UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission file number001-09341
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, NH | 03062 | |
(Address of principal executive offices) | (Zip Code) |
(603)882-5200
(603) 882-5200
(Registrant’sRegistrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | ICAD | The Nasdaq Stock Market LLC |
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. YESYes ☒ NONo ☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YESYes ☒ NONo ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, an emerging growth company or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-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.Act ☐.
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act) YESYes ☐ NONo ☒.
As of the close of business on November 13, 20178, 2023, there were 16,511,65526,352,733 shares outstanding of the registrant’s Common Stock, $.01$0.01 par value.
iCAD, Inc.
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PART I | ||||||
Item 1 | ||||||
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Notes to Condensed Consolidated Financial Statements (unaudited) | ||||||
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3 | ||||||
Item 4 | ||||||
PART II | ||||||
Item 1A | ||||||
Item 6 | ||||||
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except for share data)
(Unaudited)
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 11,261 | $ | 8,585 | ||||
Trade accounts receivable, net of allowance for doubtful accounts of $209 in 2017 and $172 in 2016 | 7,189 | 5,189 | ||||||
Inventory, net | 3,340 | 3,727 | ||||||
Prepaid expenses and other current assets | 949 | 1,128 | ||||||
Assets held for sale | — | 1,304 | ||||||
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Total current assets | 22,739 | 19,933 | ||||||
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Property and equipment, net of accumulated depreciation of $7,245 in 2017 and $6,538 in 2016 | 972 | 1,385 | ||||||
Other assets | 53 | 53 | ||||||
Intangible assets, net of accumulated amortization of $7,333 in 2017 and $7,518 in 2016 | 2,055 | 3,183 | ||||||
Goodwill | 10,128 | 14,097 | ||||||
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Total assets | $ | 35,947 | $ | 38,651 | ||||
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| Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,346 | $ | 1,577 | ||||
Accrued and other expenses | 4,935 | 4,988 | ||||||
Lease payable - current portion | 12 | 86 | ||||||
Notes payable - current portion | 317 | — | ||||||
Liabilities held for sale | — | 832 | ||||||
Deferred revenue | 5,021 | 5,372 | ||||||
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Total current liabilities | 11,631 | 12,855 | ||||||
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Other long-term liabilities | 140 | 83 | ||||||
Lease payable, long-term portion | 30 | — | ||||||
Notes payable, long-term portion | 5,612 | — | ||||||
Deferred revenue, long-term portion | 525 | 668 | ||||||
Deferred tax | 12 | 7 | ||||||
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Total liabilities | 17,950 | 13,613 | ||||||
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Commitments and Contingencies (Note 6, 7 and 9) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $ .01 par value: authorized 1,000,000 shares; none issued. | — | — | ||||||
Common stock, $ .01 par value: authorized 30,000,000 shares; issued 16,627,705 in 2017 and 16,260,663 in 2016; outstanding 16,441,874 in 2017 and 16,074,832 in 2016 | 167 | 163 | ||||||
Additionalpaid-in capital | 216,875 | 213,899 | ||||||
Accumulated deficit | (197,630 | ) | (187,609 | ) | ||||
Treasury stock at cost, 185,831 shares in 2017 and 2016 | (1,415 | ) | (1,415 | ) | ||||
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Total stockholders’ equity | 17,997 | 25,038 | ||||||
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Total liabilities and stockholders’ equity | $ | 35,947 | $ | 38,651 | ||||
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September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 19,046 | $ | 21,313 | ||||
Trade accounts receivable, net of allowance for credit losses of $230 and $100 as of September 30, 2023 and December 31, 2022, respectively | 4,865 | 5,769 | ||||||
Inventory, net | 992 | 2,054 | ||||||
Prepaid expenses and other current assets | 1,603 | 1,571 | ||||||
Current assets held for sale | 5,837 | 7,534 | ||||||
Total current assets | 32,343 | 38,241 | ||||||
Property and equipment, net of accumulated depreciation of $991 and $851 as of September 30, 2023 and December 31, 2022, respectively | 1,285 | 704 | ||||||
Operating lease assets | 514 | 670 | ||||||
Other assets | 47 | 19 | ||||||
Intangible assets, net of accumulated amortization of $8,459 and $8,372 as of September 30, 2023 and December 31, 2022, respectively | 177 | 264 | ||||||
Goodwill | 8,362 | 8,362 | ||||||
Deferred tax assets | 104 | 116 | ||||||
Noncurrent assets held for sale | 2,996 | 3,329 | ||||||
Total assets | $ | 45,828 | $ | 51,705 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,098 | $ | 1,446 | ||||
Accrued and other expenses | 2,385 | 2,541 | ||||||
Lease payable—current portion | 197 | 217 | ||||||
Deferred revenue—current portion | 3,343 | 3,653 | ||||||
Current liabilities held for sale | 4,389 | 5,595 | ||||||
Total current liabilities | 11,412 | 13,452 | ||||||
Lease payable, net of current | 317 | 455 | ||||||
Deferred revenue, net of current | 844 | 393 | ||||||
Deferred tax | 6 | 6 | ||||||
Noncurrent liabilities held for sale | 2,214 | 2,497 | ||||||
Total liabilities | 14,793 | 16,803 | ||||||
Commitments and Contingencies (Note 12) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.01 par value: authorized 1,000,000 shares; none issued. | — | — | ||||||
Common stock, $0.01 par value: authorized 60,000,000 shares; issued 26,440,464 and 25,446,407 as of September 30, 2023 and December 31, 2022, respectively; outstanding 26,254,633 and 25,260,576 as of September 30, 2023 and December 31, 2022, respectively. | 264 | 254 | ||||||
Additional paid-in capital | 305,924 | 302,899 | ||||||
Accumulated deficit | (273,738 | ) | (266,836 | ) | ||||
Treasury stock at cost, 185,831 shares as of both September 30, 2023 and December 31, 2022 | (1,415 | ) | (1,415 | ) | ||||
Total stockholders’ equity | 31,035 | 34,902 | ||||||
Total liabilities and stockholders’ equity | $ | 45,828 | $ | 51,705 | ||||
See accompanying notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except for per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue: | ||||||||||||||||
Products | $ | 3,426 | $ | 2,014 | $ | 9,225 | $ | 7,460 | ||||||||
Service and supplies | 3,574 | 3,989 | 10,975 | 11,950 | ||||||||||||
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Total revenue | 7,000 | 6,003 | 20,200 | 19,410 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Products | 636 | 236 | 1,349 | 611 | ||||||||||||
Service and supplies | 1,458 | 1,370 | 4,169 | 3,911 | ||||||||||||
Amortization and depreciation | 263 | 296 | 847 | 899 | ||||||||||||
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Total cost of revenue | 2,357 | 1,902 | 6,365 | 5,421 | ||||||||||||
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Gross profit | 4,643 | 4,101 | 13,835 | 13,989 | ||||||||||||
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Operating expenses: | ||||||||||||||||
Engineering and product development | 2,254 | 2,360 | 7,060 | 6,835 | ||||||||||||
Marketing and sales | 2,580 | 2,322 | 8,172 | 7,379 | ||||||||||||
General and administrative | 1,944 | 1,783 | 6,067 | 5,586 | ||||||||||||
Amortization and depreciation | 107 | 288 | 345 | 867 | ||||||||||||
Gain on sale of MRI assets | — | — | (2,508 | ) | — | |||||||||||
Goodwill and long-lived asset impairment | 4,700 | — | 4,700 | — | ||||||||||||
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Total operating expenses | 11,585 | 6,753 | 23,836 | 20,667 | ||||||||||||
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Loss from operations | (6,942 | ) | (2,652 | ) | (10,001 | ) | (6,678 | ) | ||||||||
Interest expense | (36 | ) | (15 | ) | (51 | ) | (59 | ) | ||||||||
Other income | 3 | 2 | 3 | 9 | ||||||||||||
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Other expense, net | (33 | ) | (13 | ) | (48 | ) | (50 | ) | ||||||||
Loss before income tax expense | (6,975 | ) | (2,665 | ) | (10,049 | ) | (6,728 | ) | ||||||||
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Tax benefit (expense) | 42 | (10 | ) | 28 | (55 | ) | ||||||||||
Net loss and comprehensive loss | $ | (6,933 | ) | $ | (2,675 | ) | $ | (10,021 | ) | $ | (6,783 | ) | ||||
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Net loss per share: | ||||||||||||||||
Basic | $ | (0.42 | ) | $ | (0.17 | ) | $ | (0.62 | ) | $ | (0.43 | ) | ||||
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Diluted | $ | (0.42 | ) | $ | (0.17 | ) | $ | (0.62 | ) | $ | (0.43 | ) | ||||
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Weighted average number of shares used in computing loss per share: | ||||||||||||||||
Basic | 16,424 | 15,957 | 16,291 | 15,896 | ||||||||||||
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Diluted | 16,424 | 15,957 | 16,291 | 15,896 | ||||||||||||
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue: | ||||||||||||||||
Products | $ | 2,198 | $ | 2,536 | $ | 6,961 | $ | 9,866 | ||||||||
Service and supplies | 1,875 | 1,823 | 5,617 | 5,301 | ||||||||||||
Total revenue | 4,073 | 4,359 | 12,578 | 15,167 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Products | 263 | 348 | 1,099 | 1,253 | ||||||||||||
Service and supplies | 267 | 280 | 951 | 916 | ||||||||||||
Amortization and depreciation | 22 | 27 | 65 | 81 | ||||||||||||
Total cost of revenue | 552 | 655 | 2,115 | 2,250 | ||||||||||||
Gross profit | 3,521 | 3,704 | 10,463 | 12,917 | ||||||||||||
Operating expenses: | ||||||||||||||||
Engineering and product development | 1,147 | 1,407 | 3,909 | 4,359 | ||||||||||||
Marketing and sales | 1,495 | 2,761 | 5,690 | 8,206 | ||||||||||||
General and administrative | 2,042 | 2,649 | 7,650 | 7,804 | ||||||||||||
Amortization and depreciation | 56 | 52 | 186 | 169 | ||||||||||||
Total operating expenses | 4,740 | 6,869 | 17,435 | 20,538 | ||||||||||||
Loss from operations | (1,219 | ) | (3,165 | ) | (6,972 | ) | (7,621 | ) | ||||||||
Other income/ (expense): | ||||||||||||||||
Interest expense | — | (7 | ) | (2 | ) | (7 | ) | |||||||||
Interest income | 195 | 71 | 528 | 89 | ||||||||||||
Other income (expense), net | (9 | ) | (2 | ) | (8 | ) | (45 | ) | ||||||||
Other income (expense), net | 186 | 62 | 518 | 37 | ||||||||||||
Loss before provision for income taxes | (1,033 | ) | (3,103 | ) | (6,454 | ) | (7,584 | ) | ||||||||
Provision for income taxes | (4 | ) | — | (13 | ) | — | ||||||||||
Loss from continuing operations | (1,037 | ) | (3,103 | ) | (6,467 | ) | (7,584 | ) | ||||||||
Loss from discontinued operations, net of tax | (337 | ) | (795 | ) | (435 | ) | (2,977 | ) | ||||||||
Net loss and comprehensive loss | $ | (1,374 | ) | $ | (3,898 | ) | $ | (6,902 | ) | $ | (10,561 | ) | ||||
Net loss per share: | ||||||||||||||||
Loss from continuing operations, basic and diluted | $ | (0.04 | ) | $ | (0.12 | ) | $ | (0.25 | ) | $ | (0.30 | ) | ||||
Loss from discontinued operations, basic and diluted | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.12 | ) | ||||
Net loss per share | $ | (0.05 | ) | $ | (0.15 | ) | $ | (0.27 | ) | $ | (0.42 | ) | ||||
Weighted average number of shares used in computing loss per share: | ||||||||||||||||
Basic and diluted | 25,597 | 25,204 | 25,374 | 25,183 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands, except shares)
(Unaudited)
For the three months ended September 30, 2023 | ||||||||||||||||||||||||
Common Stock | Additional | |||||||||||||||||||||||
Number of | Paid-in | Accumulated | Treasury | Stockholders’ | ||||||||||||||||||||
Shares Issued | Par Value | Capital | Deficit | Stock | Equity | |||||||||||||||||||
Balance at June 30, 2023 | 25,446,407 | $ | 254 | $ | 303,699 | $ | (272,364 | ) | $ | (1,415 | ) | $ | 30,174 | |||||||||||
Issuance of common stock pursuant to stock option plans | 35,809 | $ | — | $ | 80 | 80 | ||||||||||||||||||
Issuance of common stock, net of issuance costs of $336 | 958,248 | $ | 10 | $ | 1,831 | 1,841 | ||||||||||||||||||
Stock-based compensation | — | — | 314 | — | — | 314 | ||||||||||||||||||
Net loss | — | — | — | (1,374 | ) | — | (1,374 | ) | ||||||||||||||||
Balance at September 30, 2023 | 26,440,464 | $ | 264 | $ | 305,924 | $ | (273,738 | ) | $ | (1,415 | ) | $ | 31,035 | |||||||||||
For the nine months ended September 30, 2023 | ||||||||||||||||||||||||
Common Stock | Additional | |||||||||||||||||||||||
Number of | Paid-in | Accumulated | Treasury | Stockholders | ||||||||||||||||||||
Shares Issued | Par Value | Capital | Deficit | Stock | Equity | |||||||||||||||||||
Balance at December 31, 2022 | 25,446,407 | $ | 254 | $ | 302,899 | $ | (266,836 | ) | $ | (1,415 | ) | $ | 34,902 | |||||||||||
Issuance of common stock pursuant to stock option plans | 35,809 | $ | — | $ | 80 | 80 | ||||||||||||||||||
Issuance of common stock, net of issuance costs of $336 | 958,248 | $ | 10 | $ | 1,831 | 1,841 | ||||||||||||||||||
Stock-based compensation | — | — | 1,114 | — | — | 1,114 | ||||||||||||||||||
Net loss | — | — | — | (6,902 | ) | — | (6,902 | ) | ||||||||||||||||
Balance at September 30, 2023 | 26,440,464 | $ | 264 | $ | 305,924 | $ | (273,738 | ) | $ | (1,415 | ) | $ | 31,035 | |||||||||||
For the three months ended September 30, 2022 | ||||||||||||||||||||||||
Common Stock | Additional | |||||||||||||||||||||||
Number of | Paid-in | Accumulated | Treasury | Stockholders’ | ||||||||||||||||||||
Shares Issued | Par Value | Capital | Deficit | Stock | Equity | |||||||||||||||||||
Balance at June 30, 2022 | 25,373,858 | $ | 254 | $ | 301,994 | $ | (259,843 | ) | $ | (1,415 | ) | $ | 40,990 | |||||||||||
Issuance of common stock pursuant to stock option plans | 45,000 | — | 127 | — | — | 127 | ||||||||||||||||||
Issuance of common stock pursuant Employee Stock Purchase Plans | 10,077 | — | 34 | — | — | 34 | ||||||||||||||||||
Stock-based compensation | — | — | 405 | — | — | 405 | ||||||||||||||||||
Net loss | — | — | — | (3,898 | ) | — | (3,898 | ) | ||||||||||||||||
Balance at September 30, 2022 | 25,428,935 | $ | 254 | $ | 302,560 | $ | (263,741 | ) | $ | (1,415 | ) | $ | 37,658 | |||||||||||
For the nine months ended September 30, 2022 | ||||||||||||||||||||||||
Common Stock | Additional | |||||||||||||||||||||||
Number of | Paid-in | Accumulated | Treasury | Stockholders’ | ||||||||||||||||||||
Shares Issued | Par Value | Capital | Deficit | Stock | Equity | |||||||||||||||||||
Balance at December 31, 2021 | 25,326,086 | $ | 253 | $ | 300,859 | $ | (253,180 | ) | $ | (1,415 | ) | $ | 46,517 | |||||||||||
Issuance of common stock related to vesting of restricted stock | 875 | — | — | — | — | — | ||||||||||||||||||
Issuance of common stock pursuant to stock option plans | 73,833 | 1 | 205 | — | — | 206 | ||||||||||||||||||
Issuance of common stock pursuant Employee Stock Purchase Plans | 28,141 | — | 127 | — | — | 127 | ||||||||||||||||||
Stock-based compensation | — | — | 1,369 | — | — | 1,369 | ||||||||||||||||||
Net loss | — | — | — | (10,561 | ) | — | (10,561 | ) | ||||||||||||||||
Balance at September 30, 2022 | 25,428,935 | $ | 254 | $ | 302,560 | $ | (263,741 | ) | $ | (1,415 | ) | $ | 37,658 | |||||||||||
See accompanying notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(unaudited)(In thousands)
(Unaudited)
| For the nine months ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
Cash flow from operating activities: | ||||||||
Net loss | $ | (10,021 | ) | $ | (6,783 | ) | ||
Adjustments to reconcile net loss to net cash used for by operating activities: | ||||||||
Amortization | 394 | 753 | ||||||
Depreciation | 798 | 1,013 | ||||||
Bad debt provision | 44 | 133 | ||||||
Stock-based compensation expense | 3,073 | 1,648 | ||||||
Amortization of debt discount and debt costs | (6 | ) | (13 | ) | ||||
Interest on settlement obligations | 26 | 69 | ||||||
Deferred tax expense | 6 | — | ||||||
Gain from acquisition litigation settlement | — | (249 | ) | |||||
Goodwill and long-lived asset impairment | 4,700 | — | ||||||
Loss on disposal of assets | 26 | 9 | ||||||
Gain on sale of MRI assets | (2,158 | ) | — | |||||
Changes in operating assets and liabilities (net of the effect of acquisitions): | ||||||||
Accounts receivable | (2,062 | ) | 2,706 | |||||
Inventory | 389 | (82 | ) | |||||
Prepaid and other current assets | 179 | (483 | ) | |||||
Accounts payable | (231 | ) | (281 | ) | ||||
Accrued expenses | (23 | ) | 78 | |||||
Deferred revenue | (699 | ) | (2,380 | ) | ||||
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Total adjustments | 4,456 | 2,921 | ||||||
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Net cash used for operating activities | (5,565 | ) | (3,862 | ) | ||||
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Cash flow from investing activities: | ||||||||
Additions to patents, technology and other | (2 | ) | (8 | ) | ||||
Additions to property and equipment | (362 | ) | (248 | ) | ||||
Acquisition of VuCompM-Vu CAD | — | (6 | ) | |||||
Sale of MRI assets | 2,850 | — | ||||||
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Net cash provided by (used for) investing activities | 2,486 | (262 | ) | |||||
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Cash flow from financing activities: | ||||||||
Stock option exercises | 57 | 188 | ||||||
Taxes paid related to restricted stock issuance | (151 | ) | (65 | ) | ||||
Debt issuance costs | (74 | ) | — | |||||
Principal payments of capital lease obligations | (77 | ) | (796 | ) | ||||
Proceeds from debt financing, net | 6,000 | — | ||||||
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Net cash provided by (used for) financing activities | 5,755 | (673 | ) | |||||
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Increase (decrease) in cash and equivalents | 2,676 | (4,797 | ) | |||||
Cash and equivalents, beginning of period | 8,585 | 15,280 | ||||||
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Cash and equivalents, end of period | $ | 11,261 | $ | 10,483 | ||||
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Supplemental disclosure of cash flow information: | ||||||||
Interest paid | $ | 14 | $ | 63 | ||||
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Taxes paid | $ | 52 | $ | 65 | ||||
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Escrow due from MRI asset sale | $ | 350 | $ | — | ||||
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Equipment purchased under capital lease | $ | 42 | $ | — | ||||
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For the Nine Months ended | ||||||||
September 30, | ||||||||
2023 | 2022 | |||||||
Cash flow from operating activities: | ||||||||
Net loss | $ | (6,902 | ) | $ | (10,561 | ) | ||
Adjustments to reconcile net loss to net cash used for operating activities: | ||||||||
Amortization | 142 | 158 | ||||||
Depreciation | 202 | 246 | ||||||
Non-cash lease expense | 409 | 549 | ||||||
Bad debt provision | 189 | 510 | ||||||
Stock-based compensation | 1,114 | 1,369 | ||||||
Deferred tax | 12 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 1,903 | (91 | ) | |||||
Inventory | 1,472 | (1,459 | ) | |||||
Prepaid and other assets | 38 | 7 | ||||||
Accounts payable | (509 | ) | (351 | ) | ||||
Accrued and other expenses | (1,022 | ) | (98 | ) | ||||
Lease liabilities | (420 | ) | (602 | ) | ||||
Deferred revenue | (141 | ) | 663 | |||||
Total adjustments | 3,389 | 901 | ||||||
Net cash used for operating activities | (3,513 | ) | (9,660 | ) | ||||
Cash flow from investing activities: | ||||||||
Additions to patents, technology and other | — | (10 | ) | |||||
Additions to property and equipment | (487 | ) | (355 | ) | ||||
Capitalization of internal-use software development costs | (188 | ) | — | |||||
Net cash used for investing activities | (675 | ) | (365 | ) | ||||
Cash flow from financing activities: | ||||||||
Proceeds from option exercises pursuant to stock option plans | 80 | 206 | ||||||
Proceeds from issuances of common stock, net of issuance costs | 1,841 | — | ||||||
Proceeds from issuance of common stock pursuant to Employee Stock Purchase Plans | — | 127 | ||||||
Net cash provided by financing activities | 1,921 | 333 | ||||||
Decrease in cash and cash equivalents | (2,267 | ) | (9,692 | ) | ||||
Cash and cash equivalents, beginning of period | 21,313 | 34,282 | ||||||
Cash and cash equivalents, end of period | $ | 19,046 | $ | 24,590 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Interest paid | $ | — | $ | 7 | ||||
Amendment to right-of-use assets obtained in exchange for operating lease liabilities | $ | — | $ | 2,434 | ||||
See accompanying notes to condensed consolidated financial statements.
iCAD, INC. AND SUBSIDIARIES
(In thousands, except for share and per share data or as noted)
Notes to Condensed Consolidated Financial StatementsStatements:
(Unaudited)
September 30, 2017
Note 1 -– Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of iCAD, Inc. and its subsidiaries (“iCAD”(together “iCAD” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”)., which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period and disclosure of contingent assets and liabilities at the date of the financial 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. In the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company at September 30, 2017,2023, the results of operations of the Company for the three and nine month periods months ended September 30, 2017 2023 and 2016, and2022, cash flows of the Company for the nine month periods months ended September 30, 2017 2023 and 2016. 2022, and stockholders’ equity of the Company for the three and nine months ended September 30, 2023 and 2022.
As discussed in Note 2, the Company completed the sale of its Xoft business line on October 23, 2023. The applicable assets and liabilities of the Xoft business have been classified as held for sale in the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, and the results of its operations for all periods presented are reflected as discontinued operations in the Condensed Consolidated Statements of Operations. Unless otherwise indicated, all disclosures and amounts in the Notes to Condensed Consolidated Financial Statements relate to the Company’s continuing operations.
Although the Company believes that the disclosures made in these interim financial statements are adequate to make the information presented not misleading, certain information normally included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”(the “SEC”). The accompanying interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form10-K10-K for the fiscal year ended December 31, 20162022, filed with the SEC on March 24, 2017. 31, 2023. The results for the three and nine month periods months ended September 30, 20172023, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017,2023, or any interim or any future period.
Principles of Consolidation and Business Segments
The condensed consolidated financial statements include the accounts of iCAD, Inc. and its wholly owned subsidiaries: Xoft, Inc., Xoft Solutions, LLC, iCAD France, LLC and iCAD Italy, LLC. All material inter-company transactions and balances have been eliminated in consolidation.
The Company reportspreviously reported the results of two segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). The Detection segment consists of our advanced image analysis and workflow products.products for the detection of cancer. The Therapy segment consists of our radiation therapy (“Axxent”Xoft”, “Axxent”) products physics and management services, development fees, supplies, and fees for the AxxentHub software platform.
Revenue Recognition
Thetreatment of certain cancers. As discussed in Note 2, the Company recognizes revenue primarily from the sale of products and from the sale of services and supplies. Revenue is recognized when delivery has occurred, persuasive evidence of an arrangement exists, fees are fixed or determinable and collectability of the related receivable is probable. For product revenue, delivery has occurred upon shipment provided title and risk of loss have passed to the customer. Services and supplies revenue are considered to be delivered as the services are performed or over the estimated life of the supply agreement.
The Company recognizes revenue fromcompleted the sale of its digital, film-based CADXoft business line on October 23, 2023. The applicable assets and cancer therapy products liabilities of the Xoft business have been classified as held for sale in the Condensed Consolidated Balance Sheets as of September 30, 2023 and servicesDecember 31, 2022, and the results of its operations for all periods presented are reflected as discontinued operations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) UpdateNo. 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU2009-13”)the Condensed Consolidated Statements of Operations. Unless otherwise indicated, all disclosures and ASC UpdateNo. 2009-14, “Certain Arrangements That Contain Software Elements” (“ASU2009-14”) and ASC985-605, “Software” (“ASC985-605”). Revenue fromamounts in the sale of certain CAD products is
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
recognized in accordance with ASC 840 “Leases” (“ASC 840”). For multiple element arrangements, revenue is allocated to all deliverables based on their relative selling prices. In such circumstances, a hierarchy is used to determine the selling price to be used
Assets and Liabilities Held for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of the selling price (“BESP”). VSOE generally exists only when the deliverable is sold separately and is the price actually charged for that deliverable. The process for determining BESP for deliverables without VSOE or TPE considers multiple factors including relative selling prices; competitive prices in the marketplace, and management judgment; however, these may vary depending upon the unique facts and circumstances related to each deliverable.Sale
The Company classifies its assets and liabilities as held for sale when management commits to a plan to sell the assets, the assets are ready for immediate sale in their present condition, an active program to locate buyers has been initiated, the sale of the assets is probable and expected to be completed within one year, the assets are marketed at reasonable prices in relation to their fair value and it is unlikely that significant changes will be made to the plan to sell the assets. The Company measures the value of its assets and liabilities held for sale at the lower of the carrying amount or fair value, less cost to sell.
Assets and liabilities held for sale in the Condensed Consolidated Balance Sheets pertain to applicable assets and liabilities of the Xoft business. See Note 2 for additional information.
Risk and Uncertainty
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 COVID-19, the United States and most countries of the world imposed some level of unprecedented restrictions such as travel bans and business closures which caused substantial reductions in economic activity. As a provider of devices and services to the health care industry, the Company believes its operations have been materially affected in all periods presented. While the worst of the disruptions appear to have subsided as of June 30, 2023, the Company continues to be impacted by slowness in the overall economic recovery. The Company’s expected results for future periods could reflect a continuing negative impact from the COVID-19 pandemic for similar or additional reasons.
In late February 2022, Russian military forces launched significant military action against Ukraine. In early October 2023, an armed conflict between Hamas-led Palestinian militant groups and Israeli military forces broke out with a Hamas attack on southern Israel, to which Israeli military forces retaliated. Sustained conflict and disruption in the regions has continued and is likely to continue. 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; may be subject to government export controls, economic sanctions, embargoes, or trade restrictions; and experience currency, inflation, and interest rate uncertainties. While the impact to the Company has been limited to date, it is not possible to predict the potential outcome should the conflict expand and/or additional sanctions be imposed. For the three and nine months ended September 30, 2023, approximately 16% and 14%, respectively, of the Company's revenue was derived from customers located outside the United States.
Recently Adopted Accounting Pronouncements
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 replaced the then-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 was permitted. The Company adopted ASU 2016-13 effective January 1, 2023. Adoption caused the Company to modify its approach to estimating its allowance for potentially uncollectable accounts receivable. Specifically, the Company began applying an expected credit loss model that uses customer purchase orders that are subjecthistorical loss rates of its accounts receivable for the previous twelve months as well as expectations about the future where the Company has been able to develop forecasts to support its estimates. Adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements.
Note 2– Discontinued Operations
On October 22, 2023, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”), by and among (i) the Company, Xoft Solutions, LLC, a Delaware limited liability company, and Xoft, Inc., a Delaware corporation, each a wholly owned subsidiary of the Company (collectively with the Company, the “Sellers” and each, a “Seller”), and (ii) Elekta Inc., a Georgia corporation, and Nucletron Operations B.V., a company organized under the laws of the Netherlands (together, “Buyers” and each a “Buyer”), pursuant to which the Company agreed to transfer to the Buyers substantially all of the assets and liabilities primarily related to the Company’s termsXoft business lines (the “Business”), including with respect to employees, contracts, intellectual property and conditions or,inventory, for a cash payment of approximately $5.76 million dollars from the Buyers to the Company payable no later than November 6, 2023, and the assumption by Buyers of all liabilities relating to the Business (the “Transaction”). This payment is guaranteed by Elekta AB, a company organized under the laws of Sweden, the ultimate parent company of the Buyers.
The closing of the Transaction occurred simultaneously with the execution of the Purchase Agreement.
In connection with the Transaction, the parties entered into a transition services agreement pursuant to which the Company will provide certain migration and transition services to facilitate an orderly transition of the operation of the Business to the Buyers during the 5-month period following consummation of the Transaction, extendable at the option of the parties.
The Purchase Agreement contains certain representations, warranties, covenants and indemnification provisions, including for breaches of covenants and for losses resulting from the Company’s liabilities specifically excluded from the Transaction.
The Business, which had previously been presented as a separate reporting segment, meets the criteria for being reported as a discontinued operation and has been segregated from continuing operations. The following table summarizes the results from discontinued operations:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenue | $ | 1,414 | $ | 1,998 | $ | 4,551 | $ | 6,287 | ||||||||
| Total cost of sales | (916 | ) | (1,328 | ) | (2,516 | ) | (4,029 | ) | ||||||||
| Gross profit | $ | 498 | $ | 670 | $ | 2,036 | $ | 2,258 | ||||||||
| Total operating expenses | (835 | ) | (1,465 | ) | (2,471 | ) | (5,235 | ) | ||||||||
| Provision for income taxes | — | — | — | — | ||||||||||||
| Loss from discontinued operations, net of tax | $ | (337 | ) | $ | (795 | ) | $ | (435 | ) | $ | (2,977 | ) | ||||
Total operating expenses presented in the case of an Original Equipment Manufacturer (“OEM”) are governed by distribution agreements. In accordance with the Company’s distribution agreements, the OEM does not have a right of return, and title and risk of loss passestable above exclude amounts that had previously been allocated to the OEM upon shipment.Business for certain shared marketing expenses. The Company generally ships Free On Board shipping pointpreviously allocated amounts were less than $0.1 million and uses shipping documents $0.2 million for the three months ended September 30, 2023 and third-party proof2022, respectively. The previously allocated amounts were $0.3 million and $0.5 million for the nine months ended September 30, 2023 and 2022, respectively. The previously allocated expenses are included in the Marketing and sales line for all periods presented in the Condensed Consolidated Statements of delivery to verify deliveryOperations.
The following table summarizes the assets and transferliabilities held for sale in the Company's Consolidated Balance Sheets:
| September 30, 2023 | December 31, 2022 | |||||||
Assets | ||||||||
| Accounts receivable, net of allowance for credit losses | $ | 1,941 | $ | 3,129 | ||||
| Inventories, net | 2,925 | 3,335 | ||||||
| Prepaid expenses and other current assets | 971 | 1,070 | ||||||
| Total current assets held for sale | $ | 5,837 | $ | 7,534 | ||||
| Net property and equipment | $ | 345 | $ | 370 | ||||
| Operating lease assets | 2,438 | 2,691 | ||||||
| Other assets | 213 | 268 | ||||||
| Total noncurrent assets held for sale | $ | 2,996 | $ | 3,329 | ||||
| Liabilities | ||||||||
| Accounts payable | $ | 358 | $ | 527 | ||||
| Accrued and other expenses | 1,358 | 2,140 | ||||||
| Lease payable - current portion | 452 | 365 | ||||||
| Deferred revenue - current portion | 2,221 | 2,563 | ||||||
| Total current liabilities held for sale | $ | 4,389 | $ | 5,595 | ||||
| Lease payable, net of current | 2,004 | 2,348 | ||||||
| Deferred revenue, net of current | 210 | 149 | ||||||
| Noncurrent liabilities held for sale | $ | 2,214 | $ | 2,497 | ||||
The Business is included in the Company's Condensed Consolidated Statements of title. In addition,Cash Flows for the Company assesses whether collection is probablenine months ended September 30, 2023. Estimated cash provided by considering a number of factors, including past transaction history with the customerBusiness during the nine months ended September 30, 2023 was approximately $0.1 million given the previously announced furlough and limited investment during that time. Estimated cash used by the creditworthiness ofBusiness during the customer, as obtainednine months ended September 30, 2022 was approximately $3 million, primarily from third party credit references.operating activities.
If the terms of the sale include customer acceptance provisions and compliance with those provisions cannot be demonstrated, all revenue is deferred and not recognized until such acceptance occurs. The Company considers all relevant facts and circumstances in determining when to recognize revenue, including contractual obligations to the customer, the customer’s post-delivery acceptance provisions, if any, and the installation process.
Note 3– Fair Value Measurements
The Company has determined that iCAD’s digital and film based sales generally followfollows the guidanceprovisions of FASB ASC Topic 605 “Revenue Recognition”820, “Fair Value Measurement and Disclosures” (“ASC 605”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 software has been considered essentialexchange price that would be received for an asset or paid to transfer a liability (an exit price) in the functionality of the product per the guidance of ASU2009-14. Typically, the responsibilityprincipal or most advantageous market for the installation process lies withasset or liability in an orderly transaction between market participants on the OEM partner. On occasion, when iCAD is responsible for product installation,measurement date. Valuation techniques used to measure fair value must maximize the installation element is considered a separate unituse of accounting becauseobservable inputs and minimize the delivered product has stand-aloneuse of unobservable inputs. The Company applies the fair value to the customer. In these instances, the Company allocates revenue to the deliverableshierarchy based on three levels of inputs, of which the framework established within ASU2009-13. Therefore, the installation and training revenue is recognized as the servicesfirsttwo are performed according to the BESP of the element. Revenue from the digital and film based equipment, when there is installation, is recognized based on the relative selling price allocation of the BESP, when delivered.
Revenue from certain CAD products is recognized in accordance with ASC985-605. Sales of these products include training,considered observable and the Company has established VSOE for this element. Product revenue is determined based onlast unobservable, which are the residualfollowing:
• | 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 consolidated 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: |
Fair Value Measurements as of September 30, 2023
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Money market accounts | $ | 15,342 | $ | — | $ | — | $ | 15,342 | ||||||||
Total Assets | $ | 15,342 | $ | — | $ | — | $ | 15,342 | ||||||||
Fair Value Measurements as of December 31, 2022
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Money market accounts | $ | 15,067 | $ | — | $ | — | $ | 15,067 | ||||||||
Total Assets | $ | 15,067 | $ | — | $ | — | $ | 15,067 | ||||||||
There were no Level 2 or 3 instruments measured at fair value in the arrangement andas of September 30, 2023 or December 31, 2022.
Note 4 - Revenue
Revenue Recognition
Revenue is recognized when delivered.a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration 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.
Disaggregation of Revenue for training is deferred and recognized when the training has been completed.
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
The Company recognizes post contract customer support revenue together with the initial licensing fee for certain MRI products in accordance with ASC985-605-25-71. In January 2017 the Company sold certain MRI assets to Invivo.
Sales offollowing tables presents the Company’s Therapy segment products typically include a controller, accessories, source agreementsrevenues disaggregated by major good or service line, timing of revenue recognition, and services.sales channel, reconciled to its reportable segments.
Three months ended September 30, 2023 | ||||
Major Goods/Service Lines | ||||
Products | $ | 2,198 | ||
Service contracts | 1,875 | |||
| $ | 4,073 | |||
Timing of Revenue Recognition | ||||
Goods transferred at a point in time | $ | 1,834 | ||
Services transferred over time | 2,239 | |||
| $ | 4,073 | |||
Sales Channels | ||||
Direct sales force | 2,825 | |||
OEM partners | 1,248 | |||
| $ | 4,073 | |||
Nine months ended September 30, 2023 | ||||
Major Goods/Service Lines | ||||
Products | $ | 6,961 | ||
Service contracts | 5,617 | |||
| $ | 12,578 | |||
Timing of Revenue Recognition | ||||
Goods transferred at a point in time | $ | 5,779 | ||
Services transferred over time | 6,799 | |||
| $ | 12,578 | |||
Sales Channels | ||||
Direct sales force | $ | 8,287 | ||
OEM partners | 4,291 | |||
| $ | 12,578 | |||
Three months ended September 30, 2022 | ||||
Major Goods/Service Lines | ||||
Products | $ | 2,536 | ||
Service contracts | 1,823 | |||
| $ | 4,359 | |||
Timing of Revenue Recognition | ||||
Goods transferred at a point in time | $ | 2,510 | ||
Services transferred over time | 1,849 | |||
| $ | 4,359 | |||
Sales Channels | ||||
Direct sales force | $ | 2,947 | ||
OEM partners | 1,412 | |||
| $ | 4,359 | |||
Nine months ended September 30, 2022 | ||||
Major Goods/Service Lines | ||||
Products | $ | 9,866 | ||
Service contracts | 5,301 | |||
| $ | 15,167 | |||
Timing of Revenue Recognition | ||||
Goods transferred at a point in time | $ | 9,844 | ||
Services transferred over time | 5,323 | |||
| $ | 15,167 | |||
Sales Channels | ||||
Direct sales force | $ | 9,347 | ||
OEM partners | 5,820 | |||
| $ | 15,167 | |||
Products. Product revenue consists of sales of cancer detection systems and perpetual licenses. The Company allocates revenue to the deliverables in the arrangement based on the BESP in accordance with ASU2009-13. Product revenue is generally recognizedtransfers control and recognizes a sale when the product has been deliveredis shipped from the manufacturing or warehousing facility to the customer.
Service. The Company sells service contracts in which the Company provides professional services including product installations, maintenance, training and service and source revenue is typically recognized over the life of therepairs. The service and source agreement. The Company includes the following in service and supplies revenue: the sale of physics and management services, the lease of electronic brachytherapy equipment, development fees, supplies and the rightcontracts range from 12 months to use the Company’s AxxentHub software. Physics and management services revenue and development fees are considered to be delivered as the services are performed or over the estimated life of the agreement.48 months. The Company typically bills items monthly overreceives payment at the lifeinception of the agreement except for development fees, which are generally billed in advance or over a 12 month periodcontract and the fee for treatment supplies which is generally billed in advance.
The Company defers revenue from the sale of certain service contracts and recognizes the related revenue on a straight-line basis over the term of the agreement.
As discussed in accordanceNote 2, the Company completed the sale of its Xoft (Therapy) business line on October 23, 2023.
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 ASC Topic605-20, “Services”.customers.
Contract balances
Balance at | Balance at | Balance at | ||||||||||
September 30, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
Receivables, which are included in ‘Trade accounts receivable’ | $ | 4,865 | $ | 5,769 | $ | 4,263 | ||||||
Current contract assets, which are included in “Prepaid and other assets” | $ | 1,194 | $ | 748 | $ | 1,895 | ||||||
Non-current contract assets, which are included in “other assets” | $ | 43 | $ | 15 | $ | 844 | ||||||
Contract liabilities, which are included in “Deferred revenue” | $ | 4,187 | $ | 4,046 | $ | 3,621 | ||||||
Timing of revenue recognition may differ from timing of invoicing of customers. The Company provides for estimated warranty costs on original product warrantiesrecords a receivable when revenue is recognized prior to receipt of cash payment 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 timebeginning of sale.each annual service period.
Cost
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 Revenue
Costamounts 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 costs of products purchasedCompany expects to be able to bill for resale, costs relating to service including personnel costs for physicists, management services and radiation therapists, costs of service contracts to maintain equipment after the warranty period, product installation, training, customer support, certain warranty repair costs, inbound freight and duty, cost of supplies, manufacturing, warehousing, material movement, inspection, scrap, rework, amortization, depreciation andin-house product warranty repairs. Included in cost of revenue for the nine months ended September 30, 2016 is a credit of $467,000 related to a refund of the Medical Device Excise Tax (“MDET”). The MDET refund of $467,000 is related to refunds of the MDET for the periods from April 2013 to December 2015. The MDET refunds were not material to any prior period; accordingly, prior periods were not restated.
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
Changes in deferred revenue from contracts with customers were as follows:
Nine Months | ||||
Ended September 30, | ||||
2023 | ||||
Balance at beginning of period | $ | 4,046 | ||
Deferral of revenue | 5,810 | |||
Recognition of deferred revenue | (5,669 | ) | ||
Balance at end of period | $ | 4,187 | ||
As of September 30, 2023, the aggregate amount of unsatisfied, or partially satisfied, performance obligations from contracts with customers was $4.2 million. The Company expects to recognize approximately $3.3 million of its remaining performance obligations as revenue over the next 12 months. The remainder of the balance is expected to be recognized over the next two to three years.
Note 2 -5– Net Loss per Common Share
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.
A summary of the Company’s calculation of net loss per share is as follows (in thousands000s, except for Net loss per share amounts)share):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
Net loss | $ | (6,933 | ) | $ | (2,675 | ) | $ | (10,021 | ) | $ | (6,783 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Shares used in the calculation of basic and diluted net loss per share | 16,424 | 15,957 | 16,291 | 15,896 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options | — | — | — | — | ||||||||||||
Restricted stock | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted shares used in the calculation of net loss per share | 16,424 | 15,957 | 16,291 | 15,896 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net loss per share - basic and diluted | $ | (0.42 | ) | $ | (0.17 | ) | $ | (0.62 | ) | $ | (0.43 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Loss from continuing operations | $ | (1,037 | ) | $ | (3,103 | ) | $ | (6,467 | ) | $ | (7,584 | ) | ||||
Loss from discontinued operations | (337 | ) | (795 | ) | (435 | ) | (2,977 | ) | ||||||||
Net loss | $ | (1,374 | ) | $ | (3,898 | ) | $ | (6,902 | ) | $ | (10,561 | ) | ||||
Shares used in the calculation of basic and diluted net loss per share | 25,597 | 25,204 | 25,374 | 25,183 | ||||||||||||
Loss per share from continuing operations - basic and diluted | $ | (0.04 | ) | $ | (0.12 | ) | $ | (0.25 | ) | $ | (0.30 | ) | ||||
Loss per share from discontinued operations - basic and diluted | (0.01 | ) | (0.03 | ) | (0.02 | ) | (0.12 | ) | ||||||||
Net loss per share - basic and diluted | $ | (0.05 | ) | $ | (0.15 | ) | $ | (0.27 | ) | $ | (0.42 | ) | ||||
The shares of the Company’s common stock issuable upon the exercise of stock options and vesting of restricted stock that were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive are as follows:
| Period Ended | ||||||||
| September 30, | ||||||||
| 2017 | 2016 | |||||||
Stock options | 1,426,513 | 1,569,166 | ||||||
Restricted stock | 507,147 | 392,148 | ||||||
|
|
|
| |||||
Stock options and restricted stock | 1,933,660 | 1,961,314 | ||||||
|
|
|
| |||||
September 30, | ||||||||
2023 | 2022 | |||||||
Stock options | 3,209,591 | 2,624,154 | ||||||
Total | 3,209,591 | 2,624,154 | ||||||
Note 3 - Business Combinations
Acquisition of VuComp Cancer detection portfolio
On January 13, 2016, the Company completed the acquisition of the VuCOMP cancer detection portfolio, including theM-Vu computer aided detection (CAD) technology platform. The acquisition includes an extensive library of related clinical data, VuCOMP’s key personnel and the customer base that existed at closing of the transaction. The acquisition of the key personnel and clinical data is expected to contribute to the ongoing development of the Company’s CAD technology which will be used for future cancer detection research and patents. As the Company considered this to be a business combination, the assets were valued in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”).
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
The Company acquired VuComp’sM-Vu Breast Densityvalues 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 in April 2015. In connection with the diligenceexpiration dating and estimated sales forecast, which is based on sales history and anticipated future demand. Inventory consisted of the January 2016 acquisition, VuComp disclosed that it had previously entered into a license agreement pursuant to which it issuedfollowing and includes an irrevocable, royalty-free worldwide license to a third party. On inventory reserve of $45,000 at both September 30, 2023 and December 24, 2015, iCAD notified VuComp of a claim under the April 2015 asset purchase agreement based on the disclosure of the third party license agreement, which iCAD believed constituted a breach of VuComp’s representation as to its exclusive ownership of its intellectual property at the time of the April 2015 transaction. In connection with the purchase of the VuComp cancer detection portfolio, the Company provided a release of the aforementioned claim. 31, 2022.
September 30, 2023 | December 31, 2022 | |||||||
Raw materials | $ | 971 | $ | 1,910 | ||||
Work in process | 16 | 134 | ||||||
Finished goods | 50 | 55 | ||||||
Inventory gross | 1,037 | 2,099 | ||||||
Inventory reserve | (45 | ) | (45 | ) | ||||
Inventory net | $ | 992 | $ | 2,054 | ||||
Note 7– Goodwill
The Company determinedtests goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that this claim was a component of the purchase price. The Company determined the value of litigation settlement as the excess of the fair value of the business acquired over the cash consideration paid. As a resultreporting unit is less than its carrying value. Factors the Company recorded a gain on litigation settlementconsiders important, which could trigger an impairment of $249,000such asset, include the following:
• significant underperformance relative to historical or projected future operating results;
• significant changes in general and administrative expenses during the first quarter of 2016, which is a componentmanner or use of the purchase price as noted below:
| Amount (000’s) | ||||
Cash | $ | 6 | ||
Acquisition litigation settlement | 249 | |||
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Purchase price | $ | 255 | ||
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The amount allocated toassets or the acquired assets was estimated primarily throughstrategy for the use of discounted cash flow valuation techniques. Appraisal assumptions utilized under this method include a forecast of estimated future net cash flows, as well as discounting the future net cash flows to their present value. The following is a summary of the preliminary allocation of the total purchase price based on the estimated fair values as of the date of the acquisition and the amortizable life:
| Amount (000’s) | Estimated amortizable life | |||||||
Current assets | $ | 84 | ||||||
Property and equipment | 65 | 3 Years | ||||||
Identifiable intangible assets | 699 | 1-10 Years | ||||||
Goodwill | 293 | |||||||
Current liabilities | (280 | ) | ||||||
Long-term liabilities | (606 | ) | ||||||
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Purchase price | $ | 255 | ||||||
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The assets obtained in the acquisition of VuComp’sM-Vu Cancer detection portfolio (including theM-Vu breast density product) and the anticipated future revenues are included in the Detection segment and, accordingly, the goodwill resulting from the purchase price allocation is included in goodwill of the Detection segment.
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
Note 4 - Sale of MRI Assets• significant negative industry or economic trends;
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
• significant decline in 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 $350,000stock price for a net of approximately $2.9 million. The holdback reserve of $350,000 has been recorded as an asset in other assetssustained period; and will be paid to the Company within eighteen months from the closing date, less any amounts, if any, due and payable or reserved under the indemnification provisions
• a decline in the Asset Purchase agreement.Company’s market capitalization below net book value.
The Company determinedconsidered indicators of impairment, and there were no triggering events identified, no indication of impairment of the sale constitutedCompany’s goodwill and no impairment charges recorded during the sale of a business in accordance with ASC 805. three months ended September 30, 2023 or 2022.
Note 8– Long-lived Assets
The Company performed an evaluation to determineassesses long-lived assets for impairment if the sale constituted discontinued operationsevents and concludedcircumstances indicate it is more likely than not that the sale did not represent a major strategic shift, and accordingly it was not considered to be discontinued operations. In connection with the transaction, the Company allocated $394,000 of goodwill which was a component of the gain on the sale. The allocation was based on the fair value of the assets sold relativeasset group is less than its carrying value.
There is no set interval or frequency for recoverability evaluation. Rather, the determination of when, if at all, an asset (or asset group) is evaluated for recoverability is based on “events and circumstances.” The following factors are examples of events or changes in circumstances that indicate the carrying amount of an asset (or 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 (or asset group);
• A significant adverse change in the extent or manner in which a long-lived asset (or 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 (or 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 (or asset group); and
• A current operating period, 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 (or asset group).
The Company determined there were no such triggering events in the period ended September 30, 2023.
Note 9– Lease Commitments
In accordance with ASC Topic 842, "Leases" ("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 fairpresent value of the Detection reporting unitremaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as offor lease incentives. In determining the date of the agreement, based on the guidance from ASC350-20-40-3.
Thepresent value of the net assets sold is as follows (in thousands):
Assets | ||||
Accounts Receivable | $ | 116 | ||
Intangible assets | 810 | |||
Allocated Goodwill | 394 | |||
|
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Total Assets | $ | 1,320 | ||
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Liabilities | ||||
Deferred Revenue | $ | 746 | ||
|
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Total Liabilities | $ | 746 | ||
|
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Net Assets Sold | $ | 574 | ||
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In connection with the salelease payments, the Company agreed to provide certain transition services to Invivo.calculates an incremental borrowing rate, which is determined by estimating the Company’s applicable, fully collateralized borrowing rate, with adjustment as appropriate for lease term. The fair value oflease term at the transition services werelease commencement date is determined based on the costnon-cancellable period for which the Company has the right to provide plus a reasonable profit margin and have been recognized as revenue overuse the term of approximately ninety days fromunderlying asset, together with any periods covered by an extension option if the closing date. The Company recorded a gain of $2.5 million as of January 30, 2017. The components of the gain on the sale are as follows (in thousands):
iCAD, INC. AND SUBSIDIARIES
Notesis reasonably certain to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
Gain on Sale | ||||
Cash received | $ | 2,850 | ||
Holdback reserve | 350 | |||
Fair value of transition services | (118 | ) | ||
Net Assets sold | (574 | ) | ||
|
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Total | $ | 2,508 | ||
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Note 5 - Inventory
The componentsAssumptions made by the Company at the commencement date of inventory, neteach lease are re-evaluated upon occurrence of allowancecertain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for obsolete, unmarketable or slow-moving inventories, are summarizedthe additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as follows (in thousands):a new lease.
| as of September 30, 2017 | as of December 31, 2016 | |||||||
Raw materials | $ | 2,033 | $ | 2,503 | ||||
Work in process | 139 | 75 | ||||||
Finished Goods | 1,168 | 1,149 | ||||||
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Inventory | $ | 3,340 | $ | 3,727 | ||||
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Note 6 - Debt financing
On August 7, 2017 the Company entered into a LoanRight-of-use assets and Security Agreement (the “Loan Agreement”)obligations for leases with Silicon Valley Bank (the “Bank”) that provides an initial term loan facility (the “Term Loan”) of $6.0 million12 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 $4.0 million revolving line of credit (the “Revolving Loan”).straight-line basis over the lease term. The Company also hasdoes not sublease any of its leased assets to third parties and the option to secure an additional $3.0 million under the Loan Agreement for a total of $9.0 million in 2018, subject to meeting a net revenue minimum of at least $35.0 million for a trailing twelve month period ending prior to July 30, 2018 (the “Revenue Milestone”).
The Term Loan accrues interest at prime rate.Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company will begin repayment on Sept 1, 2018 in 36 equal monthly installments of principal. Subject to meeting the Revenue Milestone,has lessor agreements that contain lease and non-lease components, but the Company could elect to defer repaymentis 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 remeasurement requirements for lessees based on certain triggering events or conditions. There were no impairment indicators identified during the Term Loan to March 1, 2019 inthree and nine months ended September 30, equal monthly payments.
The outstanding Revolving Advances will accrue interest at a floating per annum rate equal to 1.50% above the prime rate for periods when the ratio2023 that would require impairment testing of the Company’s unrestricted cash to the Company’s outstanding liabilities to the Bank plus the amountright-of-use assets.
Certain of the Company’s total liabilitiesleases include variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain non-lease components that mature within one year is at least 1.25 to 1.0. At all other times, the interest rate shall be 0.50% above the prime rate. The outstanding Term Loan Advances will accrue interest attransfer a floating per annum rate equaldistinct service to the prime rate.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.
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
The maturity date of the Revolving AdvancesCompany has leases for office space and the Term Loan Advances is August 7, 2021. However, the maturity date will become April 30, 2019, April 30, 2020 or April 30, 2021 if, on or before October 30, 2018, or 2019 or 2020, as applicable, the Company does not agree in writing to the net revenue covenant levels proposed by the Bank with respect to the upcoming applicable calendar year.
If the Revolving Advances are paid in full and the Loan Agreement is terminated prior to the maturity date, then the Company will pay to the Bank a termination fee in an amount equal to two percent (2.0%) of the maximum revolving line of credit. If the Company prepays the Term Loan Advances prior to the maturity date, then the Company will pay to the Bank an amount equal to1.0%-3.0% of the Term Loan Advances, depending on when such Term Loan Advances are repaid.office equipment. The Loan Agreement requires the Company to maintain net revenues during the trailing six month period ending on the last day of each calendar quarter as follows: June 30, 2017 - $10.25 million; September 30, 2017 - $11.5 million; December 31, 2017 - $14 million; March 31, 2018 - $15 million; June 30, 2018 - $15.25 million; and September 30, 2018 and December 31, 2018 - $15.5 million. As of September 30, 2017 the Company is in compliance with the revenue covenants in the Loan Agreement.
In connection with the credit line, the Company incurred approximately $74,000 of closing costs. In accordance with ASU2015-03 the closing costs have been deducted from the carrying value of the debt and will be amortized over the expected term of 36 months.
The current repayment schedule for the term loan is based on repayment beginning on September 1, 2018. If the Revenue Milestone is met, the Company could elect to defer repayment until March 2019. The carrying value of the Term Loan (net of debt issuance costs) as of September 30, 2017 is as follows (in thousands):
| September 30, 2017 | ||||
Short-term | $ | 317 | ||
Long-term | 5,612 | |||
|
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Total | $ | 5,929 | ||
|
| |||
Interest expense related to the loan for the three and nine month periods ended September 30, 2017 is as follows (in thousands):
| September 30, 2017 | ||||
Three months ended | $ | 33 | ||
Nine month ended | 33 | |||
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
Note 7 - Lease Commitments
Operating leases
Facilities are leased under operating leases expiringexpire at various dates through March 2020. Certain2028.
Three Months Ended | Nine Months Ended | ||||||||
Lease Cost | Classification | September 30, 2023 | September 30, 2023 | ||||||
Operating lease cost - Right of Use Asset | Operating expenses | $ | 63 | $ | 186 | ||||
Other information related to leases was $229,000 and $665,000 for the three and nine months ended September 30, 2017, respectively and $178,000 and $516,000 for the three and nine months ended September 30, 2016, respectively.
Future minimum lease payments as of September 30, 2017 under operating leases are as follows: (in thousands)
Fiscal Year | Operating Leases | |||
2017 | $ | 318 | ||
2018 | 738 | |||
2019 | 746 | |||
2020 | 174 | |||
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Total | $ | 1,976 | ||
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Capital leases
In August, 2017, the Company assumed an equipment lease obligation with payments totaling $50,000. The leases were determined to be capital leases and accordingly the equipment was capitalized and a liability of $42,000 was recorded. The equipment will be depreciated over the expected life of 3 years. Minimum lease payments are as follows (in thousands):
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
Three Months | Nine Months | |||||||
Ended September 30, 2023 | Ended September 30, 2023 | |||||||
Cash paid from operating cash flows for operating leases | $ | 65 | $ | 193 | ||||
Fiscal Year | Capital Lease | |||
2017 | 4 | |||
2018 | 16 | |||
2019 | 17 | |||
2020 | 13 | |||
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subtotal minimum lease obligation | 50 | |||
less interest | (8 | ) | ||
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Total, net | 42 | |||
less current portion | (12 | ) | ||
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long term portion | $ | 30 | ||
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As of September 30, | ||||
2023 | ||||
Weighted-average remaining lease term of operating leases (years) | 2.0 | % | ||
Weighted-average discount rate for operating leases | 6.8 | % | ||
In connection with the Radion/DermEbx Acquisition which closed in July 2014, the Company assumed two separate equipment lease obligations with payments totaling approximately $2.6 million through May 2017. The leases were determined to be capital leases and accordingly the equipment was capitalized and a liability of $2.5 million was recorded. In connection with the acquisition, the Company recorded a fair value adjustment to interest expense and amortized the adjustment over the life of the related lease. As of September 30, 2017, there was no further liability for the acquired equipment leases.
Related Party Lease:
Kamal Gogineni is an employee of oneMaturity of the Company’s subsidiaries and a stockholderlease liabilities as of the Company’s common stock. Additionally, Mr. Gogineni is a shareholder of Radion Capital Partners (“RCP”). RCP was the lessor under a lease between RCP and DermEbx (the “Lease”). In connection with the Company’s acquisition of assets of Radion, Inc. and DermEbx that closed in July 2014, one of the assets and obligations that the Company acquired was the Lease. Pursuant to the Lease, the Company paid approximately $76,000 to RCP in 2017. As of September 30, 2017, there is no further obligation.2023 was as follows:
2023 | $ | 64 | ||
2024 | 219 | |||
2025 | 204 | |||
2026 | 85 | |||
Total lease payments | 572 | |||
Less: effects of discounting | (58 | ) | ||
Total lease liabilities | 514 | |||
Less: current portion of lease liabilities | 197 | |||
Long-term lease liabilities | $ | 317 |
Note 8 - 10– Stockholders Equity
Stock-Based Compensation
The Company follows the guidance in ASC Topic 718, “Compensation – Stock Compensation”, (“ASC 718”).
The Company granted options to purchase 57,352562,774 and 1,103,916 shares of the Company’s stock during the three and nine months ended September 30, 2023 , respectively. The full amount of options were granted in the firstnine months of 2023.
The Company’s stock-based compensation expense, including options and restricted stock by category is as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Cost of revenue | $ | 1 | $ | 1 | $ | 3 | $ | 2 | ||||||||
Engineering and product development | 56 | 37 | 188 | 182 | ||||||||||||
Marketing and sales | 75 | 133 | 268 | 441 | ||||||||||||
General and administrative | 171 | 234 | 655 | 744 | ||||||||||||
| $ | 303 | $ | 405 | $ | 1,114 | $ | 1,369 | |||||||||
During the three months ended March 31, 2023, the Company recorded incremental stock-based compensation of approximately $0.23 million as a result of modifications of certain stock option awards. The modifications related to extending the contractual life of certain stock options by five years for four grantees whose awards were scheduled to expire during 2023. In addition, the amount of time to exercise vested stock options upon termination for one grantee was extended from 90 days to 24 months.
As of September 30, 2017. 2023, there was approximately $1.2 million of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted average period of 1.70 years.
Options granted under the Company’s stock incentive plans were valued utilizing the Black-Scholes model using the following assumptions and had the following fair values:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Average risk-free interest rate | 4.94 | % | n/a* | 4.30 | % | 1.90 | % | |||||||||
Expected dividend yield | None | None | None | None | ||||||||||||
Expected life (in years) | 2.5 | n/a* | 2.9 | 3.5 | ||||||||||||
Expected volatility | 84.3% - 134.4% | n/a* | 72.7% to 134.4% | 66.3% to 70.5% | ||||||||||||
Weighted average exercise price | $ | 2.70 | n/a* | $ | 1.82 | $ | 5.22 | |||||||||
Weighted average fair value | $ | 1.34 | n/a* | $ | 0.97 | $ | 2.46 | |||||||||
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
* The Company granted no options during the three months ended September 30, 2017
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
2017 | 2016 | 2017 | 2016 | |||||
Average risk-free interest rate | 1.56% | 0.84% | 1.52% | 0.87% | ||||
Expected dividend yield | None | None | None | None | ||||
Expected life | 3.5 years | 3.5 years | 3.5 years | 3.5 years | ||||
Expected volatility | 64.2% to 67.0% | 68.6% to 75.3% | 64.2% to 72.0% | 68.6% to 75.3% | ||||
Weighted average exercise price | $4.28 | $5.49 | $4.39 | $5.57 | ||||
Weighted average fair value | $2.02 | $2.67 | $2.12 | $2.71 | ||||
The Company’s stock-based compensation expense, including options2023 and2022 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 no dividends on its common stock in the past and does not anticipate paying any dividends in the future.
The Company did not grant any shares of restricted stock by category is as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
Cost of revenue | $ | 1 | $ | 1 | 5 | $ | 5 | |||||||||
Engineering and product development | 76 | 82 | 633 | 289 | ||||||||||||
Marketing and sales | 132 | 162 | 854 | 476 | ||||||||||||
General and administrative | 294 | 201 | �� | 1,581 | 878 | |||||||||||
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| $ | 503 | $ | 446 | $ | 3,073 | $ | 1,648 | |||||||||
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As of during the three-months ended September 30, 2017, unrecognized compensation cost (in thousands) related to unexercisable options and unvested restricted stock and the weighted average remaining period is as follows:
Remaining expense | $ | 2,504 | ||
Weighted average term | 1.1 years |
2023 or 2022. 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 the grant date. The grant date fair value for restricted stock awards is based on the quoted market value of Company granted a totalstock on the grant date.
A summary of stock option activity for all stock option plans for the period ended September 30, 2023 is as follows:
Number of | Weighted Average | Intrinsic | ||||||||||
Options | Exercise Price | Value | ||||||||||
Outstanding as of December 31, 2022 | 2,610,992 | $ | 7.54 | $ | — | |||||||
Granted | 1,179,868 | $ | 1.82 | |||||||||
Exercised | (35,809 | ) | $ | 2.24 | $ | 2 | ||||||
Cancelled | (544,127 | ) | $ | 4.98 | ||||||||
Outstanding as of September 30, 2023 | 3,210,924 | $ | 5.61 | $ | 969 | |||||||
Options Exercisable as of December 31, 2022 | 1,619,855 | $ | 6.47 | $ | — | |||||||
Options Exercisable as of September 30, 2023 | 2,042,460 | $ | 7.13 | $ | 47 | |||||||
Employee Stock Purchase Plan
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 performance based restrictedcommon stock, during 2016 with performance measured on meeting a revenue target based on growth for fiscal year 2017 and vesting in three equal installments with the first installment vesting upon measurement of the goal. In addition, a maximum of 108,333 additional shares are availablesubject to be earned based on exceeding the revenue goal. Assumptions used to determine the value of performance based grants of restricted stock include the probability of achievement of the specified revenue targets. Compensation cost for performance based restricted stock requires significant judgment regarding probability of achieving the performance objectives and compensation cost isre-measured at every reporting period. As a result compensation cost could vary significantly during the performance measurement period. The Company granted 153,480 and 392,055 shares of restricted stock with either time based or immediate vestingadjustment in the three and nine months ended September 30, 2017, respectively. Includedevent of a stock split, stock dividend or other change in the restricted shares granted in the second quarter of 2017 are 172,668 shares that were issued in lieu of cash bonus payments and was approvedCompany’s capitalization. The ESPP may be terminated or amended by the Board of Directors in February 2017. The number of shares granted were determined basedat any time. Certain amendments to the amount of approved bonus divided by ESPP require stockholder approval. In October 2022, the stock priceCompany suspended the ESPP such that the accumulation period from October 1,2022 through December 31,2022 and beyond will not occur.
Prior to the Company's suspension of the CompanyESPP, any eligible employee could enroll as of the beginning of a respective quarterly accumulation period. Employees who participated in the ESPP were able to purchase shares by authorizing payroll deductions of up to 15% of their base compensation during an accumulation period. Unless the participating employee withdrew from participation, accumulated payroll deductions were 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 was able to purchase more than $25,000 worth of common stock, valued at the datestart of issuance.
iCAD, INC. AND SUBSIDIARIES
Notesthe purchase period, under the ESPP in any calendar year. Substantially all of the Company’s employees whose customary employment is for more than 20 hours a week are eligible to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
The Company’s aggregate intrinsic valueCompany issued 8,683 and 18,064 shares under the ESPP in the three and nine months ended September 30, 2022, respectively. The Company recorded approximately $12,000 and $22,000 of stock-based compensation expense pursuant to ESPP for stock optionsthe three and restricted stock outstanding is as follows (in thousands):nine months ended September 30, 2022, respectively.
| Period Ended September 30, | ||||||||
Aggregate intrinsic value | 2017 | 2016 | ||||||
Stock options | $ | 1,050 | $ | 1,748 | ||||
Restricted stock | 2,242 | 2,039 | ||||||
Note 11– Income Taxes
The intrinsic valuedetermination of stock options exercisedthe annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which the Company operates and the development of tax planning strategies during the threeyear. As such, there can be significant volatility in interim tax provisions.
Income tax expense was approximately $4,000 and approximately $13,000 for the three and nine months ended September 30, 2017 was $12,000 and $50,000,2023, respectively. The intrinsic value of stock options exercised duringeffective tax rates for the three and nine months ended September 30, 2016 was $189,0002023 and $195,000, respectively.2022 were less than 1% in each period. The intrinsic valuedifference between the Company’s effective tax rates in 2023 and 2022 compared to the U.S. statutory tax rate of restricted shares that vested21% is primarily due to changes in valuation allowances associated with the threeCompany’s assessment of the likelihood of the recoverability of deferred tax assets. The Company has valuation allowances against substantially all of its net operating loss carryforwards and nine months ended September 30, 2017 was $0.2 million and $1.7 million, respectively. The intrinsic valuetax credit carryforwards.
Note 9 -12– Commitments and Contingencies
Foreign Tax Claim
In July 2007, a dissolved former Canadian subsidiary of the Company, CADx Medical Systems Inc. (“CADx Medical”), received a taxre-assessment of approximately $6,800,000 from the Canada Revenue Agency (“CRA”) resulting from CRA’s audit of CADx Medical’s Canadian federal tax return for the year ended December 31, 2002. In February 2010 the CRA reviewed the matter and reduced the taxre-assessment to approximately $703,000, excluding interest and penalties. The Company believes that it is not liable for there-assessment against CADx Medical and no accrual has been recorded for this matter as of September 30, 2017.
Settlement Obligations
In connection with the acquisition of Xoft in 2010, 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 anon-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 to Hologic, 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
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
any products that utilize the licensed rights. The Company has a liability within accounts payable and accrued expenses for future payment and for the remaining minimum royalty obligations totaling $448,000 as of September 30, 2017. The Company recorded interest expense of approximately $10,000 and $30,000 in the three and nine months September 30, 2016, respectively, related to this obligation.
In December, 2011, the Company agreed to a settlement related to litigation with Carl Zeiss Meditec AG. In July 2017, the Company paid the remaining $500,000 due and there is no further obligation to Zeiss. The Company recorded interest expense of approximately $0 and $26,000 in the three and nine months ended September 30, 2017, respectively and $13,000 and $39,000 in the three and nine months ended September 30, 2016, respectively related to this obligation.
Other Commitments
The Company is obligated to pay approximately $0.8$1.1 million for firm purchase obligations to suppliers for future product and service deliverables.deliverables and $0.4 million for minimum royalty obligations.
Litigation
The Company ismay 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. 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 ourthe 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., “Contingencies.” Legal costs are expensed as incurred.
Note 10 - Fair Value Measurements
The Company follows the provisions of ASC Topic 820, “Fair Value Measurement and Disclosures”, (“ASC 820”). This topic defines fair value, establishes a framework for measuring fair value under US GAAP 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 assetor 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 a 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:
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable certain accrued liabilities and debt. The carrying amounts of our cash and cash equivalents (which are composed primarily of deposit and overnight sweep accounts), accounts receivable, accounts payable and certain accrued liabilities approximate fair value due to the short maturity of these instruments. The carrying value of our term loan approximates fair value due to the market rate of the stated interest rate.
The Company’s assets that are measured at fair value on a recurring basis relate to the Company’s money market accounts.
The Company’s money market funds are included in cash and cash equivalents in the accompanying balance sheets and are considered a Level 1 investment as they are valued at quoted market prices in active markets.
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.
Fair value measurements using: (000’s) as of December 31, 2016 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Money market accounts | $ | 6,622 | $ | — | $ | — | $ | 6,622 | ||||||||
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Total Assets | $ | 6,622 | $ | — | $ | — | $ | 6,622 | ||||||||
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Fair value measurements using: (000’s) as of September 30, 2017 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Money market accounts | $ | 10,054 | $ | — | $ | — | $ | 10,054 | ||||||||
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Total Assets | $ | 10,054 | $ | — | $ | — | $ | 10,054 | ||||||||
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iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
Items Measured at Fair ValueOn March 20,2023, the Company committed to a restructuring plan intended to support its long-term strategic goals and reduce operating expenses by further aligning its cost structure to focus on a Nonrecurring Basis
Certain assets, including long-lived assetsareas the Company believes are more likely to generate the best long-term results, in light of current industry 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.macroeconomic environments (the “RIF”). The Company recordedreduced its workforce by approximately 28%, decreasing its headcount by approximately 23 employees, predominantly from the Company’s detection business unit. Xoft, Inc., a $4.7 million impairment inwholly-owned subsidiary of the quarter ended September 30, 2017 which consistedCompany, furloughed 12 of $4.0 million related to goodwill and $0.7 million related to long-lived assets asits employees, or approximately 50% of its workforce. As discussed in Note 12 and Note 13 and remeasured long-lived assets and goodwill of the Therapy reporting unit at fair value as of the impairment date as noted in the following table. The fair values of long-lived assets and goodwill were measured using Level 3 inputs.
Fair value measurements using: (000’s) as of September 30, 2017 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Non-recurring assets | ||||||||||||||||
Long-lived and intangible assets | $ | — | $ | — | $ | 780 | $ | 780 | ||||||||
Goodwill | — | — | 1,766 | 1,766 | ||||||||||||
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Total Assets | $ | — | $ | — | $ | 2,546 | $ | 2,546 | ||||||||
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Note 11 - Income Taxes
The Company recorded an income tax benefit of $42,000 and $28,000 for the three and nine months ended September 30, 2017, respectively, as compared to a provision of $10,000 and $55,000 for the three and nine months ended September 30, 2016, respectively. The tax benefit for the three and nine months ended September 30, 2017 is the result of applying for research and development credits in New Hampshire. In the second quarter of 2017, the Company applied for $50,000 of research and development credits from New Hampshire. The Company anticipates the credits to be allocated for the 2016 tax year as well as the 2017 tax year. The research and development credits have been utilized to decrease the New Hampshirenon-income tax liability to zero. The $42,000 benefit for the quarter is a result of the utilization of these credits and the decrease of the overall state tax.. At September 30, 2017, the Company had no material unrecognized tax benefits and a deferred tax liability of $12,400 related to tax amortizable goodwill. The Company recorded a deferred tax liability of approximately $1,900 through September 30, 2017. No other adjustments were required under ASC 740, “Income Taxes”. The Company does not expect that the unrecognized tax benefits will materially increase within the next 12 months. The Company did not recognize any interest or penalties related to uncertain tax positions at September 30, 2017.
On January 1, 2017, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)No. 2016-09,Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU2016-09”). Under ASU2016-09, excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement, and excess tax benefits are recognized regardless of whether the benefit reduces taxes payable in the current period. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. As a result of the adoption, the net operating loss deferred tax assets increased by $2.1 million and are offset by a corresponding increase in the valuation allowance. The Company files United States federal income tax returns and
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
income tax returns in various states and local jurisdictions. The Company’s three preceding tax years remain subject to examination by federal and state taxing authorities. In addition, because the Company has net operating loss carry-forwards, the Internal Revenue Service and state jurisdictions are permitted to audit earlier years and propose adjustments up to the amount of net operating loss generated in those years. The Company is not currently under examination by any federal or state jurisdiction for any tax years.
Note 12 - Goodwill
In accordance with FASB ASC Topic350-20, “Intangibles - Goodwill and Other”, (“ASC350-20”), 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 reporting unit is less than the carrying value of the reporting unit. The Company’s annual test date is October 1st of each year.
Factors the Company considers important, which could trigger an impairment of such asset, include the following:
The Company would record an impairment charge if such an assessment were to indicate that the fair value of a reporting unit was less than the carrying value. In evaluating potential impairments outside of the 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.
As a result of the underperformance of the Therapy reporting unit as compared to expected future results, the Company determined there was a triggering event in the third quarter of 2017. As a result,2, the Company completed an interim impairment assessment. The interim test resulted in the fair valuesale of the Therapy reporting unit being less than the carrying value of the reporting unit. The Company did not identify a triggering event within the Detection reporting unit and accordingly did not perform an interim test.
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
The Company electedhas incurred charges of $0.2 million related to early adopt ASU2017-04, Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU2017-04”). ASU2017-04 specifies that goodwill impairment isRIF, all of which were recognized during the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. In accordance with the standard, the fair valuenine months ended September 30, 2023. All of the Therapy reporting unit was $3.5 millionincurred charges are one-time, cash expenses and the carrying value was $7.5 million. The deficiencywere recorded primarily in Cost of $4.0 million was recorded as an impairment chargerevenue and Marketing and sales in the quarter ended September 30, 2017.
The carrying valuesCompany's Condensed Consolidated Statements of Operations. While the reporting units were determined based on an allocation of our assets and liabilities through specific allocation of certain assets and liabilitiesCompany does not expect to record additional charges related to the reporting units and an apportionment ofRIF, the remaining net assets based on the relative size of the reporting units’ revenues and operating expenses comparedamounts are subject to the Company as a whole. The determination of reporting units also requires management judgment.
The Company determined 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 used 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 forecast for each segment. Accordingly, actual results can differ from those assumed in the forecasts. The discount rate of approximately 18% is derived from a capital asset pricing model and analyzing published rates for industries relevant to the 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 the 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 ours, as well as market data may not be available for divisions within larger conglomerates ornon-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 the business.
The Company corroborated 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 the 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, under the blended approach, reasonably likely scenarios and associated
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
sensitivities can be developed for alternative future states that may not be reflected in an observable market price. The Company will assess each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and weight the methodologies appropriately.
As discussed in Note 3, in April 2015, the Company acquired VuComp’sM-Vu® Breast Density product for $1.7 million. The product was integrated into the Company’s Powerlook AMP system, which is a component of the Detection reporting unit. The Company determined that the acquisition was a business combination and recorded goodwill of $0.8 million to the Detection segment. In January 2016, the Company completed the acquisition of VuComp’sM-Vu CAD and other assets for $6,000. The customers, related technology and clinical data acquired are being used for the Company’s Cancer Detection productschange until finalized and the Company recorded goodwillmay incur additional costs during the remainder of $293,000 to2023.
The Company's accrual for restructuring charges for the Detection segment.nine months ended September 30, 2023 was follows (in thousands):
In December 2016,
Balance as of January 1, 2023 | $ | — | ||
| Charges | 178 | |||
| Cash payments | (160 | ) | ||
| Balance as of September 30, 2023 | $ | 18 |
Note 14– Issuances of Common Stock
As previously disclosed, on August 11, 2023, the Company entered into an Asset Purchase Agreementat-the-market issuance sales agreement (the “Sales Agreement”) with Invivo Corporation. TheCraig-Hallum Capital Group LLC whereby the Company, at its discretion, may issue and sell up to $25 million of shares of the Company's common stock, from time to time, by any method deemed to be an “at-the-market” offering, as defined in Rule 415 of the Securities Act, or any method specified in the Sales Agreement. During the three months ended September 30, 2023, the Company sold and conveyed to Buyer all right, title and interest to certain intellectual property relating958,248 shares of its common stock at a weighted average price of $2.26 per share resulting in cash proceeds of $1.8 million, net of issuance costs, pursuant to the VersaVue SoftwareSales Agreement. In addition, subsequent to September 30, 2023, the Company has sold 37,266 shares of its common stock at a weighted average price of $1.46 per share resulting in cash proceeds of approximately $53,000, net of issuance costs, pursuant to the Sales Agreement.
Item2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the DynaCAD productaccompanying notes included in Part I, Item 1 of this Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December31, 2022 filed with the SEC on March 31, 2023. Some of the information contained in this discussion and related assets.analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. As a result of many factors, including those factors set forth in the Asset Purchase Agreement, the Company determined that the sale constituted the sale of a business and the Company allocated $394,000 of goodwill to assets held for sale as of December 31, 2016. The allocation was based on the fair value of the assets sold relativesection titled “Risk Factors,” our actual results could differ materially from those discussed in or implied by these forward-looking statements. Please also refer to the fair value of the Detection reporting unit as of the date of the Asset Purchase Agreement. The Company closed the transaction on January 30, 2017, and goodwill was a component of the net assets sold as of the closing date.
A roll forward of goodwill activity by reportable segment is as follows (in thousands):
| Detection | Therapy | Total | ||||||||||
Balance at December 31, 2016 | 8,362 | 5,735 | 14,097 | |||||||||
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Impairment | — | (3,969 | ) | (3,969 | ) | |||||||
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Balance at September 30, 2017 | $ | 8,362 | $ | 1,766 | $ | 10,128 | ||||||
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Accumulated Goodwill | 699 | 6,270 | 54,906 | |||||||||
Fair value allocation | 7,663 | 13,446 | — | |||||||||
Accumulated impairment | — | (17,950 | ) | (44,778 | ) | |||||||
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Balance at September 30, 2017 | $ | 8,362 | $ | 1,766 | $ | 10,128 | ||||||
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section titled “Special Note 13 - 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.
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
ASC360-10-35 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 ASC360-10-35-21 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.
In accordance with ASC360-10-35-17, 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 assets (or asset group’s) fair value.
The Company completed an interim goodwill impairment assessment for the Therapy reporting unit and noted that there was a goodwill impairment (seeSpecial Note 13). As a result, the Company determined this was a triggering event for long-lived assets. Accordingly, the Company completed an analysis pursuant to ASC360-10-35-17 and determined that the carrying value of the asset group exceeded the undiscounted cash flows, and that long-lived assets were impaired. The Company recorded long-lived asset impairment charges of approximately $0.7 million in the third quarter ended September 30, 2017 based on the deficiency between the book value of the assets and the fair value as determined in the analysis. At September 30, 2017, the long lived assets in the asset group are recorded at their current fair values.
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.
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated FinancialRegarding Forward Looking Statements
(Unaudited)
September 30, 2017
Note 14 - 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 CEO. Each segment generates revenue from the sale of medical equipment and related services and/or sale of supplies. The Company has determined there are two segments, Cancer Detection and Cancer Therapy.
The Detection segment consists of our advanced image analysis and workflow products, and the Therapy segment consists of our radiation therapy Axxent products, and related services. The primary factors used by our CODM to allocate resources are based on revenues, gross profit, operating income, and earnings or loss before interest, taxes, depreciation, amortization, and other specific andnon-recurring items (“Adjusted EBITDA”) of each segment. Included in segment operating income are stock compensation, amortization of technology and depreciation expense. There are no intersegment revenues.
Our CODM does not use asset information by segment to allocate resources or make operating decisions.
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
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):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
Segment revenues: | ||||||||||||||||
Detection | $ | 4,346 | $ | 4,134 | $ | 13,066 | $ | 12,961 | ||||||||
Therapy | 2,654 | 1,869 | 7,134 | 6,449 | ||||||||||||
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Total Revenue | $ | 7,000 | $ | 6,003 | $ | 20,200 | $ | 19,410 | ||||||||
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Segment gross profit: | ||||||||||||||||
Detection | $ | 3,822 | $ | 3,586 | $ | 11,553 | $ | 11,429 | ||||||||
Therapy | 821 | 515 | 2,282 | 2,560 | ||||||||||||
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Segment gross profit | $ | 4,643 | $ | 4,101 | $ | 13,835 | $ | 13,989 | ||||||||
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Segment operating income (loss): | ||||||||||||||||
Detection | 1,475 | 1,250 | 4,261 | 4,494 | ||||||||||||
Therapy | (6,451 | ) | (2,055 | ) | (10,627 | ) | (5,398 | ) | ||||||||
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Segment operating income (loss) | $ | (4,976 | ) | $ | (805 | ) | $ | (6,366 | ) | $ | (904 | ) | ||||
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General, administrative, depreciation and amortization expense | $ | (1,966 | ) | $ | (1,847 | ) | $ | (6,143 | ) | $ | (5,774 | ) | ||||
Interest expense | (36 | ) | (15 | ) | (51 | ) | (59 | ) | ||||||||
Gain on sale of MRI assets | — | — | 2,508 | — | ||||||||||||
Other income | 3 | 2 | 3 | 9 | ||||||||||||
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Loss before income tax | $ | (6,975 | ) | $ | (2,665 | ) | $ | (10,049 | ) | $ | (6,728 | ) | ||||
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Note 15 - Recent Accounting Pronouncements
In May 2014, the FASB issued ASUNo. 2014-09, “Revenue from Contracts with Customers” (Topic 606), or ASU2014-09, which superseded nearly all existing revenue recognition guidance under U.S. GAAP. Since then, the FASB has also issued ASU2016-08, Revenue from Contracts with Customers (Topic 606), Principals versus Agent Considerations and ASU2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing, which further elaborate on the original ASUNo. 2014-09. The core principle of these updates is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. ASU2014-09 defines a five step process to achieve this core principle and, in doing so, more judgments and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In July 2015, the FASB approved aone-year deferral of the effective date to January 1, 2018, with early adoption to be permitted as of the original effective date of January 1, 2017. Once this standard becomes effective, companies may use either of the following transition methods: (i) a full retrospective approach
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
reflecting the application of the standard in each reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU2014-09 recognized at the date of adoption (which includes additional footnote disclosures).
The Company has performed an assessment of its revenue streams and customer classes. The Company has used this information to develop an implementation plan which it expects to complete during the fourth quarter of 2017. The Company does not expect that its revenue recognition will be materially impacted by the new guidance. The Company is also assessing the impact of the guidance on its contract costs in order to determine the magnitude of impact. The Company currently expects to adopt the guidance using the modified retrospective approach, and will finalize this selection along with completion of the implementation plan.
There are also certain considerations related to internal control over financial reporting that are associated with implementing Topic 606. The Company is evaluating its internal control framework over revenue recognition to identify any changes that may need to be made in relation to the implementation process, as well as upon adoption of the new guidance.
In addition, disclosure requirements under the new guidance in Topic 606 have been significantly expanded in comparison to the disclosure requirements under the current guidance. The Company’s implementation phase includes designing and implementing the appropriate internal controls to obtain and disclose the information required under Topic 606.
The Company expects to adopt certain practical expedients and make certain policy elections related to the accounting for significant finance components, sales taxes, shipping and handling, costs to obtain a contract and immaterial promised goods or services, which will mitigate certain impacts of adopting Topic 606. The Company also expects to review the tax impact, if any, that Topic 606 will have on the financial statements.
In February 2016, the FASB issued ASUNo. 2016-02, “Leases”. The standard establishes aright-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements, however the adoption of the standard is expected to increase both assets and liabilities for leases that would previously have beenoff-balance sheet operating leases.
iCAD, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 2017
On January 1, 2017, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)No. 2016-09, “Compensation—Stock Compensation” (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions, including income taxes consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. Under ASU2016-09, excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement, and excess tax benefits are recognized regardless of whether the benefit reduces taxes payable in the current period. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. As a result of the adoption, the net operating loss deferred tax assets increased by $2.1 million and are offset by a corresponding increase in the valuation allowance.
In August 2016, the FASB issued ASU2016-15, “Statement of Cash Flows (Topic 230)”, a consensus of the FASB’s Emerging Issues Task Force. This update is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The update requires cash payments for debt prepayment or debt extinguishment costs to be classified as cash outflows for financing activities. It also requires cash payments made soon after an acquisition’s consummation date (approximately three months or less) to be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities. The amendment is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted. The Company does not expect the adoption of this amendment will have a material impact on our consolidated financial statements.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Certain information included in this Item 2 and elsewhere in this Form10-Q that are not historical facts contain forwardstatements that may be deemed “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements thatinvolve or may 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 following: the continuing impact of the COVID-19 pandemic, the outcomes of our commercial and strategic arrangements (including our respective arrangements with Google Health and Radiology Partners), the continuing impact of military and political conflict in Eastern Europe and the Middle East, the 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 and expense levels, protection of patents and other proprietary rights, the impact of supply and manufacturing constraints or difficulties, regulatory changes and requirements applicable to our products, product market acceptance, possible technological obsolescence of products, increased competition, integration of the acquired businesses, the impact of litigation and/or government regulation, changes in Medicare reimbursement policies, risks relating to potential future debt obligations, competitive factors, the effects of a decline in the economy inor 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.Commission (the “SEC”). The words “believe”, “plan”, “intend”, “expect”, “estimate”, “anticipate”, “likely”, “seek”, “should”, “would”, “could” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date the statement was made. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date of such statements.
Unless the context otherwise requires, the terms “iCAD”, the “Company”, “we”, “our”, “registrant”, and “us” mean iCAD, Inc. and its consolidated subsidiaries.
Results of Operations
Overview
iCAD, deliversInc. is a global medical technology company providing innovative cancer detectiondetection. Prior to the third quarter of 2023, the Company had two reporting segments: Detection and radiation therapy solutionsTherapy. The Company completed the sale of its Xoft (Therapy) business line on October 23, 2023. The applicable assets and services that enable clinicians to find and treat cancers earlier and while enhancing patient care. iCAD offers a comprehensive rangeliabilities of upgradeable computer aided detection (CAD) and workflow solutions to support rapid and accurate detection of breast and colorectal cancers. iCAD’sthe Xoft® Axxent® Electronic Brachytherapy (eBx®) System® is a painless,non-invasive technology that delivers high dose rate, low energy radiation, which targets cancer while minimizing exposure to surrounding healthy tissue. The Xoft System is FDA cleared and CE marked business have been classified as held for use anywheresale in the body, including treatmentCondensed Consolidated Balance Sheets as ofnon-melanoma skin cancer, early-stage breast cancer September 30, 2023 and gynecological cancers. The comprehensive iCAD technology platforms include advanced hardwareDecember 31, 2022, and softwarethe results of its operations for all periods presented are reflected as well as management services designeddiscontinued operations in the Condensed Consolidated Statements of Income. Unless otherwise indicated, all disclosures and amounts in the Notes to support cancer detection and radiation therapy treatments.Condensed Consolidated Financial Statements relate to the Company’s continuing operations. Accordingly, the Company now has only one reporting segment, Detection.
The Company has grown primarily through acquisitions including CADx, Qualia Computing, CAD Sciences, Xoft, DermEbx, Radion and VuComp. The Radion/DermEbx acquisition extended the Company’s position as a larger player in the oncology market, including the components that enable dermatologists and radiation oncologists to develop, launch and manage their electronic brachytherapy (“eBx”) programs for the treatment ofnon-melanoma skin cancer (“NMSC”). The VuComp acquisition included an extensive library of related clinical data which we use for cancer detection research and patents, as well as key personnel and expanded our customer base.
In the Detection segment, our industry-leading 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 rangesolutions suite of high-performance, upgradeableArtificial Intelligence and Computer-Aided Detection (CAD) systems and workflow solutions for 2D and 3D mammography, Magnetic Resonance Imaging (MRI) and Computed Tomography (CT).
The Company intends to continue the extension of its image analysis and clinical decision support solutions for mammography and CT imaging. The Company believes that advances in digital imaging techniques, such as 3D mammography, should bolster its efforts to develop additional commercially viable CAD/advanced image analysis and workflow products. In January 2016, the Company completed the acquisition of VuComp’sM-Vufocus on cancer detection, portfolio includingM-Vu CAD for $6,000. The acquisition provided clinical data for researchbreast density assessment, and an additional customer install base to sell the Company’sshort-term cancer detection solutions. In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation. The Company sold and conveyed to Invivo all right, title and interest to certain intellectual property relating to the VersaVue Software and the DynaCAD product and related assets. The Company closed the transaction on January 30, 2017, and recorded a gain on the sale of approximately $2.5 million as of the closing date. In March 2017, the Company announced that it received Premarket Approval from the U.S. Food and Drug Administration (the “FDA”) for the Powerlook Tomo Detection product.risk estimation.
In the Therapy segment, the Company offers an isotope-free cancer treatment platform technology. The Xoft Electronic Brachytherapy System (“Xoft eBx”) can be used for the treatment of early- stage breast cancer, endometrial cancer, cervical cancer and skin cancer. We believe the Xoft eBx system platform indications represent strategic opportunities in the United States and international markets to offer differentiated treatment alternatives. In addition, the Xoft eBx system generates additional recurring revenue for the sale of consumables and related accessories and offer solutions that enable dermatologists and radiation oncologists to develop, launch and manage their eBx programs for the treatment of NMSC.
As we have discussed in our risk factors noted in our Annual Report on Form10-K filed with the SEC for the year ended December 31, 2016, our business can be affected by coverage policies adopted by federal and state governmental authorities, such as 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 customers are willing to pay for those products in a particular jurisdiction.
The Company’s headquarters areis located in Nashua, New Hampshire, with a manufacturing facility in New Hampshire and an office in Lyon, France.
COVID-19 Impact
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 COVID-19, the United States and most countries of the world imposed some level of unprecedented restrictions such as travel bans and business closures which caused substantial reductions in economic activity. As a provider of devices and services to the health care industry, we believe our operations research, development, manufacturinghave been materially affected in all periods presented. While the worst of the disruptions seem to have subsided as of September 30, 2023, and warehousing facilitythe pandemic emergency has been deemed to be over, we continue dealing with the impact of slowness in San Jose, California.the overall economic recovery. Our expected results for the year ended December 31, 2023, including any interim or future periods, could reflect a continuing negative impact from continuing negative economic conditions.
We believe that our current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand of $19.0 million at September 30, 2023 and anticipated revenue and cash collections as well as cost savings actions taken.
Global Conflicts Impact
In late February 2022, Russian military forces launched significant military action against Ukraine. In early October 2023, an armed conflict between Hamas-led Palestinian militant groups and Israeli military forces broke out with a Hamas attack on southern Israel, to which Israeli military forces retaliated. Sustained conflict and disruption in the regions has continued and is likely to continue. Economic, civil, military and political uncertainty may arise or increase in regions where the Company operates or derives revenue. Further, countries from which we derive revenue may experience military action and/or civil and political unrest; may be subject to government export controls, economic sanctions, embargoes, or trade restrictions; and experience currency, inflation, and interest rate uncertainties. While the impact to us has been limited to date, it is not possible to predict the potential outcome should the conflict expand and/or additional sanctions be imposed. For the three and nine months ended September 30, 2023, approximately 16% and 15%, respectively, of the Company's revenue was derived from customers located outside the United States. No individual country outside of the United States accounted for more than 10% of revenue during those periods.
Xoft Sale
The Company completed the sale of its Xoft business line on October 23, 2023. The applicable assets and liabilities of the Xoft business have been classified as held for sale in the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, and the results of its operations for all periods presented are reflected as discontinued operations in the Condensed Consolidated Statements of Income. Unless otherwise indicated, all disclosures and amounts relate to the Company’s continuing operations. In addition, the Company now has one reporting segment, Detection.
Critical Accounting PoliciesEstimates
The Company’s
Our discussion and analysis of its financial condition, results of operations, and cash flows are based on the Company’sour consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On anon-going ongoing basis, the Company evaluateswe evaluate these estimates, including those related to revenue recognition, allowances for credit losses on accounts receivable, allowance, inventory valuation and obsolescence, intangible assets, goodwill, income taxes, warranty obligations, contingencies, and litigation. Additionally, the Company useswe use assumptions and estimates in calculations to determine stock-based compensation. The Company bases itscompensation, and evaluation of litigation. We base 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.
Due to the COVID-19 pandemic and its lingering impact, global armed conflicts and related political uncertainty, as well as dramatic inflation, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Other than as described herein, there have been no additional material changes to our critical accounting estimates as discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023. For a comprehensive list of the Company’sour critical accounting policies,estimates, reference should be made to the Annual Report on Form10-K for the year2022 10-K.
Three and nine months ended December 31, 2016 filed on March 24, 2017.
Revenue
Three months ended September 30, 20172023 and 2022:
Three Months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Product revenue | $ | 2,198 | $ | 2,536 | $ | (338 | ) | (13.3 | )% | |||||||
Service and supplies revenue | 1,875 | 1,823 | 52 | 2.9 | % | |||||||||||
Total revenue | 4,073 | 4,359 | (286 | ) | (6.6 | )% | ||||||||||
Total revenue decreased by approximately $0.3 million or (6.6%), from $4.4 million for the three months ended September 30, 2022 to $4.1 million for the three months ended September 30, 2023. The decrease is due primarily to reduced demand, a reduction in sales force in 2022, our shift to a subscription model and continued weakness in recovery to pre-pandemic levels prior to Covid-19. During the third quarter of 2023, we have seen an increased customer demand for subscription licenses, which currently remains a small portion of the Company’s total license revenue. We believe this trend could accelerate, and we have begun to shift our marketing efforts to a subscription model. An increase in subscription revenue would negatively impact revenue in the short term, because revenue from subscription licenses are recognized over time, as opposed to being recognized upon delivery for perpetual licenses.
Detection product revenue decreased by approximately $0.3 million, or (13.3%), from $2.5 million for the three months ended September 30, 2022 to $2.2 million for the three months ended September 30, 2023. The overall decrease is due primarily to the impact of our transition to a subscription model and ongoing challenges faced in the economy and market competition.
Detection service and supplies revenue, which is primarily sold to direct customers, was flat at approximately $1.8 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2016
Revenue: (in thousands)2023.
| Three months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Change | % Change | |||||||||||||
Detection revenue | ||||||||||||||||
Product revenue | $ | 2,758 | $ | 1,991 | $ | 767 | 38.5 | % | ||||||||
Service revenue | 1,588 | 2,143 | (555 | ) | (25.9 | )% | ||||||||||
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Subtotal | 4,346 | 4,134 | 212 | 5.1 | % | |||||||||||
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Therapy revenue | ||||||||||||||||
Product revenue | 668 | 23 | 645 | 2804.3 | % | |||||||||||
Service revenue | 1,986 | 1,846 | 140 | 7.6 | % | |||||||||||
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Subtotal | 2,654 | 1,869 | 785 | 42.0 | % | |||||||||||
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Total revenue | $ | 7,000 | $ | 6,003 | $ | 997 | 16.6 | % | ||||||||
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Nine Months Ended September 30, 2023 and 2022:
Nine Months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Product revenue | $ | 6,961 | $ | 9,866 | $ | (2,905 | ) | (29.4 | )% | |||||||
Service and supplies revenue | 5,617 | 5,301 | 316 | 6.0 | % | |||||||||||
Total revenue | 12,578 | 15,167 | (2,589 | ) | (17.1 | )% | ||||||||||
Total revenue decreased by approximately $2.6 million or (17.1%), from $15.1 million for the nine months ended September 30, 2022 to $12.6 million for the nine months ended September 30, 2023. The decrease is due primarily to reduced demand, a reduction in sales force in 2022, our shift to a subscription model and continued weakness in recovery to pre-pandemic levels prior to Covid-19 as well as market competition. During the first nine months of 2023, we have seen an increased customer demand for subscription licenses, which currently remains a small portion of the Company’s total license revenue. We believe this trend could accelerate, and we have begun to shift our marketing efforts to a subscription model. An increase in subscription revenue would negatively impact revenue in the short term, because revenue from subscription licenses are recognized over time, as opposed to being recognized upon delivery for perpetual licenses.
Detection product revenue decreased by approximately $2.9 million, or (29.4%), from $9.9 million for the nine months ended September 30, 2022 to $7.0 million for the nine months ended September 30, 2023. The overall decrease is due primarily to the impact of our transition to a subscription model and ongoing challenges faced in the economy as well as market competition.
Detection service and supplies revenue, which is primarily sold to direct customers, increased by approximately $0.3 million, or 6.0%, from $5.3 million for the nine months ended September 30, 2022 to $5.6 million in the nine months ended September 30, 2023. The increase is due primarily to the timing of delivery on service and supply agreements.
Cost of Revenue and Gross Profit:
Three months ended September 30, 20172023 and 2016:2022:
Total revenue for the three month period ended September 30, 2017 was $7.0 million compared with revenue of $6.0 million for the three month period ended September 30, 2016, an increase of approximately $1.0 million, or 16.6%. The increase in revenue was due to increases in Detection revenues of approximately $0.2 million and an increase in Therapy revenue of approximately $0.8 million.
Cost of Revenue and Gross Profit: | Three Months Ended September 30, | |||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Products | $ | 263 | $ | 348 | $ | (85 | ) | (24.4 | )% | |||||||
Service and supplies | 267 | 280 | (13 | ) | (4.6 | )% | ||||||||||
Amortization and depreciation | 22 | 27 | (5 | ) | (18.5 | )% | ||||||||||
Total cost of revenue | $ | 552 | $ | 655 | $ | (103 | ) | (15.7 | )% | |||||||
Three Months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Gross profit | $ | 3,521 | $ | 3,704 | $ | (183 | ) | (4.9 | )% | |||||||
Detection product revenue increased by approximately $0.8 million from $2.0 million to $2.8 million or 38.5% in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016. The increase is due primarily to an increase in digital systems driven by increases in sales to our OEM partners.
Detection service and supplies revenue decreased by approximately $0.6 million from $2.1 million in the three months ended September 30, 2016 to $1.6 million in the three months ended September 30, 2017. The decrease in service and supplies revenue is due primarily to the decrease in service revenue associated with the MRI business. Service and supplies revenue reflects the sale of service contracts to our installed base of customers. Service and supplies revenue related to our installed base of customers can vary from quarter to quarter.
Therapy product revenue was approximately $0.7 millionGross profit for the three months ended September 30, 20172023 was approximately $3.5 million, or 86.4% of revenue, as compared to $23,000$3.7 million, or 85.0% of revenue, for the three months ended September 30, 2016. The increase in product revenue for the quarter ended September 30, 2017 is due to the sale2022.
Cost of Axxent eBx systems in the quarter. Product revenueproducts decreased by approximately $85,000, or (24.4)%, from the sale of our Axxent eBx systems can vary significantly due to an increase or decrease in the number of units sold which can cause a significant fluctuation in product revenue in the period.
Therapy service and supply revenue was approximately $2.0 million for the three months ended
September 30, 2017 as compared to $1.9 million$348,000 for the three months ended September 30, 2016. Therapy service and supplies revenue is primarily the services related2022 to electronic brachytherapy fornon-melanoma skin cancer (“NMSC”).
Cost of Revenue and Gross Profit: (in thousands)
| Three months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Change | % Change | |||||||||||||
Products | $ | 636 | $ | 236 | $ | 400 | 169.5 | % | ||||||||
Service and supplies | 1,458 | 1,370 | 88 | 6.4 | % | |||||||||||
Amortization and depreciation | 263 | 296 | (33 | ) | (11.1 | )% | ||||||||||
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Total cost of revenue | $ | 2,357 | $ | 1,902 | $ | 455 | 23.9 | % | ||||||||
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Gross profit | $ | 4,643 | $ | 4,101 | $ | 542 | 13.2 | % | ||||||||
Gross profit % | 66.3 | % | 68.3 | % | (2.0 | )% | ||||||||||
| Three months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Change | % Change | |||||||||||||
Detection gross profit | $ | 3,822 | $ | 3,586 | $ | 236 | 6.6 | % | ||||||||
Therapy gross profit | 821 | 515 | 306 | 59.4 | % | |||||||||||
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Gross profit | $ | 4,643 | $ | 4,101 | $ | 542 | 13.2 | % | ||||||||
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Gross profit for the three month period ended September 30, 2017 was $4.6 million, or 66.3% of revenue as compared to $4.1 million or 68.3% of revenue in the three month period ended September 30, 2016. Gross profit percent changes are primarily due to changes in the mix of business, consulting costs related tonon-recurring engineering revenue, additional manufacturing investments and amortization of acquired intangibles.
Cost of service and supplies was $1.5 millionapproximately flat for the three months ended September 30, 2017 as compared to $1.4 million for the three months ended2022 and September 30, 2016. The cost2023. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 41% for the quarter ended September 30, 2017 and 34% for the quarter ended September 30, 2016.
Operating Expenses: (in thousands)
| Three months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Change | Change % | |||||||||||||
Operating expenses: | ||||||||||||||||
Engineering and product development | $ | 2,254 | $ | 2,360 | $ | (106 | ) | (4.5 | )% | |||||||
Marketing and sales | 2,580 | 2,322 | 258 | 11.1 | % | |||||||||||
General and administrative | 1,944 | 1,783 | 161 | 9.0 | % | |||||||||||
Amortization and depreciation | 107 | 288 | (181 | ) | (62.8 | )% | ||||||||||
Goodwill and long-lived asset impairment | 4,700 | — | 4,700 | 0.0 | % | |||||||||||
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Total operating expenses | $ | 11,585 | $ | 6,753 | $ | 4,832 | 71.6 | % | ||||||||
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Operating expenses increased by approximately $4.8 million or 71.6% in the three months ended September 30, 2017. The increase is due primarily to the goodwill and long lived asset impairment of $4.7 million.
Engineering and Product Development.Engineering and product development costs were approximately $2.3 million for the three month period ended September 30, 2017 as compared to $2.4 million for the three month periods ended September 30, 2016. Detection engineering and product development costs were $1.3 million for each of the three month periods ended September 30, 2017 and September 30, 2016. Therapy engineering and product development costs decreased by $0.1 million to $1.0 million15.4% for the three months ended September 30, 2017 from $1.1 million2022 as compared to 14.2% for the three months ended September 30, 2016.2023. The Company continues to invest in strategic initiatives suchcost of service and supplies as a percentage of revenue decreased primarily as a result of the developmentrelative mix of clinical evidence in both Detectionservice and Therapy, development of breast tomosynthesis products and ongoing enhancements to our electronic brachytherapy products.
Marketing and Sales.Marketing and sales expenses increased by $0.3 million or 11.1%, from $2.3 millionsupplies in the three month period ended September 30, 2016comparable periods.
Amortization and depreciation, which relates primarily to $2.6 million in the three month period ended September 30, 2017. Detection marketingacquired intangible assets and sales expense increased $0.2 million from $0.9 million in the three months ended September 30, 2016 to $1.1 milliondepreciation of machinery and equipment, was approximately flat for the three months ended September 30, 2017. The increase in Detection marketing2023 and sales expenses was due primarily to increases in commissions and stock compensation. Therapy marketing and sales expense increased by $0.1 million from $1.5 million in the three months ended2022.
Nine Months Ended September 30, 2016 to $1.6 million in the three months ended September 30, 2017.
General2023 and Administrative.2022:General and administrative expenses increased by $0.2 million or 9.0%, from $1.8 million in the three month period ended September 30, 2016 to $1.9 million in the three month period ended September 30, 2017. The increase was due primarily to an increase in consulting and personnel costs.
Amortization and Depreciation.Amortization and depreciation is primarily related to acquired intangible assets and depreciation related to machinery and equipment. Amortization and depreciation decreased to approximately $0.1 million in the quarter ended September 30, 2017 from $0.3 million for the quarter ended September 30, 2016. The decrease is due primarily to the sale of MRI assets in January 2017.
Goodwill and long-lived asset impairment.In the third quarter of 2017, the Company determined there was a triggering event, and accordingly completed an interim goodwill and long-lived asset impairment In the quarter ended September 30, 2017, the Company recorded an impairment charge of $4.0 million related to goodwill and $0.7 million related to intangible assets.
Other Income and Expense: (in thousands)
| Three months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Change | Change % | |||||||||||||
Interest expense | $ | (36 | ) | $ | (15 | ) | (21 | ) | 140.0 | % | ||||||
Interest income | 3 | 2 | 1 | 50.0 | % | |||||||||||
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| $ | (33 | ) | $ | (13 | ) | $ | (20 | ) | 153.8 | % | ||||||
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Tax benefit (expense) | $ | 42 | $ | (10 | ) | $ | 52 | (520.0 | )% | |||||||
Cost of Revenue and Gross Profit: | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Products | $ | 1,099 | $ | 1,253 | $ | (154 | ) | (12.3 | )% | |||||||
Service and supplies | 951 | 916 | 35 | 3.8 | % | |||||||||||
Amortization and depreciation | 65 | 81 | (16 | ) | (19.8 | )% | ||||||||||
Total cost of revenue | $ | 2,115 | $ | 2,250 | $ | (135 | ) | (6.0 | )% | |||||||
Interest expense. Interest expense of $36,000 increased by $21,000 or 140.0% for the three month period ended September 30, 2017 as compared to interest expense of $15,000 in the three month period ended September 30, 2016. The increase in interest expense is due primarily to the interest expense associated with the Silicon Valley Bank term loan signed in August, 2017.
Nine Months Ended September 30, | ||||||||||||||||
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Gross profit | $ | 10,463 | $ | 12,917 | $ | (2,454 | ) | (19.0 | )% | |||||||
Other income. Other income was $3,000 and $2,000, respectively,Gross profit for the three month periods ended September 30, 2017 and 2016.
Tax benefit (expense). The Company had a tax benefit of $42,000 for the three month period ended September 30, 2017 as compared to tax expense of $10,000 for the three month period ended September 30, 2016. The tax benefit for the quarter ended September 30, 2017 is the result of applying for New Hampshire research and development credits. Tax expense for the quarter ended September 30, 2016 is due primarily to statenon-income and franchise based taxes.
Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
Revenue: (in thousands)
Detection revenue Product revenue Service revenue Subtotal Therapy revenue Product revenue Service revenue Subtotal Total revenue Nine months ended September 30, 2017 2016 Change % Change $ 7,970 $ 6,580 $ 1,390 21.1 % 5,096 6,381 (1,285 ) (20.1 )% 13,066 12,961 105 0.8 % 1,255 880 375 42.6 % 5,879 5,569 310 5.6 % 7,134 6,449 685 10.6 % $ 20,200 $ 19,410 $ 790 4.1 %
Nine months ended September 30, 2017 and 2016:
Total revenue for the nine month period ended September 30, 20172023 was $20.2 million compared with revenue of $19.4 million for the nine month period ended September 30, 2016, an increase of approximately $0.8$10.5 million, or 4.1%. The increase in83.2% of revenue, was dueas compared to a $0.7 million increase in Therapy revenue and an increase in Detection revenues of approximately $0.1 million.
Detection product revenue increased by approximately $1.4 million from $6.6 million to $8.0$12.9 million, or 21.1% in85.2% of revenue, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase is due primarily to an increase in CAD revenues2022.
Cost of $2.2 million offset by decreases in MRI revenue of approximately $0.7 million and $0.1 million in colon revenue. The decrease in MRI revenue is due primarily to the sale of the Company’s MRI assets in January 2017.
Detection service and supplies revenueproducts decreased by approximately $1.3$0.2 million, or (12.3)%, from $6.4 million in the nine months ended September 30, 2016 to $5.1 million in the nine months ended September 30, 2017. The decrease in service and supplies is due primarily to the sale of the Company’s MRI assets in January 2017. Service and supplies revenue reflects the sale of service contracts to our installed base of customers. We expect service and supplies revenue related to our installed base of customers to vary from quarter to quarter as customers transition from 2D CAD to digital tomosynthesis.
Therapy product revenue was approximately $1.3 million for the nine months ended September 30, 2017 as compared2022 to $0.9$1.1 million for the nine months ended September 30, 2016. Product revenue from the sale of our Axxent eBx systems can vary significantly due to an increase or2023. The decrease in the number of units sold which can cause a significant fluctuation in product revenue in the period.
Therapy service and supplies revenue increased approximately $0.3 million from $5.6 million in the nine months ended September 30, 2016 to $5.9 million for the nine months ended September 30, 2017. The increase in Therapy service and supplies revenue is due primarily to an increase in the services related to electronic brachytherapy for NMSC.
Cost of Revenue and Gross Profit: (in thousands)
| Nine months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Change | % Change | |||||||||||||
Products | $ | 1,349 | $ | 611 | $ | 738 | 120.8 | % | ||||||||
Service and supplies | 4,169 | 3,911 | 258 | 6.6 | % | |||||||||||
Amortization and depreciation | 847 | 899 | (52 | ) | (5.8 | )% | ||||||||||
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Total cost of revenue | $ | 6,365 | $ | 5,421 | $ | 944 | 17.4 | % | ||||||||
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Gross profit | $ | 13,835 | $ | 13,989 | $ | (154 | ) | (1.1 | )% | |||||||
Gross profit % | 68.5 | % | 72.1 | % | (3.6 | )% | ||||||||||
| Nine months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Change | % Change | |||||||||||||
Detection gross profit | $ | 11,553 | $ | 11,429 | $ | 124 | 1.1 | % | ||||||||
Therapy gross profit | 2,282 | 2,560 | (278 | ) | (10.9 | %) | ||||||||||
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Gross profit | $ | 13,835 | $ | 13,989 | $ | (154 | ) | (1.1 | %) | |||||||
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Gross profit for the nine month period ended September 30, 2017 was $13.9 million, or 68.5% of revenue as compared to $14.0 million or 72.1% of revenue in the nine month period ended September 30, 2016. Gross profit percent changes are primarily due to changes in the mix of business, consulting costs related tonon-recurring engineering revenue, additional manufacturing investments and amortization of acquired intangibles. Gross profit for the nine months ended September 30, 2016 includes a recovery of the medical device excise tax of approximately $0.5 million due to a refund.
Cost of service and supplies increaseddecreased by $0.3 million from $3.9 million inapproximately flat for the nine months ended September 30, 20162022 compared to $4.2 million in the nine months ended September 30, 2017. The cost2023. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 38%17.3% for the quarter ended September 30, 2017 and 33% for the quarter ended September 30, 2016. The increase in cost of service supplies is due primarily to the recovery of medical device excise tax of $0.2 million in 2016, which also decreased the cost of service and supplies revenue as a percentage of revenue in 2016.
Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was less approximately flat for the nine months ended September 30, 2023 and 2022.
Operating Expenses: (in thousands)
| Nine months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Change | Change % | |||||||||||||
Operating expenses: | ||||||||||||||||
Engineering and product development | $ | 7,060 | $ | 6,835 | $ | 225 | 3.3 | % | ||||||||
Marketing and sales | 8,172 | 7,379 | 793 | 10.7 | % | |||||||||||
General and administrative | 6,067 | 5,586 | 481 | 8.6 | % | |||||||||||
Amortization and depreciation | 345 | 867 | (522 | ) | (60.2 | )% | ||||||||||
Goodwill and long-lived asset impairment | 4,700 | — | 4,700 | 0.0 | % | |||||||||||
Gain from sale of MRI assets | (2,508 | ) | — | (2,508 | ) | 0.0 | % | |||||||||
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Total operating expenses | $ | 23,836 | $ | 20,667 | $ | 3,169 | 15.3 | % | ||||||||
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Three months ended September 30, 2023 and 2022:
Three Months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Operating expenses: | ||||||||||||||||
Engineering and product development | $ | 1,147 | $ | 1,407 | $ | (260 | ) | (18.5 | )% | |||||||
Marketing and sales | 1,495 | 2,761 | (1,266 | ) | (45.9 | )% | ||||||||||
General and administrative | 2,042 | 2,649 | (607 | ) | (22.9 | )% | ||||||||||
Amortization and depreciation | 56 | 52 | 4 | 7.7 | % | |||||||||||
Total operating expenses | $ | 4,740 | $ | 6,869 | $ | (2,129 | ) | (31.0 | )% | |||||||
Operating expenses increaseddecreased by approximately $3.2$2.1 million, or 15.3%(31.0)%, from $6.9 million in the three months ended September 30, 2022 to $4.7 million in the three months ended September 30, 2023.
Engineering and Product Development. Engineering and product development costs decreased by approximately $0.3 million, or (18.5)%, from $1.4 million in the three months ended September 30, 2022 to $1.1 million in the three months ended September 30, 2023. The decrease is due primarily to cost savings actions taken by management.
Marketing and Sales. Marketing and sales expenses decreased by approximately $1.3 million, or (45.9)%, from $2.8 million in the three months ended September 30, 2022 to $1.5 million in the three months ended September 30, 2023. The decrease was primarily related to lower headcount and commission expense during the comparable periods.
General and Administrative. General and administrative expenses decreased by approximately $0.6 million, or (22.9%), from $2.6 million in the three months ended September 30, 2022 to $2.0 million in the three months ended September 30,2023
Amortization and Depreciation. Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, were flat for the three months ended September 30, 2023 and 2022.
Nine Months Ended September 30, 2023 and 2022:
Nine Months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Operating expenses: | ||||||||||||||||
Engineering and product development | $ | 3,909 | $ | 4,359 | $ | (450 | ) | (10.3 | )% | |||||||
Marketing and sales | 5,690 | 8,206 | (2,516 | ) | (30.7 | )% | ||||||||||
General and administrative | 7,650 | 7,804 | (154 | ) | (2.0 | )% | ||||||||||
Amortization and depreciation | 186 | 169 | 17 | 10.1 | % | |||||||||||
Total operating expenses | $ | 17,435 | $ | 20,538 | $ | (3,103 | ) | (15.1 | )% | |||||||
Operating expenses decreased by approximately $3.1 million, or (15.1)%, from $20.1 million in the nine months ended September 30, 2017 as2022 to $17.4 million in the nine months ended September 30, 2023.
Engineering and Product Development. Engineering and product development costs decreased by approximately $0.5 million, or (10.3)%, from $4.4 million in the three months ended September 30, 2022 to $3.9 million in the nine months ended September 30, 2023. The decrease is due primarily to cost savings actions taken by management.
Marketing and Sales. Marketing and sales expenses decreased by approximately $2.5 million, or (30.7)%, from $8.2 million in the nine months ended September 30, 2022 to $5.7 million in the nine months ended September 30, 2023. The decrease was primarily related to lower headcount and commission expense during the comparable periods.
General and Administrative. General and administrative expenses decreased by approximately $0.2 million, or (2.0%) from $7.8 million in the nine months ended September 30, 2022 to $7.6 million in the nine months ended September 30, 2023.
Amortization and Depreciation. Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, were approximately flat for the nine months ended September 30, 2023 and 2022.
Other Income and Expense:
Three months ended September 30, 2023 and 2022:
Other Income and Expense: | ||||||||||||||||
Three Months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Interest income | $ | 195 | $ | 71 | $ | 124 | 174.6 | % | ||||||||
Other income (expense) | (9 | ) | (2 | ) | (7 | ) | 350.0 | % | ||||||||
| $ | 186 | $ | 69 | $ | 117 | 169.6 | % | |||||||||
Tax (expense) benefit | $ | (4 | ) | $ | — | $ | (4 | ) | (100.0 | )% | ||||||
Loss from discontinued operations | $ | (337 | ) | $ | (795 | ) | $ | 458 | (57.6 | )% | ||||||
Interest income. Interest income increased by approximately $124,000, or 174.6%, from $71,000 for the three months ended September 30, 2022 to $195,000 for the three months ended September 30, 2023. The increase results from higher interest rates in 2023 compared to 2022.
Other income (expense). Other income (expense) was a loss of $(2,000) during the three months ended September 30, 2022 compared to a loss of $9,000 during the three months ended September 30, 2023. The change is driven by lower foreign exchange losses recorded in 2023 compared to 2022.
Tax (expense). Income tax expense was approximately $4,000 and $0 for the three months ended September 30, 2023 and September 30, 2022, respectively. The effective tax rates for the three months ended September 30, 2023 and 2022 were less than 1% in each period. The difference between the Company’s effective tax rates in 2023 and 2022 compared to the U.S. statutory tax rate of 21% is primarily due to changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company has valuation allowances against substantially all of its net operating loss carryforwards and tax credit carryforwards.
Discontinued operations, net of tax. This line represents the net loss of the Company's former Xoft business line which was sold in October, 2023.
Nine Months Ended September 30, 2023 and 2022:
Other Income and Expense: | ||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||
2023 | 2022 | $ Change | % Change | |||||||||||||
Interest expense | $ | (2 | ) | $ | (7 | ) | $ | 5 | (71.4 | )% | ||||||
Interest income | 528 | 89 | 439 | 493.3 | % | |||||||||||
Other income (loss) | (8 | ) | (45 | ) | 37 | (82.2 | )% | |||||||||
| $ | 518 | $ | 37 | $ | 481 | 1300.0 | % | |||||||||
Tax benefit (expense) | $ | (13 | ) | $ | — | $ | (13 | ) | 100.0 | % | ||||||
Loss from discontinued operations | $ | (435 | ) | $ | (2,977 | ) | $ | 2,542 | (85.4 | )% | ||||||
Interest expense. Interest expense was approximately flat for the nine months ended September 30, 2022. compared to the nine months ended September 30, 2016. In the first quarter of 2017, the Company sold certain MRI assets to Invivo and recorded a gain on the sale of $2.5 million, which was offset2023.
Interest income. Interest income increased by the goodwill and long lived asset impairment of $4.7 million, recorded in the third quarter of 2017.
Engineering and Product Development.Engineering and product development costs were approximately $7.1 million for the nine month period ended September 30, 2017 as compared to $6.8 million for the nine month period ended September 30, 2016, an increase of $225,000$439,000, or 3.3%. Therapy engineering and product development costs increased439.3%, from $3.1 million in the nine months ended September 30, 2016 to $3.2 million$89,000 for the nine months ended September 30, 2017. Detection engineering and product development costs increased by $0.2 million2022 to $3.9 million for the nine month period ended September 30, 2017 from $3.7 million for the nine month period ended September 30, 2016. The Company continues to invest in strategic initiatives such as the development of ongoing clinical evidence, development of breast tomosynthesis products and additional enhancements to our electronic brachytherapy products.
Marketing and Sales.Marketing and sales expenses increased by $0.8 million or 10.7%, from $7.4 million in the nine month period ended September 30, 2016 to $8.2 million in the nine month period ended September 30, 2017. Therapy marketing and sales expense increased $0.2 million from $4.7 million in the nine months ended September 30, 2016 to $4.9 million$528,000 for the nine months ended September 30, 2017. Detection marketing and sales costs increased by $0.5 million2023. The increase results from $2.7 millionhigher interest rates in 2023 compared to 2022.
Other income (expense). Other income (expense) was a loss of $(45,000) during the nine months ended September 30, 20162022 compared to $3.2 million fora loss of $8,000 during the nine months ended September 30, 2017.2023. The increasechange is driven by lower foreign exchange losses recorded in Detection marketing and sales costs is due primarily to increases in commissions and stock compensation.
General and Administrative.General and administrative expenses increased by $0.5 million from $5.6 million in the nine month period ended September 30, 2016 to $6.1 million in the nine month period ended September 30, 2017. The increase was due primarily to an increase in stock compensation costs and a $249,000 gain on settlement of litigation related to the acquisition of VuCompM-Vu CAD in January 2016.
Amortization and Depreciation.Amortization and depreciation is primarily related to acquired intangible assets and depreciation related to machinery and equipment. Amortization and depreciation decreased by $0.5 million from $0.9 million in the nine month period ended September 30, 2016 to $0.3 million in the nine month period ended September 30, 2017. The decrease is due primarily to the sale of MRI assets in January 2017.
Gain from sale of MRI assets.The Company entered into an Asset Purchase Agreement with Invivo Corporation to sell certain MRI assets in December 2016 and the transaction closed on January 30, 2017. As a result, the Company recorded a gain on sale from MRI assets of $2.5 million in the first quarter of 2016.
Goodwill and long-lived asset impairment.In the third quarter of 2017, the Company determined there was a triggering event, and accordingly completed an interim goodwill and long-lived asset impairment In the quarter ended September 30, 2017, the Company recorded an impairment charge of $4.0 million related to goodwill and $0.7 million related to intangible assets.
Other Income and Expense: (in thousands)
| Nine months ended September 30, | ||||||||||||||||
| 2017 | 2016 | Change | Change % | |||||||||||||
Interest expense | $ | (51 | ) | $ | (59 | ) | $ | 8 | (13.6 | )% | ||||||
Interest income | 3 | 9 | (6 | ) | (66.7 | )% | ||||||||||
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Tax benefit (expense) | $ | 28 | $ | (55 | ) | $ | 83 | (150.9 | )% | |||||||
Interest expense. Interest expense of $51,000 decreased by $8,000 or 13.6% for the nine month period ended September 30, 2017 as2023 compared to interest expense of $59,000 in the nine month period ended September 30, 2016. Interest expense for the nine months ended September 30, 2017 relates primarily to notes payable. Interest expense in for the nine months ended September 30, 2016 related primarily to capital leases which were paid in 2017.2022.
Interest income. Interest income was $3,000 and $9,000 for the nine month period ended September 30, 2017 and September 30, 2016, respectively which reflected income earned from our money market accounts.
Tax benefit (expense). Income tax expense was $13,000 and 0 for the nine months ended September 30, 2023 and 2022, respectively. The effective tax rates for the nine months ended September 30, 2023 and 2022 were less than 1% in each period. The difference between the Company’s effective tax rates in 2023 and 2022 compared to the U.S. statutory tax rate of 21% is primarily due to changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company had ahas valuation allowances against substantially all of its net operating loss carryforwards and tax benefitcredit carryforwards.
Discontinued operations, net of $28,000 fortax. This line represents the nine month period ended September 30, 2017 as compared to tax expensenet loss of $55,000 for the nine month period ended September 30, 2016. The tax benefit for the nine months ended September 30, 2017 is the resultCompany's former Xoft business line which was sold in October, 2023.
Liquidity and Capital Resources
(in thousands, except as noted)We believeThe Company believes that our current liquidityits cash and capital resourcescash equivalents balance of $19.0 million as of September 30, 2023, and projected cash balances are sufficient to sustain operations through at least the next 12 months,months. The Company’s ability to generate cash adequate to meet its future capital requirements will depend primarily dueon 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 cash on hand. Our projected cash needs include plannedobtain the financing if necessary. We will continue to closely monitor liquidity and the capital expenditures, lease and settlement commitments, and other long-term obligations.credit markets.
As
The Company had net working capital of $20.9 million at September 30, 2017, the Company has current assets of $22.4 million which includes $11.3 million of cash and cash equivalents. Current liabilities are $11.6 million and working capital is $10.8 million.2023. The ratio of current assets to current liabilities at September 30, 2023 and December 31, 2022 was 1.92:1. In January 2017, the Company received $2.8 million from the sale of MRI assets to Invivo. In August 2017 the Company entered into a debt facility that provides an initial term loan of $6.0 million2.83 and a $4.0 million revolving line of credit. The Company also has the option to secure an additional $3.0 million in term loan in 2018, subject to meeting certain revenue milestones.2.84, respectively.
| For the nine months ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| (in thousands) | ||||||||
Net cash used for operating activities | $ | (5,565 | ) | $ | (3,862 | ) | ||
Net cash provided by (used for) investing activities | 2,486 | (262 | ) | |||||
Net cash provided by (used for) financing activities | 5,755 | (673 | ) | |||||
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Increase (decrease) in cash and equivalents | $ | 2,676 | $ | (4,797 | ) | |||
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2023 | 2022 | |||||||
Net cash used for operating activities | $ | (3,513 | ) | $ | (9,660 | ) | ||
Net cash used for investing activities | (675 | ) | (365 | ) | ||||
Net cash provided by financing activities | 1,921 | 333 | ||||||
Decrease in cash and equivalents | $ | (2,267 | ) | $ | (9,692 | ) | ||
Net cash used for operating activities for the nine month periodmonths ended September 30, 20172023 was $5.6$3.5 million, compared to net cash used for operating activities of $3.9$9.7 million for the nine month periodmonths ended September 30, 2016.2022. The improvement in net cash used for operating activities for the nine month periodmonths ended September 30, 20172023 resulted primarily from our net loss and from working capital changes resulting from increases inthe Company’s focus on collections of accounts receivable decreases in accounts payable and accrued expenses offset by the cash provided due to the decrease in prepaid expenses.ongoing cost saving initiatives. We expect that net cash used for or provided by operating activities mayto fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, specifically the timing of when we recognize revenue, ourcollections of accounts receivable, collectionsinventory expansion due to supply chain risk, and the timing of other payments.
The net Included in these figures are the cash provided by investing activities forflows from our discontinued Xoft business. For the nine month periodmonths ended September 30, 2017 of $2.5 million was due2023, the impact on cash flows from operating activities related to the Xoft business was limited given the previously announced furlough and focus on strategic alternatives. For the nine months ended September 30, 2022, the impact on cash receivedflows from operating activities related to the saleXoft business was a use of MRI assets offset by purchasescash of property and equipment. Cashapproximately $4 million.
Net cash used for investing activities for the nine month periodmonths ended September 30, 20162023 was $0.3 million, which represents$675,000, compared to $365,000 for the nine months ended September 30, 2022. The net cash used for investing activities for the nine months ended September 30, 2023 and 2022 is primarily for purchases of property and equipment.
Net cash provided by financing activities for the nine month period ended September 30, 2017 was $5.8 million as compared to net cash used for financing activities of $0.7 million for the nine month period ended September 30, 2016. Cash provided by financing activities for the nine months ended September 30, 2017 is due primarily2023 was $1.9 million related to proceeds from the $6.0 million term loan and taxes paid onsales of our common stock as well as stock option exercises by employees. Net cash provided by financing activities for nine months ended September 30, 2022 was $172,000 related to the issuance of restrictedcommon stock pursuant to employees. Cash used for financing activities for the nine month period ended September 30, 2016 represents primarily repayments of capital leases.
Contractual Obligations
The following table summarizes,Company is obligated to pay approximately $1.1 million for the periods presented, our future estimated cash payments under existing contractual obligations (in thousands).
Contractual Obligations | Payments due by period | |||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | 5+ years | ||||||||||||||||
Operating Lease Obligations | $ | 1,848 | $ | 742 | $ | 1,106 | $ | — | $ | — | ||||||||||
Capital lease obligations | 42 | $ | 12 | 30 | — | — | ||||||||||||||
Settlement Obligations | 500 | 500 | — | — | — | |||||||||||||||
Notes Payable | 6,615 | 591 | 4,324 | 1,700 | — | |||||||||||||||
Other Commitments | 825 | 632 | 84 | 32 | 77 | |||||||||||||||
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Total Contractual Obligations | $ | 9,830 | $ | 2,477 | $ | 5,544 | $ | 1,732 | $ | 77 | ||||||||||
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Operating lease obligations are the minimum payments due under these obligations.
Settlement obligations represent the remaining payments of the obligations to Hologic. The Company paid $0.5 million in July 2017 which represented the remaining settlement obligation to Zeiss.
Other commitments represent firm purchase obligations to suppliers for future product and service deliverables.deliverables and $0.4 million for minimum royalty obligations.
On November 6, 2023, the Company received cash of approximately $5.0 million related to the sale of its former Xoft business line.
Recent Accounting Pronouncements
See Note 141 to the Condensed Consolidated Financial Statements.
| Item3. | Quantitative |
We believe we are not subject to material foreign currency exchange rate fluctuations, as substantially all of our sales and expenses are denominated 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 or warrants, either to hedge existing risks or for speculative purposes.Qualitative Disclosures about Market Risk
OurNot applicable.
The Company’s management, with the participation of ourits principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of ourits disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, as of September 30, 2017,2023, the principal executive officer and principal financial officer concluded that ourthe Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)Act) were effective at thea reasonable level of assurance.
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. We conductThe Company conducts periodic evaluations to enhance, where necessary, our proceduresits controls and controls.procedures.
Our principal executive officer and principal financial officer conducted an evaluation of our
There were no changes to the Company's internal controlcontrols 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 quarter ended September 30, 2017,2023 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.
INFORMATION
Item 1. Legal Proceedings1A.Risk Factors:
Please refer
Our business is subject to the detailed discussion regarding litigation set forth in Note 8 of the Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
The Company is involved in various legal matters that are in the process of litigation or settled in the ordinary course of business. Although the final results of all such matters and claims cannot be predicted with certainty, we believe that the ultimate resolution of all such matters and claims will not have a material adverse effect on our financial condition. However, such matters could have a material adverse effect on our operating results and cash flows for a particular period.
We operate in a changing environment that involves numerous known and unknown risks, and uncertainties that could materially adversely affect our operations. Our risk factors areincluding those described in Part I, Item 1A of our Annual Report on Form 10-K filed withfor the SECfiscal year ended December 31, 2022, which we strongly encourage you to review. Other than described below, there have been no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2016 as2022 filed with the SEC on March 24, 2017. There31, 2023.
We have been informed that the FDA requires additional information to determine appropriate regulatory requirements of our ProFound AI® Risk product based on revised FDA guidance and have paused U.S. sales of the product.
We have been informed that under the FDA’s current position, as reflected in revised FDA guidance, ProFound AI® Risk meets the definition of device by section 520(o)(1)(E) of the Federal Food, Drug, and Cosmetic Act (“FD&C Act”). The FDA has requested additional information from us to determine the applicable regulatory requirements. Under the previous FDA guidance, we believed that ProFound AI® Risk met the definition of a device and at that time, based on the FDA’s then guidance, FDA did not intend to enforce compliance with the applicable requirements of the FD&C Act, including, but not limited to, premarket clearance and premarket approval requirements. While there have been no materialadverse safety issues reported in the U.S. by our customers which have deployed ProFound AI Risk, we have paused sales of ProFound AI® Risk in the U.S. and will inform customers of our need to provide the FDA with additional information under their revised guidance. However, we do not currently intend to recall any licenses previously sold and granted.
Sales of ProFound AI® Risk have not been significant to our aggregate sales and we have only made sales to a limited number of customers. Note that ProFound AI® Risk is, however, approved for use in countries outside of the U.S. including Canada and the European Union, and we have received no reports of safety issues from any users. We are presently determining the optimal regulatory strategy designed to satisfy applicable FDA requirements. The changes in the risks affecting iCAD since the filingFDA guidance applicable to ProFound AI® Risk do not affect sales of our Form 10-K.other products which include our primary product ProFound AI® Detection as well as ProFound AI® Density.
We may not be able to complete all activities necessary to comply with FDA guidance on a timely basis or without expending significant resources. We will submit a 513(g) Request for Information regarding the requirements applicable to the product under the FD&C Act. We are unable to control the timing of FDA action and we may be required to make additional submissions within certain timeframes. We also do not know whether or not the FDA will change its current thinking regarding the regulatory requirements applicable to ProFound AI® Risk. If the FDA determines that we have not satisfied its requirements, any failure of ours to address such requirements or provide requested documentation could disrupt our business operations related to the ProFound AI® Risk product and the timing of our commercialization efforts and could have a material adverse effect on our financial condition and operating results. In addition, the FDA could take action against us for the period of time from the change in FDA guidance applicable to ProFound AI® Risk to the present time, in connection with our decision not to recall the licenses previously sold and granted and could require us to recall the product in the future . We may also be at risk from claims made by our customers who have commenced sales of ProFound AI® Risk to their customers.
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 2022, approximately 11% of the Company’s revenue was derived from customers located in Europe and the Middle East. In late February 2022, Russian military forces launched significant military action against Ukraine. In early October 2023, an armed conflict between Hamas-led Palestinian militant groups and Israeli military forces broke out with a Hamas attack on southern Israel, to which Israeli military forces retaliated. Sustained conflict and disruption in these regions is likely. The aggregate impact to Eastern Europe and Europe as a whole, throughout the Middle East, 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
Exhibit
No.
Month of purchase | Total number of shares purchased (1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum dollar value of shares that may yet be purchaed under the plans or programs | ||||||||||||
July 1 - July 31, 2017 | — | $ | — | $ | — | $ | — | |||||||||
August 1 - August 30, 2017 | 7,629 | 3.77 | — | — | ||||||||||||
September 1 - September 31, 2017 | — | — | — | — | ||||||||||||
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|
|
|
| |||||||||
Total | 7,629 | $ | 3.77 | $ | — | $ | — | |||||||||
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32.1** | ||
32.2** | ||
101* | The following materials formatted in Inline XBRL (eXtensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets as of September 30, | |
104* | Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101). | |
* Filed herewith
** Furnished herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
iCAD, Inc. | ||||||
(Registrant) | ||||||
Date: November 13, 2023 | By: | /s/ Dana Brown | ||||
Name: Title: | ||||||
Dana Brown Chief Executive Officer
| ||||||
Date:November | By: | /s/ Eric Lonnqvist | ||||
| ||||||
Title: |
Chief Financial Officer (Principal Financial Officer) | |||||
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