,039) respectively
Realized loss on available-for-sale securities reclassified to net income, net of tax expense
(benefit) of $2,671, $(7,269) and $(2,162) respectively
Other comprehensive income (loss)
Comprehensive income
$
$
See accompanying notes to financial statements.
F-5
For the Years Ended December, 31
2018
2017
$
6,303,450
$
499,764
2019
9,630,959
80,659
(3,554)
(16,655)
(8,093)
72,566
9,703,525
$
20,767
17,213
6,320,663
$
4,595
(12,060)
487,704
Balances, December 31, 2016
Net income
Other comprehensive loss
Stock-based compensation
Net share settlement of restricted stock units
Exercise of stock options and warrants
Purchases and retirement of treasury stock
Cumulative effect from adoption of accounting
standard update
Balances, December 31, 2017
Net income
Other comprehensive income
Stock-based compensation
Net share settlement of restricted stock units
Exercise of stock options and warrants
Cumulative effect from adoption of accounting
standard update
Balances, December 31, 2018
Net income
Other comprehensive income
Stock-based compensation
Net share settlement of restricted stock units
Exercise of stock options and warrants
Balances, December 31, 2019
IRADIMED CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Shares
10,722,675
—
—
—
50,759
33,054
(209,922)
—
10,596,566
—
—
—
77,352
315,193
—
10,989,111
—
—
—
74,880
701,884
11,765,875
$
$
$
$
Amount
1,072
—
—
—
5
3
(20)
—
1,060
—
—
—
8
31
—
1,099
—
—
—
7
71
1,177
Additional
Paid-in
Capital
$ 12,055,188
—
—
2,454,363
(158,145)
76,363
(1,818,521)
Retained
Earnings
$ 19,869,714
499,764
—
—
—
—
—
13,933
$ 12,623,181
—
—
1,764,319
(309,569)
1,239,404
(13,933)
$ 20,355,545
6,303,450
—
—
—
—
—
$ 15,317,335
—
—
1,854,965
(473,150)
2,493,244
$ 19,192,394
10,496
$ 26,669,491
9,630,959
—
—
—
—
$ 36,300,450
See accompanying notes to financial statements.
F-6
Accumulated
Other
Comprehensive
(Loss) Income
$
Stockholders’
Equity
(36,849) $ 31,889,125
499,764
(12,060)
2,454,363
(158,140)
76,366
(1,818,541)
—
(12,060)
—
—
—
—
—
—
(48,909) $ 32,930,877
6,303,450
17,213
1,764,319
(309,561)
1,239,435
—
17,213
—
—
—
(10,496)
—
(42,192) $ 41,945,733
9,630,959
72,566
1,854,965
(473,143)
2,493,315
$ 55,524,395
—
72,566
—
—
—
30,374
$
$
$
IRADIMED CORPORATION
STATEMENTS OF CASH FLOWS
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
9,630,959
$
6,303,450
$
499,764
For the Years Ended December, 31
2018
2019
2017
Change in allowance for doubtful accounts
Change in provision for excess and obsolete inventory
Depreciation and amortization
Write-off of non-trade accounts receivable
Stock-based compensation
Deferred income taxes, net
(Gain) loss on maturity of investments
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued payroll and benefits
Other accrued taxes
Warranty reserve
Deferred revenue
Other current liability
Prepaid income taxes, net of accrued income taxes
Other
Net cash provided by operating activities
Investing activities:
Purchases of investments
Proceeds from maturity of investments
Purchases of property and equipment
Capitalized intangible assets
Net cash provided by (used in) investing activities
Financing activities:
Proceeds from stock option and warrant exercises
Taxes paid for the net share settlement of restricted stock units
Purchases of treasury stock
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Right-of-use asset recognized in exchange for new lease obligation
Operating and short-term lease payments recorded within cash flow from operating activities
31,338
48,114
1,242,325
—
1,854,965
(596,755)
(10,764)
(3,114,649)
123,680
(487,650)
(171,002)
149,319
363,888
463,576
7,237
700,348
—
(3,055)
859
10,232,733
—
3,687,000
(368,281)
(117,531)
3,201,188
2,493,315
(473,143)
—
2,020,172
15,454,093
28,027,688
43,481,781
12,000
3,182,724
428,176
$
$
$
$
$
$
$
$
See accompanying notes to financial statements.
F-7
15,833
111,790
1,105,003
—
1,764,319
(144,430)
28,036
(446,896)
(121,591)
(407,461)
65,135
34,161
289,985
23,498
13,986
(5,885)
(150)
(1,252,768)
—
7,376,015
(1,124,512)
2,905,000
(228,315)
(36,350)
1,515,823
1,239,435
(309,561)
—
929,874
9,821,712
18,205,976
28,027,688
$
1,375,714
$
— $
$
418,772
(7,083)
69,199
1,308,738
205,444
2,454,363
(150,657)
6,757
(201,591)
(334,113)
(1,161,964)
(13,860)
(523,449)
477,070
(9,592)
19,633
944,632
(12,063)
(155,310)
—
3,415,918
(2,693,739)
2,495,004
(775,574)
(49,189)
(1,023,498)
76,366
(158,140)
(1,818,541)
(1,900,315)
492,105
17,713,871
18,205,976
1,205,028
—
409,378
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 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 in order 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 in order 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 (“IRADIMED 3880”) has been designed with non-magnetic components and other
special features in order to safely and accurately monitor a patient’s vital signs during various MRI procedures. The IRADIMED 3880 operates dependably in
magnetic fields up to 30,000 gauss, which means it can operate virtually anywhere in the MRI scanner room, including in very close proximity to the MRI
scanner bore. 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. Other MRI compatible patient vital signs monitors are large and heavy, creating workflow issues for users. 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; 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.
Close-Out of FDA Warning Letter
As announced on October 8, 2019, we received a close-out letter from the FDA with respect to the FDA warning letter previously received in
August 2014. We received this warning letter following a routine inspection of our prior facility between April 7 and April 16, 2014. The close-out letter
confirmed that all issues cited in the August 2014 warning letter have been resolved.
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.
F-8
For most domestic sales, we enter into agreements with healthcare supply contracting companies, commonly referred to as Group Purchasing
Organizations (“GPOs”), which 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 time of GPO contract execution.
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 MRI compatible IV infusion pump systems and related disposables and services are contractually fixed over
the GPO 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.
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
Most of our sales are 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.
F-9
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, 2019 and 2018, our allowance for doubtful accounts was $69,093 and $42,443,
respectively.
Investments
Our investments consist 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 classify 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.
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:
(cid:120)
(cid:120)
(cid:120)
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.
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.
F-10
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 17 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 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
We provide 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.
Advertising and Marketing
For the years ended December 31, 2019, 2018 and 2017, these costs were $155,983, $123,451 and $118,975, respectively. Advertising and marketing
costs are expensed as incurred and included in sales and marketing expense.
Stock-Based Compensation
We recognize stock-based compensation expense associated with employee equity awards on a straight-line basis over the requisite service period for
the entire award, which is generally four years for employees and two years for the board of directors.
Historically, we have granted two types of employee equity awards, stock options and restricted stock units.
The maximum contractual life of our stock options is ten years from the grant date. We utilize the Black-Scholes option pricing model to estimate the
grant date fair value of those awards. The Black-Scholes option pricing model requires the input of certain assumptions including stock price, dividend yield,
expected volatility, risk-free interest rate, and expected option life. Changes in these assumptions can materially affect the estimated fair value of our
employee stock options.
F-11
The grant date stock price was based on our closing stock price on the date of grant; dividend yield was based on our expectation of dividend
payments over the expected life of the option; expected volatility was based on a study of our volatility and comparable, publicly traded companies with
similar products and product life cycles; risk-free interest rate was the rate available on zero coupon U.S. government obligations with a term approximating
the expected option life; the expected option life was calculated using the simplified method.
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.
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.
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 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.
On December 22, 2017, the Tax Cuts and Jobs Act (“2017 Act”) was enacted. As a result of the 2017 Act, we were required to revalue our deferred
tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates on these deferred amounts. The reduction in the federal
corporate tax rate increased our income tax expense for the year ended December 31, 2017. See Note 11 for further information on the financial impact of the
2017 Act.
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 includes unrealized gains and losses on our investments classified as available for sale.
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
Underwriters’ warrants, stock options and restricted stock units granted by us represent the only dilutive effect reflected in diluted weighted-average shares
outstanding. See the Warrants portion of Note 9.
F-12
The following table presents the computation of basic and diluted net income per share:
Net income
Weighted-average shares outstanding — Basic
Effect of dilutive securities:
Underwriters’ warrants
Stock options
Restricted stock units
Weighted-average shares outstanding — Diluted
Basic net income per share
Diluted net income per share
$
$
$
For the Years Ended December, 31
2018
2017
2019
9,630,959
11,282,214
55,361
843,957
94,912
12,276,444
0.85
0.78
$
$
$
6,303,450
10,758,752
$
499,764
10,638,858
92,486
1,137,270
121,609
12,110,117
0.59
0.52
$
$
—
1,067,072
14,386
11,720,316
0.05
0.04
Stock options and warrants 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:
Anti-dilutive stock options, warrants and restricted stock units
Certain Significant Risks and Uncertainties
2019
25,439
As of December, 31
2018
21,488
2017
478,882
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.
We have deposited our cash and cash equivalents with various financial institutions. Our cash and cash equivalents balances exceed federally insured
limits throughout the year. We have not incurred any losses related to these balances.
Our products 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.
Recent Accounting Pronouncements
Accounting Pronouncements Implemented in 2019
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842).
This update requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by all leases not considered short-
term leases. For short-term leases, lessees may elect an accounting policy by class of underlying assets under which right-of-use assets and lease liabilities are
not recognized and lease payments are generally recognized as expense over the lease term on a straight-line basis.
We adopted this update on January 1, 2019 and, as part of that process, made the following elections:
(cid:120) We elected to use the hindsight practical expedient.
(cid:120) We elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby contracts were not
reassessed or reclassified from their previous assessment as of December 31, 2018.
(cid:120)
In March 2018, the FASB approved an optional transition method that allows companies to use the effective date as the date of initial
application on transition. We elected this transition method, and as a result, did not adjust comparative period financial information or make
the newly required lease disclosures for periods before the effective date.
F-13
(cid:120) We elected to make the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on a
straight-line basis over the lease term.
(cid:120) We elected to not separate lease and nonlease components, for all leases.
(cid:120) We did not elect the land easement practical expedient.
The impact of Topic 842 on our Balance Sheet beginning January 1, 2019 was through the recognition of an operating lease right-of-use asset and an
operating lease liability. Amounts recognized at January 1, 2109 for operating leases were as follows:
Operating lease right-of-use asset
Current portion of operating lease liability
Operating lease liability, less current portion
January 1,
2019
3,182,724
226,852
2,955,872
$
$
$
There was no impact to our Statements of Operations, Statements of Cash Flows or beginning retained earnings related to the adoption of Topic 842.
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.
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:
United States
International
Total revenue
$
$
F-14
For the Years Ended December 31,
2018
24,508,026
5,930,957
30,438,983
2019
30,930,267
7,586,874
38,517,141
2017
19,500,680
3,580,912
23,081,592
$
$
$
$
Revenue information by type is as follows:
Devices:
MRI compatible IV infusion pump system
MRI compatible patient vital signs monitoring systems
Total Devices revenue
Disposables, services and other
Amortization of extended warranty agreements
Total revenue
Contract Liabilities
Our contract liabilities consist of:
Advance payments from customers
Shipments in-transit
Extended warranty agreements
Total
Changes in the contract liabilities during the period are as follows:
Contract liabilities, December 31, 2017
Increases due to cash received from customers
Decreases due to recognition of revenue
Contract liabilities, December 31, 2018
Increases due to cash received from customers
Decreases due to recognition of revenue
Contract liabilities, December 31, 2019
Capitalized Contract Costs
For the Years Ended December 31,
2018
2017
2019
$
$
18,052,406
9,709,233
27,761,639
8,914,822
1,840,680
38,517,141
$
$
$
$
14,536,998
6,655,618
21,192,616
7,728,624
1,517,743
30,438,983
$
$
13,621,769
1,848,616
15,470,385
6,613,999
997,208
23,081,592
As of December 31,
2019
2018
12,765
4,250
4,284,872
4,301,887
$
$
$
$
$
180,425
9,582
3,415,782
3,605,789
Deferred
Revenue
3,621,256
2,222,217
(2,237,684)
3,605,789
3,337,181
(2,641,083)
4,301,887
Our total capitalized contract costs as of December 31, 2019 and December 31, 2018 were $352,250 and $181,248, respectively. Expense for the
years ended December 31, 2019, 2018 and 2017 related to the amortization of capitalized contract costs were immaterial to our financial statements.
3 — Inventory
Inventory consists of:
Raw materials
Work in process
Finished goods
Inventory before allowance for excess and obsolete
Allowance for excess and obsolete
Total
F-15
As of December 31,
2018
2019
$ 2,939,451 $ 3,408,158
305,562
557,566
4,271,286
(211,843)
$ 3,641,561 $ 4,059,443
229,479
697,483
3,866,413
(224,852)
4 — Property and Equipment
Property and equipment consist of:
Computer software and hardware
Furniture and fixtures
Leasehold improvements
Machinery and equipment
Tooling in-process
Accumulated depreciation
Total
$
As of December 31,
2018
2019
555,292
627,624 $
901,415
202,026
2,184,015
58,263
3,901,011
(2,031,450)
$ 2,053,806 $ 1,869,561
1,112,550
225,841
1,778,524
163,105
3,907,644
(1,853,838)
Depreciation and amortization expense of property and equipment was $501,218, $470,395 and $362,872 for the years ended December 31, 2019,
2018 and 2017, respectively.
Property and equipment, net by geographic region is as follows:
United States
International
Total property and equipment, net
$
$
As of December 31,
2019
1,689,740
364,066
2,053,806
2018
1,439,545
430,016
1,869,561
$
$
Long-lived assets held outside of the United States consist principally of tooling, which is a component of property and equipment, net.
5 — Intangible Assets
The following table summarizes the components of intangible asset balances:
Patents — in use
Patents — in process
Internally developed software — in use
Internally developed software — in process
Trademarks
Accumulated amortization
Total
As of December 31,
2018
2019
$
$
304,270
120,581
867,569
80,721
26,133
1,399,274
(539,187)
860,087
$
$
304,270
73,164
867,569
13,723
23,017
1,281,743
(449,224)
832,519
Amortization expense of intangible assets was $89,963, $89,333 and $82,399 for the years ended December 31, 2019, 2018 and 2017, respectively.
Expected annual amortization expense for the next five years related to intangible assets is as follows (excludes in-process intangible assets):
2020
2021
2022
2023
2024
$
$
$
$
$
89,963
89,963
89,392
88,740
88,439
F-16
6 — Investments
Our investments consisted of corporate bonds that we have classified as available-for-sale and are summarized in the following tables:
Corporate bonds:
U.S. corporations
International corporations
Total
Corporate bonds:
U.S. corporations
International corporations
Total
As of December 31, 2019
Gross
Gross
Unrealized
Unrealized
Gains
Losses
Fair
Value
Cost
2,258,686
471,139
2,729,825
$
$
29,123
9,339
38,462
$
$
— $
—
— $
2,287,809
480,478
2,768,287
As of December 31, 2018
Gross
Gross
Unrealized
Unrealized
Gains
Losses
Fair
Value
— $
2,162
2,162
$
58,309
—
58,309
$
$
5,429,336
920,579
6,349,915
Cost
5,487,645
918,417
6,406,062
$
$
$
$
$
$
As of December 31, 2019, the scheduled maturities of our investments are as follows:
Less than 1 year
1 to 3 years
Total
7 — Fair Value Measurements
$
Cost
471,139 $
Fair Value
480,478
2,287,809
$ 2,729,825 $ 2,768,287
2,258,686
The fair value of our assets and liabilities subject to recurring fair value measurements are as follows:
Corporate bonds:
U.S. corporations
International corporations
Total
Corporate bonds:
U.S. corporations
International corporations
Total
Fair Value at December 31, 2019
Quoted Prices
in Active
Market for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
—
— $
2,287,809 $
480,478
2,768,287 $
—
—
—
Fair Value at December 31, 2018
Quoted Prices
in Active
Market for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
—
— $
5,429,336 $
920,579
6,349,915 $
—
—
—
Fair
Value
2,287,809 $
480,478
2,768,287 $
Fair
Value
5,429,336 $
920,579
6,349,915 $
$
$
$
$
Our corporate bonds are valued by the third-party custodian at closing prices from national exchanges or pricing vendors on the valuation date.
There were no transfers into or out of any Levels during the years ended December 31, 2019 or 2018.
F-17
8 — Accumulated Other Comprehensive Income (Loss)
The only component of accumulated other comprehensive income (loss) relates to unrealized gains and (losses) on our investments and activity is as
follows:
Balance at December 31, 2016
Losses, net
Reclassification realized in net earnings
Balance at December 31, 2017
Losses, net
Reclassification realized in net earnings
Cumulative effect from adoption of accounting standard update
Balance at December 31, 2018
Gains, net
Reclassification realized in net earnings
Balance at December 31, 2019
9 — Stock-Based Compensation
Unrealized Gains
(Losses) on
Available-For-Sale
Securities
$
$
$
$
(36,849)
(16,655)
4,595
(48,909)
(3,554)
20,767
(10,496)
(42,192)
80,659
(8,093)
30,374
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 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. As of December 31, 2019, there were 198,966 shares available for
future awards under the 2014 Plan.
Stock-based compensation was recognized as follows in the Statements of Operations:
For the Years Ended December 31,
2018
2019
2017
Cost of revenue
General and administrative
Sales and marketing
Research and development
Total stock-based compensation expense
Stock Options
$
$
256,924
1,167,161
348,603
82,277
1,854,965
$
$
279,221
1,000,002
329,644
155,452
1,764,319
$
$
214,325
1,670,015
441,931
128,092
2,454,363
The following table presents a summary of our stock option activity as of and for the year ended December 31, 2019:
Outstanding beginning of period
Options granted
Options exercised
Options cancelled
Options expired
Outstanding end of period
Exercisable
Weighted-
Average
Exercise Price
Per Share
2.29
21.13
1.60
26.33
—
4.31
2.84
Options
1,129,463
$
50,000
(539,853)
(750)
—
638,860
586,985
$
$
F-18
Weighted-
Average
Remaining
Contractual
Life (Yrs.)
4.2
$
Aggregate
Intrinsic
Value
25,052,908
4.3
3.9
$
$
12,192,995
12,067,647
As of December 31, 2019, we had $538,991 of unrecognized compensation expense related to unvested stock options, which is expected to be
recognized over a weighted average period of 3.6 years. The total grant date fair value of stock options that vested during the year ended December 31, 2019
was $101,387. The total intrinsic value of options exercised during the year ended December 31, 2019, 2018 and 2017 was $11,870,492, $6,071,319 and
$268,053, respectively.
The weighted-average grant-date fair value of options granted during the year ended December 31, 2019 was $11.84. No options were granted during
the year ended December 31, 2018. The weighted-average grant-date fair value of options granted during the years ended December 31, 2017 was $11.10. For
the years ended December 31, 2019, 2018 and 2017, we estimated the fair value of options granted using a Black-Scholes option pricing model with the
following weighted average assumptions:
For the Years Ended December, 31
2018
2019
2017
Volatility
Expected term (years)
Risk-free interest rate
Dividend yield
Restricted Stock Units
59.1%
6.3
1.5%
0.0%
—%
—
—%
—%
92.0%
6.3
1.4%
0.0%
The following table presents a summary of our restricted stock unit activity as of and for the year ended December 31, 2019:
Unvested at December 31, 2018
Granted
Vested
Cancelled
Unvested at December 31, 2019
Restricted
Stock
Units
Weighted-Average
Grant Date
Fair Value
226,501 $
178,657 $
(93,989) $
(14,121) $
297,048 $
15.89
21.88
16.41
15.11
19.36
As of December 31, 2019, we had $5,261,330 of unrecognized compensation cost related to the unvested restricted stock units, which is expected to
be recognized over a weighted-average period of 3.1 years.
Warrants
Associated with our IPO completed on July 21, 2014, we issued Underwriters Warrants (the “Warrants”) to purchase up to a total of 201,600 shares
of our common stock. The grant date aggregate fair value of the Warrants was $611,000. The Warrants were exercisable, in whole or in part, commencing
July 21, 2015 through July 21, 2017. The Warrants were exercisable at $8.125 per share, or 130 percent of the public offering price per share of our common
stock in the IPO. On the grant date, we classified the Warrants as equity and incremental direct costs associated with our IPO. Accordingly, the issuance of the
Warrants had no impact on our financial statements.
On July 17, 2017, our Board of Directors approved a modification to the Warrants. This modification extended the expiration date of the Warrants
from July 17, 2017 to July 17, 2019 and revised the strike price from $8.125 to $10.05. The fair value of the amended Warrants was $2.42 per share as
measured using the Black-Scholes options pricing model. Related to this modification, we recognized a $380,452 charge to earnings during the year ended
December 31, 2017. This charge is included in general and administrative expense in our Statements of Operations. During the year ended December 31,
2019, 162,031 warrants were exercised. As of December 31, 2019, no Warrants remained outstanding.
10 — Other Income, Net
Other income, net consists of:
Interest income
Realized gain (losses) on maturities of investments
Foreign currency exchange losses
Total other income, net
$
$
388,801
10,764
(3,653)
395,912
$
$
238,106
(29,308)
(15,261)
193,537
$
$
122,575
(6,761)
(4,437)
111,377
F-19
For the Years Ended December 31,
2018
2017
2019
11 — Income Taxes
The components of the provision for income taxes are as follows:
For the Years Ended December 31,
2018
2017
2019
Current taxes:
U.S. federal
State
Total current tax expense
Deferred taxes:
U.S. federal
State
Total deferred tax benefit
Provision for income tax (benefit) expense
$
$
(47,831) $
58,379
10,548
(544,384)
(53,806)
(598,190)
(587,642) $
$
740
37,547
38,287
862,725
186,993
1,049,718
(128,905)
(15,525)
(144,430)
(106,143) $
(92,788)
(60,308)
(153,096)
896,622
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. Significant components of our deferred taxes are as follows:
Deferred income tax assets (liabilities):
Stock compensation
Deferred revenue
Reserves and allowances
Research and development credits carryforward
Net operating loss carryforward
Depreciation and amortization
Other, net
Total deferred income taxes, net
As of December 31,
2018
2019
$
$
790,357
446,562
257,549
146,320
688,084
(619,528)
(45,929)
1,663,415
$
$
927,282
499,307
197,355
43,391
26,767
(611,269)
5,869
1,088,702
As of December 31, 2019, we recorded a U.S. federal net operating loss carryforward of $613,610, which has an indefinite carryforward period, and
is primarily related to tax windfalls associated with the exercise and vesting of equity awards. Additionally, as of December 31, 2019, we recorded a state net
operating loss carryforward of $74,474, which expires in various years between 2031 and 2039.
A reconciliation of the statutory U.S. federal tax rate to our effective rate is as follows:
For the Years Ended December 31,
2018
2019
2017
Statutory U.S. federal tax rate
Tax Cuts and Jobs Act
Tax (windfalls) deficiencies on exercise and vesting of equity awards
Stock compensation expense
State taxes, net of federal benefit
Permanent items
Provision to return adjustments
Domestic production activities deduction
Research and development credits
Effective rate
21.0%
—
(17.1)
(9.8)
0.1
1.2
(1.1)
—
(0.8)
(6.5)%
21.0%
—
(21.8)
(0.2)
(0.1)
0.5
(0.3)
—
(0.8)
(1.7)%
34.0%
33.9
5.4
5.3
5.1
4.4
(9.5)
(7.2)
(7.2)
64.2%
As of December 31, 2019 and December 31, 2018, 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 file tax returns in the United States Federal jurisdiction and many U.S. state jurisdictions. Our returns are not currently under examination by the
Internal Revenue Service (“IRS”). The Company remains subject to income tax examinations for our United States 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.
F-20
Tax Cuts and Jobs Act
On December 22, 2017, the Tax Cuts and Jobs Act (“2017 Act”) was enacted. The 2017 Act includes a number of changes to existing U.S. tax laws
that impact us, most notably a reduction of the U.S. corporate income tax from 34.0 percent to 21.0 percent effective January 1, 2018. The 2017 Act also
provides for the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes that began in 2018,
including repeal of the domestic production activities deduction, acceleration of tax revenue recognition, capitalization of research and development
expenditures and additional limitations on the deductibility of executive compensation. As a result of the 2017 Act, our deferred tax assets and deferred tax
liabilities were revalued to reflect the reduction in the U.S. corporate income tax rate from 34.0 percent to 21.0 percent, resulting in a $473,899 increase in
income tax expense for the year ended December 31, 2017.
12 — Leases
Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease
assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the
lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental
borrowing rate, unless the rate implicit in the lease is readily determinable. Lease assets also include any upfront lease payments made and exclude lease
incentives. Lease terms include options to extend or terminate leases when it is reasonably certain that those options will be exercised.
Variable lease payments are expensed as incurred and include annual rent adjustments based on the consumer price index. Leases with an initial term
of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line
basis over the lease term.
Lease agreements with lease and nonlease components are combined as a single lease component. The depreciable life of lease assets and leasehold
improvements is limited by the expected lease term.
We have only 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 Chairman of the Board and Chief
Technology Officer, 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 the remaining five-year option, resulting in a remaining lease term of 9.4 years as of December 31, 2019. 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:
Cost of revenue
General and administrative
Sales and marketing
Research and development
Total
Lease costs for short-term leases were immaterial for the year ended December 31, 2019.
F-21
Year Ended
December 31, 2019
186,139
$
184,177
10,417
28,861
409,594
$
Maturity of Operating lease liability as of December 31, 2019 is as follows:
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Imputed interest
Present value of lease liability
$
$
409,596
409,596
409,596
409,596
409,596
1,809,050
3,857,030
(901,157)
2,955,873
We used a discount rate of 6.0% to determine the present value of the operating lease liability on January 1, 2019.
Undiscounted future minimum lease payments under noncancelable operating leases as of December 31, 2018 as determined prior to the adoption of
ASC 842 are as follows:
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
13 — Employee Benefit Plan
$
$
170,664
—
—
—
—
—
170,664
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 $374,979, $293,669
and $232,129, respectively, for the years ended December 31, 2019, 2018 and 2017. Employer contributions vest immediately.
14 — Commitments and Contingencies
Purchase commitments. We had various purchase orders for goods or services totaling approximately $3,208,174 at December 31, 2019. 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 minimal and have not recorded a liability for these
agreements as of December 31, 2019.
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.
F-22
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, 2019, 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 Common Stock holders. 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 Preferred Stock holders’
rights to dividends.
Liquidation. Liquidation preference of the Common Stock holders is junior to that of the Preferred Stock holders.
Redemption. The Common Stock is not redeemable.
Share Repurchase
On April 27, 2017 (the “Authorization Date”), our Board of Directors approved a share repurchase program, authorizing the repurchase of up to $8.0
million of our common stock through April 28, 2018. During the program period, we used $1,818,541 to acquire 209,922 shares of our common stock. We
retired to treasury all of the repurchased shares.
F-23
Description of Capital Stock of Iradimed Corporation
Exhibit 4.2
The following is a description of the capital stock of Iradimed Corporation. Our common stock, par value $0.0001 per share, is registered under
Section 12 of the Securities Exchange Act of 1934, as amended; while our preferred stock, par value $0.0001 per share, is not so registered. This description
does not describe every aspect of our capital stock and is subject to, and qualified in its entirety by reference to, the provisions of our Amended and Restated
Certificate of Incorporation and our Amended and Restated Bylaws, each as currently in effect, each of which is incorporated by reference as an exhibit to
our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, to which this Description of Capital Stock is filed as an exhibit. References to
“we,” “our,” and “us” refer to Iradimed Corporation.
Authorized Capital Stock
Our authorized capital stock consists of 31,500,000 shares of common stock, par value $0.0001 per share, and 3,500,000 shares of preferred stock, of
which 800,000 shares of preferred stock have been designated as Series A preferred stock, par value $0.0001 per share.
Common Stock
Our common stock is traded on the Nasdaq Capital Market under the trading symbol “IRMD.” The transfer agent and registrar for our common stock is
EQ by Equiniti, which acquired our former transfer agent, Corporate Stock Transfer, Inc., in November 2019.
The following summarizes the rights of holders of our common stock:
Voting
The holders of our common stock are entitled to one vote per share. The number of authorized shares of common stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of our capital
stock entitled to vote, irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law (“DGCL”).
Dividends
Subject to preferences that may be applicable to the holders of outstanding shares of preferred stock and subject to applicable law, dividends may be
declared and paid on of our common stock when and as determined by our board of directors out of assets legally available for dividends.
As a Delaware corporation, we are subject to certain restrictions on dividends under the DGCL. Generally, a Delaware corporation may only pay
dividends either out of “surplus” or out of the current or the immediately preceding year’s net profits. Surplus is defined as the excess, if any, at any given
time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation’s assets can be measured in a number of ways
and may not necessarily equal their book value.
Liquidation Rights
Upon our voluntary or involuntary liquidation, dissolution or winding up, after satisfaction of all our liabilities and the payment of any liquidation
preference of any outstanding preferred stock, the holders of shares of common stock will be entitled to share in all of our assets legally remaining for
distribution after payment of all debt and other liabilities, subject to preferences that may be applicable to the holders of outstanding shares of preferred stock.
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Redemption Rights
There are no redemption or sinking fund provisions applicable to our common stock.
Preemptive Rights and Conversion Rights
There are no preemptive or conversion rights applicable to our common stock.
Anti-Takeover Effects of Provisions of our Certificate of Incorporation, Bylaws, and Delaware Law
Delaware Anti-Takeover Law
We are subject to Section 203 of the DGCL (“Section 203”). Section 203 generally prohibits a public Delaware corporation from engaging in a
“business combination” with an “interested stockholder” for a period of three years following the time that such stockholder became an interested stockholder,
unless:
•
•
•
prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the
voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (i) by persons who are
directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange offer; or
at or subsequent to such time the business combination is approved by the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
In general, Section 203 defines a business combination to include:
•
•
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;
subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested
stockholder;
subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class
or series of the corporation beneficially owned by the interested stockholder; or
2
•
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity (other than the corporation and any direct or indirect majority-owned
subsidiary of the corporation) or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated
with, associated with or controlling or controlled by such entity or person.
Certificate of Incorporation and Bylaws
The following provisions of our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws may make a change in
control of our company more difficult and could delay, defer or prevent a tender offer or other takeover attempt that a stockholder might consider to be in its
best interest, including takeover attempts that might result in the payment of a premium to stockholders over the market price for their shares. These
provisions also may promote the continuity of our management by making it more difficult for a person to remove or change the incumbent members of our
board of directors.
Authorized but Unissued Shares; Undesignated Preferred Stock. The authorized but unissued shares of our common stock will be available for future
issuance without stockholder approval, subject to applicable law and the Nasdaq Marketplace Rules. These additional shares may be used for a variety of
corporate purposes, including future public offerings to raise additional capital, acquisitions, and employee benefit plans. In addition, our board of directors
may authorize, without stockholder approval, the issuance of undesignated preferred stock with voting rights or other rights or preferences designated from
time to time by our board of directors (including the right to approve an acquisition or other change in our control). The existence of authorized but unissued
shares of common stock or preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by
means of a merger, tender offer, proxy contest or otherwise.
Election and Removal of Directors. Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain provisions
that establish specific procedures for appointing and removing members of our board of directors. Under our Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws, vacancies and newly created directorships on our board of directors may be filled by our stockholders or a
majority of the directors then serving on the board of directors.
No Cumulative Voting. Stockholders do not have the right to cumulate votes in the election of directors under our Amended and Restated Certificate
of Incorporation (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the
directors standing for election, if they should so choose).
Special Meetings of Stockholders. Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provide that special
meetings of our stockholders may only be called by the Chair of the board, our Chief Executive Officer or by our board of directors pursuant to a resolution
adopted by a majority of the total number of authorized directors, whether or not there exist any vacancies in previously authorized directorships.
Advance Notice Procedures for Director Nominations. Our Amended and Restated Bylaws establish advance notice procedures for stockholders
seeking to nominate candidates for election as directors at an annual or special meeting of stockholders. Although our Amended and Restated Bylaws do not
give the board of directors the power to approve or disapprove stockholder nominations of candidates to be elected at an annual meeting, our Amended and
Restated Bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or
deter a potential acquiror from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of us.
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Action by Written Consent. Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provide that any action
required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by
any consent in writing in lieu of a meeting of such stockholders, subject to the rights of the holders of any series of preferred stock.
Amending Our Certificate of Incorporation and Bylaws. Our Amended and Restated Certificate of Incorporation may be amended by the affirmative
vote of the holders of at least majority of the voting power of our then-outstanding capital stock entitled to vote thereon. Our Amended and Restated Bylaws
may be amended by the affirmative vote of a majority of our board of directors or by the affirmative vote of the holders of at least majority of the voting
power of our then-outstanding capital stock entitled to vote thereon.
Exclusive Jurisdiction. Our Amended and Restated Certificate of Incorporation provides that, unless we consent in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any derivative action or proceeding brought on our
behalf, any action asserting a claim of breach of duty by any of our current or former directors or officers, or our stockholders in such capacity, any action
asserting a claim arising pursuant to the DGCL, or any action asserting a claim governed by the internal affairs doctrine. In addition, our Amended and
Restated Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the U.S. District Court for the District
of Delaware shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. However, in light of
the decision issued by the Court of Chancery in Sciabacucchi v. Salzberg, C.A. No. 2017-0931-JTL, invalidating provisions in the certificates of incorporation
of Delaware corporations that purport to limit to federal court the forum in which a stockholder may bring a claim under the Securities Act, we do not
currently intend to enforce the foregoing federal forum selection provision unless the Sciabacucchi decision is appealed and the Delaware Supreme Court
reverses the Chancery Court’s decision. If the decision is not appealed or if the Delaware Supreme Court affirms the Chancery Court’s decision, then we will
seek approval by our stockholders to amend our Amended and Restated Certificate of Incorporation at our next regularly scheduled annual meeting of
stockholders to remove the federal forum selection provision.
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Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statement (No. 333-198971) on Form S-8 of IRADIMED CORPORATION of our reports
dated March 6, 2020, relating to the financial statements and effectiveness of internal control over financial reporting of IRADIMED CORPORATION,
appearing in this Annual Report on Form 10-K of IRADIMED CORPORATION for the year ended December 31, 2019.
/s/ RSM US LLP
Orlando, Florida
March 6, 2020
Exhibit 31.1
Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
I, Leslie McDonnell, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of IRADIMED CORPORATION;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15
(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 6, 2020
/s/ Leslie McDonnell
By: Leslie McDonnell
Chief Executive Officer and President
(Principal Executive Officer)
Exhibit 31.2
Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
I, Chris Scott, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of IRADIMED CORPORATION;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15
(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 6, 2020
/s/ Chris Scott
By: Chris Scott
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the annual report of IRADIMED CORPORATION (the “Company”) on Form 10-K for the year ended December 31, 2019, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the date indicated
below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Exhibit 32.1
/s/ Leslie McDonnell
By: Leslie McDonnell
Chief Executive Officer and President
(Principal Executive Officer)
March 6, 2020
/s/ Chris Scott
By: Chris Scott
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
March 6, 2020