Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-K
 
FORM
10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20202021
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 number
001-09341
 
iCAD, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
02-0377419
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
98 Spit Brook Road, Suite 100,
Nashua, New Hampshire

 
03062
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (603)(603
)
882-5200
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, $0.01 par value
 
ICAD
 
The NASDAQ Stock Market LLC
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 
    No 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section
 15(d) of theth
e Act.    Yes 
    No 
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 requirement for the past 90 days.    Yes ☒    No 
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit).
Yes 
    No 
.☐.
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   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. 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act).   
Yes
    No  ☒
The aggregate market value of the voting stock held by
non-affiliates
of the registrant, based upon the closing price for the registrant’s Common Stock on June 30, 20202021 was $208,752,980.$400,889,699. Shares of voting stock held by each officer and director and by each person who, as of June 30, 2020,2021, may be deemed to have beneficially owned more than 10% of the outstanding voting stock have been excluded. This determination of affiliate status for purposes of this calculation is not necessarily a conclusive determination of affiliate status for any other purpose.
As of
March 8, 2021,
21
, 2022
, the registrant had 24,918,45825,172,491 shares of its common stock outstanding.
Documents Incorporated by Reference: Certain portions of the registrant’s definitive Proxy Statement for its 2021202
2
 Annual Meeting of Stockholders are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form
10-K.
 
 
 


Table of Contents
Special Note Regarding Forward Looking Statements
Certain information included in this Annual Report on Form
10-K
and the documents incorporated by reference herein, that are not historical facts, contain forward“forward looking statements” within the meaning of the federal securities laws made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements that involve a number of known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to, the continued impact of the
COVID-19
pandemic, itsthe ability to achieve business and strategic objectives, the risks of uncertainty of patent protection, the impact of supply and manufacturing constraints or difficulties, uncertainty of future sales levels, protection of patents and other proprietary rights, the impact of supply and manufacturing constraints or difficulties, product market acceptance, possible technological obsolescence of products, increased competition, litigation and/or government regulation, changes in Medicare reimbursement policies, risks relating to our existing and future debt obligations, competitive factors, the effects of a decline in the economy or markets served by the Company, and other risks detailed in this report and in the Company’s other filings with the United States Securities and Exchange Commission (“SEC”(the “SEC”). The words “believe”, “demonstrate”, “intend”, “expect”, “estimate”, “anticipate”, “likely”, “seek”, “would”, “could”, “may”, “consider”, “confident” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
Unless the context otherwise requires, the terms “iCAD”, the “Company”, “we”, “our”, “registrant”, and “us” meansmean iCAD, Inc. and its consolidated subsidiaries.
PART I
 
Item
 
1
.
Business
.
General
iCAD, Inc. is a global medical technology company providing innovative cancer detection and therapy solutions. The Company reports in two operating segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). Originally incorporated in Delaware in 1984 as Howtek, Inc., the Company changed its name in 2002 to iCAD, Inc. The Company’s headquarters are located in Nashua, New Hampshire. Xoft, Inc., Xoft Solutions LLC and iCAD France LLC are wholly owned subsidiaries of iCAD, Inc. and are consolidated for reporting purposes.
iCAD continues to evolve from a business focused on image analysis for the early detection of cancers to a broader playerparticipant in the cancer therapy market. The Company’s strategy is to provide patients and clinicians with a broad portfolio of innovative clinical and workflow solutions and technologies that address the two primary stages of the cancer care cycle, namely detection and treatment. The Company believes that its products can enhance early cancer detection and earlier targeted intervention, which could result in better health outcomes, overall savings to the healthcare system, and increased market demand and adoption of iCAD’s solutions.
Cancer Detection Segment
Background and Overview
According to the World Cancer Research Fund, breast cancer is the most common cancer in women worldwide, and the second most common cancer overall, with more than two million new cases diagnosed worldwide in 2020. Approximately 39 million mammography procedures were performed in the United States in 2020. 2021.
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Although mammography is the most effective method for early detection of breast cancer, studies have shown
2

that an estimated 20% or more of all breast cancers go undetected in the screening stage. The American Cancer Society estimates that, overall, screening mammograms do not find approximately one in five breast cancers. Observational errors are responsible for more than half of cancers missed, but products which utilize artificial intelligence (“AI”) and computer-aided detection (“CAD”) have been proven to reduce the risk of observational errors in mammography. These cancer detection solutions can improve interpretation workflow by using sophisticated deep learning artificial-intelligenceAI algorithms designed to rapidly and accurately analyze image data and mark suspicious areas in the image that may warrant a second lookmore attention or possiblyhighlight the possibility that the area may contain a subtle, but significant abnormality. While breast cancer has been the primary focus of iCAD’s detection technology, the underlying technology has potential applications to aid in the diagnosis of many additional types of cancer.
In the United States, digital breast tomosynthesis (“DBT”) is rapidly replacing full-field digital mammography (“FFDM”) in breast cancer screening due to itsDBT’s clinical value in cancer detection. However,According to the United States Food and Drug Administration (the “FDA”), as of February 1, 2022, the United States alone had approximately 8,745 Mammography Quality Standards Act (“MQSA”) certified facilities which provide mammography screening. These facilities operate approximately 23,873 MQSA accredited FFDM and/or DBT presentsunits with many of these units capable of both FFDM and DBT mammography. While many of these centers still use 2D FFDM systems, either alone or in combination with DBT systems, the Company believes approximately 11,000 of the mammography units in the United States are DBT capable based on January 2022 MQSA data. DBT greatly increases image data relative to FFDM, which creates significant workflow challenges tofor radiologists who face the additional workload and time required to accurately read the extensive amountall of increasedthe image data contained in DBT cases. Further, as incidence rates of cancer continue to rise, it is becoming increasingly important to find cancer sooner, optimize radiology workflow and reduce unnecessary recalls resulting from false positives. iCAD’s technology has the potential to address each ofaddresses these challenges.
The Company offerschallenges with a variety of AI, CAD, and breast density and short-term risk assessment solutions for use with mammography, breast tomosynthesis,DBT, and Computed Tomography (“CT”) imaging, atto enhance both the detection and diagnosis stages of the cancer care cycle. These products have the potential to help healthcare providers better detect cancer and improve workflow efficiency.
The Company completed development oflaunched Profound AI, a DBT cancer detection and workflow solution built on AI using deep learning in 2015 and launched the productAI in the European market in April 2016, inUnion (the “EU”) and Canada in June 2016 and, after receiving FDA premarket approval in the United States after U.S. Foodin 2017. Most recently, ProFound AI 3.0 received FDA 510(k) clearance in March 2021 for commercial use in the United States for reading DBT exams generated using compatible DBT systems. This latest version of ProFound AI offers clinical and Drug Administration (“FDA”) premarket approvalworkflow improvements over the prior version.
The Company’s 2D FFDM breast density solution received FDA 510(k) clearance in April 2017. TheDecember 2013. In December 2018, the Company also developed a breast density assessment product for tomosynthesis that assesses breast density using 2D synthetic images that are generated from 3D tomosynthesis datasets. The Company’s 2D FFDM breast density solution received FDA 510(k) clearance in December 2013 and the Company added 2D synthetic image support in December 2018.
In July 2020, the Company introducedreceived a CE mark in the European Economic Area (the “EEA”) for ProFound AI Risk, the world’s first
image-based 2-year risk
assessment model. This novel risk model whichthat assesses short-term breast cancer risk based primarily on information found in a 2D mammogram, received a CE mark in Europe.mammogram. In September of 2020, ProFound AI Risk for 2D was introduced in the U.S. market as a decision support tool for radiologists. On March 12,In September 2021, ProFound AI 3.0Risk for DBT was cleared by the FDA, throughlaunched as a 510(k) review,clinical decision support tool that provides an accurate short-term breast cancer risk estimation that is truly personalized for commercial use in the United States for reading DBT exams from compatible DBT systems. This new version offers additional clinical and workflow improvements when compared to the previous version of the product.
According to the FDA, as of January 2021, the United States alone had approximately 8,677 Mammography Quality Standards Act (“MQSA”) certified facilities providing mammography screening, which contained approximately 22,553 MQSA accredited FFDM and DBT units. While the majority of these centers are still usingeach woman, based only on a 2D FFDM systems either alone or in combination with DBT, the Company believes approximately 73% of the units are DBT capable units based on January 2021 MQSA data.
3D mammogram.
Based on the number of DBT units relative to the total units left to be converted to DBT, and accordingly the associated large number of installation opportunities, the Company believes that its cancer detection, and breast density assessment and risk assessment solutions for DBT may represent a significant growth opportunity in the United States. The Company believes that there is also a growth opportunity for 2D mammography AI solutions in international markets, both from the analog to digital conversion and as more countries adopt the practice of radiologistseach exam being read by a single radiologist using AI, rather than the alternative practice of having two radiologists read each
4

case. Furthermore, someadditional western European countries have already implemented, or are planning to implement, mammography screening programs, which may increase the number of mammograms performed in those countries.
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Breast Health Solutions Suite
The Company’s breast health solutions suite includes cancer detection solutions, for 2D and 3D mammography, automated breast density assessment, for 2D and 3D mammography, and breast cancer risk assessment, all for both 2D mammography with plans to introduce support for breast cancer risk assessment forand 3D mammography in 2021.mammography. These solutions are designed to improve clinicians’ performance and enhance breast cancer screening.
PowerLook
PowerLook is the Company’s
back-end
architecture platform, which hosts the AI algorithm solutions and manages the communications between (i) imaging acquisition systems (“Gantries”), and (ii) image storage and review systems such as Picture Archive and Communication Systems (“PACS”) and (iii) breast imaging viewing and interpretation systems. As workflow andWorkflow efficiency areis critical in digital imaging environments and PowerLook was designed to streamline these processes. PowerLook includes a powerful and flexible DICOM (Digital Image and Communications in Medicine) compliant connectivity solution, which is designed to enable universal compatibility with leading PACS and review workstations. iCAD has worked with its industry partners to ensure optimal integration into the graphical user interface of their PACS and review workstations. The algorithms supported on the Powerlook platform have also been optimized for, and tested with, each supported digital imaging acquisition manufacturer based upon the characteristics of their unique detectors.components.
The Company has released a new generationPowerLook v10.2, the latest version of the PowerLook platform, (version 10.0), which consists of a hybrid-server environment, where algorithm processing still
occurs on-premise (within
the hospital) but thelicense activation and usage tracking of the usage is possible inexecuted via the cloud. This makes it possible forenables iCAD to implement operational-budgetvarious pricing and payment models, andincluding various subscription-based models. This platform can be compartmentalized to integrate into other infrastructure, such as direct integration into imaging system infrastructure or the eventual potential offering of a gradual switch to the recurring revenue stream. This is a stepping stone to potentially hosting the Company’s algorithms purely in the cloud, and could enable scalability and a future SaaS business model for the Company.cloud-hosted
Software-as
a-Service
(SaaS) model.
SecondLook
SecondLook is a machine learning-based cancer detection algorithm that analyzes 2D FFDM images to identify and mark suspicious masses and calcifications. This technology provides radiologists with a “second look” that helps detect potentially actionable cancers earlier than screening mammography alone. SecondLook uses a sophisticated, patented machine learning algorithm designed to identify the masses and calcifications that are most likely to be malignant. The algorithm was trained using data from 2D mammography studies, enabling the product to distinguish between characteristics of cancerous and normal tissue. This enablesdifferentiation results in earlier detection of
hard-to-find
cancers, improved workflow for radiologists, and higher quality patient care. SecondLook first received FDA premarket approval in 2002 and is currently available in the United States, Canada, and select countries in Europe and Asia.
Automated Density Assessment, 2D and 3D
The Company’s Automated Density Assessment solution aids radiologists by standardizing their approach to breast density assessment and categorization. The solution provides an automated, consistent and standardized breast density assessment based on the American College of Radiation’sRadiology’s
BI-RADS
5
th
Edition density categorization system, which is particularly important in the United States as at least 38 states that mandate reporting aand the District of Columbia require some level of breast density scorenotification to patients as part of their annualscreening mammogram. TheIn July 2021, the Company introduced the latest version of the Company’s automated density solution, which addedwas the
first-to-market
deep learning breast density assessment algorithm based on 2D synthetic images generated by DBT gantries from multiple vendors, including Hologic Medical Technology (Hologic) and Siemens. In addition, the product continues to support for the syntheticbreast density assessment based on 2D images from GE and Hologic, received FDA 510(k) clearance in August 2018.leading FFDM manufactures.
 
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ProFound AI, 2D and 3D
DBT was introduced in the United States in 2010. Tomosynthesis2010 and has been demonstrated to have multiple advantages over 2D mammography, including improved tissue visualization and detection resultingthat results in lower recall rates for patients. Clinical studies indicate that DBT improves the ability to distinguish malignant from benign tumors and can better detect malignant lesions hidden by overlapping tissues. This helpstissues, each of which can reduce the number of unnecessary biopsies and false positive recall rates. Initial studies have indicated that physicians using tomosynthesisDBT have the ability to detect 41% more invasive cancers than those using conventional2D mammography, and also have reduced false-positivescan reduce false-positive reads by up to 15%.
While DBT has been shown to have clinical benefits for screening mammography, it can also significantly increase radiologist’sradiologist interpretation time.time compared to 2D mammography.
AI-based
AIsolutions can also play an important role in improvingsignificantly improve the efficiency and efficacy of reading breast tomosynthesis cases by identifying and highlighting suspicious breast masses and calcifications.
In early 2018, the Company received the CE mark for its multi-vendor, artificial intelligence DBT cancer detection and workflow solution, Powerlook Tomo Detection 2.0, which was later rebranded as ProFound AI for DBT. The product also received clearance for clinical use in Canada in
mid-2018
and was FDA 510(k) cleared in December 2018. On March 12, 2021, ProFound AI 3.0 was cleared by the FDA, through a 510(k) review, for commercial use in the United States for reading DBT exams from compatible DBT systems. This new version offers additional clinical and workflow improvements when compared to the previous version of the product.
ProFound AI for DBT is aiCAD’s deep-learning algorithm specifically designed to detect malignant soft-tissue densities and calcifications in DBT exams by analyzing each DBT image, or slice. In early 2018, the Company completed a
non-FDA
large multi-reader, multi-case crossover design clinical reader study, which concludedshowed that ProFound AI increasedcan increase radiologist clinical performance by improving radiologist sensitivity by an average of 8%, improving radiologist specificity by an average of 6.9% and reducingreduce recall rates in
non-cancer
cases by an average of 7.2%. The reader study also showed that the product can reduce DBT reading times by an average of 52.7%. Results from this reader study were published in the peer-reviewed journal,
Radiology: Artificial Intelligence
, in July 2019.
In 2018, the Company received regulatory clearances in the EU, Canada, and the U.S. for its multi-vendor, DBT AI cancer detection and workflow solution, Powerlook Tomo Detection 2.0, which was subsequently rebranded ProFound AI for DBT. In 2019, the Company launched ProFound AI for 2D, a similar AI cancer detection and workflow solution for 2D mammography. Profound AI for 2D is CE approved and primarily targets the European market, where 2D mammography remains the predominant procedure for breast cancer screening. On March 12, 2021, Version 3.0 of ProFound AI for DBT cleared FDA510(k) review for use in commercial reading of DBT exams from compatible DBT systems. ProFound AI for DBT Version 3.0 included algorithm changes that improved both sensitivity and specificity in reading DBT exams versus prior versions and included the Profound AI for 2D algorithm as a feature within ProFound AI for DBT. In May 2021, the Profound AI for 2D algorithm received EU approval for use with Fuji and Hologic Clarity HD DBT systems. In the fall of 2021, ProFound AI 3.0 for DBT added support for images acquired with Hologic’s Clarity HD DBT system as well as adding support for highlighting suspicious findings in GE, Hologic, and Siemens systems’ synthetic 2D images and in Hologic’s 3D Quorum slab images.
iCAD willplans to continue toits focus on (i) advancing the performance of its ProFound AI for DBT solution through algorithm improvements and additional training on larger datasets.
datasets, and (ii) building clinical support for and adoption of its products and solutions. iCAD has presented ProFound AI for DBT data from numerous studies at various prominent industry meetings and trade shows. Information about past presentations and future announcements can be found in press releases on the company’s website at www.icadmed.com/press-releases. The Company has Original Equipment Manufacturer (“OEM”) relationships with GE,General Electric Company (“GE”), Siemens AG (“Siemens”), and Fuji Medical Systems’ women’s health businessesFUJIFILM Corporation (“Fuji”) and expects to use ProFound AI to expand its OEM partnerships with other mammography system andsystems, PACS providers. In 2020, one of the largest outpatient medical imaging providers, and largest physician radiology practices in the United States adopted ProFoundcloud-hosted AI throughout its nationwide network. In 2020 iCAD entered into a five-year partnership with Solis Mammography, the largest independent provider of mammography and breast health services in the United States, whereby iCAD will provide Solis Mammography’s nationwide network with its latest AI breast health solutions, including ProFound AI for DBT and ProFound AI Risk.
The Company also developed ProFound AI for 2D Mammography, which is targeted at the European market, where 2D mammography remains the primary procedure for breast cancer screening. ProFound AI for 2D Mammography was launched in Europe in June 2019 at the Société Française d’Imagerie de la Femme medical conference and received CE approval in July 2019.platform providers.
ProFound AI
Risk, 2D and 3D
ProFound AI Risk is the first and only commercially available clinical decision support tool that provides an accurate and personalized
two-year
estimate of short-term breast cancer risk, estimation, based solely on a screening mammogram.
6

The Company worked with leading researchers at the Karolinska InstitutetInstitute in Stockholm, Sweden, one of the
5

world’s foremost medical research universities, to createdevelop and clinically validate ProFound AI Risk. ProFound AI Risk is driven primarily by data from existing mammography images. Unlike existing risk models that focus on longer term risk based on family history and clinical lifestyle factors to estimate longer term risk, ProFound AI Risk focuses on a short-term risk interval. The estimation of risk of cancer occurrence within the next one to two years provides potentially different information on which to base further action relative to an elevated life-time risk of breast cancer. iCAD believes short-term risk models such as ProFound AI Risk will enable risk-based screening approaches rather than the age/ -based approach of annual screening. The
COVID-19
pandemic has highlighted the benefit of risk-based screening as several medical societies recommended that women of average risk postpone their routine annual mammograms until the threat of
COVID-19
had passed. As mammography screening begins to evolve from what has traditionally been an
age-based
annual screening paradigm to a short-term risk-based paradigm in the years ahead, iCAD is on the leading edge of this shift.
ProFound AI Risk for 2D FFDM received a CE Mark in EuropeEEA in July 2020 and Profound AI 3.0 was cleared by the FDA, through a 510(k) review, on March 12, 2021. Inin September 2020, iCAD announced the publication of data in the peer-reviewed journal,
Radiology
, indicating that ProFound AI Risk more accurately identifies the prospect of near-term development of breast-cancer than traditional risk models.
Magnetic Resonance Imaging (“MRI”) Applications—Breast and Prostate Cancer Detection
In addition to mammography and CT imaging modalities,The October 2021 launch of the interpretationlatest version of MRI exams also benefits from advanced image analysis andProFound AI Risk was a significant achievement for iCAD, as this leading-edge technology is the first commercially available clinical decision support tools. Radiologists turntool that provides an accurate short-term breast cancer risk estimation truly personalized for each woman. The latest version of ProFound AI Risk offers the flexibility to MRIwork with 2D and 3D mammography images with high accuracy, showing over 10% improvement in AUC, a commonly used statistical measure of clinical accuracy, when compared to examine the soft tissues, blood vessels,Gail and organs
Tyrer-Cuzick
conventional lifetime risk models. The latest version of ProFound AI is designed for global application, able to (i) provide a one, two or three-year risk estimation, (ii) factor in ethnic and racial backgrounds in the head, neck, chest, abdomen, and pelvis to help them diagnose and monitor tumors, heart problems, liver diseases and other organs, such as breast and prostate for possible links to cancer. MRI uses magnets and radio waves instead of
x-rays
to produce very detailed, cross-sectional imagesassessment of the body,score, and (iii) factor in country specific screening guidelines and incident and mortality rates.
Expansion of Software Licensing Model Options for the Breast Health Solutions Suite
iCAD has historically offered solely perpetually-licensed software, primarily
pre-installed
on and sold with an iCAD configured, third-party manufactured server, capable of optimally running the software. As a result, customers using this model can only classify iCAD software and hardware as a capital purchase for accounting purposes by making a single
up-front
payment.
Beginning in 2022, iCAD will offer the full suite of software in a variety of more flexible and customer accessible options. First, iCAD will uncouple the purchase of iCAD software from the purchase of hardware. Second iCAD will evaluate a range of software licensing models designed to accommodate both capital and operating purchasing for customers. To make iCAD software more flexible, the Company’s software has been developed to run as a self-contained software package, making it executable within a variety of infrastructure environments, including iCAD configured servers, alternatively sourced specification-compliant servers, virtualized environments, integrations into channel partner infrastructure and cloud-based hosting servers. iCAD will continue to sell iCAD configured servers to customers who prefer a single-vendor, turnkey solution with guaranteed compatibility and support. The Company is actively evaluating software licensing models.
iCAD will continue to offer existing perpetual-license model for the Company’s software to as many customers who prefer a
one-time
purchase which effectively provides ownership of the license. For those customers who need or prefer an operating expense model or minimal capital investment, iCAD is evaluating subscription models for the same
on-premises
software products. If customers or channel partners have specification compliant infrastructure, iCAD may be usedable to look specifically at those areas. We previously developed MRI assets which were subsequentlylicense the Company’s software under either model.
Once a subscription model is offered, it will, by definition, result in reduced short-term revenue attributable to each customer electing a subscription license in lieu of a perpetual license. For example, when a perpetual license on a representative product is sold, and are exploring future possible opportunities in MRI applications.
MRI is an effective tool to detect breast cancer as well as prostate cancer. While MRI is a more expensive option than traditional mammography, it enables physicians to view tumors which may have been missed during routine screenings. The American Cancer Society published guidelinesrevenue in the March/April 2007
CA: A Cancer Journalquarter of Clinicians
, recommending that women at high risk for breast cancer augment their annual mammogram with an annual breast MRI. The guidelines recommended MRI scans for women with a lifetime risk of breast cancer of
20%-25%
or greater, including women with a strong family history of breast or ovarian cancer and women who were treated for Hodgkin’s disease. The American College of Radiology and Society of Breast Imaging endorsed these recommendations in the
Journal of the American College of Radiology
.
Accurate staging of prostate cancer has been a significant challenge for practitioners. Of the over 225,000 men who are diagnosed with prostate cancer every year in the United States, most have slow-growing tumors that likely will not leadsuch sale could range from approximately $25,000 to death or require invasive treatment, though the diagnosis does cause patient anxiety and requires close monitoring. With advanced diagnostic imaging tools, physicians may more accurately stage the severity of prostate cancer and minimize$35,000 per license/per gantry depending on numerous factors. That same installation under a patient’s exposure to unnecessary and painful biopsies.
In the future, the Company believes that MRI imaging may have an expanded role in the management of prostate cancer patients, particularly for management strategies involving active surveillance. As more men consider “watchful waiting” or delaying active treatment of their cancer, advances in imaging will help inform these decisions, based more on better imaging than on assumptions relating to estimates of growth of prostate cancer.
Prostate Cancer Screening
Prostate Al
In the United States alone, there are over 225,000 cases of prostate cancer diagnosed annually. The annual global volume is estimated to be at least 650,000 in developed countries.
Over the past several years, the use of the Prostate – Specific Antigen (“PSA”) screening has declined, resulting in
sub-optimal
screening for prostate cancer. More recently, multi-parametric MRI has been relied upon increasingly for both initial diagnosis and for tracking of men previously diagnosed and in “active surveillance.”
 
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Table of Contents
subscription model could result in monthly revenue of approximately $800 to $1,200 for an expected minimum of three years or more, depending on cancellation terms and the duration of a customer’s subscription.
iCAD is committed to providing solutions that will enable as many customers to purchase or utilize the Company’s products. The Company’s Therapy business and the services and hardware product portions of the Detection business are expected to remain unchanged in the coming year. The subscription licensing model is currently being evaluated and the short-term and long-term impacts on the Company’s results of operations are being tested, although iCAD believes subscriptions will be relatively slow to accumulate over time and will be largely additive to the perpetual license business. Additive customers will have positive revenue impact and while the transition of perpetual license customers to subscription customers will have negative effects in the short term, iCAD expects this to impact a limited fraction of the overall revenue base of the Company in 2022. The Company intends to explore opportunities inis also currently evaluating the prostate screening market, including to seek to acquire large data setsfuture potential of prostate images and develop new and unique algorithms to assistproviding a SaaS subscription model with the reading, interpretation and detection of proliferative prostate disease.
The Company will be required to complete development and then seek and obtain clearancehosting its software from the FDA prior to being able to offer and sell the product to end users.cloud.
Colon Cancer Screening
Background and Overview
Colon cancer is the third most common cancer diagnosed globally, with more than 1.1 million new cases diagnosed worldwide in 2020.
CT is a well-established and widely used imaging technology that is used to image cross-sectional “slices” of various parts of the human body. When combined, these “slices” provide detailed volumetric representations of the imaged areas. With recent image quality improvements and greatly increased imaging speeds, CT imaging use has expanded in both the number of procedures performed as well as the applications for which it is utilized. While the increased image quality and number of cross-sectional slices per scan provides valuable diagnostic information, it adds to the challenge of managing and interpreting the large volume of data generated. The Company believes that the challenges in CT imaging present it with opportunities to provide automated image analysis and clinical decision support solutions.
CT Colonography (“CTC”) is a less invasive technique than traditional colonoscopy for imaging the colon when screening for cancer. However, the process of reading a CTC exam can be lengthy and tedious as the interpreting physician is often required to traverse the entire length of the colon multiple times. CAD technology can play an important role in improving the accuracy and efficiency of reading CTC images by automatically identifying and highlighting polyps that can progress into cancer. CAD technology has been developed to aid radiologists in their review of CTC images as a means of improving polyp detection. The Company believes that CAD could become an important adjunct to CTC
.
Colon Cancer Screening Products
VeraLook
Colon cancer is the third most common cancer diagnosed globally, with more than 1.1 million new cases diagnosed worldwide in 2020. CT is a well-established and widely used imaging technology that is used to image cross-sectional “slices” of various parts of the human body. While the increased image quality and number of cross-sectional slices per scan offered by CT provides valuable diagnostic information, it adds to the challenge of managing and interpreting the large volume of data generated. CT Colonography (“CTC”) is a less invasive technique for imaging the colon when screening for cancer than a traditional colonoscopy. However, the process of reading a CTC exam can be lengthy and tedious as the interpreting physician is often required to traverse the entire length of the colon multiple times. CAD technology can play an important role in improving the accuracy and efficiency of reading CTC images by automatically identifying and highlighting polyps that can progress into cancer.
VeraLook is the Company’s
FDA-cleared
solution designed to support detection of colonic polyps in conjunction with CTC. The product is distributed with advanced visualization reading workstations manufactured by Vital Images (an affiliate of Toshiba Medical System Group) and Philips Healthcare. It is a natural extension of the Company’s core competencies in image analysis and image processing.
Field testing of the product was initiated in 2008. Results of the Company’s multi-reader clinical study demonstrated that the use of VeraLook improved reader sensitivity by 5.5% for patients with both small and large polyps, and slightly reduced specificity of readers by 2.5%. The clinical relevance of VeraLook was improved overall reader performance while maintaining high reader specificity.
VeraLookCE marked in 2009, received FDA 510(k) clearance in 2010 and was CE marked in 2009.
The VeraLook CTC computer aided detection product is currently distributed globally by Vital Images, an affiliate of Canon Group,with advanced visualization reading workstations and by Philips Healthcare in the U.S. market. VeraLook is integrated with the CTC applications of both companies.
manufactured by Canon Medical Systems and Philips Healthcare.
7Potential Future Cancer Detection Products Development
The Company’s current primary focus is on image analysis and workflow solutions leveraging AI in 2D mammography and DBT applications, however, iCAD’s core technologies and product development capabilities can be applied to any imaging modality, including
x-ray,

CT, ultrasound, and Magnetic Resonance Imaging (“MRI”). Additionally, the Company could develop products that can be applied to screening and/or diagnosis of various additional cancer types such as prostate, lung, and brain cancers, as well as screening and/or diagnosis of disease related to visually differentiated tissue abnormalities. The Company continues to evaluate the adjacent or complementary opportunities in image analysis workflow solutions for future product development and commercialization possibilities.
Cancer Therapy Segment
Background and Overview
Radiation therapy is the medical use of ionizing radiation, generally as part of cancer treatment to control or kill rapidly dividing malignant cells. Radiation therapy may be curative in a number ofnumerous types of cancer if the cancer cells are localized to one area of the body. It may also be used as part of curative therapy to prevent tumor
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recurrence after surgery to removesurgical removal of a primary malignant tumor (for example, early-stage breast cancer). The clinical goal in radiation oncology is to deliver the highest radiation dose possible directly to the tumor to kill the cancer cells, while minimizing radiation exposure to healthy tissue surrounding the tumor in order to limit complications and side effects.
The
three main types of radiation therapy are (i) external beam radiation therapy (“EBRT”), which involves a radiation source positioned outside the body, (ii) brachytherapy, in which uses sealed radioactiveradiation sources placed precisely insideare temporarily or permanently inserted in the body, inwithin the treatment area, and (iii) systemic radioisotopes, which are given by infusion or oral ingestion. Brachytherapy uses temporary or permanent placement of radioactive sources.
Conventional EBRT typically involves multiple treatments of a tumor in up to 40 radiation sessions.treatment sessions for a tumor. Brachytherapy offers the benefit of reduced radiation exposure to healthy tissues further away from the radiation source. In addition, if the patient moves or if there is any tumor movement within the body during treatment, the radiation source retains its correct position in relation to the tumor. Thus, brachytherapy offers an advantage over EBRT in its ability to better direct high doses of radiation to the size and shape of the cancerous area while sparing healthy tissue and organs.
Brachytherapy is commonly used as an effective treatment for endometrial, cervical, prostate, breast, and skin cancer, and can also be used to treat tumors in many other body sites. Electronic Brachytherapy (“eBx”) is a type of radiotherapyradiation therapy that utilizes a miniaturized, electronically stimulated, high dose rate
X-ray
source to apply radiation directly to the cancerous site. Unlike live isotope sources used in some brachytherapy, eBx only emits radiation when desired and the radiation dosage can be accurately controlled. eBx may also be used in Accelerated Partial Breast Irradiation (“APBI”), which concentrates the radiation therapy on a smaller focal point than conventional EBRT, allowing higher concentrations of radiation over fewer treatment sessions.
Cancer Therapy Products
Introduction
The Xoft Axxent Electronic Brachytherapy (“eBx”) System (“Xoft System”) is aiCAD’s proprietary electronic brachytherapy platform designed to deliver isotope-free
(non-radioactive)
radiation treatment in virtually any clinical setting without the limitations of radionuclides. It is
FDA-cleared,
CE marked and licensed in a growing number of countries for the treatment of cancer anywhere in the body, including early-stage breast cancer,
non-melanoma
skin cancers (“NMSC”), and gynecological cancers. The Xoft System utilizes a miniaturized high dose rate, low energy
X-ray
source to apply radiation directly to the cancerous site. The goal is to direct the radiation dose directly to the size and shape of the cancerous area while sparing healthy tissue and organs. While delivering clinical dose rates similar to traditional radioactive systems, the electronic nature of the Xoft System technology provides a faster dose
fall-off
which lowers the radiation exposure outside of the targeted area and eliminates the need for dedicated shielded treatment environment such as that required with traditional isotope-based radiation therapy. As the Xoft System is relatively compact, it can easily be transported for use in virtually any clinical setting under radiation oncology supervision (including the operating room, where intraoperative radiation therapy (“IORT”) is delivered).
The Xoft System is
FDA-cleared,
CE marked and licensed in an increasing number of countries for the treatment of cancer anywhere in the body. Active customers include university research and community hospitals, cancer care clinics, veterinary facilities, and dermatology offices with established strategic partnerships with radiation oncology service providers for supervised treatment delivery. The Company’s commercial focus for the Xoft System in recent years has been the treatment of early-stage breast cancer, gynecological cancers, and NMSC.
non-melanoma
skin cancer (“NMSC”). Emerging applications include a wide and growing array of cancers, including brain prostate and rectal tumors. Given that the Xoft System has regulatory clearance for the treatment of cancer anywhere in the body, treatments for emerging applications may not require additional regulatory clearance.
The Xoft System delivers clinical dose rates similar to traditional radioactive systems. However, because of the electronic nature of the Xoft System technology, the dose
fall-off
is faster. This lowers the radiation exposure outside of the targeted area and eliminates the need for a dedicated shielded treatment environment such as that required with traditional isotope-based radiation therapy. Because the Xoft System is relatively small in size, it can easily be transported for use in virtually any clinical setting under radiation oncology supervision (including the operating room where intraoperative radiation therapy (“IORT”) is delivered). Current customers of the Xoft System include university research and community hospitals, cancer care clinics, veterinary facilities, and dermatology offices that have established strategic partnerships with radiation oncology service providers for supervised treatment delivery.
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Cancer Therapy Products
Background and Overview
Approximately 300,000 women are diagnosed with breast cancer every year in the United States. Currently, many early-stage breast cancer patients who are treated with radiation therapy follow a
four-to-six-week
daily protocol of traditional external beam radiation, while a small portion are treated with brachytherapy. IORT aims to simplify radiation treatment for early-stage breast cancer patients by delivering one precise dose of radiation directly to the lumpectomy cavity in a single, safe and effective procedure. The Xoft System may also be used for accelerated partial breast irradiation (“APBI”).
The Company continues to make enhancements to the Xoft System controller (the “Controller”) unit, including upgrades to the software interface and the high voltage connection, and the Streamlined Module for Advanced Radiation Therapy (“SMART”) platform which uses the Axxent Hub, iCAD’s proprietary cloud-based oncology collaboration software solution. The SMART platform is an adaptive, patient-centric solution designed to improve the eBX
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program’s workflow efficiency, flexibility, safety, and security of a skin eBx program.security. This comprehensive
Wi-Fi
enabled platform provides all members of thea care team with a collaborative environment in which to manage patient workflow and is
Wi-Fi
enabled, eliminatingeliminate challenges related to exchanging current, accurate patient data among providers.
In addition to the Controller unit, the Company offers a 50kV isotope-free energy source, indication-specific applicators, a comprehensive service warranty program, and various accessories such as the Axxent eBx Rigid Shield for internal IORT shielding. The 50kV energy source is typically sold under an annual contract and is customized to individual customer volume and usage requirements. The Company offers
FDA-cleared
applicators for the utilization of the Xoft System, including breast applicators for IORT and APBI in the treatment of breast cancer, vaginal applicators for the treatment of endometrial cancer, cervical applicators for the treatment of cervical cancer, and skin applicators for the treatment of NMSC. The flexible
single-use
breast and brain applicators are offered in a variety of sizes and lengths based on clinical need. The endometrial, cervical, rectal, and skin applicators are reusable and are manufactured in various sizes based on the anatomical requirements of the patient or the size of the lesion.
Cancer Therapy Indications
Background and Overview
The Xoft System includes a 50kV isotope-free energy source, a comprehensive service warranty program, and various accessories such as the Axxent eBx Rigid Shield for internal IORT shielding. The 50kV energy source is typically sold under an annual contract and is customized to individual customer volume and usage requirements.
The primary applications of the Xoft System involve localized breast cancer treatment using a ten to fifteen-minute breast IORT protocol. However, the Xoft System can also be used to treat a wide and growing array of additional cancers, including breast cancer, NMSC, gynecological, recurrent glioblastoma (“GBM”) and various other forms of brain cancer, including recurrent glioblastoma (“GBM”), and other
non-breast
additional IORT clinical indications. The Company believes an additional strategic growth opportunity exists in the application of the Xoft System for the treatment of other cancers beyond NMSC and
Approximately 300,000 women are diagnosed with breast cancer in the IORT setting, including integration with minimally invasive surgical techniques and systems.
Approximately 297,000 cases of brain and nervous system tumors are diagnosed worldwide per year. GBM is the most common and aggressive type of malignant primary brain tumor, with a median survival estimated to be 10 to 12 months. In 2020, the first metastatic brain tumor was treatedevery year in the United StatesStates. Currently, many early-stage breast cancer patients who are treated with IORT usingradiation therapy follow a
four-to-six-week
daily protocol of traditional EBRT, while a small portion are treated with brachytherapy. Breast cancer therapy is one of the primary indications for the Xoft System. This procedure marked the start of a clinical trial at the James Graham Brown Center at the University of Louisville onsystem. Xoft used in IORT aims to simplify radiation treatment for early-stage breast cancer patients with large brain metastases treated with neurological resection with the Xoft System. As of December 2020, researchers at the James Graham Brown Cancer Center had treated four patients in this trial.
A retrospective analysis published in World Neurosurgery in 2019 by Alexey Krivoshapkin, MD, PhD, et al. examined the repeat resection and the various methods of IORT for the treatment of malignant brain gliomas, including high-energy linear accelerators and modern, integrated brachytherapy solutions using both solid and balloon applicators.
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The Xoft System is also currently being studied for the treatment of other types of brain tumors in various institutions worldwide, including the European Medical Center, in Russia. In a matched study by Alexey Gaytan, MD, PhD, neurosurgeon at the European Medical Center in Moscow, Russia, 30 patients were treated for recurrent GBM. The IORT group was treated withdelivering a single fractionten to fifteen-minute precise dose of radiation immediately following surgical resection, without chemotherapy or temozolomide following surgery. The comparison group was treated with routine postoperative adjuvant chemotherapy with or without concomitant or sequential EBRT.
Updated clinical findingsdirectly to the lumpectomy cavity in a single, safe and effective procedure. Xoft used in APBI may reduce the daily radiation treatment duration from this study were presented at the American Society of Clinical Oncology Virtual Scientific Program in May 2020. As of December 2019, overall survival was 27 months in the IORT group, comparedweeks to 21 months in the EBRT group. The local progression free survival range for the IORT group was between 3.5 and 39 months, compared to two to 10 months for the EBRT group. As of December 2019, eight patients from the IORT group were still alive, whereas none of the patients in the EBRT group survived.
New data from this study were also presented at the EANS Virtual Congress in October 2020. As of May 2020, five patients from the IORT group were still alive, whereas none of the patients in the EBRT group survived. The survival of patients in the IORT group ranged from 16 to 59 months after the initial GBM diagnosis.
In 2020, iCAD announced the appointment of Santosh Kesari, MD, PhD, a world-renowned neuro-oncologist, as Principal Investigator of an international multi-center clinical trial evaluating the Xoft System as the sole radiation therapy to treat recurrent GBM following surgical excision of malignancy.
In addition, the Xoft System was used for the first time in Europe to treat brain cancer in 2020. The treatment occurred at the Miguel Servet University Hospital in Spain, where a patient was treated for a brain metastasis from Ewing’s Sarcoma.
days.
There are approximately 3.5 million cases of NMSC diagnosed annually in the United States. The Xoft System is a viable alternative treatment option for patients with lesions in cosmetically challenging locations (ear,(e.g., ear, nose, scalp, neck), locations that experience difficulties in healing (lower(e.g., lower legs, upper chest, fragile skin), patients on anticoagulants, and patients who are anxious about surgery. The Xoft System has been used to treat more than 10,000 NMSC lesions. Clinical data published from 2015 to 2017 demonstrates promising local control
and supports eBx as a convenient, effective, nonsurgical treatment option offering minimal toxicity and improved cosmesis for eligible NMSC patients.
There are approximately 50,000 new cases of endometrial cancer each year in the United States and more than 800,000 new cases worldwide. In 2017, the first-ever European analysis of electronic brachytherapyeBx using the Xoft System for endometrial and cervical cancer treatment was presented at the European Society for Radiotherapy and Oncology annual meeting. Researchers from Miguel Servet University Hospital in Zaragoza, Spain presented promising study results demonstratingthat demonstrated improved outcomes in acute toxicity in 29 endometrial or cervical cancer patients treated with the Xoft System from September 2015 to September 2016. Additional research showed that compared to an iridium isotope, the Xoft System delivered a lower dose of radiation to surrounding healthy organs at risk, such as the bladder and rectum. In April 2019, two additional Spanish centers announced adoption of the Xoft System, bringing the number of installations across Spain with the Xoft System to seven, spread across four major regions.
In August 2018,Approximately 297,000 cases of brain and nervous system tumors are diagnosed worldwide per year. GBM is the Xoft System received regulatory consent from India’s Atomic Energy Regulatory Board, makingmost common and aggressive type of malignant primary brain tumor, with an estimated median survival of 10 to 12 months. The company is continuing to develop clinical support for brain IORT, primarily in the Company’s full suiteGLIOX trial, an international multi-center trial led by principal investigator and world-renowned oncologist, Santosh Kesari, MD, PhD, Chair and Professor, Department of electronic brachytherapy products available to clinicians and patients acrossTranslational Neurosciences at the Saint John’s Cancer Institute, Santa Monica, CA. The first patient in the GLIOX trial was treated in December 2021. The GLIOX trial is
 
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India.designed to compare Xoft IORT plus Avastin
®
(bevacizumab) to the investigational arm of RTOG-1205 (EBRT plus bevacizumab). Researchers hope this study will validate the intriguing initial results from a prospective two center comparative study at the European Medical Center (the “EMC”) in Moscow, Russia. The EMC study evaluated 15 patients with recurrent GBM who were treated with maximal safe resection and Xoft Brain IORT, and 15 patients with recurrent GBM treated with maximal safe resection and other modalities (control group), between June 2016 and June 2019. In 2017, the Company’s balloon applicators were cleared by China’s National Medical Products Administration (“NMPA”)October 2021, data supporting Xoft Brain IORT for the treatment of early-stage breast cancer. With NMPA authorization,recurrent GBM were published with a subsequent erratum published in December 2021, in the complete suitepeer-reviewed journal, Surgical Neurology International. The update reported that as of March 2021, patients treated in the EMC study with Xoft System products is now availableBrain IORT lived for up to clinicians and54 months after treatment without recurrence, whereas patients in China. In additionthe control group had a recurrence within 10 months and lived for up to 22.5 months after treatment. Researchers also found there were fewer complications, such as radionecrosis, in the IORT group. Radionecrosis refers to the Chinese market,breakdown of normal body tissue near the Company continues to build positive momentum and has regulatory authorizationoriginal tumor site after radiation therapy. One patient from the IORT group was still alive as of January 1, 2022, whereas none of the patients in key geographies such as Spain, Australia, and Switzerland.the control group survived. Preliminary results from this study were presented in August 2021 at the American Association of Neurological Surgeons (AANS) 2021 annual scientific meeting.
Additionally, electronic brachytherapy is appropriate for use in other IORT clinical settings where surgical resection is unable to completely eliminate all cancer cells. The Company believes that IORT for prostate, pelvic, gastrointestinal, abdominal, spinal, and soft tissue sarcoma applications are potential markets given the minimal shielding requirements associated with this treatment modality. In September 2019, the Company unveiled new and updated advancements for the Xoft System at the American Society for Radiation Oncology (“ASTRO”) annual meeting. This included new applicators for minimally-invasive robotic surgery, including prostate, an advanced prototype for early-stage rectal cancers, and extended-length balloon applicators, available in 25 cm and 50 cm lengths, which offer added versatility and the potential for additional applications for the Xoft System in different areas of the body. Based on these additional clinical applications and the potential to scale the Xoft System in the future to address other indications for use, the Company believes the Xoft System offers unique flexibility and opportunities for growth.
Additional Studies
In
2016, Melinda Epstein, PhD, of Hoag Memorial Hospital Presbyterian in Newport Beach, California and
co-authors
published two clinical papers on their experience with the Xoft System for the treatment of early-stage breast cancer with IORT. In June 2016, the
Annals of Surgical Oncology
published data on 702 patients treated from June 2010 to January 2016, demonstrating a 1.7% recurrence rate. Further, less than 5% of patients had significant complications, indicating that IORT allows some women who cannot (or decline to) undergo whole breast radiation to consider breast-conserving therapy rather than mastectomy. In August 2016,
The Breast Journal
published
20-month
mean
follow-up
data on 146 patients with pure ductal carcinoma in situ treated with IORT. The data showed a 2.1% recurrence rate with relatively few complications and again concluded that
x-ray
based IORT has the potential to be a promising treatment modality that may simplify the delivery of post-excision radiation therapy.
In
2017, researchers from Hoag Memorial Hospital Presbyterian published another clinical paper in the
Annals of Surgical Oncology
on their experience with the Xoft System in treating 204 early-stage breast cancers in a prospective,
X-ray
IORT trial from June 2010 to September 2013. With a median
follow-up
of 50 months, results indicated there were seven ipsilateral breast tumor events, no regional or distant recurrences, and no breast cancer-related deaths. Kaplan-Meier analysis projects that 2.9% of patients will recur locally at 4 years. The site’s low complication and recurrence rates support the cautious use and continued study of IORT in selected women with
low-risk
breast cancer. The Hoag Memorial Hospital Presbyterian IORT series is currently the largest single-facility IORT series with the Xoft System in the United States.
Also, in 2017, the Company announced results of a landmark study that demonstrated the economic benefits of IORT compared to EBRT in the treatment of early-stage breast cancer. The analysis demonstrated that IORT could result in direct cost savings for the U.S. healthcare system of more than $630 million over the lifetime of
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patients diagnosed annually with early-stage breast cancer, as well as could significantly benefit patient health by minimizing radiation exposure and offering a better quality of life. The results of the study were published in November 2017 in the peer-reviewed
Cost Effectiveness and Resource Allocation
and the study determined IORT to be the preferred method of treatment for early-stage breast cancer.
As the Company continues to focus on broadening global awareness and patient access to IORT, 2017 also brought meaningful progress in the area of international research. Physicians from Taiwan published a clinical
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paper in November 2017 in the peer-reviewed
PLOS One
journal. The multi-center study examined patient selection and the oncologic safety of IORT with the Xoft System for the management of early-stage breast cancer. From 2013 to 2015, 26 hospitals in Taiwan performed a total of 261 IORT procedures. With a mean
follow-up
of 15.6 months, locoregional recurrence was observed in 0.8% of patients. The study concluded that preliminary results of IORT in Taiwan showed it is well accepted by patients and clinicians.
Finally, in 2017, the Company announced that results of a matched-pair cohort study of 369 early-stage NMSC patients treated with the Xoft System or Mohs micrographic surgery showed that rates of recurrence of cancer were virtually identical at a mean
follow-up
of 3.4 years. Mohs micrographic surgery is accepted as the most effective technique for removing basal cell carcinoma and squamous cell carcinoma. The study results were published online in the peer-reviewed
Journal of Contemporary Brachytherapy
.
In 2018, several additional key pieces of clinical evidence supporting IORT with the Xoft System were published. With a mean
follow-up
of 55 months, outcomes published in
The American Journal of Surgery
showed that breast cancer recurrence rates of patients who were treated with IORT using the Xoft System and complied with adjuvant medical therapy were comparable to those seen in the cornerstone
TARGIT-A
study, which evaluated IORT but did not use the Xoft System. The study reviewed results of 184 patients with breast cancer from November 2011 to January 2016 completing Institutional Review Board (“IRB”)-approved IORT protocol. The recurrence rate for the 184 total IORT patients was 5.4 percent at a mean
follow-up
of 55 months; however, the recurrence rate was 2 percent lower for the patients who complied with adjuvant medical therapy. The difference in recurrence rates between the group complying with versus declining adjuvant medical therapy was statistically significant. To date, this study presents the most long-term research of IORT using the Xoft System published in a peer-reviewed journal.
Further in 2018, a long-term study of 1,000 tumors performed at Hoag Memorial Hospital Presbyterian and in the
Annals of Surgical Oncology
showed that IORT is a clinically effective, faster and easier alternative to whole breast radiation therapy following breast-conserving surgery for selected
low-risk
patients at a median
follow-up
of 36 months. To date, this study presents analysis of the largest series of early-stage breast cancers treated with IORT using the Xoft System published in a peer-reviewed journal.
In 2019, study results from the first cervical cancer cases for eight patients treated with the Xoft System at the Hospital Universitario Miguel Servet in Zaragoza, Spain were published in the
Journal of Applied Clinical Medical Physics.
Researchers found the treatment offered promising results at 1 month follow up, with no recurrences and low toxicity. The study concluded that electronic brachytherapy is a good alternative to treating cervical cancer in centers without access to conventional high-dose-rate interstitial brachytherapy.
Clinical data supporting the Xoft System for the treatment of various gynecological cancers, including cervical and uterine, were also presented in 2019 at the European Society for Radiotherapy and Oncology meeting by researchers from the Hospital Universitario Miguel Servet and the Jewish General Hospital in Montreal, Québec, Canada. A study conducted by researchers from the Hospital Universitario Miguel Servet concluded that electronic brachytherapy is an alternative to high dose-rate brachytherapy with a good rate of overall survival and progression free disease. The retrospective study conducted by researchers at the Jewish General Hospital suggested that electronic brachytherapy could replace high-dose-rate brachytherapy in uterine cancer with similar target coverage, maximum dose to surrounding structures, and treatment times and that additional studies would be needed to evaluate efficacy.
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Preliminary results of the Company’s international, multi-center clinical trial in the Xoft System were unveiled during an oral presentation at the 60th ASTRO annual meeting at the Henry B. Gonzalez Convention Center in San Antonio, Texas on October 23, 2018. In the presentation, A.M. Nisar Syed, MD, Principal Study
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Investigator, Medical Director, Radiation Oncology & Endocurietherapy, MemorialCare Cancer Institute, Long Beach Memorial Medical Center, and Professor of Radiation Oncology, UCI Medical Center and Harbor-UCLA School of Medicine, detailed clinical techniques and outcomes of IORT using the Xoft System at the time of breast conserving surgery with findings based upon ASTRO suitability criteria. The trial enrolled 1,200 patients between May 2012 and July 2018 at 28 international and U.S.-based institutions. With a median follow up of 1.6 years, less than one percent of patients had cancer regrowth (ipsilateral recurrence) or developed new primary cancers in the other breast. Treatment was generally well tolerated with grade 3, 4 and 5 adverse events occurring in 37 patients. Mean treatment time was 10.5 minutes.
At the ASTRO Virtual Annual Meeting in October 2020, researchers presented new data supporting the Xoft System for the treatment of early-stage breast cancer and endometrial cancer. In a study involving 1,200 patients with early-stage breast cancer treated with the Xoft System from May 2012 to July 2018 across 27 institutions worldwide, researchers concluded that IORT with the Xoft System is safe, with low morbidity, low local recurrence and excellent cosmetic results. In a study of 236 patients with endometrial cancer from September 2015 to May 2020, with a median follow up of 34 months, researchers concluded the Xoft System is a feasible alternative to HDR brachytherapy for the treatment of endometrial cancer that offers long-term benefits for patients, staff and the overall healthcare system.
Researchers from Miguel Servet University Hospital in Spain presented several studies supporting the Xoft System at the European Society for Radiotherapy & Oncology (ESTRO) virtual meeting in November 2020. In a study analyzing 193 patients from 2015 to 2019, where one group was treated with the Xoft System combined with external radiation and one group was treated with the Xoft System, researchers established electronic brachytherapy for endometrial cancer as a feasible alternative to HDR brachytherapy, equal in effectiveness to Iridium 192, with long-term benefits for patients. Researchers concluded that the Xoft System provided the same dosimetric coverage in the area of treatment as traditional brachytherapy with a marked reduction in dosage to organs at risk.
In another study presented at ESTRO 2020, researchers created 3D printed anatomic models that allowed them to create simulations to measure possible radiation doses in nearby organs, such as the lung and heart, where it is not possible to place a detector to perform in vivo dosimetry. Results calculated the maximum doses to radiochromic film representing the left lung and heart of 20 patients treated from the left breast measured retrospectively. Researchers concluded it was possible to measure and verify doses in the lung and heart for IORT treatments, enabling more accurate recommendations for a particular type of treatment.
A third study presented at ESTRO 2020 examined the results of 480 patients treated with IORT from May 2015 to October 2019 with treatment verification and in vivo dose measurements to understand the in vivo dose in the skin. Researchers concluded the skin doses were low with less than 1% of the cases exhibiting early toxicity of acute grade 3 dermatitis and no cases of higher gradehigher-grade dermatitis.
Researchers presented a study supporting Xoft Breast IORT at the American Brachytherapy Society (ABS) 2021 Annual Conference. In a study evaluating the efficacy and outcome of IORT for early-stage breast cancer, researchers found recurrence rates to be similar to those reported in the
TARGIT-A
trial. Preliminary results from the ExBRT trial were presented at the ASBrS Annual Meeting in 2021. The multi-institutional study found at median
4-year
follow-up,
1,200 breast cancer patients enrolled in the ExBRT trial were successfully treated with a single fraction of IORT to the lumpectomy cavity following breast conserving surgery with a favorable local recurrence rate. At the ESTRO meeting in 2021, researchers presented a study evaluating body mass index (BMI) in breast cancer patients treated with Xoft Breast IORT.
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Sales and Marketing
Cancer Detection
In November 2020, iCAD announced that more than 1,000 ProFound AI licenses had been sold since the product was launched, and the Company has now sold almost 1,200more than 1,300 ProFound AI licenses through December 31, 2020.2021 and more than 2,000 total product licenses including ProFoundAI, upgrades, and other products. In North America, iCAD sells its AI mammography products through a direct regional sales force and through the Company’s OEM partners, which include GE Healthcare, Hologic,a subsidiary of GE focused on the manufacture and distribution of diagnostic imaging agents, Fujifilm Medical Systems a subsidiary of Fuji focused on the manufacture and distribution of
X-rays
and other imaging equipment, and Siemens Medical Systems. In Europe, the Company sells its AI mammography products through a direct sales force and has also developed reseller relationships with regional distributors, which it plans to expand. In 2019, the Company announced that its Breast Health Solutions suite will be available on the Nuance AI Marketplace, the first portal for improving radiologist productivity with
one-stop
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access to a wide range of AI diagnostic models from within the industry’s most widely used radiology reporting platform. This portal will provide the Company’s consolidated,
at-scale
access to users of Nuance PowerScribe, the radiology reporting system trusted by approximately 80 percent of U.S. radiologists and its PowerShare Network, which connects more than 8,000 healthcare organizations.distributors.
In 2020, iCAD signed a distribution agreement with Change Healthcare Inc. (“Change Healthcare”), a leading independent healthcare technology company focused on insights, innovation and accelerating the transformation of the U.S. healthcare system. The agreement will expand access to ProFound AI for more hospitals and imaging centers across North America.
In June 2021, iCAD signed a global distribution agreement with Sectra AB (“Sectra”), an international medical imaging IT solutions and cybersecurity company. Through this agreement, ProFound AI and ProFound AI Risk will be offered through the Sectra Amplifier Marketplace, which will expand iCAD’s access to more facilities and imaging centers worldwide.
In November 2021, iCAD signed a global distribution agreement with Arterys Inc. (“Arterys”), the world’s leading cloud native, vendor-neutral AI platform under which Arterys will offer iCAD’s
AI-powered
breast health solutions via Arterys’
FDA-cleared
and
CE-marked
MICA platform to its installed base.
Additionally, as part of its sales and marketing efforts, the Company engages in a variety of public relations and local outreach programs with numerous customers and continues to cultivate relationships with industry leaders in breast cancer solutions, including at trade shows where the future of medical image analysis solutions is discussed.
Cancer Treatment
iCAD markets the Xoft System in the United States and select countries worldwide through its wholly-owned subsidiary, Xoft, Inc. a Delaware corporation (“Xoft”). In the United States, Xoft utilizes a direct sales force and selected distribution partners. Xoft has been granted regulatory approval and has established partnerships in Australia, Bangladesh, Bulgaria, China, Egypt, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Russia, Saudi Arabia, Spain, Sweden, Switzerland, Taiwan, Turkey, and the United Kingdom. Additionally, further commercial efforts are being targeted in CentralStates, many European Union countries, the United Kingdom, Australia, Taiwan, China, and South America.numerous other countries. iCAD continues to evaluate regulatory and distribution opportunities throughout the world.
A comprehensive medical education program is a key part to the Company’s eBx market development strategy. Xoft actively participates in key industry scientific conferences and independent venues in the United States and Europe where we providethe Company provides professional education programs and product demonstrations relating to eBx. The goal of these programs and demonstrations is to broaden physician awareness of the Xoft System and eBx technology.
Competition
The Company operates in highly competitive and rapidly changing markets with competitive products available from nationally and internationally recognized companies. Many of these competitors have significantly greater financial, technical and human resources than iCAD and are well-established in the healthcare market. In addition to the existing technologies or products that compete with the Company’s products, some companies
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may develop technologies or products that compete with the products the Company manufactures and distributes or that would render ourthe Company’s products obsolete or noncompetitive. Moreover, competitors may achieve patent protection, regulatory approval, or product commercialization before we do,iCAD does, which would limit ourthe Company’s ability to compete with them. We believeiCAD believes that efficacy, safety profile, feature differentiation, cost, and reimbursement are the primary competitive factors that will affect the success of ourthe Company’s products.
Cancer Detection
The Company currently faces direct competition in its cancer detection and breast density assessment businesses from Hologic, Inc. (Marlborough, MA), Volpara Solutions Limited (Rochester, NY), ScreenPoint Medical (Nijmegen, Netherlands), Densitas Inc. (Halifax, Nova Scotia, Canada), and Therapixel (Paris, France), and Lunit (Seoul, South Korea). The Company believes that its market leadership in mammography cancer detection, density assessment, risk assessmentmany factors, including breadth of innovative and clinically differentiated product offerings, ongoing development of clinical support, strong relationships with its strategic partners, and ability to provide the Company’s solutions across a number of platforms and payment structures will provide it with a competitive advantage in the cancer detection and breast density assessment businesses.AI.
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The Company’s VeraLook product faces competition from the traditional imaging CT equipment manufacturers and emerging CAD companies. Siemens Medical (Tarrytown, NY), GE Healthcare (Chicago, IL), and Philips Medical Systems (Andover, MA) currently offer polyp detection products outside the United States. A significant barrier to adoption in the United States has been a lack of reimbursement for CTC for colon cancer screening. The Company expects that CT manufacturers will offer a colonic polyp detection solution as an advanced feature of their image management and display products typically sold with their CT equipment, but current regulatory requirements for the sectorreimbursement policies present a significant barrier to entrywide-spread adoption and the Company believes that its market leadership in mammography AI may provide it with a competitive advantage within the CTC community.
Cancer Treatment
The Company’s eBx products face competition in breast IORT primarily from Carl Zeiss Meditec Inc. (“Zeiss”) (Dublin, CA), which has an established base of breast IORT installations in Europe. Zeiss manufactures and sells eBx products for the delivery of IORT, for both breast and additional anatomical areas, including the spine, gastrointestinal tract, skin, and endometrial cancers. Sensus Healthcare Inc. (Boca Raton, FL) and IntraOp Medical Corporation (Sunnyvale, CA) are other competitors in the breast IORT market.
The expansion of the Company’s gynecological product portfolio and new IORT applications beyond breast IORT have increased the competitive dynamic of the Company’s business. Larger and more diversified radiation therapy companies offer a wide variety of clinical solutions for HDR brachytherapy, including Varian Medical Systems (Milpitas, CA) and Elekta (Stockholm, Sweden). These companies offer broad product portfolios, which include a full range of HDR brachytherapy afterloadersafter loaders and applicators, traditional radiation therapy solutions, treatment planning solutions, and workflow management capabilities.
The Company’s NMSC products face competition from other mobile
non-surgical
treatment options (such as Sensus Healthcare’s Surface Radiation Therapy system and Elekta’s Esteya system), surgical treatment options and traditional radiation therapy.
In September 2020, Centers for Medicare & Medicaid Services (“CMS”) issued a final rule establishing the Radiation Oncology Advanced Payment Model, a bundled payment model for radiotherapy treatment that incentivizes physician selection of high quality, lower cost treatment modalities like Xoft’s electronic brachytherapy for treatment of breast and other cancers. In the final notice, CMS did not include IORT treatments (including CPT codes 77424 and 77425) within the new alternative payment model for radiation oncology. As a result, whether or not a particular physician practice or hospital is subject to the new radiation oncology payment model, IORT services covered by Medicare will continue to be subject to the existing payment systems for physician services and hospital outpatient services. The model was supposed to begin in
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2021, but Congress passed legislation to delay the start of the new payment model until 2022.
2023. Stakeholders are encouraging CMS to make significant changes to the model before it takes effect. Medicare has not yet posted the final version of the rule outlining the details of the program.
Manufacturing and Professional Services
The Company manufactures and assembles its CADdetection products. When a product sale is made to an
end-customer
by one of the Company’s OEM partners, it is usually installed at the customer site by the OEM partner or the Company. When iCAD makes a product sale directly to the end customer,
end-customer,
the product is generally installed by iCAD personnel at the customer site.
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iCAD’s professional services staff provides comprehensive product support on a
pre-sales
and post-sales post-sale basis. Product support includes
pre-sale
product demonstrations, product installations, applications training, and technical support. The Company’s support center is a single point of contact for the
end-customer,
and provides remote diagnostics, troubleshooting, training, and service dispatch. Service repair efforts are generally performed at the customer site by third party service organizations or in the Company’s repair depot by the Company’s repair technicians.
Xoft’s portable Xoft System is manufactured and assembled by contract manufacturers. Xoft’s miniaturized eBx
X-ray
source is manufactured by the Company at its San Jose, CA facility. Once the product has shipped, it is typically installed by Xoft personnel at the customer site.
Xoft’s professional services staff provides comprehensive product support, physician support, radiation therapiststherapist support and billing support on a
pre-sales
and post-sales basis. Field service staff is involved in product installation, maintenance, training and service repair. Customer service staff provides
pre-sale
product demonstrations, customer support, troubleshooting, service dispatch and call center management.
Government Regulation
The Company’siCAD’s operations, products and customers are subject to extensive government regulation by numerous government agencies. Ourthe Company’s software, hardware systems and related accessories are regulated as medical devices in each of the jurisdictions where we operate,the Company operates, and ouriCAD’s customers are subject to applicable provider quality standards.
Manufacturing and Sales
In the United States, numerous laws and regulations govern the processes by which ouriCAD’s products are brought to market. These include the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations, which govern, among other things, quality standards for product development, manufacturing, testing, labeling, storage, premarket clearance or approval, advertising and promotion, sales and distribution, and post-market surveillance of medical devices.
For devices in the United States, FDA’s premarket clearance or approval process controls the entry of products into the market, unless a device is exempt from premarket review. Whether a product requires clearance (510(k) premarket notification) or approval (premarket approval, “PMA”) depends on the FDA’s risk-based classification of the device. Some of ourthe Company’s products require submission of a premarket notification demonstrating that ourthe device is at least as safe and effective, that is, “substantially equivalent”, to a legally marketed device that is not required to be approved under a PMA. Once we receiveiCAD receives an order from FDA declaring oura device to be substantially equivalent, ourthe iCAD product is “cleared” for commercial marketing in the United States. Other iCAD products of ours require submission of a PMA, which requires
non-clinical
and clinical data supporting the safety and effectiveness of the device. Once we receivethe Company receives FDA approval of ourits PMA application based on FDA’s determination that the application contains sufficient, valid scientific evidence to assure that the device is safe and effective for its intended use(s), weiCAD may market the device.
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After our products enter the market, weiCAD and our products continue to be subject to FDA regulation. For example, the FDA Quality System Regulations (“QSR”) require manufacturers to establish a quality system including extensive design, testing, control, documentation and other quality assurance procedures designed to ensure that their products consistently meet applicable FDA requirements and manufacturer specifications. OuriCAD’s third-party manufacturers are also required to comply with applicable parts of the QSR. Manufacturers are subject to periodic inspections by the FDA to determine compliance with QSR. If at the conclusion of an inspection, FDA has made any observations that may constitute violations of applicable requirements, it may
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issue an FDA Form 483 (“483”) requiring corrective action within a limited amount of time. If any observations are not addressed and/or corrective action taken, FDA may issue a warning letter and or take other enforcement action. The Company also is subject to FDA regulations covering labeling and adverse event reporting as well as the FDA’s general prohibition against promoting products for unapproved or
“off-label”
uses. Failure to comply fully with applicable regulations could lead to delayed marketing clearance or approval or enforcement action, including 483s, warning letters, product seizures, import/export refusal, civil or criminal penalties, injunctions, and criminal prosecution.
Similarly, medical device regulators in other jurisdictions require various levels of clearance, approval, certification, licensure and/or consent before regulated medical devices can be lawfully commercialized in those jurisdictions as well as ongoing compliance with manufacturing and other regulatory requirements. These approvals, the time required for regulatory review, and the continuing compliance requirements vary by jurisdiction. Obtaining and maintaining foreign regulatory approvals and maintaining compliance is an expensive and time-consuming process. Increasingly, medical device manufacturers are adopting globally harmonized quality standards as developed by the International Organization for Standardization, and risk management standards. Manufacturers of software as a medical device are further subject to specific security standards.
Additionally, the U.S. government regulates the transfer of information, commodities, technology and software considered to be strategically important to the United States in the interest of national security, economic and/or foreign policy concerns. A complicated network of federal agencies and inter-related regulations in the United States that govern exports, collectively referred to as “Export Controls.” These regulate the shipment or transfer, by whatever means, of controlled items, software, technology, or services out of the United States. Exported medical products are also subject to the regulatory requirements of each country to which the medical product is exported.
Healthcare Laws
The Company is also subject to a variety of federal and state regulations in the United States and regulations in other jurisdictions that relate to ouriCAD’s interactions with healthcare practitioners, government officials, purchasing decision makers, and other stakeholders across healthcare systems. These regulations, discussed in more detail below, include among others, the following:
 
anti-kickback, false claims, and physician self-referral statutes;
 
U.S. state laws and regulations regarding fee splitting and other relationships between healthcare providers and
non-professional
entities, such as companies that provide management and reimbursement support services;
 
anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act, the UK Anti-Bribery Act, the Canadian Corruption of Foreign Public Officials Act, and guidance promulgated by certain multi-national groups, such as the United Nations Convention Against Corruption and the Organization for Economic Cooperation and Development Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions;
 
laws regulating the privacy and security of health data, protected health information and personally identifiable information. These include the U.S. Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the Health Information Technology for Economic and Clinical Health Act, the General Data Protection Regulation (“GDPR”) in the EU, and the Personal Information Protection and Electronic Documents Act in Canada; and
 
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General Data Protection Regulation (“GDPR”) in the EU, and the Personal Information Protection and Electronic Documents Act in Canada; and
healthcare reform laws in the United States, such as the Affordable Care Act (“ACA”) and the 21st Century Cures Act, which include new regulatory mandates and other measures designed to reduce the rate of medical inflation. These include, among other things, stringent new reporting requirements of financial relationships between device manufacturers and physicians and teaching hospitals.
These laws and regulations are extremely complex, open to interpretation, and, in some cases, still evolving. If ouriCAD’s operations are found to violate any of the foreign, federal, state or local laws and regulations which govern ourits activities, weiCAD may be subject to litigation, government enforcement actions, and applicable penalties, which could include civil and criminal penalties, damages, fines, exclusion from participation in certain payer programs or curtailment of ourthe Company’s operations. Compliance obligations under these various laws are often detailed and onerous, further contributing to the risk that wethe Company could be found to be out of compliance with particular requirements. The risk of being found in violation of these laws and regulations is further increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations.
The FDA, CMS, the Department of Health and Human Services, Office of Inspector General
(“HHS-OIG”),
the Department of Justice, states’ attorneys general and other governmental authorities actively enforce the laws and regulations discussed above. In the United States, medical device companies have been the target of numerous government prosecutions and investigations alleging violations of law, including claims asserting impermissible
off-label
promotion of medical devices, payments intended to influence the referral of federal or state healthcare business, and submission of false claims for government reimbursement. While we makeiCAD makes every effort to comply with applicable laws, weit cannot rule out the possibility that the government or other third parties could interpret these laws differently and challenge ourthe Company’s practices under one or more of these laws. The risk of liability under certain federal and state laws is increased by the right of individual plaintiffs, known as relators, to bring an action alleging violations of such laws and potentially be awarded a share of any damages or penalties ultimately awarded to the applicable government body. Violations of these laws may lead to civil and criminal penalties, damages, fines, exclusion from participation in certain payer programs or curtailment of ourthe Company’s operations.
We areiCAD is subject to numerous laws governing safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances, among others, both at the U.S. federal and state levels, and similar laws in other jurisdictions. WeiCAD may be required to incur significant costs to comply with these laws and regulations in the future, which may result in a material adverse effect upon ourthe Company’s business, financial condition and results of operations.
Federal, state, and foreign regulations regarding the manufacture and sale of medical devices and management services and software are subject to future change. WeiCAD cannot predict what impact, if any, such changes might have on ourthe Company’s business.
Anti-Kickback Laws
The federal Anti-Kickback Statute (“AKS”) prohibits persons from knowingly or willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce:
 
the referral of an individual for a service or product for which payment may be made by Medicare, Medicaid or other government-sponsored healthcare program; or
 
purchasing, ordering, arranging for, or recommending the ordering of, any service or product for which payment may be made by a government-sponsored healthcare program.
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The AKS is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. The statutory penalties for violating the AKS include imprisonment for up to ten years and
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fines of up to $100,000 per violation. In addition, through application of other laws, conduct that violates the AKS can also give rise to False Claims Act (“FCA”) lawsuits and other penalties.
Congress and the
HHS-OIG
have established a large number of statutory exceptions and regulatory safe harbors. An arrangement that fits squarely into an exception or safe harbor is immune from prosecution under the AKS. We trainiCAD trains and educateeducates employees and marketing representatives on the AKS and their obligations thereunder, and we endeavorthe Company endeavors to comply with the applicable safe harbors. However, the failure to comply with the exceptions and safe harbor requirements does not always impose liability under the AKS, as long as the arrangement does not implicate the principal policy objectives. Thus, some of ouriCAD’s arrangements that may not be covered by a safe harbor, like many other common and
non-abusive
arrangements, nevertheless likely do not pose a material risk of program abuse or warrant the imposition of sanctions because they do not implicate any of the AKS’s principal policy objectives. However, weiCAD cannot offer assurances that, with respect to any arrangements that do not squarely meet an exception or safe harbor, wethe Company will not have to defend against alleged violations of the AKS. Allegations of violations of the AKS also may be brought under the federal Civil Monetary Penalty Law, which requires a lower burden of proof than other fraud and abuse laws, including the AKS.
Government officials have focused recent kickback enforcement efforts on, among other things, the sales and marketing activities of healthcare companies, including medical device manufacturers, and have brought cases against individuals or entities with personnel who allegedly offered unlawful inducements to potential or existing customers in an attempt to procure their business. This trend is expected to continue. Settlements of these cases by healthcare companies have involved significant fines and/or penalties and in some instances criminal pleas or deferred prosecution agreements.
In addition to the federal AKS, many states have their own anti-kickback laws. Often, these laws closely follow the language of the federal law, although they do not always have the same scope, exceptions, safe harbors or sanctions. In some states, these anti-kickback laws apply not only to payment made by a government health care program but also with respect to other payers, including commercial insurance companies.
If we areiCAD is found to have violated the Anti-Kickback Statute or a similar state statute, weit may be subject to civil and criminal penalties, including exclusion from the Medicare or Medicaid programs, or may be required to enter into settlement agreements with the government to avoid such sanctions. Typically, such settlement agreements require substantial payments to the government in exchange for the government to release its claims and may also require usthe Company to enter into a Corporate Integrity Agreement.
Physician Self-Referral Laws
We areiCAD is subject to federal and state laws and regulations that limit the circumstances under which physicians who have a financial relationship with entities that furnish certain specified healthcare services may refer to such entities for the provision of such services, including clinical laboratory services, radiology and other imaging services and certain other diagnostic services. These laws and regulations also prohibit such entities from billing for services provided in violation of the laws and regulations.
This federal ban on physician self-referrals, commonly known as the “Stark Law,” prohibits, subject to certain exceptions, physician referrals of Medicare and Medicaid patients to an entity providing certain “designated health services” if the physician or an immediate family member of the physician has any financial relationship with the entity. The Stark Law also prohibits the entity receiving the referral from billing for any good or
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service furnished pursuant to an unlawful referral. It further obligates any person collecting any amounts in connection with an unlawful referral to refund these amounts. A person who engages in a scheme to circumvent the Stark Law’s referral prohibition may be fined up to $172,137 for each such arrangement or scheme. The penalties for violating the Stark Law also include civil monetary penalties of up to $25,820 per service, and could result in denial of payment, disgorgements of reimbursement received under a
non-compliant
agreement, and possible exclusion from Medicare, Medicaid or other federal healthcare programs.
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In addition to the Stark Law, many states have their own self-referral laws. Often, these laws closely follow the language of the federal law, although they do not always have the same scope, exceptions, safe harbors or sanctions. In some states these self-referral laws apply not only to payment made by a government health care program but also payments made by other payers, including commercial insurance companies. In addition, some state laws require physicians to disclose any financial interest they may have with a healthcare provider to their patients when referring patients to that provider, even if the referral itself is not prohibited.
We haveiCAD has financial relationships with physicians in the form of equipment leases and services arrangements. OurThe Company’s financial relationships with referring physicians and their immediate family members must comply with the Stark Law by meeting an applicable exception. Unlike the AKS, failure to meet an exception under the Stark Law results in a violation of the Stark Law, even if such violation is technical in nature. We attemptiCAD attempts to structure ourrelevant relationships to meet a Stark Law exception, but the regulations implementing the exceptions are detailed and complex, and underwent significant changes in 2020, and therefore, wethe Company cannot provide assurance that every relationship complies fully with the Stark Law.
Violation of these laws and regulations may result in the prohibition of payment for services rendered, significant fines and penalties, and exclusion from Medicare, Medicaid and other federal and state healthcare programs, any of which could have a material adverse effect on ouriCAD’s business, financial condition and results of operations. In addition, expansion of ourthe Company’s operations to new jurisdictions, new interpretations of laws in ouriCAD’s existing jurisdictions, or new physician self-referral laws could require structural and organizational modifications of ourthe Company’s relationships with physicians to comply with those jurisdictions’ laws. Such structural and organizational modifications could result in lower profitability and failure to achieve ouriCAD’s growth objectives.
If we failiCAD fails to comply with federal and state physician self-referral laws and regulations as they are currently interpreted or may be interpreted in the future, or if other legislative restrictions are issued, wethe Company could incur a significant loss of revenue and be subject to significant monetary penalties, or exclusion from participation in federal healthcare programs which could have a material adverse effect on ouriCAD’s business, financial condition and results of operations.
False Claims Laws
The federal FCA prohibits any person from knowingly presenting, or causing to be presented, a false claim or knowingly making, or causing to made, a false statement to obtain payment from the federal government. If we violateiCAD violates the AKS or Stark Law, improperly billbills for our services, retainretains overpayments longer than 60 days after identification, or failfails to act with reasonable diligence to investigate credible information regarding potential overpayments, wethe Company may be found to violate the federal FCA.
Those found in violation of the FCA can be subject to fines and penalties of three times the damages sustained by the government, plus mandatory civil penalties of $11,803 to $23,607 per false claim or statement. The qui tam or “whistleblower” provisions of the FCA allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In recent years, the number of suits brought by private individuals has increased dramatically, causing greater numbers of healthcare companies, including medical device manufacturers, to defend false claim actions, pay damages and penalties or be excluded from Medicare, Medicaid or other federal or state healthcare programs.
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In addition, various states have enacted false claim laws analogous to the FCA, and this legislative activity is expected to increase. Many of these state laws apply where a claim is submitted to any third-party payer and not merely a federal healthcare program.
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Increased Regulatory Scrutiny of Relationships with Healthcare Providers
Certain state governments and the federal government have enacted legislation, including the Physician Payments Sunshine Act provisions under the ACA, aimed at increasing transparency of ouriCAD’s interactions with healthcare providers. As a result, we arethe Company is required by law to disclose payments, gifts, and other transfers of value to certain healthcare providers in certain states and to the federal government. Any failure to comply with these legal and regulatory requirements could result in a range of fines, penalties, and/or sanctions, and could affect ouriCAD’s business. We haveThe company has devoted and will continue to devote substantial time and financial resources to develop and implement enhanced structure, policies, systems and processes to comply with these enhanced legal and regulatory requirements, which may also impact ouriCAD’s business.
U.S. Coverage and Reimbursement
In the United States, the federal and state governments establish guidelines and pay reimbursements to hospitals, freestanding clinics (independent diagnostic treatment facilities), and medical professionals for diagnostic examinations and therapeutic procedures under the federal Medicare program and the joint federal/state Medicaid program. CMS reviews and adjusts Medicare and Medicaid coverage policies and reimbursement levels periodically and considers various Medicare and other healthcare reform proposals that could significantly affect private and public reimbursement for healthcare services. State governments determine Medicaid reimbursement pursuant to state law and regulations. Many third-party payers use coverage decisions and payment amounts determined by CMS to set their coverage and reimbursement policies.
Because we expectiCAD expects to receive payment for ourits products directly from ouriCAD’s customers, we dothe Company does not anticipate relying directly on payment for any of ouriCAD’s products from third-party payers, such as Medicare, Medicaid, commercial health insurers and managed care companies. However, ouriCAD’s business will be affected by coverage and payment policies adopted by federal and state governmental authorities for Medicare and Medicaid, as well as private payers, which often follow the coverage policies of these public programs. Such policies may affect which products customers purchase and the prices they are willing to pay for those products in a particular jurisdiction. For example, ouriCAD’s business will be indirectly impacted by the ability of a hospital or medical facility to obtain coverage and third-party reimbursement for procedures performed using ourthe Company’s products. Third-party payers may deny coverage or pay an amount for the procedure that healthcare providers deem inadequate, which could cause such providers to use a lower-cost product from our competitorsa competitor or perform a medical procedure without ourthe Company’s device.
Reimbursement decisions by individual third-party payers depend upon each third-party payer’s evaluation of a number of factors, including some or all of the following:
 
whether the product or service is a covered benefit under its health plan;
 
whether the product or service is appropriate and medically necessary for the specific indication;
 
cost effectiveness of the product or service;
 
whether the product is being used in a manner consistent with its
FDA-approved
or cleared label (i.e.,
“on-label”);
and
 
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a determination that the product or service is neither experimental nor investigational (e.g., that its use is supported by relevant evidence in the peer reviewed literature, its use is supported by medical professional society treatment guidelines).
In 2016, the American Medical Association (“AMA”) implemented a skin-specific Category III CPT code for electronic brachytherapy for the treatment of NMSC. Reimbursement for the treatment delivery may be provided through the Category III CPT code, 0394T, which covers highdefined as “high dose rate electronic brachytherapy, skin surface application, per fraction, and includes basic dosimetry, when performed.performed”. There are additional Category I CPT codes reportable with the service as determined by physician orders, medical necessity, and documentation.
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Coverage policies and payment values associated with CPT code 0394T are determined by the regional Medicare Administrative Contractors. Though some Medicare Administrative Contractors do not reimburse(MACs) and the private payers. Coverage and payment for CPT code 0394T there are several others that either have published ratesis individually determined by the MACs and private payers. Many of the MACs and some private payers cover and pay for the 0394T code or reimburse on a
case-by-case0394T.
basis.
Category III CPT codes are designed as temporary codes for experimental services.emerging technologies, services, and procedures that do not yet meet the criteria for Category I CPT codes. Without further action by the AMA, Category III CPT codes sunset five years after the initial publication or extensionrenewal of the code. The AMA has accepted the retention of CPT code 0394T, extendingrenewing the code untilthrough 2025. At that time, CPT code 0394T may receivebe converted to a Category I CPT code. Alternatively, the AMA may determine the code should be further extendedrenewed or archived.
The healthcare industry in the United States is increasingly focused on cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with third-party payers. The ACA went into effect in 2012 and in subsequent years.2012. While we believeiCAD believes that elements of the program including the shift to value-based healthcare and increased focus on patient satisfaction will benefit the Company in the future, there could be negative consequences on patient access to new technologies. Other elements of this legislation, including comparative effectiveness research, payment system reforms (such as shared savings pilots) and other provisions, could meaningfully change the way healthcare is delivered and paid for in the United States, and may materially impact numerous aspects of ourthe Company’s business, including the demand for and availability of ouriCAD’s products, the reimbursement available for ouriCAD’s products from governmental and third-party payers, and reduced medical procedure volumes.
On September 18, 2020, CMS finalized a rule regarding its new Radiation Oncology model (the “RO Model”), designed, according to CMS, to improve the quality of care for cancer patients receiving radiotherapy and reduce Medicare expenditures through bundled payments. In the final notice, CMS did not include IORT treatments (including CPT codes 77424 and 77425) within the new alternative payment model for radiation oncology. As a result, whether or not a particular physician practice or hospital is subject to the new radiation oncology payment model, IORT services covered by Medicare will continue to be subject to the existing payment systems for physician services and hospital outpatient services. On December 2, 2020, an interim final rule was published by CMS, to take effect no earlier than January 1, 2022.2022, but was subsequently delayed until January 1, 2023.
We areiCAD is evaluating the effect that changes and proposed changes to the ACA and Biden Administration policies, and the adopted RO Model by the CMS, may have on ourthe company’s business. WeiCAD cannot predict whether the ACA will be repealed, replaced, or modified or how such repeal, replacement or modification may be timed or structured. As a result, wethe Company cannot quantify or predict the effect of such repeal, replacement, or modification might have on ouriCAD’s business and results of operations. However, any changes that lower reimbursement for ourthe Company’s products or reduce medical procedure volumes could adversely affect ouriCAD’s business and results of operations.
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Reimbursement in Other Jurisdictions
Typically, coverage and payment for healthcare products and services in other jurisdictions is determined through a public tender process that takes into consideration the results of a cost-effectiveness or value analysis conducted by a federal government-level technology assessment group, and through reference to coverage and payment policies established for the same or similar product/service in comparable jurisdictions.
Market acceptance of ouriCAD’s medical products in both the United States and other countries is dependent upon the purchasing and procurement practices of ourthe Company’s customers, patient demand for ourthe Company’s products and procedures, and the reimbursement policies of patients’ medical expenses set by government healthcare programs, private insurers or other healthcare payers.
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Intellectual Property
The Company primarily relies on a combination of patents, trade secrets and copyright law, third-party and employee confidentiality agreements, and other protective measures to protect its intellectual property rights pertaining to its products and technologies.
The Company has certain patents to its ongoing programs that expire between 20212022 and 2029. These patents help the Company maintain a proprietary position in its markets. The Company does not believe that the patents expiring in 20212022 are material to its business. Additionally, the Company has a number of patent applications pending domestically, some of which have been also filed internationally, and the Company plans to file additional domestic and foreign patent applications when it believes such protection will benefit the Company. These patents and patent applications relate to current and future uses of iCAD’s cancer detection technologies and products, including cancer detection solutions for tomosynthesis, CAD for CT colonography and lung and CAD for MRI breast and prostate. The Company has also secured a
non-exclusive
patent license from the National Institute of Health which relates broadly to CAD in colonography, a
non-exclusive
patent license from Cytyc/Hologic which relates to balloon applicators for breast brachytherapy, and a
non-exclusive
license from Zeiss which relates to brachytherapy.
Sources and Availability of Materials
The Company depends upon a limited number of suppliers and manufacturers for its products, and certain components in its products may be available from a sole or limited number of suppliers. The Company’s products are generally either manufactured and assembled by a sole manufacturer or a limited number of manufacturers or assembled by it from supplies it obtains from a limited number of suppliers. Critical components required to manufacture these products, whether by outside manufacturers or directly, may be available from a sole or limited number of component suppliers. The Company generally does not have long-term arrangements with any of its manufacturers or suppliers.
Engineering and Product Development
OuriCAD’s products have been developed by ourits own research and development staff or were developed by the companies weiCAD acquired. Research and development expenses are primarily attributable to personnel, consulting, subcontract, licensing and data collection expenses relating to the Company’s new product development and clinical testing. We believe ouriCAD believes its products are competitive and that none of the current versions of ourthe Company’s products are approaching obsolescence. We haveiCAD has invested and expectexpects to continue to invest in new research and development and enhancements of ourthe Company’s current products to maintain ouriCAD’s competitive position. For the years ended December 31, 2021, 2020 2019 and 2018,2019, we incurred $8.2$9.2 million, $9.4$8.1 million, and $9.6$9.3 million of research and development expense, respectively.
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Human Capital Resources
As of December 31, 2020,2021, the Company had 114137 employees, 136 of whom 113 are full time employees, with 4257 involved in sales and marketing, 2825 in research and development, 3036 in service, manufacturing, quality assurance, technical support and operations functions, and 1419 in administrative functions. None of the Company’s employees are represented by a labor organization. The Company considers its relations with employees to be good.
OurThe Company’s human capital resourcesresource objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and future employees, advisors and consultants. In addition to competitive base salaries, the other competitive benefits that we provide to employees include incentive plans and paid vacation. The principal purposes of these employee benefits are to attract, retain, reward and motivate our personnel and to provide long-term incentives that align the interests of employees with the interests of our stockholders.
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Foreign Regulations
International sales of the Company’s products are subject to foreign government regulation, the requirements of which vary substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ. Obtaining and maintaining foreign regulatory approvals is an expensive and time-consuming process. We cannot be certain that we will be able to obtain the necessary regulatory approvals timely or at all in any foreign country in which we plan to market our CAD products and the Xoft System, and ifSystem. If we fail to receive and maintain such approvals, our ability to generate revenue may be significantly diminished.
Available Information
The Company files annual, quarterly and current reports, proxy or stockholder information statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements, and certain and other information that we may file electronically with the SEC (http://www.sec.gov). We also make available for download free of charge through our website our annual report on Form
10-K,
our
quarterly reports on Form
10-Q,
and current reports on Form
8-K,
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after
we have filed it electronically with, or furnished it to, the SEC. We maintain our corporate website at http://www.icadmed.com. Our website and the information contained therein or connected thereto are not incorporated into this Annual Report on Form
10-K.
 
Item
 
1A.
Risk Factors.
We operateThe Company operates in a changing environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect ourits operations. The following highlights some of the factors that have affected, and/or in the future could affect, ourthe Company’s operations.
The following is a summary of certain important factors that may make an investment in our companyiCAD speculative or risky. You should carefully consider the fuller risk factor disclosure set forth in this Annual Report, in addition to the other information herein, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and ourthe Company’s financial statements and related notes.
 
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We haveThe Company has incurred significant losses from inception through 20202021 and there can be no assurance that we will be able to achieve and sustain future profitability.
 
OurThe Company’s quarterly and annual operating and financial results and our gross margins are likely to fluctuate significantly in future periods.
 
We expectManagement expects the novel coronavirus
(COVID-19)
pandemic to continue to have a significant effect on ourthe Company’s results of operations. In addition, it has resulted in significant financial market volatility, and its impact on the global economy appears to be significant. A continuation or worsening of the pandemic will have a material adverse impact on ouriCAD’s business, results of operations and financial condition and on the market price of ouriCAD’s common stock.
 
The markets for ourthe Company’s products and treatments and newly introduced enhancements to ouriCAD’s existing products and treatments may not develop as expected, wethe Company may continue to face barriers to broad market acceptance.
 
An unfavorable resolution of the Yeda litigation could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Sales and market acceptance of ourCompany products is dependent upon the coverage and reimbursement decisions made by third-party payers, including
carve-out
radiology benefits managers. The failure of third-party payers to provide appropriate levels of coverage and reimbursement, and/or meeting prior authorization and other requirements for approval to use ourCompany products and treatments facilitated by ourthe Company’s products could harm ourthe Company’s business and prospects.
 
A limited number of customers account for a significant portion of ourthe Company’s total revenue. The loss of a principal customer could seriously hurt ourthe Company’s business.
 
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Table of Contents
The markets for many of ourthe Company’s products are subject to changing technology.
 
We distribute ourRevenue from the Company’s new subscription license model may be difficult to predict.
The Company distributes its products in highly competitive markets and ourthe Company’s sales may suffer as a result.
 
We relyThe Company relies on intellectual property and proprietary rights to maintain ourits competitive position and may not be able to protect these rights.
 
OurThe Company’s future prospects depend on ourits ability to retain current key employees and attract additional qualified personnel.
 
The market price of ourthe Company’s common stock has been, and may continue to be volatile, which could reduce the market price of ourthe Company’s common stock.
 
Future issuances of shares of ourthe Company’s common stock may cause significant dilution of equity interests of existing holders of common stock and decrease the market price of shares of ourthe Company’s common stock.
Risks Related to our Financial Position, Operating Results and Need for Additional Capital
We haveThe Company has incurred significant losses from inception through 20202021 and there can be no assurance that weit will be able to achieve and sustain future profitability.
We haveThe Company has incurred significant losses since our inception. WeThe Company incurred a net loss of $17.6$11.2 million in 20202021 and havehas an accumulated deficit of $241.9$253.1 million at December 31, 2020. We2021. The Company may not be able to achieve profitability.
25

Substantially all of our operating losses have resulted from costs incurred in connection with research and development efforts, including clinical studies, and from general and administrative costs associated with our operations. We expect our operating expenses to significantly increase as we continue to invest in research and development efforts. We also continue to incur additional costs associated with operating as a public company. As a result, we expect to continue to incur substantial and increasing operating losses for the foreseeable future.
OurThe Company’s quarterly and annual operating and financial results and ourits gross margins are likely to fluctuate significantly in future periods.
OurThe Company’s quarterly and annual operating and financial results are difficult to predict and may fluctuate significantly from period to period. OurThe Company’s revenue and results of operations may fluctuate as a result of a variety of factors that are outside of ourthe Company’s control including, but not limited to, general economic conditions, the timing of orders from ourthe Company’s OEM partners, ourits OEM partnerspartners’ ability to manufacture and ship their digital mammography systems, ourits timely receipt by the FDA for the clearance or approval to market ourCompany products, ourits ability to timely engage other OEM partners for the sale of ourCompany products, the timing of product enhancements and new product introductions by usCompany or ourits competitors, the pricing of ourCompany products, changes in customers’ budgets, changes to the economic strength of the Company’s customers, economic changes in the markets served by the Company’s customers, competitive conditions and the possible deferral of revenue under ourthe Company’s revenue recognition policies.
Risks Related to Ourthe Company and its Business and Our Company
We expectThe Company expects the novel coronavirus
(COVID-19)
pandemic, including the emergence of new variants, to have a significant effect on ourthe Company’s results of operations. In addition, itthe pandemic has resulted in significant financial market volatility, and its impact on the global economy appears to be significant. A continuation or worsening of the pandemic will have a material adverse impact on ourthe Company’s business, results of operations and financial condition and on the market price of ourthe Company’s common stock.
On March 12, 2020, the World Health Organization declared
COVID-19
to be a pandemic. In an effort to contain and mitigate the spread of the
COVID-19
pandemic, the United States, many countries in Europe, as well as Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of
COVID-19.
As a provider of devices and services to the health care industry, ourthe Company’s operations have been materially affected. Significant uncertainty remains asaffected, and may continue to be impacted, by the continuing impact
COVID-19
pandemic. Beginning with Q1 2020 through Q4
25

2021, the
COVID-19
pandemic has presented a number of challenges and risks for the Company’s business, including, but not limited to, decreased product demand due to reduced numbers of
in-person
meetings with potential clients; potential clients’ singular focus on oursurging
COVID-19
infection rates following the emergence of the Omicron variant, causing attention to be diverted from purchasing decisions; pandemic-related public health impacts, including significant shifts in workforce availability and priorities, on customer, supplier, and iCAD’s business process; supply chain interruptions; disruptions to the Company’s clinical trials; challenges operating in a virtual work environment; impacts resulting from travel limitations and mobility restrictions; and other challenges presented by disruptions to the Company’s normal operations in response to the pandemic, as well as uncertainties regarding the duration and severity of the pandemic on the global economy as a whole. It is currently not possible to predict how longand the pandemic will last orCompany’s operations, and the time that it will take for economic activity to return to prior levels. unpredictable and periodic emergence of new variants of the
COVID-19
virus.
The
COVID-19
pandemic has resulted in significant financial market volatility and uncertainty. A continuationcontinued or worsening of the levelslevel of market disruption and volatility seen inobserved since the recent paststart of the pandemic will have an adverse effect on ourthe Company’s ability to access capital, on ourits business, results of operations and financial condition, and on the market price of ourthe Company’s common stock. Our results forAlthough the year ending December 31, 2020 reflect a negative impact from the
COVID-19
pandemic, as the typical sales cycle and ordering patterns were still disrupted due to some healthcare facilities’ additional focus on
COVID-19.
Although we doCompany does not provide guidance to investors relating to ourthe Company’s results of operations, ourthe Company’s quarterly results for the quarter ending March 31, 2022, and possibly future quarters, could reflect a continuingcontinued negative impact from the
COVID-19
pandemic for similar reasons. Depending upon the duration and severity of the pandemic, the continuing effect on our results over the long term is uncertain.
The impact of the
COVID-19
pandemic on our future revenue is also relevant to the minimum revenue covenant under our Loan and Security Agreement (“Loan Agreement”) with Western Alliance Bank (the “Bank”). If at any point the Company is not in compliance with this covenant and is unable to obtain an amendment or waiver from the Bank, such noncompliance may result in an event of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date. The Company was required, historically, to seek modifications from its prior lender to avoid
non-complianceadditional reasons.
with certain earlier covenants. With the
COVID-19
pandemic affecting the world economy, the company cannot assure that it will be able to continue to satisfy the applicable minimum revenue covenant.
The Company’s exposure to trade accounts receivable losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty
26

associated with local or global economic recessions, disruption associated with the current
COVID-19
pandemic, or other customer-specific factors. The Company has historically not experienced significant trade account receivable losses, but it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade account receivables as hospitals’ cash flows are impacted by their response to the
COVID-19
pandemic.
The markets for ourthe Company’s products and treatments and newly introduced enhancements to ourthe Company’s existing products and treatments may not develop as expected, we continuethe Company continues to face barriers to broad market acceptance.
The successful commercialization of ourthe Company’s newly developed products and treatments and newly introduced enhancements to ourthe Company’s existing products and treatments are subject to numerous risks, both known and unknown, including:
 
market acceptance of ourthe Company’s products;
 
uncertainty of the development of a market for such product or treatment;
 
trends relating to, or the introduction or existence of, competing products, technologies or alternative treatments or therapies that may be more effective, safer or easier to use than ourthe Company’s products, technologies, treatments or therapies;
 
the perceptions of ourthe Company’s products or treatments as compared to other products and treatments;
 
recommendation and support for the use of ourthe Company’s products or treatments by influential customers, such as hospitals, radiological practices, breast surgeons and radiation oncologists and treatment centers and U.S. and international medical professional societies;
 
the availability and extent of data demonstrating the clinical efficacy of ourthe Company’s products or treatments;
 
competition, including the presence of competing products sold by companies with longer operating histories, more recognizable names and more established distribution networks; and
 
other technological developments.
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Often, the development of a significant market for a product or treatment will depend upon the establishment of appropriate reimbursement for use of the product or treatment. Moreover, even if addressed, such reimbursement levels frequently are not established until after a product or treatment is developed and commercially introduced, which can delay the successful commercialization of a product or treatment.
If we arethe Company is unable to successfully commercialize and create a significant market for ourthe Company’s newly developed products and treatments and newly introduced enhancements to ourthe Company’s existing products and treatments, ourthe Company’s business and prospects could be harmed.
Unfavorable results of legal proceedings could materially adversely affect our financial results
From time to time, we are a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of our business or otherwise. Legal proceedings are often lengthy, taking place over a period of years with interim motions or judgments subject to multiple levels of review (such as appeals or rehearings) before the outcome is final. Litigation is subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations. For these and other reasons, we may choose to settle legal proceedings and claims, regardless of their actual merit.
27

A legal proceeding finally resolved against us, could result in significant compensatory damages, and in certain circumstances, punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief. If our existing insurance does not cover the amount or types of damages awarded, or if other resolutions or actions taken as a result of the legal proceeding were to restrain our ability to market one or more of our material products or services, our consolidated financial position, results of operations or cash flows could be materially adversely affected. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to our reputation, which could adversely impact our business.
An unfavorable resolution of the Yeda litigation could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation (“Invivo”). On September 5, 2018, a third-party, Yeda Research and Development Company Ltd., filed a complaint (the “Yeda Litigation”) against the Company and Invivo in the United States District Court for the Southern District of New York, asserting various claims against the Company and Invivo. The Company and Invivo filed motions to dismiss the complaint. On September 5, 2019, the Court granted Invivo’s Motion to Dismiss in its entirety and granted the Company’s Motion to Dismiss as it relates to Yeda’s breach of contract and misappropriation of trade secrets claims. On October 22, 2019, Yeda filed an Amended Complaint against only the Company asserting claims for (i) copyright infringement; and (ii) a replead breach of contract claim. The Company filed its Answer to Yeda’s Amended Complaint on November 5, 2019. Yeda alleges, among other things, that the Company infringed upon Yeda’s source code, which was originally licensed to the Company, by using it in the products that the Company sold to Invivo and that it is entitled to damages that could include, among other things, profits relating to the sales of these products. If the Company is found to have infringed Yeda’s copyright or breached its agreements with Yeda, the Company could be obligated to pay to Yeda substantial monetary damages. We cannot predict the outcome of the Yeda Litigation or the amount of time and expense that will be required to resolve the lawsuit. If such litigation were to be determined adversely to our interests, or if we were forced to settle such matter for a significant amount, such resolution or settlement could have a material adverse effect on our business, results of operations and financial condition. Please refer to the detailed discussion regarding litigation set forth in Part I, Item 3 of this Annual Report on Form
10-K.
We may be exposed to significant product liability for which wethe Company may not have sufficient insurance coverage or be able to procure sufficient insurance coverage.
OurThe Company’s product and general liability insurance coverage may be inadequate with respect to potential claims and adequate insurance coverage may not be available in sufficient amounts or at a reasonable cost in the future. If available at all, product liability insurance for the medical device industry generally is expensive. Future product liability claims could be costly to defend and/or costly to resolve and could harm ourthe Company’s reputation and business.
Sales and market acceptance of ourthe Company’s products is dependent upon the coverage and reimbursement decisions made by third-party payers, including
carve-out
radiology benefits managers. The failure of third-party payers to provide appropriate levels of coverage and reimbursement, and/or meeting prior authorization and other requirements for approval to use ourthe Company’s products and treatments facilitated by ourthe Company’s products could harm ourthe Company’s business and prospects.
Sales and market acceptance of ourthe Company’s medical products and the treatments facilitated by ourCompany products in the United States and other countries is dependent upon the coverage decisions and reimbursement policies established by government healthcare programs and private health insurers. Market acceptance of ourthe Company’s products
28

and treatments has and will continue to depend upon ourthe Company’s customers’ ability to obtain an appropriate level of coverage for, and appropriate reimbursement from third-party payers for, these products and treatments. In the United States, CMSThe Centers for Medicare and Medicaid Services (“CMS”) establishes coverage and reimbursement policies for healthcare providers treating Medicare and Medicaid beneficiaries. Under current CMS policies, varying reimbursement levels have been established for ourthe Company’s products and treatments. In the absence of a national coverage determination, coverage policies for Medicare patients may vary by regional Medicare Administrative Contractors. Reimbursement rates for treatments vary based on the geographic price index, the site of service, and other factors. Coverage and reimbursement policies and rates applicable to patients with private insurance are dependent upon individual private payer decisions which may not follow the policies and rates established by CMS. The use of ourCompany products and treatments outside the United States is similarly affected by coverage and reimbursement policies adopted by foreign governments and, to a lesser extent, private insurance carriers. On September 18,29, 2020, CMS finalized a rule regarding its new RO Model, designed, according to CMS, to improve the quality of care for cancer patients receiving radiotherapy and reduce Medicare expenditures through bundled payments. In the final notice, CMS did not include IORT treatments (including CPT codes 77424, 77425, and 77425)77469) within the new alternative payment model for radiation oncology. As a result, whether or not a particular physician practice or hospital is subject to the new radiation oncology payment model, IORT services covered by Medicare will continue to be subject to the existing payment systems for physician services and hospital outpatient services. On December 2, 2020, CMS announced10, 2021, the interim final rule related to CMS’s newProtecting Medicare and American Farmers from Sequestration Cuts Act delayed the RO Model which will take effectimplementation until no earlier than January 1, 2022. We2023. Management cannot provide assurance that government or private third-party payers will continue to reimburse ourthe Company’s products or services, nor can wemanagement provide assurance that the payment rates will be adequate. If providers and physicians are unable to obtain adequate reimbursement for ourthe Company’s products or services, this could have a material adverse effect on ourthe Company’s business and operations. In addition, in the event that the current methodology for calculating payment for these products or services changes, this could have a material adverse effect on ourthe Company’s business and business operations. We
27

Management cannot guarantee that providers and physicians will be able to obtain adequate reimbursement for ourthe Company’s products or services under the RO model as proposed, or at all.services.
OurThe Company’s business is dependent upon future market growth of full field digital mammography systems, digital computer aided detection products, and tomosynthesis as well as advanced image analysis and workflow solutions for use with MRI and CT and the market growth of electronic brachytherapy. This growth may not occur or may occur too slowly to benefit usus.
.
OurThe Company’s future business is substantially dependent on the continued growth in the market for electronic brachytherapy, full field digital mammography systems, digital computer aided detection products and tomosynthesis as well as advanced image analysis and workflow solutions for use with MRI and CT. The market for these products may not continue to develop or may develop at a slower rate than we anticipatethe Company anticipates due to a variety of factors, including, general economic conditions, delays in hospital spending for capital equipment, the significant costs associated with the procurement of full field digital mammography systems and CAD products and MRI and CT systems and the reliance on third party insurance reimbursement. If the market for the products and technologies upon which ourthe Company’s products are dependent does not grow or grows too slowly, this could have a material adverse effect on ourthe Company’s business.
A limited number of customers account for a significant portion of ourthe Company’s total revenue. The loss of a principal customer could seriously hurt ourthe Company’s business.
A limited number of major customers have in the past and may continue in the future to account for a significant portion of ourthe Company’s revenue. OurThe Company’s principal
sales distribution channel for ourits digital products is through ourits OEM partners. In 2020, our2021, the Company’s OEM partners accounted for 28%22% of ourits total revenue, with one major customer, GE Healthcare, accounting for 17%14% of ourthe Company’s revenue. In addition, in 2020, five2021, four customers, consisting of both OEM and direct customers, accounted for 37%31% of ourthe Company’s total revenue. The loss of ourthe Company’s relationships with principal customers or a decline in sales to principal customers could materially adversely affect ourits business and operating results.
29

If goodwill and/or other intangible assets that we havethe Company has recorded in connection with ourits acquisitions become impaired, wethe Company could have to take significant charges against earnings.
In connection with the accounting for our acquisitions, we have recorded a significant amount of goodwill and other intangible assets. We have recorded multiple impairments in the past: $26.8 million in September 2011, $14.0 million in June 2015, $4.7 million in September 2017 and $2.0 million in December 2017. Under current accounting, wemanagement must assess, at least annually and potentially more frequently, whether the value of ourthe Company’s goodwill of $8.4 million at December 31, 20202021 and ourits other intangible assets have been impaired. Any reduction or impairment of the value of goodwill or other intangible assets will result in a charge against earnings which could materially adversely affect ourthe Company’s reported results of operations in future periods.
OurThe Company’s effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of amounts that have been accrued.
As a global company, we arethe Company is subject to taxation in numerous countries, states and other jurisdictions. In preparing ourthe Company’s financial statements, we recordthe Company records the amount of tax payable in each of the countries, states and other jurisdictions in which we operate. Ourthe Company operates. The Company’s future effective tax rate, however, may be lower or higher than prior years due to numerous factors, including a change in ourthe Company’s geographic earnings mix, changes in the measurement of ourthe Company’s deferred taxes, and recently enacted and future tax law changes in jurisdictions in which we operate. We arethe Company operates. The Company is also subject to ongoing tax audits in various jurisdictions, and tax authorities may disagree with certain positions we havethe Company has taken and assess additional taxes. Any of these factors could cause usthe Company to experience an effective tax rate significantly different from previous periods or ourthe Company’s current expectations, which could adversely affect ourthe Company’s business, results of operations and cash flows.
Our28

The Company’s ability to use ourits net operating loss carryovers and certain other tax attributes may be limited.
Under the Internal Revenue Code of 1986, as amended (the “Code”), a corporation is generally allowed a deduction for net operating losses (“NOLs”) carried over from a prior taxable year. Under that provision, wethe Company can carryforward ourits NOLs to offset our future taxable income, if any, until such NOLs are usedfully utilized or expire. The same is true of other unused tax attributes, such as tax credits. Under the Tax Cut and Jobs Act of 2017 (the “Tax Act”), federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will conform to the federal Tax Act.
In addition, under Section 382 of the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percent change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its
pre-change
net operating loss carryforwards and other
pre-change
tax attributes to offset its post-change income or taxes may be limited. WeThe Company may experience ownership changes in the future as a result of subsequent shifts in ourthe Company’s stock ownership, some of which may be outside of ourthe Company’s control. If an ownership change occurs and ourthe Company’s ability to use ourits net operating loss carryforwards or other tax attributes is materially limited, it would harm ourthe Company’s future operating results by effectively increasing ourthe Company’s future tax obligations.
30

Acquisitions may not result in the benefits and revenue growth we expect.
We integrate companies that we acquire including the operations, services, products and personnel of each company within our management policies, procedures and strategies. We cannot be sure that we will achieve the benefits of revenue growth that we expect from these acquisitions or that we will not incur unforeseen additional costs or expenses in connection with these acquisitions. To effectively manage our expected future growth, we must continue to successfully manage our integration of these companies and continue to improve our operational systems, internal procedures, working capital management, and financial and operational controls. If we fail in any of these areas, our business could be adversely affected.
The markets for many of ourthe Company’s products are subject to changing technology.
OurThe Company’s business depends on ourits ability to adapt to evolving technologies and industry standards and introduce new technology solutions and services accordingly. If wethe Company cannot adapt to changing technologies, ourits technology solutions and services may become obsolete, and ourits business may suffer. Because the healthcare information technology market is constantly evolving, ourthe Company’s existing technology may become obsolete and fail to meet the requirements of current and potential customers. OurThe Company’s success will depend, in part, on ourits ability to continue to enhance ourits existing technology solutions and services, develop new technology that addresses the increasingly sophisticated and varied needs of ourits customers, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of ourthe Company’s proprietary technology entails significant technical and business risks. WeThe Company may not be successful in developing, using, marketing, selling, or maintaining new technologies effectively or adapting ourits proprietary technology to evolving customer requirements or emerging industry standards, and, as a result, ourthe Company’s business and reputation could suffer. WeThe Company may not be able to introduce new technology solutions on schedule, or at all, or such solutions may not achieve market acceptance. Moreover, competitors may develop competitive products that could adversely affect ourthe Company’s results of operations. OurThe Company’s failure to introduce new products or to introduce these products on schedule could have an adverse effect on ourits business, financial condition and results of operations.
We dependThe Company depends upon a limited number of suppliers and manufacturers for ourits products, and certain components in ourits products may be available from a sole or limited number of suppliers.
OurThe Company’s products are generally either manufactured and assembled for usit by a sole manufacturer, by a limited number of manufacturers or assembled by usthe Company from supplies we obtainit obtains from a limited number of suppliers. Critical components required to manufacture ourthe Company’s products, whether by outside manufacturers or directly by us,the Company, may be available from a sole or limited number of component suppliers. WeThe Company generally dodoes not have long-term arrangements with any of ourits manufacturers or suppliers. The loss of a sole or key manufacturer or supplier could materially impair ourthe Company’s ability to deliver products to ourits customers in a timely manner and would adversely affect ourthe Company’s sales and operating results. OurThe Company’s business would be harmed if any of ourits manufacturers or suppliers could not meet ourits quality and performance specifications and quantity and delivery requirements.
Additionally, ourthe Company’s suppliers and manufacturers are, and will continue to be, subject to extensive government regulation in connection with the manufacture of any medical devices. OurThe Company’s suppliers and
29

manufacturers must ensure that they are compliant with applicable quality systemsystems and other regulatory requirements, as mandated by the FDA and other regulatory authorities. If ourthe Company’s materials suppliers or manufacturers face manufacturing or quality control problems this may lead to delays in product production or shipment or ourthe Company’s supplier or manufacturer no longer being able to continue operations. OurThe Company’s business would be harmed if any of ourits manufacturers or suppliers could not meet ourits quality and performance specifications and quantity and delivery requirements.
31Revenue from the Company’s new subscription license model may be difficult to predict.
The Company is devoting resources to the development of a new software license model to complement its traditional perpetual licensing models. This model allows the Company to license Detection software through subscription licenses that are cancelable at any time. The Company has limited operating history with subscription licensing models and may not be able to accurately predict initial subscription enrollment or future renewal or cancellation rates. Subscription renewal rates may decline or fluctuate as a result of a number of factors, including but not limited to customer satisfaction or dissatisfaction with Company products, the price of Company products, the prices of similar competitive products, or customer budget sensitivity. If any of the Company’s assumptions about revenue from the subscription licensing model are incorrect, the Company’s actual results may vary materially from those anticipated, estimated, or projected.

We distribute ourThe Company distributes its products in highly competitive markets and ourits sales may suffer as a result.
We operateThe Company operates in highly competitive and rapidly changing markets that contain competitive products available from nationally and internationally recognized companies. Many of these competitors have significantly greater financial, technical and human resources than usthe Company and are well established. In addition, some companies have developed or may develop technologies or products that could compete with the products we manufacturethe Company manufactures and distributedistributes or that would render ourthe Company’s products obsolete or noncompetitive. OurThe Company’s competitors may achieve patent protection, regulatory approval, or product commercialization that would limit ourthe Company’s ability to compete with them. These and other competitive pressures could have a material adverse effect on ourthe Company’s business.
Disruptions in service or damage to ourthe Company’s third-party providers’ data centers could adversely affect ourthe Company’s business.
We relyThe Company relies on third parties who provide access to data centers. OurThe Company’s information technologies and systems are vulnerable to damage or interruption from various causes, including (i) acts of God and other natural disasters, war and acts of terrorism and (ii) power losses, computer systems failures, internet and telecommunications or data network failures, operator error, losses of and corruption of data and similar events. We conductThe Company conducts business continuity planning and workworks with ourits third-party providers to protect against fires, floods, other natural disasters and general business interruptions to mitigate the adverse effects of a disruption, relocation or change in operating environment at the data centers we utilize.the Company utilizes. In addition, the occurrence of any of these events could result in interruptions, delays or cessations in service to ourthe Company’s customers. Any of these events could impair or prohibit ourthe Company’s ability to provide ourits services, reduce the attractiveness of ourits services to current or potential customers and adversely impact ourits financial condition and results of operations.
In addition, despite the implementation of security measures, ourthe Company’s infrastructure, data centers, or systems that we interfaceit interfaces with, including the Internet and related systems, may be vulnerable to physical
break-ins,
hackers, improper employee or contractor access, computer viruses, programming errors,
denial-of-service
attacks or other attacks by third-parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security. Any of these can cause system failure, including network, software or hardware failure, which can result in service disruptions. As a result, wethe Company may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches.
30

Instability in geographies where the Company has operations and personnel or where the Company derives revenue could have a material adverse effect on the Company’s business, customers, operations and financial results.
Economic, civil, military and political uncertainty may arise or increase in regions where the Company operates or derives revenue. Further, countries from which the Company derives revenue may experience military action and/or civil and political unrest. For the fiscal year ended 2021, approximately 8.6% of the Company’s revenue was derived from customers located in Europe, and approximately 39.0% of the Company’s export revenue was derived from customers located in Europe. In late February 2022, Russian military forces launched significant military action against Ukraine. Sustained conflict and disruption in the region is likely. The aggregate impact to Eastern Europe and Europe as a whole, as well as actions taken by other countries, including new and stricter sanctions by the United States, Canada, the United Kingdom, the European Union, and other countries and organizations against officials, individuals, regions, and industries in Russia, Belarus and Ukraine, and each country’s potential response to such sanctions, tensions and military actions, is not knowable at this time, and could have a material adverse effect on the Company, its business and operations. Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt the Company’s sales to customers in the region. Prolonged unfavorable economic conditions or uncertainty may have an adverse effect on the Company’s sales and profitability
If ourthe Company’s products fail to perform properly due to errors or similar problems, ourthe Company’s business could suffer.
Despite testing, complex software;software may contain defects or errors. Addressing software errors may delay development of ourthe Company’s solutions, and if discovered after deployment, may require the expenditure of substantial time and resources to correct. Errors in ourthe Company’s software could result in:
 
harm to ourthe Company’s reputation;
 
lost sales;
 
delays in commercial releases;
 
product liability claims;
 
delays in or loss of market acceptance of ourthe Company’s solutions;
 
license terminations or renegotiations;
 
unexpected expenses and diversion of resources to remedy errors; and
 
privacy and security vulnerabilities.
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Furthermore, ourthe Company’s customers might use ourits software together with products from other companies or those that they have developed internally. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when ourthe Company’s software does not cause these problems, the existence of these errors might cause usthe Company to incur significant costs, divert the attention of ourits technical personnel from ourthe Company’s solution development efforts;efforts or impact ourits reputation and cause significant customer relations problems.
We rely on intellectual property and proprietary rights to maintain our competitive position and may not be able to protect these rights.Unfavorable results of legal proceedings could materially adversely affect the Company’s financial results
We rely heavily on proprietary technology that we protect primarily through licensing arrangements, patents, trade secrets, proprietary
know-how
and
non-disclosure
agreements. There can be no assurance that any pendingFrom time to time, the Company is a party to or future patent applications will be grantedotherwise involved in legal proceedings, claims and government inspections or that any current or future patents, regardless of whether we are an owner or a licensee of the patent, will not be challenged, rendered unenforceable, invalidated, or circumvented or that the rights will provide a competitive advantage to us. There can also be no assurance that our trade secrets or
non-disclosure
agreements will provide meaningful protection of our proprietary information. Further, we cannot assure you that others will not independently develop similar technologies or duplicate any technology developed by us or that our technology will not infringe upon patents orinvestigations and other rights owned by others. Unauthorized third parties may infringe our intellectual property rights or copy or reverse engineer portions of our technology. In addition, because patent applications inlegal matters, both inside and outside the United States, are not generally publicly disclosed until eighteen months after the application is filed, applications may have been filed by third parties that relate to our technology. Moreover, there is a risk that foreign intellectual property laws will not protect our intellectual property rights to the same extent as intellectual property lawsarising in the United States. The rights provided byordinary course of business or otherwise. Legal proceedings are often lengthy, taking place over a patent are finite in time. The Company has certain patents that expire between 2021period of years with interim motions or judgments subject to multiple levels of review (such as appeals or rehearings) before the outcome is final. Litigation is subject to significant uncertainty and 2029. In the absence of significant patent protection, we may be vulnerableexpensive, time- consuming, and disruptive to competitors who attemptoperations. For these and other reasons, the Company may choose to copy our products, processes or technology.settle legal proceedings and claims, regardless of their actual merit.
In addition, in
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A legal proceeding finally resolved against the future, we may be required to assert infringement claims against third parties, and there can be no assurance that one or more parties will not assert infringement claims against us. Any resulting litigation or proceedingCompany, could result in significant expensecompensatory damages, and in certain circumstances, punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief. If the Company’s existing insurance does not cover the amount or types of damages awarded, or if other resolutions or actions taken as a result of the legal proceeding were to us and divertrestrain the effortsCompany’s ability to market one or more of our management personnel, whetherthe Company’s material products or not such litigationservices, the Company’s consolidated financial position, results of operations or proceeding is determined in our favor.cash flows could be materially adversely affected. In addition, iflegal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to the Company’s reputation, which could adversely impact the Company’s business.
If the Company is subject to claims that its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of our intellectual propertythird parties, the Company could incur substantial expenses.
The Company employ individuals who were previously employed at other medical device and proprietary rights are deemed to violate the proprietary rights of others, wetechnology companies. The Company may be prevented from using thosesubject to claims that the Company or its employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of employees’ former employers or other third parties. The Company may also be subject to claims that former employers or other parties have an ownership interest in patents or intellectual property or proprietary rights, whichproperty. Litigation may be necessary to defend against these claims. The Company may not be successful in defending these claims, and if the Company is successful, litigation could prevent us from being able to sell our products. Litigation could also result in substantial cost and be a judgment or monetary damages being levied against us.distraction to its management and other employees.
Healthcare industry consolidation could impose pressure on ourthe Company’s prices, reduce potential customer base and reduce demands for ourthe Company’s systems.
Many hospitals and imaging centers have consolidated to create larger healthcare enterprises with greater market and purchasing power. When hospitals and imaging centers combine, they often consolidate infrastructure, and consolidation of ourthe Company’s customers could result in fewer overall customers. If this consolidation trend continues, it could reduce the size of ourthe Company’s potential customer base, reduce demand for ourthe Company’s systems, give the resulting enterprises greater bargaining or purchasing power, and may lead to erosion of the prices for ourthe Company’s systems or decreased margins for ourits systems, all of which would adversely affect ourthe Company’s ability to generate revenue.
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Clinical trials are very expensive, lengthy, and difficult to design and implement and have uncertain outcomes, and, as a result, wethe Company may suffer delays or suspensions in current or future trials which would have a material adverse effect on ourthe Company’s ability to obtain regulatory approvals timely or at all, and if we failthe Company fails to receive such approvals, ouron its ability to generate revenues.
Clinical trials involve a time-consuming and expensive process with an uncertain outcome, and the results of earlier trials are not necessarily predictive of future results. Human clinical trials are difficult to design and implement and very expensive, due in part to being subject to rigorous regulatory requirements.
Additionally, wethe Company may encounter problems at any stage of the trials that cause usit to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:
 
non-approval
of an investigational device exemption (IDE), which is required by the FDA for the study in humans of a significant risk device that is not approved for the indication being studied;
 
failure to reach an agreement with contract research organizations or clinical trial sites;
 
failure of third-party contract research organizations to properly implement or monitor the clinical trial protocols;
 
failure of IRBs to approve ourthe Company’s clinical trial protocols or suspension or termination of ourthe Company’s clinical trial by the IRB, DSMB, or the FDA;
 
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slower than expected rates of patient recruitment and enrollment, which may be further negatively impacted by the
COVID-19
global pandemic;
 
inability to retain patients in clinical trials, which may be further negatively impacted by the
COVID-19
global pandemic;
 
lack of effectiveness during clinical trials;
 
unforeseen safety issues;
 
inability or unwillingness of medical clinical investigators and institutional review boards to follow ourthe Company’s clinical trial protocols;
 
failure of clinical investigators or sites to maintain necessary licenses or permits or comply with good clinical practices, or GCP, or other regulatory requirements; and
 
lack of sufficient funding to finance the clinical trials.
In addition, wethe Company or regulatory authorities may suspend ourthe Company’s clinical trials at any time if it appears that we arethe Company is exposing participants to unacceptable health risks or if the regulatory authorities find deficiencies in ourthe Company’s regulatory submissions or the conduct of these trials. Any suspension of clinical trials will delay possible regulatory approval, increase costs, and adversely impact ourthe Company’s ability to develop products and generate revenue.
OurThe Company’s future prospects depend on ourits ability to retain current key employees and attract additional qualified personnel.
OurThe Company’s success depends in large part on the continued service of ourits executive officers and other key employees. WeThe Company may not be able to retain the services of ourits executive officers and other key employees. The loss of executive officers or other key personnel could have a material adverse effect on us.the Company.
In addition, in order to support ourits continued growth, wethe Company will be required to effectively recruit, develop and retain additional qualified personnel. If we arethe Company is unable to attract and retain additional necessary personnel, it could delay or hinder ourits plans for growth. Competition for such personnel is intense, and there can be no assurance that wethe Company will be able to successfully attract, assimilate or retain sufficiently qualified personnel. The failure to retain and attract necessary personnel could have a material adverse effect on ourthe Company’s business, financial condition and results of operations.
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OurThe Company’s international operations expose usit to various risks, any number of which could harm ourthe Company’s business.
OurThe Company’s revenue from sales outside of the United States represented approximately 20%22% of ourthe Company’s revenue for 2020. We are2021. The Company is subject to the risks inherent in conducting business across national boundaries, any one of which could adversely impact ourits business. In addition to currency fluctuations, these risks include, among other things: economic downturns; changes in or interpretations of local law, governmental policy or regulation; changes in healthcare practice patterns; restrictions on the transfer of funds into or out of the country; varying tax systems; and government protectionism. One or more of the foregoing factors could impair ourthe Company’s current or future operations and, as a result, harm ourthe Company’s overall business.
Risks Related to Intellectual Property
Our existing
The Company relies on intellectual property and future debt obligations could impair our liquidityproprietary rights to maintain its competitive position and financial condition, and our lenders could foreclose on our assets in the event we are unablemay not be able to meet our debt obligations.protect these rights.
In connection with our Loan Agreement, the Bank agreed to provide up an initial term loan facility of $7.0 million and a $5.0 million revolving line of credit. The Loan Agreement requires the Company to either (i) meet a minimum revenue covenant, or (ii) maintain a ratio of unrestricted cash at the Bank to aggregate indebtedness owed to the Bank of at least 1.25 to 1.00. The Company was compliant with these covenants as of December 31, 2020 but cannot providerelies heavily on proprietary technology that it protects primarily through licensing arrangements, patents, trade secrets, proprietary
know-how
and
non-disclosure
agreements. There can be no assurance that any assurance as to its future compliance due to, in part, the uncertainty of the effect of the
COVID-19
pandemic on the world economy and the U.S. health system. If at any point the Company is not in compliance with certain covenants under the Loan Agreement and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date. The Company was required, periodically in the past, to seek modifications from its prior lender to avoid
non-compliance
with its earlier covenants.
The Loan Agreement
 
requires us to dedicate a portion of our cash flow to payments on our debt obligations, which reduces the availability of our cash flow to fund working capital, capital expenditures and other corporate requirements;
imposes restrictions on our ability to incur indebtedness, other than permitted indebtedness, and could impede us from obtaining additional financing in the future for working capital, capital expenditures, mergers, acquisitions and general corporate purposes;
imposes restrictions on us with respect to the use of our available cash, including in connection with future acquisitions;
requires us to agree by a certain date with the Bank regarding minimum revenue levels for the 2021 calendar year. Failure to agree will result in acceleration of the indebtedness under the Loan Agreement; and
requires us to provide certain financial information on a monthly and annual basis. Failure to do so will result in acceleration of the indebtedness under the Loan Agreement.
In addition, the Loan Agreement
could impair our liquidity;
could make it more difficult for us to satisfy our other obligations;
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pending or future patent applications will be granted or that any current or future patents, regardless of whether the Company is an owner or a licensee of the patent, will not be challenged, rendered unenforceable, invalidated, or circumvented or that the rights will provide a competitive advantage to the Company. There can also be no assurance that the Company’s trade secrets or
make us more vulnerablenon-disclosure
agreements will provide meaningful protection of Company proprietary information. Further, the Company cannot assure that others will not independently develop similar technologies or duplicate any technology developed by the Company or that its technology will not infringe upon patents or other rights owned by others. Unauthorized third parties may infringe the Company’s intellectual property rights or copy or reverse engineer portions of the Company’s technology. In addition, because patent applications in the eventUnited States are not generally publicly disclosed until eighteen months after the application is filed, applications may have been filed by third parties that relate to the Company’s technology. Moreover, there is a risk that foreign intellectual property laws will not protect the Company’s intellectual property rights to the same extent as intellectual property laws in the United States. The rights provided by a patent are finite in time. The Company has certain patents that expire between 2022 and 2029. In the absence of a downturnsignificant patent protection, the Company may be vulnerable to competitors who attempt to copy the Company’s products, processes or technology.
In addition, in our business prospectsthe future, the Company may be required to assert infringement claims against third parties, and could limit our flexibility to plan for,there can be no assurance that one or react to, changes in our licensing markets;
more parties will not assert infringement claims against the Company. Any resulting litigation or proceeding could result in significant expense to the Company and divert the efforts of its management personnel, whether or not such litigation or proceeding is determined in the Company’s favor. In addition, if any of the Company’s intellectual property and proprietary rights are deemed to violate the proprietary rights of others, the Company may be prevented from using those intellectual property or proprietary rights, which could prevent it from being able to sell its products. Litigation could also result in a prepaymentjudgment or make-whole premium if we elected to prepaymonetary damages being levied against the indebtedness under the Loan Agreement prior to its maturity date; and
Company.
If the Company fails to obtain licenses to necessary intellectual property or does not comply with its obligations in license agreements, the Company could place uslose important rights.
The Company may need to obtain licenses from owners of intellectual property to advance its research and products or allow commercialization of its product, and the Company has done so from time to time. If the Company does not obtain any of these licenses at a competitive disadvantage when compared to our competitors who have less debt.
We have pledged substantially all of our assets to secure our obligations underreasonable cost and on reasonable terms, the Loan Agreement. If we were to fail in the future to make any required payment under the Loan Agreement or fail to comply with the financial and operating covenants contained in the therein, in some cases subject to applicable cure periods, weCompany would be in default regardingunable to further develop and commercialize one or more of its product, which could harm the Loan Agreement. Such default would enable the lenders under the Loan Agreement to foreclose on the assets securing such debt and could significantly diminish the market value and marketability of our common stock and could result in the acceleration of the payment obligations under our indebtedness.Company’s business.
Risks Related to Regulation of ourthe Company’s Industry
The healthcare industry is highly regulated, and government authorities may determine that we havethe Company has failed to comply with applicable laws, rules or regulations. Additionally, wethe Company may incur substantial costs defending ourits interpretations of U.S. federal and state government regulations, and if we lose,the Company loses, the government could force usthe Company to restructure ourits operations and subject usit to fines, monetary penalties and possibly exclude usthe Company from participation in U.S. government-sponsored health care programs such as Medicare and Medicaid.
Both in the United States and in other jurisdictions, the healthcare industry is subject to extensive and complex federal, state and local laws, rules and regulations, compliance with which imposes substantial costs on us.the Company. Such laws and regulations include those that are directed at payment for services and the conduct of operations, preventing fraud and abuse, and prohibiting general business corporations, such as ours,the Company’s, from engaging in practices that may influence professional decision-making, such as splitting fees with physicians. In addition, we believethe Company believes that ourits business will continue to be subject to increasing regulation as legislatures and governmental agencies periodically consider proposals to revise or create new requirements, particularly in response to and following the
COVID-19
pandemic, the scope and effect of which wethe Company cannot predict. Such proposals, if implemented, could impact ourthe Company’s operations, the use of ourits services, and ourits ability to market new services, and could create unexpected liabilities for us.the Company.
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Many healthcare laws are complex, and their application to specific services and relationships may not be clear. The laws often have related rules and regulations that are subject to interpretation and may not provide definitive guidance as to their application to ourthe Company’s operations, including ourits arrangements with physicians and professional corporations. Further, healthcare laws differ from jurisdiction to jurisdiction and it is difficult to ensure ourthe Company’s business complies with evolving laws in all jurisdictions.
Consequently, ourthe Company’s operations, including ourits arrangements with healthcare providers, are subject to audits, inquiries and investigations from government agencies from time to time. We believe we areThe Company believes it is in substantial compliance with these laws, rules and regulations based upon what we believethe Company believes are reasonable and defensible interpretations of these laws, rules and regulations. However, U.S. federal and state laws are broadly worded and may be interpreted or applied by prosecutorial, regulatory or judicial authorities in ways that wethe Company cannot predict. Accordingly, wethe Company may in the future become the subject of regulatory or other investigations or proceedings, and ourits interpretations of applicable laws, rules and regulations may be challenged. Any challenge to ourthe Company’s operations or arrangements with third parties that we havethe Company has structured based upon ourits interpretation of these laws, rules and regulations could potentially disrupt business operations and lead to substantial defense
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costs and a diversion of management’s time and attention, even if wethe Company successfully defend ourdefends its interpretation. In addition, if the government successfully challenges ourthe Company’s interpretation of the applicability of these laws, rules and regulations as they relate to ourits operations and arrangements, itsuch successful challenge may have a material adverse effect on ourthe Company’s business, financial condition, results of operations, cash flows, and the trading price of ourthe Company’s common stock.
In the event regulatory action were to limit or prohibit usthe Company from carrying on ourits business as weit presently conductconducts it or from expanding ourits operations into certain jurisdictions, wethe Company may need to make structural, operational and organizational modifications to ourthe Company or ourto its contractual arrangements with physicians and professional corporations. OurThe Company’s operating costs could increase significantly as a result. WeThe Company could also lose contracts, or ourits revenues could decrease under existing contracts. Any restructuring would also negatively impact ourthe Company’s operations because ourits management’s time and attention would be diverted from running ourits business in the ordinary course.
Compliance with the many laws and regulations governing the healthcare industry could restrict ourthe Company’s sales and marketing practices, and other relationships with healthcare professionals.
Once ourthe Company’s products are sold, wethe Company must comply with various U.S. federal and state healthcare fraud and abuse laws, rules and regulations pertaining false claims, kickbacks and physician self-referral. Violations of the fraud and abuse laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from participation in federal and state healthcare programs, including Medicare, Medicaid, Veterans Administration health programs, workers’ compensation programs and TRICARE. Compliance with these laws could restrict ourthe Company’s sales and marketing practices, and any challenge to ourthe Company’s practices could disrupt ourits operations and lead to substantial defense costs and a diversion of management’s time and attention, even if wethe Company successfully defend ourdefends its practices. If we arethe Company is unable to successfully defend ourits practices, in addition to incurring significant expense in defending ourselves, weitself, the Company could be subject to a significant settlement, monetary penalties, and costs related to implementation of changes to ourits practices, which could have a material adverse effect on ourits business.
Healthcare reform legislation in the United States may adversely affect ourthe Company’s business and/or results of operations.
In March 2010, significant reforms to the U.S. healthcare system were adopted in the form of the ACA. The ACA includes provisions that, among other things, reduce and/or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions) and impose new and/or increased taxes. While the ACACompany is intended to expand health insurance coverage to uninsured persons in the United States, other elements of this legislation, such as Medicare provisions aimed at improving quality and decreasing costs, comparative effectiveness research, an independent payment advisory board, and pilot programs to evaluate alternative payment methodologies, make it difficult to determine the overall impact on sales of, and reimbursement for, our products. We are unable to predict what additional legislation or regulation relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on ourthe Company’s business. Any cost containment measures or other health care system reforms that are adopted could have a material and adverse effect on ourthe Company’s ability to commercialize ourits existing and
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future products successfully. WeThe Company cannot predict whether the ACAany existing or enacted legislation will be repealed, replaced, or modified or how such repeal, replacement or modification may be timed or structured.
As a result, wethe Company cannot quantify or predict the effect of such repeal, replacement, or modification might have on ourits business and results of operations. However, any changes that lower reimbursement for ourthe Company’s products or reduce medical procedure volumes could adversely affect ourits business and results of operations.
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OurThe Company’s products and manufacturing facilities are subject to extensive regulation with potentially significant costs for compliance.
In the United States, ourthe Company’s CAD systems and Xoft Systems are medical devices subject to extensive regulation by the FDA under the FDCA. The FDA’s regulation of ourthe Company’s products includes ourits manufacturing operations, product labeling, adverse event reporting, and the FDA’s general prohibition against promoting products for unapproved or
“off-label”
uses.
OurThe Company’s failure to fully comply with applicable regulations could result in the issuance of warning letters,
non-approvals,
suspensions of existing approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions, and criminal prosecution. Moreover, unanticipated changes in existing regulatory requirements or adoption of new requirements could increase ourthe Company’s operating and compliance burdens and adversely affect ourits business, financial condition and results of operations.
Sales of ourthe Company’s products in certain countries outside of the United States are also subject to extensive regulatory approvals. Obtaining and maintaining foreign regulatory approvals is an expensive and time-consuming process. WeThe Company cannot be certain that weit will be able to obtain the necessary regulatory approvals timely or at all in any foreign country in which we planthe Company plans to market ourits CAD products and Xoft Systems, and if we failthe Company fails to receive such approvals, ourits ability to generate revenue may be significantly diminished.
WeThe Company may not be able to obtain regulatory approval for any of the other products that we may consider developing.
We haveThe Company has received the required premarket approvals from FDA or the equivalent foreign authority in the relevant jurisdictions in which weits currently offer ouroffers its products. Before we arethe Company is able to commercialize any new product or promote a new indicated use of an existing product, weit must obtain the required regulatory approvals. The process for satisfying these regulatory requirements is lengthy and costly and will require usthe Company to comply with complex standards for research and development, clinical trials, testing, manufacturing, quality control, labeling, and promotion of products. Additionally, even if we receivethe Company receives regulatory approval for a new product or indicated use in one jurisdiction, ourits products may be subject to separate regulatory approval in each country or jurisdiction in which we planthe Company plans to market ourits products. WeThe Company cannot be certain that weit will be able to obtain the necessary regulatory approvals timely or at all in any country or jurisdiction. Successfully obtaining regulatory approval in one jurisdiction does not guarantee approval in another; however, a delay or failure to obtain regulatory approval in one jurisdiction may negatively affect the regulatory process in another. If we arethe Company is unable to obtain regulatory approval for other products or indicated uses, ourits ability to generate sufficient revenue to continue ourits business may be significantly impacted.
OurThe Company’s products may be recalled even after we haveit has received FDA or other governmental approval or clearance.
If the safety or efficacy of any of ourthe Company’s products is called into question, wethe Company may initiate or the FDA and similar governmental authorities in other countries may press usthe Company to implement or even require a product recall, even if ourthe Company’s product received approval or clearance by the FDA or a similar
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governmental body. Such a recall would divert the focus of ourthe Company’s management and ourits financial resources and could materially and adversely affect ourthe Company’s reputation with customers and ourits financial condition and results of operations.
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We areThe Company is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. WeThe Company may be subject to criminal or civil sanctions if we failit fails to comply with privacy and security regulations regarding the use and disclosure of sensitive personally identifiable information.
Numerous state and federal laws and regulations govern the collection, dissemination, use, privacy, confidentiality, security, availability and integrity of personally identifiable information, including HIPAA. In the provision of services to ourthe Company’s customers, wethe Company and ourits third-party vendors may collect, use, maintain and transmit patient health information in ways that are subject to many of these laws and regulations. We areThe Company is also subject to laws and regulations in foreign countries covering data privacy and other protection of health and employee information that may be more onerous than corresponding U.S. laws, including in particular the laws of Europe.
OurThe Company’s customers are covered entities, and we arethe Company is a business associate of ourits customers under HIPAA as a result of ourthe Company’s contractual obligations to perform certain functions on behalf of and provide certain services to those customers. In the ordinary course of our business, we collectthe Company collects and storestores sensitive data, including personally identifiable information received from of ourits customers. The secure processing, maintenance and transmission of this information is critical to ourthe Company’s operations. Despite ourits security measures and business controls, ourthe Company’s information technology and infrastructure may be vulnerable to attacks by hackers, breached due to employee error, malfeasance or other disruptions or subject to the inadvertent or intentional unauthorized release of information. Any such occurrence could compromise ourthe Company’s networks and the information stored thereon could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information by usthe Company or ourits subcontractors could (i) result in legal claims or proceedings, liability under laws that protect the privacy of personal information and regulatory penalties, (ii) disrupt ourthe Company’s operations and the services we provideit provides to ourits customers and (iii) damage ourthe Company’s reputation, any of which could adversely affect ourthe Company’s profitability, revenue and competitive position.
Federal and state consumer laws are being applied increasingly by the Federal Trade Commission and state attorneys general to regulate the collection, use and disclosure of personal or patient health information, through web sites or otherwise, and to regulate the presentation of web site content. Numerous other federal and state laws protect the confidentiality, privacy, availability, integrity and security of personally identifiable information. These laws in many cases are more restrictive than, and not preempted by, HIPAA and may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for usthe Company and ourits customers and potentially exposing usthe Company to additional expense, adverse publicity and liability. WeThe Company may not remain in compliance with the diverse privacy requirements in each of the jurisdictions in which we doit does business.
HIPAA and federal and state laws and regulations may require users of personally identifiable information to implement specified security measures. Evolving laws and regulations in this area could require usthe Company to incur significant additional costs to
re-design
ourits products in a timely manner to reflect these legal requirements, which could have an adverse impact on ourits results of operations.
New personally identifiable information standards, whether implemented pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which wethe Company must handle healthcare related data, and the cost of complying with standards could be significant. If we dothe Company does not properly comply with existing or new laws and regulations related to patient health information, weit could be subject to criminal or civil sanctions.
 
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Data protection laws in the United States, Europe and around the world may restrict ourthe Company’s activities and increase ourthe Company’s costs.
Various statutes and rules in the United States, Europe and around the world regulate privacy and data protection which may affect ourthe Company’s collection, use, storage, and transfer of information both abroad and in the United States. New laws and regulations are being enacted, so that this area remains in a state of flux. Monitoring and complying with these laws requirerequires substantial financial resources. Failure to comply with these laws may result in, among other things, civil and criminal liability, negative publicity, restrictions on further use of data, and/or liability under contractual warranties. In addition, changes in these laws (including newly released interpretations of these laws by courts and regulatory bodies) may limit ourthe Company’s data access, use and disclosure, and may require increased expenditures by us.
The European Union’s General Data Protection Regulation (“GDPR”) requires usthe Company to meet new and more stringent requirements regarding the handling of personal data about EU residents. Failure to meet the GDPR requirements could result in penalties of up to 4% of worldwide revenue.
Risk Related to ourthe Company’s Common Stock
A substantial number of shares of ourthe Company’s common stock are eligible for future sale, and the sale of shares of common stock into the market, or the perception that such sales may occur, may depress ourthe Company’s stock price.
Sales of substantial additional shares of ourthe Company’s common stock in the public market, or the perception that these sales may occur, may significantly lower the market price of ourthe Company’s common stock. We areThe Company is unable to estimate the amount, timing or nature of future sales of shares of ourits common stock. We haveThe Company has previously issued a substantial number of shares of common stock, which are eligible for resale under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), and may become freely tradable. We haveThe Company has also registered shares that are issuable upon the exercise of options and warrants. If holders of options, or warrants choose to exercise or convert their securities and sell shares of common stock issued upon the such exercise or conversion in the public market or if holders of currently restricted common stock choose to sell such shares of common stock in the public market under Rule 144 or otherwise, or attempt to publicly sell such shares all at once or in a short time period, the prevailing market price for ourthe Company’s common stock may decline.
We haveThe Company has a limited number of shares of common stock available for future issuance which could adversely affect ourthe Company’s ability to raise capital or consummate acquisitions.
We are
The Company is currently authorized to issue 30,000,00060,000,000 shares of common stock under ourits amended Certificate of Incorporation (“Certificate of Incorporation”). As of December 31, 2020, we2021, the Company had issued 23,508,57525,326,086 shares
of common stock and had approximately 1,869,5072,486,511 shares of common stock reserved for issuance upon exercise of options granted, 29,166875 shares of common stock reserved for vesting of restricted stock and 907,394882,608 shares of common stock reserved for issuance under our Employee Stock Purchase Plan.
On March 5, 2021, wethe Company closed an underwritten public offering of 1,393,738 shares of common stock at a public offering price of $18.00 per share, such that asshare.
The Company’s stockholders approved a proposal to amend the dateCertificate of this Annual Report on Form
10-K
we have issued 24,918,458Incorporation (the “Amendment to the Certificate of Incorporation”) to increase the Company’s authorized shares of common stock.stock from 30,000,000 shares to 60,000,000 shares, and a proposal to approve an amendment to the Company’s 2016 Stock Incentive Plan, as amended, to increase the number of shares of common stock available thereunder from 2,600,000 shares to 4,700,000 shares and to increase the aggregate number of incentive stock options available thereunder from 1,000,000 to 2,000,000 (the “Plan Amendment”). Following stockholder approval of
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all Proposals at the Meeting, the Company filed the Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware on July 21, 2021, and the Plan Amendment was made effective as of July 15, 2021.
Due to the limited number of authorized shares of common stock available for issuance, wethe Company may not be able to raise additional equity capital or complete a merger, other business combination or partnership unless we increasethe Company increases the number of shares we are authorized to issue. We intend to seek stockholder approval to increase the number of our authorized shares of common stock at our 2021 annual meeting of stockholders, but we can provide no assurance that we will succeed in amending our Certificate of Incorporation to increase the number of shares of common stock we areit is authorized to issue.
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If we dothe Company does not receive the requisite stockholder approval, ourits operations could be materially adversely impacted. In addition, an increase in the authorized number of shares of common stock and the subsequent issuance of such shares could have the effect of delaying or preventing a change in control of the Company without further action by ourthe Company’s stockholders.
Provisions in ourthe Company’s Certificate of Incorporation and in Delaware law could make it more difficult for a third party to acquire us,the Company, discourage a takeover and adversely affect existing stockholders.
OurThe Company’s Certificate of Incorporation authorizes the Board of Directors to issue up to 1,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by ourthe Company’s Board of Directors, without further action by stockholders, and may include, among other things, voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions. Although there are currently no shares of preferred stock outstanding, future holders of preferred stock may have rights superior to ourthe Company’s common stock and such rights could also be used to restrict ourthe Company’s ability to merge with or sell ourits assets to a third party.
We
are
The Company is also subject to the provisions of Section 203 of the Delaware
General Corporation Law,
,
which could prevent us
the Company from engaging in a “business combination” with
a 15% or greater
stockholder” stockholder for a period of three years
from the date such person acquired that status unless appropriate board or stockholder approvals are obtained.
These provisions could deter unsolicited takeovers or delay or prevent changes in ourthe Company’s control or management, including transactions in which stockholders might otherwise receive a premium for their shares over the then current market price. These provisions may also limit the ability of stockholders to approve transactions that they may deem to be in their best interests.
The market price of ourthe Company’s common stock has been, and may continue to be volatile, which could reduce the market price of ourthe Company’s common stock.
The publicly traded shares of ourthe Company’s common stock have experienced, and may experience in the future, significant price and volume fluctuations
.
fluctuations. This market volatility
could reduce the market price of ourthe Company’s common stock without regard to ourits operating performance. In addition, the trading price of ourthe Company’s common stock could change significantly in response to actual or anticipated variations in ourits quarterly operating results, announcements by usthe Company or ourits competitors, factors affecting the medical imaging industry generally, changes in national or regional economic conditions, changes in securities analysts’ estimates for usthe Company or ourits competitors’ or industry’s future performance or general market conditions,
,
making it more difficult for shares of ourthe Company’s common stock to be sold at a favorable price or at all. The market price of ourthe Company’s common stock could also be reduced by general market price declines or market volatility in the future or future declines or volatility in the prices of stocks for companies in ourthe Company’s industry.
 
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General Risk Factors
Security breaches and other disruptions could compromise ourthe Company’s information and expose usthe Company to liability, which would cause ourits business and reputation to suffer and could subject usit to substantial liabilities.
If ourthe Company’s security measures are breached or fail and unauthorized access is obtained to a customer’s data, ourthe Company’s service may be perceived as insecure, the attractiveness of ourits services to current or potential customers may be reduced, and wethe Company may incur significant liabilities.
OurThe Company’s services involve the storage and transmission of customers’ proprietary information and patient information, including health, financial, payment and other personal or confidential information. We relyThe Company relies on proprietary and commercially available systems, software, tools and monitoring, as well as other processes, to provide security for processing, transmission and storage of such information. Because of the sensitivity of this information and due to requirements under applicable laws and regulations, the effectiveness of such security efforts is very important. However, there can be no assurance that wethe Company will not be subject to cybersecurity incidents that bypass ourits security measures, impact the integrity, availability or privacy of personally identifiable information or other data subject to privacy laws or disrupt ourthe Company’s information systems, devices or business, including ourits ability to deliver services to ourits customers. As a result, cybersecurity, physical security and the continued development and enhancement of ourthe Company’s controls, processes and practices designed to protect ourits enterprise, information systems and data from attack, damage or unauthorized access remain a priority for us.priority. As cyber threats continue to evolve, wethe Company may be required to expend significant additional resources to continue to modify or enhance ourits protective measures or to investigate and remediate any cybersecurity vulnerabilities. The occurrence of any of these events could result in (i) harm to customers; (ii) business interruptions and delays; (iii) the loss, misappropriation, corruption or unauthorized access of data; (iv) litigation, including potential class action litigation, and potential liability under privacy, security and consumer protection laws or other applicable laws; (v) reputational damage; and (vi) federal and state governmental inquiries, any of which could have a material, adverse effect on ourthe Company’s financial position and results of operations and harm ourits business reputation.
Changes in interpretation or application of Accounting Principles Generally Accepted Accounting Principlesin the United States of America (“GAAP”) may adversely affect ourthe Company’s operating results.
We prepare ourManagement prepares the Company’s consolidated financial statements to conform to GAAP. These principles are subject to interpretation by the Financial Accounting Standards Board (“FASB”), American Institute of Certified Public Accountants, the SEC and various other regulatory or accounting bodies. A change in interpretations of, or ourmanagement’s application of, these principles can have a significant effect on ourthe Company’s reported results and may even affect ourthe Company’s reporting of transactions completed before a change is announced. In addition, when we arethe Company is required to adopt new accounting standards, ourthe Company’s methods of accounting for certain items may change, which could cause ourthe Company’s results of operations to fluctuate from period to period and make it more difficult to compare ourthe Company’s financial results to prior periods.
As ourthe Company’s operations evolve over time, wethe Company may introduce new products or new technologies that require usit to apply different accounting principles, including ones regarding revenue recognition, than we havethe Company has applied in past periods. The application of different types of accounting principles and related potential changes may make it more difficult to compare ourthe Company’s financial results from quarter to quarter, and the trading price of ourthe Company’s common stock could suffer or become more volatile as a result.
WeThe Company cannot be certain of the future effectiveness of ourits internal controls over financial reporting or the impact of the same on ourits operations or the market price for ourthe Company’s common stock.
Pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”)
,
we are the Company is required to
include in ourits Annual Report on Form
10-K
ourits assessment of
the effectiveness of ourthe Company’s internal controls over
40

Table of Contents
financial reporting
.
We havereporting. The Company has dedicated a significant amount of time and resources to ensure compliance with this legislation for the year ended December 31, 20202021 and will continue to do so for future fiscal periods. Although we believethe Company believes that weit currently havehas adequate internal control procedures in place, weit cannot be certain that our
42

its internal controls over financial reporting will continue to be effective. If wethe Company cannot adequately maintain the effectiveness of ourits internal controls over financial reporting, weit might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect ourthe Company’s financial results and the market price of ourits common stock.
Changes in credit markets or to ourthe Company’s credit rating could impact ourits ability to obtain financing for business operations or result in increased borrowing costs and interest expense.
OurThe Company’s credit ratings reflect each credit rating agency’s opinion of ourits financial strength, operating performance and ability to meet ourits debt obligations at the time such opinion is issued. We utilizeThe Company utilizes the short- and long-term debt markets to obtain capital from time to time. Adverse changes in ourthe Company’s credit ratings may result in increased borrowing costs for future long-term debt or short-term borrowing facilities and may limit financing options, including access to the unsecured borrowing market. Such changes may also breach restrictive covenants under current or future debt facilities or instruments, which could reduce ourthe Company’s operating flexibility. Macroeconomic conditions, such as continued or increased volatility or disruption in the credit markets, may adversely affect ourthe Company’s ability to refinance existing debt or obtain additional financing for working capital, capital expenditures or fund new acquisitions.
Future issuances of shares of ourthe Company’s common stock may cause significant dilution of equity interests of existing holders of common stock and decrease the market price of shares of ourthe Company’s common stock.
We haveThe Company has previously issued options that are exercisable or convertible into a significant number of shares of ourits common stock. Should existing holders of options exercise their options for shares of ourthe Company’s common stock, it may cause significant dilution of equity interests of existing holders of ourthe Company’s common stock and reduce the market price of shares of ourthe Company’s common stock.
 
Item
 
1B.
Unresolved Staff Comments.
Not applicable.
 
Item
 
2.
Properties.
The Company’s executive offices are leased pursuant to a lease originally entered into in December 2006.2006 as amended. The lease covers approximately 11,000 square feet of office space located at 98 Spit Brook Road, Suite 100 in Nashua, New Hampshire. As amended, theThe lease expires in February 2023 and the annualwith monthly base rent is $214,812.of $17,901. Additionally, the Company is required to pay its proportionate share of the building and real estate tax expenses and obtain insurance for the facility.
The Company leases a facility consisting of approximately 24,350 square feet of office, manufacturing and warehousing space located at 101 Nicholson Lane, San Jose, CA.CA, as amended. The operating lease commenced in September 2012. As amended, the lease2012 and expires in March 2023, with annualmonthly base rent payments of $628,260$53,816 until March 2021, $645,792 from April 2021 to March31, 2022 and $666,240monthly base rent payments of $55,520 from April 2022 tountil March 2023. Additionally, the Company is required to pay its proportionate share of the building and real estate tax expenses and obtain insurance for the facility.
In addition to the foregoing leases relating to its principal properties, the Company also has a lease for an additional facility in Nashua, New Hampshire used for product repairs, manufacturing and warehousing.warehousing and office space in Lyon, France.
41

If the Company is required to seek additional or replacement facilities, it believes there are adequate facilities available at commercially reasonable rates.
 
43

Item
 
3.
Legal Proceedings.
In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation (the “Asset Purchase Agreement”). In accordance with the Asset Purchase Agreement, the Company soldFrom time to Invivo all right, title and interest to certain intellectual property relating to the Company’s VersaVue Software and DynaCAD product and related assets for $3.2 million. The Company closed the transaction on January 30, 2017 less a holdback reserve of $350,000 for net proceeds of approximately $2.9 million.
On September 5, 2018, third-party Yeda Research and Development Company Ltd. (“Yeda”), filed a complaint (the “Complaint”) against the Company and Invivo in the United States District Court for the Southern District of New York, captioned Yeda Research and Development Company Ltd. v. iCAD, Inc. and Invivo Corporation, Case No.
1:18-cv-08083-GBD,
related to the Company’s sale of the VersaVue software and DynaCAD product under the Asset Purchase Agreement. In the Complaint, Yeda asserted claims for: (i) copyright infringement and misappropriation of trade secrets against both the Company and Invivo, (ii) breach of contract against the Company only, and (iii) tortious interference with existing business relationships and unjust enrichment against Invivo only. The Company and Invivo filed Motions to Dismiss the Complaint on December 21, 2018. On January 18, 2019, Yeda filed Oppositions to the Motions to Dismiss. The Company and Invivo submitted responses to the Opposition to the Motion to Dismiss on February 8, 2019. The Court held oral argument on the Motions to Dismiss on March 27, 2019. On September 5, 2019, the Court granted Invivo’s Motion to Dismiss in its entirety and granted the Company’s Motion to Dismiss as it relates to Yeda’s breach of contract and misappropriation of trade secrets claims. On October 22, 2019, Yeda filed an Amended Complaint against only the Company asserting claims for (i) copyright infringement, and (ii) a replead breach of contract claim. The Company filed its Answer to Yeda’s Amended Complaint on November 5, 2019. Yeda alleges, among other things, that the Company infringed upon Yeda’s source code, which was originally licensed to the Company, by using it in the products that the Company sold to Invivo and that it is entitled to damages that could include, among other things, profits relating to the sales of these products. If the Company is found to have infringed Yeda’s copyright or breached its agreements with Yeda, the Company could be obligated to pay to Yeda substantial monetary damages.
In addition to the foregoing, the Companytime, we may be a party toinvolved in various legal proceedings and subject to claims arising out ofthat arise in the ordinary course of its business. Although the final results of all such matterslitigation and claims cannot be predicted with certainty, the Companyare inherently unpredictable and uncertain, we are not currently believes that there are no current proceedings or claims pending against it the ultimate resolution of which would have a material adverse effect on its financial condition or results of operations, other than as set forth above. However, should the Company fail to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, such matters could have a material adverse effect on the Company’s operating results and cash flows for that particular period. The Company may be party to certain actions that have been filed against the Company which are being vigorously defended. The Company has determined that potential losses in these matters are neither probable or reasonably possible at this time. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, “Contingencies.” Legal costs are expensed as incurred.any material legal proceedings.
 
Item
 
4.
Mine Safety Disclosures.
Not applicable.
 
4442

PART II
 
Item
 
5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company’s common stock is traded on the NASDAQ Capital Market under the symbol “ICAD”.
As of March 8, 2021,21, 2022, there were 9689 holders of record of the Company’s common stock.
The Company has not paid any cash dividends on its common stock to date, and the Company does not expect to pay cash dividends in the foreseeable future. Future dividend policy will depend on the Company’s earnings, capital requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors. The Company’s Loan and Security Agreement with Western Alliance Bank restricts the Company’s present ability to pay dividends.
Information with respect to the Company’s equity compensation plans in effect at December 31, 20202021 will be included in the Company’s 20212022 Proxy Statement and is incorporated herein by reference.
Issuer’s Purchases of Equity Securities
. For the majority of restricted stock units granted to employees under the applicable stock incentive plan, the number of shares issued on the date that the restricted stock units vest is net of the minimum statutory tax withholding requirements that we pay in cash to the appropriate tax authorities on behalf of our employees. The Company did not have any repurchases of securities in the quarteryear ended December 31, 2020.2021.
 
Item
 
6
.
Selected Financial DataReserved
.
Not applicable.
 
Item
 
7
.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
.
The following discussion and analysis of the Company’s financial condition and results and operations should be read in conjunction with the Company’s consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form
10-K.
Results of Operations
Overview
iCAD, Inc. is a global medical technology company providing innovative cancer detection and therapy solutions. The Company reports in two segments: Detection and Therapy.
In the Detection segment, the Company’s solutions include (i) advanced image analysis and workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier, and (ii) a comprehensive range of high-performance, Artificial Intelligence and Computer-Aided Detection (CAD) systems and workflow solutions for 2D and 3D mammography, Magnetic Resonance Imaging (MRI) and Computed Tomography (CT).
In the Therapy segment, the Company offers the Xoft System, an isotope-free cancer treatment platform technology. The Xoft System can be used for the treatment of early-stage breast cancer, endometrial cancer, cervical cancer and nonmelanoma skin cancer.
On January 30, 2017, the Company completed the sale of certain intellectual property relating to the VersaVue Software and the DynaCAD product and related assets to Invivo for $3,200,000 in cash with a holdback amount of $350,000. The Company is currently involved in litigation with a third-party relating to this transaction, as further described in “Item 3—Legal Proceedings.”
45

The Company’s headquarters are located in Nashua, New Hampshire, with a manufacturing and warehousing facility in New Hampshire and an operations, research, development, manufacturing and warehousing facility in San Jose, California.
43

Discussion of Operating Results:
Year Ended December 31, 2021 compared to Year Ended December 31, 2020
Revenue.
Revenue for the year ended December 31, 2021 was $33.6 million compared with revenue of $29.7 million for the year ended December 31, 2020, an increase of $3.9 million, or 13.3%. Detection revenue increased by 0.1% and Therapy revenue increased by $3.9 million, or 50.9%.
The table below presents the components of revenue for 2021 and 2020 (in thousands):
   
For the year ended December 31,
 
   
2021
   
2020
   
$ Change
   
% Change
 
Detection revenue
        
Product revenue
  $15,661   $16,291   $(630   (3.9)% 
Service and supplies revenue
   6,358    5,706    652    11.4
  
 
 
   
 
 
   
 
 
   
 
 
 
Subtotal
   22,019    21,997    22    0.1
  
 
 
   
 
 
   
 
 
   
 
 
 
Therapy revenue
        
Product revenue
   5,530    2,612    2,918    111.7
Service and supplies revenue
   6,089    5,089    1,000    19.7
  
 
 
   
 
 
   
 
 
   
 
 
 
Subtotal
   11,619    7,701    3,918    50.9
  
 
 
   
 
 
   
 
 
   
 
 
 
  $33,638   $29,698   $3,940    13.3
  
 
 
   
 
 
   
 
 
   
 
 
 
Detection revenues were flat as they were approximately $22.0 million for each of the years ended December 31, 2021 and 2020, respectively.
Detection product revenue decreased by $0.6 million and Detection service revenue increased by $0.7 million. The Company believes that Detection product revenue was adversely affected in 2021 by the
COVID-19
pandemic, as the typical sales cycle and ordering patterns were disrupted due to supply chain issues, travel restrictions, and some healthcare facilities’ reprioritization of resources to provide additional focus on
COVID-19.
The impact on 2021 began in the second quarter and continued through the remainder of 2021 but was most acute in December. The Company is not able to predict how the
COVID-19
pandemic will affect future revenue and order volume. The $0.7 million increase in Detection service revenue was due primarily to an increase in service revenue from direct customers. The Company did not see significant impact of the
COVID-19
pandemic on Detection service revenue in 2021 as compared to 2020 but is not able to predict how the
COVID-19
pandemic could affect future Detection service revenue.
Therapy revenue increased 50.9%, or $3.9 million, to $11.6 million for the year ended December 31, 2021 from $7.7 million in the year ended December 31, 2020.
Therapy product revenue increased by $2.9 million and Therapy service and supplies revenue increased by $1.0 million. Therapy product revenue for the year ended December 31, 2021 benefitted from reimbursement and regulatory policy changes in the dermatology market. Sales were also higher in international markets for Intraoperative Radiation Therapy indications. Therapy product revenue is related to the sale of our Xoft Systems including the Controller unit and
re-usable
applicators. Therapy service revenue was positively impacted by the additional controller placement leading to more service and source contracts and consumables usage.
Gross Profit
. Gross profit was $24.2 million for the year ended December 31, 2021 compared to $21.4 million for the year ended December 31, 2020, a increase of $2.9 million, or 13.5%. Detection gross profit increased by $0.7 million from $17.9 million in the year ended December 31, 2020 to $18.5 million in the year ended December 31, 2021. Detection gross profit as a percentage of Detection revenue increased to 84% in the year ended December 31, 2021
44

from 81% in the year ended December 31, 2020. The increase was due primarily to an increase in high margin licenses added to existing servers rather than the lower margin license and server bundle. Therapy gross profit increased by $2.2 million from $3.5 million in the year ended December 31, 2020 to $5.7 million in the year ended December 31, 2021. Therapy gross profit as a percentage of Therapy revenue increased to 49% in the year ended December 31, 2021 from 45% in the year ended December 31, 2020. The increase was due primarily to revenue mix shifting to higher margin product revenues relative to service revenues.
Gross profit as a percentage of revenue was 72.1% for the year ended December 31, 2021 compared to 71.9% for the year ended December 31, 2020. Gross profit as a percentage of revenue is dependent on product and service mix within each segment and segment mix. The lower margin Therapy segment growing as a percentage of total revenue largely offset the margin gains within each individual segment.
The
COVID-19
pandemic adversely affected revenues from both segments in the years ended December 31, 2021 and 2020, and as a result, gross profit in both segments. The primary impact of the
COVID-19
pandemic started in the second quarter of 2020 and the Company undertook cost cutting measures to reduce operating expenses and manufacturing costs to offset some of the
COVID-19
impact to gross profit. The Company lessened some of these cost control efforts, until
COVID-19
negative impacts on revenues
re-emerged
in the second quarter of 2021, as the typical sales cycle and ordering patterns were disrupted due to supply chain issues, travel restrictions, and some healthcare facilities’ reprioritization of resources to provide additional focus on
COVID-19.
The impact began in the second quarter and continued through the remainder of 2021, but was most acute in December. Starting in the second quarter of 2021, the company
re-introduced
cost management strategies to minimize the effect of 2021
COVID-19
impacts on gross profit. The Company is not able to predict how the
COVID-19
pandemic, supply chain disruptions, macro-economic conditions and other factors will affect future gross profit.
Cost of revenue and gross profit for 2021 and 2020 were as follows (in thousands):
   
For the year ended December 31,
 
   
2021
  
2020
  
Change
   
% Change
 
Products
  $5,653  $5,000  $653    13.1
Service and supplies
   3,425   2,965   460    15.5
Amortization and depreciation
   317   379   (62   (16.4%) 
  
 
 
  
 
 
  
 
 
   
 
 
 
Total cost of revenue
   9,395   8,344   1,051    12.6
  
 
 
  
 
 
  
 
 
   
 
 
 
Gross profit
  $24,243  $21,354  $2,889    13.5
  
 
 
  
 
 
  
 
 
   
 
 
 
Gross profit %
   72.1  71.9   
   
For the year ended December 31,
 
   
2021
   
2020
   
Change
   
% Change
 
Detection gross profit
  $18,510   $17,856   $654    3.7
Therapy gross profit
   5,733    3,498    2,235    63.9
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
  $24,243   $21,354   $2,889    13.5
  
 
 
   
 
 
   
 
 
   
 
 
 
45

Operating Expenses:
Operating expenses for 2021 and 2020 were as follows (in thousands
):
   
For the year ended December 31,
 
   2021   2020   Change   % Change 
Operating expenses:
        
Engineering and product development
  $9,194   $8,114   $1,080    13.3
Marketing and sales
   15,135    13,312    1,823    13.7
General and administrative
   10,406    9,117    1,289    14.1
Amortization and depreciation
   240    199    41    20.6
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
  $34,975   $30,742   $4,233    13.8
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating expenses were $35.0 million for the year ended December 31, 2021, compared to $30.7 million for the year ended December 31, 2020, an increase of $4.3 million or 13.8%. Operating expenses as a percentage of sales was 104.0% in the year ended December 31, 2021, compared to 103.5% for the year ended December 31, 2020. In early 2021, the Company reduced cost-cutting programs implemented in 2020 in response to
COVID-19,
returning furloughed employees and hiring a number of employees for positions vacant in early 2021. When the impacts of
COVID-19
re-emerged
in the second quarter of 2021, the Company continued to remain focused on a disciplined approach to spending.
Engineering and Product Development.
Engineering and product development costs for the year ended December 31, 2021 increased by $1.1 million, or 13.3%, from $8.1 million in 2020 to $9.2 million in 2021. The increase was largely due to increased personnel as a result of the resumption of hiring for prioritized positions in early 2021 and an increase in consulting fees.
Marketing and Sales.
Marketing and sales expense for the year ended December 31, 2021 increased by $1.8 million, or 13.7%, from $13.3 million in 2020 to $15.1 million in 2021. The increase in marketing and sales expense was due primarily to increased personnel and trade show costs after resumption of sales and marketing activity after the 2020 cost-cutting measures prompted by the
COVID-19
pandemic and some additional management costs being reclassified and sales and marketing.
General and Administrative.
General and administrative expenses for the year ended December 31, 2021 increased by $1.3 million, or 14.1%, from $9.1 million in 2020 to $10.4 million in 2021. The increase was due primarily to an increase in consulting fees related to corporate strategic projects and the interim consulting CFO and to insurance premium expenses as well as board of director related expenses. Employee compensation increased, but was offset by a decrease in external service expenses as multiple functions were brought
in-house.
Amortization and Depreciation.
Amortization and depreciation expenses for the year ended December 31, 2021 increased by $0.04 million, or 20.6%, from $0.20 million in 2020 to $0.24 million in 2021. The Company’s depreciable and amortizable assets have remained relatively consistent between 2021 and 2020.
Other Income, Tax and Expense (in thousands
)
:
   
For the year ended December 31,
 
   2021   2020   Change   Change % 
Interest expense
  $(141  $(476   335    (70.4)% 
Interest income
   15    97    (82   (84.5)% 
Loss on extinguishment of debt
   (386   (341   (45   13.2
Loss on fair value of debentures
   —      (7,464   7,464    (100.0)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total other expense
  $(512  $(8,184  $7,672    (93.7)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Income tax expense
  $1   $38    (37   (97.4)% 
46

Interest Expense.
The Company recorded $0.1 million of interest expense in the year ended December 31, 2021 as compared with $0.5 million of interest expense in the year ended December 31, 2020. The Western Alliance debt facility was fully paid and extinguished in April 2021.
Interest income.
Interest income of $0 million and $0.1 million for the years ended December 31, 2021 and 2020, respectively, reflects income earned from our money market accounts.
Loss on Extinguishment of Debt.
The Company recorded a loss on extinguishment of debt of $0.4 million and $0.3 million for the years ended December 31, 2021 and 2020, respectively. The loss in 2021 was due to the April 27, 2021 extinguishment of the Loan and Security Agreement with Western Alliance Bank, originally issued on March 30, 2020. The loss in 2020 was due to the March 30, 2020, extinguishment of the amended Loan and Security Agreement with Silicon Valley Bank, entered into in August 2017.
Loss on fair value of debentures.
The Company recorded a loss of $7.5 million in 2020, which reflected an increase in the fair value of the unsecured subordinated convertible debentures (the “Convertible Debentures”) liability from approximately $13.7 million at December 31, 2019 to $21.2 million at February 21, 2020, the forced conversion date. Upon the consummation of the forced conversion, the Company issued 1,816,466 shares of common stock with a fair value of approximately $21.2 million, and the Convertible Debenture liability was reclassified to stockholders’ equity.
Tax expense.
The Company had tax expense of $1,000 for the year ended December 31, 2021 as compared to tax expense of $38,000 for the year ended December 31, 2020.
Discussion of Operating Results:
Year Ended December 31, 2020 compared to Year Ended December 31, 2019
Revenue.
Revenue for the year ended December 31, 2020 was $29.7 million compared with revenue of $31.3 million for the year ended December 31, 2019, a decrease of $1.6 million, or 5.2%. Detection revenue decreased by $0.3 million and Therapy revenue decreased by $1.3 million.
The table below presents the components of revenue for 2020 and 2019 (in thousands):
   
Twelve months ended December 31,
 
   
2020
   
2019
   
$ Change
   
% Change
 
Detection revenue
        
Product revenue
  $16,291   $16,788   $(497   (3.0)% 
Service revenue
   5,706    5,531    175    3.2
  
 
 
   
 
 
   
 
 
   
 
 
 
Subtotal
   21,997    22,319    (322   (1.4)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Therapy revenue
        
Product revenue
   2,612    2,979    (367   (12.3)% 
Service revenue
   5,089    6,042    (953   (15.8)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Subtotal
   7,701    9,021    (1,320   (14.6)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenue
  $29,698   $31,340   $(1,642   (5.2)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Detection revenues decreased by $0.3 million, or 1.4%, from $22.3 million for the year ended December 31, 2019 to $22.0 million for the year ended December 31, 2020.
Detection product revenue decreased by $0.5 million and Detection service revenue increased by $0.2 million. The Company believes that Detection product revenue was adversely affected in 2020 by the
COVID-19
pandemic, as the typical sales cycle and ordering patterns were disrupted due to some healthcare facilities’
47

additional focus on
COVID-19.
The primary impact occurred during the second and third quarters of 2020. The total impact was partially offset by an increase in revenue in the fourth quarter of 2020 as compared to the fourth quarter of 2019. The Company is not able to predict how the
COVID-19
pandemic will affect future revenue and order volume. The $0.2 million increase in Detection service revenue was due primarily to an increase in service revenue from direct customers. The Company did not see a significant impact of the
COVID-19
pandemic on Detection service revenue in 2020 as compared to 2019 but is not able to predict how the
COVID-19
pandemic could affect future Detection service revenue.
Therapy revenue decreased 14.6%, or $1.3 million, to $7.7 million for the year ended December 31, 2020 from $9.0 million in the year ended December 31, 2019.
Therapy product revenue decreased by $0.4 million and Therapy service revenue decreased by $1.0 million. Therapy product revenue for the year ended December 31, 2020 was adversely affected by the
COVID-19
pandemic, due to
stay-at-home
and social distancing orders as well as the uncertainty in the market. Therapy product revenue is related to the sale of our Xoft Systems and can vary significantly from quarter to quarter due to changes in the number of units sold, and the average selling price. We expect Therapy sales to continue to vary as the sales of controller units can represent a significant component of Therapy product revenue. We believe Therapy service revenue was negatively impacted primarily due to the lack of ability to treat patients, mostly in the second and third quarters, due to the additional focus by healthcare professionals on the
COVID-19
pandemic.
Gross Profit
. Gross profit was $21.3 million for the year ended December 31, 2020 compared to $24.2 million for the year ended December 31, 2019, a decrease of $2.9 million, or 11.9%. Detection gross profit decreased by $0.8 million from $18.6 million in the year ended December 31, 2019 to $17.8 million in the year ended December 31, 2020. Detection gross profit as a percentage of Detection revenue decreased to 81.2% in the year ended December 31, 2020 from 84% in the year ended December 31, 2019. The decrease was due primarily to higher installation costs and equipment costs to support processing of higher resolution and increased volume of 3D images. Therapy gross profit decreased by $2.1 million from $5.6 million in the year ended December 31, 2019 to $3.5 million in the year ended December 31, 2020. This decrease is largely due to Therapy revenue being adversely affected by the
COVID-19
pandemic, due to
stay-at-home
and social distancing orders as well as the uncertainty in the market. Therapy gross profit as a percentage of Therapy revenue decreased to 45% in the year ended December 31, 2020 from 62% in the year ended December 31, 2019.
Gross profit as a percentage of revenue was 71.9% for the year ended December 31, 2020 compared to 77.3% for the year ended December 31, 2019. Gross profit as a percentage of revenue will fluctuate due to the costs related to manufacturing, amortization and the impact of product mix in each segment.
The
COVID-19
pandemic adversely affected revenues from Detection products and the Therapy segment in the year ended December 31, 2020, and as a result, gross profit in both segments. The primary impact of the
COVID-19
pandemic was felt during the second and third quarters of 2020. However, the Company continued to follow steps taken during the second and third quarters of 2020 to reduce operating expenses, including cutting
non-essential
travel, implementing employee furloughs and terminations, reducing employee salaries by 10%, and cancelling most
in-person
trade shows. These measures offset some of the impact on gross profit caused by
COVID-19.
Salary reductions, employee furloughs, and certain other of these measures were ended in the fourth quarter of 2020.
48

Cost of revenue and gross profit for 2020 and 2019 were as follows (in thousands):
   
Twelve months ended December 31,
 
   
2020
  
2019
  
Change
   
% Change
 
Products
  $5,000  $3,278  $1,722    52.5
Service and supplies
   2,965   3,438   (473   (13.8)% 
Amortization and depreciation
   379   397   (18   100.0
  
 
 
  
 
 
  
 
 
   
 
 
 
Total cost of revenue
  $8,344  $7,113  $1,231    17.3
  
 
 
  
 
 
  
 
 
   
 
 
 
Gross profit
  $21,354  $24,227  $(2,873   (11.9)% 
profit %
   71.9  77.3   
   
For the year ended December 31,
 
   
2020
   
2019
   
Change
   
% Change
 
Detection gross profit
  $17,856   $18,627   $(771   (4.1)% 
Therapy gross profit
   3,498    5,600    (2,102   (37.5)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
  $21,354   $24,227   $(2,873   (11.9)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating Expenses:
Operating expenses for 2020 and 2019 were as follows (in thousands):
   
Year ended December 31,
 
   2020   2019   Change   Change % 
Operating expenses:
        
Engineering and product development
  $8,114   $9,271   $(1,157   (12.5)% 
Marketing and sales
   13,312    13,634    (322   (2.4)% 
General and administrative
   9,117    7,443    1,674    22.5
Amortization and depreciation
   199    276    (77   (27.9)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
  $30,742   $30,624   $118    0.4
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating expenses were $30.7 million for the year ended December 31, 2020, compared to $30.6 million for the year ended December 31, 2019, an increase of $0.1 million or 0.4%. The Company was able to keep operating expenses relatively flat after implementing ongoing cost-cutting measures prompted by the
COVID-19
pandemic in the second quarter of 2020. These cost-cutting measures followed increased expenditures in the year ended December 31, 2019 as the Company invested in additional commercial resources prior to the onset of the
COVID-19
pandemic.
Engineering and Product Development.
Engineering and product development costs for the year ended December 31, 2020 decreased by $1.2 million, or 12.5%, from $9.3 million in 2019 to $8.1 million in 2020.The decrease was largely due to decreased personnel as a result of the cost-cutting measures prompted by the
COVID-19
pandemic.
Marketing and Sales.
Marketing and sales expense for the year ended December 31, 2020 decreased by $0.3 million, or 2.4%, from $13.6 million in 2019 to $13.3 million in 2020. The decrease in marketing and sales expense was due primarily to decreased personnel and trade show costs through the implementation of cost-cutting measures prompted by the
COVID-19
pandemic. The decrease was offset by an increase in costs in the first three months of the year when the Company invested in additional commercial resources to help drive sales of new Detection products prior to the onset of the
COVID-19
pandemic.
General and Administrative.
General and administrative expenses for the year ended December 31, 2020 increased by $1.7 million, or 22.5%, from $7.4 million in 2019 to $9.1 million in 2020. The increase was due primarily to an
49

increase in stock compensation and legal expenses and was offset by cost-cutting measures prompted by the
COVID-19
pandemic.
Amortization and Depreciation.
Amortization and depreciation expenses for the year ended December 31, 2020 decreased by $0.1 million, or 27.9%, from $0.3 million in 2019 to $0.2 million in 2020. The Company’s depreciable and amortizable assets have remained relatively consistent between 2020 and 2019.
Other Income, Tax and Expense (in thousands)
:
   
Year ended December 31,
 
   2020   2019   Change   Change % 
Interest expense
  $(476  $(784  $308    (39.3)% 
Interest income
   97    344    (247   (71.8)% 
Loss on extinguishment of debt
   (341   —      (341   0.0
Loss on fair value of debentures
   (7,464   (6,671   (793   11.9
  
 
 
   
 
 
   
 
 
   
 
 
 
  $(8,184  $(7,111  $(1,073   15.1
  
 
 
   
 
 
   
 
 
   
 
 
 
Tax expense
  $38   $43   $(5   (11.6)% 
Interest Expense.
The Company recorded $0.5 million of interest expense in the year ended December 31, 2020 as compared with $0.8 million of interest expense in the year ended December 31, 2019.
Interest income.
Interest income of $0.1 million and $0.3 million for the years ended December 31, 2020 and 2019, respectively, reflects income earned from our money market accounts.
Loss on fair value of debentures.
The Company recorded a loss of $7.5 million in 2020, which reflected an increase in the fair value of the unsecured subordinated convertible debentures (the “Convertible Debentures”) liability from approximately $13.7 million at December 31, 2019 to $21.2 million at February 21, 2020, the forced conversion date. Upon the consummation of the forced conversion, the Company issued 1,816,466 shares of common stock with a fair value of approximately $21.2 million, and the Convertible Debenture liability was reclassified to stockholders’ equity.
Tax expense.
The Company had tax expense of $38,000 for the year ended December 31, 2020 as compared to tax expense of $43,000 for the year ended December 31, 2019.
Segment Analysis
The Company operates in and reports results for two segments: Detection and Therapy. Segment operating income (loss) includes cost of sales, engineering and product development, marketing and sales, and depreciation and amortization for the respective segment. A summary of Segment revenues, segment gross profit and segment operating income (loss) for the fiscal years ended December 31, 2021, 2020, and 2019 are below (in thousands):
   Year Ended December 31, 
   2021   2020   2019 
Segment revenues:
      
Detection
  $22,019   $21,997   $22,319 
Therapy
   11,619    7,701    9,021 
  
 
 
   
 
 
   
 
 
 
Total Revenue
  $33,638   $29,698   $31,340 
  
 
 
   
 
 
   
 
 
 
Segment gross profit:
      
Detection
  $18,510   $17,856   $18,627 
Therapy
   5,733    3,498    5,600 
  
 
 
   
 
 
   
 
 
 
Total gross profit
  $24,243   $21,354   $24,227 
  
 
 
   
 
 
   
 
 
 
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   Year Ended December 31, 
   2021   2020   2019 
Segment operating income (loss):
      
Detection
  $1,563   $2,719   $2,564 
Therapy
   (1,835   (3,028   (1,476
  
 
 
   
 
 
   
 
 
 
Segment operating income (loss)
  $(272  $(309  $1,088 
  
 
 
   
 
 
   
 
 
 
General administrative
  $(10,460  $(9,079  $(7,486
Interest expense
   (141   (476   (784
Loss on extinguishment of debt
   (386   (341   —   
Other income
   15    97    345 
Fair value of convertible debentures
   —      (7,464   (6,671
  
 
 
   
 
 
   
 
 
 
Loss before income tax
  $(11,244  $(17,572  $(13,508
  
 
 
   
 
 
   
 
 
 
Detection gross profit increased to approximately $18.5 million, or 84% of revenue, for the year ended December 31, 2021 from $17.9 million, or 81% of revenue, for the year ended December 31, 2020. The increase in Detection gross profit was due primarily to the decrease in Detection cost of goods related to changes in product mix. Detection segment operating income for the year ended December 31, 2021 decreased by $1.1 million to $1.6 million from $2.7 million for the year ended December 31, 2020. The decrease in Detection segment operating income was due primarily to an increase in operating expenses relative to the increase in revenues. Detection operating expenses increased by $1.8 million to $16.9 million for the year ended December 31, 2021 from $15.1 million for the year ended December 31, 2020.
Detection gross profit decreased to approximately $17.9 million, or 81% of revenue, for the year ended December 31, 2020 from $18.6 million, or 84% of revenue, for the year ended December 31, 2019. The decrease in Detection gross profit was due primarily to the decrease in Detection revenue. Detection segment operating income for the year ended December 31, 2020 increased by $0.1 million to $2.7 million from $2.6 million for the year ended December 31, 2020. The increase in Detection segment operating income was due primarily to a decrease in operating expenses. Detection operating expenses decreased by $1.0 million to $15.1 million for the year ended December 31, 2021 from $16.1 million for the year ended December 31, 2020.
Therapy gross profit increased by approximately $2.2 million to $5.7 million, or 49% of revenue, for the year ended December 31, 2021 from approximately $3.5 million or 45% of revenue for the year ended December 31, 2020. The increase in Therapy gross profit was largely due to the $3.9 million increase in revenue. Therapy operating expenses decreased by $1.1 million to $7.6 million for the year ended December 31, 2021 from $6.5 million for the year ended December 31, 2020. Therapy segment operating loss decreased to $1.8 million for the year ended December 31, 2021 from $3.0 million for the year ended December 31, 2020. The decrease in Therapy segment operating loss was due primarily to the $2.2 million increase in gross profit partially offset by the increase in operating expenses.
Therapy gross profit decreased by approximately $2.1 million to $3.5 million, or 45% of revenue, for the year ended December 31, 2020 from approximately $5.6 million or 62% of revenue for the year ended December 31, 2019. The decrease in Therapy gross profit was partly due to the $1.3 million reduction in revenue and increased costs incurred prior to the implementation of cost-cutting measures in response to the
COVID-19
pandemic. Therapy operating expenses decreased by $0.5 million to $6.6 million for the year ended December 31, 2020 from $7.1 million for the year ended December 31, 2029. Therapy segment operating loss increased to $3.0 million for the year ended December 31, 2020 from $1.5 million for the year ended December 31, 2019. The increase in Therapy segment operating loss was due primarily to the decreased revenue of $1.3 million.
51

Liquidity and Capital Resources
The Company believes that its cash and cash equivalents balance of $34.3 million as of December 31, 2021 and projected cash balances are sufficient to sustain operations through at least the next 12 months following the filing of this Form
10-K.
The Company’s ability to generate cash adequate to meet its future capital requirements will depend primarily on operating cash flow. If sales or cash collections are reduced from current expectations, or if expenses and cash requirements are increased, the Company may require additional financing, although there are no guarantees that the Company will be able to obtain the financing if necessary. The Company will continue to closely monitor its liquidity and the capital and credit markets.
On April 27, 2020, the Company issued 1,562,500 shares of common stock to several institutional investors at a price of $8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately $12.5 million, and the Company received net proceeds of approximately $12.3 million. The Company entered into an
at-the-market
offering program with JMP Securities (the “ATM”) to provide for additional potential liquidity. The Company’s ATM facility provided for the sale of common stock having a value of up to $25.0 million. On December 17, 2020 the company sold 470,704 shares of common stock under the ATM facility. The gross proceeds were approximately $6.6 million, and the Company received net proceeds of approximately $6.1 million. On March 2, 2021, the Company terminated the ATM.
On March 2, 2021, the Company entered into an underwriting agreement with Guggenheim Securities, LLC, as representative of the several underwriters thereto, in connection with an underwritten public offering of 1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share. The Offering closed on March 5, 2021 for gross proceeds of approximately $25.1 million and net proceeds of approximately $23.2 million to the Company.
The Company had net working capital of $35.3 million at December 31, 2021. The ratio of current assets to current liabilities at December 31, 2021 and 2020 was 3.36 and 2.53, respectively.
Net cash used for operating activities for the year ended December 31, 2021 was $9.4 million, compared to $7.0 million for 2020.
The net cash used for investing activities for the year ended December 31, 2021 was $0.6 million compared to $0.5 million for the year ended December 31, 2020. The cash used for investing activities in both 2021 and 2020 was due primarily to purchases of fixed assets.
Net cash provided by financing activities for the year ended December 31, 2021 was $17.1 million, which was primarily related to the aforementioned public offering resulting in net proceeds of $23.2 offset by the debt repayment (see below). Net cash provided by financing activities for the year ended December 31, 2020 was $19.3 million, which was primarily related to the registered direct offering resulting in net proceeds of $12.3 million and the sale of stock related to the ATM resulting in net proceeds of $6.1 million.
The CARES Act allowed employers to defer the deposit and payment of employers share of Social Security payroll taxes that would otherwise have been owed from the date of enactment of the legislation. The legislation requires that the deferred taxes be paid over the
two-year
period, with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. During 2021, the Company remitted $0.2 million which represented the first half of the amount due. As of December 31, 2021, the Company has recorded a $0.1 million deferral within “Accrued and other benefits” and this amount will be remitted during 2022.
52

Lease Obligations:
Operating Leases:
See item 2 of this annual report on Form
10-K.
Finance Leases:
In August 2017, the Company assumed an equipment lease obligation with payments, including interest payable, totaling $50,000. The lease was determined to be a capital lease and, accordingly, the equipment was capitalized and a liability of $42,000 was recorded. The equipment was depreciated over its expected life of 3 years. The lease term expired in August of 2020.
Settlement Obligations:
As a result of the acquisition of Xoft, the Company recorded a royalty obligation pursuant to a settlement agreement entered into between Xoft and Hologic, in August 2007. Xoft received a nonexclusive, irrevocable, perpetual, worldwide license, including the right to sublicense certain Hologic patents, and a
non-compete
covenant as well as an agreement not to seek further damages with respect to the alleged patent violations. In return the Company had a remaining obligation to pay a minimum annual royalty payment of $250,000 payable through 2016. In addition to the minimum annual royalty payments, the litigation settlement agreement with Hologic also provided for payment of royalties based upon a specified percentage of future net sales on any products that practice the licensed rights. The estimated fair value of the patent license and
non-compete
covenant is $100,000 and was amortized over the estimated useful life of approximately four years. As of December 31, 2021, the remaining liability for minimum royalty obligations totaling $0.2 million is recorded within accrued expenses and accounts payable.
Notes Payable:
On March 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Western Alliance Bank (the “Bank”) that provided an initial term loan (“Term Loan”) facility of $7.0 million and a $5.0 million revolving line of credit.
Obligations to the Bank under the Loan Agreement were secured by a first priority security interest in the Company’s assets, except for certain permitted liens that have priority to the Bank’s security interest by operation of law.
On April 27, 2021, the Company repaid its obligations in the aggregate amount of $7,354,283 and terminated the Loan Agreement with the Bank, and the Company’s collateral securing the facility was released. The Company accounted for this repayment and retirement as an extinguishment of the Loan Agreement. The Company recorded a loss on extinguishment of approximately $386,000 related to the repayment and retirement of the Loan Agreement. The loss on extinguishment was composed of approximately $140,000 for a prepayment fee, $122,000 for the unaccrued final payment, $65,000 termination and other fees, and $58,000 for the unamortized discount and other closing costs from origination of the loan.
Loan and Security Agreement – Silicon Valley Bank
On August 7, 2017, the Company entered into a Loan and Security Agreement with Silicon Valley Bank, which was subsequently amended several times (as amended, the “SVB Loan Agreement”). The SVB Loan Agreement provided an initial term loan facility of $6.0 million and a $4.0 million revolving line of credit.
On March 30, 2020, the Company elected to repay all outstanding obligations (including accrued interest) and retire the SVB Loan Agreement. The Company accounted for this repayment and retirement as an extinguishment of the SVB Loan Agreement. The Company also wrote off unamortized original closing costs as
53

of the extinguishment date. The Company recorded a loss on extinguishment of approximately $341,000 related to the repayment and retirement of the SVB Loan Agreement. The loss on extinguishment was composed of approximately $185,000 for the unaccrued final payment, the $114,000 termination fee, and $42,000 of unamortized and other closing costs.
Convertible Debentures
On December 20, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional and accredited investors (the “Investors”), including, but not limited to, all directors and executive officers of the Company at the time, pursuant to which the Investors purchased Convertible Debentures with an aggregate principal amount of approximately $7.0 million in a private placement.
On February 21, 2020 (the “Conversion Date”), the conditions permitting a forced conversion were met, and the Company elected to exercise its forced conversion right under the terms of the Convertible Debentures.
As a result of this election, all of the outstanding Convertible Debentures were converted, at a conversion price of $4.00 per share, into 1,742,500 shares of the Company’s common stock. In accordance with the make-whole provisions in the Convertible Debentures, the Company also issued an additional 76,966 shares of its common stock. The make-whole amount represented the total interest which would have accrued through the maturity date of the Convertible Debentures, less the amounts previously paid, totaling $697,000. The conversion prices related to the make-whole amount were dependent on whether the Investors were related parties or unrelated third parties.
Accounting Considerations and Fair Value Measurements Related to the Convertible Debentures
The Company had previously elected to make
a one-time, irrevocable
election to utilize the fair value option to account for the Convertible Debentures as a single hybrid instrument at its fair value, with changes in fair value from period to period being recorded either in current earnings, or as an element of other comprehensive income (loss), for the portion of the change in fair value determined to relate to the Company’s own credit risk. The Company believed that the election of the fair value option allowed for a more meaningful representation of the total fair value of its obligation under the Convertible Debentures and allowed for a better understanding of how changes in the external market environment and valuation assumptions impact such fair value.
As of the December 31, 2019 valuation and the prior measurement dates, the Company utilized a Monte Carlo simulation model to estimate the fair value of the Convertible Debentures. The simulation model was designed to capture the potential settlement features of the Convertible Debentures, in conjunction with simulated changes in the Company’s stock price and the probability of certain events occurring. The simulation utilized 100,000 trials or simulations to determine the estimated fair value.
The simulation utilized the assumptions that if the Company was able to exercise its forced conversion right (if the requirements to do so were met), that it would do so in 100% of such scenarios. Additionally, if an event of default occurred during the simulated trial (based on the Company’s probability of default), the Investors would opt to redeem the Convertible Debentures in 100% of such scenarios. If neither event occurred during a simulated trial, the simulation assumed that the Investor would hold the Convertible Debentures until the maturity date. The value of the cash flows associated with each potential settlement were discounted to present value in each trial based on either the risk-free rate (for an equity settlement) or the effective discount rate (for a redemption or cash settlement).
The Company also recorded a final adjustment to the Convertible Debentures based on their fair value on the Conversion Date, just prior to the forced conversion being completed. Given that the Company’s prior simulation model included the assumption that the Company would elect to force conversion in 100% of scenarios when the requirements were met, the final valuation was based on the actual results of the forced conversion. As such, the
54

Company based the final fair value adjustment of approximately $7.5 million to the Convertible Debentures just prior to conversion on the number of shares of common stock that were issued to the Investors upon conversion and the fair value of the Company’s common stock as of the Conversion Date in 2020.
Critical Accounting EstimatesSegment Analysis
The Company’s discussion and analysis of its financial condition, results of operations, and cash flows are based on its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates these estimates, including those related to revenue recognition, allowance for doubtful accounts, inventory valuation and obsolescence, intangible assets, goodwill, income taxes, contingencies and litigation. Additionally, the Company uses assumptions and estimates in calculations to determine stock-based compensation, the fair value of convertible debentures and the evaluation of litigation. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As of January 1, 2019, the Company adopted ASC Topic 842. Refer to Note 1 to the consolidated financial statements for disclosure of the changes related to this adoption.
The Company’s critical accounting policies include:
Revenue recognition;
Valuation of long-lived and intangible assets;
Goodwill;
Stock based compensation; and
Income taxes;
Revenue Recognition
On January 1, 2018, the Company adopted FASB ASC Topic 606, “Revenue from Contracts with Customers” and all the related amendments (“Topic 606”) using the modified retrospective method for all contracts not completed as of the date of adoption. The Company recognized the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings at the adoption date. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
46

The Company recognizes revenue primarily from the sale of products and from the sale of services and supplies. Under Topic 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities. To achieve this core principle, the Company applies the following five steps:
1)
Identify the contract(s) with a customer
—A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
2)
Identify the performance obligations in the contract
—Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, the Company must apply judgment to determine whether promised goods or services are capable of being distinct and distinct in the context of the contract. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation. If options to purchase additional goods or services are included in customer contracts, the Company evaluates the option in order to determine if the Company’s arrangement include promises that may represent a material right and needs to be accounted for as a performance obligation in the contract with the customer.
3)
Determine the transaction price
—The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration; the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
4)
Allocate the transaction price to the performance obligations in the contract
—If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price (“SSP”) basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation.
5)
Recognize revenue when (or as) the Company satisfies a performance obligation
—The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.
The Company recognizes revenue from its contracts with customers primarily from the sale of products and from the sale of services and supplies. Revenue is recognized when control of the promised goods or services is transferred to a customer, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. For product revenue, control has transferred upon shipment provided title and risk of loss have passed to the customer. Services and supplies are considered to be transferred as the services are performed or over the term of the service or supply agreement.
47

The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. For arrangements with multiple performance obligations, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers when each of the products and services are sold separately. If the standalone selling price of a product or service is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
The Company’s hardware is generally highly dependent on, and interrelated with, the underlying license. In these cases, the hardware and software license are accounted for as a single performance obligation and revenue is recognized at the point in time when ownership is transferred to the customer.
Upon the adoption of ASC 842, effective January 1, 2019, the lease components of certain fixed fee service contracts are no longer being separately accounted for under the lease guidance, and the entire contract is being accounted for under ASC 606. Upon the adoption of ASC 606, effective January 1, 2018, and until the adoption of ASC 842 referred to above, these lease components were accounted for as a lease in accordance with ASC 840, “Leases” (“ASC 840”), and the remaining consideration was allocated to the other performance obligations identified in accordance with ASC 606.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of revenue.
The Company also recognizes an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year, in accordance with ASC Topic
340-40,
“Other Assets and Deferred Costs: Contracts with Customers.” The Company has determined that certain commissions programs meet the requirements to be capitalized.
See Note 1 to the consolidated financial statements for details of the Company’s accounting policies related to revenue recognition.
Goodwill
In accordance with FASB ASC Topic
350-20,
“Intangibles—Goodwill and Other,” the Company tests goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of the Company is less than the carrying value of the Company.
48

Factors the Company considers important, which could trigger an impairment of such asset, include the following:
significant underperformance relative to historical or projected future operating results;
significant changes in the manner or use of the assets or the strategy for the Company’s overall business;
significant negative industry or economic trends;
significant decline in the Company’s stock price for a sustained period; and
a decline in the Company’s market capitalization below net book value.
The Company’s Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer. The Company determined that it has two reporting units and two reportable segments based on the information that is provided to the CODM. The two segments and reporting units are Detection and Therapy. Each reportable segment generates revenue from the sale of medical equipment and related services and/or sale of supplies. Upon initial adoption, goodwill was allocated to the reporting units based on the relative fair value of the reporting units.
The Company records an impairment charge if such an assessment were to indicate that the fair valueoperates in and reports results for two segments: Detection and Therapy. Segment operating income (loss) includes cost of a reporting unit was less than the carrying value. When the Company evaluates potential impairments outside of its annual measurement date, judgment is required in determining whether an event has occurred that may impair the value of goodwill or intangible assets. The Company utilizes either discounted cash flow models or other valuation models, such as comparative transactionssales, engineering and market multiples, to determine the fair value of its reporting units. The Company makes assumptions about future cash flows, future operating plans, discount rates, comparable companies, market multiples, purchase price premiumsproduct development, marketing and other factors in those models. Different assumptionssales, and judgment determinations could yield different conclusions that would result in an impairment charge to income in the period that such change or determination was made.
Other significant assumptions include terminal value margin rates, future capital expenditures,depreciation and changes in future working capital requirements. While there are inherent uncertainties related to the assumptions used and to the application of these assumptions to this analysis, the income approach provides a reasonable estimate of the fair value of the reporting units.
The Company determines the fair value of reporting units based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. This approach was selected as it measures the income producing assets, primarily technology and customer relationships. This method estimates the fair value based upon the ability to generate future cash flows, which is particularly applicable when future profit margins and growth are expected to vary significantly from historical operating results.
Fair valuesamortization for the reporting unitsrespective segment. A summary of Segment revenues, segment gross profit and segment operating income (loss) for the fiscal years ended December 31, 2021, 2020, and 2019 are based on a weighting of the income approach and the market approach. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The Company uses internal forecasts to estimate future cash flows and includes estimates of long-term future growth rates based on our most recent views of the long-term forecast for each segment. Accordingly, actual results can differ from those assumed in our forecasts. Discount rates are derived from a capital asset pricing model and by analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts.below (in thousands):
 
49

In the market approach, the Company uses a valuation technique in which values are derived based on market prices of publicly traded companies with similar operating characteristics and industries. A market approach allows for comparison to actual market transactions and multiples. It can be somewhat limited in its application because the population of potential comparable publicly-traded companies can be limited due to differing characteristics of the comparative business and ours, as well as the fact that market data may not be available for divisions within larger conglomerates or
non-public
subsidiaries that could otherwise qualify as comparable, and the specific circumstances surrounding a market transaction (e.g., synergies between the parties, terms and conditions of the transaction, etc.) may be different or irrelevant with respect to our business.
The Company corroborates the total fair values of the reporting units using a market capitalization approach; however, this approach cannot be used to determine the fair value of each reporting unit value. The blend of the income approach and market approach is more closely aligned to our business profile, including markets served and products available. In addition, required rates of return, along with uncertainties inherent in the forecast of future cash flows, are reflected in the selection of the discount rate. Equally important, under the blended approach, reasonably likely scenarios and associated sensitivities can be developed for alternative future states that may not be reflected in an observable market price. The Company assesses each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and weights the methodologies appropriately.
The Company performed the annual impairment assessment at October 1, 2020 and compared the fair value of each of reporting unit to its carrying value as of this date. Fair value of the Detection reporting unit exceeded the carrying value by approximately 2,044%. Goodwill for the Therapy reporting unit was fully impaired prior to the year ended December 31, 2017. The carrying values of the reporting units were determined based on an allocation of our assets and liabilities through specific allocation of certain assets and liabilities, to the reporting units and an apportionment of the remaining net assets based on the relative size of the reporting units’ revenues and operating expenses compared to the Company as a whole. The determination of reporting units also requires management judgment.
Long Lived Assets
In accordance with FASB ASC Topic 360, “Property, Plant and Equipment” (“ASC 360”), the Company assesses long-lived assets for impairment if events and circumstances indicate it is more likely than not that the fair value of the asset group is less than the carrying value of the asset group.
ASC
360-10-35
uses “events and circumstances” criteria to determine when, if at all, an asset (or asset group) is evaluated for recoverability. Thus, there is no set interval or frequency for recoverability evaluation. In accordance with ASC
360-10-35-21
the following factors are examples of events or changes in circumstances that indicate the carrying amount of an asset (asset group) may not be recoverable and thus is to be evaluated for recoverability.
A significant decrease in the market price of a long-lived asset (asset group);
A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition;
A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator;
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group);
A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group).
   Year Ended December 31, 
   2021   2020   2019 
Segment revenues:
      
Detection
  $22,019   $21,997   $22,319 
Therapy
   11,619    7,701    9,021 
  
 
 
   
 
 
   
 
 
 
Total Revenue
  $33,638   $29,698   $31,340 
  
 
 
   
 
 
   
 
 
 
Segment gross profit:
      
Detection
  $18,510   $17,856   $18,627 
Therapy
   5,733    3,498    5,600 
  
 
 
   
 
 
   
 
 
 
Total gross profit
  $24,243   $21,354   $24,227 
  
 
 
   
 
 
   
 
 
 
 
50

The Company did not record any impairment charges for the years ended December 31, 2020 or December 31, 2019.
A considerable amount of judgment and assumptions are required in performing the impairment tests, principally in determining the fair value of the Asset Group and the reporting unit. While the Company believes the judgments and assumptions are reasonable, different assumptions could change the estimated fair values and, therefore additional impairment charges could be required. Significant negative industry or economic trends, disruptions to the Company’s business, loss of significant customers, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets may adversely impact the assumptions used in the fair value estimates and ultimately result in future impairment charges.
Intangible assets subject to amortization consist primarily of patents, technology intangibles, trade names, customer relationships and distribution agreements purchased in the Company’s previous acquisitions. These assets are amortized on a straight-line basis or the pattern of economic benefit over their estimated useful lives of 5 to 10 years.
   Year Ended December 31, 
   2021   2020   2019 
Segment operating income (loss):
      
Detection
  $1,563   $2,719   $2,564 
Therapy
   (1,835   (3,028   (1,476
  
 
 
   
 
 
   
 
 
 
Segment operating income (loss)
  $(272  $(309  $1,088 
  
 
 
   
 
 
   
 
 
 
General administrative
  $(10,460  $(9,079  $(7,486
Interest expense
   (141   (476   (784
Loss on extinguishment of debt
   (386   (341   —   
Other income
   15    97    345 
Fair value of convertible debentures
   —      (7,464   (6,671
  
 
 
   
 
 
   
 
 
 
Loss before income tax
  $(11,244  $(17,572  $(13,508
  
 
 
   
 
 
   
 
 
 
Stock-Based Compensation
The Company maintains stock-based incentive plans, under which it provides stock incentives to employees, directors and contractors. The Company grants to employees, directors and contractors, options to purchase common stock at an exercise price equal to the market value of the stock at the date of grant. The Company may grant restricted stock to employees and directors. The underlying shares of the restricted stock grant are not issued until the shares vest, and compensation expense is based on the stock price of the shares at the time of grant. The Company follows ASC 718,
“Compensation – Stock Compensation”
, (“ASC 718”), for all stock-based compensation. The Company has granted performance based restricted stock based on achievement of certain revenue targets. Compensation cost for performance based restricted stock requires significant judgment regarding probability of the performance objectives and compensation cost is
re-measured
at every reporting period. As a result, compensation cost could vary significantly during the performance measurement period.
The Company uses the Black-Scholes option pricing modelDetection gross profit increased to value stock options which requires extensive useapproximately $18.5 million, or 84% of accounting judgment and financial estimates, including estimates of the expected term participants will retain their vested stock options before exercising them, the estimated volatility of its common stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requirements. Fair value of restricted stock is determined based on the stock price of the underlying option on the date of the grant. Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the Consolidated Statements of Operations.
51

Income Taxes
The Company follows the liability method under ASC 740, “Income Taxes” (“ASC 740”). The primary objectives of accounting for taxes under ASC 740 are to (a) recognize the amount of tax payable for the current year and (b) recognize the amount of deferred tax liability or asset for the future tax consequences of events that have been reflected in the Company’s financial statements or tax returns. The Company has provided a full valuation allowance against its deferred tax assets at December 31, 2020 and 2019 as it is more likely than not that the deferred tax asset will not be realized. Any subsequent changes in the valuation allowance will be recorded through operations in the provision (benefit) for income taxes.
ASC
740-10
clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC
740-10
also provides guidance on
de-recognition,
classification, interest and penalties, disclosure and transition.
Discussion of Operating Results:
Year Ended December 31, 2020 compared to Year Ended December 31, 2019
Revenue.
Revenuerevenue, for the year ended December 31, 20202021 from $17.9 million, or 81% of revenue, for the year ended December 31, 2020. The increase in Detection gross profit was $29.7due primarily to the decrease in Detection cost of goods related to changes in product mix. Detection segment operating income for the year ended December 31, 2021 decreased by $1.1 million compared with revenue of $31.3to $1.6 million from $2.7 million for the year ended December 31, 2019, a2020. The decrease of $1.6in Detection segment operating income was due primarily to an increase in operating expenses relative to the increase in revenues. Detection operating expenses increased by $1.8 million or 5.2%. Detection revenue decreased by $0.3 million and Therapy revenue decreased by $1.3 million.
The table below presents the components of revenue for 2020 and 2019 (in thousands):
   
Twelve months ended December 31,
 
   
2020
   
2019
   
$ Change
   
% Change
 
Detection revenue
        
Product revenue
  $16,291   $16,788   $(497   (3.0)% 
Service revenue
   5,706    5,531    175    3.2
  
 
 
   
 
 
   
 
 
   
 
 
 
Subtotal
   21,997    22,319    (322   (1.4)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Therapy revenue
        
Product revenue
   2,612    2,979    (367   (12.3)% 
Service revenue
   5,089    6,042    (953   (15.8)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Subtotal
   7,701    9,021    (1,320   (14.6)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenue
  $29,698   $31,340   $(1,642   (5.2)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Detection revenues decreased by $0.3 million, or 1.4%, from $22.3to $16.9 million for the year ended December 31, 2019 to $22.02021 from $15.1 million for the year ended December 31, 2020.
Detection productgross profit decreased to approximately $17.9 million, or 81% of revenue, for the year ended December 31, 2020 from $18.6 million, or 84% of revenue, for the year ended December 31, 2019. The decrease in Detection gross profit was due primarily to the decrease in Detection revenue. Detection segment operating income for the year ended December 31, 2020 increased by $0.1 million to $2.7 million from $2.6 million for the year ended December 31, 2020. The increase in Detection segment operating income was due primarily to a decrease in operating expenses. Detection operating expenses decreased by $1.0 million to $15.1 million for the year ended December 31, 2021 from $16.1 million for the year ended December 31, 2020.
Therapy gross profit increased by approximately $2.2 million to $5.7 million, or 49% of revenue, for the year ended December 31, 2021 from approximately $3.5 million or 45% of revenue for the year ended December 31, 2020. The increase in Therapy gross profit was largely due to the $3.9 million increase in revenue. Therapy operating expenses decreased by $1.1 million to $7.6 million for the year ended December 31, 2021 from $6.5 million for the year ended December 31, 2020. Therapy segment operating loss decreased to $1.8 million for the year ended December 31, 2021 from $3.0 million for the year ended December 31, 2020. The decrease in Therapy segment operating loss was due primarily to the $2.2 million increase in gross profit partially offset by the increase in operating expenses.
Therapy gross profit decreased by approximately $2.1 million to $3.5 million, or 45% of revenue, for the year ended December 31, 2020 from approximately $5.6 million or 62% of revenue for the year ended December 31, 2019. The decrease in Therapy gross profit was partly due to the $1.3 million reduction in revenue and increased costs incurred prior to the implementation of cost-cutting measures in response to the
COVID-19
pandemic. Therapy operating expenses decreased by $0.5 million and Detection service revenue increased by $0.2 million. The Company believes that Detection product revenue was adversely affected in 2020 by the
COVID-19
pandemic, as the typical sales cycle and ordering patterns were disrupted due to some healthcare facilities’ additional focus on
COVID-19.
The primary impact occurred during the second and third quarters of 2020. The total impact was partially offset by an increase in revenue in the fourth quarter of 2020 as compared to the fourth quarter of 2019. The Company is not able to predict how the
COVID-19
pandemic will affect future revenue and order volume. The $0.2 million increase in Detection service revenue was due primarily to an increase in service revenue from direct customers. The Company did not see a significant impact of the
COVID-19
pandemic on Detection service revenue in 2020 as compared to 2019 but is not able to predict how the
COVID-19
pandemic could affect future Detection service revenue.
52

Therapy revenue decreased 14.6%, or $1.3 million, to $7.7$6.6 million for the year ended December 31, 2020 from $9.0$7.1 million infor the year ended December 31, 2029. Therapy segment operating loss increased to $3.0 million for the year ended December 31, 2020 from $1.5 million for the year ended December 31, 2019. The increase in Therapy segment operating loss was due primarily to the decreased revenue of $1.3 million.
Therapy product revenue decreased by $0.4
51

Liquidity and Capital Resources
The Company believes that its cash and cash equivalents balance of $34.3 million as of December 31, 2021 and projected cash balances are sufficient to sustain operations through at least the next 12 months following the filing of this Form
10-K.
The Company’s ability to generate cash adequate to meet its future capital requirements will depend primarily on operating cash flow. If sales or cash collections are reduced from current expectations, or if expenses and cash requirements are increased, the Company may require additional financing, although there are no guarantees that the Company will be able to obtain the financing if necessary. The Company will continue to closely monitor its liquidity and the capital and credit markets.
On April 27, 2020, the Company issued 1,562,500 shares of common stock to several institutional investors at a price of $8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately $12.5 million, and Therapy service revenue decreasedthe Company received net proceeds of approximately $12.3 million. The Company entered into an
at-the-market
offering program with JMP Securities (the “ATM”) to provide for additional potential liquidity. The Company’s ATM facility provided for the sale of common stock having a value of up to $25.0 million. On December 17, 2020 the company sold 470,704 shares of common stock under the ATM facility. The gross proceeds were approximately $6.6 million, and the Company received net proceeds of approximately $6.1 million. On March 2, 2021, the Company terminated the ATM.
On March 2, 2021, the Company entered into an underwriting agreement with Guggenheim Securities, LLC, as representative of the several underwriters thereto, in connection with an underwritten public offering of 1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share. The Offering closed on March 5, 2021 for gross proceeds of approximately $25.1 million and net proceeds of approximately $23.2 million to the Company.
The Company had net working capital of $35.3 million at December 31, 2021. The ratio of current assets to current liabilities at December 31, 2021 and 2020 was 3.36 and 2.53, respectively.
Net cash used for operating activities for the year ended December 31, 2021 was $9.4 million, compared to $7.0 million for 2020.
The net cash used for investing activities for the year ended December 31, 2021 was $0.6 million compared to $0.5 million for the year ended December 31, 2020. The cash used for investing activities in both 2021 and 2020 was due primarily to purchases of fixed assets.
Net cash provided by $1.0 million. Therapy product revenuefinancing activities for the year ended December 31, 2021 was $17.1 million, which was primarily related to the aforementioned public offering resulting in net proceeds of $23.2 offset by the debt repayment (see below). Net cash provided by financing activities for the year ended December 31, 2020 was adversely affected$19.3 million, which was primarily related to the registered direct offering resulting in net proceeds of $12.3 million and the sale of stock related to the ATM resulting in net proceeds of $6.1 million.
The CARES Act allowed employers to defer the deposit and payment of employers share of Social Security payroll taxes that would otherwise have been owed from the date of enactment of the legislation. The legislation requires that the deferred taxes be paid over the
two-year
period, with half the amount required to be paid by December 31, 2021, and the
COVID-19 other half by December 31, 2022. During 2021, the Company remitted $0.2 million which represented the first half of the amount due. As of December 31, 2021, the Company has recorded a $0.1 million deferral within “Accrued and other benefits” and this amount will be remitted during 2022.
pandemic, due to
stay-at-home
52

Lease Obligations:
Operating Leases:
See item 2 of this annual report on Form
10-K.
Finance Leases:
In August 2017, the Company assumed an equipment lease obligation with payments, including interest payable, totaling $50,000. The lease was determined to be a capital lease and, social distancing ordersaccordingly, the equipment was capitalized and a liability of $42,000 was recorded. The equipment was depreciated over its expected life of 3 years. The lease term expired in August of 2020.
Settlement Obligations:
As a result of the acquisition of Xoft, the Company recorded a royalty obligation pursuant to a settlement agreement entered into between Xoft and Hologic, in August 2007. Xoft received a nonexclusive, irrevocable, perpetual, worldwide license, including the right to sublicense certain Hologic patents, and a
non-compete
covenant as well as an agreement not to seek further damages with respect to the uncertaintyalleged patent violations. In return the Company had a remaining obligation to pay a minimum annual royalty payment of $250,000 payable through 2016. In addition to the minimum annual royalty payments, the litigation settlement agreement with Hologic also provided for payment of royalties based upon a specified percentage of future net sales on any products that practice the licensed rights. The estimated fair value of the patent license and
non-compete
covenant is $100,000 and was amortized over the estimated useful life of approximately four years. As of December 31, 2021, the remaining liability for minimum royalty obligations totaling $0.2 million is recorded within accrued expenses and accounts payable.
Notes Payable:
On March 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Western Alliance Bank (the “Bank”) that provided an initial term loan (“Term Loan”) facility of $7.0 million and a $5.0 million revolving line of credit.
Obligations to the Bank under the Loan Agreement were secured by a first priority security interest in the market. Therapy product revenue isCompany’s assets, except for certain permitted liens that have priority to the Bank’s security interest by operation of law.
On April 27, 2021, the Company repaid its obligations in the aggregate amount of $7,354,283 and terminated the Loan Agreement with the Bank, and the Company’s collateral securing the facility was released. The Company accounted for this repayment and retirement as an extinguishment of the Loan Agreement. The Company recorded a loss on extinguishment of approximately $386,000 related to the salerepayment and retirement of our Xoft Systemsthe Loan Agreement. The loss on extinguishment was composed of approximately $140,000 for a prepayment fee, $122,000 for the unaccrued final payment, $65,000 termination and can vary significantlyother fees, and $58,000 for the unamortized discount and other closing costs from quarter to quarter due to changes inorigination of the number of units sold, and the average selling price. We expect Therapy sales to continue to vary as the sales of controller units can represent a significant component of Therapy product revenue. We believe Therapy service revenue was negatively impacted primarily due to the lack of ability to treat patients, mostly in the second and third quarters, due to the additional focus by healthcare professionals on the
COVID-19loan.
pandemic.
Gross ProfitLoan and Security Agreement – Silicon Valley Bank
. Gross profit was $21.3 million for the year ended December 31, 2020 compared to $24.2 million for the year ended December 31, 2019, a decrease of $2.9 million, or 11.9%. Detection gross profit decreased by $0.8 million from $18.6 million in the year ended December 31, 2019 to $17.8 million in the year ended December 31, 2020. Detection gross profit as a percentage of Detection revenue decreased to 81.2% in the year ended December 31, 2020 from 84% in the year ended December 31, 2019. The decrease was due primarily to higher installation costs and equipment costs to support processing of higher resolution and increased volume of 3D images. Therapy gross profit decreased by $2.1 million from $5.6 million in the year ended December 31, 2019 to $3.5 million in the year ended December 31, 2020. This decrease is largely due to Therapy revenue being adversely affected by the
COVID-19
pandemic, due to
stay-at-home
and social distancing orders as well as the uncertainty in the market. Therapy gross profit as a percentage of Therapy revenue decreased to 45% in the year ended December 31, 2020 from 62% in the year ended December 31, 2019.
Gross profit as a percentage of revenue was 71.9% for the year ended December 31, 2020 compared to 77.3% for the year ended December 31, 2019. Gross profit as a percentage of revenue will fluctuate due to the costs related to manufacturing, amortization and the impact of product mix in each segment.
The
COVID-19
pandemic adversely affected revenues from Detection products and the Therapy segment in the year ended December 31, 2020, and as a result, gross profit in both segments. The primary impact of the
COVID-19
pandemic was felt during the second and third quarters of 2020. However,On August 7, 2017, the Company continuedentered into a Loan and Security Agreement with Silicon Valley Bank, which was subsequently amended several times (as amended, the “SVB Loan Agreement”). The SVB Loan Agreement provided an initial term loan facility of $6.0 million and a $4.0 million revolving line of credit.
On March 30, 2020, the Company elected to follow steps taken duringrepay all outstanding obligations (including accrued interest) and retire the secondSVB Loan Agreement. The Company accounted for this repayment and third quarters of 2020 to reduce operating expenses, including cutting
non-essential
travel, implementing employee furloughs and terminations, reducing employee salaries by 10%, and cancelling most
in-person
trade shows. These measures offset someretirement as an extinguishment of the impact on gross profit caused by
COVID-19.SVB Loan Agreement. The Company also wrote off unamortized original closing costs as
Salary reductions, employee furloughs, and certain other of these measures were ended in the fourth quarter of 2020.
 
53

of the extinguishment date. The Company recorded a loss on extinguishment of approximately $341,000 related to the repayment and retirement of the SVB Loan Agreement. The loss on extinguishment was composed of approximately $185,000 for the unaccrued final payment, the $114,000 termination fee, and $42,000 of unamortized and other closing costs.
Convertible Debentures
CostOn December 20, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional and accredited investors (the “Investors”), including, but not limited to, all directors and executive officers of revenue and gross profit for 2020 and 2019 were as follows (in thousands):the Company at the time, pursuant to which the Investors purchased Convertible Debentures with an aggregate principal amount of approximately $7.0 million in a private placement.
On February 21, 2020 (the “Conversion Date”), the conditions permitting a forced conversion were met, and the Company elected to exercise its forced conversion right under the terms of the Convertible Debentures.
   
Twelve months ended December 31,
 
   
2020
  
2019
  
Change
   
% Change
 
Products
  $5,000  $3,278  $1,722    52.5
Service and supplies
   2,965   3,438   (473   (13.8)% 
Amortization and depreciation
   379   397   (18   100.0
  
 
 
  
 
 
  
 
 
   
 
 
 
Total cost of revenue
  $8,344  $7,113  $1,231    17.3
  
 
 
  
 
 
  
 
 
   
 
 
 
Gross profit
  $21,354  $24,227  $(2,873   (11.9)% 
profit %
   71.9  77.3   
   
For the year ended December 31,
 
   
2020
  
2019
  
Change
   
% Change
 
Detection gross profit
  $17,856  $18,627  $(771   (4.1)% 
Therapy gross profit
   3,498   5,600   (2,102   (37.5)% 
  
 
 
  
 
 
  
 
 
   
 
 
 
Gross profit
  $21,354  $24,227  $(2,873   (11.9)% 
  
 
 
  
 
 
  
 
 
   
 
 
 
As a result of this election, all of the outstanding Convertible Debentures were converted, at a conversion price of $4.00 per share, into 1,742,500 shares of the Company’s common stock. In accordance with the make-whole provisions in the Convertible Debentures, the Company also issued an additional 76,966 shares of its common stock. The make-whole amount represented the total interest which would have accrued through the maturity date of the Convertible Debentures, less the amounts previously paid, totaling $697,000. The conversion prices related to the make-whole amount were dependent on whether the Investors were related parties or unrelated third parties.
Accounting Considerations and Fair Value Measurements Related to the Convertible Debentures
The Company had previously elected to make
a one-time, irrevocable
election to utilize the fair value option to account for the Convertible Debentures as a single hybrid instrument at its fair value, with changes in fair value from period to period being recorded either in current earnings, or as an element of other comprehensive income (loss), for the portion of the change in fair value determined to relate to the Company’s own credit risk. The Company believed that the election of the fair value option allowed for a more meaningful representation of the total fair value of its obligation under the Convertible Debentures and allowed for a better understanding of how changes in the external market environment and valuation assumptions impact such fair value.
As of the December 31, 2019 valuation and the prior measurement dates, the Company utilized a Monte Carlo simulation model to estimate the fair value of the Convertible Debentures. The simulation model was designed to capture the potential settlement features of the Convertible Debentures, in conjunction with simulated changes in the Company’s stock price and the probability of certain events occurring. The simulation utilized 100,000 trials or simulations to determine the estimated fair value.
The simulation utilized the assumptions that if the Company was able to exercise its forced conversion right (if the requirements to do so were met), that it would do so in 100% of such scenarios. Additionally, if an event of default occurred during the simulated trial (based on the Company’s probability of default), the Investors would opt to redeem the Convertible Debentures in 100% of such scenarios. If neither event occurred during a simulated trial, the simulation assumed that the Investor would hold the Convertible Debentures until the maturity date. The value of the cash flows associated with each potential settlement were discounted to present value in each trial based on either the risk-free rate (for an equity settlement) or the effective discount rate (for a redemption or cash settlement).
The Company also recorded a final adjustment to the Convertible Debentures based on their fair value on the Conversion Date, just prior to the forced conversion being completed. Given that the Company’s prior simulation model included the assumption that the Company would elect to force conversion in 100% of scenarios when the requirements were met, the final valuation was based on the actual results of the forced conversion. As such, the
 
54

Operating Expenses:
Operating expenses for 2020 and 2019 were as follows (in thousands):
   
Year ended December 31,
 
   2020   2019   Change   Change % 
Operating expenses:
        
Engineering and product development
  $8,114   $9,271   $(1,157   (12.5)% 
Marketing and sales
   13,312    13,634    (322   (2.4)% 
General and administrative
   9,117    7,443    1,674    22.5
Amortization and depreciation
   199    276    (77   (27.9)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
  $30,742   $30,624   $118    0.4
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating expenses were $30.7Company based the final fair value adjustment of approximately $7.5 million forto the year ended December 31, 2020, compared to $30.6 million for the year ended December 31, 2019, an increase of $0.1 million or 0.4%. The Company was able to keep operating expenses relatively flat after implementing ongoing cost-cutting measures prompted by the
COVID-19
pandemic in the second quarter of 2020. These cost-cutting measures followed increased expenditures in the year ended December 31, 2019 as the Company invested in additional commercial resourcesConvertible Debentures just prior to conversion on the onsetnumber of the
COVID-19
pandemic.
Engineering and Product Development.
Engineering and product development costs for the year ended December 31, 2020 decreased by $1.2 million, or 12.5%, from $9.3 million in 2019 to $8.1 million in 2020.The decrease was largely due to decreased personnel as a resultshares of the cost-cutting measures prompted by the
COVID-19
pandemic.
Marketing and Sales.
Marketing and sales expense for the year ended December 31, 2020 decreased by $0.3 million, or 2.4%, from $13.6 million in 2019 to $13.3 million in 2020. The decrease in marketing and sales expense was due primarily to decreased personnel and trade show costs through the implementation of cost-cutting measures prompted by the
COVID-19
pandemic. The decrease was offset by an increase in costs in the first three months of the year when the Company invested in additional commercial resources to help drive sales of new Detection products priorcommon stock that were issued to the onset of the
COVID-19
pandemic.
GeneralInvestors upon conversion and Administrative.
General and administrative expenses for the year ended December 31, 2020 increased by $1.7 million, or 22.5%, from $7.4 million in 2019 to $9.1 million in 2020. The increase was due primarily to an increase in stock compensation and legal expenses and was offset by cost-cutting measures prompted by the
COVID-19
pandemic.
Amortization and Depreciation.
Amortization and depreciation expenses for the year ended December 31, 2020 decreased by $0.1 million, or 27.9%, from $0.3 million in 2019 to $0.2 million in 2020. The Company’s depreciable and amortizable assets have remained relatively consistent between 2020 and 2019.
55

Other Income, Tax and Expense (in thousands)
   
Year ended December 31,
 
   2020   2019   Change   Change% 
Interest expense
  $(476  $(784  $308    (39.3)% 
Interest income
   97    344    (247   (71.8)% 
Loss on extinguishment of debt
   (341   —      (341   0.0
Loss on fair value of debentures
   (7,464   (6,671   (793   11.9
  
 
 
   
 
 
   
 
 
   
 
 
 
  $(8,184  $(7,111  $(1,073   15.1
  
 
 
   
 
 
   
 
 
   
 
 
 
Tax expense
  $38   $43   $(5   (11.6)% 
Interest Expense.
The Company recorded $0.5 million of interest expense in the year ended December 31, 2020 as compared with $0.8 million of interest expense in the year ended December 31, 2019.
Interest income.
Interest income of $0.1 million and $0.3 million for the years ended December 31, 2020 and 2019, respectively, reflects income earned from our money market accounts.
Loss on fair value of debentures.
The Company recorded a loss of $7.5 million in 2020, which reflected an increase in the fair value of the unsecured subordinated convertible debentures (the “Convertible Debentures”) liability from approximately $13.7 million at December 31, 2019 to $21.2 million at February 21, 2020, the forced conversion date. Upon the consummationCompany’s common stock as of the forced conversion, the Company issued 1,816,466 shares of common stock with a fair value of approximately $21.2 million, and the Convertible Debenture liability was reclassified to stockholders’ equity.
Tax expense.
The Company had tax expense of $38,000 for the year ended December 31, 2020 as compared to tax expense of $43,000 for the year ended December 31, 2019.
Discussion of Operating Results:
Conversion Date in 2020.
Year Ended December 31, 2019 compared to Year Ended December 31, 2018
Revenue.
Revenue for the year ended December 31, 2019 was $31.3 million compared with revenue of $25.6 million for the year ended December 31, 2018, an increase of $5.7 million, or 22.3%. Detection revenue increased by $5.4 million and Therapy revenue increased by $0.3 million.
56

The table below presents the components of revenue for 2019 and 2018 (in thousands):
   
Twelve months ended December 31,
 
   
2019
   
2018
   
Change
   
% Change
 
Detection revenue
        
Product revenue
  $16,788   $10,783   $6,005    55.7
Service revenue
   5,531    6,081    (550   (9.0)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Subtotal
   22,319    16,864    5,455    32.3
  
 
 
   
 
 
   
 
 
   
 
 
 
Therapy revenue
        
Product revenue
   2,979    2,328    651    28.0
Service revenue
   6,042    6,429    (387   (6.0)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Subtotal
   9,021    8,757    264    3.0
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenue
  $31,340   $25,621   $5,719    22.3
  
 
 
   
 
 
   
 
 
   
 
 
 
Detection revenues increased 32.3%, or $5.4 million, from $16.9 million for the year ended December 31, 2018 to $22.3 million for the year ended December 31, 2019. Detection product revenue increased by $6.0 million and Detection service revenue decreased by $0.6 million. The $6.0 million increase in Detection product revenue was due primarily to a $2.1 million increase in OEM system sales and a $3.9 million increase in direct product sales. Detection service revenue decreased by $0.6 million, which was due primarily to a decrease of approximately $0.8 million primarily due to the conversion and upgrade cycle from Secondlook digital to Tomosynthesis 3D CAD offset by an increase of $0.2 million of service related to our 3D products.
Therapy revenue increased 3.0%, or $0.3 million, to $9.0 million for the year ended December 31, 2019 from $8.7 million in the year ended December 31, 2018. The increase in Therapy revenue was due to an increase in Therapy product revenue of $0.7 million offset by a decrease in Therapy service revenue of $0.4 million.
The increase in Therapy product revenue for the year ended December 31, 2019 was due primarily to an increase of $0.6 million related to sales outside of the United States (“OUS”) controller sales in 2019. The decrease in Therapy service revenue was due to reductions in source agreements and disposable applicators in the United States. Overall, the Therapy business increased by $1.1 million, or 67% OUS, offset by decreases in the U.S. business of $0.8 million, or 12%. We expect Therapy sales to continue to vary as the sales of controller units can represent a significant component of Therapy product revenue.
Gross Profit.
Gross profit was $24.2 million for the year ended December 31, 2019 compared to $19.4 million for the year ended December 31, 2018, an increase of $4.8 million, or 24.8%. Detection gross profit increased by $3.9 million from $14.7 million in the year ended December 31, 2018 to $18.6 million in the year ended December 31, 2019. Detection gross profit increased due primarily to the increase in Detection revenue. Detection gross profit as a percentage of Detection revenue decreased to 84% in the year ended December 31, 2019 from 87% in the prior year as a result of higher equipment costs to support processing higher resolution 3D images. Therapy gross profit increased by $0.9 million from $4.7 million in the year ended December 31, 2018 to $5.6 million in the year ended December 31, 2019. Therapy gross profit as a percentage of Therapy revenue improved to 62% in the year ended December 31, 2019 from 54% in the prior year. The improvement in Therapy gross profit as a percentage of revenue was due to the reduced cost of services and cost structure improvements related to the exit of the skin subscription business in January 2018.
57

Gross profit percent was 77.3% for the year ended December 31, 2019 compared to 75.8% for the year ended December 31, 2018. Gross profit will fluctuate due to the costs related to manufacturing, amortization and the impact of product mix in each segment. Cost of revenue and gross profit for 2019 and 2018 were as follows (in thousands):
   
Twelve months ended December 31,
 
   
2019
  
2018
  
Change
   
% Change
 
Products
  $3,278  $2,161  $1,117    51.7
Service and supplies
   3,438   3,627   (189   (5.2)% 
Amortization and depreciation
   397   403   (6   100.0
  
 
 
  
 
 
  
 
 
   
 
 
 
Total cost of revenue
  $7,113  $6,191  $922    14.9
  
 
 
  
 
 
  
 
 
   
 
 
 
Gross profit
  $24,227  $19,430  $4,797    24.7
profit %
   77.3  75.8   
Operating Expenses:
Operating expenses for 2019 and 2018 were as follows (in thousands):
   
For the year ended December 31,
 
   
2019
   
2018
   
Change
   
% Change
 
Operating expenses:
        
Engineering and product development
  $9,271   $9,445   $(174   (1.8)% 
Marketing and sales
   13,634    8,693    4,941    56.8
General and administrative
   7,443    9,117    (1,674   (18.4)% 
Amortization and depreciation
   276    305    (29   (9.5)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
  $30,624   $27,560   $3,064    11.1
  
 
 
   
 
 
   
 
 
   
 
 
 
Engineering and Product Development.
Engineering and product development costs for the year ended December 31, 2019 decreased by $0.2 million, or 1.9%, from $9.5 million in 2018 to $9.3 million in 2019. Detection engineering and product development costs increased by $0.2 million. The increase in Detection research and development expense was due to an increase in personnel and data collection costs offset by decreases in clinical expenses and consulting costs. Therapy engineering and product development costs decreased by approximately $0.4 million. The decrease in the Therapy segment was due primarily to a decrease in personnel expenses and clinical expenses. Engineering and product development costs support the Company’s strategy to build improved and larger datasets to train the Detection algorithm and support for clinical data in the Therapy segment.
Marketing and Sales.
Marketing and sales expense for the year ended December 31, 2019 increased by $4.9 million, or 56.8%, from $8.7 million in 2018 to $13.6 million in 2019. Detection marketing and sales expenses increased by $4.6 million. The increase in Detection marketing and sales expense was due to increases in personnel costs, commissions and tradeshow expenses. Therapy marketing and sales expenses increased approximately $0.3 million. The increase in Therapy marketing and sales expense was due primarily to an increase in personnel expenses, and travel. The Company made significant investments in the commercial infrastructure to support its strategy to grow top line revenue.
General and Administrative.
General and administrative expenses for the year ended December 31, 2019 decreased by $1.7 million, or 18.4%, from $9.1 million in 2018 to $7.4 million in 2019. The decrease in general and administrative expenses was due primarily to $1.0 million of severance costs incurred in the year ended December 31, 2018, legal settlement costs of $0.4 million and decreases in stock compensation and bad debt.
58

Amortization and Depreciation.
Amortization and depreciation expenses were consistent between 2019 and 2018 at $0.3 million. The Company’s depreciable and amortizable assets have remained relatively consistent between 2019 and 2018.
Other Income and Expense (in thousands)
   
For the year ended December 31,
 
   
2019
   
2018
   
Change
   
Change %
 
Interest expense
  $(784  $(504   (280   55.6
Interest income
   344    110    234    212.7
Financing costs
   —      (451   451    (100.0)% 
Loss on fair value of debentures
   (6,671   —      (6,671   —   
  
 
 
   
 
 
   
 
 
   
 
 
 
  $(7,111  $(845  $(6,266   741.5
  
 
 
   
 
 
   
 
 
   
 
 
 
Income tax (benefit) expense
  $43   $42    1    2.4
Interest Expense.
The Company recorded $0.8 million of interest expense in 2019 as compared with $0.5 million of interest expense during the year ended December 31, 2018. In December 2018, the Company issued the unsecured subordinated convertible debentures (the “Convertible Debentures”) and as a result, interest expense increased.
Interest income.
Interest income of $0.3 million and $0.1 million for the years ended December 31, 2019 and 2018, respectively, reflects income earned from our money market accounts.
Financing costs.
The Company recorded $0.5 million of expenses in 2018 in connection with the issuance of the Convertible Debentures in December 2018.
Loss on fair value of debentures.
The Company recorded a loss of $6.7 million in 2019, which reflects an increase in the fair value of the Convertible Debentures liability from approximately $7.0 million at December 31, 2018 to $13.6 million at December 31, 2019. The Company expects the fair value of the Convertible Debentures to change from quarter to quarter as changes in the underlying stock price of the Company drive changes in the fair value of these instruments.
Tax expense.
The Company had tax expense of $43,000 for the year ended December 31, 2019 as compared to tax expense of $42,000 for the year ended December 31, 2018. Tax expense for both the years ended December 31, 2019 and 2018 was due primarily to state
non-income
and franchise-based taxes.
59

Segment Analysis
The Company operates in and reports results for two segments: Detection and Therapy. Segment operating income (loss) includes cost of sales, engineering and product development, marketing and sales, and depreciation and amortization for the respective segment. A summary of Segment revenues, segment gross profit and segment operating income (loss) for the fiscal years ended December 31, 2021, 2020, 2019, and 20182019 are below (in thousands):
 
   Year Ended December 31, 
   2020   2019   2018 
Segment revenues:
      
Detection
  $21,997   $22,319   $16,864 
Therapy
   7,701    9,021    8,757 
  
 
 
   
 
 
   
 
 
 
Total Revenue
  $29,698   $31,340   $25,621 
  
 
 
   
 
 
   
 
 
 
Segment gross profit:
      
Detection
  $17,856   $18,627   $14,709 
Therapy
   3,498    5,600    4,721 
  
 
 
   
 
 
   
 
 
 
Segment gross profit
  $21,354   $24,227   $19,430 
  
 
 
   
 
 
   
 
 
 
Segment operating income (loss):
      
Detection
  $2,719   $2,564   $3,412 
Therapy
   (3,028   (1,476   (2,373
  
 
 
   
 
 
   
 
 
 
Segment operating income (loss)
  $(309  $1,088   $1,039 
  
 
 
   
 
 
   
 
 
 
General administrative
  $(9,079  $(7,486  $(9,169
Interest expense
   (476   (784   (504
Financing costs
   —      —      (451
Loss on extinguishment of debt
   (341    
Other income
   97    345    110 
Fair value of convertible debentures
   (7,464   (6,671  
  
 
 
   
 
 
   
 
 
 
Loss before income tax
  $(17,572  $(13,508  $(8,975
  
 
 
   
 
 
   
 
 
 
   Year Ended December 31, 
   2021   2020   2019 
Segment revenues:
      
Detection
  $22,019   $21,997   $22,319 
Therapy
   11,619    7,701    9,021 
  
 
 
   
 
 
   
 
 
 
Total Revenue
  $33,638   $29,698   $31,340 
  
 
 
   
 
 
   
 
 
 
Segment gross profit:
      
Detection
  $18,510   $17,856   $18,627 
Therapy
   5,733    3,498    5,600 
  
 
 
   
 
 
   
 
 
 
Total gross profit
  $24,243   $21,354   $24,227 
  
 
 
   
 
 
   
 
 
 
50

   Year Ended December 31, 
   2021   2020   2019 
Segment operating income (loss):
      
Detection
  $1,563   $2,719   $2,564 
Therapy
   (1,835   (3,028   (1,476
  
 
 
   
 
 
   
 
 
 
Segment operating income (loss)
  $(272  $(309  $1,088 
  
 
 
   
 
 
   
 
 
 
General administrative
  $(10,460  $(9,079  $(7,486
Interest expense
   (141   (476   (784
Loss on extinguishment of debt
   (386   (341   —   
Other income
   15    97    345 
Fair value of convertible debentures
   —      (7,464   (6,671
  
 
 
   
 
 
   
 
 
 
Loss before income tax
  $(11,244  $(17,572  $(13,508
  
 
 
   
 
 
   
 
 
 
Detection gross profit increased to approximately $18.5 million, or 84% of revenue, for the year ended December 31, 2021 from $17.9 million, or 81% of revenue, for the year ended December 31, 2020. The increase in Detection gross profit was due primarily to the decrease in Detection cost of goods related to changes in product mix. Detection segment operating income for the year ended December 31, 2021 decreased by $1.1 million to $1.6 million from $2.7 million for the year ended December 31, 2020. The decrease in Detection segment operating income was due primarily to an increase in operating expenses relative to the increase in revenues. Detection operating expenses increased by $1.8 million to $16.9 million for the year ended December 31, 2021 from $15.1 million for the year ended December 31, 2020.
Detection gross profit decreased to approximately $17.9 million, or 81% of revenue, for the year ended December 31, 2020 from $18.6 million, or 84% of revenue, for the year ended December 31, 2019. The decrease in Detection gross profit was due primarily to the decrease in Detection revenue. Detection segment operating income for the year ended December 31, 2020 increased by $0.1 million to $2.7 million from $2.6 million for the year ended December 31, 2019.2020. The increase in Detection segment operating income was due primarily to a decrease in operating expenses. Detection operating expenses decreased by $1.0 million to $15.1 million for the year ended December 31, 20202021 from $16.1 million for the year ended December 31, 2019.2020.
DetectionTherapy gross profit increased by approximately $2.2 million to approximately $18.6$5.7 million, or 83%49% of revenue, for the year ended December 31, 20192021 from $14.7approximately $3.5 million or 87%45% of revenue for the year ended December 31, 2018.2020. The increase in DetectionTherapy gross profit was largely due primarily to the $3.9 million increase in Detection revenue. Detection segmentTherapy operating income for the year ended December 31, 2019expenses decreased by $0.8$1.1 million to $2.6 million from $3.4$7.6 million for the year ended December 31, 2018. The decrease in Detection segment operating income for the year ended December 31, 2019 as compared to the year ended December 31, 2018 was due primarily to increased operating expenses for the year ended December 31, 2019 compared to the year ended December 31, 2018. Detection operating expenses increased by $4.8 million to $16.12021 from $6.5 million for the year ended December 31, 2019 compared2020. Therapy segment operating loss decreased to $11.3$1.8 million for the year ended December 31, 2018, reflecting increased research and development and increased marketing and sales expenses,2021 from $3.0 million for the year ended December 31, 2020. The decrease in Therapy segment operating loss was due primarily due to clinical development costs, personnel related expenses and consulting costs.the $2.2 million increase in gross profit partially offset by the increase in operating expenses.
60

Therapy gross profit decreased by approximately $2.1 million to $3.5 million, or 45% of revenue, for the year ended December 31, 2020 from approximately $5.6 million or 62% of revenue for the year ended December 31, 2019. The decrease in Therapy gross profit was partly due to the $1.3 million reduction in revenue and increased costs incurred prior to the implementation of cost-cutting measures in response to the
COVID-19
pandemic. Therapy operating expenses decreased by $0.5 million to $6.6 million for the year ended December 31, 2020 from $7.1 million for the year ended December 31, 2019.2029. Therapy segment operating loss increased to $3.0 million for the year ended December 31, 2020 from $1.5 million for the year ended December 31, 2019. The increase in Therapy segment operating loss was due primarily to the decreased revenue of $1.3 million.
Therapy gross profit increased by approximately $0.9 million to $5.6 million, or 62% of revenue, for the year ended December 31, 2019 from approximately $4.7 million or 54% of revenue for the year ended December 31, 2018. The increase in Therapy gross profit was due to decreased manufacturing costs of $0.5 million and increased revenue of $0.3 million. Therapy operating expenses for both the years ended December 31, 2019 and 2018 were approximately $7.1 million, respectively. Therapy segment operating loss decreased to a loss of $1.5 million for the year ended December 31, 2019 from a loss of $2.4 million for the year ended December 31, 2018. The decrease in loss was due primarily to the decreased manufacturing costs of $0.5 million and increased revenue of $0.3 million.
51

Liquidity and Capital Resources
The Company believes that its cash and cash equivalents balance of $27.2$34.3 million as of December 31, 2020,2021 and projected cash balances are sufficient to sustain operations through at least the next 12 months. months following the filing of this Form
10-K.
The Company’s ability to generate cash adequate to meet its future capital requirements will depend primarily on operating cash flow. If sales or cash collections are reduced from current expectations, or if expenses and cash requirements are increased, the Company may require additional financing, although there are no guarantees that the Company will be able to obtain the financing if necessary. The Company will continue to closely monitor its liquidity and the capital and credit markets.
The Company’s cash on hand includes proceeds from the Loan and Security Agreement entered into with the Bank on March 31, 2020. The Company and the Bank amended the Loan and Security Agreement on June 22, 2020 (as amended, the “Loan Agreement”). The Loan Agreement includes certain financial covenants tied to minimum revenue and the ratio of the Company’s unrestricted cash at the Bank to its indebtedness under the Loan Agreement. The
COVID-19
pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on the Company’s ability to maintain compliance with the covenants under the Loan Agreement. If at any point the Company is not in compliance with certain covenants and is unable to obtain an amendment or waiver from the Bank, such noncompliance may result in an event of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date.
Even if an event of default were to occur under the Loan Agreement, the Company believes that its current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand of $27.2 million and anticipated revenue and cash collections. However, the resurgence of the
COVID-19
pandemic could affect our liquidity.
61

On April 27, 2020, the Company issued 1,562,500 shares of common stock to several institutional investors at a price of $8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately $12.5 million, and the Company received net proceeds of approximately $12.3 million. The Company has also entered into an
at-the-market
offering program with JMP Securities (the “ATM”) to provide for additional potential liquidity. The Company’s ATM facility providesprovided for the sale of common stock having a value of up to $25.0 million. On December 17, 2020 the company sold 470,704 shares of common stock under the ATM facility. The gross proceeds were approximately $6.6 million, and the Company received net proceeds of approximately $6.1 million. As of December 31, 2020, $18.4 million in capacity remains under the ATM facility. On March 2, 2021, the Company terminated the ATM.
The Company had net working capital of $25.6 million at December 31, 2020. The ratio of current assets to current liabilities at December 31, 2020 and 2019 was 2.53 and 1.55, respectively.
Net cash used for operating activities for the year ended December 31, 2020 was $7.0 million, compared to $7.1 million for 2019.
The net cash used for investing activities for the year ended December 31, 2020 was $0.5 million compared to $0.3 million for the year ended December 31, 2019. The cash used for investing activities in both 2020 and 2019 was due primarily to purchases of fixed assets.
Net cash provided by financing activities for the year ended December 31, 2020 was $19.3 million, which was primarily related to the registered direct offering resulting in net proceeds of $12.3 million and the sale of stock related to the ATM resulting in net proceeds of $6.1 million. Net cash provided by financing activities for the year ended December 31, 2019 was $10.5 million which was primarily related to $9.4 million in net proceeds from an issuance of common stock and $1.4 million received from the exercise of employee stock options.
The CARES Act allowed employers to defer the depot and payment of employers share of Social Security payroll taxes that would otherwise have been owed from the date of enactment of the legislation through December 31, 2020. The legislation requires that the deferred taxes be paid over the two-year period, with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. As of December 31, 2020, the Company has recorded the $0.4 million payment deferral within “Accrued and other benefits.”
On March 2, 2021, the Company entered into an underwriting agreement with Guggenheim Securities, LLC, as representative of the several underwriters thereto, in connection with an underwritten public offering of 1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share. The Offering closed on March 5, 2021 for gross proceeds of approximately $25.1 million and resulted in net proceeds of approximately $23.2 million to the Company.
The Company had net working capital of $35.3 million at December 31, 2021. The ratio of current assets to current liabilities at December 31, 2021 and 2020 was 3.36 and 2.53, respectively.
Net cash used for operating activities for the year ended December 31, 2021 was $9.4 million, compared to $7.0 million for 2020.
The net cash used for investing activities for the year ended December 31, 2021 was $0.6 million compared to $0.5 million for the year ended December 31, 2020. The cash used for investing activities in both 2021 and 2020 was due primarily to purchases of fixed assets.
Net cash provided by financing activities for the year ended December 31, 2021 was $17.1 million, which was primarily related to the aforementioned public offering resulting in net proceeds of $23.2 offset by the debt repayment (see below). Net cash provided by financing activities for the year ended December 31, 2020 was $19.3 million, which was primarily related to the registered direct offering resulting in net proceeds of $12.3 million and the sale of stock related to the ATM resulting in net proceeds of $6.1 million.
The CARES Act allowed employers to defer the deposit and payment of employers share of Social Security payroll taxes that would otherwise have been owed from the date of enactment of the legislation. The legislation requires that the deferred taxes be paid over the
two-year
period, with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. During 2021, the Company remitted $0.2 million which represented the first half of the amount due. As of December 31, 2021, the Company has recorded a $0.1 million deferral within “Accrued and other benefits” and this amount will be remitted during 2022.
52

Lease Obligations:
Operating Leases:
AsSee item 2 of December 31, 2020, the Company had three lease obligations related to its facilities.
The Company’s executive offices are leased pursuant to a five-year lease that commencedthis annual report on December 15, 2006, consisting of approximately 11,000 square feet of office space located at 98 Spit Brook Road, Suite 100 in Nashua, New Hampshire. As amended, the lease expires in February 2023 and the annual base rent is $214,812. Additionally, the Company is required to pay its proportionate share of the building and real estate tax expenses and obtain insurance for the facility.
Form
The Company leases a facility consisting of approximately 24,350 square feet of office, manufacturing and warehousing space located at 101 Nicholson Lane, San Jose, CA. The operating lease commenced September 2012. As amended, the lease expires in March 2023, with annual payments of $628,260 until March 2021, $645,792 from April 2021 to March 2022 and $666,240 from April 2022 to March 2023. Additionally, the Company is required to pay its proportionate share of the building and real estate tax expenses and obtain insurance for the facility.
62

In addition to the foregoing leases relating to its principal properties, the Company also has a lease for an additional facility in Nashua, New Hampshire used for product repairs, manufacturing and warehousing.10-K.
Finance Leases:
In August 2017, the Company assumed an equipment lease obligation with payments, including interest payable, totaling $50,000. The lease was determined to be a capital lease and, accordingly, the equipment was capitalized and a liability of $42,000 was recorded. The equipment is beingwas depreciated over theits expected life of 3 years. The lease term expired in August of 2020.
Settlement Obligations:
As a result of the acquisition of Xoft, the Company recorded a royalty obligation pursuant to a settlement agreement entered into between Xoft and Hologic, in August 2007. Xoft received a nonexclusive, irrevocable, perpetual, worldwide license, including the right to sublicense certain Hologic patents, and a
non-compete
covenant as well as an agreement not to seek further damages with respect to the alleged patent violations. In return the Company had a remaining obligation to pay a minimum annual royalty payment of $250,000 payable through 2016. In addition to the minimum annual royalty payments, the litigation settlement agreement with Hologic also provided for payment of royalties based upon a specified percentage of future net sales on any products that practice the licensed rights. The estimated fair value of the patent license and
non-compete
covenant is $100,000 and was amortized over the estimated useful life of approximately four years. As of December 31, 2020,2021, the remaining liability for minimum royalty obligations totaling $0.1$0.2 million is recorded within accrued expenses and accounts payable.
Notes Payable:
On March 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Western Alliance Bank (the ��Bank”“Bank”) that provided an initial term loan (“Term Loan”) facility of $7.0 million and a $5.0 million revolving line of credit.
The Loan Agreement was amended effective June 16, 2020. The Loan Agreement requires the Company to either (i) meet a minimum revenue covenant, or (ii) maintain a ratio of unrestricted cash at the Bank to aggregate indebtedness owed to the Bank of at least 1.25 to 1.00. The Company was compliant with these covenants as of December 31, 2020.
If at any point the Company is not in compliance with certain covenants under the Loan Agreement and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date. The Company was required, periodically in the past, to seek modifications from its prior lender to avoid
non-compliance
with its earlier covenants.
Interest in arrears on the Term Loan began to be repaid on April 1, 2020 and will continue to be paid on the first of each successive month thereafter until the principal repayment starts. Commencing on the principal repayment date March 1, 2022 and continuing on the first day of each month thereafter, the Company will make equal monthly payments of principal, together with applicable interest in arrears, to the Bank. The interest rate is set at 1% above the Prime Rate, which is defined in the Loan Agreement as the greater of 4.25% or the Prime Rate published in the Money Rates section of the Western Edition of the Wall Street Journal. The Prime Rate as of December 31, 2020 was 3.25%.
63

The Company has the option to prepay all, but not less than all, of the Term Loan advanced by the Bank under the Loan Agreement. The Company prepayment is subject to payment of (1) all outstanding principal of the Term Loan plus accrued and unpaid interest thereon through the prepayment date, (2) the final payment ($122,500 or 1.75% of the original loan amount), (3) a prepayment fee (3% of the principal balance if prepaid prior to first March 30, 2021, 2% of principal if prepaid after March 30, 2021 but before June 30, 2022, or 1% of principal if prepaid after March 30, 2022) plus (4) all other obligations that are due and payable, including the Bank’s expenses and interest at the default rate with respect to any past due amounts.
Obligations to the Bank under the Loan Agreement arewere secured by a first priority security interest in the Company’s assets, except for certain permitted liens that have priority to the Bank’s security interest by operation of law.
In connection withOn April 27, 2021, the Company repaid its obligations in the aggregate amount of $7,354,283 and terminated the Loan Agreement with the Bank, and the Company’s collateral securing the facility was released. The Company incurredaccounted for this repayment and retirement as an extinguishment of the Loan Agreement. The Company recorded a loss on extinguishment of approximately $141,000$386,000 related to the repayment and retirement of closing costs.the Loan Agreement. The loss on extinguishment was composed of approximately $140,000 for a prepayment fee, $122,000 for the unaccrued final payment, $65,000 termination and other fees, and $58,000 for the unamortized discount and other closing costs have been deduced from the carrying valueorigination of the debt and will be amortized through March 30, 2022, the maturity date of the Term Loan.
The maturity date of the revolving loan is March 30, 2022 and there was no outstanding amount as of December 31, 2020.loan.
Loan and Security Agreement – Silicon Valley Bank
On August 7, 2017, the Company entered into a Loan and Security Agreement with Silicon Valley Bank, which was subsequently amended several times (as amended, the “SVB Loan Agreement”). The SVB Loan Agreement provided an initial term loan facility of $6.0 million and a $4.0 million revolving line of credit.
On March 30, 2020, the Company elected to repay all outstanding obligations (including accrued interest) and retire the SVB Loan Agreement. The Company accounted for this repayment and retirement as an extinguishment of the SVB Loan Agreement. In addition to the outstanding principal and accrued interest, the Company was required to pay the $510,000 final payment, a termination fee of $114,000 and other costs totaling $10,000. The Company also wrote off unamortized original closing costs as
53

of the extinguishment date. The Company recorded a loss on extinguishment of approximately $341,000 related to the repayment and retirement of the SVB Loan Agreement. The loss on extinguishment was composed of approximately $185,000 for the unaccrued final payment, the $114,000 termination fee, and $42,000 of unamortized and other closing costs.
Convertible Debentures
On December 20, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional and accredited investors (the “Investors”), including, but not limited to, all directors and executive officers of the Company at the time, pursuant to which the Investors purchased Convertible Debentures with an aggregate principal amount of approximately $7.0 million in a private placement.
On February 21, 2020 (the “Conversion Date”), the conditions permitting a forced conversion were met, and the Company elected to exercise its forced conversion right under the terms of the Convertible Debentures.
As a result of this election, all of the outstanding Convertible Debentures were converted, at a conversion price of $4.00 per share, into 1,742,500 shares of the Company’s common stock. In accordance with the make-whole provisions in the Convertible Debentures, the Company also issued an additional 76,966 shares of its common stock. The make-whole amount represented the total interest which would have accrued through the maturity date of the Convertible Debentures, less the amounts previously paid, totaling $697,000. The conversion prices related to the make-whole amount were dependent on whether the Investors were related parties or unrelated third parties.
64

Accounting Considerations and Fair Value Measurements Related to the Convertible Debentures
The Company had previously elected to make
a one-time, irrevocable
election to utilize the fair value option to account for the Convertible Debentures as a single hybrid instrument at its fair value, with changes in fair value from period to period being recorded either in current earnings, or as an element of other comprehensive income (loss), for the portion of the change in fair value determined to relate to the Company’s own credit risk. The Company believed that the election of the fair value option allowed for a more meaningful representation of the total fair value of its obligation under the Convertible Debentures and allowed for a better understanding of how changes in the external market environment and valuation assumptions impact such fair value.
As of the December 31, 2019 valuation and the prior measurement dates, the Company utilized a Monte Carlo simulation model to estimate the fair value of the Convertible Debentures. The simulation model was designed to capture the potential settlement features of the Convertible Debentures, in conjunction with simulated changes in the Company’s stock price and the probability of certain events occurring. The simulation utilized 100,000 trials or simulations to determine the estimated fair value.
The simulation utilized the assumptions that if the Company was able to exercise its forced conversion right (if the requirements to do so were met), that it would do so in 100% of such scenarios. Additionally, if an event of default occurred during the simulated trial (based on the Company’s probability of default), the Investors would opt to redeem the Convertible Debentures in 100% of such scenarios. If neither event occurred during a simulated trial, the simulation assumed that the Investor would hold the Convertible Debentures until the maturity date. The value of the cash flows associated with each potential settlement were discounted to present value in each trial based on either the risk-free rate (for an equity settlement) or the effective discount rate (for a redemption or cash settlement).
The Company also recorded a final adjustment to the Convertible Debentures based on their fair value on the Conversion Date, just prior to the forced conversion being completed. Given that the Company’s prior simulation model included the assumption that the Company would elect to force conversion in 100% of scenarios when the requirements were met, the final valuation was based on the actual results of the forced conversion. As such, the
54

Company based the final fair value adjustment of approximately $7.5 million to the Convertible Debentures just prior to conversion on the number of shares of common stock that were issued to the Investors upon conversion and the fair value of the Company’s common stock as of the Conversion Date.Date in 2020.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes.
The U.S. Securities and Exchange Commission (“SEC”) requires companies to provide additional disclosure and commentary on their most critical accounting policies and estimates. The SEC has defined critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results and requires management to make its most significant estimates and judgments in the preparation of its Consolidated Financial Statements. The SEC has defined critical accounting estimates as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of a company.
Revenue Recognition
The Company recognizes revenue under the provisions of ASU
2014-09,
Revenue from Contracts with Customers
(“ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 explains that to achieve the core principle, an entity should take the following actions:
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price
Step 5: Recognize revenue when or as the entity satisfies a performance obligation
The Company’s contracts with customers may include promises to transfer multiple products and services to a customer. Identifying distinct performance obligations that should be accounted for separately versus together may require significant judgment. For arrangements with multiple performance obligations, the Company allocates revenue to each performance obligation based on its relative standalone selling price. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company generally determines standalone selling prices based on the prices charged to customers and uses a range of amounts to estimate standalone selling prices when the Company sells each of the products and services separately and need to determine whether there is a discount that needs to be allocated based on the relative standalone selling prices of the various products and services. The Company typically has more than one range of standalone selling prices for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the type of customer and geographic region in determining the range of standalone selling prices.
55

Allowance for Doubtful Accounts
The allowance for doubtful accounts represents management’s estimate for potential uncollectible accounts receivable. This estimate is developed from management’s ongoing credit evaluation of Company customers and a detailed review of its outstanding accounts receivable balances.
Inventory
Inventory consists of finished products,
work-in-process,
and raw materials. The Company values its inventory at the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead and is determined using the
first-in,
first-out
(FIFO) method. On a quarterly basis, management reviews inventory quantities on hand and analyzes the provision for excess and obsolete inventory based primarily on product expiration dating and estimated sales forecast, which is based on sales history and anticipated future demand.
Goodwill
Goodwill represents the amount of consideration paid in connection with business acquisitions in excess of the fair value of assets acquired and liabilities assumed. The Company performs an annual impairment test each year on October 1 using both qualitative and quantitative methods and assumptions. The quantitative test utilizes a combination of both the market and income approach. The most significant estimates in the income approach relate to management’s assumptions to calculate a present value of estimated future cash flows.
Stock Based Compensation
The Company uses the Black-Scholes option pricing model to value stock options which requires extensive use of accounting judgment and financial estimates, including estimates of the expected term participants will retain their vested stock options before exercising them, the estimated volatility of its common stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requirements.
Other Commitments
Other Commitments include
non-cancelable
purchase orders with key suppliers executed in the normal course of business.
Effect of New Accounting Pronouncements
See note 1 (t)3 in the Notes to Consolidated Financial Statements in this Annual Report on
Form 10-K.
 
Item
 
7A.
Quantitative and Qualitative Disclosures about Market Risk.
We believe we are not subject to material foreign currency exchange rate fluctuations, as most of our sales and expenses are domestic and therefore are denominated in the U.S. dollar. For international sales, the majority of those customers pay in the U.S. dollar. We do not hold derivative securities and have not entered into contracts embedded with derivative instruments, such as foreign currency and interest rate swaps, options, forwards, futures, collars, and warrants, either to hedge existing risks or for speculative purposes.
 
65

Item
 
8.
Financial Statements and Supplementary Data.
See Financial Statements and Schedule attached hereto.
 
Item
 
9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
 
56

Item
 
9A.
Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this annual report on Form
10-K.
Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures (as defined in Rule
13a-15(e)
of the Exchange Act) were effective as of December 31, 2020.2021.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations to enhance, where necessary its procedures and controls.
(b) Management’s Annual Report on Internal Control Over Financial Reporting.
The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, is responsible for the preparation and integrity of the Company’s Consolidated Financial Statements, establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule
13a-15(f))
for the Company and all related information appearing in this Annual Report on Form
10-K.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020,2021, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on its assessment, our Chief Executive Officer and our Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2020.2021.
66

(c)
Changes in Internal Control Over Financial Reporting
.
The Company’s principal executive officer and principal financial officer conducted an evaluation of the Company’s internal control over financial reporting (as defined in Exchange Act Rule
13a-15(f))
to determine whether any changes in internal control over financial reporting occurred during the quarteryear ended December 31, 2020,2021, that have materially affected, or which are reasonably likely to materially affect internal control over financial reporting. Based on that evaluation there has been no such change during such period.
 
Item 9B.
Other Information.
Not applicable.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
57

PART III
 
Item
 
10
.
Directors, Executive Officers and Corporate Governance
.
The information required by this Item 10 of Form
10-K
will be included in the Company’s 20212022 Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for the Company’s 20212022 Annual Meeting of Stockholders (the “2021“2022 Proxy Statement”) and is incorporated herein by reference.
 
Item
 
11
.
Executive Compensation
.
The information required by this Item 11 of Form
10-K
will be included in the Company’s 20212022 Proxy Statement and 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 of Form
10-K
will be included in the Company’s 20212022 Proxy Statement and is incorporated herein by reference.
 
Item
 
13
.
Certain Relationships and Related Transactions, and Director Independence
.
The information required by this Item 13 of Form
10-K
will be included in the Company’s 20212022 Proxy Statement and is incorporated herein by reference.
 
67

Item
 
14
.
Principal Accounting Fees and Services
.
The information required by this Item 14 of Form
10-K
will be included in the Company’s 20212022 Proxy Statement and is incorporated herein by reference.
58

PART IV
 
Item
 
15
.
Exhibits, Financial Statement Schedules.
a) The following documents are filed as part of this Annual Report on Form
10-K:
 
i.
 Financial Statements - See Index on page
F-1
ii.
 Financial Statement Schedule - See Index on page
F-1.
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted.
iii.
 Exhibits - the following documents are filed as exhibits to this Annual Report on Form
10-K:
1
 Underwriting Agreement, dated March 2, 2021, by and between iCAD, Inc. and Guggenheim Securities, LLC (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed with the SEC on March 5, 2021).
2
Asset Purchase Agreement, dated December 16, 2016, between the Company and Invivo Corporation. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on December 22, 2016). **
3(a)
 Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed with the SEC on August 6, 2015).
3(b)
 Amended and Restated By-laws (incorporated by reference to Exhibit 3(b) to the Current Report on Form 10-K filed with the SEC on March 17, 2008.
3(c)
Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on July 21, 2021).
4 Description of Registrant’s Securities
10(a)
 2016 Stock Incentive Plan as Amended December 2018as of July 2021 (incorporated by reference to Annex AAppendix B to the definitive proxy statement on Form DEF14A filed with the SEC on November 20, 2018)June 7, 2021).*
10(b)
Amendment to 2016 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on February 19, 2021).
10(c)
 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 of Quarterly Report on Form 10-Q filed with the SEC on November 15, 2014).
68

10(d)
10(c)
 Lease Agreement, dated December 6, 2006, between the Company and Gregory D. Stoyle and John J. Flatley, Trustees of the 1993 Flatley Family Trust, of Nashua, NH (incorporated by reference to Exhibit 10(mm) to the Annual Report on Form 10-K filed with the SEC on March 22, 2007).
10(e)
10(d)
 Employment Agreement between the Company and Michael Klein dated January 13, 2020 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 17, 2020).*
10(f)
10(e)
 Amendment to Employment Agreement, dated March 26, 2020, between iCAD, Inc. and Michael Klein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 29, 2020).*
10(g)
10(f)
 Employment Agreement, dated May 26, 2020, between the Company and Stacey Stevens (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on May 29, 2020).*
10(h)
Employment Agreement, dated May 26, 2020, between the Company and Scott Areglado (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on May 29, 2020). *
10(i)
10(g)
 Employment Agreement, dated May 26, 2020, between the Company and Jonathan Go (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the SEC on May 29, 2020). *
10(j)
Asset Purchase Agreement, dated December 16, 2016, between the Company and Invivo Corporation (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on December 22, 2016).
10(k)
10(h)
 First Amendment to Lease, dated September 19, 2016, between the Company and The Irvine Company (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on September 21, 2016).
10(l)
10(i)
 2012 Stock Incentive Plan (incorporated by reference to Appendix B to the definitive proxy statement on Form DEF14A filed with the SEC on April 9, 2012).*
59


21.1
10(n)
 
21.1
Subsidiaries
23.1 Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.
31.1
 Certification of ChiefPrincipal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 Certification of ChiefPrincipal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 Certification of ChiefPrincipal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 Certification of ChiefPrincipal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101  
 The following materials formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of December 31, 20202021 and December 31, 2019,2020, (ii) Consolidated Statements of Operations for the years ended December 31, 2021, 2020 2019 and 2018,2019, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, 2020 2019 and 2018,2019, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 2019 and 2018,2019, and (v) Notes to Consolidated Financial Statements.
104  
 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
 
*
Denotes a management compensation plan or arrangement.
**
The Registrant has omitted certain schedules and exhibits pursuant to Item 601(b)(2) of Regulation
S-K
and shall furnish supplementally to the SEC copies any of the omitted schedules and exhibits upon request by the SEC.
 
Item
 
16.
Form
10-K
Summary.
None.
 
7060

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
iCAD, INC.
Date: March 15, 202128, 2022
 
By: 
/s/ Michael KleinStacey Stevens
 
Michael KleinStacey Stevens
 
Chief Executive Officer, Executive ChairmanPresident and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signature
  
Title
  
Date
/s/ Michael KleinStacey Stevens
Stacey Stevens
  
Executive Chairman, Director, Chief Executive Officer, President, Director,
(Principal Executive Officer)
  March 15, 2021
Michael Klein
28, 2022
/s/ Charles R. Scott AregladoCarter
Charles R. Carter
  
Chief Financial Officer
(Principal Financial and Accounting Officer)
  March 15, 202128, 2022
R. Scott Areglado/s/ Michael Klein
Michael Klein
Chairman, Director
March 28, 2022
/s/ Dana Brown
DirectorMarch 28, 2022
Dana Brown
/s/ Timothy Norris Irish
DirectorMarch 28, 2022
Timothy Norris Irish
/s/ Nathaniel Dalton
  Director  March 15, 202128, 2022
Nathaniel Dalton
/s/ Rakesh Patel
  Director  March 15, 202128, 2022
Rakesh Patel, MD
/s/ Andy Sassine
  Director  March 15, 202128, 2022
Andy Sassine
/s/ Susan Wood
  Director  March 15, 202128, 2022
Susan Wood, Ph.DPh.D.
 
7161


Report of Independent Registered Public Accounting Firm
Shareholders
and
Board of Directors
iCAD, Inc.
Nashua, New Hampshire
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of iCAD, Inc. (the “Company”) as of December 31, 2020202
1
 and 2019,2
020
, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020,202
1
, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020202
1
 and 2019,20
20
, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020202
1
,
in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, on January 1, 2019, the Company changed its method of accounting for leases due to the adoption of ASU
2016-02,
Leases
(ASC 842).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-2

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition - Identification of distinct performance obligations in certain customer arrangements withagreements
non-standard
terms
F-2

As described in Note 1(k)2 to the consolidated financial statements, management assesses relevant contractual terms in its customer arrangements to determine the performance obligations and recognizes revenue upon transfer of controlcertain of the promised goods or services in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into certainCompany’s revenue contracts with customers with
non-standard
terms and conditions that may include promises to transfer multiple products and services where management exercises significant judgment in assessing contractual terms in these arrangements to identifya customer and evaluate whetheridentifying distinct performance obligations that should be accounted for separately versus together.together may require significant judgment. For these revenue contracts, the Company accounts for the individual products and services separately if they are distinct.
We identified the determination of distinct performance obligations within contracts with
non-standard
termscertain agreements as a critical audit matter. Significant judgment can be required to determine the performance obligations in a contract with
non-standard
terms a customer and whether they are distinct. Auditing these aspectstransactions involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters and the evaluation of audit evidence obtained related to whether such performance obligations were appropriately identified and evaluated by management.matters.
The primary procedures we performed to address this critical audit matter included:
 
Evaluating management’s accounting policies and practices, including the reasonableness of management’s judgments and assumptions related to the identification of each distinct performance obligation and its pattern of delivery.
 
Testing a sample of these revenue agreements together with their underlying documents and company assessments to evaluate the appropriatemanagement’s identification of each distinct performance obligation and its respective pattern of revenue recognition.
/s/ BDO USA, LLP
We have served as the Company’s auditor since 1989.
Boston, Massachusetts
March 15, 202128, 2022
 
F-3

iCAD, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 
   
December 31,
  
December 31,
 
Assets  
2020
  
2019
 
   (in thousands except shares and per share data) 
Current assets:
         
Cash and cash equivalents
  $27,186  $15,313 
Trade accounts receivable, net of allowance for doubtful
         
accounts of $111 in 2020 and $136 in 2019
   10,027   9,819 
Inventory, net
   3,144   2,611 
Prepaid expenses and other current assets
   1,945   1,453 
          
Total current assets
   42,302   29,196 
          
   
Property and equipment:
         
Equipment
   6,765   6,304 
Leasehold improvements
   62   62 
Furniture and fixtures
   319   319 
Marketing assets
   376   376 
          
    7,522   7,061 
          
Less accumulated depreciation and amortization
   6,778   6,510 
          
Property and equipment, net
   744   551 
          
   
Other assets:
         
Operating lease assets
   1,758   2,406 
Other assets
   1,527   50 
Intangible assets, net of accumulated amortization of $8,494 in 2020 and $8,186 in 2019
   889   1,183 
Goodwill
   8,362   8,362 
          
Total other assets
   12,536   12,001 
          
Total assets
  $55,582  $41,748 
          
   
Liabilities and Stockholders’ Equity
       
Current liabilities:
         
Accounts payable
  $2,869  $1,990 
Accrued and other expenses
   7,039   6,590 
Notes payable, current
   —     4,250 
Lease payable, current
   726   758 
Deferred revenue, current
   6,117   5,248 
          
Total current liabilities
   16,751   18,836 
          
   
Lease payable, long-term
   1,075   1,837 
Deferred revenue, long-term
   267   356 
Notes payable, long-term
   6,960   2,003 
Convertible debentures payable to
non-related
parties, at fair value
   —     12,409 
Convertible debentures payable to related parties, at fair value
   —     1,233 
Deferred tax
   4   3 
          
Total liabilities
   25,057   36,677 
          
   
Commitments and contingencies (Note 9)
   0   0 
   
Stockholders’ equity:
         
Preferred stock, $ .01 par value: authorized 1,000,000 shares; NaN issued.
   0—     0—   
Common stock, $ .01 par value: authorized 30,000,000 shares; issued 23,693,735 in 2020 and 19,546,151 in 2019. Outstanding 23,508,575 in 2020 and 19,360,320 in 2019.
   236   196 
Additional
paid-in
capital
   273,639   230,615 
Accumulated deficit
   (241,935  (224,325
Treasury stock at cost, 185,831 shares in 2019 and 2018
   (1,415  (1,415
          
Total stockholders’ equity
   30,525   5,071 
          
Total liabilities and stockholders’ equity
  $55,582  $41,748 
          
   
See accompanying notes to consolidated financial statements.
         
   
December 31,
  
December 31,
 
Assets
  
2021
  
2020
 
        
   (in thousands except shares and per share data) 
Current assets:
         
Cash and cash equivalents
  $34,282  $27,186 
Trade accounts receivable, net of allowance for doubtful accounts of $268 in 2021 and $111 in 2020
   8,891   10,027 
Inventory, net
   4,171   3,144 
Prepaid expenses and other current assets
   2,962   1,945 
   
 
 
  
 
 
 
Total current assets
   50,306   42,302 
   
 
 
  
 
 
 
Property and equipment:
         
Equipment
   7,121   6,765 
Leasehold improvements
   172   62 
Furniture and fixtures
   319   319 
Marketing assets
   376   376 
   
 
 
  
 
 
 
    7,988   7,522 
   
 
 
  
 
 
 
Less accumulated depreciation and amortization
   7,106   6,778 
   
 
 
  
 
 
 
Property and equipment, net
   882   744 
   
 
 
  
 
 
 
Other assets:
         
Operating lease assets
   1,059   1,758 
Other assets
   899   1,527 
Intangible assets, net of accumulated amortization of $8,724 in 2021 and $8,494 in 2020
   683   889 
Goodwill
   8,362   8,362 
   
 
 
  
 
 
 
Total other assets
   11,003   12,536 
   
 
 
  
 
 
 
Total assets
  $62,191  $55,582 
   
 
 
  
 
 
 
Liabilities and Stockholders’ Equity
       
Current liabilities:
         
Accounts payable
  $2,779  $2,869 
Accrued and other expenses
   5,642   7,039 
Lease payable, current
   889   726 
Deferred revenue, current
   5,652   6,117 
   
 
 
  
 
 
 
Total current liabilities
   14,962   16,751 
   
 
 
  
 
 
 
Lease payable, long-term
   266   1,075 
Deferred revenue, long-term
   441   267 
Notes payable, long-term
   0     6,960 
Deferred tax
   5   4 
   
 
 
  
 
 
 
Total liabilities
   15,674   25,057 
   
 
 
  
 
 
 
Commitments and contingencies (Note 15)
       
   
Stockholders’ equity:
         
Preferred stock, $ .01 par value: authorized 1,000,000 shares; NaN issued.
   0—     0—   
Common stock, $ .01 par value: authorized 60,000,000 shares; issued 25,326,086 in 2021
 
and 23,694,406 in 2020. Outstanding 25,140,255 in 2021 and 23,508,575 in 2020.
   253   236 
Additional
paid-in
capital
   300,859   273,639 
Accumulated deficit
   (253,180  (241,935
Treasury stock at cost, 185,831 shares in 2021 and 2020
   (1,415  (1,415
   
 
 
  
 
 
 
Total stockholders’ equity
   46,517   30,525 
   
 
 
  
 
 
 
Total liabilities and stockholders’ equity
  $62,191  $55,582 
   
 
 
  
 
 
 
See accompanying notes to consolidated financial statements.
 
F-4

iCAD, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
 
   
For the Years Ended December 31,
 
   
2020
  
2019
  
2018
 
   (in thousands except per share data) 
Revenue:
             
Products
  $18,903  $19,767  $13,111 
Service and supplies
   10,795   11,573   12,510 
              
Total revenue
   29,698   31,340   25,621 
    
Cost of Revenue:
             
Products
   5,000   3,278   2,161 
Service and supplies
   2,965   3,438   3,627 
Amortization and depreciation
   379   397   403 
              
Total cost of revenue
   8,344   7,113   6,191 
              
Gross profit
   21,354   24,227   19,430 
              
    
Operating expenses:
             
Engineering and product development
   8,114   9,271   9,445 
Marketing and sales
   13,312   13,634   8,693 
General and administrative
   9,117   7,443   9,117 
Amortization and depreciation
   199   276   305 
              
Total operating expenses
   30,742   30,624   27,560 
              
Loss from operations
   (9,388  (6,397  (8,130
              
    
Other expense
             
Interest expense
   (476  (784  (504
Interest income
   97   344   110 
Financing costs
   —     —     (451
Loss on extinguishment of debt
   (341  —     —   
Loss on fair value of convertible debentures
   (7,464  (6,671  —   
              
Other expense, net
   (8,184  (7,111  (845
    
              
Loss before income tax expense
   (17,572  (13,508  (8,975
    
Income tax expense
   38   43   42 
              
Net loss and comprehensive loss
  $(17,610 $(13,551 $(9,017
              
    
Net loss per share:
             
Basic
  $(0.80 $(0.74 $(0.54
Diluted
  $(0.80 $(0.74 $(0.54
    
Weighted average number of shares used in computing net loss per share:
             
Basic
   22,140   18,378   16,685 
Diluted
   22,140   18,378   16,685 
    
See accompanying notes to consolidated financial statements.
             
F-5

iCAD, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(in thousands except shares)
                                                                                                                               
   
Common Stock
   
Additional
          
   
Number of
       
Paid-in
  
Accumulated
  
Treasury
  
Stockholders’
 
   
Shares Issued
   
Par Value
   
Capital
  
Deficit
  
Stock
  
Equity
 
Balance at December 31, 2017
   16,711,512   $167   $217,389  $(201,865 $(1,415 $14,276 
Cumulative impact from the adoption of ASC 606 (see Note 1)
   —      —      —     108   —     108 
Issuance of common stock relative to vesting of restricted stock, net of 56,946 shares forfeited for tax obligations
   265,442    3    (183  —     —     (180
Issuance of common stock pursuant to stock option plans
   89,556    1    203   —     —     204 
Stock-based compensation
   —      —      1,505   —     —     1,505 
Net loss
   —      —      —     (9,017  —     (9,017
                            
Balance at December 31, 2018
   17,066,510   $171   $218,914  $(210,774 $(1,415 $6,896 
                            
Issuance of common stock relative to vesting of restricted stock, net of 29,887 shares forfeited for tax obligations
   167,843    2    (198  —     —     (196
Issuance of common stock pursuant to stock option plans
   429,980    4    1,396   —     —     1,400 
Issuance of common stock, net
   1,881,818    19    9,334   —     —     9,353 
Stock-based compensation
   —      —      1,169   —     —     1,169 
Net Loss
   —      —      —     (13,551  —     (13,551
                            
Balance at December 31, 2019
   19,546,151   $196   $230,615  $(224,325 $(1,415 $5,071 
                            
Issuance of common stock relative to vesting of restricted stock, net of 20,247 shares forfeited for tax obligations
   97,830    —      (225  —     —     (225
Issuance of common stock pursuant to stock option plans
   155,149    1    728   —     —     729 
Issuance of common stock, net
   2,033,204    20    18,264   —     —     18,284 
Issuance of common stock pursuant employee stock purchase plan
   42,606    1    267   —     —     268 
Issuance of common stock upon conversion of debentures
   1,819,466    18    21,146   —     —     21,164 
Stock-based compensation
   —      —      2,844   —     —     2,844 
Net loss
   —      —      —     (17,610  —     (17,610
                            
Balance at December 31, 2020
   23,694,406   $236   $273,639  $(241,935 $(1,415 $30,525 
                            
   
For the Years Ended December 31,
 
   
2021
  
2020
  
2019
 
   (in thousands except per share data) 
Revenue:
             
Products
  $21,191  $18,903  $19,767 
Service and supplies
   12,447   10,795   11,573 
   
 
 
  
 
 
  
 
 
 
Total revenue
   33,638   29,698   31,340 
    
Cost of Revenue:
             
Products
   5,653   5,000   3,278 
Service and supplies
   3,425   2,965   3,438 
Amortization and depreciation
   317   379   397 
   
 
 
  
 
 
  
 
 
 
Total cost of revenue
   9,395   8,344   7,113 
   
 
 
  
 
 
  
 
 
 
Gross profit
   24,243   21,354   24,227 
   
 
 
  
 
 
  
 
 
 
Operating expenses:
             
Engineering and product development
   9,194   8,114   9,271 
Marketing and sales
   15,135   13,312   13,634 
General and administrative
   10,406   9,117   7,443 
Amortization and depreciation
   240   199   276 
   
 
 
  
 
 
  
 
 
 
Total operating expenses
   34,975   30,742   30,624 
   
 
 
  
 
 
  
 
 
 
Loss from operations
   (10,732  (9,388  (6,397
   
 
 
  
 
 
  
 
 
 
Other expense
             
Interest expense
   (141  (476  (784
Interest income
   15   97   344 
Loss on extinguishment of debt
   (386  (341  0   
Loss on fair value of convertible debentures
   0     (7,464  (6,671
   
 
 
  
 
 
  
 
 
 
Other expense, net
   (512  (8,184  (7,111
   
 
 
  
 
 
  
 
 
 
Loss before income tax expense
   (11,244  (17,572  (13,508
Income tax expense
   1   38   43 
   
 
 
  
 
 
  
 
 
 
Net loss and comprehensive loss
  $(11,245 $(17,610 $(13,551
   
 
 
  
 
 
  
 
 
 
Net loss per share:
             
Basic
  $(0.45 $(0.80 $(0.74
Diluted
  $(0.45 $(0.80 $(0.74
    
Weighted average number of shares used in computing net loss per share:
             
Basic
   24,778   22,140   18,378 
Diluted
   24,778   22,140   18,378 
See accompanying notes to consolidated financial statements.
 
F-6F-5

iCAD, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(in thousands except shares)
  
Common Stock
  
Additional

Paid-in

Capital
          
  
Number of
Shares Issued
  
Par Value
  
Accumulated

Deficit
  
Treasury
Stock
  
Stockholders’

Equity
 
Balance at December 31, 2018
   17,066,510   $171   $218,914  $(210,774 $(1,415 $6,896 
Issuance of common stock relative to vesting of restricted stock, net of 29,887 shares forfeited for tax obligations
   167,843    2    (198  —     —     (196
Issuance of common stock pursuant to stock option plans
   429,980    4    1,396   —     —     1,400 
Issuance of common stock, net
   1,881,818    19    9,334   —     —     9,353 
Stock-based compensation
   —      —      1,169   —     —     1,169 
Net Loss
   —      —      —     (13,551  —     (13,551
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance at December 31, 2019
   19,546,151   $196   $230,615  $(224,325 $(1,415 $5,071 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Issuance of common stock relative to vesting of restricted stock, net of 20,247 shares forfeited for tax obligations
   97,830    0      (225  —     —     (225
Issuance of common stock pursuant to stock option plans
   155,149    1    728   —     —     729 
Issuance of common stock, net
   2,033,204    20    18,264   —     —     18,284 
Issuance of common stock pursuant employee stock purchase plan
   42,606    1    267   —     —     268 
Issuance of common stock upon conversion of debentures
   1,819,466    18    21,146   —     —     21,164 
Stock-based compensation
   —      —      2,844   —     —     2,844 
Net loss
   —      —      —     (17,610  —     (17,610
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance at December 31, 2020
   23,694,406   $236   $273,639  $(241,935 $(1,415 $30,525 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Issuance of common stock relative to vesting of restricted stock, net of 5,196 shares forfeited for tax obligations
   44,706    1    (60  —     —     (59
Issuance of common stock pursuant to stock option plans
   168,450    2    1,025   —     —     1,027 
Issuance of common stock, net
   1,393,738    14    23,215   —     —     23,229 
Issuance of common stock pursuant to employee stock purchase plan
   24,786    0      257   —     —     257 
Stock-based compensation
   —      —      2,783   —     —     2,783 
Net loss
   —      —      —     (11,245  —     (11,245
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance at December 31, 2021
   25,326,086   $253   $300,859  $(253,180 $(1,415 $46,517 
   
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
See accompanying notes to consolidated financial statements.
F-6

iCAD, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 
                                                               
  
For the Years Ended December 31,
   
For the Years Ended
December 31,
 
  
2020
 
2019
 
2018
   
2021
 
2020
 
2019
 
  (in thousands)   (in thousands) 
Cash flow from operating activities:
              
Net loss
  $(17,610 $(13,551 $(9,017  $(11,245 $(17,610 $(13,551
Adjustments to reconcile net loss to net cash used for operating activities:
              
Amortization
   309   377   383    230   309   377 
Depreciation
   268   297   325    327   268   297 
Bad debt provision
   94   62   225    167   94   62 
Stock-based compensation expense
   2,844   1,169   1,505    2,783   2,844   1,169 
Amortization of debt discount and debt costs
   78   149   170    17   78   149 
Loss on extinguishment of debt
   341   —     —      386   341   —   
Deferred tax
   1   1   (12   1   1   1 
Loss on disposal of assets
   —     —     12    97   —     —   
Change in fair value of convertible debentures
   7,464   6,671   —      —     7,464   6,671 
Changes in operating assets and liabilities, net of acquisition:
              
Accounts receivable
   (302  (3,478  2,003    969   (302  (3,478
Inventory
   (533  (1,024  536    (1,027  (533  (1,024
Prepaid and other assets
   (1,390  294   172    391   (1,390  294 
Accounts payable
   878   836   (209   (90  878   836 
Accrued and other expenses
   (207  982   494    (2,123  (207  982 
Deferred revenue
   780   108   (454   (291  780   108 
            
 
  
 
  
 
 
Total adjustments
   10,625   6,444   5,150    1,837   10,625   6,444 
            
 
  
 
  
 
 
Net cash used for operating activities
   (6,985  (7,107  (3,867   (9,408  (6,985  (7,107
            
 
  
 
  
 
 
 
Cash flow used for investing activities:
              
Additions to patents, technology and other
   (13  (10  (15   (24  (13  (10
Additions to property and equipment
   (461  (296  (301   (563  (461  (296
            
 
  
 
  
 
 
Net cash provided by (used for) investing activities
   (474  (306  (316
          
Net cash used for investing activities
   (587  (474  (306
   
 
  
 
  
 
 
Cash flow from financing activities:
              
Issuance of common stock for cash, net
   18,285   9,353   —      23,229   18,285   9,353 
Issuance of common stock pursuant to Employee Stock Purchase Plan
   266   —     —      257   266   —   
Issuance of common stock pursuant to stock option plans
   729   1,400   204    1,027   729   1,400 
Taxes paid related to restricted stock issuance
   (225  (196  (180   (59  (225  (196
Proceeds from convertible debentures
   —     —     6,970 
Principal payments of capital lease obligations
   —     (16  (13   —     —     (16
Proceeds from notes payable
   6,957   —     —        6,957   —   
Principal repayment of notes payable
   (4,638  (2,000  —      (7,363  (4,638  (2,000
Debt issuance costs
   (42  —     —      —     (42  —   
Proceeds from line of credit
   775   3,000   —      —     775   3,000 
Repayment line of credit
   (2,775  (1,000  —   
Repayment of line of credit
   —     (2,775  (1,000
            
 
  
 
  
 
 
Net cash provided by financing activities
   19,332   10,541   6,981    17,091   19,332   10,541 
          
   
 
  
 
  
 
 
Increase in cash and equivalents
   11,873   3,128   2,798    7,096   11,873   3,128 
Cash and equivalents, beginning of year
   15,313   12,185   9,387    27,186   15,313   12,185 
            
 
  
 
  
 
 
Cash and equivalents, end of year
  $27,186  $15,313  $12,185   $34,282  $27,186  $15,313 
          
   
 
  
 
  
 
 
Supplemental disclosure of cash flow information:
              
Interest paid
  $272  $643  $294   $172  $272  $643 
            
 
  
 
  
 
 
Taxes paid
  $38  $43  $51   $0    $38  $43 
            
 
  
 
  
 
 
Right-of-use
assets obtained in exchange for new operating lease liabilities
   69   3,105   —      79   69   3,105 
            
 
  
 
  
 
 
Issuance of common stock upon conversion of debentures
  $21,164   —     —     $0    21,164   0   
            
 
  
 
  
 
 
See accompanying notes to consolidated financial statements.
 
F-7

iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1
(1)
Summary of Significant Accounting Policies
(a) Nature of OperationsOrganization and Use of EstimatesBusiness 
iCAD, Inc. and subsidiaries (the “Company” or “iCAD”) is a global medical technology company providing innovative cancer detection and therapy solutionssolutions.
The Company has grown primarily through acquisitions to become a broad playeroperates in two segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). In the cancer detection and therapy market. Itssegment, offered solutions include advanced artificial intelligence and image analysis workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier, a comprehensive range of high-performance, upgradeable Computer-Aided Detection (“CAD”)computer-aided detection systems and workflow solutions for digital breast tomosynthesis, (“DBT”), full-field digital mammography, (“FFDM”), MRImagnetic resonance imaging and CT, andcomputed tomography. In the Therapy segment, the Company offers the Xoft System, which is an isotope-freea cancer treatment platform technology. CAD istechnology incorporating a miniaturized, isotope-free radiation source. The Company’s commercial products are cleared with the United States Food and Drug Administration and various global regulatory agencies and use of iCAD’s products are reimbursable in the U.S. under federal and most third-party insurance programs.
The Company intends to continue the extension of its image analysis and clinical decision support solutions for DBT, FFDM, MRI and CT imaging. iCAD believes that advances in digital imaging techniques should bolster its efforts to develop additional commercially viable CAD/advanced image analysis and workflow products. The Company’s management believes that early detection in combination with earlier targeted intervention will provide patients and care providers with the best tools available to achieve better clinical outcomes resulting in a market demand that will drive top line growth.
The Company’s headquarters are located in Nashua, New Hampshire, with a manufacturing facility in New Hampshire and an operations, research, development, manufacturing and warehousing facility in San Jose, California.
The Company operates in 2 segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). The Detection segment consists of advanced image analysis and workflow products, and the Therapy segment consists of radiation therapy products. The Company sells its products throughout the world through its direct sales organization as well as through various OEM partners, distributors, technology platform partners, and resellers. See Note 814 of these consolidated financial statements for segment, major customer and geographical information.
The Company maintains its headquarters and a separate manufacturing facility in Nashua, New Hampshire, an operations, research, development, manufacturing and warehousing facility in San Jose, California, and an office in Lyon, France.
Note 2
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and liabilitiesexpenses during the reporting period and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.statements. Actual results could differ from those estimates. It is reasonably possible that changes may occur in the near term that would affect management’s estimates with respect to assets and liabilities.
Principles of Consolidation
(b)
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Xoft, Inc., Xoft Solutions, LLC, and iCAD France, LLC. All material inter-company transactions and balances have been eliminated in consolidation.
Risk and Uncertainty
On March 12, 2020, the Wor
l
dWorld Health Organization declared
COVID-19
to be a pandemic. In an effort to contain and mitigate the spread of the
COVID-19
pandemic, the United States manyand most countries in Europe, as well as Canada and China,of the world have imposed some level of unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of
COVID-19.
As a provider of devices and services to the health care industry, the Company’s operations have been materially affected in part due to stay-at-home and social distancing orders as well as uncertainty in the market.all periods presented. Significant uncertainty remains as to the continuing impact of the
COVID-19
pandemic on the Company’s operations and on the global economy as a whole.
economy. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to


F-8

return to prior levels. The
COVID-19
pandemic has resulted in significant financial market volatility and uncertainty. A continuationcontinued or worsening of the levelslevel of market disruption and volatility seen insince the recent paststart of the pandemic will have an adverse effect on the Company’s ability to access capital, on itsthe Company’s business, results of the Company’s operations and financial condition, and on the market price of itsthe Company’s common stock.
The Company’s results for the year endingyears ended December 31, 2021 and 2020, as well as all quarterly results beginning with Q1 2020 through Q4 2021, reflect a negative impact from the
COVID-19
pandemic, as the typical sales cycleincluding but not limited to healthcare customers and ordering patterns were still disrupted due to some healthcare facilities’potential customers providing additional focus on COVID-19. Depending upon
COVID-19;
pandemic-related public health impacts, including significant shifts in workforce availability and priorities, on customer, supplier, and iCAD’s business processes; and effects on healthcare customers and potential customers of pandemic related supply chain issues. The Company’s quarterly results for the durationquarter ending
March
 31,
2022
, and severity ofpossibly future quarters, could reflect a continued negative impact from the
COVID-19
pandemic the continuing effect on the Company’s results over the long term is uncertain.for similar or additional reasons.
Although the Company did not see any material impact to trade accounts receivable losses in the year ended December 31, 2020,2021, the Company’s exposure may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current
COVID-19
pandemic, or other customer-specific factors. The Company has historically not experienced significant trade account receivable losses, but it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade account receivables as hospitals’clinical customers’ cash flows are impacted by their response to the
COVID-19 pandemic.
pandemic as well as public health considerations impacting their underlying businesses.
(
c
) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Xoft, Inc. and Xoft Solutions, LLC. All material inter-company transactions and balances have been eliminated in consolidation.
F-8

(
d
) Cash and cash equivalents
The Company defines cash and cash equivalents as all bank accounts, money market funds, deposits and other money market instruments with original maturities of 90 days or less and which are unrestricted as to timing or method of withdrawal. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. Thelimits of $250,000 per depositor. Historically, the Company has nevernot experienced any losses related to these balances. Insurance coverage is $250,000 per depositor at each financial institution, and the Company’s
non-interestbalances
bearing cash balances exceed federally insured limits. Interest-bearing amounts on deposit in excess of federally insured limits at December 31, 2020 approximated $26.7 million.
(
e
) Financial instruments
Financial instruments consist of cash and cash equivalents, trade accounts receivable, contract assets, accounts payable, accrued and other expenses and notes payable and convertible debentures.payable. Due to their short termshort-term nature and market rates of interest, the carrying amounts of the financial instruments except the convertible debentures, approximated fair value as of December 31, 20202021 and 2019.
The Company has elected to record the convertible debentures at fair value at each reporting date in accordance with the fair value option election. See Note 3( c ) for further details.2020.
(
f
) Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are customer obligations due under normal trade terms. Credit limits are initially established through a process of reviewing the financial history and stability of each customer. Thecustomer and the Company performs continuing credit evaluations of its customers’ financial condition and generally does not require collateral. Included in accounts receivable at December 31, 2021 are unbilled receivables of approximately $0.4 million which are scheduled t
o
 be invoiced in 2022.
The Company’s policy is to maintain allowances for estimatedpotential losses resulting from the inability of a portion of its customers to make required payments. The Company’s senior management reviews accounts receivable on a periodic basis to determine if any receivables may potentially be uncollectible. The Company includes any accounts receivable balances that it determines may likely be uncollectible, along with a general reserve for estimated probable losses based on historical experience, in its overall allowance for doubtful accounts. An amount would beis written off against the allowance after all attempts to collect the receivable hadhave failed.
Based on the information available, the Company believes the allowance for doubtful accounts as of December 31, 20202021 and 20192020 is adequate.
The following table summarizes the allowance for doubtful accounts for the three years ended December 31, 2020 (in thousands):
 
                                              
   
2020
   
2019
   
2018
 
Balance at beginning of period
  $136   $177   $107 
Additions charged to costs and expenses
   94    62    225 
Reductions
   (119   (103   (155
                
Balance at end of period
  $111   $136   $177 
                

(F-9
g
)

Inventory
InventoryThe Company uses the
first-in,
first-out
method to track inventory, which is valued at the lower of cost or net realizable value, with cost determined by thevalue.
first-in,The
first-out
method. The Company regularly reviews inventory quantities on hand and records aan inventory reserve for excess and/or obsolete inventory primarily based upon the estimated usage of its inventory, as well as other factors. At December 31, 2020 and 2019, inventories consisted of the following (in thousands), which includes an inventory reserve of approximately $0.2 million and $0.5 million as December 31, 2020 and 2019, respectively.
F-9

Inventory balances, net of reserves, were as follows:
   
                    
   
                    
 
Inventory balances, net of reserves, were as follows:
 
   
December 31,
   
December 31,
 
   
2020
   
2019
 
Raw materials
  $1,356   $1,265 
Work in process
   76    39 
Finished Goods
   1,712    1,307 
           
Inventory Net
  $3,144   $2,611 
           
(
h
) Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, or the remaining lease term, if shorter,which is generally three to five years, except for leasehold improvements, (see below).which are depreciated over the shorter of the term of the lease, or useful life of the asset.
Estimated life
Equipment
3
-
5
years
Leasehold improvements
3-5
years
Furniture and fixtures
3-5
years
Marketing assets
3-5
years
(
i
) Goodwill
In accordance with FASB Accounting Standards Codification (“ASC”) Topic
350-20,
“Intangibles—Goodwill and Other”
(“ASC
350-20”),
the Company tests goodwill for impairment on an annual basis and between annual tests if events andor circumstances indicate it ischange that would more likely than not thatreduce the fair value of thea reporting unit is less than thebelow its carrying value of the reporting unit.amount.
Factors the Company considers important, which could trigger an impairment of such asset,Goodwill, include the following:
 
significant and sustained underperformance relative to historical or projected future operating results;
 
significant changes in the manner or use of the Company’s assets orin the strategy for the Company’s overall business;
 
significant negative industry or economic trends;
 
significant and sustained decline in the Company’s stock price for a sustained period;price; and
 
a decline in the Company’s market capitalization below net book value.
The two reporting units within iCAD are its segments, Detection and Therapy.
The Company records an impairment charge whenif such an assessment indicateswere to indicate that the fair value of a reporting unit was less than the carrying value. In evaluatingWhen the Company evaluates potential impairments outside of theits annual measurement date, judgment is required in determining whether an event has occurred that may impair the value of goodwill or intangible assets. The Company utilizes either discounted cash flow models or other valuation models, such as comparative transactions and market multiples, to determine the fair value of reporting units. The Company makes assumptions about future cash flows, future operating plans, discount rates, comparable companies, market multiples, purchase price premiums and other factors in those models. Different assumptions and judgment determinations could yield different conclusions that would result in an impairment charge to income in the period that such change or determination was made.
F-10

The Company determines the fair value of reporting units based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. This approach was selected as it measures the income producing assets, primarily technology and customer relationships. This method estimates the fair value based upon the ability to generate future cash flows, which is particularly applicable when future profit margins and growth are expected to vary significantly from historical operating results.
The Company uses internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates based on the most recent views of the long-term forecastFair values for the reporting unit. Accordingly, actual results can differ from those assumed in the forecasts. Discount ratesunits are derived from a capital asset pricing model and analyzing published rates for industries relevant to the reporting unit to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in the internally developed forecasts.
Other significant assumptions include terminal value margin rates, future capital expenditures, and changes in future working capital requirements. While there are inherent uncertainties related to the assumptions used and to the application of these assumptions to this analysis, the income approach provides a reasonable estimate of the fair value of the Therapy reporting unit.
The Company performed the annual impairment assessments at October 1, 2020 and 2019, respectively, and compared the fair value of each reporting unit to its carrying value as of each date. The fair value exceeded the carrying value for the Detection reporting unit as of each date of these impairment assessments. Goodwill for the Therapy reporting unit was fully impaired as of December 31, 2017. As such, the Company did not record any impairment charges for the years ended December 31, 2020 or 2019. The carrying values of the reporting units were determined based on an allocation of the Company’s assets and liabilities through specific allocation of certain assets and liabilities, to the reporting units and an apportionment of the remaining net assets based on the relative size of the reporting units’ revenues and operating expenses compared to the Company as a whole. The determination of reporting units also requires management judgment.
The Company determines the fair values for each reporting unit using a weighting of the income approach and the market approach. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The Company uses internal forecasts to estimate future cash flows and includes estimates of long-term future growth rates based on the Company’sour most recent views of the long-term forecast for each segment. Accordingly, actual results can differ from those assumed in the Company’sour forecasts. Discount rates are derived from a capital asset pricing model and by analyzing published rates for industries relevant to the Company’sour reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in itsour internally developed forecasts.

In the market approach, the Company uses a valuation technique in which values are derived based on market prices of publicly traded companies with similar operating characteristics and industries. A market approach allows for comparison to actual market transactions and multiples. It can be somewhat limited in its application because the population of potential comparable publicly-traded companies can be limited due to differing characteristics of the comparative business and the Company,ours, as well as the fact that market data may not

F-10

be available for divisions within larger conglomerates or
non-public
subsidiaries that could otherwise qualify as comparable, and the specific circumstances surrounding a market transaction (e.g., synergies between the parties, terms and conditions of the transaction, etc.) may be different or irrelevant with respect to theour business.
The Company corroborates the total fair values of the reporting units using a market capitalization approach; however, this approach cannot be used to determine the fair value of each reporting unit value.
F-11

The blend of the income approach and market approach is more closely aligned to theour business profile, of the Company, including markets served and products available. In addition, required rates of return, along with uncertainties inherent in the forecast of future cash flows, are reflected in the selection of the discount rate. In addition,Equally important, under the blended approach, reasonably likely scenarios and associated sensitivities can be developed for alternative future states that may not be reflected in an observable market price. The Company will assessassesses each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and weights the methodologies appropriately.
A rollforward
The Company performed the annual impairment assessment at October 1, 2021 and compared the fair value of each reporting unit to its carrying value as of this date. The fair value of the Detection reporting unit exceeded the carrying value.
Accordingly,
0
impairment of goodwill activity by reportable segment iswas recorded. The carrying values of the reporting units were determined based on an allocation of our assets and liabilities through specific allocation of certain assets and liabilities, to the reporting units and an apportionment of the remaining net assets based on the relative size of the reporting units’ revenues and operating expenses compared to the Company as follows (in thousands):a whole. The determination of reporting units also requires management judgment.
   
                          
   
                          
   
                          
   
                          
 
   Consolidated             
   reporting unit   Detection   Therapy   Total 
Accumulated Goodwill
  $47,937   $—     $—     $47,937 
Accumulated impairment
   (26,828   —      —      (26,828
Fair value allocation
   (21,109   7,663    13,446    —   
Acquisition of DermEbx and Radion
   —      —      6,154    6,154 
Acquisition measurement period adjustments
   —      —      116    116 
Acquisition of VuComp
   —      1,093    —      1,093 
Sale of MRI assets
   —      (394        (394
Impairment
   —      —      (19,716   (19,716
                     
Prior to December 31, 2019
   —      8,362    —      8,362 
                     
                     
                     
Balance at December 31, 2020
  $—     $8,362   $—     $8,362 
                     
(
j
)
Long Lived Assets
In accordance with FASB ASC Topic 360
, “Property, Plant an
Property, Plant and Equipmentd
 Equipment” (“ASC 360”360
), the Company assesses long-lived assets for impairment if events and circumstances indicate it is more likely than not that the fair value of the asset group is less than the carrying value of the asset group.
ASC
360-10-35
360
-10
-35
uses “events and circumstances” criteria to determine when, if at all, an asset (or asset group) is evaluated for recoverability. Thus, there is no set interval or frequency for recoverability evaluation. In accordance with ASC
360-10-35-21,
360
-10
-35
-21
the following factors are examples of events or changes in circumstances that indicate thet
h
e carrying amount of an asset (asset group) may not be recoverable and thus is to be evaluated for recoverability.
 
A significant decrease in the market price of a long-lived asset (asset group);
A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition;
 
A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator;
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group);
F-12

A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition;
A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group).
A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator;
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group);
���
A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group).
In accordance with ASC
360-10-35-17,
if the carrying amount of an asset or asset group (in use or under development) is evaluated and found not to be fully recoverable (the carrying amount exceeds the estimated gross, undiscounted cash flows from use and disposition), then an impairment loss must be recognized. The impairment loss is measured as the excess of the carrying amount over the asset’sassets (or asset group’s) fair value.
Undiscounted cash flows exceeded the carrying value
F-11

The Company did 0t
0not
record any impairment charges related to long livedon its long-lived assets for the years ended December 
31 2020
,
2021
or 2019.December 
31
,
2020
A considerable amount of judgment and assumptions are required in performing the impairment tests, principally in determining the fair value of the asset group. While the Company believes the judgments and assumptions are reasonable, different assumptions could change the estimated fair values, and, therefore additional impairment charges could be required. Significant negative industry or economic trends, disruptions to the Company’s business, loss of significant customers, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets may adversely impact the assumptions used in the fair value estimates and ultimately result in future impairment charges..

Intangible assets subject to amortization consist primarily of patents, technology intangibles, trade names, customer relationships and trade namesdistribution agreements purchased in the Company’s previous acquisitions. These assets which include assets from the acquisition of the assets of VuComp, DermEbx and Radion and the acquisition of Xoft, Inc., are amortized on a straight-line basis consistent withor the pattern of economic benefit over their estimated useful lives of 5 to 10 years. A summary of intangible assets for 2020 and 2019 is as follows (in thousands):
Leases
                                                                      
           Weighted 
           average 
   2020   2019   useful life 
Gross Carrying Amount
               
Patents and licenses
  $595   $581    5 years 
Technology
   8,257    8,257    10 years 
Customer relationships
   272    272    7 years 
Tradename
   259    259    10 years 
                
Total amortizable intangible assets
   9,383    9,369      
                
    
Accumulated Amortization
               
Patents and licenses
  $529   $520      
Technology
   7,571    7,299      
Customer relationships
   135    108      
Tradename
   259    259      
                
Total accumulated amortization
   8,494    8,186      
                
Total amortizable intangible assets, net
  $889   $1,183      
                
F-13Per ASC 842, the Company determines if an arrangement contains a lease at inception. A lease is an operating or financing contract, or part of a contract, that conveys the right to control the use of an identified tangible asset for a period of time in exchange for consideration.
At lease inception, the Company recognizes a lease liability equal to the present value of the remaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as for lease incentives. In determining the present value of the lease payments, the Company uses its incremental borrowing rate, determined by estimating the Company’s applicable, fully collateralized borrowing rate, with adjustment as appropriate for lease term. The lease term at the lease commencement date is determined based on the
non-cancellable
period for which the Company has the right to use the underlying asset, together with any periods covered by an extension option if the Company is reasonably certain to exercise that option.
Right-of-use
assets and obligations for leases with an initial term of 12 months or less are considered short term and are a) not recognized in the consolidated balance sheet and b) recognized as an expense on a straight-line basis over the lease term. The Company does not sublease any of its leased assets to third parties and the Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company has lessor agreements that contain lease and
non-lease
components, but the Company is accounting for the complete agreement under ASC 606 after determining that the
non-lease
component is the predominant component of these agreements.
ASC 842 includes a number of reassessment and
re-measurement
requirements for lessees based on certain triggering events or conditions. There were no impairment indicators identified during the year ended December 31, 2021 that would require impairment testing of the Company’s
right-of-use
assets.
Certain of the Company’s leases include variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain
non-lease
components that transfer a distinct service to the Company, such as common area maintenance services. The Company has elected to separate the accounting for lease components and
non-lease
components for real estate and equipment leases.
Stock-Based Compensation

The Company maintains stock-based incentive plans, under which it provides stock incentives to employees, directors and contractors. The Company grants to employees, directors and contractors, options to purchase common stock at an exercise price equal to the market value of the stock at the date of grant. The Company may grant restricted stock to employees and directors. The underlying shares of the restricted stock grant are not issued until the shares vest, and compensation expense is based on the stock price of the shares at the time of grant. The Company follows ASC 718,
“Compensation – Stock Compensation”
, (“ASC 718”), for all stock-based compensation. The Company has granted performance based restricted stock based on achievement of certain revenue targets. Compensation cost for performance based restricted stock requires significant judgment regarding probability of the performance objectives and compensation cost is
re-measured
at every reporting period. As a result, compensation cost could vary significantly during the performance measurement period.
Amortization expense related
The Company uses the Black-Scholes option pricing model to intangible assets was approximately $309,000, $377,000value stock options which requires extensive use of accounting judgment and $383,000 for the years ended December 31, 2020, 2019, and 2018, respectively. Estimated remaining amortizationfinancial estimates, including estimates of the Company’s intangible assets is as follows (in thousands):expected term participants

 
   
Estimated
 
For the years ended
  
amortization
 
December 31:
  
expense
 
2021
   291 
2022
   207 
2023
   186 
2024
   103 
2025   102 
      
   $889 
      
(F-12
k
)

will retain their vested stock options before exercising them, the estimated volatility of its common stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requirements. The Company estimates forfeitures based on historical experience with
pre-vested
forfeitures. To the extent actual forfeitures differ from the estimate, the difference is recorded to compensation expense in the period of the forfeiture. Fair value of restricted stock is determined based on the stock price of the underlying option on the date of the grant. Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the Consolidated Statements of Operations.

Revenue Recognition
On January 1, 2018, the Company adopted FASB ASC Topic 606, “Revenue from Contracts with Customers” and all the related amendments (“Topic 606”), using the modified retrospective method for all contracts not completed as of the date of adoption. For contracts that were modified before the effective date, the Company reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price in accordance with practical expedient ASC
606-10-65-1-(f)-4,
which did not have a material effect on the Company’s assessment of the cumulative effect adjustment upon adoption. The Company recognized the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The Company recorded a net increase to opening retained earnings of $0.1 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact primarily related to the deferral of commissions on the Company’s long-term service arrangements and warranty periods greater than one year, which previously were expensed as incurred but, under the amendments to ASC
340-40,
are now generally capitalized and amortized over the period of contract performance or a longer period if renewals are expected and the renewal commission is not commensurate with the initial commission.
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. Theservices and the amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities. To achieve this core principle, theThe Company applies the following five steps:steps to guide revenue recognition:
 
1)
Identify the contract(s) with a customer
—A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to those goods or services, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company’s contracts are typically in the form of a purchase order. For certain large customers, the Company may also enter into master service agreements which although include thethat define general terms under which the parties will enter into contracts dobut are not require any minimum purchases and therefore, do not represent contractscustomer commitments to purchase until coupled with a purchase order. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or in the case of a new customer, published credit and financial information pertaining to the customer.
 
2)
Identify the performance obligations in the contract
—Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are
F-14

transferred. A good or service is distinct if both capable of being distinct, wherebya) the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the goods or servicesb) is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods or services, the Company must apply judgment to determine whether promisedthe goods or services are capable of being distinct and distinct inmeet the context of the contract.criteria to be distinct. If these criteria are not met the promised goods or services are accounted for as a combined performance obligation. The Company’s contractsWhile the Company does not typically do not include options that would result in a material right. Ifsell options to purchase additional goods or services are included in customer contracts, the Company evaluates the option in order to determine if the Company’s arrangement include promises that mayat a predetermined price, doing so would represent a material right and needsrequire analysis to be accounted for asdetermine if the material right is a distinct performance obligation in theobligation. The Company has sold one contract with the customer. The Company did not note any significant provisions within its typical contracts that would create a material right.right that is a distinct performance obligation.
 
3)
Determine the transaction price
—The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration;consideration
,
 the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
 
4)
Allocate the transaction price to the performance obligations in the contract
—If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts
that
contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative SSPStand-alone Sales Price (“SSP”) basis unless the transaction price is variable and meets the criteria to be allocated entirely to a
F-13

performance obligation or to a distinct good or service that forms part of a single performance obligation. The Company determines SSP based on the price at which the performance obligation is sold separately. If the SSP is not observable through past transactions, the Company estimates the SSP taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
 
 
5)
Recognize revenue when (or as) the Company satisfies a performance obligation
—The Company satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.
The Company recognizes revenue from its contracts with customers primarily from the sale of products and from the sale of services and supplies. Under Topic 606, revenueRevenue is recognized when control of the promised goods or services is transferred to a customer, in an amount that reflects the consideration we expectthe Company expects to be entitled to in exchange for those goods or services. For iCAD’s typical product revenue, control has transferredtypically transfers upon shipment providedas title and risk of loss have passed to the customer. Services and supplies are considered to be transferred as the services are performed or over the term of the service or supply agreement. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The Company’s hardware is generally highly dependent on, and interrelated with, the underlying software and the software is considered essential to the functionality of the product. In these cases, the hardware andPerpetual software license are accounted for as a single performance obligation and revenue is recognized at the point in time when
F-15

ownership is transferred to the customer. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of revenue. The Company continues to provide for estimated warranty costs on original product warranties at the time of sale.
Goods and Services Classifications
Products
. Product revenue consists of sales of cancer detection perpetual licenses, cancer therapy systems, cancer therapy applicators, cancer therapy disposable applicators and other accessories that are typically shipped with a cancer therapy system. The Company transfers control and recognizes a sale when the product is shipped from the manufacturing or warehousing facility to the customer.
Service Contracts
. The Company sells service contracts in which the Company provides professional services including product installations, maintenance, training and service repairs, and in certain cases leases equipment to hospitals, imaging centers, radiological practices and radiation oncologists and treatment centers. The service contracts range from
12
months to
48
months. The Company typically receives payment at the inception of the contract and recognizes revenue on a straight-line basis over the term of the agreement.
Supply and Source Usage Agreements
. Revenue from supply and source usage agreements is recognized on a straight-line basis over the term of the supply or source agreement.
Professional Services
. Revenue from fixed fee service contracts is recognized on a straight-line basis over the term of the agreement. Revenue from professional service contracts entered into with customers on a time and materials basis is recognized over the term of the agreement in proportion to the costs incurred in satisfying the obligations under the contract.
Other
. Other revenue consists primarily of miscellaneous products and services. The Company transfers control and recognizes a sale when the installation services are performed or when the Company ships the product from the Company’s manufacturing or warehouse facility to the customer.
F-14

Significant Judgments
The Company’s contracts with customers may include promises to transfer multiple products and services to a customer and identifying distinct performance obligations that should be accounted for separately versus together may require significant judgment. For arrangements with multiple performance obligations, the Company allocates revenue to each performance obligation based on its relative standalone selling price. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company generally determines standalone selling prices based on the prices charged to customers and uses a range of amounts to estimate standalone selling prices when the Company sells each of the products and services separately and need to determine whether there is a discount that needs to be allocated based on the relative standalone selling prices of the various products and services. The Company typically has more than one range of standalone selling prices for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the type of customer and geographic region in determining the range of standalone selling prices.
The Company may provide credits or incentives to customers, which are accounted for as variable consideration when estimating the transaction price of the contract and amounts of revenue to recognize. The amount of variable consideration to include in the transaction price is estimated at contract inception using either the estimated value method or the most likely amount method based on the nature of the variable consideration. These estimates are updated at the end of each reporting period as additional information becomes available and revenue is recognized only to the extent that it is probable that a significant reversal of any amounts of variable consideration included in the transaction price will not occur. The Company provides for estimated warranty costs on original product warranties at the time of sale.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company recognizes incremental costs of obtaining a contract with a customer as an asset if the Company expects the benefit of those costs to be longer than one year and as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less.
Right to Invoice
Where applicable, the Company recognizes revenue from a contract with a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date and the amount to which the Company has a right to invoice.
Sales and Other Similar Taxes
The Company excludes sales taxes and similar taxes from the measurement of transaction price and ensures compliance
w
ith
the disclosure requirements of ASC 235.
Significant Financing Component
The Company does not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Promised Goods or Services that are Immaterial in the Context of a Contract
The Company assesses materiality of promised goods or services as performance obligations in the context of a contract and the Company does not aggregate and assess immaterial items at the entity level. When determining whether a good or service is immaterial in the context of a contract, the assessment will be made based on the application of ASC 606
at the contract level.

F-15

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.
Cost of Revenue
Cost of revenue consists of the costs of products purchased for resale, cost relating to service including costs of service contracts to maintain equipment after the warranty period, inbound freight and duty, manufacturing, warehousing, material movement, inspection, scrap, rework, depreciation and
in-house
product warranty repairs, amortization of acquired technology and any applicable medical device tax.
Warranty Costs
The Company provides for the estimated cost of standard product warranty against defects in material and workmanship based on historical warranty trends, including the cost of product returns during the warranty period. Warranty costs have not historically been material to the Company’s consolidated financial statements.
Engineering and Product Development Costs
Engineering and product development costs relate to research and development efforts including Company sponsored clinical trials are expensed as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2021, 2020 and 2019 was approximately $689,000, $274,000, and $1,101,000, respectively.
Income Taxes
The Company follows the liability method under ASC Topic 740 “
Income Taxes
”, (“ASC 740”). The primary objectives of accounting for taxes under ASC 740 are to (a) recognize the amount of tax payable for the current year and (b) recognize the amount of deferred tax liability or asset for the future tax consequences of events that have been reflected in the Company’s financial statements or tax returns. The Company has provided a full valuation allowance against its deferred tax assets at December 31, 2021 and 2020, as it is more likely than not that the deferred tax asset will not be realized. Any subsequent changes in the valuation allowance will be recorded through operations in the provision (benefit) for income taxes. See note 13 of these consolidated financial statements for detailed information.
Note 3 – Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued
ASU 2016-13, “Financial
Instruments—Credit Losses (Topic 326)”
(“ASU 2016-13”),
which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.
ASU 2016-13
replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. In November 2019, the FASB elected to defer the adoption date of ASU
2016-13
for public business entities that meet the definition of a smaller reporting company to fiscal years beginning after December 15, 2022. Early adoption of the guidance in ASU
2016-13
is permitted. The Company is currently evaluating the impact that the adoption of ASU
2016-13
will have on its consolidated financial
statements.
 
F-16

In December 2019, the FASB issued ASU
2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU
2019-12”).
ASU
2019-12
is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
ASU 2019-12 is
effective for the Company for the fiscal year and interim periods therein beginning January 1, 2021. The Company notes that the adoption of
ASU 2019-12 resulted
in the reclassification of an immaterial amount from income tax expense
to non-income tax
included in operating expenses related to the accounting for state and franchise taxes, with no impact to the Company’s consolidated loss, equity or cash flows.
Note 4 – Fair Value Measurements
The Company follows the provisions of FASB ASC Topic 820, “
Fair Value Measurement and Disclosures
” (“ASC 820”), which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company applies the fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
The assigned level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Money market funds included in cash and cash equivalents in the accompanying balance sheet are considered a Level 1 measurement as they are valued at quoted market prices in active markets.
The following table sets forth the Company’s assets which are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousand):
Fair Value Measurements (in thousands) as of December 31, 2021
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                    
Money market accounts
  $30,573    —      —     $30,573 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Assets
  $30,573    —      —     $30,573 
   
 
 
   
 
 
   
 
 
   
 
 
 
Fair Value Measurements (in thousands) as of December 31, 2020
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                    
Money market accounts
  $24,635   $—     $—     $24,635 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Assets
  $24,635   $—     $—     $24,635 
   
 
 
   
 
 
   
 
 
   
 
 
 
F-17

The following is a roll forward of the Company’s Level 3 instruments for the years ended December 31, 2021 and 2020:
   Convertible Debentures 
Balance, December 31, 2019
  $13,642 
Issuances
   0   
Fair value adjustments
   7,522 
Conversion
   (21,164
   
 
 
 
Balance, December 31, 2020
  $0   
   
 
 
 
There were
no
Level 3 instruments measured at fair value at December 31, 2021 or December 31, 2020.
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets, including long-lived assets and goodwill, are measured at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be impaired. There were 0items measured at fair value on a nonrecurring basis as of or during the years ended December 31, 2021 and 2020.
Note 5 – Revenue
DisaggregationService Contracts
. The Company sells service contracts in which the Company provides professional services including product installations, maintenance, training and service repairs, and in certain cases leases equipment to hospitals, imaging centers, radiological practices and radiation oncologists and treatment centers. The service contracts range from
12
months to
48
months. The Company typically receives payment at the inception of Revenuethe contract and recognizes revenue on a straight-line basis over the term of the agreement.
Supply and Source Usage Agreements
The following tables presents. Revenue from supply and source usage agreements is recognized on a straight-line basis over the Company’s revenues disaggregated by major goodterm of the supply or service line, timing of revenue recognition and sales channel, reconciled to its reportable segments (in thousands).source agreement.
   
Year ended December 31, 2020
 
   
Reportable Segments
     
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
               
Products
  $            16,291   $            4,535   $            20,826 
Service contracts
   5,661    1,333    6,994 
Supply and source usage agreements
   —      1,804    1,804 
Professional services
   —      29    29 
Other
   45    —      45 
                
   $21,997   $7,701   $29,698 
                
    
Timing of Revenue Recognition
               
Goods transferred at a point in time
  $16,332   $4,624   $20,956 
Services transferred over time
   5,665    3,077    8,742 
                
   $21,997   $7,701   $29,698 
                
    
Sales Channels
               
Direct sales force
  $13,809   $3,773   $17,582 
OEM partners
   8,188    —      8,188 
Channel partners
   —      3,928    3,928 
                
   $21,997   $7,701   $29,698 
                
F-17
Professional Services
. Revenue from fixed fee service contracts is recognized on a straight-line basis over the term of the agreement. Revenue from professional service contracts entered into with customers on a time and materials basis is recognized over the term of the agreement in proportion to the costs incurred in satisfying the obligations under the contract.

   
Year ended December 31, 2019
 
   
Reportable Segments
     
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
               
Products
  $            16,788   $            4,957   $            21,745 
Service contracts
   5,370    1,814    7,184 
Supply and source usage agreements
   —      2,036    2,036 
Professional services
   —      153    153 
Other
   161    61    222 
                
   $22,319   $9,021   $31,340 
                
    
Timing of Revenue Recognition
               
Goods transferred at a point in time
  $16,949   $5,391   $22,340 
Services transferred over time
   5,370    3,630    9,000 
                
   $22,319   $9,021   $31,340 
                
    
Sales Channels
               
Direct sales
  $11,968   $5,804   $17,772 
OEM partners
   10,351    —      10,351 
Channel partners
   —      3,217    3,217 
                
   $22,319   $9,021   $31,340 
                
F-18
Other

   
Year ended December 31, 2018
 
   
Reportable Segments
     
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
               
Products
  $            10,783   $            4,393   $            15,176 
Service contracts
   5,311    1,450    6,761 
Supply and source usage agreements
   —      2,261    2,261 
Professional services
   —      264    264 
Other
   229    389    618 
                
   $16,323   $8,757   $25,080 
                
Timing of Revenue Recognition
               
Goods transferred at a point in time
  $10,835   $4,676   $15,511 
Services transferred over time
   5,488    4,081    9,569 
                
   $16,323   $8,757   $25,080 
                
Sales Channels
               
Direct sales force
  $8,335   $7,554   $15,889 
OEM partners
   7,988    —      7,988 
Channel partners
   —      1,203    1,203 
                
   $16,323   $8,757   $25,080 
                
Total Revenue
               
Revenue from contracts with customers
  $16,323   $8,757   $25,080 
Revenue from lease components
   541    —      541 
                
   $16,864   $8,757   $25,621 
                
Products
. ProductOther revenue consists primarily of sales of cancer detectionmiscellaneous products cancer therapy systems, cancer therapy applicators, cancer therapy disposable applicators and other accessories that are typically shipped with a cancer therapy system.services. The Company transfers control and recognizes a sale when the installation services are performed or when the Company ships the product is shipped from the Company’s manufacturing or warehousingwarehouse facility to the customer.
F-14

Significant Judgments
The Company’s contracts with customers may include promises to transfer multiple products and services to a customer and identifying distinct performance obligations that should be accounted for separately versus together may require significant judgment. For arrangements with multiple performance obligations, the Company allocates revenue to each performance obligation based on its relative standalone selling price. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company generally determines standalone selling prices based on the prices charged to customers and uses a range of amounts to estimate standalone selling prices when the Company sells each of the products and services separately and need to determine whether there is a discount that needs to be allocated based on the relative standalone selling prices of the various products and services. The Company typically has more than one range of standalone selling prices for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the type of customer and geographic region in determining the range of standalone selling prices.
The Company may provide credits or incentives to customers, which are accounted for as variable consideration when estimating the transaction price of the contract and amounts of revenue to recognize. The amount of variable consideration to include in the transaction price is estimated at contract inception using either the estimated value method or the most likely amount method based on the nature of the variable consideration. These estimates are updated at the end of each reporting period as additional information becomes available and revenue is recognized only to the extent that it is probable that a significant reversal of any amounts of variable consideration included in the transaction price will not occur. The Company provides for estimated warranty costs on original product warranties at the time of sale.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company recognizes incremental costs of obtaining a contract with a customer as an asset if the Company expects the benefit of those costs to be longer than one year and as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less.
Right to Invoice
Where applicable, the Company recognizes revenue from a contract with a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date and the amount to which the Company has a right to invoice.
Sales and Other Similar Taxes
The Company excludes sales taxes and similar taxes from the measurement of transaction price and ensures compliance
w
ith
the disclosure requirements of ASC 235.
Significant Financing Component
The Company does not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Promised Goods or Services that are Immaterial in the Context of a Contract
The Company assesses materiality of promised goods or services as performance obligations in the context of a contract and the Company does not aggregate and assess immaterial items at the entity level. When determining whether a good or service is immaterial in the context of a contract, the assessment will be made based on the application of ASC 606
at the contract level.

F-15

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.
Cost of Revenue
Cost of revenue consists of the costs of products purchased for resale, cost relating to service including costs of service contracts to maintain equipment after the warranty period, inbound freight and duty, manufacturing, warehousing, material movement, inspection, scrap, rework, depreciation and
in-house
product warranty repairs, amortization of acquired technology and any applicable medical device tax.
Warranty Costs
The Company provides for the estimated cost of standard product warranty against defects in material and workmanship based on historical warranty trends, including the cost of product returns during the warranty period. Warranty costs have not historically been material to the Company’s consolidated financial statements.
Engineering and Product Development Costs
Engineering and product development costs relate to research and development efforts including Company sponsored clinical trials are expensed as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2021, 2020 and 2019 was approximately $689,000, $274,000, and $1,101,000, respectively.
Income Taxes
The Company follows the liability method under ASC Topic 740 “
Income Taxes
”, (“ASC 740”). The primary objectives of accounting for taxes under ASC 740 are to (a) recognize the amount of tax payable for the current year and (b) recognize the amount of deferred tax liability or asset for the future tax consequences of events that have been reflected in the Company’s financial statements or tax returns. The Company has provided a full valuation allowance against its deferred tax assets at December 31, 2021 and 2020, as it is more likely than not that the deferred tax asset will not be realized. Any subsequent changes in the valuation allowance will be recorded through operations in the provision (benefit) for income taxes. See note 13 of these consolidated financial statements for detailed information.
Note 3 – Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued
ASU 2016-13, “Financial
Instruments—Credit Losses (Topic 326)”
(“ASU 2016-13”),
which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.
ASU 2016-13
replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. In November 2019, the FASB elected to defer the adoption date of ASU
2016-13
for public business entities that meet the definition of a smaller reporting company to fiscal years beginning after December 15, 2022. Early adoption of the guidance in ASU
2016-13
is permitted. The Company is currently evaluating the impact that the adoption of ASU
2016-13
will have on its consolidated financial
statements.
F-16

In December 2019, the FASB issued ASU
2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU
2019-12”).
ASU
2019-12
is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
ASU 2019-12 is
effective for the Company for the fiscal year and interim periods therein beginning January 1, 2021. The Company notes that the adoption of
ASU 2019-12 resulted
in the reclassification of an immaterial amount from income tax expense
to non-income tax
included in operating expenses related to the accounting for state and franchise taxes, with no impact to the Company’s consolidated loss, equity or cash flows.
Note 4 – Fair Value Measurements
The Company follows the provisions of FASB ASC Topic 820, “
Fair Value Measurement and Disclosures
” (“ASC 820”), which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company applies the fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
The assigned level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Money market funds included in cash and cash equivalents in the accompanying balance sheet are considered a Level 1 measurement as they are valued at quoted market prices in active markets.
The following table sets forth the Company’s assets which are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousand):
Fair Value Measurements (in thousands) as of December 31, 2021
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                    
Money market accounts
  $30,573    —      —     $30,573 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Assets
  $30,573    —      —     $30,573 
   
 
 
   
 
 
   
 
 
   
 
 
 
Fair Value Measurements (in thousands) as of December 31, 2020
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                    
Money market accounts
  $24,635   $—     $—     $24,635 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Assets
  $24,635   $—     $—     $24,635 
   
 
 
   
 
 
   
 
 
   
 
 
 
F-17

The following is a roll forward of the Company’s Level 3 instruments for the years ended December 31, 2021 and 2020:
   Convertible Debentures 
Balance, December 31, 2019
  $13,642 
Issuances
   0   
Fair value adjustments
   7,522 
Conversion
   (21,164
   
 
 
 
Balance, December 31, 2020
  $0   
   
 
 
 
There were
no
Level 3 instruments measured at fair value at December 31, 2021 or December 31, 2020.
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets, including long-lived assets and goodwill, are measured at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be impaired. There were 0items measured at fair value on a nonrecurring basis as of or during the years ended December 31, 2021 and 2020.
Note 5 – Revenue
Service Contracts
. The Company sells service contracts in which the Company provides professional services including product installations, maintenance, training and service repairs, and in certain cases leases equipment to hospitals, imaging centers, radiological practices and radiation oncologists and treatment centers. The service contracts range from
12
months to
48
months. The Company typically receives payment at the inception of the contract and recognizes revenue on a straight-line basis over the term of the agreement.
F-19

Upon the adoption of ASC 842, effective January 1, 2019, the lease components of certain fixed fee service contracts are no longer being separately accounted for under the lease guidance, and the entire contract is being accounted for under ASC 606. Upon the adoption of ASC 606, effective January 1, 2018, and until the adoption of ASC 842 referred to above, these lease components were accounted for as a lease in accordance with ASC 840, “
Leases
” (“ASC 840”), and the remaining consideration was allocated to the other performance obligations identified in accordance with ASC 606. The consideration that was allocated to the lease component was recognized as lease revenue on a straight-line basis over the specified term of the agreement. Revenue for the
non-lease
components, such as service contracts, was recognized on a straight-line basis over the term of the agreements.
Supply and Source Usage Agreements
. Revenue from supply and source usage agreements is recognized on a straight-line basis over the term of the supply or source agreement.
Professional Services
. Revenue from fixed fee service contracts is recognized on a straight-line basis over the term of the agreement. Revenue from professional service contracts entered into with customers on a time and materials basis is recognized over the term of the agreement in proportion to the costs incurred in satisfying the obligations under the contract.
Other
. Other revenue consists primarily of miscellaneous products and services. The Company transfers control and recognizes a sale when the installation services are performed or when the Company ships the product from the Company’s manufacturing or warehouse facility to the customer.
F-14

Significant Judgments
The Company’s contracts with customers may include promises to transfer multiple products and services to a customer. Determining whether productscustomer and services are consideredidentifying distinct performance obligations that should be accounted for separately versus together may require significant judgment. For arrangements with multiple performance obligations, the Company allocates revenue to each performance obligation based on its relative standalone selling price. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company generally determines standalone selling prices based on the prices charged to customers and uses a range of amounts to estimate standalone selling prices when the Company sells each of the products and services separately and need to determine whether there is a discount that needs to be allocated based on the relative standalone selling prices of the various products and services. The Company typically has more than one range of standalone selling prices for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the type of customer and geographic region in determining the range of standalone selling prices.
The Company may provide credits or incentives to customers, which are accounted for as variable consideration when estimating the transaction price of the contract and amounts of revenue to recognize. The amount of variable consideration to include in the transaction price is estimated at contract inception using either the estimated value method or the most likely amount method based on the nature of the variable consideration. These estimates are updated at the end of each reporting period as additional information becomes available and revenue is recognized only to the extent that it is probable that a significant reversal of any amounts of variable consideration included in the transaction price will not occur. The Company provides for estimated warranty costs on original product warranties at the time of sale.
Contract Balances
Contract liabilities are a component of deferred revenue, current contract assets are a component of prepaid and other assets and
non-current
contract assets are a component of other assets. The following table provides information about receivables, current and
non-current
contract assets, and contract liabilities from contracts with customers (in thousands).​​​​​​​
F-20

Contract balances
   
Balance at
December 31, 2020
   
Balance at
December 31, 2019
 
Receivables, which are included in “Trade accounts receivable”
  $            10,027   $            9,819 
Current contract assets, which are included in “Prepaid and other assets”
   481    14 
Non-current
contract assets, which are included in “other assets”
   1,434    0   
Contract liabilities, which are included in “Deferred revenue”
   6,384    5,604 
Timing of revenue recognition may differ from timing of invoicing to customers. The Company records a receivable when revenue is recognized prior to receipt of cash payments and the Company has the unconditional right to such consideration, or unearned revenue when cash payments are received or due in advance of performance. For multi-year agreements, the Company generally invoices customers annually at the beginning of each annual service period.
The Company records net contract assets or contract liabilities on a
contract-by-contract
basis. The Company records a contract asset for unbilled revenue when the Company’s performance is in excess of amounts billed or billable. The Company classifies the net contract asset as either a current or
non-current
based on the expected timing of the Company’s right to bill under the terms of the contract. The current contract asset balance primarily relates to the net unbilled revenue balances with two significant customers, which the Company expects to be able to bill for within one year. The
non-current
contract asset balance consists of net unbilled revenue balances with one customer which the Company expects to be able to bill for in more than one year.
Contract liabilities, or deferred revenue from contracts with customers, is primarily composed of fees related to long-term service arrangements, which are generally billed in advance. Deferred revenue also includes payments for installation and training that has not yet been completed and other offerings for which the Company has been paid in advance and earn the revenue when it transfers control of the product
F-21

or service. The balance of deferred revenue at December 31, 2020 and December 31, 2019 is as follows (in thousands):​​​​​​​
Contract liabilities
  
December 31, 2020
   
December 31, 2019
 
Short term
  $            6,117   $            5,248 
Long term
   267    356 
           
Total
  $6,384   $5,604 
           
Changes in deferred revenue from contracts with customers were as follows (in thousands):
   
Year Ended
December 31, 2020
   
Year Ended

December 31, 2019
 
Balance at beginning of period
  $            5,604   $            5,209 
Deferral of revenue
   11,212    11,005 
Recognition of deferred revenue
   (10,432   (10,610
           
Balance at end of period
  $6,384   $5,604 
           
The Company expects to recognize estimated revenues related to performance obligation that are unsatisfied (or partially satisfied) in the amounts of approximately $7.1 million in 2021, $1.2 million in 2022 and $1.0 million in each year from 2023-2025.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer as an asset if itthe Company expects the benefit of those costs to be longer than one year. The Company has determined that certain commissions programs meetyear and as an expense when incurred if the requirements to be capitalized. As of December 31, 2020, the balance of capitalized costs to obtain a contract was $406,000 compared to $379,000 as of December 31, 2019. The Company has classified the capitalized costs to obtain a contract as a component of prepaid expenses and other current assets as of December 31, 2020 and 2019, respectively.
F-22

Changes in the balance of capitalized costs to obtain a contract were as follows (in thousands):
   
Years Ended December 31,
 
   
2020
   
2019
 
Balance at beginning of period
  $             379   $            282 
Deferral of costs to obtain a contract
   157    294 
Recognition of costs to obtain a contract
   (130   (197
           
Balance at end of period
  $406   $379 
           
Practical Expedients and Exemptions
The Company has elected to make the following accounting policy elections through the adoptionamortization period of the following practical expedients:asset that the Company otherwise would have recognized is one year or less.
Right to Invoice
Where applicable, the Company will recognizerecognizes revenue from a contract with a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date and the amount to which the entityCompany has a right to invoice.
Sales and Other Similar Taxes
The Company will excludeexcludes sales taxes and similar taxes from the measurement of transaction price and will ensure that it complies with ensures compliance
w
ith
the disclosure requirements of ASC 235.
235-10-50-1
through
50-6.
Significant Financing Component
The Company willdoes not adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Cost to Obtain a Contract
The Company will recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less and there are no renewal periods on which the Company does not pay commissions that are not commensurate with those originally paid.
Promised Goods or Services that are Immaterial in the Context of a Contract
The Company has elected to assessassesses materiality of promised goods or services as performance obligations that are deemed to be immaterial in the context of a contract. As such,contract and the Company willdoes not aggregate and assess immaterial items at the entity level. That is, whenWhen determining whether a good or service is immaterial in the context of a contract, the assessment will be made based on the application of ASC 606
at the contract level.

F-15

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount to which it has the right to invoice for services performed.
F-23

(k) Cost of Revenue
Cost of revenue consists of the costs of products purchased for resale, cost relating to service including costs of service contracts to maintain equipment after the warranty period, inbound freight and duty, manufacturing, warehousing, material movement, inspection, scrap, rework, depreciation and
in-house
product warranty repairs, amortization of acquired technology and any applicable medical device tax.
(l) Warranty Costs
The Company provides for the estimated cost of standard product warranty against defects in material and workmanship based on historical warranty trends, including the cost of product returns during the warranty period. Warranty provisions and claims forcosts have not historically been material to the years ended December 31, 2020, 2019 and 2018, were as follows (in thousands):Company’s consolidated financial statements.
   
2020
   
2019
   
2018
 
Beginning accrual balance
  $             17   $             12   $             10 
Warranty provision
   58    41    19 
Usage
   (58   (36   (17
                
Ending accrual balance
  $17   $17   $12 
                
(m) Engineering and Product Development Costs
Engineering and product development costs relate to research and development efforts including Company sponsored clinical trials which are expensed as incurred.
(n) Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31, 2021, 2020 2019 and 20182019 was approximately $211,000, $1,084,000$689,000, $274,000, and $811,000$1,101,000, respectively.
(o) Net Loss per Common Share
The Company follows FASB ASC
260-10,
“Earnings per Share”, which requires the presentation of both basic and diluted earnings per share on the face of the statements of operations. The Company’s basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period and, if there are dilutive securities, diluted income per share is computed by including common stock equivalents which includes shares issuable upon the exercise of stock options, net of shares assumed to have been purchased with the proceeds, using the treasury stock method.
F-24

A summary of the Company’s calculation of net loss per share is as follows (in thousands, except per share amounts):
   
2020
   
2019
   
2018
 
Net loss available to common shareholders
  $(17,610  $(13,551  $(9,017
                
Basic shares used in the calculation of earnings per share
   22,140    18,378    16,685 
Effect of dilutive securities:
               
Stock options
   —      —      —   
Restricted stock
   —      —      —   
                
Diluted shares used in the calculation of earnings per share
   22,140    18,378    16,685 
                
Net loss per share :
               
Basic
   
(0.80
   $
(0.74
   $
(0.54
Diluted
   
(0.80
   $
(0.74
   $
(0.54
The following table summarizes the number of shares of common stock for convertible securities, warrants and restricted stock that were not included in the calculation of diluted net loss per share because such shares are antidilutive:
   
Year Ended December 31,
 
   
2020
   
2019
   
2018
 
Common stock options
   1,869,507    1,550,662    1,983,477 
Restricted Stock
   29,166    150,909    423,202 
Convertible Debentures
   —      1,742,500    1,742,500 
                
   
 
1,898,673
 
  
 
3,444,071
 
  
 
4,149,179
 
                
Restricted common stock can be issued to directors, executives or employees of the Company and are subject to time-based vesting. These potential shares were excluded from the computation of basic loss per share as these shares are not considered outstanding until vested.
(p) Income Taxes
The Company follows the liability method under ASC Topic 740 “
Income Taxes
”, (“ASC 740”). The primary objectives of accounting for taxes under ASC 740 are to (a) recognize the amount of tax payable for the current year and (b) recognize the amount of deferred tax liability or asset for the future tax consequences of events that have been reflected in the Company’s financial statements or tax returns. The Company has provided a full valuation allowance against its deferred tax assets at December 31, 20202021 and 2019,2020, as it is more likely than not that the deferred tax asset will not be realized. Any subsequent changes in the valuation allowance will be recorded through operations in the provision (benefit) for income taxes.
ASC
740-10
clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s See note 13 of these consolidated financial statements for detailed information.
Note 3 – Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued
ASU 2016-13, “Financial
Instruments—Credit Losses (Topic 326)”
(“ASU 2016-13”),
which requires the measurement and prescribes a recognition threshold and measurement attributeof expected credit losses for financial assets held at amortized cost.
ASU 2016-13
replaces the financial statementexisting incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition and measurementof credit losses. In November 2019, the FASB elected to defer the adoption date of ASU
2016-13
for public business entities that meet the definition of a tax position taken or expectedsmaller reporting company to be takenfiscal years beginning after December 15, 2022. Early adoption of the guidance in a tax return. ASCASU
740-102016-13
also provides guidanceis permitted. The Company is currently evaluating the impact that the adoption of ASU
2016-13
will have on its consolidated financial
de-recognition,
statements.
classification, interest and penalties, disclosure and transition.
 
F-25F-16

In December 2019, the FASB issued ASU
2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU
2019-12”).
ASU
2019-12
is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
ASU 2019-12 is
effective for the Company for the fiscal year and interim periods therein beginning January 1, 2021. The Company notes that the adoption of
ASU 2019-12 resulted
in the reclassification of an immaterial amount from income tax expense
to non-income tax
included in operating expenses related to the accounting for state and franchise taxes, with no impact to the Company’s consolidated loss, equity or cash flows.
(q) Stock-Based Compensation
The Company maintains stock-based incentive plans, under which it provides stock incentives to employees, directors and contractors. The Company may grant to employees, directors and contractors, options to purchase common stock at an exercise price equal to the market value of the stock at the date of grant. The Company may grant restricted stock to employees and directors. The underlying shares of the restricted stock grant are not issued until the shares vest, and compensation expense is based on the stock price of the shares at the time of grant. The Company also has an Employee Stock Purchase Plan, adopted in 2019, which became effective as of January 1, 2020. The Company follows FASB ASC Topic 718, “
CompensationNote 4 Stock Compensation
”, for all stock-based compensation. Under this application, the Company is required to record compensation expense over the vesting period for all awards granted.
The Company uses the Black-Scholes option pricing model to value stock options which requires extensive use of accounting judgment and financial estimates, including estimates of the expected term participants will retain their vested stock options before exercising them, the estimated volatility of its common stock price over the expected term, the risk free rate, expected dividend yield, and the number of options that will be forfeited prior to the completion of their vesting requirements.
The fair value of restricted stock is determined based on the stock price of the underlying option on the date of the grant. From time to time, the Company may grant performance based restricted stock awards, based on the achievement of certain performance targets. Compensation cost for performance based restricted stock awards requires significant judgment regarding probability of achieving the performance objectives and compensation cost is adjusted for the probability of achieving these objectives. As a result, compensation cost could vary significantly during the performance measurement period.
Compensation cost for stock purchase rights under the employee stock purchase plan is measured and recognized on the date the Company becomes obligated to issue shares of the Company’s common stock and is based on the difference between the fair value of the Company’s common stock and the purchase price on such date.
Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the Consolidated Statements of Operations.
(r) Fair Value Measurements
The Company follows the provisions of FASB ASC Topic 820, “
Fair Value Measurement and Disclosures
” (“ASC 820”). ASC 820, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes aCompany applies the fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
 
Level 1 - Quoted prices in active markets for identical assets or liabilities.
 
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
F-26

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
A financial instrument’sThe assigned level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company’s assets and liabilities that are measured at fair value on a recurring basis include the Company’s moneyMoney market accounts and convertible debentures.
The money market funds are included in cash and cash equivalents in the accompanying balance sheet are considered a Level 1 measurement as they are valued at quoted market prices in active markets.
The convertible debentures are recorded as a separate component of the Company’s consolidated balance sheets are considered a Level 3 measurement due to the utilization of significant unobservable inputs in their valuation. See Note 3( c ) below for a discussion of these fair value measurements.
The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands)thousand):
 
Fair Value Measurements as of December 31, 2020
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                    
Money market accounts
  $            27,186                0—                  0—     $            27,186 
                     
Total Assets
  $            27,186    0—      0—     $27,186 
                     
Liabilities
                    
Convertible debentures
   0—      0—      0—      0—   
                     
Total Liabilities
   0—      0—      0      0   
                     
 
Fair Value Measurements as of December 31, 2019
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                    
Money market accounts
  $15,313    —      —     $15,313 
                     
Total Assets
  $15,313    —      —     $15,313 
                     
Liabilities
                    
Convertible debentures
   —      —     $13,642   $13,642 
                     
Total Liabilities
   —      —     $13,642   $13,642 
                     
Fair Value Measurements (in thousands) as of December 31, 2021
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                    
Money market accounts
  $30,573    —      —     $30,573 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Assets
  $30,573    —      —     $30,573 
   
 
 
   
 
 
   
 
 
   
 
 
 
Fair Value Measurements (in thousands) as of December 31, 2020
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                    
Money market accounts
  $24,635   $—     $—     $24,635 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Assets
  $24,635   $—     $—     $24,635 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
F-27F-17

Table of Contents
The following is a roll forward of the Company’s Level 3 instruments for the years ended December 31, 20202021 and 2019, see Note 3 ( c )
convertible debentures2020:
below for more details:
 
  Convertible Debentures   Convertible Debentures 
Balance, December 20, 2019
  $13,642 
Balance, December 31, 2019
  $13,642 
Issuances
   0      0   
Fair value adjustments
   7,522    7,522 
Conversion
   (21,164   (21,164
      
 
 
Balance, December 31, 2020
  $0     $0   
      
 
 
There were
no
Level 3 instruments measured at fair value at December 31, 2021 or December 31, 2020.
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets, including long-lived assets and goodwill, are measured at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be impaired. There were 0 items0items measured at fair value on a nonrecurring basis as of or during the years ended December 31, 20202021 and 2019.2020.
(t) Recently Issued and Recently Adopted Accounting Standards
Recently Adopted Accounting Standards
Note 5 – Revenue
On January 1, 2020,
Disaggregation of Revenue
The following tables presents the Company’s revenues disaggregated by major good or service line, timing of revenue recognition and sales channel, reconciled to its reportable segments (in thousands).
   
Year ended December 31, 2021
 
   
Reportable Segments
     
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
               
Products
  $15,661   $7,924   $23,585 
Service contracts
   6,358    1,517    7,875 
Supply and source usage agreements
   —      2,089    2,089 
Professional services
   —      89    89 
   
 
 
   
 
 
   
 
 
 
   $22,019   $11,619   $33,638 
   
 
 
   
 
 
   
 
 
 
Timing of Revenue Recognition
               
Goods transferred at a point in time
  $15,584   $8,012   $23,596 
Services transferred over time
   6,435    3,607    10,042 
   
 
 
   
 
 
   
 
 
 
   $22,019   $11,619   $33,638 
   
 
 
   
 
 
   
 
 
 
Sales Channels
               
Direct sales force
  $14,713   $4,421   $19,134 
OEM partners
   7,306    —      7,306 
Channel partners
   —      7,198    7,198 
   
 
 
   
 
 
   
 
 
 
   $22,019   $11,619   $33,638 
   
 
 
   
 
 
   
 
 
 
F-18

   
Year ended December 31, 2020
 
   
Reportable Segments
     
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
               
Products
  $16,291   $4,535   $20,826 
Service contracts
   5,661    1,333    6,994 
Supply and source usage agreements
   —      1,804    1,804 
Professional services
   —      29    29 
Other
   45    0      45 
   
 
 
   
 
 
   
 
 
 
   $21,997   $7,701   $29,698 
   
 
 
   
 
 
   
 
 
 
Timing of Revenue Recognition
               
Goods transferred at a point in time
  $16,332   $4,624   $20,956 
Services transferred over time
   5,665    3,077    8,742 
   
 
 
   
 
 
   
 
 
 
   $21,997   $7,701   $29,698 
   
 
 
  ��
 
 
   
 
 
 
Sales Channels
               
Direct sales force
  $13,809   $3,773   $17,582 
OEM partners
   8,188    —      8,188 
Channel partners
   —      3,928    3,928 
   
 
 
   
 
 
   
 
 
 
   $21,997   $7,701   $29,698 
   
 
 
   
 
 
   
 
 
 
   
Year ended December 31, 2019
 
   
Reportable Segments
     
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
               
Products
  $16,788   $4,957   $21,745 
Service contracts
   5,370    1,814    7,184 
Supply and source usage agreements
   —      2,036    2,036 
Professional services
   —      153    153 
Other
   161    61    222 
   
 
 
   
 
 
   
 
 
 
   $22,319   $9,021   $31,340 
   
 
 
   
 
 
   
 
 
 
Timing of Revenue Recognition
               
Goods transferred at a point in time
  $16,949   $5,391   $22,340 
Services transferred over time
   5,370    3,630    9,000 
   
 
 
   
 
 
   
 
 
 
   $22,319   $9,021   $31,340 
   
 
 
   
 
 
   
 
 
 
Sales Channels
               
Direct sales
  $11,968   $5,804   $17,772 
OEM partners
   10,351    —      10,351 
Channel partners
   —      3,217    3,217 
   
 
 
   
 
 
   
 
 
 
   $22,319   $9,021   $31,340 
   
 
 
   
 
 
   
 
 
 
F-19

Contract Balances
Contract liabilities are a component of deferred revenue, current contract assets are a component of prepaid and other assets and
non-current
contract assets are a component of other assets. The following table provides information about receivables, current and
non-current
contract assets, and contract liabilities from contracts with customers (in thousands).​​​​​​​
   
Balance at
December 31, 2021
   
Balance at
December 31, 2020
 
Receivables, which are included in ‘Trade accounts receivable’
  $8,891   $10,027 
Current contract assets, which are included in “Prepaid and other assets”
  $1,895   $481 
Non-current
contract assets, which are included in “other assets”
  $844   $1,434 
Contract liabilities, which are included in “Deferred revenue”
  $6,093   $6,384 
​​​​​​​
The Company records a receivable when revenue is recognized prior to receipt of cash payments and the Company adopted ASU
2018-13,
“Fair Value Measurement (Topic 820): Disclosure Framework—Changeshas the unconditional right to the Disclosure Requirements for Fair Value Measurement” (“ASU
2018-13”).
ASU
2018-13
removes, modifies and adds certain disclosure requirementssuch consideration, or unearned revenue when cash payments are received or due in advance of ASC Topic 820. ASU
2018-13
is effective for Company for the fiscal year and interim periods therein beginning January 1, 2020. The Company notes that the adoption of ASU
2018-13
did not have a material impact on its consolidated financial statements. 
On January 1, 2019,performance. For multi-year agreements, the Company adopted ASU 2016-02, “Leases (Topic 842)” and all the related amendments, which are codified under ASC 842. The Company has applied its transition provisionsgenerally invoices customers annually at the beginning of each annual service period.

The Company records net contract assets or contract liabilities on a
contract-by-contract
basis. The Company records a contract asset for unbilled revenue when the period of adoption (i.e.,Company’s performance exceeds amounts billed or billable. The Company classifies the net contract asset as either current or
non-current
based on the effective date),expected timing of the Company’s right to bill under the terms of the contract. The current contract asset balance primarily relates to the net unbilled revenue balances with two significant customers, which the Company expects to be able to bill for within one year. The
non-current
contract asset balance consists of net unbilled revenue balances with two customers which the Company expects to be able to bill for in more than one year.
Contract liabilities, or deferred revenue from contracts with customers, is primarily composed of fees related to long-term service arrangements, which are generally billed in advance. Deferred revenue also includes payments for installation and so didtraining that has not restate comparative periods. Under this transition provision,yet been completed and other offerings for which the Company has appliedbeen paid in advance and earn the legacy guidance under ASC 840, “revenue when it transfers control of the product or service.
LeasesChanges in deferred revenue from contracts with customers were as follows (in thousands):
” (“ASC 840”), including its disclosure requirements,
   
Year Ended
December 31, 2021
   
Year Ended
December 31, 2020
 
Balance at beginning of period
  $6,384   $5,604 
Deferral of revenue
   12,315    11,212 
Recognition of deferred revenue
   (12,606   (10,432
   
 
 
   
 
 
 
Balance at end of period
  $6,093   $6,384 
   
 
 
   
 
 
 
The Company expects to recognize estimated revenues related to performance obligation that are unsatisfied (or partially satisfied) in the comparative periods presented. As partamounts of the adoption, the Company elected the package of practical expedients, which among other things, permits the carry forward of historical lease classifications. The Company did not elect to use the practical expedient permitting the use of hindsightapproximately $7.1 million in determining the lease term2022, $1.2 million in 2023, $1.0 million in 2024, and $1.0 million in assessing impairment of right-of-use assets. The adoption of the standard did not have a material impact on our operating results or cash flows. See Note 5 for the disclosures required upon adoption of ASC 842.2025.
Recently Issued Accounting Standards Not Yet Adopted
Assets Recognized from the Costs to Obtain a Contract with a Customer
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued
ASU 2016-13, “Financial
Instruments - Credit Losses (Topic 326)”
(“ASU 2016-13”),
which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.
ASU 2016-13
replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. In November 2019, the FASB elected to defer the adoption date of ASU
2016-13
for public business entities that meet the definition of a smaller reporting company to fiscal years beginning after December 15, 2022. Early adoption of the guidance in ASU
2016-13
is permitted. The Company is currently evaluating the impact that the adoption of ASU
2016-13
will have on its consolidated financial statements.
In December 2019, the FASB issued ASU
2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU
2019-12”).
ASU
2019-12
is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU
2019-12
is effectiverecognizes an asset for the Company forincremental costs of obtaining a contract with a customer if it expects the fiscal year and interim periods therein beginning January 1, 2021. The Company will adopt ASU
2019-12
on January 1, 2021 and will account for income taxes in accordance with ASU
2019-12
at that time. This update will not make a material differencebenefit of those costs to the Company’s financial statements.be longer than one year. Certain commission programs implemented by
 
F-28F-20

In March 2020,
the FASB issued ASU
2020-04,
“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU
2020-04”). ASU
2020-04
was issued because the London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities, and at the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR is expectedCompany require costs to be discontinuedcapitalized. The Company has classified the capitalized costs to obtain a contract as a benchmark interest rate. Other interest rates used globally could also be discontinued for similar reasons. ASU
2020-04
provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally throughcomponent of prepaid expenses and other current assets as of December 31, 2022). 2021 and 2020, respectively.
Changes in the balance of capitalized costs to obtain a contract were as follows (in thousands):
   
Years Ended December 31,
 
   
    2021    
   
    2020    
 
Balance at beginning of period
  $406   $379 
Deferral of costs to obtain a contract
   249    157 
Recognition of costs to obtain a contract
   (353   (130
   
 
 
   
 
 
 
Balance at end of period
  $302   $406 
   
 
 
   
 
 
 
Note 6 – Net Loss per Common Share (1o)
The Company is currently evaluatingfollows FASB ASC
260-10,
“Earnings per Share”, which requires the impact that the adoptionpresentation of ASU
2020-04
will have on its consolidated financial statements.
In August 2020, the FASB issued ASU
2020-06,
“Debt – Debt with Conversionboth basic and Other Options (Subtopic
470-20)
and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic
815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU
2020-06”).
ASU
2020-06
was issued to simplify the accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. ASU
2020-06
removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU
2020-06
also simplifies the diluted earnings per share calculation in certain areas. ASU
2020-06
on the face of the statements of operations. The Company’s basic net loss per share is effectivecomputed by dividing net loss by the weighted average number of shares of common stock outstanding for the period and, if there are dilutive securities, diluted income per share is computed by including common stock equivalents which includes shares issuable upon the exercise of stock options, net of shares assumed to have been purchased with the proceeds, using the treasury stock method.
A summary of the Company’s calculation of net loss per share is as follows (in thousands, except per share amounts):
   
2021
   
2020
   
2019
 
Net loss available to common shareholders
  $(11,245  $(17,610  $(13,551
   
 
 
   
 
 
   
 
 
 
Basic shares used in the calculation of earnings per share
   24,778    22,140    18,378 
Effect of dilutive securities:
               
Stock options
   —      —      —   
Restricted stock
   —      —      —   
   
 
 
   
 
 
   
 
 
 
Diluted shares used in the calculation of earnings per share
   24,778    22,140    18,378 
   
 
 
   
 
 
   
 
 
 
Net loss per share
 
:
               
Basic
  $(0.45)  $(0.80  $(0.74
Diluted
  $(0.45)  $(0.80  $(0.74
The following table summarizes the number of shares of common stock for convertible securities, warrants and restricted stock that were not included in the calculation of diluted net loss per share because such shares are antidilutive:
   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Common stock options
   2,486,511    1,869,507    1,550,662 
Restricted Stock
   875    29,166    150,909 
Convertible Debentures
   —      —      1,742,500 
   
 
 
   
 
 
   
 
 
 
   
 
2,487,386
 
  
 
1,898,673
 
  
 
3,444,071
 
   
 
 
   
 
 
   
 
 
 
Restricted common stock can be issued to directors, executives or employees of the Company and are subject to time-based vesting. These potential shares were excluded from the computation of basic loss per share as these shares are not considered outstanding until vested.
F-21

Note 7 – Allowance for Doubtful Accounts
The rollforward of the Company’s allowance for doubtful accounts for the fiscal yearyears ended December 31 is as follows (in thousands):
   
2021
   
2020
   
2019
 
Balance at beginning of period
  $111   $136   $177 
Additions charged to costs and expenses
   167    94    62 
Reductions
   (10   (119   (103
   
 
 
   
 
 
   
 
 
 
Balance at end of period
  $268   $111   $136 
   
 
 
   
 
 
   
 
 
 
Note 8 – Inventories
Inventory balances at December 31, 2021 and interim periods therein beginning January 1, 2022. Early adoption2020 were as follows
(in thousands):
   
December 31, 2021
   
December 31, 2020
 
Raw materials
  $2,962   $1,538 
Work in process
   173    76 
Finished Goods
   1,279    1,774 
   
 
 
   
 
 
 
Inventory Gross
   4,414    3,388 
Inventory Reserve   (243   (244
   
 
 
   
 
 
 
Inventory Net
  $4,171   $3,144 
   
 
 
   
 
 
 
Note 9 – Goodwill and Intangible assets
At December 31, 2021 and 2020, all of the Company’s goodwill of $8,362,000 is permitted. allocated to its Detection reporting. There were 0 additions, impairments or other changes to the Company’s goodwill balance for either of the years ended December 31, 2021 or 2020.
Amortization expense related to intangible assets was approximately $230,000, $309,000 and $377,000 for the years ended December 31, 2021, 2020, and 2019, respectively.
   2021   2020   2019   Weighted
average
useful life
 
Gross Carrying Amount
                    
Patents and licenses
  $619   $595   $581    5 years 
Technology
   8,257    8,257    8,257    10 years 
Customer relationships
   272    272    272    7 years 
Tradename
   259    259    259    10 years 
   
 
 
   
 
 
   
 
 
      
Total amortizable intangible assets
   9,407    9,383    9,369      
   
 
 
   
 
 
   
 
 
      
Accumulated Amortization
                    
Patents and licenses
  $534   $529   $520      
Technology
   7,769    7,571    7,299      
Customer relationships
   162    135    108      
Tradename
   259    259    259      
   
 
 
   
 
 
   
 
 
      
Total accumulated amortization
   8,724    8,494    8,186      
   
 
 
   
 
 
   
 
 
      
Total amortizable intangible assets, net
  $683   $889   $1,183      
   
 
 
   
 
 
   
 
 
      
F-22

Estimated remaining amortization of the Company’s intangible assets is as follows (in thousands):
For the years ended
December 31:
  
Estimated

amortization

expense
 
2022
   217 
2023
   186 
2024
   103 
2025
   103 
2026
   74 
   
 
 
 
   $683 
   
 
 
 
Note 10 – Accrued and Other expenses
Accrued and other expenses consist of the following at December 31 (in thousands):
   2021   2020 
Accrued salary and related expenses
  $2,016   $3,654 
Accrued accounts payable
   2,838    2,405 
Accrued professional fees
   497   ��598 
Other accrued expenses
   291    382 
   
 
 
   
 
 
 
   $5,642   $7,039 
   
 
 
   
 
 
 
Note 11
 – 
Leases
The Company is currently evaluatinghas leases for office space and office equipment. The leases expire at various dates through 2024. In connection with the impact that2019 lease amendment for the adoptionNashua headquarters, the Company was eligible for $110,160 of ASUlease incentives. During 2021 the leasehold improvements were completed and the Company received the related lease incentives in cash resulting in an increase to the lease payable.
2020-06
will have on
In October 2021, the Company extended the term of its consolidated financial statements.Nashua warehouse until 2024. This resulted in an increase of approximately $79,000 to the Company’s right of use asset and related lease liability.
      
Year Ended December 31,
 
Lease Cost
  
Classification
  
    2021    
   
    2020    
 
Operating lease cost - Right of Use
  Operating expenses  $862   $884 
Operating lease cost - Variable Costs
  Operating expenses   186    165 
      
 
 
   
 
 
 
Total
     $1,048   $1,049 
      
 
 
   
 
 
 
(u) Subsequent Events
   
Year Ended December 31,
 
   
2021
  
2020
 
Cash paid for operating cash flows from operating leases  $919      $909    

   
As of December 31,
 
   
    2021    
  
    2020    
 
Weighted-average remaining lease term of operating leases (in years)   1.33   2.21 
Weighted-average discount rate for operating leases   5.5  5.6
F-23

Maturities of the Company’s lease liabilities as of December 31, 2021 were as follows (in thousands):
Year Ended December 31:
  
Total
 
2022
   931 
2023
   253 
2024
   16 
   
 
 
 
Total lease payments
   1,200 
Less: imputed interest
   (45
   
 
 
 
Total lease liabilities
   1,155 
Less: current portion of lease liabilities
   (889
   
 
 
 
Long-term lease liabilities
  $266 
   
 
 
 
Note 12 – Stockholders’ Equity
(a) Financing Activity
On April 27, 2020, the Company issued 1,562,500 shares of common stock to several institutional investors at a price of $8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately $12.5 million, and the Company received net proceeds of approximately $12.3 million. The Company also entered into an
at-the-market
offering program with JMP Securities (the “ATM”) to provide for additional potential liquidity. The Company’s ATM facility provide
d
for the sale of common stock having a value of up to $25.0 million. On December 17, 2020 the company sold 470,704 shares of common stock under the ATM facility. The gross proceeds were approximately $6.6 million, and the Company received net proceeds of approximately $6.1 million which is net of brokerage fees and offering costs to open the ATM. On March 2, 2021, the Company terminated the ATM offering program with JMP Securities
On March 2, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Guggenheim Securities, LLC, as representative of the several underwriters (the “Underwriters”), in connection with an underwritten public offering of 1,393,738 shares of the Company’s common stock, at a public offering price of $18.00
per share (the “Offering”). The Underwriting Agreement
contained
Agreement contains customary representations, warranties and covenants by the Company, indemnification obligations of the Company and the Underwriters, including for liabilities under the Securities Act, other obligations of the parties and termination provisions. In exchange for the Underwriters’ services, the Company agreed to sell the shares to the Underwriters at a purchase price of $16.92 per share and to reimburse the representative of the Underwriters for up to $125,000 of its expenses in connection with the Offering. The Offering closed March 5, 2021. The net proceeds to the Company from the Offering were approximately $23.2 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
(b) Stock Options
The Company has two effective stock option or stock incentive plans, the 2012 Stock Incentive Plan (the “2012 Plan”) and the 2016 Stock Incentive Plan (the “2016 Plan”) (collectively the “Stock Plans”). Each of the Stock Plans provide for the grant of any or all of the following types of awards: (a) stock options, (b) restricted stock, (c) deferred stock and (d) other stock-based awards. Awards may be granted singly, in combination, or in tandem. All awards granted under the Stock Plans are required to be granted at not less
than 100% of the fair market value of the related award on the respective grant date. Awards under the Stock Plans may be granted to employees, directors and advisors to the Company and its subsidiaries.
At December 31, 2021, there were 37,871 shares available for issuance under the 2012 Plan.
At 
the Company’s 2021
annual meeting, the 2016
Plan was amended to increase the number of shares of common stock available thereunder from 2,600,000 to 4,700,000. At December 31
, 2021
, there were 1,718,200 shares available for issuance under the 2016
Plan.
F-24

   Number of
Shares
   Weighted Average
Exercise Price
   Weighted Average
Remaining
Contractual Term
 
Outstanding, December 31, 2019
   1,550,662   $4.33      
Granted
   563,502   $10.09      
Exercised
   (155,149  $4.70      
Forfeited
   (89,508  $2.51      
   
 
 
   
 
 
      
Outstanding, December 31, 2020
   1,869,507   $5.91    6.0 Years 
Granted
   865,938   $16.33      
Exercised
   (168,450  $6.10      
Forfeited
   (80,484  $13.74      
   
 
 
   
 
 
      
Outstanding, December 31, 2021
   2,486,511   $9.27    5.42 Years 
Exercisable at December 31, 2019
   881,461   $4.43      
   
 
 
   
 
 
      
Exercisable at December 31, 2020
   1,540,287   $5.55      
   
 
 
   
 
 
      
Exercisable at December 31, 2021
   1,619,855   $6.47      
   
 
 
   
 
 
      
The Company’s stock-based compensation expense, including options and restricted stock by category is as follows (amounts in thousands):
   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Cost of revenue
  $15   $30   $3 
Engineering and product development
   356    376    226 
Marketing and sales
   785    657    226 
General and administrative expense
   1,627    1,781    713 
   
 
 
   
 
 
   
 
 
 
   
$
2,783
 
  
$
2,844
 
  
$
1,168
 
   
 
 
   
 
 
   
 
 
 
As of December 31, 2021, there was approximately $4.3 million of total unrecognized compensation costs related to unvested options and restricted stock. That cost is expected to be recognized over a weighted average period of 1.7 years.
Options granted under the stock incentive plans were valued utilizing the Black-Scholes model using the following assumptions and had the following fair values:
   
Year Ended December 31,
 
   
2021
  
2020
  
2019
 
Average risk-free interest rate
   0.42  0.65  1.88
Expected dividend yield
   NaN   NaN   NaN 
Expected life
   3.5
 
years
   3.5
 
years
   3.5 years 
Expected volatility
   
  65.57-67.4
2
  50.17-66.04  50.01% to 54.23
Weighted average fair value
   $
 
 
7.22
   $4.37   $2.34 
The Company’s 2021, 2020 and 2019 average expected volatility and average expected life is based
on
the Company’s historical information. The risk-free rate is based on the rate of U.S. Treasury
zero-coupon
issues with a term most closely approximating the expected life of option grants. The Company has paid no dividends on its common stock in the past and does not anticipate paying any dividends in the future.
F-25

Intrinsic values of options (in thousands) and the closing market price used to determine the intrinsic values are as follows:
Intrinsic value of stock options
   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Outstanding
  $3,820   $13,626   $5,465 
Exercisable
  $3,730   $11,786   $3,067 
Exercised
  $1,453   $1,037   $509 
Company’s stock price at December 31
  $7.20   $13.20   $7.77 
(c) Restricted Stock
The Company’s restricted stock awards typically vest in either one year or three equal annual installments with the first installment vesting one year from grant date. All of the Company’s restricted stock grants in 2021 and 2019 had time-based vesting requirements. The grant date fair value for restricted stock awards is based on the quoted market value of Company stock on the grant date.
A summary of unvested restricted stock activity for the Stock Plans is follows:
   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Beginning outstanding balance
   29,166    150,909    423,202 
Granted
   22,488    0      15,990 
Vested
   (50,779   (118,077   (197,730
Forfeited
   0      (3,666   (90,553
   
 
 
   
 
 
   
 
 
 
Ending outstanding balance
  
 
875
 
  
 
29,166
 
  
 
150,909
 
   
 
 
   
 
 
   
 
 
 
(d) Employee Stock Purchase Program:
In December 2019, the Company’s Board of Directors adopted, and the stockholders approved the 2019 Employee Stock Purchase Plan (“ESPP”), effective January 1, 2020. The ESPP provides for the issuance of up 950,000 shares of common stock, subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The ESPP may be terminated or amended by the Board of Directors at any time. Certain amendments to the ESPP require stockholder approval.
Substantially all of the Company’s employees whose customary employment is for more than 20 hours a week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or value of the Company’s shares of common stock is ineligible to participate in the ESPP.
Any eligible employee can enroll in the Plan as of the beginning of a respective quarterly accumulation period. Employees who participate in the ESPP may purchase shares by authorizing payroll deductions of up to 15% of their base compensation during an accumulation period. Unless the participating employee withdraws from participation, accumulated payroll deductions are used to purchase shares of common stock on the last business day of the accumulation period (the “Purchase Date”) at a price equal to 85% of the lower of the fair market value on (i) the Purchase Date or (ii) the first day of such accumulation period. Under applicable tax rules, no employee may purchase more than $25,000 worth of common stock, valued at the start of the purchase period, under the ESPP in any calendar year.
The Company issued 24,786 and 42,606 shares of common stock under the ESPP for the years ended December 31, 2021 and 2020, respectively. 882,608 shares of Company common stock are reserved for issuance under the ESPP as of December 31, 2021.
F-26

Note 13 – Income Taxes
Income Taxes
The components of income tax expense for the years ended December 31 are as follows (in thousands):
   2021   2020   2019 
Current provision:
               
Federal
  $0—     $—     $—   
State
   0      37    42 
Foreign
   0      —      —   
   
 
 
   
 
 
   
 
 
 
   $0     $37   $42 
   
 
 
   
 
 
   
 
 
 
Deferred provision:
               
Federal
  $1   $1   $1 
State
   —      —      0   
Foreign
   0      —      —   
   
 
 
   
 
 
   
 
 
 
   $1   $1   $1 
   
 
 
   
 
 
   
 
 
 
Total
  $1   $38   $43 
   
 
 
   
 
 
   
 
 
 
The Company adopted
ASU 2019-12 as
of January 1, 2021. In accordance with this standard
non-income
and state franchise taxes are now classified as a component of operating expenses in General and Administrative expense. Income based tax expense will continue to be recognized as tax expense in the Consolidated Financial Statements. Tax expense for the year ended December 31, 2020 represents
non-income
and state franchise tax, however, the expense was not reclassified to operating expenses in accordance with
ASU 2019-12.
A summary of the differences between the Company’s effective income tax rate and the Federal statutory income tax rate for the years ended December 31 is as follows:
   2021  2020  2019 
Federal statutory rate
   21.0  21.0  21.0
State income taxes, net of federal benefit
   5.2  2.4  1.7
Net state impact of deferred rate change
   0.8  (0.7%)   (0.2%) 
Stock compensation expense
   1.3  0.9  (10.7%) 
Other permanent differences
   (0.1%)   (0.1%)   0.0
Change in valuation allowance
   (24.4%)   (13.4%)   (6.0%) 
Tax credits
   3.1  1.4  2.8
Accrual to TR
   (1.4%)   0.0  1.3
FV Mark to market on convertible notes
   0.0  (9.0%)   (10.4%) 
Foreign Rate Differential
   0.0  0.0  0.2
True Ups - NOL Expiration/162(m) limits
   (5.4%)   (2.8%)   0.0
   
 
 
  
 
 
  
 
 
 
Effective income tax
   0.1  (0.3%)   (0.3%) 
   
 
 
  
 
 
  
 
 
 
Deferred tax assets and liabilities are recognized for the expected future tax consequences of net operating loss carryforwards, tax credit carryforwards and temporary differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on the available evidence, it is more likely than not that the deferred tax assets will not be realized.
F-27

Deferred income taxes reflect the impact of “temporary differences” between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. The Company has fully reserved the net deferred tax assets, as it is more likely than not that the deferred tax assets will not be utilized. Deferred tax assets (liabilities) are composed of the following at December 31, 2021 and 2020 (in thousands):
   2021   2020 
Inventory (Section 263A)
  $276   $248 
Inventory reserves
   61    60 
Receivable reserves
   67    28 
Other accruals
   854    1,081 
Deferred revenue
   107    75 
Accumulated depreciation/amortization
   8    37 
Stock options
   795    459 
Developed technology
   1,242    1,449 
Tax credits
   4,176    3,859 
NOL carryforward
   38,383    36,078 
Lease Liability
   290    415 
   
 
 
   
 
 
 
Deferred tax assets

   46,259    43,789 
Valuation allowance
   (45,994   (43,356
Right of Use Asset
   (265   (433
Goodwill tax amortization
   (5   (4
   
 
 
   
 
 
 
Deferred tax liability
  $(5  $(4
   
 
 
   
 
 
 
The increase in the net deferred tax assets and corresponding valuation allowance during
the
year ended December 31, 2021 and December 31, 2020 is primarily attributable to net operating losses and research and development credits.
As of December 31, 2021, the Company has federal net operating loss carryforwards totaling approximately $159.0 million. Federal net operating loss carryforwards totaling $120.1 million will expire at various dates from 2022 and 2037. The remaining $39.0 million of the federal net operating losses generated since December 31, 2017 can be carried forward indefinitely. As of December 31, 2021, the Company has provided a valuation allowance for its net operating loss carryforwards due to the uncertainty of the Company’s ability to generate sufficient taxable income in future years to obtain the benefit from the utilization of the net operating loss carryforwards. In the event of a deemed change in control, an annual limitation imposed on the utilization of the net operating losses may result in the expiration of all or a portion of the net operating loss carryforwards. There were 0 net operating losses utilized for the years ended December 31, 2021, 2020, or 2019.
The Company currently has approximately $5.2 million in net operating losses that are subject to limitations related to Xoft. Approximately $656,000 can be used annually through 2029. The Company has available tax credit carryforwards (adjusted to reflect provisions of the Tax Reform Act of 1986) to offset future income tax liabilities totaling approximately $4.2 million. The credits expire in various years through 2041. The Company has additional tax credits of $1.8 million related to Xoft which have been fully reserved for and as a result no deferred tax asset has been recorded. These credits expire in various years through 2030.
ASC
740-10
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on
de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
As of December 31, 2021 and 2020, the Company had 0 unrecognized tax benefits and no adjustments to liabilities or operations were required under ASC
740-10.
The Company’s practice is to recognize interest and penalty expenses related to uncertain tax positions in income tax expense, which was 0 for the years
F-28

ended December 31, 2021, 2020 and 2019. The Company files United States federal and various state income
tax returns. The Company also files tax returns in France. Generally, the Company’s
three
preceding tax years remain subject to examination by federal and state taxing authorities. The Company is not under examination by any other federal or state jurisdiction for any tax year.
The Company does not anticipate that it is reasonably possible that unrecognized tax benefits as of December 31, 2021 will significantly change within the next 12 months.
Note 14 – Segment Reporting
(a) Segment Reporting
Operating segments are the components of our business for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our chief executive officer. Our operating segments are generally organized by the type of product or service offered and by geography. Each reportable segment generates revenue from the sale of medical equipment and related services and/or sale of supplies. The Company has determined there are 2 segments: Detection and Therapy.
The Detection segment consists of the Company’s advanced image analysis and workflow products, and the Therapy segment consists of the Company’s radiation therapy products, and related services. The primary factors used by the Company’s CODM to allocate resources are based on revenues, gross profit, operating income or loss, and earnings or loss before interest, taxes, depreciation, amortization, and other specific and
non-recurring
items of each segment. Included in segment operating income are stock compensation, amortization of technology and depreciation expense. There are no intersegment revenues.
The Company does not track its assets by operating segment and the CODM does not use asset information by segment to allocate resources or make operating decisions.
Segment revenues, gross profit, segment operating income or loss, and a reconciliation of segment operating income or loss to GAAP loss before income tax is as follows (in thousands):
   Year Ended December 31, 
   2021   2020   2019 
Segment revenues:
               
Detection
  $22,019   $21,997   $22,319 
Therapy
   11,619    7,701    9,021 
   
 
 
   
 
 
   
 
 
 
Total Revenue
  $33,638   $29,698   $31,340 
   
 
 
   
 
 
   
 
 
 
    
Segment gross profit:
               
Detection
  $18,510   $17,856   $18,627 
Therapy
   5,733    3,498    5,600 
   
 
 
   
 
 
   
 
 
 
Total gross profit

  $24,243   $21,354   $24,227 
   
 
 
   
 
 
   
 
 
 
    
Segment operating income (loss):
               
Detection
  $1,563   $2,719   $2,564 
Therapy
   (1,835   (3,028   (1,476
   
 
 
   
 
 
   
 
 
 
Segment operating income (loss)
  $(272  $(309  $1,088 
   
 
 
   
 
 
   
 
 
 
General administrative
  $(10,460  $(9,079  $(7,486
Interest expense
   (141   (476   (784
Loss on extinguishment of debt
   (386   (341    
Other income
   15    97    345 
Fair value of convertible debentures
   0      (7,464   (6,671
   
 
 
   
 
 
   
 
 
 
Loss before income tax
  $(11,244  $(17,572  $(13,508
   
 
 
   
 
 
   
 
 
 
 
F-29

On March 2, 2021, the Company terminated its
at-the-market
Segment depreciation and amortization included in segment operating income (loss) is as follows (in thousands):
offering program with JMP Securities (See Note 6 hereto).
 
(2)
Sale of MRI Assets
   Year Ended December 31, 
   2021   2020   2019 
Detection depreciation and amortization
               
Depreciation
  $123   $115   $103 
Amortization
  $158    164    240 
    
Therapy depreciation and amortization
               
Depreciation
  $129   $124   $166 
Amortization
  $73    128    128 
(b) Geographic Information
The Company’s sales are made to customers, distributors and dealers of mammography, electronic brachytherapy equipment and other medical equipment, and to foreign distributors of mammography and electronic brachytherapy equipment. Export revenue to a single country did not exceed 10% of total revenue in any year. Total export
revenues
were approximately $7.5 million or 22% of total revenue in 2021, $6.1 million or 20% of total revenue in 2020, and $3.8 million or 12% of total revenue in 2019.
As of December 31, 2021 and 2020, the Company had outstanding receivables of $3.3 million and $3.4 million, respectively, from distributors and customers of its products who are located outside of the U.S.
   
Percent of Export sales
 
Region
  2021  2020  2019 
Europe
   39  45  57
Taiwan
   12  13  15
Canada
   3  5  7
China
   35  22  8
Other
   11  15  13
   
 
 
  
 
 
  
 
 
 
Total
   100  100  100
   
 
 
  
 
 
  
 
 
 
Total Export Revenue
  $7,527  $6,081  $3,788 
Significant export sales in Europe are as follows:
   
Percent of Export sales
 
Region
  2021  2020  2019 
France
   47  41  34
Spain
   17  17  12
Russia
   8  0  0
Switzerland
   8  0  0
Italy
   5  8  2
Germany
   4  12  4
United Kingdom
   4  6  2
(c) Major Customers
The Company had one major OEM customer, GE Healthcare, with revenues of approximately $4.8
million
in 2021, $5.0 million in 2020 and $7.6 million in 2019 or 14%, 17% and 24% of total revenue, respectively. Cancer detection products are also sold through OEM partners, including GE Healthcare, Fujifilm Medical
F-30

Systems, Siemens Medical, and Vital Images. For the year ended December 31, 2021, these four OEM partners composed approximately 29% of Detection revenues and 19% of total revenue. Detection OEM partners in total composed approximately 40% of Detection revenue and 26% of total revenue for the year ended December 31, 202
1
, 37% of Detection revenue and 28% of total revenue for the year ended December 31, 2020 and 46% of Detection revenue and 33% of total revenue for the year ended December 31, 2019. The Company also had one major direct customer with revenues of approximately $.8 million, or 2% of total revenue for year ended December 31, 2021.
OEM partners represented $5.5 million or 60% of outstanding receivables as of December 31, 2021, with GE Healthcare accounting for $.7 million or 8% of this amount. The four largest Therapy customers composed 2.8 million or 31% of outstanding receivables as of December 31, 2021. The largest Detection direct customer represents $.3 million or 3% of outstanding receivables as of December 31, 2021.
These customers
in total represented $8.6 million or 94% of outstanding receivables as of December 31, 2021.
Note 15 – Commitments and Contingencies
(a)
Purchase Commitments
The Company has
non-cancelable
purchase orders with key suppliers executed in the normal course of business that total approximately $7.2 million.
(b) Employment Agreements
The Company has entered into employment agreements with certain key current and former executives. The employment agreements provide for minimum annual salaries and performance-based annual bonus compensation as defined in their respective agreements. In addition, the employment agreements provide that if employment is terminated without cause, the executive will receive an amount equal to their respective base salary then in effect for (i) fifteen months from the date of termination, for Mr. Klein, CEO, (ii) eighteen months from the date of termination, for Ms. Stevens, President, and (iii) twelve months from the date of termination, for Mr. Carter, CFO, and in each case, plus the pro rata portion of any annual bonus earned in any employment year through the date of termination.
(c) Royalty Obligations
In connection with prior litigation, the Company received a nonexclusive, irrevocable, perpetual, worldwide license, including the right to sublicense certain Hologic patents, and a
non-compete
covenant as well as an agreement not to seek further damages with respect to the alleged patent violations. In return, the Company had a remaining obligation to pay a minimum annual royalty payment of $250,000 payable through 2016. In addition to the minimum annual royalty payments, the litigation settlement agreement with Hologic also provides for payment of royalties if such royalties exceed the minimum payment based upon a specified percentage of future net sales on any products that practice the licensed rights. The estimated fair value of the patent license and
non-compete
covenant is $100,000 and was amortized over the useful life of approximately four years. In addition, a liability has been recorded within accrued expenses and accounts payable for future payment and for minimum royalty obligations totaling $0.2 million.
(d) Legal Matters
In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation (“Invivo”(the “Asset Purchase Agreement”). In accordance with the agreement,Asset Purchase Agreement, the Company sold to Invivo all right, title and interest to certain intellectual property relating to the Company’s VersaVue Software and DynaCAD product and related assets for $3.2 million. The Company closed the transaction on January 30, 2017 less a holdback reserve of $350,000 for a net proceeds of approximately $2.9 
million. The holdback reserve
F-31

On September 5, 2018, third-party Yeda Research and Development Company Ltd. (“Yeda”), filed a complaint (the “Complaint”) against the Company and Invivo in the United States District Court for the Southern
District of New York, captioned Yeda Research and Development Company Ltd. v. iCAD, Inc. and Invivo Corporation, Case No.
1:18-cv-08083-GBD,
related to the Company’s sale of the VersaVue software and DynaCAD product under the Asset Purchase Agreement. Yeda alleged, among other assets and will be paidthings, that the Company infringed upon Yeda’s source code, which was originally licensed to the Company, upon resolutionby using it in the products that the Company sold to Invivo and that it is entitled to damages that could include, among other things, profits relating to the sales of these products. On April 
13
,
2021
, the Company and Yeda entered into a Settlement and Release Agreement (the “Settlement Agreement”) whereby the Company furnished to Yeda a
one-time
cash payment of $
85,000
and received a full,
non-conditional
release from Yeda of any and all claims related to the Complaint and the subject of the litigationComplaint. Neither the Company nor Invivo acknowledged any wrongdoing at any point in connection with the Complaint or the subject matter describedthereof. The Escrowed Amount was reserved, in Note 9(f), less amounts, ifpart, to cover any legal expenses related to the Asset Purchase Agreement and the transactions contemplated therein. The remaining balance of the Escrowed Amount following such expenses is due and payable or reserved underto the indemnification provisionsCompany in accordance with the terms of the Asset Purchase agreement.Agreement. The Company and Invivo agreed that Invivo would pay $
50,000
of the Escrowed Amount and the Company expensed approximately $
93,000
in the second quarter of
2021
.
In addition to the foregoing, the Company may be a party to various legal proceedings and claims arising out of the ordinary course of its business. Although the final results of all such matters and claims cannot be predicted with certainty, the Company currently believes that there are no current proceedings or claims pending against it the ultimate resolution of which would have a material adverse effect on its financial condition or results of operations, other than as set forth above. However, should the Company fail to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, such matters could have a material adverse effect on the Company’s operating results and cash flows for that particular period. The Company may be party to certain actions that have been filed against the Company which are being vigorously defended. The Company has determined that potential losses in these matters are neither probable or reasonably possible at this time. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, “Contingencies.” Legal costs are expensed as incurred.
(3)
Note 16 – Notes Payable
Financing Arrangements
(a) Loan and Security Agreement – Western Alliance Bank
On March 30, 2020, the Company entered into thea Loan and Security Agreement (the “Loan Agreement”) with theWestern Alliance Bank (the “Bank”) that provided an initial term loan (“Term Loan”) facility of $7.0 million and a $5.0 million revolving line of credit.
The Loan Agreement was amended effective June 16, 2020. The Loan Agreement requires
On April 27, 2021, the Company to either (i) meet a minimum revenue covenant, or (ii) maintain a ratiorepaid its obligations in the aggregate amount of unrestricted cash at the Bank to aggregate indebtedness owed to the Bank of at least 1.25 to 1.00. The Company was compliant with these covenants as of December 31, 2020.
If at any point the Company is not in compliance with certain covenants$7,354,283 under and terminated the Loan Agreement with the Bank, and is unable to obtainits collateral securing the facility was released.
The Company accounted for this repayment and retirement as an amendment or waiver, such noncompliance may result in an eventextinguishment of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date. Agreement.
The Company was required, periodically in the past, to seek modifications from its prior lender to avoid
non-compliance
with its earlier covenants.
Interest in arrearsrecorded a loss on the Term Loan began to be repaid on April 1, 2020 and will continue to be paid on the firstextinguishment of each successive month thereafter until the principal repayment starts. Commencing on the principal repayment date of March 1, 2022, and continuing on the first day of each month thereafter, the Company will make equal monthly payments of principal, together with applicable interest in arrears,approximately $386,000 related to the Bank. The interest rate is set at 1% above the Prime Rate, which is defined in the Loan Agreement as the greaterrepayment and retirement of 4.25% or the Prime Rate published in the Money Rates section of the Western Edition of the Wall Street Journal. The Prime Rate as of December 31, 2020 was 3.25%.
The Company has the option to prepay all, but not less than all, of the Term Loan advanced by the Bank under the Loan Agreement. The Company prepayment is subject to paymentloss on extinguishment was composed of (1) all outstanding principal of the Term Loan plus accrued and unpaid interest thereon through the prepayment date, (2) the final payment ($122,500 or 1.75% of the original loan amount), (3)approximately $140,000 for a prepayment fee, (3%$122,000 for the unaccrued final payment, $65,000 termination and other fees, and $58,000 for the unamortized and other closing costs from origination of the principal balance if prepaid prior to first March 30, 2021, 2% of principal if prepaid after March 30, 2021 but before June 30, 2022, or 1% of principal if prepaid after March 30, 2022) plus (4) all other obligations that are due and payable, including the Bank’s expenses and interest at the default rate with respect to any past due amounts.
F-30
loan.

Obligations to the Bank under the Loan Agreement are secured by a first priority security interest in the Company’s assets, except for certain permitted liens that have priority to the Bank’s security interest by operation of law.
In connection with the Loan Agreement, the Company incurred approximately $141,000 of closing costs. The closing costs have been deducted from the carrying value of the debt and will be amortized through March 30, 2022, the maturity date of the Term Loan.
The maturity date of the revolving loan is March 30, 2022 and there was no outstanding amount as of December 31, 2020.
   
December 31,
2020 (Western
Alliance Bank) *
 
Principal Amount of Term Loan
  $7,000 
Unamortized closing costs
   (63
Accrued Final Payment
   23 
Amount Drawn on Line of Credit
   —   
      
Carrying amount of Term Loan
   6,960 
      
  
Less current portion of Term Loan
   0   
      
Notes payable long-term portion
  $6,960 
      
  
* No December 31, 2019 balance. Debt opened in 2020
     
(b) Loan and Security Agreement – Silicon Valley Bank
On August 7, 2017, the Company entered into a Loan and Security Agreement, which was modified several times through November 1, 2019 (as amended, the “SVB Loan Agreement”), with Silicon Valley Bank that provided an initial term loan facility of $6.0 million and a $4.0 million revolving line of
credit.
On March 30, 2020, the Company elected to repay all outstanding obligations (including accrued interest) and retire the SVB Loan Agreement. The Company accounted for this repayment and retirement as an
F-32

extinguishment
of the SVB Loan Agreement. In addition to the outstanding principal and accrued interest, the Company was required to pay the $510,000 $
510,000
final payment, a termination fee of $114,000 $
114,000
and other costs totaling $10,000.$
10,000
. The Company also wrote off unamortized original closing costs as of the extinguishment date. TheIn
March 2020
the Company recorded a loss on extinguishment of approximately $341,000 $
341,000
related to the repayment and retirement of the SVB Loan Agreement. The loss on extinguishment was composed of approximately $185,000 $
185,000
for the unaccrued final payment, the $114,000 $
114,000
termination fee, and $42,000 $
42,000
of unamortized and other closing costs.
F-31

   
December 31,
2019 (Silicon
Valley Bank) *
 
Principal Amount of Term Loan
  $4,000 
Unamortized closing costs
   (40
Accrued Final Payment
   293 
Amount Drawn on Line of Credit
   2,000 
      
Carrying amount of Term Loan
   6,253 
      
  
Less current portion of Term Loan
   (4,250
      
Notes payable long-term portion
  $2,003 
      
  
* No December 31, 2020 balance. Debt closed in 2020
     
(c) Convertible Debentures
On December 20, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional and accredited investors (the “Investors”), including, but not limited to, all directors and executive officers of the Company at the time, pursuant to which the Investors purchased unsecured subordinated convertible debentures (the “Convertible Debentures”) with an aggregate principal amount of approximately $7.0 million in a private placement.
On February 21, 2020 (the “Conversion Date”), the conditions permitting a forced conversion were met, and the Company elected to exercise its forced conversion right under the terms of the Convertible Debentures.
As a result of this election, all of the outstanding Convertible Debentures were converted, at a conversion price of $4.00 per share, into 1,742,500 shares of the Company’s common stock. In accordance with the make-whole provisions in the Convertible Debentures, the Company also issued an additional 76,966 shares of its common stock. The make-whole amount represented the total interest which would have accrued through the maturity date of the Convertible Debentures, less the amounts previously paid, totaling $697,000. The conversion prices related to the make-whole amount were dependent on whether the Investors were related parties or unrelated third parties.
Accounting Considerations and Fair Value Measurements Related to the Convertible Debentures
The Company had previously elected to make
a one-time, irrevocable
election to utilize the fair value option to account for the Convertible Debentures as a single hybrid instrument at its fair value, with changes in fair value from period to period being recorded either in current earnings, or as an element of other comprehensive income (loss), for the portion of the change in fair value determined to relate to the Company’s own credit risk. The Company believed that the election of the fair value option allowed for a more meaningful representation of the total fair value of its obligation under the Convertible Debentures and allowed for a better understanding of how changes in the external market environment and valuation assumptions impact such fair value.
As of the December 31, 2019 valuation and the prior measurement dates, the The Company utilized a Monte Carlo simulation model to estimate the fair value of the Convertible Debentures. The simulation model was designed to capture the potential settlement features of the Convertible Debentures, in conjunction with simulated changes in the Company’s stock price and the probability of certain events occurring. The simulation utilized 100,000 trials or simulations to determine the estimated fair value.
F-32

The simulation utilized the assumptions that if the Company was able to exercise its forced conversion right (if the requirements to do so were met), that it would do so in 100% of such scenarios. Additionally, if an event of default occurred during the simulated trial (based on the Company’s probability of default), the Investors would opt to redeem the Convertible Debentures in 100% of such scenarios. If neither event occurred during a simulated trial, the simulation assumed that the Investor would hold the Convertible Debentures until the maturity date. The value of the cash flows associated with each potential settlement were discounted to present value in each trial based on either the risk-free rate (for an equity settlement) or the effective discount rate (for a redemption or cash settlement).
The Company also recorded a final adjustment to the Convertible Debentures based on their fair value on the Conversion Date, just prior to the forced conversion being completed. Given that the Company’s prior simulation model included the assumption that the Company would elect to force conversion in 100% of scenarios when the requirements were met, the final valuation was based on the actual results of the forced conversion. As such, the Company based the final fair value adjustment to the Convertible Debentures just prior to conversion on the number of shares of common stock that were issued to the Investors upon conversion and the fair value of the Company’s common stock as of the Conversion Date.
 
F-33

The
Company
notes that the key inputs to the simulation model that were utilized to estimate the fair value of the Convertible Debentures at each valuation date included:
 
Input
  
December 31, 2019
 
February 21, 2020
   
December 31, 2019
 
February 21, 2020
 
Company’s stock price
  $7.77  $11.64   $7.77  $11.64 
Conversion price
   4.00   4.00    4.00   4.00 
Remaining term (years)
   1.97   0.00    1.97   0.00 
Equity volatility
   49.00  N/A    49.00  N/A 
Risk free rate
   1.57  N/A    1.57  N/A 
1
Probabilty of default event
   0.45  N/A 
1
Probability of default event
   0.45  N/A 
1
Utilization of Forced Conversion (if available)
   100.00  100.00   100.00  100.00
1
Exercise of Default Redemption (if available)
   100.00  N/A    100.00  N/A 
1
Effective discount rate
   18.52  N/A    18.52  N/A 
1
Represents a Level 3 unobservable input, as defined in Note 8 - Fair Value Measurements, below.
 
Represents
a Level 3 unobservable input, as defined in
Note
4 -
Fair Value Measurements, below.
The Company’s stock price is based on the closing stock price on the valuation date. The conversion price is based on the contractual conversion price included in the SPA.
The remaining term was determined based on the remaining time period to maturity of the Convertible Debentures.
The Company’s equity volatility estimate was based on the Company’s historical equity volatility, the Company’s implied and observed volatility of option pricing, and the historical equity and observed volatility of option pricing for a selection of comparable guideline public companies.
The risk-free rate was determined based on U.S. Treasury securities with similar terms.
The probability of the occurrence of a default event was based on Bloomberg’s one year estimate of default risk for the Company (extrapolated over the remaining term).
The utilization of the Forced Conversion right and the default redemption right is based on management’s best estimate of both features being exercised upon the occurrence of the related contingent events.
The effective discount rate utilized at the December 31, 2019 and February 21, 2020 valuation dates was solved for utilizing the simulation model based on the principal value of the Convertible Debentures, as the transaction was determined to represent an ‘arm’s length’ transaction. The effective discount was corroborated against market yield data which implied the Company’s credit rating, and this implied credit rating will be utilized to determine the changes in the effective discount rate at future valuation dates. The effective discount rate utilized at the December 31, 2019 valuation date was based on yields on
CCC-rated
debt instruments with terms equivalent to the remaining term of the Convertible Debentures. The credit rating estimate was based on the implied credit rating determined at issuance and no changes were identified by the Company that would impact this assessment.
F-34

The fair value and principal value of the Convertible Debentures as of December 31, 2019 and the Conversion Date was as follows (in
(in thousands):
 
Convertible Debentures
  
December 31, 2019
   
February 21, 2020
 
Fair value, in accordance with fair value option
  $13,642   $21,164 
   
 
 
   
 
 
 
Principal value outstanding
  $6,970   $6,970 
   
 
 
   
 
 
 
F-34

The Company recorded a loss from the change in fair value of the Convertible Debentures of approximately $7.5 million for the periodyear ending December 31 2019 through the conversion date of February 21,
, 2020 compared to $6.7 million in the period ending December 31, 2019, which is described in the additional fair value disclosures related to the Convertible Debentures in Note 8.
. Upon the consummation of the forced conversion, the Company issued 1,816,466 shares of common stock with a fair value of approximately $21.2 million, which was reclassified to stockholders’ equity.
(d) Principal and Interest Expense Payments Related to Financing ArrangementsNote 17 – Employee Benefit Plan
Future principal and interest payments relatedThe Company has a 401(k) retirement plan (the “401(k) Plan”) for the benefit of eligible employees, as defined. Each participant may elect to contribute up to 90% of his or her compensation to the Loan Agreement are as follows (in thousands):
Fiscal Year
  
Amount Due
 
2021
   1,238 
2022
   2,875 
2023
   2,735 
2024
   1,003 
      
Total
  $7,851 
      
401(k) Plan each year, subject to certain Internal Revenue Service limitations. The following amounts are included in interest expense in the Company’s consolidated statementsCompany makes a safe harbor matching contribution of operations for100% of every dollar contributed, not to exceed 3% of participants’ eligible wages. The Company contributed approximately $.5 million during each of the years ended December 31, 2021 and 2020, 2019 and 2018 (in thousands):
respectively.
 
   
Year Ended December 31,
 
   2020   2019   2018 
Cash interest expense, notes payable
  $327   $274   $299 
Cash interest expense, convertible debentures
   49    349    9 
Amortization of debt costs
   45    28    29 
Accrual of notes payable final payment
   55    131    163 
Interest expense capital lease
   —      2    4 
                
Total interest expense
  $476   $784   $504 
                
Cash interest expense, notes payable, represents the cash interest paid monthly related to the Loan Agreement. Cash interest expense, convertible debentures represents cash interest paid or accrued in connection with the Convertible Debentures issued in December 2018. The amortization of debt costs represents the closing costs incurred with the Term Loan and the SVB Loan Agreement, which have been capitalized and expensed using the effective interest method.
F-35

(4)
Accrued and Other Expenses
Accrued and other expenses consist of the following at December 31 (in thousands):
   2020   2019 
Accrued salary and related expenses
  $3,654   $3,200 
Accrued accounts payable
   2,405    2,718 
Accrued professional fees
   598    510 
Other accrued expenses
   382    162 
           
   $ 7,039   $ 6,590 
           
(5)
Leases
Under ASC 842, the Company determines if an arrangement contains a lease at inception. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment (i.e., an identified asset) for a period of time in exchange for consideration. Leases are classified as either operating or financing.
At lease inception, the Company recognizes a lease liability equal to the present value of the remaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as for lease incentives. The Company used its incremental borrowing rate to determine the present value of the lease payments. The Company determined the incremental borrowing rates for its leases by applying its applicable, fully collateralized borrowing rate, with adjustment as appropriate for lease term. The lease term at the lease commencement date is determined based on the
non-cancellable
period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option. The Company considered a number of factors when evaluating whether the options in its lease contracts were reasonably certain of exercise, such as length of time before option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or economic penalties.
Right-of-use
assets and obligations for short-term leases (leases with an initial term of 12 months or less) are not recognized in the consolidated balance sheet. Lease expense for short-term leases is recognized on a straight-line basis over the lease term. The Company does not sublease any of its leased assets to third parties. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company has lessor agreements that contain lease and
non-lease
components. As the Company has determined that the
non-lease
component of these agreements is the predominant component, the Company is accounting for the complete agreement under ASC 606 upon adoption of ASC 842 (see discussion in Note 1(j)).
ASC 842 includes a number of reassessment and
re-measurement
requirements for lessees based on certain triggering events or conditions, including whether a contract is or contains a lease, assessment of lease term and purchase options, measurement of lease payments, assessment of lease classification and assessment of the discount rate. The Company reviewed the reassessment and
re-measurement
requirements and identified three lease modifications which are reflected in the table below showing the maturity of the Company’s lease liabilities as of December 31, 2020. This includes an extension of operating leases for the two facilities leased by the Company in New Hampshire and the facility lease in California. In addition, there were no impairment indicators identified during the year ended December 31, 2020 that required an impairment test for the Company’s
right-of-use
assets or other long-lived assets in accordance with ASC
360-10.
F-36

Certain of the Company’s leases include variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain
non-lease
components that transfer a distinct service to the Company, such as common area maintenance services. The Company has elected to not separate the accounting for lease components and
non-lease
components for real estate and equipment leases.
The Company has leases for office space and office equipment. The leases have remaining lease terms ranging from less than one year to three years and three months as of December 31, 2020.
F-37

The components of lease expense for the period are as follows (in thousands):
      
Year Ended December 31,
 
Lease Cost
  
Classification
  
2020
  
2019
 
Operating lease cost - Right of Use
  Operating expenses  $884  $804 
Operating lease cost - Variable Costs
  Operating expenses   165  $173 
Finance lease costs
            
Amortization of leased assets
  Amortization and depreciation   12   15 
Interest on lease liabilities
  Interest expense   1   2 
             
Total
     $1,062  $994 
             
 
Other information related to leases was as follows (in thousands):
 
 
      
2020
  
2019
 
Cash paid for operating cash flows from operating leases
  $909  $840 
Cash paid for operating cash flows from finance leases
   1   2 
Cash paid for financing cash flows from finance leases
   13   17 
    
      
2020
  
2019
 
Weighted-average remaining lease term of operating leases (in years)
   2.21   3.12 
Weighted-average remaining lease term of finance leases (in years)
        1.00 
Weighted-average discount rate for operating leases
   5.6  5.6
Weighted-average discount rate for finance leases
   0     5.4
Maturities of the Company’s lease liabilities as of December 31, 2020 was as follows (in thousands):
Year Ended December 31, 2020:
  
Operating
Leases
 
2021
  $920 
2022
   899 
2023
   211 
2024
   5 
      
Total lease payments
   2,035 
Less: imputed interest
   (234
      
Total lease liabilities
   1,801 
Less: current portion of lease liabilities
   (726
      
Long-term lease liabilities
  $1,075 
      
F-38

(6)
Stockholders’ Equity
(a) Financing Activity
On April 27, 2020, the Company issued 1,562,500 shares of common stock to several institutional investors at a price of $8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately $12.5 million, and the Company received net proceeds of approximately $12.3 million. The Company also entered into an
at-the-market
offering program with JMP Securities (the “ATM”) to provide for additional potential liquidity. The Company’s ATM facility provides for the sale of common stock having a value of up to $25.0 million. On December 17, 2020 the company sold 470,704 shares of common stock under the ATM facility. The gross proceeds were approximately $6.6 million, and the Company received net proceeds of approximately $6.1 million which is net of brokerage fees and offering costs to open the ATM. As of December 31, 2020, $18.4 million in capacity remains under the facility.
(b) Stock Options18 – Subsequent Events
The Company has 2
effective stock option or stock incentive plans which are described as follows:
The 2012 Stock Incentive Plan (the “2012 Plan”).
The 2012 Plan was adopted byevaluated events and transactions subsequent to the Company’s stockholders in May 2012balance sheet date to the date of filing and amended in May 2014. The 2012 Plan, as amended, provides for the grantis not aware of any events or all oftransactions that occurred subsequent to the following types of awards: (a) stock options, (b) restricted stock, (c) deferred stock and (d) other stock-based awards. Awards may be granted singly, in combination,balance sheet date that would require recognition or in tandem. Subject to anti-dilution adjustments as provideddisclosure in the amended 2012 Plan, (i) the amended 2012 Plan provides for a total of 1,600,000 shares of the Company’s common stock to be available for distribution pursuant to the amended 2012 Plan, and (ii) the maximum number of shares of the Company’s common stock with respect to which stock options, restricted stock, deferred stock, or other stock-based awards may be granted to any participant under the amended 2012 Plan during any calendar year or part of a year may not exceed 250,000 shares.consolidated financial statements.
 
F-39

The 2012 Plan provides that it will be administered by the Company’s Board of Directors or a committee of two or more directors appointed by the Board of Directors. The administrator will generally have the authority to administer the 2012 Plan, determine participants who will be granted awards under the 2012 Plan, the size and types of awards, the terms and conditions of awards and the form and content of the award agreements representing awards.
Awards under the 2012 Plan may be granted to employees, directors, consultants and advisors of the Company and its subsidiaries. However, only employees of the Company and its subsidiaries will be eligible to receive options that are designated as incentive stock options.
With respect to options granted under the 2012 Plan, the exercise price must be at least 100% (110% in the case of an incentive stock option granted to a 10% stockholder) of the fair market value of the common stock subject to the award, determined as of the date of grant. Restricted stock awards are shares of common stock that are awarded subject to the satisfaction of the terms and conditions established by the administrator. In general, awards that do not require exercise may be made in exchange for such lawful consideration, including services, as determined by the administrator. At December 31, 2020, there were 129,126 shares available for issuance under the 2012 Plan.
The 2016 Stock Incentive Plan (the “2016 Plan”).
The 2016 Plan was adopted by the Company’s stockholders in May 2016 and amended in November 2018. The 2016 Plan provides for the grant of any or all of the following types of awards:
(a) non-qualified
stock options and incentive stock options, (b) stock appreciation rights, (c) restricted stock awards and restricted stock units, (d) unrestricted stock awards, (e) cash-based awards, (f) performance share awards and (g) dividend equivalent rights.
Subject to anti-dilution adjustments as provided in the 2016 Plan, (i) the amended 2016 Plan provides for a total of 2,600,000 shares of the Company’s common stock to be available for distribution pursuant to the 2016 Plan, and (ii) the maximum number of shares of the Company’s common stock with respect to which stock options or stock appreciation rights may be granted to any one individual under the 2016 Plan during any one calendar year period may not exceed 1,000,000 shares. No more than 1,000,000 shares of common stock may be issued in the form of incentive stock options and no more than 120,000 shares of stock may be issued pursuant to awards to
non-employee
directors.
The 2016 Plan provides that it will be administered by the Company’s Compensation Committee. The Compensation Committee has the authority to administer the 2016 Plan, determine participants, from among the individuals eligible for awards, who will be granted awards under the 2016 Plan, make any combination of awards to participants and determine the specific terms and conditions of awards subject to the 2016 Plan. Awards under the 2016 Plan may be granted to full or part-time officers, employees,
non-employee
directors and other key persons (including consultants) of the Company and its subsidiaries.
With respect to stock options granted under the 2016 Plan, the exercise price will be determined by the Compensation Committee but may not be less than 100% of the fair market value of the common stock subject to the award, determined as of the date of grant. Regarding incentive stock options, including that the aggregate grant date fair market value of the shares of stock with respect to which incentive stock options granted under the 2016 Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any incentive stock option exceeds this limit, it shall constitute a
non-qualified
stock option. Restricted stock awards are shares of common stock that are awarded subject to the satisfaction of the terms and conditions established by the Compensation Committee. In general, awards that do not require exercise may be made in exchange for such lawful consideration, including services, as determined by the Compensation Committee. At December 31, 2020, there were 333,091 shares available for issuance under the 2016 Plan.
F-40

A summary of stock option activity for all stock option plans is as follows:
   Number of
Shares
   Weighted Average
Exercise Price
   Weighted Average
Remaining
Contractual Term
 
Outstanding, December 31, 2018
   1,983,477   $4.25      
Granted
   392,270   $5.81      
Exercised
   (379,980  $3.39      
Forfeited
   (445,105  $6.06      
                
Outstanding, December 31, 2019
   1,550,662   $4.33    5.0
 
Years
 
Granted
   563,502   $10.09      
Exercised
   (155,149  $4.70      
Forfeited
   (89,508  $2.51      
                
Outstanding, December 31, 2020
   1,869,507   $5.91    6.0
 
Years
 
Exercisable at December 31, 2018
   1,296,439   $4.90      
                
Exercisable at December 31, 2019
   881,461   $4.43      
                
Exercisable at December 31, 2020
   1,540,287   $5.55      
                
There were 462,218 shares available for future grants from all plans at December 31, 2020.
The Company’s stock-based compensation expense, including options and restricted stock by category is as follows (amounts in thousands):
   
Year Ended December 31,
 
   
2020
   
2019
   
2018
 
Cost of revenue
  $30   $3   $4 
Engineering and product development
   376    226    399 
Marketing and sales
   657    226    190 
General and administrative expense
   1,781    713    912 
                
   
$
2,844
 
  
$
1,168
 
  
$
1,505
 
                
As of December 31, 2020, there was $0.7 million of total unrecognized compensation costs related to unvested options and restricted stock. That cost is expected to be recognized over a weighted average period of 1.0 years.
F-41

Options granted under the stock incentive plans were valued utilizing the Black-Scholes model using the following assumptions and had the following fair values:
   
Year Ended December 31,
   
2020
  
2019
  
2018
Average risk-free interest rate
  0.65%  1.88%  2.65%
Expected dividend yield
  NaN  NaN  NaN
Expected life
  3.5
 
years
  3.5
 
years
  3.5
 
years
Expected volatility
  50.17-66.04%  50.01% to 54.23%  50.4% to 61.6%
Weighted average exercise price
  $10.14  $5.92  $2.96
Weighted average fair value
  $4.37  $2.34  $1.23
The Company’s 2020, 2019 and 2018 average expected volatility and average expected life is based on the average of the Company’s historical information. The risk-free rate is based on the rate of U.S. Treasury
zero-coupon
issues with a remaining term equal to the expected life of option grants. The Company has paid 0
dividends on its common stock in the past and does not anticipate paying any dividends in the future.
Intrinsic values of options (in thousands) and the closing market price used to determine the intrinsic values are as follows:
Intrinsic value of stock options
   
Years Ended December 31,
 
   
2020
   
2019
   
2018
 
Outstanding
  $13,626   $5,465   $1,021 
Exercisable
  
11,786
   
 3,067
   
499
 
Exercised   1,037    509    224 
    
Company’s stock price at December 31
  $13.20   $7.77   $3.70 
(c) Restricted Stock
The Company’s restricted stock awards typically vest in either one year or three equal annual installments with the first installment vesting one year from grant date.
The Company did not grant any restricted stock units in 2020. The Company granted 15,990 shares with time-based vesting during the year ended December 31, 2019. The Company granted 334,083 shares with time-based vesting and 45,356 shares with immediate vesting during the year ended December 31, 2018.
F-42

A summary of restricted stock activity for all equity incentive plans is as follows:
   
Years Ended December 31,
 
   
2020
   
2019
   
2018
 
Beginning outstanding balance
   150,909    423,202    415,147 
Granted
   —      15,990    379,439 
Vested
   (118,077   (197,730   (322,388
Forfeited
   (3,666   (90,553   (48,996
                
Ending outstanding balance
   29,166    150,909    423,202 
                
Intrinsic values of restricted stock (in thousands) and the closing market price used to determine the intrinsic values are as follows:
   
Years Ended December 31,
 
   
2020
   
2019
   
2018
 
Outstanding
  $385   $1,173   $1,566 
Vested   1,559    1,536    1,193 
    
Company’s stock price at December 31
  $13.20   $7.77   $3.70 
(d) Employee Stock Purchase Program:
In December 2019, the Company’s Board of Directors adopted, and the stockholders approved the 2019 Employee Stock Purchase Plan (“ESPP”), effective January 1, 2020. The ESPP provides for the issuance of up 950,000 shares of common stock, subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The ESPP may be terminated or amended by the Board of Directors at any time. Certain amendments to the ESPP require stockholder approval.
Substantially all of the Company’s employees whose customary employment is for more than 20 hours a week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or value of the Company’s shares of common stock is not eligible to purchase shares under the ESPP.
Any eligible employee can enroll in the Plan as of the beginning of a respective quarterly accumulation period. Employees who participate in the ESPP may purchase shares by authorizing payroll deductions of up to 15% of their base compensation during an accumulation period. Unless the participating employee withdraws from participation, accumulated payroll deductions are used to purchase shares of common stock on the last business day of the accumulation period (the “Purchase Date”) at a price equal to 85% of the lower of the fair market value on (i) the Purchase Date or (ii) the first day of such accumulation period. Under applicable tax rules, no employee may purchase more than $25,000 worth of common stock, valued at the start of the purchase period, under the ESPP in any calendar year.
The Company issued 42,606 shares under the ESPP as of December 31, 2020.
F-43

F-35
(7)
Income Taxes
The components of income tax expense for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands):
   2020   2019   2018 
Current provision (benefit):
               
Federal
  $0—     $—     $—   
State
   37    42    54 
                
   $37   $42   $54 
                
Deferred provision:
               
Federal
  $1   $1   $(10
State
   —      —      (2
                
   $1   $1   $(12
                
    
Total
  $38   $43   $42 
                
A summary of the differences between the Company’s effective income tax rate and the Federal statutory income tax rate for the years ended December 31, 2020, 2019 and 2018 is as follows:
   2020  2019  2018 
Federal statutory rate
   21.0  21.0  21.0
State income taxes, net of federal benefit
   2.4  1.7  3.6
Net state impact of deferred rate change
   (0.7%)   (2.0%)   0.6
Stock compensation expense
   0.9  (10.7%)   (1.1%) 
Tax amortization on goodwill
   0.0  0.0  0.1
Goodwill impairment
   0.0  0.0  0.0
Other permanent differences
   (0.1%)   0.0  (0.5%) 
Change in valuation allowance
   (13.4%)   (6.0%)   (27.6%) 
Tax credits
   1.4  2.8  3.1
Federal Rate Change
   0.0  0.0  0.0
Accrual to tax return
   0.0  1.3  0.3
Increase Xoft NOLs under 382 Study
   0.0  0.0  0.0
Change in FV of convertible debt
   (9.0%)   (10.4%)   0.0
Foreign Rate Differential
   0.0  0.2  0.0
True Ups - NOL Expiration/162(m) limits
   (2.8%)   0.0  0.0
              
Effective income tax
   (0.3%)   (0.3%
)
 
  (0.5%
)
 
              
Deferred tax assets and liabilities are recognized for the expected future tax consequences of net operating loss carryforwards, tax credit carryforwards and temporary differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on the available evidence, it is more likely than not that the deferred tax assets will not be realized.
Deferred income taxes reflect the impact of “temporary differences” between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. The Company has fully reserved the net deferred tax assets, as it is more likely than not that the deferred tax assets will not be utilized. Deferred tax assets (liabilities) are composed of the following at December 31, 2020 and 2019 (in thousands):
F-44

   2020   2019 
Inventory (Section 263A)
  $248   $242 
Inventory reserves
   60    118 
Receivable reserves
   28    35 
Other accruals
   1,081    1,151 
Deferred revenue
   75    123 
Accumulated depreciation/amortization
   37    66 
Stock options
   459    267 
Developed technology
   1,449    1,702 
Tax credits
   3,859    3,663 
NOL carryforward
   36,078    33,640 
Lease liability
   415    625 
           
Net deferred tax assets
   43,789    41,632 
Valuation allowance
   (43,356   (41,025
Right of Use Asset
   (433   (607
Goodwill tax amortization
   (4   (3
           
Deferred tax liability
  $(4  $(3
           
The increase in the net deferred tax assets and corresponding valuation allowance during the year ended December 31, 2020 and December 31, 2019 is primarily attributable to additional accruals, net operating losses, and research and development credits.
As of December 31, 2020, the Company has federal net operating loss carryforwards totaling approximately $149.1 million. Federal net operating loss carryforwards totaling $122.1 million will expire at various dates from 2021 and 2037. The remaining $27.0 million of the federal net operating losses generated since December 31, 2017 can be carried forward indefinitely. As of December 31, 2020, the Company has provided a valuation allowance for its net operating loss carryforwards due to the uncertainty of the Company’s ability to generate sufficient taxable income in future years to obtain the benefit from the utilization of the net operating loss carryforwards. In the event of a deemed change in control, an annual limitation imposed on the utilization of the net operating losses may result in the expiration of all or a portion of the net operating loss carryforwards. There were 0
n
et operating losses utilized for the years ended December 31, 2020, 2019, or 2018.
The Company currently has approximately $6.6 million in net operating losses that are subject to limitations related to Xoft. Approximately $656,000 can be used annually through 2029. The Company has available tax credit carryforwards (adjusted to reflect provisions of the Tax Reform Act of 1986) to offset future income tax liabilities totaling approximately $3.9 million. The credits expire in various years through 2039. The Company has additional tax credits of $1.8 million related to Xoft which have been fully reserved for and as a result no deferred tax asset has been recorded. These credits expire in various years through 2030.
ASC
740-10
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on
de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
F-45

As of December 31, 2020 and 2019, the Company had 0 unrecognized tax benefits and no adjustments to liabilities or operations were required under ASC
740-10.
The Company’s practice is to recognize interest and penalty expenses related to uncertain tax positions in income tax expense, which was 0 for the years ended December 31, 2020, 2019 and 2018. The Company files United States federal and various state income tax returns. The Company will also file a tax return in France. Generally, the Company’s three preceding tax years remain subject to examination by federal and state tax authorities. The Company is not under examination by any other federal or state jurisdiction for any tax year.
The Company does not anticipate that it is reasonably possible that unrecognized tax benefits as of December 31, 2020 will significantly change within the next 12 months.
(8)
Segment Reporting, Geographical Information and Major Customers
(a) Segment Reporting
In accordance with FASB Topic ASC 280, Segments, operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance.
The Company’s CODM is the Chief Executive Officer. Each reportable segment generates revenue from the sale of medical equipment and related services and/or sale of supplies. The Company has determined there are 2
segments: Detection and Therapy.
The Detection segment consists of the Company’s advanced image analysis and workflow products, and the Therapy segment consists of the Company’s radiation therapy products, and related services. The primary factors used by the Company’s CODM to allocate resources are based on revenues, gross profit, operating income or loss, and earnings or loss before interest, taxes, depreciation, amortization, and other specific and
non-recurring
items of each segment. Included in segment operating income are stock compensation, amortization of technology and depreciation expense. There are no intersegment revenues.
The Company does not track its assets by operating segment and its CODM does not use asset information by segment to allocate resources or make operating decisions.
F-46

Segment revenues, gross profit, segment operating income or loss, and a reconciliation of segment operating income or loss to GAAP loss before income tax is as follows (in thousands):
   Year Ended December 31, 
   2020   2019   2018 
Segment revenues:
               
Detection
  $21,997   $22,319   $16,864 
Therapy
   7,701    9,021    8,757 
                
Total Revenue
  $29,698   $31,340   $25,621 
                
    
Segment gross profit:
               
Detection
  $17,856   $18,627   $14,709 
Therapy
   3,498    5,600    4,721 
                
Segment gross profit
  $21,354   $24,227   $19,430 
                
    
Segment operating income (loss):
               
Detection
  $2,719   $2,564   $3,412 
Therapy
   (3,028   (1,476   (2,373
                
Segment operating income (loss)
  $(309  $1,088   $1,039 
                
    
General administrative
  $(9,079  $(7,486  $(9,169
Interest expense
   (476   (784   (504
Financing costs
   —      —      (451
Loss on extinguishment of debt
   (341          
Other income
   97    345    110 
Fair value of convertible debentures
   (7,464   (6,671     
                
Loss before income tax
  $(17,572  $(13,508  $(8,975
                
Segment depreciation and amortization included in segment operating income (loss) is as follows (in thousands):
   Year Ended December 31, 
   2020   2019   2018 
Detection depreciation and amortization
               
Depreciation
  $115   $103   $106 
Amortization
   164    240    248 
    
Therapy depreciation and amortization
               
Depreciation
  $124   $166   $177 
Amortization
   128    128    129 
F-47

(b) Geographic Information
The Company’s sales are made to customers, distributors and dealers of mammography, electronic brachytherapy equipment and other medical equipment, and to foreign distributors of mammography and electronic brachytherapy equipment. Export sales to a single country did not exceed 10% of total revenue in any year. Total export sales were approximately $6.1 million or 20% of total revenue in 2020, $3.8 million or 12% of total revenue in 2019 and $3.2 million or 12% of total revenue in 2018.
As of December 31, 2020 and 2019, the Company had outstanding receivables of $3.4 million and $2.1 million, respectively, from distributors and customers of its products who are located outside of the U.S.
   
Percent of Export sales
 
Region
  2020  2019  2018 
Europe
   45  57  51
Taiwan
   13  15  22
Canada
   5  7  7
China
   22  8  0
Other
   15  13  20
              
Total
   100  100  100
              
    
Total Export sales
  $6,081  $3,788  $3,255 
Significant export sales in Europe are as follows:
   
Percent of Export sales
 
Region
  2020  2019  2018 
France
   41  34  36
Spain
   17  12  8
Germany
   12  4  3
Italy
   8  2  1
United Kingdon
             6            2            0
(c) Major Customers
The Company had 1
major OEM customer, GE Healthcare, with revenues of approximately $5.0 million in 2020, $7.6 million in 2019 and $6.1 million in 2018 or 17%, 24% and 24% of total revenue, respectively. Cancer detection products are also sold through OEM partners, including GE Healthcare, Fujifilm Medical Systems, Siemens Medical, and Vital Images. For the year ended December 31, 2020, these four OEM partners composed approximately 35% of Detection revenues and 26% of total revenue. Detection OEM partners in total composed approximately 37% of Detection revenues and 28% of total revenue for the year ended December 31, 2020, 46% of Detection revenues and 33% of total revenue for the year ended December 31, 2019 and 50% of Detection revenues and 33% of total revenue for the year ended December 31, 2018. The Company also had one major direct customer with revenues of approximately $2.8 million, or 9% of total revenue for year ended December 31, 2020.
F-48

OEM partners represented $4.4 million or 44% of outstanding receivables as of December 31, 2020, with GE Healthcare accounting for $1.5 million or 34% of this amount. The four largest Therapy customers composed $1.7 million or 17% of outstanding receivables as of December 31, 2020. The largest Detection direct customer represents $1.1 million or 11% of outstanding receivables as of December 31, 2020. These
twenty-one
customers in total represented $7.1 million or 72% of outstanding receivables as of December 31, 2020.
(9)
Commitments and Contingencies
(a) Other Commitments
The Company has
non-cancelable
purchase orders with key suppliers executed in the normal course of business that total approximately $3.4 million. In connection with the Company’s employee savings plans, the matching contribution for 2020 was approximately $0.5 million in cash. The matching contribution for 2021 is estimated to be approximately $0.5 million in cash.
(b) Employment Agreements
The Company has entered into employment agreements with certain key current and former executives. The employment agreements provide for minimum annual salaries and performance-based annual bonus compensation as defined in their respective agreements. In addition, the employment agreements provide that if employment is terminated without cause, the executive will receive an amount equal to their respective base salary then in effect for (i) fifteen months from the date of termination, for Mr. Klein, (ii) eighteen months from the date of termination, for Ms. Stevens, and (iii) twenty-four months from the date of termination, for Mr. Ferry, and in each case, plus the pro rata portion of any annual bonus earned in any employment year through the date of termination.
On November 8, 2018, Mr. Ferry retired as Chief Executive Officer of the Company and from his position as Chairman of the Board of Directors. Mr. Ferry and the Company entered into a Separation Agreement on that date, pursuant to which Mr. Ferry will generally receive the payments that would have been payable had he been terminated by the Company without cause. The Company accrued $1,009,000 representing 24 months of severance and 18 months of health benefits as of November 2018 upon Mr. Ferry’s agreeing to the Separation Agreement, which the Company began paying monthly in May 2019 and has completed all payments as of December 31, 2020.
(c) Royalty Obligations
In connection with prior litigation, the Company received a nonexclusive, irrevocable, perpetual, worldwide license, including the right to sublicense certain Hologic patents, and a
non-compete
covenant as well as an agreement not to seek further damages with respect to the alleged patent violations. In return, the Company had a remaining obligation to pay a minimum annual royalty payment of $250,000 payable through 2016. In addition to the minimum annual royalty payments, the litigation settlement agreement with Hologic also provides for payment of royalties if such royalties exceed the minimum payment based upon a specified percentage of future net sales on any products that practice the licensed rights. The estimated fair value of the patent license and
non-compete
covenant is $100,000 and was amortized over the useful life of approximately four years. In addition, a liability has been recorded within accrued expenses and accounts payable for future payment and for minimum royalty obligations totaling $0.4 million.
F-49

(d) Litigation
The Company may be a party to various legal proceedings and claims arising out of the ordinary course of its business. Although the final results of all such matters and claims cannot be predicted with certainty, the Company currently believes that there are no current proceedings or claims pending against it of which the ultimate resolution would have a material adverse effect on its financial condition or results of operations. However, should the Company fail to prevail in any legal matter or should several legal matters be resolved against us in the same reporting period, such matters could have a material adverse effect on the Company’s operating results and cash flows for that particular period. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, “Contingencies.” Legal costs are expensed as incurred.
In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation. In accordance with the agreement, the Company sold to Invivo all right, title and interest to certain intellectual property relating to the Company’s VersaVue Software and DynaCAD product and related assets for $3.2 million. The Company closed the transaction on January 30, 2017 less a holdback reserve of $350,000 for a net of approximately $2.9 million.
On September 5, 2018, third-party Yeda Research and Development Company Ltd. (“Yeda”), filed a complaint (“the Complaint”) against the Company and Invivo in the United States District Court for the Southern District of New York, captioned Yeda Research and Development Company Ltd. v. iCAD, Inc. and Invivo Corporation, Case No.
1:18-cv-08083-GBD,
related to the Company’s sale of the VersaVue software and DynaCAD product under the Asset Purchase Agreement. In the Complaint, Yeda asserted claims for: (i) copyright infringement and misappropriation of trade secrets against both the Company and Invivo; (ii) breach of contract against the Company only; and (iii) tortious interference with existing business relationships and unjust enrichment against Invivo only. The Company and Invivo filed Motions to Dismiss the Complaint on December 21, 2018. On January 18, 2019, Yeda filed Oppositions to the Motions to Dismiss. The Company and Invivo submitted responses to the Opposition to the Motion to Dismiss on February 8, 2019. The Court held oral argument on the Motions to Dismiss on March 27, 2019. On September 5, 2019, the Court granted Invivo’s Motion to Dismiss in its entirety and granted the Company’s Motion to Dismiss as it relates to Yeda’s breach of contract and misappropriation of trade secrets claims. On October 22, 2019, Yeda filed an Amended Complaint against only the Company asserting claims for (i) copyright infringement; and (ii) a replead breach of contract claim. The Company filed its Answer to Yeda’s Amended Complaint on November 5, 2019. Yeda alleges, among other things, that the Company infringed upon Yeda’s source code, which was originally licensed to the Company, by using it in the products that the Company sold to Invivo and that it is entitled to damages that could include, among other things, profits relating to the sales of these products. If the Company is found to have infringed Yeda’s copyright or breached its agreements with Yeda, the Company could be obligated to pay to Yeda substantial monetary damages.
F-50