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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2023

OR

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

For the transition period from            to

Commission File No.:  001-36534

IRADIMED CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware

    

73-1408526

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

1025 Willa Springs Drive
Winter Springs, Florida

32708

(Address of principal executive offices)

(Zip Code)

(407) 677-8022

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common stock, par value $0.0001

IRMD

NASDAQ Capital Market

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

Indicate by check mark whether the registrant has submitted electronically 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   No 

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

Large accelerated filer 

Accelerated filer 

Non-accelerated filer   

Smaller reporting company   

Emerging growth company   

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

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

The registrant had 12,602,673 shares of common stock, par value $0.0001 per share, outstanding as of July 31, 2023.

IRADIMED CORPORATION

Table of Contents

Page

Cautionary Note Regarding Forward-Looking Statements

3

Part I

Financial Information

5

Item 1

Condensed Financial Statements

5

(a)    Condensed Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022

5

(b)    Condensed Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

6

(c)    Condensed Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

7

(d)    Condensed Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

8

(e)    Condensed Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (Unaudited)

9

(f)    Notes to Unaudited Condensed Financial Statements

10

Item 2

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

19

Item 3

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4

Controls and Procedures

25

Part II

Other Information

27

Item 1

Legal Proceedings

27

Item 1A

Risk Factors

27

Item 2

Unregistered Sale of Equity Securities and Use of Proceeds

27

Item 3

Default Upon Senior Securities

27

Item 4

Mine Safety Disclosures

27

Item 5

Other Information

27

Item 6

Exhibits

28

Signatures

29

2

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievement to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements include, but are not limited to, statements about:

our ability to receive 510(k) clearance for our products and product candidates, complete inspections conducted by the U.S. Food & Drug Administration (“FDA”) or other regulatory bodies resulting in favorable outcomes, additional actions by or requests from the 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;
market and economic uncertainty caused by any or all public health concerns such as pandemics;
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, climate change, 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;

3

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;
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; including carbon taxes;
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.
pandemic-related uncertainties may potentially affect our financial position, operations, and cash flows. We are actively managing our response, but the extent of future impact remains uncertain.

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.

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

4

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

IRADIMED CORPORATION

CONDENSED BALANCE SHEETS

June 30, 

    

December 31, 

2023

2022

(unaudited)

ASSETS

  

 

  

Current assets:

  

 

  

Cash and cash equivalents

$

45,822,834

$

57,960,864

Accounts receivable, net of allowance for doubtful accounts of $331,403 as of June 30, 2023, and $160,498 as of December 31, 2022

 

11,082,213

 

13,274,521

Inventory, net

 

8,415,080

 

5,369,233

Prepaid expenses and other current assets

 

770,647

 

630,960

Prepaid income taxes

 

 

254,093

Total current assets

 

66,090,774

 

77,489,671

Property and equipment, net

 

8,720,273

 

2,399,812

Intangible assets, net

 

2,353,773

 

2,069,439

Operating lease right-of-use asset

 

2,247,667

 

2,205,286

Deferred tax asset, net

 

1,766,383

 

700,867

Other assets

 

252,161

 

648,672

Total assets

$

81,431,031

$

85,513,747

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

2,552,076

$

1,799,316

Accrued payroll and benefits

 

2,332,643

 

2,871,890

Other accrued taxes

 

217,496

 

121,919

Warranty reserve

 

105,479

 

94,030

Deferred revenue

 

1,714,067

 

3,373,122

Current portion of operating lease liabilities

 

413,745

 

293,466

Other current liabilities

 

250,000

 

Total current liabilities

 

7,585,506

 

8,553,743

Deferred revenue

 

3,013,165

 

1,375,197

Operating lease liabilities, less current portion

 

1,833,922

 

1,911,820

Total liabilities

 

12,432,593

 

11,840,760

Stockholders’ equity:

 

  

 

  

Common stock; $0.0001 par value; 31,500,000 shares authorized; 12,601,541 shares issued and outstanding as of June 30, 2023, and 12,591,004 shares issued and outstanding as of December 31, 2022

 

1,260

 

1,259

Additional paid-in capital

 

27,369,898

 

26,407,446

Retained earnings

 

41,627,280

 

47,264,282

Total Stockholders' Equity

 

68,998,438

 

73,672,987

Total liabilities and stockholders’ equity

$

81,431,031

$

85,513,747

See accompanying notes to unaudited condensed financial statements.

5

IRADIMED CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three Months Ended

    

For the Six Months Ended

June 30, 

June 30, 

2023

    

2022

2023

    

2022

Revenue

$

16,130,396

$

12,721,569

$

31,605,480

$

25,032,279

Cost of revenue

 

3,943,904

 

2,581,806

 

7,697,535

 

5,512,992

Gross profit

 

12,186,492

 

10,139,763

 

23,907,945

 

19,519,287

Operating expenses:

 

  

 

  

 

  

 

  

General and administrative

 

3,313,080

 

2,402,795

 

7,233,591

 

5,118,745

Sales and marketing

 

2,948,425

 

2,907,788

 

5,948,403

 

5,977,344

Research and development

 

961,952

 

662,599

 

1,755,666

 

1,181,694

Total operating expenses

 

7,223,457

 

5,973,182

 

14,937,660

 

12,277,783

Income from operations

 

4,963,035

 

4,166,581

 

8,970,285

 

7,241,504

Other income (expense), net

 

335,387

 

13,102

 

677,796

 

(1,812)

Income before provision for income taxes

 

5,298,422

 

4,179,683

 

9,648,081

 

7,239,692

Provision for income tax expense

 

1,118,582

 

938,631

 

2,062,171

 

1,511,926

Net income

$

4,179,840

$

3,241,052

$

7,585,910

$

5,727,766

Net income per share:

 

  

 

  

 

  

 

  

Basic

$

0.33

$

0.26

$

0.60

$

0.46

Diluted

$

0.33

$

0.26

$

0.60

$

0.45

Weighted average shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

12,596,032

 

12,560,812

 

12,594,541

 

12,556,837

Diluted

 

12,723,017

 

12,632,755

 

12,706,608

 

12,641,424

See accompanying notes to unaudited condensed financial statements.

6

IRADIMED CORPORATION

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

For the Three Months Ended

    

For the Six Months Ended

June 30, 

June 30, 

2023

    

2022

2023

    

2022

Net income

$

4,179,840

$

3,241,052

$

7,585,910

$

5,727,766

Other comprehensive (loss) income:

 

  

 

  

 

  

 

  

Change in fair value of available-for-sale securities, net of tax expense (benefit) of $0 and $(22), respectively

 

 

(68)

 

 

(10,953)

Realized gain on available-for-sale securities reclassified to net income, net of tax expense of $0 and $0 respectively

 

 

(6,059)

 

 

(6,059)

Other comprehensive loss

 

 

(6,127)

 

 

(17,012)

Comprehensive income

$

4,179,840

$

3,234,925

$

7,585,910

$

5,710,754

See accompanying notes to unaudited condensed financial statements.

7

IRADIMED CORPORATION

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

    

  

    

  

    

  

    

Accumulated

    

  

Additional

Other

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

Shares

Amount

Capital

Earnings

Income

Equity

Balances, December 31, 2022

12,591,004

$

1,259

$

26,407,446

$

47,264,282

$

$

73,672,987

Net income

 

 

 

3,406,070

 

 

3,406,070

Dividends paid ($1.05 per share)

 

 

 

(13,222,907)

 

 

(13,222,907)

Other comprehensive (loss)

 

 

 

(4)

 

 

(4)

Stock-based compensation expense

 

 

533,643

 

 

 

533,643

Net share settlement of restricted stock units

3,572

 

 

(49,878)

 

 

 

(49,878)

Balances, March 31, 2023

12,594,576

$

1,259

$

26,891,211

$

37,447,441

$

$

64,339,911

Net income

 

 

 

4,179,840

 

 

4,179,840

Other comprehensive (loss)

 

 

 

 

 

Stock-based compensation expense

 

 

568,453

 

 

 

568,453

Net share settlement of restricted stock units

5,965

 

1

 

(97,106)

 

 

 

(97,105)

Exercise of stock options

1,000

7,339

7,339

Balances, June 30, 2023

12,601,541

$

1,260

$

27,369,898

$

41,627,281

$

$

68,998,438

  

    

  

    

  

    

  

    

Accumulated

    

  

Additional

Other

Common Stock

Paid-in

Retained

Comprehensive

Stockholders’

Shares

Amount

Capital

Earnings

Income

Equity

Balances, December 31, 2021

12,544,024

$

1,254

$

25,160,618

$

46,994,922

$

17,012

$

72,173,806

Net income

 

 

 

2,486,713

 

 

2,486,713

Dividends paid ($1.00 per share)

 

 

 

(12,559,127)

 

 

(12,559,127)

Other comprehensive (loss)

 

 

 

 

(10,885)

 

(10,885)

Stock-based compensation expense

 

 

453,360

 

 

 

453,360

Net share settlement of restricted stock units

3,879

 

1

 

(67,381)

 

 

 

(67,380)

Exercise of stock options

12,566

 

1

 

71,947

 

 

 

71,948

Balances, March 31, 2022

12,560,469

$

1,256

$

25,618,544

$

36,922,508

$

6,127

$

62,548,435

Net income

 

 

 

3,241,052

 

 

3,241,052

Other comprehensive (loss)

 

 

 

 

(6,127)

 

(6,127)

Stock-based compensation expense

 

 

121,003

 

 

 

121,003

Net share settlement of restricted stock units

556

 

 

(5,726)

 

 

 

(5,726)

Exercise of stock options

 

 

 

 

 

Balances, June 30, 2022

12,561,025

$

1,256

$

25,733,821

$

40,163,560

$

$

65,898,637

See accompanying notes to unaudited condensed financial statements.

8

IRADIMED CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

June 30, 

2023

    

2022

Operating activities:

  

 

  

Net income

$

7,585,910

$

5,727,766

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Change in allowance for doubtful accounts

 

170,905

 

21,370

Change in provision for excess and obsolete inventory

 

167,383

 

19,824

Depreciation and amortization

 

369,908

 

928,101

Loss (Gain) on disposal of property and equipment

 

3,852

 

(4,894)

Stock-based compensation

 

1,102,096

 

574,363

Deferred income taxes, net

 

(1,065,516)

 

(144,948)

Loss on maturities of investments

 

 

(8,025)

Changes in operating assets and liabilities:

 

 

  

Accounts receivable

 

2,021,403

 

(3,295,542)

Inventory

 

(4,212,765)

 

(587,502)

Prepaid expenses and other current assets

 

57,568

 

(451,276)

Other assets

 

541,548

 

10,419

Accounts payable

 

1,709,063

 

(15,622)

Accrued payroll and benefits

 

(539,247)

 

(545,393)

Other accrued taxes

 

95,577

 

95,055

Warranty reserve

 

11,449

 

(8,111)

Deferred revenue

 

(363,379)

 

(253,074)

Other current liabilities

 

250,000

 

(7,995)

Prepaid income taxes

 

254,093

 

1,010,890

Net cash provided by operating activities

 

8,159,848

 

3,065,406

Investing activities:

 

  

 

  

Proceeds from maturities of investments

 

 

500,000

Purchases of property and equipment

 

(6,600,521)

 

(371,935)

Capitalized intangible assets

 

(334,807)

 

(475,198)

Net cash used in investing activities

 

(6,935,328)

 

(347,133)

Financing activities:

 

  

 

  

Dividends paid

 

(13,222,907)

 

(12,559,127)

Proceeds from exercises of stock options

 

7,339

 

71,949

Taxes paid related to the net share settlement of equity awards

 

(146,983)

 

(73,106)

Net cash used in financing activities

 

(13,362,551)

 

(12,560,284)

Net decrease in cash and cash equivalents

 

(12,138,031)

 

(9,842,011)

Cash and cash equivalents, beginning of period

 

57,960,864

 

61,999,550

Cash and cash equivalents, end of period

$

45,822,833

$

52,157,539

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid for income taxes

$

2,756,152

$

757,137

ROU asset recognized in exchange for new lease obligation

$

227,982

$

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

$

324,362

$

257,117

See accompanying notes to unaudited condensed financial statements.

9

IRADIMED CORPORATION

Notes to Unaudited Condensed Financial Statements

1 — Basis of Presentation

The accompanying interim condensed financial statements of IRADIMED CORPORATION (“IRADIMED”, the “Company”, “we”, “our”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The interim financial information is unaudited, but reflects all normal adjustments that are, in the opinion of management, necessary for the fair presentation of our financial position, results of operations and cash flows for the interim periods presented. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, and other interim periods, or future years or periods.

The accompanying interim condensed financial statements should be read in conjunction with the financial statements and related footnotes to financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022. The accounting policies followed in the preparation of these interim condensed financial statements, except as described in Note 1, are consistent in all material respects with those described in Note 1 of our Form 10-K.

We operate in one reportable segment which is the development, manufacture and sale of Magnetic Resonance Imaging (“MRI”) compatible medical devices, related accessories, disposables and service for use primarily by hospitals and acute care facilities during MRI procedures.

Certain Significant Risks and Uncertainties

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

We have deposited our cash and cash equivalents with various financial institutions. Our cash and cash equivalents balances exceed federally insured limits regularly throughout the year. We have not incurred any losses related to these balances.

Our medical devices require clearance from the FDA 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.

10

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

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. We have adopted previously mentioned ASU starting January 1, 2023 and it did not result in a material impact on our financial condition, results of operations or cash flows.

2 — Revenue Recognition

Disaggregation of Revenue

We disaggregate revenue from contracts with customers by geographic region and revenue type as we believe it best depicts the nature, amount, timing and uncertainty of our revenue and cash flow.

Revenue information by geographic region is as follows:

Three Months Ended

    

Six Months Ended

June 30, 

June 30, 

2023

    

2022

2023

    

2022

(unaudited)

(unaudited)

United States

$

12,949,526

$

10,816,691

$

24,928,050

$

20,796,032

International

 

3,180,870

 

1,904,878

 

6,677,430

 

4,236,247

Total revenue

$

16,130,396

$

12,721,569

$

31,605,480

$

25,032,279

Revenue information by type is as follows:

Three Months Ended

    

Six Months Ended

June 30, 

June 30, 

2023

    

2022

2023

    

2022

(unaudited)

(unaudited)

Devices:

  

 

  

 

  

 

  

MRI Compatible IV Infusion Pump Systems

$

4,522,568

$

3,853,016

$

10,061,383

$

7,134,955

MRI Compatible Patient Vital Signs Monitoring Systems

 

6,128,718

 

4,921,619

 

10,825,536

 

10,116,370

Ferro Magnetic Detection Systems

 

183,190

 

 

480,779

 

Total Devices revenue

 

10,834,476

 

8,774,635

 

21,367,698

 

17,251,325

Disposables, services and other

 

4,815,870

 

3,430,005

 

9,250,612

 

6,748,907

Amortization of extended warranty agreements

 

480,050

 

516,929

 

987,170

 

1,032,047

Total revenue

$

16,130,396

$

12,721,569

$

31,605,480

$

25,032,279

11

Contract Liabilities

Our contract liabilities consist of:

June 30, 

    

December 31, 

2023

2022

(unaudited)

Advance payments from customers

$

342,292

$

896,617

Shipments in-transit

 

19,833

 

14,696

Extended warranty agreements

 

4,365,107

 

3,837,006

Total

$

4,727,232

$

4,748,319

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

Deferred

Revenue

(unaudited)

Contract liabilities, December 31, 2022

$

4,748,319

Increases due to cash received from customers

 

2,464,337

Decreases due to recognition of revenue

 

(2,485,424)

Contract liabilities, June 30, 2023

$

4,727,232

Deferred

Revenue

(unaudited)

Contract liabilities, December 31, 2021

$

4,232,439

Increases due to cash received from customers

 

1,969,841

Decreases due to recognition of revenue

 

(2,288,798)

Contract liabilities, June 30, 2022

$

3,913,482

Capitalized Contract Costs

Our capitalized contract costs totaled $199,776 and $340,044 as of June 30, 2023 and December 31, 2022, respectively, and are classified as other assets on the unaudited condensed balance sheet.

3 — Basic and Diluted Net Income per Share

Basic net income per share is based upon the weighted-average number of common shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Stock options, restricted stock units and performance-based restricted stock units granted by us represent the only dilutive effect reflected in diluted weighted-average shares outstanding.

The following table presents the computation of basic and diluted net income per share:

Three Months Ended June 30, 

    

Six Months Ended June 30, 

2023

    

2022

2023

    

2022

(unaudited)

(unaudited)

Net income

$

4,179,840

$

3,241,052

$

7,585,910

$

5,727,766

Weighted-average shares outstanding — Basic

 

12,596,032

 

12,560,812

 

12,594,541

 

12,556,837

Effect of dilutive securities:

 

  

 

  

 

  

 

  

Stock options

 

19,333

 

19,168

 

18,893

 

22,784

Restricted stock units

 

69,112

 

52,775

57,610

 

61,803

Performance-based restricted stock units

 

38,540

 

 

35,564

 

Weighted-average shares outstanding — Diluted

 

12,723,017

 

12,632,755

 

12,706,608

 

12,641,424

Basic net income per share

$

0.33

$

0.26

$

0.60

$

0.46

Diluted net income per share

$

0.33

$

0.26

$

0.60

$

0.45

12

Stock options and restricted stock units excluded from the calculation of diluted net income per share because the effect would have been anti-dilutive are as follows:

Three Months Ended

    

Six Months Ended

June 30, 

June 30, 

2023

2022

2023

2022

(unaudited)

(unaudited)

Anti-dilutive stock options and restricted stock units

 

30,728

 

11,141

 

25,197

4 — Inventory, net

Inventory consists of:

June 30, 

    

December 31, 

2023

2022

(unaudited)

Raw materials

$

7,106,304

$

4,827,113

Work in process

 

754,670

 

369,761

Finished goods

 

960,776

 

411,647

Inventory before allowance for excess and obsolete

 

8,821,750

 

5,608,521

Allowance for excess and obsolete

 

(406,670)

 

(239,288)

Total

$

8,415,080

$

5,369,233

13

5 — Property and Equipment, net

Property and equipment consist of:

June 30, 

    

December 31, 

2023

2022

(unaudited)

Land

$

6,200,000

$

Computer software and hardware

1,271,277

1,121,455

Furniture and fixtures

 

1,695,772

 

1,573,587

Leasehold improvements

 

266,082

 

259,146

Machinery and equipment

 

2,419,147

 

2,210,181

Fixed assets in-process

 

617,760

 

665,773

 

12,470,038

 

5,830,142

Accumulated depreciation

 

(3,749,765)

 

(3,430,330)

Total

$

8,720,273

$

2,399,812

Depreciation expense of property and equipment was $162,121 and $142,710 for the three months ended June 30, 2023 and 2022, respectively, and $319,435 and $277,581 for the six months ended June 30, 2023 and 2022, respectively.

Land Acquisition

On February 2, 2023, the Company entered into a reinstatement and amendment to the previously announced sale and purchase agreement with O Property, Ltd., a Florida limited partnership dated as of November 1, 2022, pursuant to which the parties agreed to consummate a sale of real property located in Orange County, Florida. Pursuant to the terms of the Reinstatement, the parties consummated the sale of approximately 26.5 acres of land to the Company for a purchase price of $6,200,000. The property was acquired as a site for future development of manufacturing, research labs, and office space to accommodate our increased operations and anticipated growth.

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

June 30, 

    

December 31, 

2023

2022

(unaudited)

United States

$

8,528,821

$

2,248,308

International

 

191,452

 

151,504

Total property and equipment, net

$

8,720,273

$

2,399,812

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

14

6 — Intangible Assets, net

The following table summarizes the components of intangible asset balances:

June 30, 

    

December 31, 

2023

2022

(unaudited)

Patents — in use

$

321,874

$

321,873

Patents — fully amortized

 

70,164

 

70,164

Patents — in process

 

127,108

 

123,153

Internally developed software — in use

 

872,218

 

872,218

Internally developed software — in process

 

1,820,173

 

1,489,322

Trademarks

 

27,697

 

27,697

 

3,239,234

 

2,904,427

Accumulated amortization

 

(885,461)

 

(834,988)

Total

$

2,353,773

$

2,069,439

Amortization expense of intangible assets was $25,236 and $25,393 for the three months ended June 30, 2023 and 2022, respectively, and $50,473 and $50,649 for the six months ended June 30, 2023 and 2022, respectively.

Expected annual amortization expense for the remaining portion of 2023 and the next five years related to intangible assets is as follows (excludes in process intangible assets):

Six months ending December 31,2023

$

50,473

2024

$

100,544

2025

$

97,374

2026

$

85,658

2027

$

11,945

2028

$

9,343

7 — Fair Value Measurements

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

As of June 30, 2023 we did not have any asset or liabilities subject to recurring fair value measurements.

15

8 — Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, net of tax, for the three months ended June 30, 2023 and 2022 are as follows:

Unrealized (Losses)

Gains on

Available-For-Sale

Securities

(unaudited)

Balance at March 31, 2023

$

(Gain) Loss on available-for-sale securities, net

 

Reclassification realized in net earnings

 

Balance at June 30, 2023

$

Balance at March 31, 2022

$

6,127

(Gain) Loss on available-for-sale securities, net

 

(68)

Reclassification realized in net earnings

 

(6,059)

Balance at June 30, 2022

$

The components of accumulated other comprehensive income, net of tax, for the six months ended June 30, 2023 and 2022 are as follows:

Unrealized (Losses)

Gains on

Available-For-Sale

Securities

(unaudited)

Balance at December 31, 2022

$

(Gain) Loss on available-for-sale securities, net

 

Reclassification realized in net earnings

 

Balance at June 30, 2023

$

Balance at December 31, 2021

$

17,012

(Gain) Loss on available-for-sale securities, net

 

(10,953)

Reclassification realized in net earnings

 

(6,059)

Balance at June 30, 2022

$

9 — Stock-Based Compensation

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

Three Months Ended

    

Six Months Ended

June 30, 

June 30, 

2023

    

2022

    

2023

    

2022

(unaudited)

(unaudited)

Cost of revenue

$

62,430

$

7,955

$

124,173

$

87,379

General and administrative

 

291,346

 

10,604

 

580,730

 

207,374

Sales and marketing

 

169,160

 

62,253

 

306,367

 

199,675

Research and development

 

45,518

 

40,191

 

90,827

 

79,935

Total

$

568,454

$

121,003

$

1,102,097

$

574,363

As of June 30, 2023, we had $3,326,259 of unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2.46 years. As of June 30, 2023, we had

16

$730,618 of unrecognized compensation cost related to unvested performance-based restricted stock units, which is expected to be recognized over a weighted-average period of 2.21 years.

The following table presents a summary of our equity award activity for the six months ended June 30, 2023 (shares):

    

    

    

Performance

Based

Stock

Restricted

Restricted

Options

Stock Units

Stock Units

Outstanding beginning of period

24,010

 

151,337

 

27,884

Awards granted

 

3,656

 

Awards exercised/vested

(1,000)

 

(13,001)

 

Awards canceled/ forfeited

 

(70)

 

Outstanding end of period

23,010

 

141,922

 

27,884

10 — Income Taxes

For the three and six months ended June 30, 2023, we recorded a provision for income tax expense of $1,118,582 and $2,062,171, respectively. Our effective tax rate was 21.1 percent and 21.4 percent, respectively, and differed from the U.S. Federal statutory rate primarily due to U.S. state income tax expense, partially offset by benefits from foreign derived intangible income and research and development tax credits.

For the three and six months ended June 30, 2022, we recorded a provision for income tax expense of $938,631 and $1,511,926 respectively. Our effective tax rate was 22.5 percent and 20.9 percent respectively and differed from the U.S. Federal statutory rate primarily due to U.S. Federal income tax expense, partially offset by benefits from foreign derived intangible income and research and development tax credits.

As of June 30, 2023 and December 31, 2022, we had not identified or accrued for any uncertain tax positions. We are currently unaware of any uncertain tax positions that could result in significant payments, accruals, or other material deviations in this estimate over the next 12 months. We believe that our tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from ours, which could result in the imposition of additional taxes and penalties.

We file tax returns in the United States Federal jurisdiction and many U.S. state jurisdictions. Our returns are not currently under examination by the Internal Revenue Service. The Company remains subject to income tax examinations for our United States Federal and certain U.S. state income taxes for 2019 and subsequent years.

11 — Leases

We have entered into operating lease contracts for our manufacturing plant, office space, and various office equipment with one material lease contract outstanding.

In January 2014, we entered into a non-cancelable operating lease, commencing July 1, 2014, for our manufacturing and headquarters facility in Winter Springs, Florida owned by Susi, LLC, an entity controlled by our President, Chief Executive Officer, and Chairman of the Board, Roger Susi. Pursuant to the terms of our lease for this property, the monthly base rent is $34,133, adjusted annually for changes in the consumer price index. For the three months ended June 30, 2023 and 2022, the Company paid Susi, LLC $127,817 and $118,504 respectively. For the six months ended June 30, 2023 and 2022, the Company paid Susi, LLC $255,635 and $237,008 respectively. For the year ended December 31, 2022, the Company paid Susi, LLC $492,643 related to this lease. Under the terms of the lease, we are responsible for 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

17

for successive terms of one year each. At the time we adopted ASU 2016-02, Leases (Topic 842), we concluded that we would exercise the remaining five-year option, resulting in a remaining lease term of 6.8 years as of June 30, 2023. This lease agreement does not contain any residual value guarantee or material restrictive covenants.

In February 2023, we entered into two, two-year, non-cancelable operating leases with non-related parties for additional office space in Winter Springs, Florida. Pursuant to the lease terms the total monthly base rent is $10,055. For the three months ended June 30, 2023 and 2022, the Company paid $30,165 and $0 respectively. For the six months ended June 30, 2023 and 2022, the Company paid $52,975 and $0 respectively. Under the terms of the lease, we are responsible for insurance and maintenance expenses. Pursuant to the contract terms, the leases will expire February 2025 and do not contain any residual value guarantee or material restrictive covenants.

We will reassess the lease accounting terms and assumptions once the details regarding completion of a new manufacturing facility and planned departure of the current primary facility is finalized.

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

Three Months Ended

    

Six Months Ended

June 30, 

June 30, 

2023

2022

2023

2022

(unaudited)

(unaudited)

Cost of revenue

$

58,086

    

$