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 ~~June 30, 2019~~March 31, 2020

☐	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

(Registrant’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 Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, ~~$.01~~$0.01 par value	ICAD	The ~~NASDAQ~~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. YES ☒ NO ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐.

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act) YES ☐ NO ☒☒.

As of the close of business on ~~August 9, 2019~~May 1, 2020 there were ~~19,261,932~~22,853,545 shares outstanding of the registrant’s Common Stock, ~~$.01~~$0.01 par value.

iCAD, Inc.

INDEX


		Page
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019		3

	Condensed Consolidated Statements of Operations for the ~~three~~three-months ended March 31, 2020 and ~~six months ended June 30,~~March 31, 2019 ~~and June 30, 2018~~		4

	Condensed Consolidated Statements of Cash Flows for the ~~six months~~three-months ended ~~June 30,~~March 31, 2020 and March 31, 2019 ~~and June 30, 2018~~		5

	Consolidated Statements of Stockholders’ Equity ~~as of June 30,~~for the three-months ended March 31, 2020 and March 31, 2019 ~~and December 31, 2018~~		6

	Notes to Condensed Consolidated Financial Statements		87-34

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3635-44

Item 3	Quantitative and Qualitative Disclosures about Market Risk		4845

Item 4	Controls and Procedures		4845

PART II	OTHER INFORMATION

Item 1	Legal Proceedings		4946

Item 1A	Risk Factors		4947

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		48

Item 5	Other Information		48

Item 6	Exhibits		5049

	Signatures		5150

iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands except for share data)


							March 31,			December 31,
	June 30, 2019			December 31, 2018			2020			2019
Assets
Current assets:
Cash and cash equivalents	$	19,567		$	12,185		$	14,256		$	15,313
Trade accounts receivable, net of allowance for doubtful accounts of $202 in 2019 and $177 in 2018		6,771			6,403
Trade accounts receivable, net of allowance for doubtful accounts of $255 in 2020 and $136 in 2019								7,090			9,819
Inventory, net		2,258			1,587			2,462			2,611
Prepaid expenses and other current assets		1,172			1,045			1,497			1,453

Total current assets		29,768			21,220			25,305			29,196

Property and equipment, net of accumulated depreciation of $6,356 in 2019 and $6,214 in 2018		546			552
Property and equipment, net of accumulated depreciation of $6,580 in 2020 and $6,510 in 2019								636			551
Operating lease assets		552			—			2,322			2,406
Other assets		53			53			93			50
Intangible assets, net of accumulated amortization of $7,998 in 2019 and $7,809 in 2018		1,367			1,550
Intangible assets, net of accumulated amortization of $8,263 in 2020 and $8,186 in 2019								1,107			1,183
Goodwill		8,362			8,362			8,362			8,362

Total assets	$	40,648		$	31,737		$	37,825		$	41,748

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,727		$	1,154		$	1,674		$	1,990
Accrued and other expenses		5,018			5,060			6,100			6,590
Notes payable—current portion		2,250			1,851
Lease payable—current portion		618			15
Notes payable - current portion								—			4,250
Lease payable - current portion								809			758
Deferred revenue		5,242			5,165			5,259			5,248

Total current liabilities		14,855			13,245			13,842			18,836


Lease payable, long-term portion		18			38			1,707			1,837
Notes payable, long-term portion		3,133			4,254			6,957			2,003
Convertible debentures payable to non-related parties, at fair value		10,379			6,300			—			12,409
Convertible debentures payable to related parties, at fair value		1,031			670			—			1,233
Deferred revenue, long-term portion		330			331			232			356
Deferred tax		3			3			4			3

Total liabilities		29,749			24,841			22,742			36,677

Commitments and Contingencies (Note 5 and 7)
Commitments and Contingencies (Note 7)
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 19,447,763 in 2019 and 17,066,510 in 2018; outstanding 19,261,932 in 2019 and 16,880,679 in 2018		194			171
Common stock, $ .01 par value: authorized 30,000,000 shares; issued 21,425,916 in 2020 and 19,546,151 in 2019 outstanding 21,240,085 in 2020 and 19,360,320 in 2019.								215			195
Additional paid-in capital		230,141			218,914			252,419			230,615
Accumulated deficit		(218,021	)		(210,774	)		(236,136	)		(224,324	)
Treasury stock at cost, 185,831 shares in 2019 and 2018		(1,415	)		(1,415	)
Treasury stock at cost, 185,831 shares in 2020 and 2019								(1,415	)		(1,415	)

Total stockholders’ equity		10,899			6,896			15,083			5,071


Total liabilities and stockholders’ equity	$	40,648		$	31,737		$	37,825		$	41,748

See accompanying notes to condensed consolidated financial statements.

iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands except for per share data)


	Three Months Ended June 30th,						Six Months Ended June 30th,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Revenue:
Products	$	4,353		$	3,194		$	8,175		$	6,208		$	3,795		$	3,822
Service and supplies		2,976			2,968			5,927			6,267			2,756			2,951

Total revenue		7,329			6,162			14,102			12,475			6,551			6,773
Cost of revenue:
Products		645			537			1,325			995			1,017			680
Service and supplies		858			739			1,575			1,991			927			717
Amortization and depreciation		100			102			194			207			97			94

Total cost of revenue		1,603			1,378			3,094			3,193			2,041			1,491

Gross profit		5,726			4,784			11,008			9,282			4,510			5,282

Operating expenses:
Engineering and product development		2,139			2,057			4,266			5,396			2,211			2,127
Marketing and sales		3,120			2,006			5,693			4,172			3,608			2,573
General and administrative		1,858			1,583			3,404			3,641			2,532			1,546
Amortization and depreciation		67			77			137			160			52			70

Total operating expenses		7,184			5,723			13,500			13,369			8,403			6,316

Loss from operations		(1,458	)		(939	)		(2,492	)		(4,087	)		(3,893	)		(1,034	)
Interest expense		(202	)		(113	)		(411	)		(255	)		(130	)		(209	)
Other income		64			29			123			51			42			59
Loss on extinguishment of debt														(341	)		—
Loss on fair value of convertible debentures		(1,915	)		—			(4,440	)		—			(7,464	)		(2,525	)

Other expense, net		(2,053	)		(84	)		(4,728	)		(204	)		(7,893	)		(2,675	)
Loss before income tax expense		(3,511	)		(1,023	)		(7,220	)		(4,291	)		(11,786	)		(3,709	)

Tax expense		(19	)		(4	)		(27	)		(17	)		(26	)		(8	)

Net loss and comprehensive loss	$	(3,530	)	$	(1,027	)	$	(7,247	)	$	(4,308	)	$	(11,812	)	$	(3,717	)

Net loss per share:
Basic	$	(0.20	)	$	(0.06	)	$	(0.42	)	$	(0.26	)	$	(0.59	)	$	(0.22	)

Diluted	$	(0.20	)	$	(0.06	)	$	(0.42	)	$	(0.26	)	$	(0.59	)	$	(0.22	)

Weighted average number of shares used in computing loss per share:
Basic		17,640			16,664			17,422			16,624			20,175			17,200

Diluted		17,640			16,664			17,422			16,624			20,175			17,200

See accompanying notes to consolidated financial statements.

iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

~~(unaudited)~~(Unaudited)


	For the six months ended June 30,						For the three months ended March 31
	2019			2018			2020			2019
	(in thousands)						(in thousands)
Cash flow from operating activities:
Net loss	$	(7,247	)	$	(4,308	)	$	(11,812	)	$	(3,717	)
Adjustments to reconcile net loss to net cash used for by operating activities:
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization		189			189			79			95
Depreciation		142			178			70			69
Bad debt provision		31			101			119			—
Inventory obsolesence reserve		—			(7	)
Stock-based compensation expense		516			773			464			212
Amortization of debt discount and debt costs		79			102			40			39
Loss on extinguishment of debt								341			—
Deferred tax expense		—			(13	)		1			—
Loss on disposal of assets		—			12
Change in fair value of convertible debentures		4,440			—			7,464			2,525
Changes in operating assets and liabilities:
Accounts receivable		(399	)		2,198			2,610			(984	)
Inventory		(671	)		30			149			(403	)
Prepaid and other current assets		51			91			(72	)		(347	)
Accounts payable		573			(490	)		(317	)		330
Accrued expenses		(184	)		(1,209	)		(439	)		414
Deferred revenue		76			890			(113	)		(46	)

Total adjustments		4,843			2,845			10,396			1,904

Net cash used for operating activities		(2,404	)		(1,463	)		(1,416	)		(1,813	)

Cash flow from investing activities:
Additions to patents, technology and other		(7	)		(4	)		(1	)		(1	)
Additions to property and equipment		(136	)		(60	)		(155	)		(28	)

Net cash used for investing activities		(143	)		(64	)		(156	)		(29	)

Cash flow from financing activities:
Stock option exercises		1,395			—			196			1,175
Taxes paid related to restricted stock issuance		(12	)		(63	)
Principal payments of capital lease obligations		(6	)		(6	)		—			(3	)
Principal repayment of debt financing, net		(800	)		—
Proceeds from issuance of common stock		10,350			—
Issuance costs from common stock		(998	)		—
Principal repayment of debt financing								(4,638	)		(200	)
Repayment of line of credit								(2,000	)		—
Proceeds from debt financing								7,000			—
Debt issuance costs								(43	)		—

Net cash provided by (used for) financing activities		9,929			(69	)
Net cash provided by financing activities								515			972

Increase (decrease) in cash and equivalents		7,382			(1,596	)
Decrease in cash and equivalents								(1,057	)		(870	)
Cash and equivalents, beginning of period		12,185			9,387			15,313			12,185

Cash and equivalents, end of period	$	19,567		$	7,791		$	14,256		$	11,315

Supplemental disclosure of cash flow information:
Interest paid	$	335		$	139		$	122		$	82

Taxes paid	$	27		$	35		$	26		$	8

Issuance of stock upon conversion of debentures								21,164			—

Right-of-use assets obtained in exchange for new operating lease liabilities	$	907		$	—		$	69		$	907

See accompanying notes to consolidated financial statements.

iCAD, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity ~~YTD~~Quarter Ended March 31, 2020

(inIn thousands except shares)

   Common Stock    Additional
   Number of
Shares Issued    Par Value    Paid-in
Capital Accumulated
Deficit Treasury
Stock Stockholders’
Equity
Balance at December 31, 2018
   17,066,510    $ 171    $ 218,914 $ (210,774 ) $ (1,415 ) $ 6,896






Issuance of common stock relative to vesting of restricted stock shares forfeited for tax obligations
   71,122    1    (14 ) —   —   (13 )
Issuance of common stock pursuant to stock option plans
   428,313    4    1,391 —   —   1,395
Stock Issuance Net
   1,881,818    18    9,334 9,352
Stock-based compensation
   —      —      516 —   —   516
Net loss
   —      —      —   (7,247 ) —   (7,247 )






Balance at June 30, 2019
   19,447,763    $ 194    $ 230,141 $ (218,021 ) $ (1,415 ) $ 10,899


	Common Stock				Additional
	Number of				Paid-in		Accumulated			Treasury			Stockholders’
	Shares Issued		Par Value		Capital		Deficit			Stock			Equity
Balance at December 31, 2019		19,546,151	$	196	$	230,616	$	(224,325	)	$	(1,415	)	$	5,071
Issuance of common stock relative to vesting of restricted stock		23,500		—		—		—			—			—
Issuance of common stock pursuant to stock option plans		36,799		1		195		—			—			196
Issuance of stock for Debentures		1,819,466		18		21,146		—			—			21,164
Stock-based compensation						464								464
Net loss		—		—		—		(11,812	)		—			(11,812	)

Balance at March 31, 2020		21,425,916	$	215	$	252,421	$	(236,137	)	$	(1,415	)	$	15,083

Consolidated Statements of Stockholders’ Equity ~~QTD~~Quarter Ended March 31, 2019

(inIn thousands except shares)


	Common Stock				Additional												Common Stock				Additional
	Number of Shares Issued		Par Value		Paid-in Capital			Accumulated Deficit			Treasury Stock			Stockholders’ Equity			Number of				Paid-in			Accumulated			Treasury			Stockholders’
Balance at March 31, 2019		17,500,265	$	175	$	220,296		$	(214,491	)	$	(1,415	)	$	4,565
																	Shares Issued		Par Value		Capital			Deficit			Stock			Equity
Issuance of common stock relative to vesting of restricted stock shares forfeited for tax obligations		4,788		0		(13	)		—			—			(13	)
Balance at December 31, 2018																		17,066,510	$	171	$	218,914		$	(210,774	)	$	(1,415	)	$	6,896
Issuance of common stock relative to vesting of restricted stock																		66,334		1		(1	)		—			—			—
Issuance of common stock pursuant to stock option plans		60,892		1		220			—			—			221			367,421		3		1,172			—			—			1,175
Stock Issuance Net		1,881,818		18		9,334									9,352
Stock-based compensation		—		—		304			—			—			304			—		—		212			—			—			212
Net loss		—		—		—			(3,530	)		—			(3,530	)		—		—		—			(3,717	)		—			(3,717	)

Balance at June 30, 2019		19,447,763	$	194	$	230,141		$	(218,021	)	$	(1,415	)	$	10,899
Balance at March 31, 2019																		17,500,265	$	175	$	220,297		$	(214,491	)	$	(1,415	)	$	4,566

~~Consolidated Statements of Stockholders’ Equity YTD~~

~~(in thousands except shares)~~

   Common Stock    Additional
   Number of
Shares Issued    Par Value    Paid-in
Capital Accumulated
Deficit Treasury
Stock Stockholders
Equity
Balance at December 31, 2017
   16,711,512    $ 167    $ 217,389 $ (201,865 ) $ (1,415 ) $ 14,276






Cumulative impact from the adoption of ASC 606 (see Note 1)
   —      —      —   107 —   107
Issuance of common stock relative to vesting of restricted stock, net of 18,385 shares forfeited for tax obligations
   142,373    1    (62 ) —   —   (61 )
Issuance of common stock pursuant to stock option plans
   —      —      —   —   —   —
Stock-based compensation
   —      —      773 —   —   773
Net loss
   —      —      —   (4,308 ) —   (4,308 )






Balance at June 30, 2018
   16,853,885    $ 168    $ 218,100 $ (206,066 ) $ (1,415 ) $ 10,787

~~Consolidated Statements of Stockholders’ Equity QTD~~

~~(in thousands except shares)~~

   Common Stock    Additional
   Number of
Shares Issued    Par Value    Paid-in
Capital Accumulated
Deficit Treasury
Stock Stockholders’
Equity
Balance at March 31, 2018
   16,848,824    $ 168    $ 217,722 $ (205,039 ) $ (1,415 ) $ 11,436






Cumulative impact from the adoption of ASC 606 (see Note 1)
   —      —      —   —   —   —
Issuance of common stock relative to vesting of restricted stock, net of 19,991 shares forfeited for tax obligations
   5,061    —      (5 ) —   —   (5 )
Issuance of common stock pursuant to stock option plans
   —      —      —   —   —   —
Stock-based compensation
   —      —      383 —   —   383
Net loss
   —      —      —   (1,027 ) —   (1,027 )






Balance at June 30, 2018
   16,853,885    $ 168    $ 218,100 $ (206,066 ) $ (1,415 ) $ 10,787

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

Note 1 - Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of iCAD, Inc. and subsidiaries (“iCAD” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). In the opinion of 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 ~~June 30, 2019,~~March 31, 2020, the results of operations of the Company for the ~~three~~three- month period ended March 31, 2020 and ~~six month periods ended June 30,~~ 2019, ~~and 2018,~~ and cash flows of the Company for the ~~six month periods~~three-month period ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019.

Although the Company believes that the disclosures in these 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 accompanying financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form ~~10–K~~10-K for the fiscal year ended December 31, ~~2018~~2019 filed with the SEC on March ~~29, 2019.~~11, 2020. The results for the ~~three and six month periods~~three-month period ended ~~June 30, 2019~~March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2019,~~2020, or any future period.

Segments

The Company reports the results of two segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). The Detection segment consists of advanced image analysis and workflow products. The Therapy segment consists of radiation therapy (“Axxent”) products.

~~Lease Accounting~~Risk and Uncertainty

~~Adoption of ASC Topic 842, “Leases”~~

On ~~January 1, 2019,~~March 12, 2020, the World Health Organization declaredCOVID-19 to be a pandemic. In an effort to contain and mitigate the spread ofCOVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks ofCOVID-19. As a provider of devices and services to the health care industry, our operations have been materially affected. Significant uncertainty remains as to the potential impact of theCOVID-19 pandemic on our continuing operations and on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. TheCOVID-19 pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common stock. Accessing capital may be impacted by the fact that there is a minimum revenue covenant contained in the Company’s Loan and Security Agreement with Western Alliance Bank (see note 4 (b) for details) that could be impacted by the COVID 19 pandemic. If at any point the Company ~~adopted~~is not in compliance with such covenant and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the ~~new accounting standard ASC 842, “Leases”~~Loan and ~~all the related amendments (“ASC 842”) and has applied its transition provisions at the beginning~~Security Agreement, which could result in acceleration of the ~~period~~outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date. The Company believes even if that event of ~~adoption (i.e.~~default were to occur, the Company’s current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand, which now includes an additional estimated $12.2 million the ~~effective date),~~Company received following the sale of 1,562,500 shares of the Company’s common stock at $8.00 per share, pursuant to a registered direct offering which closed on April 27, 2020.

Our results for the quarter ending March 31, 2020 reflect a negative impact from, among other things, theCOVID-19 pandemic as shipping, logistics, acceptance and ~~so did~~installation and training have been delayed and ordering patterns disrupted. Although we do not ~~restate comparative periods. Under this transition provision,~~provide guidance to investors relating to our future results of operations, we expect that our results for the quarter ending June 30, 2020, and possibly future quarters, will reflect a negative impact from theCOVID-19 pandemic for similar reasons. Depending upon the duration and severity of the pandemic, the continuing effect on our results over the long term is uncertain.

The Company’s exposure to trade accounts receivable losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the currentCOVID-19 pandemic, or other customer-specific factors. Although the Company has ~~applied~~historically not experienced significant trade account receivable losses, it is possible that there could be a material adverse impact from potential adjustments of the ~~legacy guidance under ASC 840, “Leases” (“ASC 840”), including its disclosure requirements, in~~carrying amount of trade account receivables as hospitals’ cash flows are impacted by their response to the ~~comparative periods presented. See~~COVID-19 pandemic.

Recently Adopted Accounting Pronouncements

There are no significant recently adopted accounting pronouncements. For a full list of the Company’s response to all recent accounting pronouncements please refer to Note ~~5 for the disclosures required upon adoption of ASC 842.~~13 below.

Revenue Recognition

~~In accordance with ASC 606, revenue~~Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services and excludes any sales incentives or taxes collected from ~~customer~~customers which are subsequently remitted to government authorities.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

Disaggregation of Revenue

The following tables presents our revenues disaggregated by major good or service line, timing of revenue recognition, and sales channel, reconciled to our reportable segments (in thousands).

   Three months ended June 30, 2019
   Reportable Segments
   Detection    Therapy    Total
Major Goods/Service Lines

Products
   $ 3,808    $ 1,050    $ 4,858
Service contracts
   1,354    475    1,829
Supply and source usage agreements
   —      526    526
Professional services
   —      8    8
Other
   47    61    108






   $ 5,209    $ 2,120    $ 7,329






Timing of Revenue Recognition

Goods transferred at a point in time
   $ 3,808    $ 1,144    $ 4,952
Services transferred over time
   1,401    976    2,377






   $ 5,209    $ 2,120    $ 7,329






Sales Channels

Direct sales force
   $ 2,863    $ 1,701    $ 4,564
OEM partners
   2,346    —      2,346
Channel partners
   —      419    419






   $ 5,209    $ 2,120    $ 7,329

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~


	Six months ended June 30, 2019						Three months ended March 31, 2020
	Reportable Segments						Reportable Segments
	Detection		Therapy		Total		Detection		Therapy		Total
Major Goods/Service Lines
Products	$	6,598	$	2,569	$	9,167	$	3,100	$	1,346	$	4,446
Service contracts	$	2,676	$	991		3,667		1,347		347		1,694
Supply and source usage agreements	$	—	$	1,063		1,063		—		371		371
Professional services	$	—	$	41		41		—		11		11
Other	$	103	$	61		164		29		—		29

	$	9,377	$	4,725	$	14,102	$	4,476	$	2,075	$	6,551

Timing of Revenue Recognition
Goods transferred at a point in time	$	6,598	$	2,776	$	9,374	$	3,129	$	1,383	$	4,512
Services transferred over time	$	2,779	$	1,949		4,728		1,347		692		2,039

	$	9,377	$	4,725	$	14,102	$	4,476	$	2,075	$	6,551

Sales Channels
Direct sales force	$	4,974	$	3,513	$	8,487	$	2,172	$	1,469	$	3,641
OEM partners	$	4,403	$	—		4,403		2,304		—		2,304
Channel partners	$	—	$	1,212		1,212		—		606		606

	$	9,377	$	4,725	$	14,102	$	4,476	$	2,075	$	6,551

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

   Three months ended June 30, 2018
   Reportable Segments
   Detection    Therapy    Total
Major Goods/Service Lines

Products
   $ 2,486    $ 1,176    $ 3,662
Service contracts
   1,310    347    1,657
Supply and source usage agreements
   —      558    558
Professional services
   —      50    50
Other
   55    41    96






   $ 3,851    $ 2,172    $ 6,023






Timing of Revenue Recognition

Goods transferred at a point in time
   2,486    1,199    $ 3,685
Services transferred over time
   1,365    973    2,338






   $ 3,851    $ 2,172    $ 6,023






Sales Channels

Direct sales force
   $ 2,114    $ 1,917    $ 4,031
OEM partners
   1,737    —      1,737
Channel partners
   —      255    255






   $ 3,851    $ 2,172    $ 6,023

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~


	Six months ended June 30, 2018						Three months ended March 31, 2019
	Reportable Segments						Reportable Segments
	Detection		Therapy		Total		Detection		Therapy		Total
Major Goods/Service Lines
Products	$	4,975	$	2,244	$	7,219	$	2,790	$	1,519	$	4,309
Service contracts	$	2,778	$	709		3,487		1,322		516		1,838
Supply and source usage agreements	$	—	$	1,087		1,087		—		537		537
Professional services	$	—	$	194		194		—		33		33
Other	$	109	$	240		349		56		—		56

	$	7,862	$	4,474	$	12,336	$	4,168	$	2,605	$	6,773

Timing of Revenue Recognition
Goods transferred at a point in time	$	4,975	$	2,470	$	7,445	$	2,790	$	1,632	$	4,422
Services transferred over time	$	2,887	$	2,004		4,891		1,378		973		2,351

	$	7,862	$	4,474	$	12,336	$	4,168	$	2,605	$	6,773

Sales Channels
Direct sales force	$	3,981	$	3,958	$	7,939	$	2,057	$	1,812	$	3,869
OEM partners	$	3,881	$	—		3,881		2,111		—		2,111
Channel partners	$	—	$	516		516		—		793		793

	$	7,862	$	4,474	$	12,336	$	4,168	$	2,605	$	6,773

Products. Product revenue consists of sales of cancer detection products, cancer therapy systems, cancer therapy applicators ~~cancer therapy~~(including disposable ~~applicators~~applicators) and other accessories that are typically shipped with a cancer therapy system. The Company transfers control and recognizes a sale when the product is shipped from the manufacturing or warehousing facility to the customer.

Service Contracts. The Company sells service contracts in which ~~the Company~~it provides professional services including product installations, maintenance, training, and service repairs, and in certain cases leases equipment, to hospitals, imaging centers, ~~radiological~~radiology practices, ~~and~~ radiation oncologists and treatment centers. These represent separate performance obligations to the Company. The Company allocates revenue to each performance obligation based on the Standalone Selling Price (“SSP”). Upon the Company’s adoption of ASC 842 effective January 1, 2019, the lease components of the Company’s service contracts are no longer being separately accounted for under the lease guidance. As the lease component is not considered the predominant component of these service contracts, the Company is accounting for the whole contract under ~~Topic 606.~~ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). Prior to the adoption of ASC 842, the Company accounted for the lease components of these arrangements in accordance with ASC 840 ~~“Leases,”~~ and the remaining consideration was allocated to the other performance obligations identified in

accordance with ~~Topic~~ASC 606. The consideration allocated to the lease component was recognized as lease revenue on a straight-line basis over the specified term of the ~~agreement.~~agreement, as this is consistent with how the service is consumed. Revenue for thenon-lease components, or the entire arrangement when accounted for under ~~Topic~~ASC 606, is recognized on a straight-line basis over

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

the term of the agreement. The service contracts range from 12 months to 48 months. The Company typically receives payment at the inception of the contract and recognizes revenue on a straight-line basis over the term of the agreement.

Supply and Source Usage Agreements. Revenue from supply and source usage agreements is recognized on a straight-line basis over the term of the supply or source usage agreement. These agreements represent a separate performance obligation to the Company. The Company allocates revenue to each performance obligation based on the SSP.

Professional Services. Revenue from fixed fee service contracts is recognized on a straight-line basis over the term of the agreement. Revenue from professional service contracts entered into with customers on a time and materials basis is recognized over the term of the agreement in proportion to the costs incurred in satisfying the obligations under the contract.

Other. Other revenue consists primarily of miscellaneous products and services. The Company transfers control and recognizes a sale when the installation services are performed or when the ~~Company ships~~product is shipped from the ~~product from our~~ manufacturing or ~~warehouse~~warehousing facility to the customer.

Contract Balances

Contract liabilities are a component of deferred revenue, and contract assets are a component of prepaid and other current assets. The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers (in thousands).

Contract balances

   Balance at
June 30, 2019
Receivables, which are included in ‘Trade accounts receivable’
   $ 6,771
Contract assets, which are included in “Prepaid and other current assets”
   91
Contract liabilities, which are included in “Deferred revenue”
   5,572


	Balance at
	March 31, 2020
Receivables, which are included in ‘Trade accounts receivable’	$	7,090
Contract assets, which are included in “Prepaid and other current assets”		14
Contract liabilities, which are included in “Deferred revenue”		5,491

Timing of revenue recognition may differ from timing of invoicing to customers. The Company records a receivable when revenue is recognized prior to receipt of cash ~~payments~~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 beginning of each annual service period.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

The Company’s accounts receivable from contracts with customers, net of allowance for doubtful accounts, was ~~$6.8~~$7.1 million and ~~$6.4~~$9.8 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

The Company will record a contract asset for unbilled revenue when the Company’s performance is in excess of amounts billed or billable. The Company has classified the contract asset balance as a component of prepaid expenses and other current assets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. The contract asset balance was ~~$91,000 and $19,000~~$14,000 as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018, respectively.~~2019.

Deferred revenue from contracts with customers is primarily composed of fees related to long-term service arrangements, which are generally billed in advance. Deferred revenue also includes payments for installation and training that has not yet been completed and other offerings for which we have been paid in advance and earn the revenue when we transfer control of the product or service. Deferred revenue from contracts with customers is included in deferred revenue in the consolidated balance sheets.

The balance of deferred revenue at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 is as follows (in thousands):

Contract liabilities

Contract liabilities    June 30, 2019    December 31,
2018
Short term
   $ 5,242    $ 5,165
Long term
   330    331




Total
   $ 5,572    $ 5,496


	March 31, 2020		December 31, 2019
Short term	$	5,259	$	5,248
Long term		232		356

Total	$	5,491	$	5,604

Changes in deferred revenue from contracts with customers were as follows (in thousands):


				Three Months Ended
	Six Months Ended June 30, 2019			March 31, 2020
Balance at beginning of period	$	5,496		$	5,604
Deferral of revenue		5,406			2,226
Recognition of deferred revenue		(5,330	)		(2,339	)

Balance at end of period	$	5,572		$	5,491

We expect to recognize approximately ~~$4.0~~$4.8 million of the deferred amount in ~~2019, $1.3~~2020, $0.5 million in ~~2020,~~2021, and ~~$0.3~~$0.2 million thereafter.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

Note 2 – 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 thousands except per share amounts):


													Three Months Ended
	Three Months Ended June 30,						Six Months Ended June 30,						March 31,
	2019			2018			2019			2018			2020			2019
Net loss	$	(3,530	)	$	(1,027	)	$	(7,247	)	$	(4,308	)	$	(11,812	)	$	(3,717	)

Shares used in the calculation of basic and diluted net loss per share		17,640			16,664			17,422			16,624			20,175			17,200

Diluted shares used in the calculation of net loss per share		17,640			16,664			17,422			16,624			20,175			17,200

Net loss per share—basic and diluted	$	(0.20	)	$	(0.06	)	$	(0.42	)	$	(0.26	)
Net loss per share - basic and diluted													$	(0.59	)	$	(0.22	)

The shares of the Company’s common stock issuable upon the exercise of convertible securities, 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
	Period Ended June 30,				March 31,
	2019		2018		2020		2019
Stock options		1,519,713		1,394,275		1,747,363		1,548,818
Restricted stock		262,732		574,213		74,492		270,064
Convertible Debentures		1,742,500		—		—		1,742,500

Stock options and restricted stock		3,524,945		1,968,488		1,821,855		3,561,382

Note 3 – Inventory

Inventory is valued at the lower of cost or net realizable value, with cost determined by thefirst-in,first-out method. The Company regularly reviews inventory quantities on hand and records a reserve for excess and/or obsolete inventory primarily based upon the estimated usage of its inventory as well as other factors. Inventories consisted of the following (in thousands)~~, which includes~~ and include an inventory reserve of approximately ~~$0.8~~$0.3 million and ~~$1.1~~$.5 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~


	as of June 30, 2019		as of December 31, 2018		as of March 31, 2020			as of December 31, 2019
Raw materials	$	1,157	$	606	$	1,502		$	1,572
Work in process		145		67		97			39
Finished Goods		956		914		1,147			1,469

Inventory	$	2,258	$	1,587
Inventory Gross						2,746			3,080
Inventory Reserve						(284	)		(469	)

Inventory Net					$	2,462		$	2,611

Note 4 – Financing Arrangements

(a) Loan and Security Agreement – Silicon Valley Bank

On August 7, 2017, the Company entered into a Loan and Security Agreement, which has since been modified, most recently by the ~~First~~Fifth Loan Modification Agreement dated as of November 1, 2019 (as amended, the “SVB Loan Agreement”) with Silicon Valley Bank (“SVB”) that provided an initial term loan facility of $6.0 million and a $4.0 million revolving line of credit.

On March ~~22, 2018,~~30, 2020, the ~~Second~~Company elected to repay all outstanding obligations (including accrued interest) and retire the SVB Loan ~~Modification Agreement dated~~Agreement. The Company accounted for this repayment and retirement as an extinguishment of the SVB Loan Agreement. In addition to the outstanding principal and accrued interest, the Company was required to pay the $510,000 final payment (of which approximately $325,000 was accrued through March 31, 2020), a termination fee of $114,000 and other costs totaling $10,000. The Company also wrote off any unamortized original closing costs as of ~~August 13, 2018,~~ the ~~Third~~extinguishment date. The Company recorded a loss on extinguishment of approximately $341,000 related to the repayment and retirement of the SVB Loan ~~Modification~~Agreement. The loss on extinguishment was composed of approximately $185,000 for the unaccrued final payment, $114,000 termination fee, and $42,000 for the unamortized and other closing costs.

(b) Loan and Security Agreement ~~dated as of December 20, 2018,~~– Western Alliance Bank

On March 30, 2020 the Company entered into a Loan and ~~the Fourth Loan Modification~~Security Agreement ~~dated as of March 18, 2019 (collectively, the~~(the “Loan Agreement”) with ~~Silicon Valley~~Western Alliance Bank (the “Bank”) that provided an initial term loan ~~facility (amounts borrowed thereunder, the “Initial~~ (“Term Loan”) facility of ~~$6.0~~$7.0 million and a ~~$4.0~~$5.0 million revolving line of ~~credit (amounts borrowed thereunder, the “Revolving Loans”).~~credit.

The Loan Agreement includes certain financial covenants tied to minimum revenue and maximum net loss. The Company ~~also~~was compliant with such covenants as of March 31, 2020. Subsequent to March 31, 2020 the Company, in accordance with the Loan Agreement, triggered the equity event that relieved the covenant related to maximum net loss, leaving only the minimum revenue requirement. Although the Company is no longer subject to the loan covenant tied to net loss, with theCOVID-19 pandemic affecting the world economy, the Company cannot assure that it will be able to continue to satisfy the minimum revenue covenant. If at any point the Company is not in compliance with the covenant and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date. The Company was required, historically, to seek modifications from its prior lender to avoidnon-compliance with its earlier covenants.

Interest in arrears on the Term Loan will begin to be repaid on April 1, 2020 and continues the first of each successive month thereafter until the principal repayment starts. Commencing on the principal repayment date on of September 1, 2021 (or March 1, 2022 if the Company achieves a specified revenue target for any trailing six month period prior to December 31, 2020) and continuing on the first day of each month thereafter, the Company shall make equal monthly payments of principal, together with applicable interest in arrears, to Bank. The interest rate is set at 1% above the Prime Rate. Prime Rate is defined in the Loan Agreement as the greater of four and a quarter percent (4.25%) or the Prime Rate published in the Money Rates section of the Western Edition of the Wall Street Journal.

The Company has the option to ~~borrow an additional $3.0 million term loan~~prepay all, but not less than all, of the Term Loan advanced by the Bank under the Loan ~~Agreement (amounts borrowed thereunder,~~Agreement. The Company prepayment is subject to payment of (1) all outstanding principal of the ~~“Subsequent Term Loan” and together with the Initial~~ Term Loan plus accrued and unpaid interest thereon through the ~~“Term Loan”)~~prepayment date, (2) the final payment ($122,500 or 1.75% of the original loan amount), ~~subject to meeting a Detection revenue minimum~~(3) the prepayment fee (3% of ~~at least $21.5 million for a trailing twelve month period ending on or~~principal balance if prepaid prior to ~~June~~first March 30, ~~2019.~~ 2021, 2% if principal of prepaid after March 30, 2021 but before March 31, 2022, or 1% of principal if prepaid after March 30, 2022) plus (4) all other obligations that are due and payable, including Bank’s expenses and interest at the default rate with respect to any past due amounts.

The Company did not ~~meet the minimum Detection revenue minimum for the trailing twelve month period and accordingly is not eligible to borrow the additional $3.0 million.~~

The Company began repayment of the Initial Term Loan on March 1, 2019, with 30 equal monthly installments of principal, based on the amended terms of the Loan Agreement. The maturity date of the Initial Term Loan is August 1, 2021.

The maturity date of the Revolving Loans is March 1, 2022. However, the maturity date will become April 30, 2020 or April 30, 2021 if, on or before March 15, 2020 or 2021, as applicable, the Company does not agree in writing to the Detection revenue and adjusted EBITDA covenant levels proposed by the Bank with respect to the upcoming 2020 or 2021 calendar year.

The outstanding Revolving Loans will accrue interest at a floating per annum rate equal to 1.50% above the prime rate for periods when the ratio of the Company’s unrestricted cash to the Company’s outstanding liabilities to the Bank, plus the amount of the Company’s total liabilities that mature within one year is at least 1.25 to 1.0. At all other times, the interest rate will be 0.50% above the prime rate. The outstanding Term Loans will accrue interest at a floating per annum rate equal to the prime rate.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

If the Revolving Loans 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 maximumdraw against its revolving line of ~~credit. If~~credit as of March 31, 2020. The interest rate on such borrowings, if the Company ~~prepays~~were to take an advance, is three quarters percent (0.75%) above the Term Loans prior to the maturity date, then the Company will pay to the Bank an amount between 1.0% and 3.0% of the Term Loans, depending on when such Term Loans are repaid. In addition, the Loan Agreement requires the Company to pay a final payment of 8.5% of the Term Loans upon the earliest of the repayment of the Term Loans, the termination of the Loan Agreement and the maturity date. The Company is accruing such paymentPrime Rate as additional interest expense. As of June 30, 2019 and December 31, 2018, the accrued final payment is approximately $227,000 and $162,000, respectively and is a component of the outstanding loan balance.

The Loan Agreement, as amended, includes certain covenants which require the Company to maintain minimum consolidated revenues of $11.6 million, $13.0 million and $14.5 million during the trailing six month periods ending on June 30, 2019, September 30, 2019 and December 31, 2019, respectively, as well as adjusted EBITDA levels of $(4.0 million), $(4.0 million) and $(2.0 million) during the trailing six month periods ending on June 30, 2019, September 30, 2019 and December 31, 2019, respectively. In addition, the Company and Silicon Valley Bank will be required to negotiate the covenants for the 2020 and 2021 fiscal years by March 15, 2020 and March 15, 2021 respectively. A failure to agree to such covenants by the specified dates in the agreement could lead to an acceleration of the Initial Term Loan maturity date to either April 30, 2020 or April 31, 2021, respectively. The Company is in compliance with the covenants for the six month period ended June 30, 2019.defined above.

Obligations to the Bank under the Loan Agreement ~~or otherwise~~ are secured by a first priority security interest in ~~substantially all~~the Company’s assets, except for certain permitted liens that have priority to the Bank’s security interest by operation of the assets, including intellectual property, accounts receivable, equipment, general intangibles, inventory and investment property, and all of the proceeds and products of the foregoing, of each of the Company and Xoft, Inc. and Xoft Solutions LLC, wholly-owned subsidiaries of the Company.law.

In connection with the Loan Agreement, the Company incurred approximately ~~$74,000~~$43,000 of closing ~~costs. In accordance with ASC Topic 835, “Interest,” the~~costs as of March 31, 2020. The closing costs have been ~~deducted~~deduced from the carrying value of the debt and will be amortized through ~~August 1, 2021,~~March 30, 2022, the maturity date of the ~~Initial~~ Term Loan.

The ~~Company has evaluated the accounting impact of each~~maturity of the modifications noted above, and as all have occurred within a 12 month period, each successive modification has been combined and compared to the terms of the original Loan Agreement. The Company has determined that modifications occurring at each modification date above are modifications of the Loan Agreement for accounting purposes. As such, the Company has capitalized any closing costs paid to the Bank as part of the modifications and has expensed any third party costs incurred. The additional closing costs and the unamortized initial closing costs are being amortized over the remaining term of the modified Initial Term Loan.revolving loan is March 30, 2022.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

~~The carrying value of the Term Loans (net of debt issuance costs) as of June 30, 2019 and December 31, 2018 is as follows (in thousands):~~

   June 30,
2019    December
31, 2018
Principal Amount of Term Loan
   $ 5,200    $ 6,000
Unamortized closing costs
   (44 )    (57 )
Accrued Final Payment
   227    162




Carrying amount of Term Loan
   5,383    6,105




Less current portion of Term Loan
   (2,250 )    (1,851 )




Notes payable long-term portion
   $ 3,133    $ 4,254

~~(b)~~(c) Convertible Debentures

On December 20, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional and accredited investors, including, but not limited to, all directors and executive officers of the Company at the time (the “Investors”), pursuant to which the Investors purchased unsecured subordinated convertible debentures (the “Convertible Debentures” ~~or the “Notes”~~) with an aggregate principal amount of approximately $7.0 million in a private placement.

~~The~~On February 21, 2020 (the “Conversion Date”), the conditions permitting a forced conversion were met, and the Company ~~will pay~~elected to exercise its forced conversion right under the terms of the Convertible Debentures.

On June 21, 2019, the Company commenced paying interest to the Investors on the outstanding principal amount of the Convertible Debentures at the rate of 5.0% per annum, payable semi-annually on December 21st and June 21st ~~beginning on June 21, 2019,~~ as well as on each conversion date (as to ~~the~~that principal amount then being converted) and on the maturity date. The Convertible Debentures were due to mature on December 21, 2021. ~~The first interest payment of $174,250 was made in accordance with the schedule this quarter.~~

At any time prior to the maturity date, the Convertible Debentures ~~are~~were convertible into shares of the Company’s common stock at a conversion price of $4.00 per share, at ~~the~~an Investor’s option, subject to certain anti-dilution adjustments. The Convertible Debentures contain a cap of shares to be issued upon the conversion of the Convertible Debentures at 19.99% of the issued and outstanding shares of the Company’s Common Stock on December 21, 2018, unless shareholder approval of such issuance has been obtained. Upon the satisfaction of certain conditions, the Company ~~has~~had the right to cause the Investors to convert all or part of the then outstanding principal amount of the Convertible Debentures (a “Forced Conversion”). In connection with such Forced Conversion, the Company ~~will be~~was required to pay accrued but unpaid interest, an interest ~~make whole~~make-whole amount determined based on the timing of the Forced Conversion and interest payments made to that date, liquidated damages and other amounts owing to the Investors under the Convertible Debentures. The conversion price in both the optional conversion and Forced Conversion provisions iswere subject to adjustment due to certain ‘down-round’ dilutive issuances as well for typical anti-dilutive actions, such as stock splits and stock dividends.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

The Investors also have the right to require the Company to repurchase the Convertible Debentures, at a repurchase price that would be at least 115% of the then outstanding principal, plus any accrued but unpaid interest, upon the occurrence of an event of default, as defined in the SPA. The Convertible Debentures will also accrue interest upon an event of default at a rate of the lesser of 10.0% or the maximum permitted by law.

The Convertible Debentures also ~~include~~included certain liquidated damages provisions, whereby the Company ~~will be~~would have been required to compensate the Investors for certain contingent events, such as the failure to timely deliver conversion shares of common stock, failure to timely pay any accrued interest when due and failure to timely ~~report~~issue certain public ~~information.~~

The Convertible Debentures are unsecured and structurally subordinated to the Company’s existing indebtedness. In connection with the issuance of the Convertible Debentures, the Company’s subsidiaries entered into a Subsidiary Guarantee, dated as of December 20, 2018, for the benefit of the Investors, pursuant to which the subsidiaries guaranteed the Company’s payments under the Convertible Debentures.

In connection with the issuance, on December 20, 2018, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Investors, pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission (“SEC”) to register the resale of shares of common stock underlying the Convertible Debentures on or prior to January 31, 2019. The Company filed the Registration Rights Agreement with the SEC on January 31, 2019.reports.

Certain Investors in the Convertible Debentures ~~include~~included directors and employees of the Company. These related parties ~~purchased~~comprised approximately ~~10%~~9.6% of the principal value of the Convertible Debentures, or $670,000. The Convertible Debentures issued to the related parties ~~have~~had substantially the same rights and provisions as the unrelated third party investors, with the exception of certain terms where the related parties received less favorable terms than the unrelated third parties (such as with determination of the ~~make whole~~make-whole conversion rate, as defined in the ~~Convertible Debentures;~~SPA; or limits on the impact of potential ‘down-round’ adjustments to the conversion price).

~~The Company initially evaluated~~

On the Conversion Date, the required ~~accounting for~~conditions were met, and the Company elected to exercise its forced conversion right under the terms of the Convertible ~~Debentures under ASC Topic 470, “~~~~Debt~~~~” (“ASC 470”), ASC Topic 480, “~~~~Distinguishing Liabilities from Equity~~~~” (“ASC 480”) and ASC Topic 815, “~~~~Derivatives and Hedging~~” (“ASC 815”). The Company determined that the Convertible Debentures contained multiple embedded derivative features that would be required to be bifurcated and accounted for as a combined derivative liability at fair value, with subsequent changes in fair value being recorded in current earnings in the respective periods.Debentures. As a result of this ~~assessment,~~election, all of the outstanding Convertible Debentures were converted, at a conversion price of $4.00 per share, into 1,742,500 shares of the Company’s common stock. In accordance with the make-whole provisions in the Debenture, the Company also issued an additional 76,966 shares of the Company’s common stock. The make-whole amount represented the total interest which would have accrued through the maturity date of the Convertible Debentures, less the amounts previously paid, totaling $697,000. The conversion prices related to the make-whole amount were dependent on whether the Investors were related parties or unrelated third parties.

Accounting Considerations and Fair Value Measurements Related to the Convertible Debentures

The Company had previously elected to makeaone-time, irrevocable ~~irrevocable~~ election to utilize the fair value option ~~allowed under ASC Topic 825, “~~~~Financial Instruments~~~~.” Under the fair value option election, the Company~~

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes~~ to ~~Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

~~will~~ account for the Convertible Debentures as a single hybrid instrument at its fair value, with changes in fair value from period to period being recorded either in current earnings, or as an element of other comprehensive income (loss), for the portion of the change in fair value determined to relate to the Company’s own credit risk. The Company ~~believes~~believed that the election of the fair value option ~~will allow~~allowed for a more meaningful representation of the total fair value of its obligation under the Convertible Debentures and ~~allow~~allowed for a better understanding of how changes in the external market environment and valuation assumptions impact such fair ~~value, when compared to recording the Convertible Debentures and fair value~~value.

As of the ~~bifurcated embedded derivatives separately under the guidance of ASC 470 and ASC 815.~~

~~In accordance the Company’s election of the fair value option, the Company expensed the approximately $503,000 in issuance costs incurred related to the Convertible Debentures during the year ended~~ December 31, ~~2018.~~

~~Fair Value Measurements Related to~~2019 valuation and the ~~Convertible Debentures~~

~~The~~prior measurement dates, the Company utilized a Monte Carlo simulation model to estimate the fair value of the Convertible ~~Debentures as June 30, 2019.~~Debentures. The simulation model iswas designed to capture the potential settlement features of the Convertible Debentures, ~~(the embedded features described above),~~ in conjunction with simulated changes in the Company’s stock price and the probability of certain events occurring. The simulation ~~utilizes~~utilized 100,000 trials or simulations to determine the estimated fair value.

The simulation ~~utilizes~~utilized the assumptions that if the Company iswas able to exercise its Forced Conversion right (if the requirements to do so are met), that it ~~will~~would do so in 100% of such scenarios. Additionally, if an event of default ~~occurs~~occurred during the simulated trial (based on the Company’s probability of default), the Investors ~~will~~would opt to redeem the Convertible Debentures in 100% of such scenarios. If neither event occurs during a simulated trial, the simulation ~~assumes~~assumed that the Investor ~~will~~would hold the Convertible Debentures until the maturity date. The value of the cash flows associated with each potential settlement ~~are~~were discounted to present value in each trial based on either the ~~risk free~~risk-free rate (for an equity settlement) or the effective discount rate (for a redemption or cash settlement).

The Company also recorded a final adjustment to the Convertible Debentures based on their fair value on the Conversion Date, just prior to the forced conversion being completed. Given that the Company’s prior simulation model included the assumption that the Company would elect to force conversion in 100% of scenarios when the requirements were met, the final valuation was based on the actual results of the forced conversion. As such, the Company based the final fair value adjustment to the Convertible Debentures just prior to conversion on the number of shares of common stock that were issued to the Investors upon conversion and the fair value of the Company’s common stock as of the Conversion Date.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

The Company notes that the key inputs to the ~~simulation model~~valuation models that were utilized to estimate the fair value of the Convertible Debentures included:

Input
   December 31, 2018 June 30, 2019
Company’s stock price
   $ 3.70 $ 6.37
Conversion price
   $ 4.00 $ 4.00
Remaining term (years)
   2.97 2.47
Equity volatility
   54.00 % 54.00 %
Risk free rate
   2.46 % 1.72 %
Probabilty of default event
   0.81 % 55.00 %
Utilization of Forced Conversion (if available)
   100.00 % 100.00 %
Exercise of Default Redemption (if available)
   100.00 % 100.00 %
Effective discount rate
   21.90 % 20.86 %


	Input	December 31, 2019			February 21, 2019
	Company’s stock price	$	7.77		$	11.64
	Conversion price		4.00			4.00
	Remaining term (years)		1.97			0.00
	Equity volatility		49.00	%		N/A
	Risk free rate		1.57	%		N/A
¹	Probabilty of default event		0.45	%		N/A
¹	Utilization of Forced Conversion (if available)		100.00	%		100.00	%
¹	Exercise of Default Redemption (if available)		100.00	%		N/A
¹	Effective discount rate		18.52	%		N/A

¹	Represents a Level 3 unobservable input, as defined in Note 8—Fair Value Measurements, below.

The Company’s stock price iswas based on the closing stock price on the valuation date. The conversion price iswas based on the contractual conversion price included in the SPA.

The remaining term was determined based on the remaining time period to maturity of the Convertible ~~Debentures.~~Debentures, or remaining term under the expectation of the Company’s election of its forced conversion right.

The Company’s equity volatility estimate was based on the Company’s historical equity volatility, the Company’s implied and observed volatility of option pricing, and the historical equity and observed volatility of option pricing for a selection of ~~comparable guideline~~ public companies.

The ~~risk free~~risk-free rate was determined based on U.S. Treasury securities with similar terms.

The probability of the occurrence of a default event was based on Bloomberg’s ~~1 year~~1-year estimate of default risk for the Company (extrapolated over the remaining term).

The utilization of the forced conversion right and the default redemption right iswas based on management’s best estimate of both features being exercised upon the occurrence of the related contingent events.

The effective discount rate utilized at the December 31, ~~2018~~2019 valuation date was ~~solved for utilizing~~based on yields onCCC-rated debt instruments with terms equivalent to the ~~simulation model~~remaining term of the Convertible Debentures. The credit rating estimate was based on the principal value of the Convertible Debentures, as the transaction was determined to represent an ‘arm’s length’ transaction. The effective discount was corroborated against market yield data which implied the Company’s credit rating. The effective discount rate utilized at June 30, 2019 was based on this implied credit rating determined at issuance and ~~current market yield data as of~~no changes were identified by the ~~valuation date.~~Company that would impact this assessment.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

The fair value and principal value of the Convertible Debentures as of ~~June 30,~~December 31, 2019 and ~~December 31, 2018~~the Conversion Date was as follows (in thousands):


Convertible Debentures	December 31, 2018		June 30, 2019		December 31, 2019		February 21, 2020
Fair value, in accordance with fair value option	$	6,970	$	11,410	$	13,642	$	21,164

Principal value outstanding	$	6,970	$	6,970	$	6,970	$	6,970

The Company recorded a loss from the change in fair value of the Convertible Debentures of ~~$4.4~~approximately $7.5 million for period through the ~~six months ended June 30, 2019. See also~~conversion date which are described in the additional fair value disclosures related to the Convertible Debentures in Note 8.

~~(c)~~Upon the consummation of the Forced Conversion, the Company issued 1,816,466 shares of common stock with a fair value of approximately $21.2 million, which was reclassified to stockholders’ equity. The Convertible Debenture balance as of March 31, 2020 was $0.

(d) Principal and Interest Payments Related to Financing Arrangements

Future principal, ~~and~~ interest payments, and final payment related to the Loan Agreement ~~and Convertible Debentures~~ are as follows (in thousands):


Fiscal Year	Amount Due		Amount Due
2019	$	1,506
2020	$	2,911	$	281
2021	$	9,462	$	1,238
2022			$	2,875
2023			$	2,735
2024			$	1,004

Total	$	13,879	$	8,133

The following amounts are included in interest expense in our consolidated statement of operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three Months Ended June 30, 2019				Six Months Ended June 30, 2019				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
Cash interest expense	$	75	$	73	$	157	$	141	$	43	$	82
Interest on convertible debentures		87		—		174		—		49		87
Accrual of notes payable final payment		32		32		64		98		31		32
Amortization of debt costs		7		7		14		14		7		7
Interest expense capital lease		1		1		2		2		—		1

Total interest expense	$	202	$	113	$	411	$	255	$	130	$	209

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

Note 5 – Lease Commitments

On January 1, 2019, the Company adopted ASC 842 and has applied its transition provisions at the beginning of the period of adoption (i.e., on the effective date), and so did not restate comparative periods. Under this transition provision, the Company has applied the legacy guidance under ASC 840, ~~“Leases” (“ASC 840”),~~ including its disclosure requirements, in the comparative periods presented.

Under ASC 842, the Company determines if an arrangement contains a lease at inception. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment (i.e., an identified asset) for a period of time in exchange for consideration. Leases are classified as either operating or financing. At lease inception, the Company recognizes a lease liability equal to the present value of the remaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as for lease incentives. The Company used its incremental borrowing rate to determine the present value of the lease payments. The Company determined the incremental borrowing rates for its leases by applying its applicable, fully collateralized borrowing rate, with adjustment as appropriate for lease term. The lease term at the lease commencement date is determined based on thenon-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option. The Company considered a number of factors when evaluating whether the options in its lease contracts were reasonably certain of exercise, such as length of time before option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or economic penalties.Right-of-use assets and obligations for short-term leases (leases with an initial term of 12 months or less) are not recognized in the consolidated balance sheet. Lease expense for short-term leases is recognized on a straight-line basis over the lease term. The Company does not sublease any of its leased assets to third parties. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company has lessor agreements that contain lease andnon-lease components. As the Company has determined that thenon-lease component of these agreements is the predominant component, the Company is accounting for the complete agreement under ASC 606 upon adoption of ASC 842.

ASC 842 includes a number of reassessment andre-measurement requirements for lessees based on certain triggering events or conditions, including whether a contract is or contains a lease, assessment of lease term and purchase options, measurement of lease payments, assessment of lease classification and assessment of the discount rate. The Company reviewed the reassessment andre-measurement requirements and identified two lease modifications which are reflected in the table below showing the maturity of the Company’s lease liabilities as of ~~June 30, 2019.~~March 31, 2020. This includes an extension of an operating lease for the facility leased by the Company in San Jose as well as some equipment. In addition, there were no impairment indicators identified during the quarter ended ~~June 30, 2019~~March 31, 2020 that required an impairment test for the Company’sright-of-use assets or other long-lived assets in accordance with ASC~~360-10.~~360-10 Property Plant and Equipment (“ASC 360”).

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

Certain of the Company’s leases include variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certainnon-lease components that transfer a distinct service to the Company, such as common area maintenance services. The Company has elected to not separate the accounting for lease components andnon-lease components for real estate and equipment leases.

Required Disclosures under ASC 842

The Company has leases for office space and office equipment. The leases have remaining lease terms ranging from less than one year to three years and 9six months as of ~~June 30, 2019.~~March 31, 2020.

The components of lease expense for the period are as follows (in thousands):


Lease Cost	Classification	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019		Classification	Three Months Ended March 31, 2020
Operating lease cost	Operating expenses	$	209	$	418	Operating expenses	$	224
Finance lease costs
Amortization of leased assets	Amortization and depreciation		3		7	Amortization and depreciation		4
Interest on lease liabilities	Interest expense		1		2	Interest expense		1

Total		$	213	$	427		$	229

Other information related to leases was as follows (in thousands)


	Three Months Ended June 30, 2019		Three Months Ended March 31, 2020
Cash paid for operating cash flows from operating leases	$	209	$	216
Cash paid for operating cash flows from finance leases	$	1		1
Cash paid for financing cash flows from finance leases	$	3		4


	As of ~~June 30,~~ ~~2019~~March 31, 2020
Weighted-average remaining lease term of operating leases (in years)		~~1.05~~2.89
Weighted-average remaining lease term of finance leases (in years)		~~1.30~~1.00
Weighted-average discount rate for operating leases		~~0.0~~5.6	%
Weighted-average discount rate for finance leases		11.0	%

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

Maturity of the Company’s lease liabilities as of ~~June 30, 2019~~March 31, 2020 was as follows (in thousands):

Year Ended December 31:
   Operating
Leases    Finance
Leases    Total
2019 (remaining period of year)
   $ 413    $ 8    $ 421
2020
   212    11    223
2021
   7    —      7






Total lease payments
   632    19    651
Less: imputed interest
   (14 )    (1 )    (15 )






Total lease liabilities
   618    18    636
Less: current portion of lease liabilities
   (603 )    (15 )    (618 )






Long-term lease liabilities
   $ 15    $ 3    $ 18

Subsequent to June 30, 2019, the Company executed an extension of the lease in San Jose that has not yet commenced. The lease extended from March 31, 2020 to March 31, 2023 and results in an additional obligation of $2.1 million.

~~The cumulative effect of the changes made to the Company’s consolidated balance sheet for the adoption of Topic 842 were as follows (in thousands):~~

Selected Balance Sheet
   Balance at
December 31, 2018    Adjustments Due to
ASC 842    Balance at January
1, 2018
Assets

Operating lease assets
   $ —      $ 907    $ 907
Liabilities

Deferred rent, current portion (within accrued expenses)
   92    (92 )    —
Deferred rent, long-term portion (within other long-term liabilities)
   27 �� (27 )    —
Lease payable—current portion
   15    780    795
Lease payable, long-term portion
   38    179    217

~~In connection with the adoption of ASC 842, the Company recorded an immaterial expense of $14,000 in the quarter ended March 31, 2019 which would have been an opening retained earnings adjustment.~~

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

~~In accordance with the requirements of the new standard, the disclosure of the impact of the adoption on our consolidated balance sheet was as follows (in thousands):~~

   As of June 30, 2019
Selected Balance Sheet    As Reported    Balances without
Adoption of ASC
842    Effect of Change
Increase (Decrease)
Assets

Operating lease assets
   $ 552    $ —      $ 552
Liabilities

Lease payable—current portion
   618    15    603
Lease payable, long-term portion
   18    8    10

   Payments due by period
   Total    2019    2020    2021
Operating Lease Obligations
   $ 632    $ 413    $ 212    $ 7
Capital Lease Obligations
   26    15    11    —








   $ 658    $ 428    $ 223    $ 7


Three Months Ended March 31:	Operating Leases			Finance Leases			Total
2020		692			9			701
2021		920			—			920
2022		899			—			899
2023		211			—			211
2024		5			—			5

Total lease payments		2,727			9			2,736
Less: imputed interest		(219	)		(1	)		(220	)

Total lease liabilities		2,508			8			2,516
Less: current portion of lease liabilities		(801	)		(8	)		(809	)

Long-term lease liabilities	$	1,707		$	—		$	1,707

Note 6 –- Stock-Based Compensation

~~The Company follows the guidance in ASC Topic 718, “~~~~Compensation – Stock Compensation~~”, ~~(“ASC 718”).~~

The Company granted options to purchase 48,285 and 196,737 shares of the Company’s stock during the three ~~and six~~ months ended ~~June 30, 2019.~~March 31, 2020. 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
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018
Average risk-free interest rate
   1.97%    2.62%    2.23%    2.50%
Expected dividend yield
   None    None    None    None
Expected life
   3.5 years    3.5 years    3.5 years    3.5 years
Expected volatility
   51.9% to 54.2%    61.6%    51.9% to 54.2%    60.8% to 61.6%
Weighted average exercise price
   $5.81    $3.08    $4.78    $3.08
Weighted average fair value
   $2.35    $1.42    $1.93    $1.41

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~


	Three Months Ended March 31,
	2020	2019
Average risk-free interest rate	1.24%	2.38%
Expected dividend yield	None	None
Expected life	3.5 years	3.5 years
Expected volatility	50.2% to 64.0%	53.1% to 54.2%
Weighted average exercise price	$8.26	$4.35
Weighted average fair value	$3.19	$1.78
Remaining expense	$1,632	$1,579
Weighted average term	1.0	1.0

The Company’s stock-based compensation expense, including options and restricted stock by category is as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
Cost of revenue	$	1	$	1		2	$	2	$	1	$	1
Engineering and product development		32		100		119		197		54		87
Marketing and sales		57		57		116		57		58		59
General and administrative		214		224		279		517		351		65

	$	304	$	382	$	516	$	773	$	464	$	212

As of ~~June 30, 2019,~~March 31, 2020, unrecognized compensation cost (in thousands) related to ~~unexercisable~~unvested options and unvested restricted stock and the weighted average ~~remaining period~~term of such equity instruments is as follows:


Remaining expense	$	1,383	$	1,632
Weighted average term		1.1		1.0

The Company’s restricted stock awards typically vest in either one year or three equal annual installments with the first installment vesting one year from grant date. The Company granted a total of 162,500 shares of performance based restricted 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 were available to be earned based on exceeding the revenue goal. On March 30, 2018, in accordance with the performance award, the Board of Directors determined that the revenue goal had been met and a total of 189,583 shares were granted, with 63,194 vesting immediately and the remainder vesting on the first and second anniversary of the award date.

During the ~~three and six months~~three-month period ended ~~June 30, 2019,~~March 31, 2020, the Company ~~granted 0 and~~did not grant any restricted stock with time-based vesting while granting 14,000 shares ~~of restricted stock respectively with time based vesting.~~in the three-month period ended March 31, 2019.

The Company’s aggregate intrinsic value for stock options and restricted stock outstanding is as follows (in thousands):


	Period Ended June 30,				Three Months Ended March 31,
Aggregate intrinsic value	2019		2018		2020		2019
Stock options	$	3,585	$	261	$	4,749	$	2,273
Restricted stock		1,674		1,789		547		1,396

The Company issued ~~60,892 and 428,313~~36,799 shares of common stock upon the exercise of outstanding stock options in the ~~three and six months~~three-month period ended ~~June 30, 2019, respectively.~~March 31, 2020. The Company received cash proceeds of approximately $0.2 ~~and $1.4~~ million in the ~~three and six months~~three-month period ended ~~June 30, 2019, respectively.~~March 31, 2020. The intrinsic value of restricted shares that vested in the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 was $0.4 million.

Employee Stock Purchase Plan

In December 2019, the 2019 Employee Stock Purchase Plan (“ESPP”) was ~~$0.1 million~~adopted by the Company’s Board of Directors and ~~$0.5 million, respectively.~~ approved by stockholders, effective January 1, 2020.

The ~~intrinsic~~ESPP provides for the issuance of up to 950,000 shares of common stock, subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The ESPP may be terminated or amended by the Board of Directors at any time. Certain amendments to the ESPP require stockholder approval.

Substantially all of the Company’s employees whose customary employment is for more than 20 hours a week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or value of ~~restricted~~the Company’s shares ~~that vested~~of common stock is not eligible to participate in the ~~six months ended June 30, 2018~~ESPP.

Any eligible employee can enroll in the ESPP as of the beginning of a respective quarterly accumulation period. Employees who participate in the ESPP may purchase shares by authorizing payroll deductions of up to 15% of their base compensation during an accumulation period. Unless the participating employee withdraws from participation, accumulated payroll deductions are used to purchase shares of common stock on the last business day of the accumulation period (the “Purchase Date”) at a price equal to 85% of the lower of the fair market value on (i) the Purchase Date or (ii) the first day of such accumulation period. Under applicable tax rules, no employee may purchase more than $25,000 worth of common stock, valued at the start of the purchase period, under the ESPP in any calendar year.

No shares had been issued under the ESPP as of March 31, 2020 and the company recorded approximately $34,000 of stock-based compensation expense pursuant to ESPP. The first accumulation period under the ESPP commenced on January 1, 2020 and was ~~$0.5 million.~~completed on March 31, 2020, and the related shares purchased by the participants were issued in April 2020. As of March 31, 2020, The Company recorded a liability of $151,000 related to employee withholdings, which was included as a component of accrued expenses and other current liabilities.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

Note 7 –- 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 the 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 CRA has the right to pursue the matter until July 2020. The Company believes that it is not liable for there-assessment against CADx Medical and continues to defend its position. As the Company believes that the probability of a loss is remote, no accrual has been recorded for this matter as of ~~June 30, 2019.~~March 31, 2020.

Other Commitments

The Company is obligated to pay approximately ~~$2.3~~$5.9 million for firm purchase obligations to suppliers for future product and service deliverables.

Litigation

In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation. In accordance with the agreement, the Company sold to Invivo all right, title and interest to certain intellectual property relating to the Company’s VersaVue Software and DynaCAD product and related assets for $3.2 million. The Company closed the transaction on January 30, 2017 less a holdback reserve of $350,000 for a net of approximately $2.9 million.

On September 5, 2018, third-party Yeda Research and Development Company Ltd. (“Yeda”), ~~referred to in this Section as Yeda,~~ filed a complaint (“the Complaint”) against the Company and Invivo in the United States District Court for the Southern District of New York, captioned Yeda Research and Development Company Ltd. v. iCAD, Inc. and Invivo Corporation, Case No.1:18-cv-08083-GBD, related to the Company’s sale of the VersaVue software and DynaCAD product under the Asset Purchase Agreement. In the Complaint, Yeda ~~asserts~~asserted claims for: (i) copyright infringement and misappropriation of trade secrets against both the Company and Invivo; (ii) breach of contract against the Company only; and (iii) tortious interference with existing business relationships and unjust enrichment against Invivo only. The Company and Invivo filed Motions to Dismiss the Complaint on December 21, 2018. On January 18, 2019, Yeda filed Oppositions to the Motions to Dismiss. The Company and Invivo submitted responses to the Opposition to the Motion to Dismiss on February 8, 2019. The Court held oral argument on the Motions to Dismiss on March 27, 2019. ~~The Company is awaiting a decision from~~On September 5, 2019, the ~~Court. To the extent that the Complaint is not dismissed~~Court granted Invivo’s Motion to Dismiss in its entirety and granted the Company’s Motion to Dismiss as it relates to Yeda’s breach of contract and misappropriation of trade secrets claims. On October 22, 2019, Yeda filed an Amended Complaint against only the Company ~~will vigorously defend against~~asserting claims for (i) copyright infringement; and (ii) a replead breach of contract claim. The Company filed its Answer to Yeda’s Amended Complaint on November 5, 2019. Yeda alleges, among other things, that the ~~claims asserted~~Company infringed upon Yeda’s source code, which was originally licensed to the Company, by ~~Yeda. The amount~~using it in the products that the Company sold to Invivo and that it is entitled to damages that could include, among other things, profits relating to the sales of these products. If the ~~loss, if any, cannot~~Company is found to have infringed Yeda’s copyright or breached its agreements with Yeda, the Company could be obligated to pay to Yeda substantial monetary damages.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

be reasonably estimated at this time. Any amounts owed by the Company in connection with its indemnification obligations to Invivo related to this action may reduce the $350,000 holdback under the Asset Purchase Agreement.

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 our operating results and cash flows for that particular period. The Company ismay be a party to certain actions that have been filed against the Company which are being vigorously defended. The Company has determined that potential losses in these matters are neither probable or reasonably possible at this time. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies. Legal costs are expensed as incurred.

Note 8 –- 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:

Level 1—1 - Quoted prices in active markets for identical assets or liabilities.

Level 2—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—3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value.

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.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and notes payable and convertible debentures. Due to their ~~short term~~short-term nature and market rates of interest, the carrying amounts of the financial instruments (except the ~~convertible debentures,~~Convertible Debentures, which ~~are~~were measured at fair value in accordance with the fair value option election) approximated fair value as of ~~June 30, 2019~~February 21, 2020 and December 31, ~~2018.~~2019.

The Company’s assets and liabilities that are measured at fair value on a recurring basis include the Company’s money market accounts and convertible debentures.

The money market funds are included in cash and cash equivalents in the accompanying balance sheet and are considered a Level 1 measurement as they are valued at quoted market prices in active markets.

The ~~convertible debentures are~~Convertible Debentures were recorded as a separate component of the Company’s consolidated balance ~~sheets,~~sheet and are considered a Level 3 measurement due to the utilization of significant unobservable inputs in their valuation. See Note 4(b) for a discussion of these fair value measurements.

The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value ~~hierarchy.~~hierarchy (in thousands).

~~Fair Value Measurements (000’s) as of December 31, 2018~~

   Level 1    Level 2    Level 3    Total
Assets

Money market accounts
   $ 12,134    $ —      $ —      $ 12,134








Total Assets
   $ 12,134    $ —      $ —      $ 12,134








Liabilities

Convertible debentures
   $ —      $ —      $ 6,970    $ 6,970








Total Liabilities
   $ —      $ —      $ 6,970    $ 6,970

~~Fair Value Measurements (000’s) as of June 30, 2019~~

   Level 1    Level 2    Level 3    Total
Assets

Money market accounts
   $ 19,567    $ —      $ —      $ 19,567








Total Assets
   $ 19,567    $ —      $ —      $ 19,567








Liabilities

Convertible debentures
   $ —      $ —      $ 11,410    $ 11,410








Total Liabilities
   $ —      $ —      $ 11,410    $ 11,410

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~


Fair Value Measurements (000’s) as of December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets
Money market accounts	$	15,313	$	—	$	—	$	15,313

Total Assets	$	15,313	$	—	$	—	$	15,313

Liabilities
Convertible debentures	$	—	$	—	$	13,642	$	13,642

Total Liabilities	$	—	$	—	$	13,642	$	13,642


Fair Value Measurements (000’s) as of March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Money market accounts	$	14,256	$	—	$	—	$	14,256

Total Assets	$	14,256	$	—	$	—	$	14,256

Liabilities
Convertible debentures	$	—	$	—	$	—	$	—

Total Liabilities	$	—	$	—	$	—	$	—

The following sets forth a reconciliation of the changes in the fair value of the ~~convertible debenture~~Convertible Debentures that were converted to equity during the ~~period:~~period (in thousands):

   Six months
ended June 30,
2019
Balance, December 31, 2018
   $ 6,970
Fair value adjustment
   4,440


Balance, June 30, 2019
   $ 11,410


	Convertible Debenture
Balance, December 31, 2019	$	13,642
Fair value adjustments		7,522
Conversion		(21,164	)

Balance, March 31, 2020	$	—

Note 9 –- Income Taxes

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted by the United States on March 27, 2020. Although the Company is continuing to analyze the impact of the CARES Act on its business, the CARES Act did not have a material impact on our provision for income taxes for the three months ended March 31, 2020.

The Company recorded an income tax provision of ~~$19,000~~$26,000 and ~~$27,000~~$8,000 for the ~~three~~three-months ended March 31, 2020 and ~~six months ended June 30,~~March 31, 2019, respectively. The ~~Company recorded an income tax provision of $4,000 and $17,000 for three and six months ended June 30, 2018, respectively. At June 30, 2019, the~~ Company had no material unrecognized tax benefits and a deferred tax liability of approximately ~~$3,000~~$4,000 related to tax amortizable goodwill. 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 ~~June 30, 2019.~~March 31, 2020.

The Company files United States federal income tax returns and 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 10 –- Goodwill

~~In accordance with FASB Accounting Standards Codification (“ASC”) Topic350-20,~~~~“Intangibles—Goodwill and Other”~~~~, (“ASC350-20”),~~ ~~the~~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.

Factors the Company considers important, which could trigger an impairment of such asset, include the following:

significant underperformance relative to historical or projected future operating results;

significant changes in the manner or use of the assets or the strategy for the Company’s overall business;

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

significant negative industry or economic trends;

significant decline in the Company’s stock price for a sustained period; and

a decline in the Company’s market capitalization below net book value.

The Company ~~records~~considered the goodwill impairment factors due to the uncertainty around the potential impact of theCOVID-19 pandemic on the Company’s continuing operations and on the global economy as a whole. Under this consideration the Company performed scenario testing of the projections to the most recent impairment analysis performed as of October 1, 2019. The Company concluded that it did not have a triggering event or impairment indicators in the quarter ended March 31, 2020.

The Company would record an impairment charge when such assessment indicates 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 did not have any triggering events in the quarter ended June 30, 2019.~~

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.

In January 2018, the Company adopted a plan to discontinue offering radiation therapy professional services to practices that provide the Company’s electronic brachytherapy solution for the treatment of~~non-melanoma~~ skin cancer under the subscription service model within the Therapy Segment. As result, the Company no longer offers the subscription service model to customers. Based on the decision to discontinue offering radiation therapy professional services within the Therapy Segment, the Company revised its forecasts related to the Therapy segment, which the Company deemed to be a triggering event in the quarter ended December 31, 2017.

The Company determines the fair values for each reporting unit using a weighting of the income approach and the market approach. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The Company uses internal forecasts to estimate future cash flows and includes estimates of long-term future growth rates based on our most recent views of the long-term forecast for each segment. Accordingly, actual results can differ from those assumed in our forecasts. Discount rates are derived from a capital asset pricing model and by analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts.

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

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

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 corroborates the total fair values of the reporting units using a market capitalization approach; however, this approach cannot be used to determine the fair value of each reporting unit value. The blend of the income approach and market approach is more closely aligned to 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 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 weights the methodologies appropriately.

The Company has two operating segments, Detection and Therapy, in its SEC filings.

A rollforward of goodwill activity by reportable segment is as follows (in thousands):


									Consolidated reporting unit			Detection			Therapy			Total
Accumulated Goodwill										47,937		$	—		$	—			47,937
Accumulated impairment										(26,828	)		—			—			(26,828	)
Fair value allocation										(21,109	)		7,663			13,446			—
Acquisition of DermEbx and Radion										—			—			6,154			6,154
Acquisition measurement period adjustments										—			—			116			116
Acquisition of VuComp										—			1,093			—			1,093
Sale of MRI assets										—			(394	)					(394	)
Impairment										—			—			(19,716	)		(19,716	)

Prior to December 31, 2018										—			8,362			—			8,362
	Detection		Therapy			Total
Balance at December 31, 2018	$	8,362	$	—		$	8,362		$	—		$	8,362		$	—		$	8,362

Balance at June 30, 2019	$	8,362	$	—		$	8,362
Balance at December 31, 2019									$	—		$	8,362		$	—		$	8,362

Accumulated Goodwill	$	699	$	6,270		$	54,906
Fair value allocation		7,663		13,446			—
Accumulated impairment		—		(19,716	)		(46,544	)
Balance at March 31, 2020									$	—		$	8,362		$	—		$	8,362

Balance at June 30, 2019	$	8,362	$	—		$	8,362

Note 11 – Long-lived assets

~~In accordance with FASB ASC Topic 360, “Property, Plant and Equipment”, (“ASC 360”), the~~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.

~~ASC360-10-35~~ ~~uses “events and circumstances” criteria~~There is no set interval or frequency for recoverability evaluation rather when to determine when, if at all, an asset (or asset group) is evaluated for ~~recoverability. Thus, there~~recoverability is ~~no set interval or frequency for recoverability evaluation. In accordance with ASC360-10-35-21,~~ ~~the~~based on “events and circumstances.” 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.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

A significant decrease in the market price of a long-lived asset (asset group);

A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition;

A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator;

An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group);

A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group).

The Company determined there were no triggering events in the quarter ended ~~June 30, 2019.~~March 31, 2020.

~~In accordance with ASC360-10-35-17,~~ ifIf 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 fair value of the asset (or asset group). The Company determined the “Asset Group” of the Company to be the assets of the Cancer Therapy segment and the Cancer Detection segment, which the Company considers to be the lowest level for which the identifiable cash flows were largely independent of the cash flows of other assets and liabilities.

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.

Note 12 – Segment Reporting

~~In accordance with FASB Topic ASC 280, “~~~~Segments~~~~”, operating~~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.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~

The Company’s CODM is the Chief Executive ~~Officer (“CEO”).~~Officer. Each reportable segment generates revenue from the sale of medical equipment and related services and/or sale of supplies. The Company has determined there are two segments, ~~Cancer~~ Detection ~~(“Detection”)~~ and ~~Cancer Therapy (“Therapy”).~~Therapy.

The Detection segment consists of our advanced image analysis and workflow products, and the Therapy segment consists of our radiation therapy ~~(“Axxent”)~~ products, “Axxent,” 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.

The Company does not track assets by operating segment and our CODM does not use asset information by segment to allocate resources or make operating decisions.

Segment revenues, gross profit, segment operating income or loss, and a reconciliation of segment operating income or loss to US GAAP loss before income tax is as follows (in thousands):

   Three Months Ended
June 30,    Six Months Ended
June 30,
   2019    2018    2019    2018
Segment revenues:

Detection
   $ 5,209    $ 3,990    $ 9,377    $ 8,001
Therapy
   2,120    2,172    4,725    4,474








Total Revenue
   $ 7,329    $ 6,162    $ 14,102    $ 12,475








Segment gross profit:

Detection
   $ 4,356    $ 3,456    $ 7,823    $ 6,985
Therapy
   1,370    1,328    3,185    2,297








Segment gross profit
   $ 5,726    $ 4,784    $ 11,008    $ 9,282








Segment operating income (loss):

Detection
   $ 673    $ 1,019    $ 975    $ 1,006
Therapy
   (264 )    (360 )    (43 )    (1,426 )








Segment operating income (loss)
   $ 409    $ 659    $ 932    $ (420 )








General, administrative, depreciation and amortization expense
   $ (1,867 )    $ (1,598 )    $ (3,424 )    $ (3,667 )
Interest expense
   (202 )    (113 )    (411 )    (255 )
Other income
   64    29    123    51
Fair value of convertible debentures
   (1,915 )    —      (4,440 )    —








Loss before income tax
   $ (3,511 )    $ (1,023 )    $ (7,220 )    $ (4,291 )

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2019~~


	Three Months Ended
	March 31,
	2020			2019
Segment revenues:
Detection	$	4,476		$	4,168
Therapy		2,075			2,605

Total Revenue	$	6,551		$	6,773

Segment gross profit:
Detection	$	3,467		$	3,467
Therapy		1,043			1,815

Segment gross profit	$	4,510		$	5,282

Segment operating income (loss):
Detection	$	(346	)	$	302
Therapy		(1,006	)		221

Segment operating income (loss)	$	(1,352	)	$	523

General, administrative, depreciation and amortization expense	$	(2,541	)	$	(1,557	)
Interest expense		(130	)		(209	)
Other income		42			59
Loss on extinguishment of debt		(341	)		—
Fair value of convertible debentures		(7,464	)		(2,525	)

Loss before income tax	$	(11,786	)	$	(3,709	)

Note 13 –- Recent Accounting Pronouncements

Recently Adopted Accounting Standards

On January 1, ~~2019,~~2020, the Company adopted ASU2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the ~~new accounting standard~~Disclosure Requirements for Fair Value Measurement” (“ASU2018-13”). ASU2018-13 removes, modifies and adds certain disclosure requirements of ASC ~~842, “Leases”~~Topic 820. ASU2018-13 is effective for Company for the fiscal year and ~~all related amendments using the modified retrospective method for all lease arrangements in place as of the date of adoption.~~interim periods therein beginning January 1, 2020. The Company ~~recognized~~notes that the ~~cumulative effect~~adoption of ~~initially applying~~ASU2018-13 did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the ~~new standard as~~FASB issuedASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)”(“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.ASU 2016-13 replaces the existing incurred loss impairment model with an ~~expense in~~expected loss model which requires the ~~quarter ended June 30, 2019 as the amount was immaterial~~use of forward-looking information to the financial statements. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 840. In addition, upon electing the practical expedient to combine lease and~~non-lease~~ ~~components under ASC 842, the Company does not expect the~~calculate credit loss estimates. These changes ~~to lessor accounting to impact the amount or timing of revenue recognition, but~~ will result in ~~revenue~~earlier recognition of credit losses. In November 2019, the FASB elected to defer the adoption date of ASU2016-13 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 ASU2016-13 is permitted. The Company is currently evaluating the impact that the adoption of ASU2016-13 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU2019-12”). ASU2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU2019-12 is effective for the Company for the fiscal year and interim periods therein beginning January 1, 2021. The Company is currently evaluating the impact that the adoption of ASU2019-12 will have on its consolidated financial statements.

In March 2020, the FASB issued ASU2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU2020-04”). ASU2020-04 was issued because the London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. At the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR could be discontinued. Other interest rates used globally could also be discontinued for similar reasons. ASU2020-04 provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be ~~recognized under ASC 606 because~~discontinued. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022). The Company is currently evaluating the impact that the adoption of ASU~~non-lease~~2020-04 ~~component~~ will behave on its consolidated financial statements.

Note 14 – Subsequent Events

On April 27, 2020, the ~~predominant component~~Company issued 1,562,500 shares of common stock to several institutional investors at a price of $8.00 per share in ~~the arrangement. See Note 1 for details~~a registered direct offering. The gross proceeds of the offering were approximately $12.5 million, and the Company received net proceeds of approximately $12.2 million. The Company intends to use the net proceeds for working capital and for other general corporate purposes, including for the conduct of post-market studies for the Company’s ~~adoption of ASC 842.~~Xoft intra-operative radiation therapy (IORT) for glioblastoma and other brain cancers.

~~Item 2.~~

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

“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 forward looking statements that involve a number of known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to following; the impact of theCOVID-19 pandemic on our business and the macro economy; 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, competitive factors, the effects of a decline in the economy in markets served by the Company and other risks detailed in the Company’s other filings with the Securities and Exchange Commission. 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.

Results of Operations

Overview

iCAD, Inc. is a ~~provider of advanced image analysis, workflow solutions~~global medical technology company providing innovative cancer detection and ~~radiation~~ therapy ~~for the early identification and treatment of cancer.~~solutions. The Company reports in two ~~segments –Cancer~~segments: Detection ~~(“Detection”)~~ and ~~Cancer Therapy (“Therapy”).~~Therapy.

In the Detection segment, ~~our~~the Company’s solutions include (i) advanced image analysis and workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier, and (ii) a comprehensive range of high-performance, ~~upgradeable~~Artificial 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 the Therapy segment, the Company offers an isotope-free cancer treatment platform technology the Xoft Electronic Brachytherapy System (“Xoft System”). The Xoft System can be used for the treatment of early- stage breast cancer, endometrial cancer, cervical cancer and skin cancer. We believe the Xoft System platform indications represent strategic opportunities in the United States and international markets to offer differentiated treatment alternatives. In addition, the Xoft System generates additional recurring revenue for the sale of consumables and related accessories which will continue to drive growth in this segment.

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

COVID-19 Impact

On March 12, 2020, the World Health Organization declaredCOVID-19 to be a pandemic. In an effort to contain and mitigate the spread ofCOVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks ofCOVID-19. As a provider of devices and services to the health care industry, our operations have been materially affected. Significant uncertainty remains as to the potential impact of theCOVID-19 pandemic on our continuing operations and on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. TheCOVID-19 pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common stock. Our results for the quarter ending March 31, 2020 reflect a negative impact from, among other things, theCOVID-19 pandemic as shipping, logistics, acceptance and installation and training have been delayed and ordering patterns disrupted. Although we do not provide guidance to investors relating to our results of operations, we expect that our results for the quarter ending June 30, 2020, and possibly future quarters, will reflect a negative impact from theCOVID-19 pandemic for similar reasons. With this impact happening so late in the three-month period ended March 31, 2020, the Company was unable to make significant changes to costs for the period. The Company has since taken steps to lower operating expenses and will continue to assess its cost structure while theCOVID-19 pandemic is still impacting the Company. These steps include but are not limited to cuttingnon-essential travel, employee furloughs and terminations, and cutting most in person trade shows. Depending upon the duration and severity of the pandemic, the continuing effect on our results over the long term is uncertain. We will continue to evaluate the nature and extent of the impact ofCOVID-19 to our business.

On April 27, 2020, the Company issued 1,562,500 shares of common stock to several institutional investors at a price of $8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately $12.5 million, and the Company received net proceeds of approximately $12.2 million. During the first quarter of fiscal 2020 the company also entered into an equity distribution agreement with JMP Securities to provide for anat-the-market offering program to provide additional potential liquidity through the sale of common stock having a value of up to $25.0 million. The Company did not make any sales under this equity distribution agreement in the period ended March 31, 2020. In light of the global economic uncertainty and financial market conditions caused by theCOVID-19 pandemic, the Company believes the above events as well as the expected current cash and cash equivalent balances and cash flows that are generated from operations will be sufficient to meet our working capital needs and other capital and liquidity requirements for at least the next 12 months.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition, results of operations, and cash flows are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of ~~America (“US GAAP”).~~America.

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 an~~on-going~~ ongoing basis, the Company evaluates these estimates, including those related to revenue recognition, allowance for doubtful accounts, inventory valuation and obsolescence, intangible assets, goodwill, income taxes, contingencies and litigation. Additionally, the Company uses assumptions and estimates in calculations to determine stock-based compensation, ~~and~~ the fair value of convertible ~~notes.~~notes, and evaluation of litigation. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. As of January 1, 2019, we adopted ~~ASC~~accounting standards codification (“ASC”) Topic 842. Refer to Note 1 of this Form10-Q for ~~disclosure~~a discussion of the changes related to this adoption.

~~There~~Due to theCOVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is 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 May 11, 2020, the date of issuance of this Quarterly Report on Form10-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 policies as discussed in our ~~2018~~2019 Annual Report on Form10-K (the ~~“2018~~“201910-K”). For a comprehensive list of the Company’s critical accounting policies, reference should be made to the ~~2018~~201910-K.

~~Three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018~~

Revenue: (in thousands)

   Three months ended June 30,
   2019    2018    Change    % Change
Detection revenue

Product revenue
   $ 3,808    $ 2,486    $ 1,322    53.2 %
Service revenue
   1,401    1,504    (103 )    (6.8 )%








Subtotal
   5,209    3,990    1,219    30.6 %








Therapy revenue

Product revenue
   545    708    (163 )    (23.0 )%
Service revenue
   1,575    1,464    111    7.6 %








Subtotal
   2,120    2,172    (52 )    (2.4 )%








Total revenue
   $ 7,329    $ 6,162    $ 1,167    18.9 %

~~Three months ended June 30, 2019 and 2018:~~


	Three months ended March 31,
	2020		2019		Change			% Change
Detection revenue
Product revenue	$	3,100	$	2,790	$	310			11.1	%
Service and supplies revenue		1,376		1,378		(2	)		(0.1	)%

Subtotal		4,476		4,168		308			7.4	%

Therapy revenue
Product revenue		695		1,032		(337	)		(32.7	)%
Service and supplies revenue		1,380		1,573		(193	)		(12.3	)%

Subtotal		2,075		2,605		(530	)		(20.3	)%

Total revenue	$	6,551	$	6,773	$	(222	)		(3.3	)%

Total revenue ~~for the three months ended June 30, 2019 was $7.3~~decreased by approximately $0.2 million, ~~compared with revenue of $6.2~~or 3.3%, from $6.8 million for the ~~three months~~three-months ended ~~June 30, 2018. This~~March 31, 2019 to $6.6 million for the three-months ended March 31, 2020. The decrease is ~~an increase~~due to a decrease in Therapy revenue of approximately ~~$1.1~~$0.5 million ~~or 18.9%. The increase in revenue is due to~~offset by an increase in Detection revenue of ~~approximately $1.2 million offset by a slight decrease in Therapy revenue of $0.1~~$0.3 million.

Detection product revenue increased by approximately ~~$1.3~~$0.3 million, or 11.1%, from ~~$2.5~~$2.8 million for the three ~~month period~~months ended ~~June 2018~~March 31, 2019 to ~~$3.8~~$3.1 million for ~~three months period~~the three-months ended ~~June 30, 2018. This represents increases of 53.8%.~~March 31, 2020. The increase was due primarily to growth in direct customer revenue of $0.1 million and OEM customer revenue of $0.2 million, relating primarily to revenue from 3D imaging and density assessment products. Detection product revenue iswas impacted in the three months ended March 31, 2020 due ~~primarily~~ to ~~an increase~~theCOVID-19 pandemic. The Company observed a decrease in ~~direct sales.~~order volume in March 2020, which we believe may have been due to“stay-at-home orders” and uncertainty in the market, as patients refrained from procedures.

Detection service and supplies revenue remained relatively the same at $1.4 million in each of the three months ended March 31, 2019 and 2020. The Company did not see a significant impact of theCOVID-19 pandemic on service revenue for the three months ended March 31, 2020, however the Company is not able to estimate the extent of the negative impact that theCOVID-19 pandemic will have on future service revenues.

Therapy product revenue decreased ~~$0.1~~by approximately $0.3 million, or 32.7%, from ~~approximately $1.5~~$1.0 million for the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$1.4 million for the three months ended June 30, 2019. Service and supplies revenue reflects the sale of service contracts to our installed base of customers and can vary from quarter to quarter.~~

~~Therapy product revenue decreased by $0.2 million from~~ $0.7 million for the three months ended ~~June 30, 2018 to $0.5 for the three months ended June 30, 2019.~~March 31, 2020. Therapy product revenue is related to the sale of our Axxent systems and can vary significantly from quarter to quarter due to ~~an increase or decrease~~changes in the number of units ~~sold.~~

~~Therapy service~~sold, and ~~supply revenue increased by approximately $0.1 million from $1.5 million~~the average selling price. The Company was able to ship firm orders for Axxent systems for the three months ended ~~June 30, 2018~~March 31, 2020, however the Company is not able to ~~$1.6 million for~~anticipate the ~~three months ended June 30, 2019. Source, service and disposable applicators remain a significant component~~effect of ~~Therapy service revenue.~~theCOVID-19 pandemic on future Axxent system sales.

   Six months ended June 30,
   2019    2018    Change    % Change
Detection revenue

Product revenue
   $ 6,613    $ 4,975    $ 1,638    32.9 %
Service revenue
   2,764    3,026    (262 )    (8.7 )%








Subtotal
   9,377    8,001    1,376    17.2 %








Therapy revenue

Product revenue
   1,577    1,233    344    27.9 %
Service revenue
   3,148    3,241    (93 )    (2.9 )%








Subtotal
   4,725    4,474    251    5.6 %








Total revenue
   $ 14,102    $ 12,475    $ 1,627    13.0 %

~~Six months ended June 30, 2019 and 2018:~~

Total revenue for the six months ended June 30, 2019 was $14.1 compared with revenue of $12.5 million for the six months ended June 30, 2018. This is an increase of approximately $1.6 million, or 13.0%. The increase in revenue is due to an increase in Detection revenues of approximately $1.4 million and in Therapy revenue of $0.2 million.

Detection product revenue increased by approximately $1.6 million from $5.0 million for the six month period ending June 2018 to $6.6 million for the six month period ended June 30, 2018. This represents increases of 32.9%. The increase in Detection product revenue is due primarily to an increase in direct sales.

Detection service and supplies revenue decreased $0.2 million from approximately $3.0 million for the six months ended June 30, 2018 to $2.8 million for the six months ended June 30, 2019. Detection service and supplies revenue reflects the sale of service contracts to our installed base of customers, and can vary from quarter to quarter.

Therapy product revenue increased by $0.4 million from $1.2 million for the six months ended June 30, 2018 to $1.6 million for the six months ended June 30, 2019. Product revenue from the sale of our Axxent systems can vary significantly due to an increase or decrease in the number of units sold.

Therapy service and supply revenue decreased by approximately ~~$0.1~~$0.2 million, or 12.3%, from ~~$3.2~~$1.6 million for the ~~six months~~three-months ended ~~June 30, 2018~~March 31, 2019 to ~~$3.1~~$1.4 million for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The Company did not see a significant impact from theCOVID-19 pandemic on Therapy service and supply revenue for the three months ended March 31, 2020, however it is not able to estimate the extent of the negative impact that theCOVID-19 pandemic will have on future service and supply revenues.

Cost of Revenue and Gross Profit: (in thousands)


	Three months ended June 30,												Three months ended March 31,
	2019			2018			Change			% Change			2020			2019			Change			% Change
Products	$	645		$	537		$	108			20.1	%	$	1,017		$	680		$	337			49.6	%
Service and supplies		858			739			119			16.1	%		927			717			210			29.3	%
Amortization and depreciation		100			102			(2	)		(2.0	)%		97			94			3			3.2	%

Total cost of revenue	$	1,603		$	1,378		$	225			16.3	%	$	2,041		$	1,491		$	550			36.9	%

Gross profit	$	5,726		$	4,784		$	942			19.7	%	$	4,510		$	5,282		$	(772	)		(14.6	)%
Gross profit %		78.1	%		77.6	%					0.5	%		68.8	%		78.0	%

	Three months ended June 30,												Three months ended March 31,
	2019			2018			Change			% Change			2020			2019			Change			% Change
Detection gross profit	$	4,356		$	3,456		$	900			26.0	%	$	3,467		$	3,467		$	—			.0	%
Therapy gross profit		1,370			1,328			42			3.2	%		1,043			1,815			(772	)		(42.5	%)

Gross profit		5,726			4,784			942			19.7	%	$	4,510		$	5,282		$	(772	)		(14.6	%)

Gross profit %		78.1	%		77.6	%					0.5	%		68.8	%		78.0	%

	Six months ended June 30,
	2019			2018			Change			% Change
Products	$	1,325		$	995		$	330			33.2	%
Service and supplies		1,575			1,991			(416	)		(20.9	)%
Amortization and depreciation		194			207			(13	)		(6.3	)%

Total cost of revenue	$	3,094		$	3,193		$	(99	)		(3.1	)%

Gross profit	$	11,008		$	9,282		$	1,726			18.6	%
Gross profit %		78.1	%		74.4	%					3.7	%

	Six months ended June 30,
	2019			2018			Change			% Change
Detection gross profit	$	7,823		$	6,985		$	838			12.0	%
Therapy gross profit		3,185			2,297			888			38.7	%

Gross profit		11,008			9,282			1,726			18.6	%

Gross profit %		78.1	%		74.4	%					3.7	%

Gross profit for the three ~~month period~~months ended ~~June 30, 2019~~March 31, 2020 was ~~$5.7~~$4.5 million, or ~~78.1%~~68.8%, of revenue, as compared to ~~$4.8~~$5.3 million, or ~~77.6%~~78.0% of revenue, for the three months period ended March 31, 2019. TheCOVID-19 pandemic impacted order volumes of the Detection products in March 2020, resulting in a lower than expected gross profit in the ~~three month period ended June 30, 2018.~~

~~Gross~~segment. The Company had increased personnel and other fixed costs prior to the onset of theCOVID-19 pandemic. Accordingly, gross profit ~~for~~was negatively impacted in both segments without the ~~six month period ended June 30, 2019 was $11.0 million, or 78.1% of revenue as compared to $9.3 million or 74.4% of revenue~~commensurate increase in ~~the six month period ended June 30, 2018. 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.~~revenue.

Cost of ~~Detection~~ products increased by approximately ~~$0.1~~$0.3 million, or 49.6%, from ~~approximately $0.5~~$0.7 million for the three months ended ~~June 30, 2018~~March 31, 2019 to ~~approximately $0.6~~$1.0 million for the three months ended ~~June 30, 2019. The cost~~March 31, 2020. Cost of product revenue as a percentage of product revenue was approximately ~~17%~~17.8% for the three months ended ~~June 30, 2018~~March 31, 2019 as compared to ~~15%~~26.8% for the ~~three months~~three-months ended ~~June 30, 2019. Cost of products~~March 31, 2020. The increase is due primarily to increased ~~by approximately $0.3 million from approximately $1.0 million~~costs for the six months ended June 30, 2018 to approximately $1.3 million for the six months ended June 30, 2019. The cost of product revenue as a percentage of product revenue was approximately 16% for the six months ended June 30, 2018 as compared to 16.2% for the six months ended June 30, 2019.server hardware and increased personnel costs.

~~The cost~~

Cost of service and supplies ~~was~~increased by approximately $0.2 million, or 29.3%, from $0.7 million for the three months ended ~~June 30, 2018~~March 31, 2019 as compared to $0.9 million for the three months ended ~~June 30, 2019. The cost~~March 31, 2020. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately ~~25%~~24.3% for the three months ended ~~June 30, 2018~~March 31, 2019 as compared to ~~29%~~33.6% for the three months ended ~~June 30, 2019, which~~March 31, 2020. The increase is due primarily to ~~product mix. The cost~~personnel and other fixed costs in costs of service and supplies was $2.0 million for the six months ended June 30, 2018 as compared to $1.6 million for the six months ended June 30, 2019. The cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 31.8% for the six months ended June 30, 2018 as compared to 26.6% for the six months ended June 30, 2019, which reflects the decrease of the cost of sales related to the wind-down of the Xoft subscription business.sales.

Amortization and depreciation ~~was~~expense remained consistent at approximately $0.1 million for the three ~~month period ended June 30, 2018 and 2019. It was $0.2 million for the six~~ months ended ~~June 30, 2018~~March 31, 2020 and 2019.

Operating Expenses: (in thousands)

   Three months ended June 30,
   2019    2018    Change    Change %
Operating expenses:

Engineering and product development
   $ 2,139    $ 2,057    $ 82    4.0 %
Marketing and sales
   3,120    2,006    1,114    55.5 %
General and administrative
   1,858    1,583    275    17.4 %
Amortization and depreciation
   67    77    (10 )    (13.0 )%








Total operating expenses
   $ 7,184    $ 5,723    $ 1,461    25.5 %








   Six months ended June 30,
   2019    2018    Change    Change %
Operating expenses:

Engineering and product development
   $ 4,266    $ 5,396    $ (1,130 )    (20.9 )%
Marketing and sales
   5,693    4,172    1,521    36.5 %
General and administrative
   3,404    3,641    (237 )    (6.5 )%
Amortization and depreciation
   137    160    (23 )    (14.4 )%
Goodwill and long-lived asset impairment









Total operating expenses
   $ 13,500    $ 13,369    $ 131    1.0 %

~~Three months ended June 30, 2019 and 2018.~~


	Three months ended March 31,
	2020		2019		Change				Change %
Operating expenses:
Engineering and product development	$	2,211	$	2,127	$	84				3.9	%
Marketing and sales		3,608		2,573		1,035				40.2	%
General and administrative		2,532		1,546		986				63.8	%
Amortization and depreciation		52		70		(18	)	��		(25.7	)%

Total operating expenses	$	8,403	$	6,316	$	2,087				33.0	%

Operating expenses increased by approximately ~~$1.5~~$2.1 million, or ~~25.5%~~33.0%, from $6.3 million in the three months ended ~~June 30,~~March 31, 2019 ~~compared~~ to $8.4 million in the three months ended ~~June 30, 2018~~March 31, 2020. The Company’s operating expenses continued to grow throughout 2019 and the Company had the same expectation for three months ended March 31, 2020 due to the expectation of increased sales orders, shipments, and overall revenue. Although the onset of theCOVID-19 pandemic impacted revenue, due to its onset late in the three-month period ended March 31, 2020, the Company was unable to make significant changes to operating expenses for the period. The Company has since taken steps to lower operating expenses and will continue to assess its cost structure while theCOVID-19 pandemic is still impacting the Company. These steps include but are not limited to cuttingnon-essential travel, employee furloughs and terminations, and cutting most in person trade shows.

Engineering and Product ~~Development.~~Development. Engineering and product development costs ~~were approximately~~increased by $0.1 million, or 3.9%, from $2.1 million for the three ~~month period~~months ended ~~June 30,~~March 31, 2019 ~~and 2018.~~to $2.2 million for the three months ended March 31, 2020. Detection engineering and product development costs ~~increased by $0.2~~remained relatively constant at $1.4 million ~~to $1.5 for the three months ended June 30, 2019 from $1.3 million for three months ended June 30, 2018.~~in both periods. Therapy engineering and product development costs ~~decreased by $0.2~~increased $0.1 million, ~~to $0.6~~from $0.7 million ~~for~~in the three months ended ~~June 30,~~March 31, 2019 ~~from~~to $0.8 million for the three months ended ~~June 30, 2018.~~March 31, 2020. The increase in Detection engineering and product development costs is due to an increase in personnel expenses. The decrease in Therapy engineering and product development costs for the three months ended June 30, 2019 iswas due primarily to ~~decreases in~~increased personnel ~~and consulting expenses.~~costs.

Marketing and ~~Sales.~~Sales. Marketing and sales expenses increased by ~~$1.2~~$1.0 million, or ~~57.1%~~40.2%, from ~~$2.0~~$2.6 million in the three ~~month period~~months ended ~~June 30, 2018~~March 31, 2019 to ~~$3.2~~$3.6 million in the three ~~month period~~months ended ~~June 30, 2019.~~March 31, 2020. Detection marketing and sales expense increased by ~~$1.0~~$0.7 million, or 40%, from ~~$1.1~~$1.7 million in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$2.1~~$2.4 million in the three months ended ~~June 30, 2019.~~March 31, 2020. Therapy marketing and sales expense increased by ~~$0.1~~$0.3 million, or 44.6%, from ~~$1.0~~$0.9 million in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$1.1~~$1.2 million in the three months ended ~~June 30, 2019.~~March 31, 2020. The increase in both Detection and Therapy marketing and sales expense is due primarily to ~~an increase in~~increased personnel costs and commissions as the Company has invested in additional commercial resources to help drive sales of the new Detection products. ~~The increase in Therapy marketing and sales expense is due primarily to the timing of trade shows.~~

General and ~~Administrative.~~Administrative. General and administrative expenses increased by ~~$0.2~~$1.0 million, or ~~15.3%~~63.8%, from ~~$1.6~~$1.5 million in the three months ended ~~June 30, 2018 as compared~~March 31, 2019 to ~~approximately $1.8~~$2.5 million for the three months ended ~~June 30, 2019.~~March 31, 2020. The increase ~~in General and administrative expenses~~ is due primarily to ~~a increase~~increases in stock compensation expense, legal and other costs associated with the conversion of the debentures, and personnel costs.

Amortization and Depreciation.Amortization and depreciation isrelates primarily ~~related~~ to acquired intangible assets and depreciation ~~related to~~of machinery and equipment. Amortization and depreciation decreased by $18,000, or 25.7%, from $70,000 for the three months ended March 31, 2019 to approximately ~~$68,000 in the quarter ended June 30, 2019 from $77,000~~$52,000 for the ~~quarter ended June 30, 2018.~~

~~Six~~three months ended ~~June 30, 2019 and 2018.~~

~~Operating expenses increased $0.1 million or 1.0% in the six month period ended June 30, 2019 compared to six month period ended June 30, 2019.~~

~~Engineering and Product Development.~~Engineering and product development costs were approximately $4.3 million for the six month period ended June 30, 2019 down from $5.4 million for the same period last year, a reduction of $1.1 million or 20.9%. Detection engineering and product development costs were $3.0 million and $3.7 million for the six months ended June 30,

2019 and 2018, respectively. Therapy engineering and product development costs decreased by $0.4 million to $1.3 million for the six months ended June 30, 2019 from $1.7 million for the six months ended June 30, 2018. The decrease in Detection engineering and product development costs for the six months ended June 30, 2019 is due primarily to clinical expenses in the first quarter of 2018 related to the development of the Company’s breast tomosynthesis product. The decrease in Therapy engineering and product development costs for the six months ended June 30, 2019 is due primarily to decreases in personnel and clinical trial costs that were higher in 2018.

~~Marketing and Sales.~~Marketing and sales expenses increased by $1.5 million or 37.2%, from $4.2 million in the six month period ended June 30, 2018 to $5.7 million in the six month period ended June 30, 2019. Detection marketing and sales expense increased by $1.6 million from $2.2 million in the six months ended June 30, 2018 to $3.8 million in the six months ended June 30, 2019. Therapy marketing and sales expense decreased by $0.1 million from $2.0 million in the six months ended June 30, 2018 to $1.9 million in the six months ended June 30, 2019. The increase in Detection marketing and sales expense is due primarily to an increase in personnel costs and commissions as the Company has invested in additional commercial resources to help drive sales of the new Detection products, The decrease in Therapy marketing and sales is due primarily to the timing of trade shows.

~~General and Administrative.~~General and administrative expenses decreased by $0.2 million or 7.4%, from $3.6 million in the six months ended June 30, 2018 as compared to approximately $3.4 million for the six months ended June 30, 2019. The decrease in General and administrative expenses is due primarily to a decrease in 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 $138,000 for the six months ended June 30, 2019 from $160,000 for the six months ended June 30, 2018.March 31, 2020.

Other Income and Expense: (in thousands)

   Three months ended June 30,
   2019    2018    Change    Change%
Interest expense
   $ (202 )    $ (113 )    $ (89 )    78.8 %
Interest income
   64    29    35    120.7 %
Loss on fair value of debentures
   (1,915 )    —      (1,915 )    0.0 %








   $ (2,053 )    $ (84 )    $ (1,969 )    2344.0 %








Tax benefit (expense)
   (19 )    (4 )    (15 )    375.0 %

   Six months ended June 30,
   2019    2018    Change    Change%
Interest expense
   $ (411 )    $ (255 )    $ (156 )    61.2 %
Interest income
   123    51    72    141.2 %
Loss on fair value of debentures
   (4,440 )    —      (4,440 )    0.0 %








   $ (4,728 )    $ (204 )    $ (4,524 )    2217.6 %








Tax expense
   $ (27 )    $ (17 )    $ (10 )    58.8 %


	Three months ended March 31,
	2020			2019			Change			Change %
Interest expense	$	(130	)	$	(209	)	$	79			(37.8	)%
Loss on extinguishment of debt	$	(341	)	$	—		$	(341	)		0.0	%
Other income		42			59			(17	)		(28.8	)%
Loss on fair value of debentures		(7,464	)		(2,525	)		(4,939	)		195.6	%

	$	(7,893	)	$	(2,675	)	$	(5,218	)		195.1	%

Tax expense	$	(26	)	$	(8	)	$	(18	)		225.0	%

Interest expense. Interest expense ~~of $202,000 increased~~decreased by ~~$89,000~~approximately $0.1 million, or 37.8%, from $0.2 million for the three ~~month period~~months ended ~~June 30,~~March 31, 2019 ~~as compared~~ to ~~interest expense of $113,000~~$0.1 million for the three ~~month period~~months ended ~~June 30, 2018.~~March 31, 2020. The ~~increase in interest expense~~decrease is due primarily to the interest ~~expense associated~~on the Company’s loan with ~~the convertible debentures issued in December 2018. Interest expense of $411,000 increased~~SVB.

Other income. Other income decreased by $156,000 for the six month period ended June 30, 2019 as compared to interest expense of $255,000 for the six month period ended June 30, 2018. The increase in interest expense is due to the interest expense associated with the convertible debentures issued in December 2018.

~~Interest income.~~ ~~Interest income was $64,000 and $29,000, respectively,~~approximately $17,000, from $59,000 for the three ~~month periods~~months ended ~~June 30,~~March 31, 2019 ~~and 2018. Interest income was $123,000 and $51,000, respectively,~~to $42,000 for the ~~six month periods~~three months ended ~~June 30, 2019~~March 31, 2020. The increase resulted primarily from lower cash balances in interest-generating accounts and ~~2018.~~investments.

Loss on fair value of ~~debentures.~~debentures. The Company recorded a loss of ~~$1.9~~approximately $7.5 million in the ~~quarter~~three months ended ~~June 30, 2019,~~March 31, 2020, which reflects an increase in the fair value of the ~~Convertible Debentures~~unsecured subordinated convertible debentures issues in December 2018 (the “Convertible Debentures”) from ~~approximately $9.5~~$13.7 million at ~~March~~December 31, 2019 to ~~$11.4~~$21.2 million ~~at June 30, 2019.~~as of February 21, 2020. Upon the consummation of the Forced Conversion, the Company issued 1,816,466 shares of common stock with a fair value of approximately $21.2 million, which was reclassified to stockholders’ equity. The Convertible Debenture balance as of March 31, 2020 was $0.

Loss on extinguishment of debt: The Company recorded a loss on extinguishment of ~~$4.5 million in~~approximately $341,000 related to the ~~six months ended June 30, 2019, which reflects an increase in the fair value~~repayment and retirement of the ~~Convertible Debentures from~~SVB Loan Agreement. The loss on extinguishment was composed of approximately ~~$6.9 million at December 31, 2018 to $11.4 million at June 30, 2018. The Company expects changes~~$185,000 for the unaccrued final payment, the $114,000 termination fee, $42,000 for the unamortized and other closing costs. There were no such costs in ~~the fair value of the Convertible Debentures to change from quarter to quarter as changes in the stock price of the Company drive changes in the underlying fair value of the instruments.~~2019.

Tax ~~expense.~~expense ~~The Company had tax~~. Tax expense ~~of $19,000~~increased by approximately $18,000 from $8,000 for the three ~~month period~~months ended ~~June 30,~~March 31, 2019 ~~as compared~~ to ~~tax expense of $4,000~~$26,000 for the three ~~month period~~months ended ~~June 30, 2018. The Company had tax expense of $27,000 for the six month period ended June 30, 2019 as compared to tax expense of $17,000 for the six month period ended June 30, 2018.~~March 31, 2020. Tax expense is due primarily to statenon-income and ~~franchise based~~franchise-based taxes.

Liquidity and Capital Resources

~~We believe~~The Company’s cash on hand includes proceeds from the Loan Agreement entered into with Western Alliance Bank on March 31, 2020. The Company’s Loan Agreement includes certain financial covenants tied to minimum revenue and maximum net loss. The Company was compliant with such covenants as of March 31, 2020.

Subsequent to March 31, 2020 the Company, in accordance with the Loan Agreement, triggered the equity event that relieved the covenant related to maximum net loss, leaving only the minimum revenue requirement. The COVID-19 pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on the Company’s ability to maintain compliance with the minimum revenue covenant. If at any point the Company is not in compliance with the covenant and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date.

The Company believes even if that event of default were to occur, our current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on ~~hand.~~hand, which now includes an additional estimated $12.2 million the Company received following the sale of 1,562,500 shares of the Company’s common stock at $8.00 per share, pursuant to a registered direct offering which closed on April 27, 2020. The Company also entered into an equity distribution agreement with JMP Securities to provide for anat-the-market offering program to provide additional potential liquidity through the sale of common stock having a value of up to $25.0 million. Our projected cash needs include planned capital expenditures, loan ~~repayments,~~interest payments, lease commitments, and other long-term obligations. The Company’s ability to generate cash adequate to meet its future capital requirements will depend primarily on operating cash flow. If sales or cash collections are reduced from current expectations, or if expenses and cash requirements are increased, the Company may require additional financing, although there are no guarantees that the Company will be able to obtain the financing if necessary. The Company will continue to closely monitor its liquidity and the capital and credit markets.

As of ~~June 30, 2019,~~March 31, 2020, the Company had current assets of ~~$29.8~~$25.3 million including ~~$19.6~~$14.3 million of cash and cash equivalents. Current liabilities are ~~$14.9~~$13.9 million and working capital is ~~$14.9~~$11.4 million. The ratio of current assets to current liabilities is 2:1.82:1.

In June 2019, in connection with the Fourth Loan Modification, the Company and the Bank agreed to covenant levels for minimum revenue and EBITDA covenants (the “Covenants”) under the Loan Agreement for fiscal year 2019. The Company is in compliance with the Covenants for the quarter ended June 30, 2019.


	For the six months ended June 30,						For the three months ended March 31,
	2019			2018			2020			2019
	(in thousands)						(in thousands)
Net cash used for operating activities	$	(2,404	)	$	(1,463	)	$	(1,416	)	$	(1,813	)
Net cash used for investing activities		(143	)		(64	)		(156	)		(29	)
Net cash provided by (used for) financing activities		9,929			(69	)
Net cash provided by financing activities								515			972

Decrease in cash and equivalents	$	7,382		$	(1,596	)	$	(1,057	)	$	(870	)

Net cash used for operating activities for the ~~six month~~three-month period ended ~~June 30, 2019~~March 31, 2020 was ~~$2.4~~$1.4 million, compared to net cash used for operating activities of ~~$1.5~~$1.8 million for the ~~six month~~three-month period ended ~~June 30, 2018.~~March 31, 2019. The cash used for operating activities for the ~~six month~~three-month period ended ~~June 30, 2019~~March 31, 2020 resulted primarily from our net loss offset by working capital changes resulting from increases ~~in cash and cash equivalents, accounts receivable~~prepaid expenses and inventory, offset by increases in accounts payable, accrued expenses and notes and lease payable. We expect that cash used for or provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, the timing of when we recognize revenue, collections of accounts and the timing of other payments.

Net cash used for investing activities for the ~~six month~~three-month period ended ~~June 30, 2019~~March 31, 2020 was ~~$143,000~~$156,000 compared to ~~$64,000~~$29,000 for the ~~six month~~three-month period ended ~~June 30, 2018.~~March 31, 2019. The cash used for investing activities for the ~~six month~~three-month period ended ~~June 30, 2019~~March 31, 2020 was primarily for purchases of property and equipment.

Net cash provided by financing activities for the ~~six month~~three-month period ended ~~June 30, 2019~~March 31, 2020 was ~~$9.9 million~~$515,000 as compared to cash used for financing activities of ~~$69,000~~$972,000 for the ~~six month~~three-month period ended ~~June 30, 2018.~~March 31, 2019. Cash provided by financing activities for the ~~six months~~three-month period ended ~~June 30,~~March 31, 2020 is due primarily to $7.0 million of cash provided from the new debt facility with the Bank, offset by approximately $4.6 million for the payment to SVB to pay off the term loan and $2.0 million to pay down the SVB line of credit. There was also $0.2 million of cash provided from exercises of options to purchase common stock. Cash used for financing activities for the three-month period ended March 31, 2019 is due primarily to cash from ~~the issuance~~exercises of options to purchase common stock. In June 2019, the Company completed an underwritten public offering of approximately 1.9 million shares of common stock. The Company received net proceeds of approximately $9.4 million after deducting underwriting and other offering expenses. Cash used for financing activities for the six months ended June 30, 2018 is due primarily to taxes paid on the issuance of restricted stock to employees.

Contractual Obligations

In accordance with the transition disclosure requirements under ASC 840, the Company had the following commitments as of ~~June 30, 2019:~~March 31, 2020:

Contractual Obligations


Contractual Obligations	Payments due by period
			Less than 1								Payments due by period
	Total		year		1-3 years		3-5 years		5+ years		Total		Less than 1 year		1-3 years		3-5 years		5+ years
Operating Lease Obligations	$	632	$	614	$	18	$	—	$	—	$	2,640	$	880	$	1,760			$	—
Capital Lease Obligations		21		18		3		—		—		9		9		—		—		—
Settlement Obligations		463		463		—		—		—		463		463		—		—		—
Notes Payable—principal and interest		6,038		2,630		3,408		—		—
Convertible Debentures—principal and interest		8,016		349		7,667		—		—
Notes Payable - principal and interest												8,133		373		4,021		3,739		—
Other Commitments		2,248		2,058		82		34		74		5,905		5,874		31

Total Contractual Obligations	$	17,418	$	6,132	$	11,178	$	34	$	74	$	17,150	$	7,599	$	5,812	$	3,739	$	—

Operating and ~~capital lease obligations~~Capital Lease Obligations are the minimum payments due under these obligations.

Settlement ~~obligations~~Obligations represent the remaining payments ofunder the ~~obligation to Hologic.~~settlement agreement with Hologic, Inc.

Notes ~~payable~~Payable – principal and interest represents the payments due under the term loan from ~~Silicon Valley~~the Bank.

~~Convertible debentures – principal and interest represents the payments due related to the 5.0% convertible notes due 2021 that were issued by the Company in December 2018.~~

Other ~~commitments~~Commitments represent firm purchase obligations to suppliers for future product and service deliverables.

Recent Accounting Pronouncements

See Note 13 to the Condensed Consolidated Financial Statements.

~~Item~~3.

~~Quantitative and Qualitative Disclosures about Market Risk~~

~~We believe we are~~Item 3.Quantitative and Qualitative Disclosures about Market Risk

The Company believes that it is not subject to material foreign currency exchange rate fluctuations, as substantially all of ~~our~~its sales and expenses are denominated in the U.S. dollar. ~~We do~~The Company does not hold derivative securities and ~~have~~has 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. The Company is subject to a 19% fluctuation in interest expense on for every 1% change in interest rate on its floating rate Term Loan with the Bank.

Item 4.Controls and Procedures

~~Item~~4.

~~Controls and Procedures~~

~~Our~~The Company’s management, with the participation of ~~our~~its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of ~~our~~its disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, as of ~~June 30, 2019,~~March 31, 2020, the principal executive officer and principal financial officer concluded that ~~our~~the Company’s disclosure controls and procedures (as defined in Rule13a-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”) were effective at the 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 conduct~~The Company conducts periodic evaluations to enhance, where necessary ~~our~~the Company’s procedures and controls.

~~Our~~The Company’s principal executive officer and principal financial officer conducted an evaluation of ~~our~~the Company’s internal control over financial reporting (as defined in Exchange Act Rule13a-15(f)) and have determined there are no changes in ~~our~~its internal controls over financial reporting during the quarter ended ~~June 30, 2019,~~March 31, 2020, that have materially affected or which are reasonably likely to materially affect internal control over financial reporting.

Beginning January 1, 2019, the Company implemented ASC 842, Leases. In relation to the adoption of this new standard, the Company implemented changes to our processes related to lessee and lessor accounting under the leasing guidance and the control activities within them. These included the development of new policies related to the identification of leases, including embedded leases, new training programs, ongoing lease contract review requirements, and the gathering of information necessary to provide for expanded disclosures.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Please refer to the detailed discussion regarding litigation set forth in Note 7 of the Notes to Condensed Consolidated Financial Statements in this Form~~Form~~ 10-Q.

On September 5, 2018, third-party Yeda Research and Development Company Ltd. (“Yeda”), filed a complaint (“the Complaint”) against the Company and Invivo in the United States District Court for the Southern District of New York, captioned Yeda Research and Development Company Ltd. v. iCAD, Inc. and Invivo Corporation, Case No.1:18-cv-08083-GBD, related to the Company’s sale of the VersaVue software and DynaCAD product under the Asset Purchase Agreement. In the Complaint, Yeda asserted claims for: (i) copyright infringement and misappropriation of trade secrets against both the Company and Invivo; (ii) breach of contract against the Company only; and (iii) tortious interference with existing business relationships and unjust enrichment against Invivo only. The Company and Invivo filed Motions to Dismiss the Complaint on December 21, 2018. On January 18, 2019, Yeda filed Oppositions to the Motions to Dismiss. The Company and Invivo submitted responses to the Opposition to the Motion to Dismiss on February 8, 2019. The Court held oral argument on the Motions to Dismiss on March 27, 2019. On September 5, 2019, the Court granted Invivo’s Motion to Dismiss in its entirety and granted the Company’s Motion to Dismiss as it relates to Yeda’s breach of contract and misappropriation of trade secrets claims. On October 22, 2019, Yeda filed an Amended Complaint against only the Company asserting claims for (i)��copyright infringement; and (ii) a replead breach of contract claim. The Company filed its Answer to Yeda’s Amended Complaint on November 5, 2019. Yeda alleges, among other things, that the Company infringed upon Yeda’s source code, which was originally licensed to the Company, by using it in the products that the Company sold to Invivo and that it is ~~involved in~~entitled to damages that could include, among other things, profits relating to the sales of these products. If the Company is found to have infringed Yeda’s copyright or breached its agreements with Yeda, the Company could be obligated to pay to Yeda substantial monetary damages.

In addition to the forgoing, the Company maybe party to 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~~.period.

Item 1A. Risk Factors:

We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect our operations. Factors that have affected our Company are described in Part I, Item 1A of our Annual Report on Form10-K ~~filed with the SEC~~ for the year ended December 31, ~~2018~~2019 as filed with the SEC on March ~~29, 2019,~~11, 2020 and are incorporated by reference ~~herein.~~herein, and include the following risk factor.

We expect the novel coronavirus(COVID-19) pandemic to have a significant effect on our results of operations. In addition, it has resulted in significant financial market volatility, and its impact on the global economy appears to be significant. A continuation or worsening of the pandemic will have a material adverse impact on our business, results of operations and financial condition and on the market price of our common stock.

On March 12, 2020, the World Health Organization declaredCOVID-19 to be a pandemic. In an effort to contain and mitigate the spread ofCOVID-19, many countries, including the United States, Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks ofCOVID-19. As a provider of devices and services to the health care industry, our operations have been materially affected. Significant uncertainty remains as to the potential impact of theCOVID-19 pandemic on our continuing operations and on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. TheCOVID-19 pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common stock. Our results for the quarter ending March 31, 2020 reflect a negative impact from, among other things, theCOVID-19 pandemic as shipping, logistics, acceptance and installation and training have been delayed and ordering patterns disrupted. Although we do not provide guidance to investors relating to our results of operations, we expect that our results for the quarter ending June 30, 2020, and possibly future quarters, will reflect a negative impact from theCOVID-19 pandemic for similar reasons. Depending upon the duration and severity of the pandemic, the continuing effect on our results over the long term is uncertain.

These effects could impact the Company’s ability to remain in compliance with its minimum revenue covenant under its Loan and Security Agreement with Western Alliance Bank. If at any point the Company is not in compliance with such covenant and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date. The Company was required, historically, to seek modifications from its prior lender to avoid non-compliance with its earlier covenants. With the COVID-19 pandemic affecting the world economy, the company cannot assure that it will be able to continue to satisfy the applicable minimum revenue covenant.

The Company’s exposure to trade accounts receivable losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the currentCOVID-19 pandemic, or other customer-specific factors. Although the Company has historically not experienced significant trade account receivable losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade account receivables as hospitals’ cash flows are impacted by their response to theCOVID-19 pandemic.

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

On March 20, 2019, the Company issued 3,377 shares of its common stock to certain holders of its Convertible Debentures as a make-whole payment under the Securities Purchase Agreement pursuant to which the Convertible Debentures were issued. Such shares of common stock were exempt from registration in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended.

Item 5. Other ~~Information~~Information.

~~On August 11, 2019, we entered into a second amendment (the “Amendment”) to our San Jose lease, dated June 29, 2019, with The Irvine Company LLC. Among other things,~~Given the ~~Amendment extends the term~~timing of the ~~lease from March 31, 2020~~events, the following information is included in this Form 10-Q pursuant to ~~March 31, 2023. The foregoing description is qualified in its entirety by reference to the full text~~Item 5.02 “Departure of ~~the Amendment, a copy~~Directors or Certain Officers; Election of ~~which is filed as Exhibit 10.1 to this Quarterly Report on Form10-Q~~Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers,” Item 5.08 “Shareholder Director Nominations,” and ~~incorporated herein by reference. The entry into the Amendment is being disclosed under this Part II,~~ Item ~~5(a)~~8.01 “Other Information” of Form~~10-Q~~ 8-K in lieu of ~~Item 1.01~~filing a Form 8-K.

Bonus Awards

On May 7, 2020, the Compensation Committee and the Company’s Board of ~~Form8-K.~~Directors approved bonus payments to the Company’s officers attributable to performance for the year ended December 31, 2019, as follows: Michael Klein, Chief Executive Officer, was awarded $95,370, with $71,527 of such amount to be paid in stock options granted on May 7, 2020; Stacey Stevens, President, was awarded $163,519, with $122,639 of such amount to be paid in stock options granted on May 7, 2020; R. Scott Areglado, Chief Financial Officer, was awarded $94,500, with $70,875 of such amount to be paid in stock options granted on May 7, 2020; and Jonathan Go, Chief Technology Officer was awarded $135,000, with $101,250 of such amount to be paid in stock options granted on May 7, 2020. In addition, on May 7, 2020, the Compensation Committee and the Company’s Board of Directors approved an additional bonus payment to Michael Klein, the Company’s Chief Executive Officer, for his performance during 2020, in the form of a cash bonus of $32,408 and options to purchase up to 18,373 shares of the Company’s common stock. All options are immediately exercisable at an exercise price of $12.84 per share.

Scheduling of Annual Meeting; Stockholder Proposals and Nominations

On May 7, 2020, the Company scheduled its 2020 annual meeting of stockholders (the “2020 Annual Meeting”) to be held virtually via the internet, on June 26, 2020. The Company has established April 29, 2020, as the record date for determining stockholders entitled to notice of, and to vote at, the 2020 Annual Meeting.

Because the date of the 2020 Annual Meeting will be more than 30 days from the anniversary of the Company’s 2019 annual meeting of stockholders, the deadline for submission of proposals by stockholders for inclusion in the Company’s proxy materials in accordance with Rule 14a-8 under the Exchange Act, will be the close of business on May 21, 2020, which the Company has determined to be a reasonable time before it expects to begin to print and distribute its proxy materials prior to the 2020 Annual Meeting. Any such proposal must also meet the requirements set forth in the rules and regulations of the Exchange Act and the Company’s Amended and Restated Bylaws (the “Bylaws”) in order to be eligible for inclusion in the proxy materials for the 2020 Annual Meeting.

In accordance with the Bylaws, any stockholder who wishes to nominate a person for election as a director or submit a proposal for inclusion at the 2020 Annual Meeting must provide written notice (“Stockholder Notice”) on or before May 21, 2020. Any Stockholder Notice must comply with the specific requirements set forth in the Bylaws in order to be considered at the 2020 Annual Meeting. Any such proposal must be mailed to the Nominating and Corporate Governance Committee, c/o Corporate Secretary, iCAD, Inc., 98 Spit Brook, Suite 100, Nashua, NH 03062, and received by May 21, 2020.

~~Item 6.~~

Item 6. Exhibits


Exhibit No.		Description

10.1		~~Second Amendment to Lease~~Employment Agreement, dated as of ~~August 12, 2019,~~January 13, 2020, between ~~The Irvine Company LLC~~iCAD, Inc. and ~~iCAD, Inc.~~Michael Klein (incorporated by reference to Exhibit 10.1 to the Current Report on Form8-K filed with the SEC on January 17, 2020).

~~31.1~~10.2		Equity Distribution Agreement, dated as of March 30, 2020, by and between iCAD, Inc. and JMP Securities LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form8-K filed with the SEC on March 31, 2020).

10.3†		Loan and Security Agreement, dated as of March 30, 2020, by and between Western Alliance Bank, iCAD, Inc., Xoft, Inc. and Xoft Solutions LLC (incorporate by reference to Exhibit 10.2 to the Current Report on Form8-K filed with the SEC on March 31, 2020).

10.4		Form of Securities Purchase Agreement, dated as of April 23, 2020, between iCAD, Inc. and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Current Report on Form8-K filed with the SEC on April 27, 2020).

31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the ~~Sarbanes- Oxley~~Sarbanes-Oxley Act of 2002.

~~31.2~~31.2*		Certification of ~~Chief~~Principal Financial Officer pursuant to Section 302 of the ~~Sarbanes- Oxley~~Sarbanes-Oxley Act of 2002.

~~32.1~~32.1**		Certification of Principal Executive Officer pursuant to Section 906 of the ~~Sarbanes- Oxley~~Sarbanes-Oxley Act of 2002.

~~32.2~~32.2**		Certification of ~~Chief~~Principal Financial Officer pursuant to Section 906 of the ~~Sarbanes- Oxley~~Sarbanes-Oxley Act of 2002.

~~101~~101*		The following materials formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, (ii) Condensed Consolidated Statements of Operations for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iii) Condensed Consolidated Statements of Cash Flows for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and (iv) Notes to Consolidated Financial Statements.

*	Filed herewith

**	Furnished herewith

†	Portions of this exhibit, marked by brackets, have been omitted pursuant to Item 601(b)(10)(iv) of RegulationS-K under the Securities Act of 1933, as amended, because they are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date:	~~August 13, 2019~~ May 11, 2020	By:	/s/ Michael Klein

		Name:	Michael Klein
		Title:	Chief Executive Officer
			~~Name:~~	~~Michael Klein~~ (Principal Executive Officer)
			~~Title:~~	~~Chief Executive Officer~~

Date:	~~August 13, 2019~~ May 11, 2020		By:	/s/ R. Scott Areglado
		Name:	~~Name:~~ R. Scott Areglado
	~~R. Scott Areglado~~	Title:	Chief Financial Officer
			~~Title:~~	~~Chief~~(Principal Financial ~~Officer~~ Officer)


	Common Stock				Additional
	Number of Shares Issued		Par Value		Paid-in Capital			Accumulated Deficit			Treasury Stock			Stockholders’ Equity
Balance at December 31, 2018		17,066,510	$	171	$	218,914		$	(210,774	)	$	(1,415	)	$	6,896

Issuance of common stock relative to vesting of restricted stock shares forfeited for tax obligations		71,122		1		(14	)		—			—			(13	)
Issuance of common stock pursuant to stock option plans		428,313		4		1,391			—			—			1,395
Stock Issuance Net		1,881,818		18		9,334									9,352
Stock-based compensation		—		—		516			—			—			516
Net loss		—		—		—			(7,247	)		—			(7,247	)

Balance at June 30, 2019		19,447,763	$	194	$	230,141		$	(218,021	)	$	(1,415	)	$	10,899


	Three months ended June 30, 2019
	Reportable Segments
	Detection		Therapy		Total
Major Goods/Service Lines
Products	$	3,808	$	1,050	$	4,858
Service contracts		1,354		475		1,829
Supply and source usage agreements		—		526		526
Professional services		—		8		8
Other		47		61		108

	$	5,209	$	2,120	$	7,329

Timing of Revenue Recognition
Goods transferred at a point in time	$	3,808	$	1,144	$	4,952
Services transferred over time		1,401		976		2,377

	$	5,209	$	2,120	$	7,329

Sales Channels
Direct sales force	$	2,863	$	1,701	$	4,564
OEM partners		2,346		—		2,346
Channel partners		—		419		419

	$	5,209	$	2,120	$	7,329


	Three months ended June 30, 2018
	Reportable Segments
	Detection		Therapy		Total
Major Goods/Service Lines
Products	$	2,486	$	1,176	$	3,662
Service contracts		1,310		347		1,657
Supply and source usage agreements		—		558		558
Professional services		—		50		50
Other		55		41		96

	$	3,851	$	2,172	$	6,023

Timing of Revenue Recognition
Goods transferred at a point in time		2,486		1,199	$	3,685
Services transferred over time		1,365		973		2,338

	$	3,851	$	2,172	$	6,023

Sales Channels
Direct sales force	$	2,114	$	1,917	$	4,031
OEM partners		1,737		—		1,737
Channel partners		—		255		255

	$	3,851	$	2,172	$	6,023


	Balance at June 30, 2019
Receivables, which are included in ‘Trade accounts receivable’	$	6,771
Contract assets, which are included in “Prepaid and other current assets”		91
Contract liabilities, which are included in “Deferred revenue”		5,572


	June 30, 2019			December 31, 2018
Principal Amount of Term Loan	$	5,200		$	6,000
Unamortized closing costs		(44	)		(57	)
Accrued Final Payment		227			162

Carrying amount of Term Loan		5,383			6,105

Less current portion of Term Loan		(2,250	)		(1,851	)

Notes payable long-term portion	$	3,133		$	4,254


Year Ended December 31:	Operating Leases			Finance Leases			Total
2019 (remaining period of year)	$	413		$	8		$	421
2020		212			11			223
2021		7			—			7

Total lease payments		632			19			651
Less: imputed interest		(14	)		(1	)		(15	)

Total lease liabilities		618			18			636
Less: current portion of lease liabilities		(603	)		(15	)		(618	)

Long-term lease liabilities	$	15		$	3		$	18


Selected Balance Sheet	Balance at December 31, 2018			Adjustments Due to ASC 842			Balance at January 1, 2018
Assets
Operating lease assets	$	—		$	907		$	907
Liabilities
Deferred rent, current portion (within accrued expenses)		92			(92	)		—
Deferred rent, long-term portion (within other long-term liabilities)		27	��		(27	)		—
Lease payable—current portion		15			780			795
Lease payable, long-term portion		38			179			217


	As of June 30, 2019
Selected Balance Sheet	As Reported		Balances without Adoption of ASC 842		Effect of Change Increase (Decrease)
Assets
Operating lease assets	$	552	$	—	$	552
Liabilities
Lease payable—current portion		618		15		603
Lease payable, long-term portion		18		8		10


	Six months ended June 30, 2019
Balance, December 31, 2018	$	6,970
Fair value adjustment		4,440

Balance, June 30, 2019	$	11,410

Large Accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company