Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-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, 2020March 31, 2021
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
to
        
Commission file number
001-09341
 
 
iCAD, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
02-0377419
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
98 Spit Brook Road, Suite 100, Nashua, 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, $0.01 par value
 
ICAD
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.    YES  ☒    NO  ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES  ☒    NO  ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, 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 Rule
12b-2
of the Exchange Act.
 
Large Accelerated filer ☐  Accelerated filer ☒☐
Non-accelerated
filer		 ☐☒  Smaller reporting company ☒
 
  Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.Act  ☐.
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act)    YES  ☐    NO  ☒.
As of the close of business on August 1, 2020
April 30, 2021
,
there were 22,900,592
24,983,491 shares outstanding of the registrant’s Common Stock, $0.01 par value.
 
 
 
Table of Contents
iCAD, Inc.
INDEX
 
     Page 
PART I
 
FINANCIAL INFORMATION
  
Item 1
 
Financial Statements (unaudited)
  
 
Condensed Consolidated Balance Sheets as of June 30, 2020March 31, 2021 (unaudited) and December 31, 20192020
   3 
 
Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30,March 31, 2021 and March 31, 2020 and June 30, 2019
   4 
 
Condensed Consolidated Statements of Cash Flows (unaudited) for the sixthree months ended June 30,March 31, 2021 and March 31, 2020 and June 30, 2019
   5 
 
Consolidated Statements of Stockholders’ Equity (unaudited) for the sixthree months ended June 30,March 31, 2021 and March 31, 2020 and June 30, 2019
   6 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
   87 
Item 2
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   3530 
Item 3
 
Quantitative and Qualitative Disclosures about Market Risk
   5140 
Item 4
 
Controls and Procedures
   5140 
PART II
 
OTHER INFORMATION
  41
Item 1
 
Legal Proceedings
   5241 
Item 1A
 
Risk Factors
   5342 
Item 6
 
Exhibits
   5543 
 
Signatures
   5644 
 
2
Table of Contents
iCAD, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands except for share data)
 
   
June 30,
  
December 31,
 
Assets
  
2020
  
2019
 
Current assets:
   
Cash and cash equivalents
  $24,225  $15,313 
Trade accounts receivable, net of allowance for doubtful accounts of $255 in 2020 and $136 in 2019
   6,658   9,819 
Inventory, net
   3,348   2,611 
Prepaid expenses and other current assets
   1,452   1,453 
  
 
 
  
 
 
 
Total current assets
   35,683   29,196 
  
 
 
  
 
 
 
Property and equipment, net of accumulated depreciation of $6,652 in 2020 and $6,510 in 2019
   590   551 
Operating lease assets
   2,131   2,406 
Other assets
   110   50 
Intangible assets, net of accumulated amortization of $8,338 in 2020 and $8,186 in 2019
   1,037   1,183 
Goodwill
   8,362   8,362 
  
 
 
  
 
 
 
Total assets
  $47,913  $41,748 
  
 
 
  
 
 
 
Liabilities and Stockholders’ Equity   
Current liabilities:
   
Accounts payable
  $1,421  $1,990 
Accrued and other expenses
   5,085   6,590 
Notes payable - current portion
   —     4,250 
Lease payable - current portion
   813   758 
Deferred revenue
   5,466   5,248 
  
 
 
  
 
 
 
Total current liabilities
   12,785   18,836 
  
 
 
  
 
 
 
Lease payable, long-term portion
   1,497   1,837 
Notes payable, long-term portion
   6,937   2,003 
Convertible debentures payable to
non-related
parties, at fair value
   —     12,409 
Convertible debentures payable to related parties, at fair value
   —     1,233 
Deferred revenue, long-term portion
   198   356 
Deferred tax
   4   3 
  
 
 
  
 
 
 
Total liabilities
   21,421   36,677 
  
 
 
  
 
 
 
Commitments and Contingencies (Note 7)
   
Stockholders’ equity:
   
Preferred stock, $0.01 par value: authorized 1,000,000 shares; NaN issued.
  —    —   
Common stock, $0.01 par value: authorized 30,000,000 shares; issued 23,060,272
as of June 30, 2020 and
19,546,151
as of December 31, 2019. Outstanding
22,874,441
as of June 30, 2020 and
19,360,320
as of December 31, 2019.
   231   195 
Additional
paid-in
capital
   266,211   230,615 
Accumulated deficit
   (238,535)   (224,324) 
Treasury stock at cost, 185,831 shares in 2020 and 2019
   (1,415)   (1,415) 
  
 
 
  
 
 
 
Total stockholders’ equity
   26,492   5,071 
  
 
 
  
 
 
 
Total liabilities and stockholders’ equity
  $47,913  $41,748 
  
 
 
  
 
 
 
   
March 31,
  
December 31,
 
   
2021
  
2020
 
Assets         
Current assets:
         
Cash and cash equivalents
  $46,907  $27,186 
Trade accounts receivable, net of allowance for doubtful accounts of $111 in 2021 and $111 in 2020
   10,649   10,027 
Inventory, net
   2,498   3,144 
Prepaid expenses and other current assets
   2,188   1,945 
          
Total current assets
   62,242   42,302 
          
Property and equipment, net of accumulated depreciation of $6,854 in 2021 and $6,778 in 2020
 �� 930   744 
Operating lease assets
   1,565   1,758 
Other assets
   1,564   1,527 
Intangible assets, net of accumulated amortization of $8,552 in 2021 and $8,494 in 2020
   831   889 
Goodwill
   8,362   8,362 
          
Total assets
  $75,494  $55,582 
          
Liabilities and Stockholders’ Equity         
Current liabilities:
         
Accounts payable
  $1,251  $2,869 
Accrued and other expenses
   5,819   7,039 
Notes payable - current portion
   269   0   
Lease payable - current portion
   847   726 
Deferred revenue
   5,957   6,117 
          
Total current liabilities
   14,143   16,751 
          
Lease payable, long-term portion
   860   1,075 
Notes payable, long-term portion
   6,703   6,960 
Deferred revenue, long-term portion
   420   267 
Deferred tax
   4   4 
          
Total liabilities
   22,130   25,057 
          
Commitments and Contingencies (Note 7)
   0   0 
   
Stockholders’ equity:
         
Preferred stock, $0.01 par value: authorized 1,000,000 shares; NaN
 
issued
.
   0—     0—   
Common stock, $0.01 par value: authorized 30,000,000 shares; issued 25,143,432
 a
s of March 31, 2021 and 23,693,735 as of December 31, 2020
.
         
Outstanding 24,957,601 as of March 31, 2021 and 23,508,575 as of December 31, 2020
.
   251   236 
Additional
paid-in
capital
   298,106   273,639 
Accumulated deficit
   (243,578)   (241,935) 
Treasury stock at cost, 185,831 shares in 2021 and 2020
   (1,415)   (1,415) 
          
Total stockholders’ equity
   53,364   30,525 
          
Total liabilities and stockholders’ equity
  $75,494  $55,582 
          
See accompanying notes to condensed consolidated financial statements.
 
3
Table of Contents
iCAD, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands except for per share data)
 
   
Three Months Ended June 30,
  
Six Months Ended June 30,
 
   
2020
  
2019
  
2020
  
2019
 
Revenue:
     
Products
  $2,888  $4,353  $6,683  $8,175 
Service and supplies
   2,679   2,976   5,435   5,927 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total revenue
   5,567   7,329   12,118   14,102 
Cost of revenue:
     
Products
   537   645   1,554   1,325 
Service and supplies
   575   858   1,502   1,575 
Amortization and depreciation
   98   100   195   194 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total cost of revenue
   1,210   1,603   3,251   3,094 
  
 
 
  
 
 
  
 
 
  
 
 
 
Gross profit
   4,357   5,726   8,867   11,008 
  
 
 
  
 
 
  
 
 
  
 
 
 
Operating expenses:
     
Engineering and product development
   1,878   2,139   4,089   4,266 
Marketing and sales
   2,631   3,120   6,239   5,693 
General and administrative
   2,110   1,858   4,642   3,404 
Amortization and depreciation
   49   67   101   137 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
   6,668   7,184   15,071   13,500 
  
 
 
  
 
 
  
 
 
  
 
 
 
Loss from operations
   (2,311)   (1,458)   (6,204)   (2,492) 
Interest expense
   (115)   (202)   (245)   (411) 
Other income
   33   64   75   123 
Loss on extinguishment of debt
   —     —     (341)   —   
Loss on fair value of convertible debentures
   —     (1,915)   (7,464)   (4,440) 
  
 
 
  
 
 
  
 
 
  
 
 
 
Other expense, net
   (82)   (2,053)   (7,975)   (4,728) 
Loss before income tax expense
   (2,393)   (3,511)   (14,179)   (7,220) 
  
 
 
  
 
 
  
 
 
  
 
 
 
Tax expense
   (5)   (19)   (31)   (27) 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net loss and comprehensive loss
  $(2,398)  $(3,530)  $(14,210)  $(7,247) 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net loss per share:
     
Basic
  $(0.11)  $(0.20)  $(0.67)  $(0.42) 
  
 
 
  
 
 
  
 
 
  
 
 
 
Diluted
  $(0.11)  $(0.20)  $(0.67)  $(0.42) 
  
 
 
  
 
 
  
 
 
  
 
 
 
Weighted average number of shares used in computing loss per share:
     
Basic
   22,396   17,640   21,275   17,422 
  
 
 
  
 
 
  
 
 
  
 
 
 
Diluted
   22,396   17,640   21,275   17,422 
  
 
 
  
 
 
  
 
 
  
 
 
 
   
Three Months Ended March 31,
 
   
2021
  
2020
 
Revenue:
         
Products
  $5,557  $3,795 
Service and supplies
   3,087   2,756 
          
Total revenue
   8,644   6,551 
   
Cost of revenue:
         
Products
   1,409   1,017 
Service and supplies
   867   927 
Amortization and depreciation
   79   97 
          
Total cost of revenue
   2,355   2,041 
          
Gross profit
   6,289   4,510 
          
Operating expenses:
         
Engineering and product development
   2,192   2,211 
Marketing and sales
   3,424   3,608 
General and administrative
   2,151   2,532 
Amortization and depreciation
   55   52 
          
Total operating expenses
   7,822   8,403 
          
Loss from operations
   (1,533)   (3,893) 
   
Interest expense
   (112)   (130) 
Other income
   2   42 
Loss on extinguishment of debt
   —   (341) 
Loss on fair value of convertible debentures
   —   (7,464) 
          
Other expense, net
   (110)   (7,893) 
Loss before income tax expense
   (1,643)   (11,786) 
          
Tax expense
   0   (26) 
          
Net loss and comprehensive loss
  $(1,643)  $(11,812) 
          
Net loss per share:
         
Basic
  $(0.07)  $(0.59) 
          
Diluted
  $(0.07)  $(0.59) 
          
Weighted average number of shares used in computing loss per share:
         
Basic
   23,929   20,175 
          
Diluted
   23,929   20,175 
          
See accompanying notes to condensed consolidated financial statements.
 
4
Table of Contents
iCAD, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
   
For the Six Months ended
June 30,
 
   
2020
  
2019
 
   (in thousands) 
Cash flow from operating activities:
   
Net loss
  $(14,210)  $(7,247) 
Adjustments to reconcile net loss to net cash used for operating activities:
       
Amortization
   154   189 
Depreciation
   142   142 
Bad debt provision
   119   31 
Stock-based compensation expense
   2,077   516 
Amortization of debt discount and debt costs
   53   79 
Loss on extinguishment of debt
   341   —   
Deferred tax expense
   1   —   
Change in fair value of convertible debentures
   7,464   4,440 
Changes in operating assets and liabilities:
   
Accounts receivable
   3,201   (399) 
Inventory
   (737)   (671) 
Prepaid and other current assets
   (19)   51 
Accounts payable
   (569)   573 
Accrued expenses
   (1,650)   (184) 
Deferred revenue
   60   76 
  
 
 
  
 
 
 
Total adjustments
   10,637   4,843 
  
 
 
  
 
 
 
Net cash used for operating activities
   (3,573)   (2,404) 
  
 
 
  
 
 
 
Cash flow from investing activities:
   
Additions to patents, technology and other
   (6)   (7) 
Additions to property and equipment
   (180)   (136) 
  
 
 
  
 
 
 
Net cash used for investing activities
   (186)   (143) 
  
 
 
  
 
 
 
Cash flow from financing activities:
   
Stock option exercises
   100   1,395 
Taxes paid related to restricted stock issuance
   —     (12) 
Principal payments of capital lease obligations
   —     (6) 
Principal repayment of debt financing
   (4,638)   (800) 
Repayment of credit line
   (2,000)   —   
Proceeds from debt financing
   6,957   —   
Debt issuance costs
   (37)     
Proceeds from issuance of common stock, net
   12,289   9,352 
  
 
 
  
 
 
 
Net cash provided by financing activities
   12,671   9,929 
  
 
 
  
 
 
 
Decrease in cash and equivalents
   8,912   7,382 
Cash and cash equivalents, beginning of period
   15,313   12,185 
  
 
 
  
 
 
 
Cash and cash equivalents, end of period
  $24,225  $19,567 
  
 
 
  
 
 
 
Supplemental disclosure of cash flow information:
   
Interest paid
  $127  $335 
  
 
 
  
 
 
 
Taxes paid
  $31  $27 
  
 
 
  
 
 
 
Issuance of stock upon conversion of debentures
   21,164   —   
  
 
 
  
 
 
 
Right-of-use
assets obtained in exchange for new operating lease liabilities
  $69  $907 
  
 
 
  
 
 
 
   
For the three months ended
March 31,
 
   
2021
  
2020
 
   (in thousands) 
Cash flow from operating activities:
         
Net loss
  $(1,643)  $(11,812) 
Adjustments to reconcile net loss to net cash used for operating activities:
         
Amortization 
   58   78 
Depreciation
   76   71 
Bad debt provision
   —     119 
Stock-based compensation
   935   464 
Amortization of debt discount and debt costs
   12   40 
Loss on extinguishment of debt
   —     341 
Deferred tax expense
   —     1 
Change in fair value of convertible debentures
   —     7,464 
Changes in operating assets and liabilities:
         
Accounts receivable
   (622)   2,610 
Inventory
   647   149 
Prepaid and other assets
   (89)   (72) 
Accounts payable
   (1,617)   (317) 
Accrued expenses
   (1,313)   (439) 
Deferred revenue
   (7)   (113) 
          
Total adjustments
   (1,920)   10,396 
          
Net cash used for operating activities
   (3,563)   (1,416) 
          
Cash flow from investing activities:
         
Additions to patents, technology and other
   —     (1) 
Additions to property and equipment
   (262)   (155) 
          
Net cash used for investing activities
   (262)   (156) 
          
Cash flow from financing activities:
         
Issuance of common stock pursuant to stock option plans
   270   196 
Issuance of common stock pursuant to Employee Stock Purchase Plan
   47   —   
Proceeds from issuance of common stock, net
   23,229   —   
Principal repayment of debt financing
   —     (4,638) 
Repayment on line of credit
   —     (2,000) 
Proceeds from notes payable
   —     7,000 
Debt issuance costs
   —     (43) 
          
Net cash provided by financing activities
   23,546   515 
          
Increase
(decrease
)
in cash and equivalents
   19,721   (1,057) 
Cash and cash equivalents, beginning of period
   27,186   15,313 
          
Cash and cash equivalents, end of period
  $46,907  $14,256 
          
Supplemental disclosure of cash flow information:
         
Interest paid
  $92  $122 
          
Taxes paid
  $—    $26 
          
Issuance of common stock upon conversion of debentures
   —     21,164 
          
Right-of-use
assets obtained in exchange for new operating lease liabilities
  $—    $69 
          
See accompanying notes to condensed consolidated financial statements.
 
5
Table of Contents
Consolidated Statements of Stockholders’ Equity Year to Date
(In 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 December 31, 2019
 $19,546,151   196  $230,615  $(224,325)  $(1,415)  $5,071 
   
Shares Issued
   
Par Value
   
Capital
   
Deficit
 
Stock
  
Equity
 
Balance at December 31, 2020
   23,694,406   $236   $273,639   $(241,935)  (1,415)  $30,525 
Issuance of common stock relative to vesting of restricted stock
  68,724   —   (131)       (131)    20,000    —      —      —     —     —   
 
Issuance of common stock, net
   1,393,738    14    23,215    —     —     23,229 
Issuance of common stock pursuant to stock option plans
  44,966   1   231       232    28,934    1    270    —     —     271 
 
Stock Issuance
Net
  1,580,965   16   12,273   —     —     12,289 
Issuance of stock upon conversion of Debentures
  1,819,466   18   21,146   —     —     21,164 
 
Issuance of common stock pursuant Employee Stock Purchase Plan
   6,354    —      47    —     —     47 
Stock-based compensation
      2,077       2,077    —      —      935    —     —     935 
Net loss
        (14,210)     (14,210)    —      —      —      (1,643)   —      (1,643) 
 
 
  
 
  
 
  
 
  
 
  
 
 
Balance at June 30, 2020
 $23,060,272  $231  $266,211  $(238,535)  $(1,415)  $26,492 
  
 
   
 
   
 
  
 
  
 
  
 
 
Balance at March 31, 2021
   25,143,432   $251   $298,106   $(243,578)  $(1,415)  $53,364 
Consolidated Statements of Stockholders’ Equity Quarter to Date
(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, 2020
  21,425,916  $215  $252,420  $(236,137)  $(1,415)$  $15,083 
      
Issuance of common stock relative to vesting of restricted stock
  45,224   —   (131)           (131) 
Issuance of common stock pursuant to stock option plans
  8,167   —   36     36 
Stock Issuance
 Net
  1,580,965   16   12,273           12,289 
      
Stock-based compensation
         1,613           1,613 
      
Net loss
             (2,398)       (2,398) 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at June 30, 2020
  23,060,272  $231  $266,211  $(238,535)  $(1,415)  $26,492 
 
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
   
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   $230,615   $(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 upon conversion of 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   $252,420   $(236,137)  $(1,415)  
$
15,083 
 
6
Table of Contents
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, 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 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
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, 2019
   17,500,265   $175   $220,296  $(214,491)  $(1,415)  $4,565 
Issuance of common stock relative to vesting of restricted stock shares forfeited for tax obligations
   4,788    —      (13)   —     —     (13) 
  
Issuance of common stock pursuant to stock option plans
   60,892    1    220   —     —     221 
    
Stock Issuance Net
   1,881,818    18    9,334     9,352 
    
Stock-based compensation
   —      —      304   —     —     304 
    
Net loss
   —      —      —     (3,530)   —     (3,530) 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
Balance at June 30, 2019
   19,447,763    194   $230,141  $(218,021)  $(1,415)  $10,899 
  
 
 
   
 
 
   
 
 
  
 
 
  
 
 
  
 
 
 
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Table of Contents
Notes to Condensed Consolidated Financial Statements:
Note 1 – Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of iCAD, Inc. and its subsidiaries (“iCAD”(together “iCAD” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). In the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company at June 30, 2020,March 31, 2021, the results of operations of the Company for the three and
six-month
-month periods ended June 30,March 31, 2021 and 2020, and 2019, cash flows of the Company for the
six-month
three-month periods ended June 30,March 31, 2021 and 2020, and 2019 and stockholders’ equity for the Company for the three and
six-month
three-month periods ended June 30, 2020March 31, 2021 and 2019.2020.
Although the Company believes that the disclosures made in these interim financial statements are adequate to make the information presented not misleading, certain information normally included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”(the “SEC”). The accompanying interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form
10-K
for the fiscal year ended December 31, 20192020 filed with the SEC on March 11, 2020.15, 2020, as amended on April 30, 2021. The results for the three and
six-month
periods-month period ended June 30, 2020March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020,2021, or any future period.
Segments
The Company reports the results of 2 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.
Risk and Uncertainty
On March 12, 2020, the World Health Organization declared
COVID-19
to be a pandemic. In an effort to contain and mitigate the spread of the
COVID-19
many countries, includingpandemic, the United States, many countries in Europe, as well as Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reductionreductions in economic activity in countries that have had significant outbreaks of
COVID-19.
As a provider of devices and services to the health care industry, ourthe Company’s operations have been materially affected in part due to
stay-at-home
and social distancing orders as well as uncertainty in the market. Significant uncertainty remains as to the potentialcontinuing impact of the
COVID-19
pandemic on our continuingthe Company’s 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
 
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It is currently not possible to predict the duration of the pandemic or the time needed for economic activity to return to prior levels. The
COVID-19
pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worseningAlthough the United States and other countries have made significant progress related to vaccinating significant portions of their populations, the efficacy of each individual vaccine against the multiple strains of the
COVID-19
virus is unknown. Moreover, a new “wave” of
COVID-19
cases may exacerbate the increased levels of market disruption and volatility seen in the recent past couldwill have an adverse effect on ourthe Company’s ability to access capital, on ourits business, results of operations and financial condition, and on the market price of ourits common stock.
The potential impact of the
COVID-19
pandemic on the Company’s future revenue could affect our ability to access capital in future quarters due to the covenants contained in the Company’s loan agreement with Western Alliance Bank (the “Bank”), as described in Note 4(b). Effective June 16, 2020 the loan agreement requires the Company to satisfy the minimum revenue covenant or maintain a ratio of (x) unrestricted cash at the Bank to (y) the aggregate total of indebtedness owed to the Bank, equal to or greater
than
1.25
to
1.00
. If at any point the Company is not in compliance with at least one of these and certain other covenants and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Loan and Security Agreement, which could result in acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date.
How
ever
,
t
he Company believes that even if an event of 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 of $
24.2 
million and anticipated revenue and cash collections
.
Our results for the quarter ending June 30, 2020March 31, 2021 reflect a negative impact from the
COVID-19
pandemic as the typical sales cycle and ordering patterns were still disrupted due to some healthcare facilities’ additional focus on
COVID-19.
Although we dothe Company does not provide guidance to investors relating to ourits future results of operations, ourits results for the quarter ending SeptemberJune 30, 2020,2021, and possibly future quarters, could reflect a continued negative impact from the
COVID-19
pandemic for similar reasons. Depending upon theThe duration and severity of the pandemic is unknown, and so the continuingcontinued effect on ourthe Company’s results over the long term is uncertain.
Although the Company did not seeexperience any material impact to trade accounts receivable losses in the quarter ended June 30, 2020,March 31, 2021, the Company’s exposure may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current
COVID-19
pandemic, or other customer-specific factors. Although theThe Company has not historically not experienced significant trade account receivable losses, but it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade account receivables as hospitals’ cash flows are impacted by their response to the
COVID-19
pandemic.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. The Company is continuing to analyze the impact of the CARES Act on its business. For the three months ended June 30, 2020, the Company recorded a benefit of $0.3 million from the Employee Retention Credit, a component of the CARES Act. This was reflected in the Company’s statement of operations. 
9
Table of Contents
Recently Adopted Accounting Pronouncements
There are no significant recently adopted accounting pronouncements. For a full list of the Company’s response to all relevant recent accounting pronouncements, please refer to Note 13 below.
8
Table of Contents
Revenue Recognition
Revenue is recognized whenwh
e
n a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these goods or services and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities.
Disaggregation of Revenue
The following tables presents ourthe Company’s revenues disaggregated by major good or service line, timing of revenue recognition, and sales channel, reconciled to ourits reportable segments (in thousands).
 
   
Three months ended June 30, 2020
 
   
Reportable Segments
     
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
      
Products
  $2,702  $575   $3,277 
Service contracts
   1,403   385    1,788 
Supply and source usage agreements
   —     490    490 
Other
   12   —      12 
  
 
 
  
 
 
   
 
 
 
  $4,117  $1,450   $5,567 
  
 
 
  
 
 
   
 
 
 
Timing of Revenue Recognition
     
Goods transferred at a point in time
  $2,714  $605   $3,319 
Services transferred over time
   1,403   845    2,248 
  
 
 
  
 
 
   
 
 
 
  $4,117  $1,450   $5,567 
  
 
 
  
 
 
   
 
 
 
Sales Channels
     
Direct sales force
  $2,709  $805   $3,514 
OEM partners
   1,408   —      1,408 
Channel partners
   —     645    645 
  
 
 
  
 
 
   
 
 
 
  $4,117  $1,450   $5,567 
  
 
 
   
 
 
   
 
 
 
   
Three months ended March 31, 2021
 
   
Reportable Segments
 
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
               
Products
  $4,161   $2,103   $6,264 
Service contracts
   1,558    340    1,898 
Supply and source usage agreements
   —      481    481 
Professional services
   —      1    1 
                
   $5,719   $2,925   $8,644 
Timing of Revenue Recognition
               
Goods transferred at a point in time
  $4,161   $2,104   $6,265 
Services transferred over time
   1,558    821    2,379 
                
   $5,719   $2,925   $8,644 
Sales Channels
               
Direct sales force
  $3,875   $674   $4,549 
OEM partners  
   1,844    —      1,844 
Channel partners
   —      2,251    2,251 
                
   $5,719   $2,925   $8,644 
 
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Six months ended June 30, 2020
 
   
Reportable Segments
     
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
      
Products
  $ 5,802   $1,921   $7,723 
Service contracts
   2,750    732    3,482 
Supply and source usage agreements
   —      861    861 
Professional services
   —      11    11 
Other
   41    —      41 
  
 
 
   
 
 
   
 
 
 
  $8,593   $3,525   $12,118 
  
 
 
   
 
 
   
 
 
 
Timing of Revenue Recognition
      
Goods transferred at a point in time
  $5,843   $1,988   $7,831 
Services transferred over time
   2,750    1,537    4,287 
  
 
 
   
 
 
   
 
 
 
  $8,593   $3,525   $12,118 
  
 
 
   
 
 
   
 
 
 
Sales Channels
      
Direct sales force
  $4,881   $2,274   $7,155 
OEM partners
   3,712    —      3,712 
Channel partners
   —      1,251    1,251 
  
 
 
   
 
 
   
 
 
 
  $8,593   $3,525   $12,118
  
 
  
 
 
 
  
 
 
 
  
 
 
 
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Three months ended March 31, 2020
 
   
Reportable Segments
 
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
               
Products
  $3,100   $1,346   $4,446 
Service contracts
   1,347    347    1,694 
Supply and source usage agreements
   —      371    371 
Professional services
   —      11    11 
Other
   29    0      29 
                
   $4,476   $2,075   $6,551 
Timing of Revenue Recognition
               
Goods transferred at a point in time
  $3,129   $1,383   $4,512 
Services transferred over time
   1,347    692    2,039 
                
   $4,476   $2,075   $6,551 
Sales Channels
               
Direct sales force
  $2,172   $1,469   $3,641 
OEM partners
   2,304    —      2,304 
Channel partners
   —      606    606 
                
   $4,476   $2,075   $6,551 
 
   
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 
  
 
 
   
 
 
   
 
 
 
10
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Six months ended June 30, 2019
 
   
Reportable Segments
     
   
Detection
   
Therapy
   
Total
 
Major Goods/Service Lines
      
Products
  $6,598   $2,569   $9,167 
Service contracts
   2,676    991    3,667 
Supply and source usage agreements
   —      1,063    1,063 
Professional services
   —      41    41 
Other
   103    61    164 
  
 
 
   
 
 
   
 
 
 
  $ 9,377   $4,725   $14,102 
  
 
 
   
 
 
   
 
 
 
Timing of Revenue Recognition
      
Goods transferred at a point in time
  $6,598   $2,776   $9,374 
Services transferred over time
   2,779    1,949    4,728 
  
 
 
   
 
 
   
 
 
 
  $9,377   $4,725   $14,102 
  
 
 
   
 
 
   
 
 
 
Sales Channels
      
Direct sales force
  $4,974   $3,513   $8,487 
OEM partners
   4,403    —      4,403 
Channel partners
   —      1,212    1,212 
  
 
 
   
 
 
   
 
 
 
  $9,377   $ 4,725   $14,102 
  
 
 
   
 
 
   
 
 
 
Products.
Product revenue consists of sales of cancer detection products, cancer therapy systems, cancer therapy applicators (including disposable applicators) and other accessories that are typically shipped with a cancer therapy system. The Company transfers control and recognizes a sale when the product is shipped from the manufacturing or warehousing facility to the customer.
Service Contracts.
The Company sells service contracts in which it provides professional services, including product installations, maintenance, training, and service repairs, and in certain cases leases equipment, to hospitals, imaging centers, radiology practices, radiation oncologists and treatment centers. These contracts represent separate performance obligations to the Company. The Company allocates revenue to each performance obligation based on the Standalone Selling Price (“SSP”). Revenue for lease and
non-lease
components, or the entire arrangement when accounted for under ASC 606, “Revenue from Contracts with Customers” (“ASC 606”), is recognized on a straight-line basis over 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.
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Table of Contents
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 product is shipped from the manufacturing or warehousing facility to the customer.customer or the installation services are performed.
Contract Balances
Contract liabilities are a component of deferred revenue, andcurrent contract assets are a component of prepaid and other currentassets and
non-current
contract assets are a component of other assets. The following table provides information about receivables, current and
non-current
contract assets, and contract liabilities from contracts with customers (in thousands).
Contract balances
 
Balance at
June 30, 2020
Receivables, which are included in ‘Trade accounts receivable’
$ 6,658
Contract assets, which are included in “Prepaid and other current assets”
21
Contract liabilities, which are included in “Deferred revenue”
5,664
  
Balance at

March 31, 2021
  
Balance at

December 31, 2020
 
Receivables, which are included in ‘Trade accounts receivable’
 $10,649  $10,027 
Current contract assets, which are included in “Prepaid and other assets”
  701   481 
Non-current
contract assets, which are included in “other assets”
  1,478   1,434 
Contract liabilities, which are included in “Deferred revenue”
  6,377   6,384 
Timing of revenue recognition may differ from timing of invoicing toof customers. The Company records a receivable when revenue is recognized prior to receipt of cash payment and the Company has the unconditional right to such consideration, or unearned revenue when cash payments are received or due in advance of performance. For multi-year agreements, the Company generally invoices customers annually at the beginning of each annual service period.
The Company’s accounts receivable from contracts with customers, net of allowance for doubtful accounts, was $6.7$10.6 million and $9.8$10.0 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
The Company will recordrecords net contract assets or contract liabilities on a
contract-by-contract
basis. The Company records a contract asset for unbilled revenue when the Company’s performance is in excess of amounts billed or billable. The Company has classifiedclassifies the net contract asset as either a current or
non-current
based on the expected timing of the Company’s right to bill under the terms of the contract. The current contract asset balance as a component of prepaid expenses and other current assets as of June 30, 2020 and December 31, 2019.primarily relates to the net unbilled revenue balances with two significant customers, which the Company expects to be able to bill for within one year. The
non-current
contract asset balance was $21,000 asconsists of June 30, 2020 and $14,000 as of December 31, 2019.net unbilled revenue balances with one customer which the Company expects to be able to bill for in more than one year.
11
Deferred
Table of Contents
Contract liabilities, or deferred revenue from contracts with customers, which is included in deferred revenue in the consolidated balance sheet, 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 havethe Company has been paid in advance and earn the revenue when we transferit transfers control of the product or service. The balance of deferred revenue at March 31, 2021 and December 31, 2020 is as follows (in thousands):
 
Contract liabilities
  
March 31, 2021
   
December 31, 2020
 
Short term
  $5,957   $6,117 
Long term
   420    267 
           
Total
  $6,377   $6,384 
           
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The balance of deferred revenue at June30, 2020 and December 31, 2019 is as follows (in thousands):
Contract liabilities
  
June 30, 2020
   
December 31, 2019
 
Short term
  $ 5,466   $ 5,248 
Long term
   198    356 
  
 
 
   
 
 
 
Total
  $5,664   $5,604 
  
 
 
   
 
 
 
Changes in deferred revenue from contracts with customers were as follows (in thousands):
 
   
Six Months Ended
 
   
June 30, 2020
 
Balance at beginning of period
  $5,604 
Deferral of revenue
   5,078 
Recognition of deferred revenue
   (5,018) 
  
 
 
 
Balance at end of period
  $5,664 
  
 
 
 
   
Three Months

Ended March 31,

2021
 
Balance at beginning of period
  $6,384 
Deferral of revenue
   3,259 
Recognition of deferred revenue
   (3,266) 
      
Balance at end of period
  $6,377 
      
We expect to recognize approximately $4.5 million of the deferred amount in 2020, $1.0 million in 2021, and $0.2 million thereafter.
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
 
   
March 31,
 
   
2021
   
2020
 
Net loss
  
$
(1,643
) 
  
$
(11,812
) 
           
Shares used in the calculation of basic and diluted net loss per share
   23,929    20,175 
           
Diluted shares used in the calculation of net loss per share
   23,929    20,175 
           
Net loss per share - basic and diluted
  $(0.07)   $(0.59) 
           
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Table of Contents
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Net loss
  
$
 (2,398
) 
  
$
 (3,530
) 
  
$
 (14,210
) 
  
$
 (7,247
) 
  
 
 
   
 
 
   
 
 
   
 
 
 
Shares used in the calculation of basic and diluted net loss per share
   22,396    17,640    21,275    17,422 
  
 
 
   
 
 
   
 
 
   
 
 
 
Diluted shares used in the calculation of net loss per share
   22,396    17,640    21,275    17,422 
  
 
 
   
 
 
   
 
 
   
 
 
 
Net loss per share - basic and diluted
  $(0.11)   $(0.20)   $(0.67)   $(0.42) 
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
 
   
June 30,
 
   
2020
   
2019
 
Stock options
   2,006,221    1,519,713 
Restricted stock
   70,992    262,732 
Convertible Debentures
   —      1,742,500 
  
 
 
   
 
 
 
Total
   2,077,213    3,524,945 
  
 
 
   
 
 
 
   
As of
 
   
March 31,
 
   
2021
   
2020
 
Stock options
   2,246,776    1,747,363 
Restricted stock
   31,654    74,492 
           
Total
   2,278,430    1,821,855 
           
Note 3 – Inventory
Inventory is valued at the lower of cost or net realizable value, with cost determined by the
first-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. InventoriesInventory consisted of the following (in thousands) and includeincludes an inventory reserve of approximately $0.2 million and $0.5 million as of June 30, 2020for both periods ended March 31, 2021 and December 31, 2019, respectively.2020.
 
   
As of June 30,

2020
   
As of December 31,

2019
 
Raw materials
  $ 1,734   $ 1,572 
Work in process
   159    39 
Finished Goods
   1,675    1,469 
  
 
 
   
 
 
 
Inventory Gross
   3,568    3,080 
Inventory Reserve
   (220)    (469) 
  
 
 
   
 
 
 
Inventory Net
  $3,348   $2,611 
  
 
 
   
 
 
 
16
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March 31, 2021
   
December 31, 2020
 
Raw materials
  $1,305   $1,538 
Work in process
   194    76 
Finished Goods
   1,238    1,774 
           
Inventory Gross
   2,737    3,388 
Inventory Reserve
   (239)    (244) 
           
Inventory Net
  $2,498   $3,144 
           
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Note 4 – Financing Arrangements
(a)
(a) Loan and Security Agreement – Western Alliance Bank
On March 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with theWestern Alliance Bank (the “Bank”) that provided an initial term loan (“Term Loan”) facility
of $7.0 million and a $5.0 million revolving line of credit.
The Loan Agreement was amended effective June 16, 2020 (as amended, the “Loan Agreement”).2020. The Loan Agreement, as amended, requires the Company to either (i) meet a minimum revenue covenant based on certain testing periods (to be agreed upon and set in good faith by the Company and the Bank) or (ii) maintain a ratio of unrestricted cash at the bankBank to aggregate indebtedness owed to the Bank of at least 1.25 to 1.00. The1.00 (the “Unrestricted Cash Covenant”). In accordance with the amendment, the Company and the Bank agreed that if there is not
a
minimum
revenue covenant in place, the Company shall, at all times, be required to comply with the Unrestricted Cash Covenant. As of March 31, 2021, the Company was compliantin compliance with these covenants as of June 30, 2020, but cannot provide any assurance as to its future compliance due to, in part, the uncertainty of the effect of the
Unrestricted Cash Covenant
COVID-19
pandemic on the world economy and the U.S. health system..
If at any point the Company is not in compliance with certain covenants under the Loan Agreement and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date. The Company was required, periodically in the past, to seek modifications from its prior lender to avoid
non-compliance
with its earlier covenants.
Interest in arrears on the Term Loan began to be repaid on April 1, 2020 and will continue to be paid on the first of each successive month thereafter until the principal repayment starts. Commencing on the principal repayment date 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 shallwill make equal monthly payments of principal, together with applicable interest in arrears, to the Bank. The interest rate is set at
1
%
1% above
the Prime Rate. Prime Rate, which is defined in the Loan Agreement as the greater of four and a quarter
 percent
(4.25%)
4.25% or the Prime Rate published in the Money Rates section of the Western Edition of the Wall Street Journal. The Prime Rate as of June 30,March 31, 2020 was
3.25
%
3.25%.
The Company has the option to prepay all, but not less than all, of the Term Loan advanced by the Bank under the Loan Agreement. The Company prepayment is subject to payment of (1) all outstanding principal of the Term Loan plus accrued and unpaid interest thereon through the prepayment date, (2) the final payment
 (
$
($122,500
or
1.75% of the original loan amount), (3) the prepayment fee
(
3
%
a 2% of
principal balance if prepaid prior to first March 30, 2021,
2
%
if principal of prepaid after March 30, 2021 but before June 30, 2022, or 1% of principal if prepaid after March 30, 2022) plus (4) all other obligations that are due and payable, including the Bank’s expenses and interest at the default rate with respect to any past due amounts.
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Table of Contents
The Company did not draw against its revolving line of credit as of June 30, 2020. The interest rate on such borrowings, if the Company were to take an advance, is three quarters-percent (0.75%) above the Prime Rate as defined above.
Obligations to the Bank under the Loan Agreement are secured by a first priority security interest in the Company’s assets, except for certain permitted liens that have priority to the Bank’s security interest by operation of law.
In connection with the Loan Agreement, the Company incurred approximately $141,000 of closing costs. The closing costs have been deduced from the carrying value of the debt and will be amortized through March 30, 2022, the maturity date of the Term Loan.
The maturity date of the revolving loan is March 30, 2022.2022 and there was no outstanding amount as of March 31, 2021.
On April 27, 2021, the Company repaid its obligations in the aggregate amount of $7,354,283 under and terminated the Loan Agreement with the Bank, and its collateral securing the facility was released.
(b)
(b) 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 several times through November 1, 2019 (as amended, the “SVB Loan Agreement”), with Silicon Valley Bank that provided an initial term loan facility of
$
6.0
$6.0 million and a
$
4.0
$4.0 million revolving line of credit.
On March 30, 2020, the Company elected to repay all outstanding obligations (including accrued interest) and retire the SVB Loan Agreement. The Company accounted for this repayment and retirement as an extinguishment of the SVB Loan Agreement. In addition to the outstanding principal and accrued interest, the Company was required to pay
the
$
510,000
$510,000 final payment, a termination fee of
$
114,000
$114,000 and
other costs totaling $10,000. The Company also wrote off
unamortized
original closing costs as of the extinguishment date. The
In
M
arch
2020 the
Company recorded a loss on extinguishment of approximately $341,000 related to the repayment and retirement of the SVB Loan Agreement. The loss on extinguishment was composed of approximately $185,000 for the
unaccrued
final payment, $114,000 termination fee, and $42,000 for the
of unamortized
and other closing costs.
15
Table of Contents
(c)
(c) Convertible Debentures
On December 20, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional and accredited investors (the “Investors”), including, but not limited to, all directors and executive officers of the Company at the time, (the “Investors”), pursuant to which the Investors purchased unsecured subordinated convertible debentures (the “Convertible Debentures”) with an aggregate principal amount of approximately
$
7.0
$7.0 million in a private placement.
On February 21, 2020 (the “Conversion Date”), the conditions permitting a forced conversion were met, and the Company elected to exercise its forced conversion right under the terms of the Convertible Debentures.
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Table of Contents
As a result of this election, all of the outstanding Convertible Debentures were converted, at a conversion price
of $
4.00
$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,Convertible Debentures, the Company also issued an additional
76,966
shares of the Company’sits 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
.$697,000. The conversion prices related to the make-whole amount were dependent on whether the Investors were related parties or unrelated third parties.
Accounting Considerations and Fair Value Measurements Related to the Convertible Debentures
The Company had previously elected to make
a one-time, irrevocable
election to utilize the fair value option to account for the Convertible Debentures as a single hybrid instrument at its fair value, with changes in fair value from period to period being recorded either in current earnings, or as an element of other comprehensive income (loss), for the portion of the change in fair value determined to relate to the Company’s own credit risk. The Company believed that the election of the fair value option allowed for a more meaningful representation of the total fair value of its obligation under the Convertible Debentures and allowed for a better understanding of how changes in the external market environment and valuation assumptions impact such fair value.
As of the December 31, 2019 valuation and the prior measurement dates, the Company utilized a Monte Carlo simulation model to estimate the fair value of the Convertible Debentures. The simulation model was designed to capture the potential settlement features of the Convertible Debentures, in conjunction with simulated changes in the Company’s stock price and the probability of certain events occurring. The simulation utilized 100,000 trials or simulations to determine the estimated fair value.
The simulation utilized the assumptions that if the Company was able to exercise its Forced Conversionforced conversion right (if the requirements to do so arewere met), that it would do so in 100% of such scenarios. Additionally, if an event of default occurred during the simulated trial (based on the Company’s probability of default), the Investors would opt to redeem the Convertible Debentures in 100% of such scenarios. If neither event occursoccurred during a simulated trial, the simulation assumed that the Investor would hold the Convertible Debentures until the maturity date. The value of the cash flows associated with each potential settlement were discounted to present value in each trial based on either the risk-free rate (for an equity settlement) or the effective discount rate (for a redemption or cash settlement).
The Company also recorded a final adjustment to the Convertible Debentures based on their fair value on the Conversion Date, just prior to the forced conversion being completed. Given that the Company’s prior simulation model included the assumption that the Company would elect to force conversion in 100% of scenarios when the requirements were met, the final valuation was based on the actual results of the forced conversion. As such, the Company based the final fair value adjustment to the Convertible Debentures just prior to conversion on the number of shares of common stock that were issued to the Investors upon conversion and the fair value of the Company’s common stock as of the Conversion Date.
 
19
16
Table of Contents
The Company notes that the key inputs to the valuation models that were utilized to estimate the fair value of the Convertible Debentures included:
 
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 
Input
  
December 31, 2019
  
February 21, 2020
 
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
Probability 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 was based on the closing stock price on the valuation date. The conversion price was 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, 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 public companies.
The risk-free rate was determined based on U.S. Treasury securities with similar terms.
The probability of the occurrence of a default event was based on Bloomberg’s
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 was based on management’s best estimate of both features being exercised upon the occurrence of the related contingent events.
The effective discount rate utilized at the December 31, 2019 valuation date was based on yields on
CCC-rated
debt instruments with terms equivalent to the remaining term of the Convertible Debentures. The credit rating estimate was based on the implied credit rating determined at issuance and no changes were identified by the Company that would impact this assessment.
17
20
Table of Contents
The fair value and principal value of the Convertible Debentures as of December 31, 2019 and the Conversion Date was as follows (in thousands):
 
Convertible Debentures
  
December 31, 2019
   
February 21, 2020
   
December 31, 2019
   
February 21, 2020
 
Fair value, in accordance with fair value option
  $ 13,642   $ 21,164   $13,642   $21,164 
  
 
   
 
         
Principal value outstanding
  $6,970   $6,970   $6,970   $6,970 
  
 
   
 
         
In February 2020
Thet
he Company recorded a loss from the change in fair value of the Convertible Debentures of approximately $7.5$
7.5
 million for period through the conversion dateConversion Date which areis described in the additional fair value disclosures related to the Convertible Debentures in Note 8.
8
.
Upon the consummation of the Forced Conversion,forced conversion, the Company issued 1,816,466 shares of common stock with a fair value of approximately $21.2 million, which was reclassified to stockholders’ equity.
(d) Principal and Interest Payments Related to Financing Arrangements
(d)
Principal and Interest Payments Related to Financing Arrangements
Future principal, interest payments, and final payment related to the Loan Agreement are as follows (in thousands) as of March 31, 2021:
as
follows
(in
thousands):
 
Fiscal Year
  
Amount Due
 
2020
  $188 
2021
    1,238 
2022
   2,875 
2023
   2,735 
2024
   1,004 
  
 
 
 
Total
  $8,040 
  
 
 
 
Fiscal Year
  
Amount Due
 
2021
   281 
2022
   3,224 
2023
   3,636 
2024
   712 
      
Total
  $7,853 
The following amounts are included in interest expense in ourthe Company’s consolidated statement of operations for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 (in thousands):
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2020
   
2019
   
2020
    
2019
 
Cash interest expense
  $95   $75   $ 138   $ 157 
Interest on convertible debentures
   —      87    49    174 
Accrual of notes payable final payment
   8    32    39    64 
Amortization of debt costs
   12    7    19    14 
Interest expense capital lease
   —      1    —      2 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total interest expense
  $ 115   $ 202   $245   $411 
  
 
 
   
 
 
   
 
 
   
 
 
 
   
Three Months Ended March 31,
 
   
2021
   
2020
 
Cash interest expense
  $92   $43 
Interest on convertible debentures
   —      49 
Accrual of notes payable final payment
   7    31 
Amortization of debt costs
   13    7 
           
Total interest expense
  $112   $130 
           

 
21
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Note 5 – Lease Commitments
Under ASC 842, “Leases” (“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 leases or financing.financing leases. 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 useduses its incremental borrowing rate to determine the present value of the lease payments. The Company determineddetermines the incremental borrowing rates for its leases by applying its applicable, fully collateralized borrowing rate, with adjustment as appropriate for the lease term. The lease term at the lease commencement date is determined based on the
non-cancellable
period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option. The Company consideredconsiders a number of factors when evaluating whether the options in its lease contracts wereare reasonably certain of exercise, such as length of time before option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or economic penalties.
Right-of-use
assets and obligations for short-term leases (leases with an initial term of 12 months or less) are not recognized in the consolidated balance sheet. Lease expense for short-term leases is recognized on a straight-line basis over the lease term. The Company does not sublease any of its leased assets to third parties. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company has lessor agreements that contain lease and
non-lease
components. As the Company has determined that the
non-lease
component of these agreements is the predominant component, the Company accounted for the complete agreement under ASC 606 upon adoption of ASC 842.
ASC 842 includes a number of reassessment and
re-measurement
requirements for lessees based on certain triggering events or conditions, including whether a contract is or contains a lease, assessment of lease term and purchase options, measurement of lease payments, assessment of lease classification and assessment of the discount rate. The Company reviewed the reassessment and
re-measurement
requirements and identified two lease modifications which are reflected in the table below showing the maturity of the Company’s lease liabilities as of June 30, 2020.March 31, 2021. This includes an extension of an operating lease for the facility leased by the Company in San Jose, California as well as some equipment. In addition, there were no impairment indicators identified during the quarter ended June 30, 2020March 31, 2021 that required an impairment test for the Company’s
right-of-use
assets or other long-lived assets in accordance with ASC
360-10
Property 360 10 “Property Plant and EquipmentEquipment” (“ASC 360”).
Certain of the Company’s leases include variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain
non-lease
components that transfer a distinct service to the Company, such as common area maintenance services. The Company has elected to not separate theits accounting forof lease components and
non-lease
components for real estate and equipment leases.leases
.
 
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Components of Leases:
The Company has leases for office space and office equipment. The leases have remaining lease terms ranging from less than one year to three years and sixthree months as of June 30, 2020.March 31, 2021
.
The components of lease expense for the period are as follows (in thousands):
 
Lease Cost
  
Classification
  
Three Months Ended
June 30, 2020
 
Operating lease cost
  Operating expenses  $224 
Capital
lease costs
    
Amortization of leased assets
  Amortization and depreciation   4 
Interest on lease liabilities
  Interest expense   —   
    
 
 
 
Total
    $ 228 
    
 
 
 
Lease Cost
  
Classification
  
Three Months

Ended March 31,

2021
 
Operating lease cost - Right of Use Asset
  
Operating expenses
  $217 
Operating lease cost - Variable
  Operating expenses    
57
 
Finance lease costs      
Amortization of leased assets
  
Amortization and depreciation
   0   
Interest on lease liabilities
  
Interest expense
   0   
         
Total
     $274 
Other information related to leases was as follows (in thousands):
 
Three Months Ended
June 30, 2020
Cash paid for operating cash flows from operating leases
$ 236
Cash paid for operating cash flows from
capital
leases
—  
Cash paid for financing cash flows from
capital
leases
4
As of June 30, 2020
Weighted-average remaining lease term of operating leases (in
years)
2.70
Weighted-average remaining lease term of
capital
leases (in years)
1.00
Weighted-average discount rate for operating leases
5.6% 
Weighted-average discount rate for
capital
leases
11.0% 
   
Three Months

Ended March 31,

2021
 
Cash paid from operating cash flows for operating leases
  $118 
  
 
 
   
As of March 31,

2021
 
Weighted-average remaining lease term of operating leases (in years)
   1.96 
Weighted-average discount rate for operating leases
   5.5% 
 
2
3
20
Table of Contents
Maturity of the Company’s lease liabilities as of June 30, 2020March 31, 2021 was as follows (in thousands):
 
As of June 30, 2020:
  
Operating
Leases
   
Finance Leases
   
Total
 
2020
  $457    4    461 
2021
   920    —      920 
2022
   899    —      899 
2023
   211    —      211 
2024
   5    —      5 
  
 
 
   
 
 
   
 
 
 
Total lease payments
   2,492    4    2,496 
Less: imputed interest
   (186)    —    (186) 
  
 
 
   
 
 
   
 
 
 
Total lease liabilities
   2,306    4    2,310 
Less: current portion of lease liabilities
   (809)    (4)    (813) 
  
 
 
   
 
 
   
 
 
 
Long-term lease liabilities
  $ 1,497   $ —     $1,497 
  
 
 
   
 
 
   
 
 
 
Three Months Ended March 31, 2021:
  
Operating

Leases
 
2021
   692 
2022
   899 
2023
   211 
2024
   5 
      
Total lease payments
   1,807 
Less: imputed interest
   (100) 
      
Total lease liabilities
   1,707 
Less: current portion of lease liabilities
   (847) 
      
Long-term lease liabilities
  $860 
      
Note 6 – Stockholders Equity
(a) Financing Activity
On March 2, 2021, the Company entered into an underwriting agreement with Guggenheim Securities, LLC, as representative of the several underwriters thereto, in connection with an underwritten public offering of 1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share. The Offering closed on March 5, 2021 for gross proceeds of approximately $25.1 million and net proceeds of approximately $23.2 million to the Company.
(b) Stock-Based Compensation
The Company granted options to purchase 270,357 and 523,857428,938 shares of the Company’s stock during the three and
six
months
ended June 30, 2020
, respectively.
March 31, 2021. 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
 
Six Months Ended
   
June 30,
 
June 30,
   
2020
 
2019
 
2020
 
2019
Average risk-free interest rate
  0.26% 1.97% 0.79% 2.23%
Expected dividend yield
  NaN NaN NaN NaN
Expected life
  3.5 years 3.5 years 3.5 years 3.5 years
Expected volatility
  64.0% to 65.7% 51.9% to 54.2% 50.2 to 65.7% 51.9% to 54.2%
Weighted average exercise price
  $10.76 $5.81 $10.11 $4.78
Weighted average fair value
  $4.96 $2.35 $4.34 $1.93
The Company’s stock-based compensation expense, including options and restricted stock by category is as follows (in thousands):
 
   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Cost of revenue
  $24   $1   $24   $2 
Engineering and product development
   288    32    343    119 
Marketing and sales
   490    57    548    116 
General and administrative
   811    214    1,162    279 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $  1,613   $ 304   $ 2,077   $ 516 
  
 
 
   
 
 
   
 
 
   
 
 
 
   
March 31,
   
2021
 
2020
Average risk-free interest rate
  0.20% 1.24%
Expected dividend yield
  NaN NaN
Expected life
  3.5 years 3.5 years
Expected volatility
  66.0% to 66.0% 50.2% to 64.0%
Weighted average exercise price
  $18.00 $8.26
Weighted average fair value
  $8.37 $3.19
   
Three Months Ended
 
   
March 31,
 
   
2021
   
2020
 
Cost of revenue
  $14   $1 
Engineering and product development
   149    54 
Marketing and sales
   353    58 
General and administrative
   419    351 
           
   $935   $464 
           
2
4
21
Table of Contents
As of June 30, 2020,March 31, 2021, unrecognized compensation cost (in thousands) related to unvested options and unvested restricted stock and the weighted average term of such equity instruments is as follows:
 
Remaining expense
  $1,442 
Weighted average term
   1.0 
Remaining expense
  $3,823 
Weighted average term
   1.26 
The Company’s restricted stock awards typically vest in either one year or three equal annual installments with the first installment vesting one year from the grant date.
The Company granted 022,488 and 14,0000 shares of restricted stock during
the six-month
periods
three-month period ended June 30,March 31, 2021 and 2020,
and
2019
, respectively
.
respectively. 
The Company’s aggregate intrinsic value for stock options and restricted stock outstanding is as follows (in thousands):
 
  
As of
   
As of
 
  
June 30,
   
March 31,
 
Aggregate intrinsic value
  
2020
   
2019
   
2021
   
2020
 
Stock options
  $ 8,992   $ 2,273   $29,305   $2,273 
Restricted stock
   709    1,674    672    1,396 
The Company issued 8,167 and 44,96648,934 shares of common stock upon the exercise of outstanding stock options in the three and
six-month
three-month periods
ended June 30, 2020
,
respectively.March 31, 2021. The Company received cash proceeds of approximately $36,000 and $231,000$271,000 in the three and
six-month
periods
-month period ended June 30, 2020
,
respectively.March 31, 2021. The intrinsic value of restricted shares that vested in the
six three months ended March 31, 2021 was $0.3 million.
 
months
ended June 30, 2020 was $0.4 million
.
There was 0 vesting ofwere
20,000 restricted shares
that
vested in the three months ended June 30, 2020.
March 31, 2021.
Employee Stock Purchase Plan
In December 2019, the 2019 Employee Stock Purchase Plan (“ESPP”) was adopted by the Company’s Board of Directors (the “Board”) and approved by stockholders, effective January 1, 2020.
The 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 the Company’s shares of common stock is not eligible to participate in the ESPP.
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Table of Contents
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
2
5
Table of Contents
authorizing payroll deductions of up to 15%
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%
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 $
25,000
worth of common stock, valued at the start of the purchase period, under the ESPP in any calendar year.
The Company issued
16,392
and 34,857 6,354 shares under the ESPP in the three and
six-month
periods-month period ended June 30, 2020, respectively.March 31, 2021. The Company recorded approximately $
27,000
 
$
30,000
and $
64,000
of stock-based compensation expense pursuant to ESPP for the three and
six-month
periodsthree-month period ended June 30, 2020, respectively.March 31, 2021. The secondnext accumulation period under the ESPP commenced on April 1, 2020January 31, 2021 and was completedended on June 30, 2020,March 31, 2021, and the related shares purchased by the participants were issued in July 2020.April 2021. As of June 30, 2020,March 31, 2021, the Company recorded a liability
of $
82,000
94,000
related
to employee withholdings in connection with the ESPP accumulation period ended June 30, 2020,March 31, 2021, which was included as a component of accrued expenses and other current liabilities.
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 tax
re-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 tax
re-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 the
re-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, 2020.
Other Commitments
The Company is obligated to pay approximately $4.5$4.1 million for firm purchase obligations to suppliers for future product and service deliverables.deliverables
and $0.5 million for minimum royalty obligations.
Litigation
In December 2016, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Invivo Corporation.Corporation (“Invivo”). In accordance with the agreement,Asset Purchase Agreement, the Company sold to Invivo all right, title and interest to certain intellectual property relating to the Company’s VersaVue Software and DynaCAD product and related assets
for $3.2 million. The Company closed the transaction on January 30, 2017 less a holdback reserve of $350,000
(the “Escrowed Amount”) for a net proceeds of approximately
 $2.9 million.
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On September 5, 2018, third-party Yeda Research and Development Company Ltd. (“Yeda”), filed a complaint (“the 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,alleged, among other things, that the Company infringed upon Yeda’s source code, which was originally licensed to the Company, by using it in the products that the Company sold to Invivo and that it is entitled to damages that could include, among other things, profits relating to the sales of these products. Ifproducts On April 13, 2021, the Company and Yeda entered into a Settlement and Release Agreement (the “Settlement Agreement”) whereby the Company furnished to Yeda a one-time cash payment of 
$85,000
and received a full, non-conditional release from Yeda of any and all claims related to the Complaint and the subject of the Complaint. Neither the Company nor Invivo acknowledged any wrongdoing at any point in connection with the Complaint or the subject matter thereof. The Escrowed Amount was reserved, in part, to cover any legal expenses related to the Asset Purchase Agreement and the transactions contemplated therein. The remaining balance of the Escrowed Amount following such expenses is due and payable to the Company in accordance with the terms of the Asset Purchase Agreement. However, the Company is foundunaware of the amount Invivo may claim it is entitled to have infringed Yeda’s copyright or breached its agreements with Yeda,of the Company could be obligated to pay to Yeda substantial monetary damages.Escrowed Amount, if any, under the Asset Purchase Agreement.
The Company may be a party to various legal proceedings and claims arising out of the ordinary course of its business. Although the final results of all such matters and claims cannot be predicted with certainty, the Company currently believes that there are no current proceedings or claims pending against it the ultimate resolution of which would have a material adverse effect on its financial condition or results of operations, other than as set forth above.operations. However, should the Company fail to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, such matters could have a material adverse effect on ourthe Company’s operating results and cash flows for that particular period. The Company may 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.“Contingencies.” Legal costs are expensed as incurred.
 
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Note 8 –- Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset
or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting 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 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
 
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value.
•
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value.
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.
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 nature and market rates of interest, the carrying amounts of the financial instruments (except the Convertible Debentures, which were measured at fair value in accordance with the fair value option election) approximated fair value as of February 21, 2020 and December 31, 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.Convertible Debentures.
The money market accounts are included in cash and cash equivalents in the accompanying consolidated balance sheet and are considered a Level 1 measurement as they are valued at quoted market prices in active markets.
The Convertible Debentures were recorded as a separate component of the Company’s consolidated balance 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 (in thousands).
Fair Value Measurements as of December 31, 2020
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                    
Money market accounts
  $27,186    —      —     $27,186 
                     
Total Assets
  $27,186    —      —     $27,186 
                     
 
Fair Value Measurements (in thousands) as of March 31, 2021
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                    
Money market accounts
  $46,907   
—     
—     $46,907 
        
    
       
Total Assets
  $46,907   
—     
—     $46,907 
                     
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Fair Value Measurements (in thousands) as of December 31, 2019
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
        
Money market accounts
  $15,313   $ —     $—     $15,313 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total Assets
  $15,313   $—     $—     $15,313 
  
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities
        
Convertible debentures
  $—     $—     $ 13,642   $13,642 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total Liabilities
  $—     $—     $13,642   $13,642 
  
 
 
   
 
 
   
 
 
   
 
 
 
Fair Value Measurements (in thousands) as of June 30, 2020
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
        
Money market accounts
  $24,225   $—     $—     $24,225 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total Assets
  $24,225   $—     $—     $24,225 
  
 
 
   
 
 
   
 
 
   
 
 
 
The following sets forth a reconciliation of the changes in the fair value of the Convertible Debentures that were converted to equity during the six month period ended June 30, 2020 (in thousands):
Convertible Debenture
Balance, December 31,
2019
$ 13,642
Fair value
adjustments
7,522  
Conversion
(21,164
) 
Balance, June 30, 2020
$—
Note 9 –- Income Taxes
The CARESCoronavirus Aid, Relief, and Economic Security Act was enacted on March 27, 2020. Although the Company is continuing to analyze the impact of the CARES Act on its business, the CARES Act2020 and did not have a material impact on ourthe Company’s provision for income taxes for the three and six months ended June 30, 2020. March 31, 2021.
The Company recorded an income tax provision of $5,000 and $31,000$0 for the three and six months ended June 30, 2020, respectively, March 31, 2021,
and $19,000 and $27,000$26,000 for the three and six months ended June 30, 2019, respectively. March 31, 2020.
The Company adopted ASU
2019-12
as of January 1, 2021, in accordance with this provision
non-income
and state franchise taxes are now classified as a component of operating expenses in General and Administrative expense. Income based tax expense will continue to be recognized as tax expense in the Consolidated Financial Statements. Tax expense for three months ended March 31, 2020 represent
non-income
and state franchise tax, however the expense was not reclassified to operating expenses in accordance with ASU
2019-12.
The Company had 0 material unrecognized tax
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benefits and a deferred tax liability of approximately $4,000 related to tax amortizable goodwill. No other adjustments were required under ASC 740, “Income Taxes”.Taxes.” The Company does not expect that theits 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, 2020.March 31, 2021.
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 taxingtax 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
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 theits carrying valuevalue. There were 0 impairment indicators present as of the reporting unit.March 31, 2021.
Factors the Company considers important, which could trigger an impairment of such asset, include the following:
 
significant underperformance relative to historical or projected future operating results;
 
significant changes in the manner or use of the assets or the strategy for the Company’s overall business;
 
significant negative industry or economic trends;
 
significant decline in the Company’s stock price for a sustained period; and
 
a decline in the Company’s market capitalization below net book value.
The Company considered the goodwill impairment factors due to the uncertainty around the potential impact of the
COVID-19
pandemic on the Company’s continuing operations and on the global economy as a whole. Under this consideration the Company performed scenario testing as of March 31, 2020 updating the projections to the most recent impairment analysis performed as of October 1, 2019. The Company compared the scenario test again against current forecasts as of June 30, 2020 and concluded that it did not have a triggering event or impairment indicators in the quarter ended June 30, 2020.
The Company would record an impairment charge when such assessment indicates that the fair value of a reporting unit wasis less than the carrying value. In evaluating potential impairments outside of the annual measurement date, judgment is required in determining whether an event has occurred that may impair the value of goodwill or intangible assets.
The Company utilizes either discounted cash flow models or other valuation models, such as comparative transactions and market multiples, to determine the fair value of reporting units. The Company makes assumptions about future cash flows, future operating plans, discount rates, comparable companies, market multiples, purchase price premiums and other
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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.
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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 ourits most recent views of the long-term forecast for each segment. Accordingly, actual results can differ from those assumed in ourthe Company’s forecasts. Discount rates are derived from a capital asset pricing model and by analyzing published rates for industries relevant to ourthe Company’s 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 of its reporting units and in ourthe Company’s 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 in similar 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,the Company, as well as the fact that market data may not be available for divisions within larger conglomerates or
non-public
subsidiaries that could otherwise qualify as comparable, and the specific circumstances surrounding a market transaction (e.g., synergies between the parties, terms and conditions of the transaction, etc.) may be different or irrelevant with respect to 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.unit. 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, as further discussed in Note 12 below.
 
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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, 201
9
   —      8,362    —      8,362 
  
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2020
  $—     $8,362   $—     $8,362 
  
 
 
   
 
 
   
 
 
   
 
 
 
   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) 
                     
Balance at December 31, 2020 and March 31, 2021
   —      8,362    —      8,362 
                     
                     
Note 11 – Long-lived assets
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 theits carrying value of the asset group.value.
There is no set interval or frequency for recoverability evaluation rather when to determineevaluation. Rather, the determination of when, if at all, an asset (or asset group) is evaluated for recoverability is based on “events and circumstances.” The following factors are examples of events or changes in circumstances that indicate the carrying amount of an asset (asset(or asset group) may not be recoverable and thus is to be evaluated for recoverability.
•
A significant decrease in the market price of a long-lived asset (or asset (asset group);
A significant adverse change in the extent or manner in which a long-lived asset (or asset group) is being used or in its physical condition;
 
A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (or asset group), including an adverse action or assessment by a regulator;
•
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;
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (or asset group); and
 
A current operating period, or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (or asset group).
•
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 such triggering events in the quarter ended June 30, 2020.March 31, 2021.
If the carrying amount of an asset or asset group (in use or under development) is evaluated and found not to be fully recoverable (the(e.g., 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
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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
that
the its 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.
 
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Note 12 – Segment Reporting
Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance.
The Company’s CODM is the Chief Executive Officer. Each reportable segment generates revenue from the sale of medical equipment and related services and/or sale of supplies. The Company has determined there are two2 segments, Detection and Therapy.
The Detection segment consists of ourthe Company’s advanced image analysis and workflow products, and the Therapy segment consists of ourthe Company’s radiation therapy products, “Axxent,” and related services. The primary factors used by ourthe Company’s CODM to allocate resources are based on revenues, gross profit, operating income, and earnings or loss before interest, taxes, depreciation, amortization, and other specific and
non-recurring
items of each segment. Included in segment operating income are stock compensation, amortization of technology and depreciation expense. There are no intersegment revenues.
The Company does not track assets by operating segment and ourthe Company’s CODM does not use asset information by segment to allocate resources or make operating decisions.
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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 
  Three Months Ended
June 30,		   Six Months Ended
June 30,		   March 31, 
  2020   2019   2020   2019   2021   2020 
Segment revenues:
              
 
Detection
  $4,117   $5,209   $8,593   $9,377   $5,719   $4,476 
Therapy
   1,450    2,120    3,525    4,725    2,925    2,075 
  
 
   
 
   
 
   
 
         
Total Revenue
  $5,567   $7,329   $12,118   $14,102   $8,644   $6,551 
  
 
   
 
   
 
   
 
         
Segment gross profit:
              
 
Detection
  $3,533   $4,356   $7,000   $7,823   $4,725   $3,467 
Therapy
   824    1,370    1,867   $3,185    1,564    1,043 
  
 
   
 
   
 
   
 
         
Segment gross profit
  $4,357   $5,726   $8,867   $11,008   $6,289   $4,510 
  
 
   
 
   
 
   
 
         
Segment operating income (loss):
              
 
Detection
  $201   $673   $(145)   $975   $941   $(346) 
Therapy
   (432)    (264)    (1,438)   $(43)    (312)    (1,006) 
  
 
   
 
   
 
   
 
         
Segment operating income (loss)
  $(231)   $409   $(1,583)   $932   $629   $(1,352) 
  
 
   
 
   
 
   
 
         
General, administrative, depreciation and amortization expense
  $(2,080)   $(1,867)   $(4,621)   $ (3,424)   $(2,162)   $(2,541) 
Interest expense
   (115)    (202)    (245)    (411)    (112)    (130) 
Other income
   33    64    75    123    2    42 
Loss on extinguishment of debt
   —    —      (341)    —      —      (341) 
Fair value of convertible debentures
   —      (1,915)    (7,464)    (4,440)    —      (7,464) 
  
 
   
 
   
 
   
 
         
Loss before income tax
  $ (2,393)   $(3,511)   $ (14,179)   $ (7,220)   $(1,643)   $(11,786) 
  
 
   
 
   
 
   
 
         
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Note 13 –- Recent Accounting Pronouncements
Recently Adopted Accounting Standards
On January 1, 2020,In December 2019, the Company adoptedFinancial Accounting Standard Board (the “FASB”) issued ASU
2018-13,2019-12,
“Fair Value MeasurementIncome Taxes (Topic 820)740): Disclosure Framework—ChangesSimplifying the Accounting for Income Taxes” (“ASU
2019-12”).
ASU
2019-12
is intended to simplify the accounting for income taxes by removing certain exceptions to the Disclosure Requirements general principles in Topic 740. The amendments also improve consistent application of and simplify
US-GAAP
for Fair Value Measurement” (“other areas of Topic 740 by clarifying and amending existing guidance. ASU
2018-13”).
ASU
2018-13
removes, modifies and adds certain disclosure requirements of ASC Topic 820. ASU
2018-132019-12
is effective for the Company for the fiscal year and interim periods therein beginning January 1, 2020.2021. The Company notes that the adoption of ASU
2018-132019-12
did not have a materialresulted in the reclassification of an immaterial amount from income tax expense to
non-income
tax included in operating expenses related to the accounting for state and Franchise taxes, with no impact on itsto the Company’s consolidated financial statements.income, equity or cash flows.
Recently Issued Accounting Standards Not Yet Adopted
In June 2016, the FASB issued
ASU 2016-13, “Financial
Instruments - Credit Losses (Topic 326)”
(“ASU 2016-13”),
which
requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.
ASU 2016-13
replaces
the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier
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recognition of credit losses. In November 2019, the FASB elected to defer the adoption date of ASU
2016-13
for public business entities that meet the definition of a smaller reporting company to fiscal years beginning after December 15, 2022. Early adoption of the guidance in ASU
2016-13
is permitted. The Company is currently evaluating the impact that the adoption of ASU
2016-13
will have on its consolidated financial statements.
In December 2019, the FASB issued ASU
2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU
2019-12”).
ASU
2019-12
is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU
2019-12
is effective for the Company for the fiscal year and interim periods therein beginning January 1, 2021. The Company is currently evaluating the impact that the adoption of ASU
2019-12
will have on its consolidated financial statements.
In March 2020, the FASB issued ASU
2020-04,
“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU
2020-04”). ASU
2020-04
was issued because the London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. Atentities, and at the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR couldis expected to be discontinued.discontinued as a benchmark interest rate. Other interest rates used globally could also be discontinued for similar reasons. ASU
2020-04
provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022). The Company is currently evaluating the impact that the adoption of ASU
2020-04
will have on its consolidated financial statements.
In August 2020, the FASB issued ASU
2020-06,
“Debt – Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic
815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU
2020-06”).
ASU
2020-06
was issued to simplify the accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. ASU
2020-06
removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU
2020-06
also simplifies the diluted earnings per share calculation in certain areas. ASU
2020-06
is effective for the Company for the fiscal year and interim periods therein beginning January 1, 2022. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU
2020-06
will have on its consolidated financial statements.
Note 14 – Subsequent Events
Settlement with Yeda Research and Development Company Ltd.
On April 13, 2021, as described in Part II, Item 1 and Note 7 of the Notes to the Condensed Consolidated Financial Statements herein, the Company and Yeda entered into the Settlement Agreement, whereby the Company furnished to Yeda a
one-time
cash payment of $85,000 and received a full,
non-conditional
release from Yeda of any and all claims related to the Complaint and the subject matter of the Complaint. Neither the Company nor Invivo acknowledged any wrongdoing at any point in connection with the Complaint or the subject matter thereof. As described elsewhere in this report, the Escrowed Amount, being $350,000,
was held back in reserve from the gross proceeds furnished in connection with the Asset Purchase Agreement, in part, to cover any legal expenses related to the Asset Purchase Agreement and the transactions contemplated therein. The remaining balance of the Escrowed Amount following such expenses is due and payable to the Company in accord with the terms of the Asset Purchase Agreement. However, the Company is unaware of the amount Invivo may claim it is entitled to of the Escrowed Amount, if any, under the Asset Purchase Agreement.
 
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Termination of Western Alliance Bank Loan and Security Agreement
On April 27, 2021, as described in Note 4 of the Notes to the Condensed Consolidated Financial Statements herein, the Company repaid its obligations in the aggregate amount of $7,354,283 under and terminated the Loan Agreement with the Bank, and its collateral securing the facility was released.
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 Form
10-Q
that are not historical facts contain forwardstatements that may be deemed “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements thatinvolve or may involve a number of known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to following: the impact of the
COVID-19
pandemic on ourthe Company’s business and the macroglobal 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,
3
0
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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. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date of such statements.
Results of Operations
Overview
iCAD, Inc. is a global medical technology company providing innovative cancer detection and therapy solutions. The Company reports in two segments: Detection and Therapy.
In the Detection segment, the Company’s solutions include (i) advanced image analysis and workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier, and (ii) a comprehensive range of high-performance, Artificial Intelligence and Computer-Aided Detection (CAD) systems and workflow solutions for 2D and 3D mammography, Magnetic Resonance Imaging (MRI) and Computed Tomography (CT).
In the Therapy segment, the Company offers the Xoft System, an isotope-free cancer treatment platform technology the Xoft Electronic Brachytherapy System (“Xoft System”).technology. The Xoft System can be used for the treatment of early- stageearly-stage breast cancer, endometrial cancer, cervical cancer and nonmelanoma skin cancer. We believe
On January 30, 2017, 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 forCompany completed the sale of consumablescertain intellectual property relating to the VersaVue Software and the DynaCAD product and related accessories which will continueassets to drive growthInvivo for $3,200,000 in cash with a holdback amount of $350,000. The Company recently settled litigation with a third-party relating to this segment.transaction, as further described in “Item 1—Legal Proceedings” and Note 7 hereto. The three months ended March 31, 2020 included a $7.8 million charge related to the losses on the extinguishment of debentures and debt, and in April 2021, the Company used approximately $7.4 million of cash to repay its credit facility in full.
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 declared
COVID-19
to be a pandemic. In an effort to contain and mitigate the spread of the
COVID-19
many countries, includingpandemic, the United States, many countries in Europe, as well as Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of
COVID-19.
As a provider of devices and services to the health care industry, our operations have been materially affected. Significant uncertainty remains as to the potentialcontinuing impact of the
COVID-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. The
COVID-19
pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levelslevel of market disruption and volatility
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seen in the recent past couldwill 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 June 30, 2020March 31, 2021 reflect a negative impact from the
COVID-19
pandemic, as the typical sales cycle and ordering patterns were still disrupted due to some healthcare facilities’ additional focus on
COVID-19.
Although we do not provide guidance to investors relating to our results of operations, our results for the quarter ending SeptemberJune 30, 2020,2021, and possibly future quarters, could reflect a continued negative impact from the
COVID-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 that period. However, the Company took steps during the three-month period ended June 30, 2020 to reduce operating expenses, including cutting
non-essential
travel, implementing employee furloughs and terminations, reducing employee salaries by 10%, and cancelling most
in-person
trade shows. 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 of
COVID-19
on our business and cost structure.
During the first quarter of fiscal 2020, the Company also entered into an equity distribution agreement with JMP Securities to provide for an
at-
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 “ATM Facility”). On December 17, 2020 the company sold 470,704 shares of common stock under the ATM Facility for gross proceeds of approximately $6.6 million and net proceeds of approximately $6.1 million. On March 2, 2021, the Company terminated the ATM Facility. Also on March 2, 2021, the Company entered into an underwriting agreement with Guggenheim Securities, LLC, as representative of the several underwriters thereto, in connection with an underwritten public offering of 1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share. The Company did not make any sales under this equity distribution agreement inOffering closed on March 5, 2021 for gross proceeds of approximately $25.1 million and net proceeds of approximately $23.2 million to the period ended June 30, 2020.Company. The Company believes that its current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand of $24.2$46.9 million at March 31, 2021 and anticipated revenue and cash collections. However, the resurgence of the
COVID-19
pandemic could affect our liquidity.
 
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Critical Accounting PoliciesEstimates
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.States.
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 ongoing basis, the Company evaluates these estimates, including those related to revenue recognition, allowance for doubtful accounts, inventory valuation and obsolescence, intangible assets, goodwill, income taxes, contingencies, and litigation. Additionally, the Company uses assumptions and estimates in calculations to determine stock-based compensation, the fair value of convertible notes,debentures, 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.
Due to the
COVID-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 August 7, 2020, the date of issuance of this Quarterly Report on Form
10-Q.
These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Other than as described herein, there have been no additional material changes to our critical accounting policies as discussed in our 20192020 Annual Report on Form
10-K
(the “2019“2020
10-K”).
For a comprehensive list of the Company’s critical accounting policies, reference should be made to the 20192020
10-K.
 
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Three and six months ended June 30, 2020March 31, 2021 compared to three and six months ended June 30, 2019.March 31, 2020.
Revenue: (in thousands)
Three months ended June 30, 2020March 31, 2021 and 2019:2020:
 
  
Three months ended June 30,
   
Three months ended March 31,
 
  
2020
   
2019
   
$ Change
   
% Change
   
2021
   
2020
   
Change
   
% Change
 
Detection revenue
                
Product revenue
  $2,702   $3,808   $(1,106)    (29.0)%   $4,161   $3,100   $1,061    34.2% 
Service revenue
   1,415    1,401    14    1.0% 
Service and supplies revenue
   1,558    1,376    182    13.2% 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Subtotal
   4,117    5,209    (1,092)    (21.0)%    5,719    4,476    1,243    27.8% 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Therapy revenue
                
Product revenue
   186    545    (359)    (65.9)%    1,396    695    701    100.9% 
Service revenue
   1,264    1,575    (311)    (19.7)% 
Service and supplies revenue
   1,529    1,380    149    10.8% 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Subtotal
   1,450    2,120    (670)    (31.6)%    2,925    2,075    850    41.0% 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Total revenue
  $5,567   $7,329   $(1,762)    (24.0)%   $8,644   $6,551   $2,093    31.9% 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Total revenue decreasedincreased by approximately $1.8$2.1 million, or 24.0%31.9%, from $7.3$6.6 million for the three months ended June 30, 2019March 31, 2020 to $5.6$8.6 million for the three months ended June 30, 2020.March 31, 2021. The decreaseincrease is due to a decreasean increase in Detection revenue of approximately $1.2 million and an increase in Therapy revenue of approximately $0.7 million and a decrease in Detection revenue of $1.1$0.9 million. The Company believes that Detection product revenue and Therapy segment revenue were adversely affected in the second quarter of 2020 by the
COVID-19
pandemic, as the typical sales cycle and ordering patterns were disrupted due to healthcare facilities’ additional focus on
COVID-19.
The Company is not able to predict how the
COVID-19
pandemic will affect future revenue and order volume.
Detection product revenue decreasedincreased by approximately $1.1 million, or 29.0%34.2%, from $3.8$3.1 million for the three months ended June 30, 2019March 31, 2020 to $2.7$4.2 million for the three months ended June 30, 2020.March 31, 2021. The decrease wasoverall increase is due primarily to decreasesan increase in (i) direct customer revenue of $0.2 million. and (ii) OEM$1.7 million offset by a decrease in original equipment manufacturer customer revenue of $0.9$0.5 million, in each case relating primarily to revenue from 3D imaging and density assessment products.
Detection service and supplies revenue, remained at approximatelywhich is primarily sold to direct customers, increased by $0.2 million, or 13.2%, from $1.4 million in each of the three months ended June 30, 2019 and 2020. The Company did not see a significant impact of the
COVID-19
pandemic on Detection service and supplies revenueMarch 31, 2020 to $1.6 million in the second quarter of 2020 but is not able to predict how the
COVID-19three months ended March 31, 2021.
pandemic will affect future Detection service and supplies revenue.
Therapy product revenue decreasedincreased by approximately $0.4million,$0.7 million, or 65.9%100.9%, from $0.6$0.7 million for the three months ended June 30, 2019March 31, 2020 to $0.2$1.4 million for the three months ended
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June 30, 2020. March 31, 2021. Therapy product revenue is related to the sale of our Axxent systems and can vary significantly from quarter to quarter due to changes in the number of units sold, and the average selling price.
Therapy service and supplysupplies revenue decreasedincreased by approximately $0.3$0.1 million, or 19.7%10.8%, from $1.6$1.4 million for the three months ended June 30, 2019March 31, 2020 to $1.3$1.5 million for the three months ended June 30, 2020.March 31, 2021. The Company believes that Therapy service and supplysupplies revenue, specifically the use of balloons for procedures, was adversely affected by the
COVID-19
pandemic during the three months ended March 31, 2020, due to
stay-at-home
and social distancing orders as well as the uncertainty in the market. The Company saw higher service and supplies revenues due to higher balloon sales in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The Company is not able to predict how the
COVID-19
pandemic will affect future Therapy service and supplysupplies revenue.
Six months ended June 30, 2020 and 2019:
   
Six months ended June 30,
 
   
2020
   
2019
   
$ Change
   
% Change
 
Detection revenue
        
Product revenue
  $5,802   $6,598   $(796)    (12.1)% 
Service revenue
   2,791    2,779    12    0.4% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Subtotal
   8,593    9,377    (784)    (8.4)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Therapy revenue
        
Product revenue
   881    1,577    (696)    (44.1)% 
Service revenue
   2,644    3,148    (504)    (16.0)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Subtotal
   3,525    4,725    (1,200)    (25.4)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenue
  $12,118   $14,102   $(1,984)    (14.1)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenue decreased by approximately $2.0 million, or 14.1%, from $14.1 million for the six months ended June 30, 2019 to $12.1 million for the six months ended June 30, 2020. The decrease is due to a decrease in Therapy revenue of approximately $1.2 million and a decrease in Detection revenue of approximately $0.8 million. The Company believes that Detection product revenue and order volume, and both Therapy product and Therapy service and supply revenue were adversely affected in the second quarter of 2020 by the
COVID-19
pandemic, as the typical sales cycle and ordering patterns were disrupted due to healthcare facilities’ additional focus on
COVID-19.
The Company is not able to predict how the
COVID-19
pandemic will affect future revenue and order volume.
Detection product revenue decreased by approximately $0.8 million, or 12.3%, from $6.6 million for the six months ended June 30, 2019 to $5.8 million for the six months ended June 30, 2020. The decrease was due primarily to a decrease in OEM revenue of $0.8 million, relating primarily to revenue from 3D imaging and density assessment products.
 
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Detection service and supplies revenue remained at approximately $2.8 million in each of the six months ended June 30, 2019 and 2020. The Company did not see a significant impact of the
COVID-19
pandemic on Detection service and supplies revenue for the six months ended June 30, 2020 but is not able to predict how the
COVID-19
pandemic will affect future Detection service and supplies revenue.
Therapy product revenue decreased by approximately $0.7 million, or 44.1%, from $1.6 million for the six months ended June 30, 2019 to $0.9 million for the six months ended June 30, 2020. Therapy product revenue is related to the sale of our Axxent systems and can vary significantly from quarter to quarter due to changes in the number of units sold, and the average selling price.
Therapy service and supply revenue decreased by approximately $0.5 million, or 16%, from $3.1 million for the six months ended June 30, 2019 to $2.6 million for the six months ended June 30, 2020.
Cost of Revenue and Gross Profit: (in thousands)
Three months ended June 30, 2020March 31, 2021 and 2019:2020:
 
  
Three months ended June 30,
   
Three months ended March 31,
 
  
2020
   
2019
   
$ Change
   
% Change
   
2021
 
2020
 
Change
   
% Change
 
Products
  $537   $645   $(108)    (16.7)%   $1,409  $1,017  $392    38.5% 
Service and supplies
   575    858    (283)    (33.0)%    867   927   (60)    (6.5)% 
Amortization and depreciation
   98    100    (2)    (2.0)%    79   97   (18)    (18.6)% 
  
 
   
 
   
 
   
 
   
 
  
 
  
 
   
 
 
Total cost of revenue
  $1,210   $ 1,603   $(393)    (24.5)%   $2,355  $2,041  $314    15.4% 
  
 
   
 
   
 
   
 
   
 
  
 
  
 
   
 
 
Gross profit
  $4,357   $5,726   $(1,369)    (23.9)%   $6,289  $4,510  $1,779    39.4% 
  
 
   
 
   
 
   
 
 
  
Three months ended March 31,
 
  
Three months ended June 30,
   
2021
 
2020
 
Change
   
% Change
 
  
2020
   
2019
   
$ Change
   
% Change
 
Detection gross profit
  $3,533   $4,356   $(823)    (18.9%)   $4,725  $3,467  $1,258    36.3% 
Therapy gross profit
   824    1,370    (546)    (39.9%)    1,564   1,043   521    50.0% 
  
 
   
 
   
 
   
 
   
 
  
 
  
 
   
 
 
Gross profit
  $4,357   $5,726   $(1,369)    (23.9)%   $6,289  $4,510  $1,779    39.4% 
  
 
   
 
   
 
   
 
   
 
  
 
  
 
   
 
 
Gross profit %
   72.8%   68.8%    
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Gross profit for the three months ended June 30, 2020March 31, 2021 was approximately $4.4$6.3 million, or 78.3%72.8% of revenue, as compared to $5.7$4.5 million, or 78.1%68.8% of revenue, for the three months period ended June 30, 2019.March 31, 2020. The
COVID-19
pandemic adversely affected revenues from Detection products and the Therapy segment in the three months ended June 30,March 31, 2020, and as a result, lower gross profit in both segments. However, thesegments in 2020. The Company took steps during the three-month period ended June 30,also underwent cost cutting efforts throughout 2020 and has been able to reduce operating expenses, including cutting
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non-essential
travel, implementing employee furloughs and terminations and reducing employee salaries by 10%. These measures enabled an increase in gross profit in the three months ended June 30, 2020maintain a lower cost structure, specifically personnel costs, as compared to the prior year period.2020, through March 31, 2021.
Cost of products decreasedincreased by approximately $0.1$0.4 million, or 16.7%38.5%, from $0.6$1.0 million for the three months ended June 30, 2019March 31, 2020 to $0.5$1.4 million for the three months ended June 30, 2020.March 31, 2021. Cost of product revenue as a percentage of product revenue was approximately 14.8%26.8% for the three months ended June 30, 2019March 31, 2020 as compared to 18.6%37.1% for the three months ended June 30, 2020.March 31, 2021. The decreaseincrease in cost of products is due primarily to decreased personnel costs. The increase as a percentage of revenue is primarily due to the timingincreased sales in the both Therapy and Detection resulting in increases in cost of cost-cutting measures in response to
COVID-19
products of $0.3 and increased server and hardware costs.$0.1 million respectively.
Cost of service and supplies decreased bywas relatively flat at approximately $0.3 million, or 33%, from $0.9 million for both the three months ended June 30, 2019 to $0.6 million for the three months ended June 30,March 31, 2021 and 2020. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 28.8%33.6% for the three months ended June 30, 2019March 31, 2020 as compared to 21.5%31.5% for the three months ended June 30, 2020. TheMarch 31, 2021. Although the service and supplies revenue increased, there was still a 6.5% decrease in service and supplies costs is due primarily to a decrease in personnel costs.
Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was approximately $0.1 million for each of the three months ended June 30, 2020March 31, 2021 and 2019.2020.
Six months ended June 30, 2020 and 2019:
 
   
Six months ended June 30,
 
   
2020
   
2019
   
$ Change
   
% Change
 
Products
  $ 1,554   $1,325   $229    17.3% 
Service and supplies
   1,502    1,575    (73)    (4.6)% 
Amortization and depreciation
   195    194    1    0.5% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total cost of revenue
  $3,251   $3,094   $157    5.1% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
  $8,867   $ 11,008   $(2,141)    (19.4)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
   
Six months ended June 30,
 
   
2020
   
2019
   
$ Change
   
% Change
 
Detection gross profit
  $7,000   $7,823   $(823)    (10.5%) 
Therapy gross profit
   1,867    3,185    (1,318)    (41.4%) 
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
   8,867    11,008    (2,141)    (19.4%) 
  
 
 
   
 
 
   
 
 
   
 
 
 
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Gross profit for the six months ended June 30, 2020 was approximately $8.9 million, or 73.2% of revenue, as compared to $11.0 million, or 78.1% of revenue, for the six months period ended June 30, 2019. The
COVID-19
pandemic adversely affected revenues from Detection products and the Therapy segment in the six months ended June 30, 2020, and as a result, gross profit in both segments. However, the Company took steps during the three-month period ended June 30, 2020 to reduce operating expenses, including cutting
non-essential
travel, implementing employee furloughs and terminations and reducing employee salaries by 10%.
Cost of products increased by approximately $0.2 million, or 17.3%, from $1.3 million for the six months ended June 30, 2019 to $1.5 million for the six months ended June 30, 2020. Cost of product revenue as a percentage of product revenue was approximately 16.2% for the six months ended June 30, 2019 as compared to 23.3% for the six months ended June 30, 2020. The increase in cost of products is due primarily to increased personnel costs in the three months ended period March 31, 2020 prior to the
COVID-19
cost cutting measures, as well as increased server and hardware costs.
Cost of service and supplies decreased by approximately $0.1 million, or 4.6%, from $1.6 million for the six months ended June 30, 2019 to $1.5 million for the six months ended June 30, 2020. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 26.6% for the six months ended June 30, 2019 as compared to 27.6% for the six months ended June 30, 2020. The decrease in service and supplies costs is due primarily to decreased personnel costs in cost of sales.
Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was approximately $0.2 million for each of the six months ended June 30, 2020 and 2019.
Operating Expenses: (in thousands)
The Company’s investments in its business and the resulting operating expenses continued to grow throughout 2019. The Company expected sales orders, shipments, and overall revenue to continue to grow in 2020, which would have necessitated similar levels of operating expenses in 2020. Although the
COVID-19
pandemic impacted revenue throughout the six months ended June 30, 2020, the Company began to implement significant reductions to operating expenses in April 2020. Steps taken to reduce operating expenses included cutting
non-essential
travel, implementing employee furloughs and terminations, reducing employee salaries by 10%, and cancelling most
in-person
trade shows. The Company will continue to monitor the timing of when these measures may be reversed based on the impact that
COVID-19
has on the Company’s revenues.
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Operating Expenses: (in thousands)
Three months ended June 30, 2020March 31, 2021 and 2019:2020:
 
   
Three months ended June 30,
 
   2020   2019   Change   Change % 
Operating expenses:
        
Engineering and product development
  $ 1,878   $2,139   $(261)    (12.2)% 
Marketing and sales
   2,631    3,120    (489)    (15.7)% 
General and administrative
   2,110    1,858    252    13.6% 
Amortization and depreciation
   49    67    (18)    (26.9)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
  $6,668   $ 7,184   $(516)    (7.2)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
   
Three months ended March 31,
 
   2021   2020   Change $  Change % 
Operating expenses:
                   
Engineering and product development
  $2,192   $2,211   $(19)   (0.9)% 
Marketing and sales
   3,424    3,608    (184)   (5.1)% 
General and administrative
   2,151    2,532    (381)   (15.0)% 
Amortization and depreciation
   55    52    3   5.8% 
                    
Total operating expenses
  $7,822   $8,403   $(581)   (6.9)% 
                    
Operating expenses decreased by approximately $0.5$0.6 million, or 7.2%6.9%, from $7.2$8.4 million in the three months ended June 30, 2019March 31, 2020 to $6.7$7.8 million in the three months ended June 30, 2020.March 31, 2021. The Company took steps during the three-month period ended June 30,throughout 2020 to reduce operating expenses including cutting
non-essential
travel, implementing employee furloughs and terminations, reducing employee salaries by 10%, and cancelling most
in-person
trade shows.
The Company will continue to monitorduring the timing of when any of these measures can be reversed based on the impact that
COVID-19
has onpandemic and continues to take a disciplined approach with expenses. Although the Company’s revenues. The decreaseCompany reinstated furloughed employees, many expenses like travel and in operating expenses was also dueperson trade shows have yet to go back to the $0.3 million Employee Retention Credit thatpre
COVID-19
levels as evident by the Company recorded pursuant to the CARES Act.reduction year over year.
Engineering and Product Development
. Engineering and product development costs decreased by approximately $0.3 million, or 12.2%, from $2.1remained relatively flat at $2.2 million for the three months ended June 30, 2019 to $1.9 million for the three months ended June 30, 2020. Detection engineeringMarch 31, 2020 and product development costs decreased by $0.1 million from $1.5 million for the three months ended June 30, 2019 to $1.4 million for the three months ended June 30, 2020. Therapy engineering and product development costs decreased $0.1 million, from $0.6 million in the three months ended June 30, 2019 to $0.5 million for the three months ended June 30, 2020. The decreases were due primarily to decreased personnel costs.2021.
Marketing and Sales
. Marketing and sales expenses decreased by approximately $0.5$0.2 million, or 15.7%5.1%, from $3.1$3.6 million in the three months ended June 30, 2019March 31, 2020 to $2.6$3.4 million in the three months ended June 30, 2020.March 31, 2021. Detection marketing and sales expense decreased by $0.2 million, from $2.1expenses remained relatively flat at $2.4 million in the three months ended June 30, 2019 to $1.9March 31, 2020 and 2021. Therapy marketing and sales expenses decreased by approximately $0.2 million, from $1.2 million in the three months ended June 30, 2020. This included a credit of $0.1 million Employee Retention Credit pursuantMarch 31, 2020 to the CARES Act. Therapy marketing and sales expense decreased by $0.3 million, from $1.0 million in the three months ended June 30, 2019 to $0.7 million in the three months ended June 30, 2020.March 31, 2021. The decrease in both Detection and Therapy marketing and sales expenseexpenses is due primarily to (i) decreased personnel costs, travel, and commissionsreduced trade show costs during the first quarter of 2021 as a resultcompared to the first quarter of the Company’s
COVID-19
related cost-cutting efforts, and (ii) the Employee Retention Credit.2020.
General and Administrative
. General and administrative expenses increaseddecreased by approximately $0.2$0.4 million, or 13.6%15.0%, from $1.9$2.5 million in the three months ended June 30, 2019March 31, 2020 to $2.1 million for the three months ended June 30, 2020. The increase is due primarily to increases in stock compensation expense and legal costs offset by a decrease in personnel costs.
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Amortization and Depreciation.
Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, decreased by approximately $18,000, or 26.9% from $67,000 for the three months ended June 30, 2019 to $49,000 for the three months ended June 30, 2020.
Six months ended June 30, 2020 and 2019:
   
Six months ended June 30,
 
   2020   2019   Change   Change % 
Operating expenses:
        
Engineering and product development
  $4,089   $4,266   $(177)    (4.1)% 
Marketing and sales
   6,239    5,693    546    9.6% 
General and administrative
   4,642    3,404    1,238    36.4% 
Amortization and depreciation
   101    137    (36)    (26.3)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
  $ 15,071   $ 13,500   $ 1,571    11.6% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating expenses increased by approximately $1.6 million, or 11.6%, from $13.5 million in the six months ended June 30, 2019 to $15.1 million in the six months ended June 30, 2020. Although the Company implemented cost-cutting measures related to
COVID-19
and was able to achieve a reduction in operating expenses during the three months ended June 30, 2020, there were still no such measures related to
COVID-19
in the three months ended March 31, 2020, resulting in an overall increase in operating expenses for the six months ended June 30, 2020.2021. The increase in operating expenses was also offset by the $0.3 million Employee Retention Credit that the Company recorded in the quarter ended June 30, 2020 pursuant to the CARES Act.
Engineeringdecrease includes lower personnel, legal, and Product Development
. Engineering and product development costs decreased by approximately $0.2 million, or 4.1%, from $4.3 million for the six months ended June 30, 2019 to $4.1 million for the six months ended June 30, 2020. Detection engineering and product development costs decreased by $0.2 million, from $3.0 million for the six months ended June 30, 2019 to $2.8 million for the six months ended June 30, 2020, due primarily to decreased personneltravel costs. Therapy engineering and product development costs remained at approximately $1.3 million in the
six-months
ended June 30, 2019 and 2020.
Marketing and Sales
. Marketing and sales expenses increased by approximately $0.5 million, or 9.6%, from $5.7 million in the six months ended June 30, 2019 to $6.2 million in the six months ended June 30, 2020. Detection marketing and sales expense increased by $0.5 million, from $3.8 million in the six months ended June 30, 2019 to $4.3 million in the six months ended June 30, 2020. Therapy marketing and sales expense remained flat at $1.9 million in the six months ended June 30, 2019 and 2020.
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The increase in Detection marketing and sales expense is due primarily to increased personnel costs and commissions, which were incurred prior to implementation of cost-cutting measures prompted by the
COVID-19
pandemic. The increase was also offset by the Employee Retention Credit of $0.1 million in Marketing and sales between the Detection and Therapy segments.
General and Administrative
. General and administrative expenses increased by approximately $1.2 million, or 36.4%, from $3.4 million in the six months ended June 30, 2019 to $4.6 million for the six months ended June 30, 2020. The increase is due primarily to increases in stock compensation expense and legal costs, and was offset by cost-cutting measures prompted by the
COVID-19
pandemic.
Amortization and Depreciation.
Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, decreasedincreased by approximately $36,000,$3,000, or 26.3%5.8% from $137,000 for the six months ended June 30, 2019 to $101,000$52,000 for the three months ended June 30, 2020.March 31, 2020 to $55,000 for the three months ended March 31, 2021.
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Other Income and Expense: (in thousands)
Three months ended June 30, 2020March 31, 2021 and 2019:2020:
 
   
Three months ended June 30,
 
   2020   2019   Change   Change % 
Interest expense
  $(115)   $(202)   $87    (43.1)% 
Other income
   33    64    (31)    (48.4)% 
Loss on fair value of debentures
   —      (1,915)    1,915    (100.0)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $(82)   $(2,053)   $ 1,971    (96.0)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Tax benefit (expense)
   (5)    (19)    14    (73.7)% 
   
Three months ended March 31,
 
   2021   2020   Change $   Change % 
Interest expense
  $(112)   $(130)   $18    (13.8)% 
Loss on extinguishment of debt
   —      (341)    341    (100.0)% 
Other income
   2    42    (40)    (95.2)% 
Loss on fair value of debentures
   —      (7,464)    7,464    (100.0)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $(110)   $(7,893)   $7,783    (98.6)% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Tax expense
  $—     $(26)   $26    (100.0)% 
Interest expense
. Interest expense decreased by approximatelyremained flat at $0.1 million, or 43.1%, from $0.2 million for both the three months ended June 30, 2019 to $0.1 million for the three months ended June 30, 2020. The decrease is due primarily to the interest on the Company’s loans with Silicon Valley Bank (“SVB”)March 31, 2020 and Western Alliance Bank (the “Bank”).2021.
Other income
. Other income decreased by approximately $31,000,$40,000, or 48.4%95.2%, from $64,000$42,000 for the three months ended June 30, 2019March 31, 2020 to $33,000$2,000 for the three months ended June 30, 2020. The decrease resulted primarily from lower cash balances in interest-generating accounts and investments.March 31, 2021.
Loss on fair value of debentures
. The Company recorded a loss of approximately $1.9$7.5 million in the three months ended June 30, 2019,March 31, 2020, which reflected an increase in the fair value of the unsecured subordinated convertible debentures issued in December 2018 (the
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“Convertible Debentures”) from $9.5$13.7 million at MarchDecember 31, 2019 to $11.4$21.2 million at June 30, 2019.February 21, 2020. Upon the consummation of the forced conversion of the debentures, 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 during the three-month ending March 31, 2020. As a result of the forced conversion there was no fair value adjustment for the three months ended June 30, 2020.
Tax expense
. Tax expense decreased by approximately $14,000, or 73.7%, from $19,000 for the three months ended June 30, 2019 to $5,000 for the three months ended June 30, 2020. Tax expense is due primarily to state
non-income
and franchise-based taxes.
Six months ended June 30, 2020 and 2019:
   
Six months ended June 30,
 
   2020   2019   Change   Change % 
Interest expense
  $(245)   $(411)   $166    (40.4)% 
Other income
   75    123    (48)    (39.0)% 
Loss on fair value of debentures
   (7,464)    (4,440)    (3,024)    68.1% 
  
 
 
   
 
 
   
 
 
   
 
 
 
  $(7,634)   $(4,728)   $(2,906)    61.5% 
  
 
 
   
 
 
   
 
 
   
 
 
 
Tax expense
  $(31)   $(27)   $(4)    14.8% 
Interest expense
. Interest expense decreased by approximately $0.2 million, or 40.4%, from $0.4 million for the six months ended June 30, 2019 to $0.2 million for the six months ended June 30, 2020. The decrease is due primarily to the interest on the Company’s loans with SVB and the Bank.
Other income
. Other income decreased by approximately $48,000, or 39%, from $123,000 for the six months ended June 30, 2019 to $75,000 for the six months ended June 30, 2020. The decrease resulted primarily from lower cash balances in interest-generating accounts and investments.
Loss on fair value of debentures
. The Company recorded a loss of approximately $7.5 million in the six months ended June 30, 2020, which reflected an increase in the fair value of the Convertible Debentures from $13.7 million at December 31, 2019 to $21.2 million as of February 21, 2020. The Company recorded a loss of approximately $1.9 million in the six months ended June 30, 2019, which reflected an increase in the fair value of Convertible Debentures from $9.5 million at March 31, 2019 to $11.4 million at June 30, 2019. 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. As a result of the forced conversion, there was no fair value adjustment for the three months ended June 30, 2020. The Convertible Debenture balance as of June 30, 2020 was $0.2021.
Loss on extinguishment of debtdebt:
: The Company recorded a loss on extinguishment of approximately $341,000 related to the repayment and retirement of the loan with SVB.SVB Loan Agreement as of the three months ended March 31, 2020. The loss on extinguishment was composed of approximately $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 2019.2021.
Tax expense
. Tax expense decreased by approximately $26,000, or 100%, from $26,000 for the three months ended March 31, 2020 to $0 for the three months ended March 31, 2021. The Company has approximately $13,000 in
non-income
related tax expense classified in operating expenses under ASU
2019-12
that had previously been classified here in tax expense. Tax expense is due to state
non-income
and franchise-based taxes.
 
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Tax expense
. Tax expense increased by approximately $4,000, or 14.8%, from $27,000 for the six months ended June 30, 2019 to $31,000 for the six months ended June 30, 2020. Tax expense is due primarily to state
non-income
and franchise-based taxes.
Liquidity and Capital Resources
The Company’s cash on hand includes proceeds from the Loan and Security Agreement entered into with the Bank on March 31, 2020. The Company and the Bank amended the Loan and Security Agreement on June 22, 2020 (as amended, the “Loan Agreement”). The Loan Agreement includes certain financial covenants tied to minimum revenue and the ratio of the Company’s unrestricted cash at the Bank to its indebtedness under the Loan Agreement. The
COVID-19
pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on the Company’s ability to maintain compliance with the covenants under the Loan Agreement. If at any point the Company is not in compliance with certain covenants and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date.
Even if an event of default were to occur under the Loan Agreement, the Company believes that its current liquiditycash and capital resourcescash equivalents balance of $46.9 million as of March 31, 2021, and projected cash balances are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand of $24.2 million and anticipated revenue and cash collections. The Company has also entered into an
at-the-market
offering program with JMP Securities (the “ATM”) to provide for additional potential liquidity. The Company’s ATM facility provides for the sale of common stock having a value of up to $25.0 million. As of June 30, 2020, no sales had been made pursuant to the ATM facility and $25.0 million in capacity remains under the facility.
On April 27, 2020, the Company issued 1,562,500 shares of common stock to several institutional investors at a price of $8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately $12.5 million, and the Company received net proceeds of approximately $12.3 million.
Our projected cash needs include planned capital expenditures, loan interest payments, lease commitments, and other long-term obligations.months. 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.
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Table In addition, the resurgence of Contentsthe
COVID-19
As of June 30, 2020, the Company has 22,874,441 shares of common stock issued and outstanding, and 432,021 shares reserved for future issuance, out of 30,000,000 authorized shares of common stock. Given this relatively limited number of shares available for issuance in a capital markets transaction, the Company may not be able to raise significant financing through a capital markets transaction and accordingly, the Company will seek approval from its stockholders to amend its Certificate of Incorporation to increase its authorized shares of common stock at a later date and subject to the filing with the SEC of a proxy statement and solicitation of stockholder approval. The Company will incur additional costs and expenses in seeking approval for such amendment and as a result of the failure to obtain valid approval of a related amendment at its earlier stockholder meeting.pandemic could affect our liquidity. The Company will continue to closely monitor its liquidity and the capital and credit markets.
The Company’s cash on hand as of March 31, 2021 includes proceeds from the Loan and Security Agreement entered into with Western Alliance Bank (the “Bank”) on March 31, 2020 and amended on June 22, 2020 (as amended, the “Loan Agreement”). On April 27, 2021, the Company repaid its obligations in the aggregate amount of $7,354,283 under and terminated the Loan Agreement with the Bank, and its collateral securing the facility was released.
As of June 30,On April 27, 2020, the Company had current assetsissued 1,562,500 shares of $35.7 million including $24.2 millioncommon stock to several institutional investors at a price of cash and cash equivalents. Current liabilities are $12.8$8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately $12.5 million, and the Company received net proceeds of approximately $12.3 million. The Company also entered into the ATM Facility with JMP Securities in March 2020 to provide for additional potential liquidity. The ATM facility provided for the sale of common stock having a value of up to $25.0 million. On December 17, 2020 the company sold 470,704 shares of common stock under the ATM Facility for gross proceeds of approximately $6.6 million and net proceeds of approximately $6.1 million. As of December 31, 2020, $18.4 million in capacity remained under the ATM Facility. On March 2, 2021, the Company terminated the ATM Facility.
On March 2, 2021, the Company entered into an underwriting agreement with Guggenheim Securities, LLC, as representative of the several underwriters thereto, in connection with an underwritten public offering of 1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share. The Offering closed on March 5, 2021 for gross proceeds of approximately $25.1 million and net proceeds of approximately $23.2 million to the Company.
The Company had net working capital is $22.9 million.Capital of $48.1 million at March 31, 2021. The ratio of current assets to current liabilities is 2.79:1.at March 31, 2021 and December 31, 2020 was 4.40 and 2.53 respectively.
 
  
For the six-months ended June 30,
   
For the three months ended March 31,
 
  
2020
   
2019
   
2021
   
2020
 
  (in thousands)   (in thousands) 
Net cash used for operating activities
  $(3,573)   $(2,404)   $(3,563)   $(1,416) 
Net cash used for investing activities
   (186)    (143)    (262)    (156) 
Net cash provided by financing activities
   12,671    9,929    23,546    515 
  
 
   
 
         
Decrease in cash and equivalents
  $8,912   $7,382 
Increase (decrease) in cash and equivalents
  $19,721   $(1,057) 
  
 
   
 
         
Net cash used for operating activities for the
six-month
period three months ended June 30, 2020March 31, 2021 was $3.6 million, compared to net cash used for operating activities of $2.4$1.4 million for the
six-month
period three months ended June 30, 2019.March 31, 2020. The net cash used for operating activities for the
six-month
period three months ended June 30, 2020March 31, 2021 resulted primarily from our net loss as adjusted for
non-cash
items, and was reduced by working capital changes resulting from decreases in accounts payable and accrued expenses as well as an increase in accounts receivable offset by increasesa decrease in inventory and decreases in in accounts payable and accrued expenses.inventory. We expect that net 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 receivable and the timing of other payments.
Net cash used for investing activities for the
six-month
period three months ended June 30, 2020March 31, 2021 was $186,000,$262,000, compared to $143,000$156,000 for the
six-month
period three months ended June 30, 2019.March 31, 2020. The net cash used for investing activities for the
six-month
period three months ended June 30,March 31, 2021 and 2020 is primarily for purchases of property and equipment.
Net cash provided by financing activities for the
six-month
period three months ended June 30, 2020March 31, 2021 was $12.7$23.6 million, compared to $9.9$0.5 million for the
six-month
period three months ended June 30, 2019.March 31, 2020. Net cash provided by financing activities for the
six-month
period three months ended June 30, 2020March 31, 2021 is primarily from the $12.3 millionunderwritten public offering of 1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share resulting in net proceeds of approximately $23.2 million. The company also received $0.3 million from the issuance of common stock and $7.0 million frompursuant the Loan Agreement with the Bank, offset by $4.6 million in repayment
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of the term loan with SVB and $2.0 million in repayment of the revolving loan with SVB. CashCompany’s stock option plan. Net cash provided by financing activities for the sixthree months ended June 30, 2019March 31, 2020 is due primarily to cash from the issuance of common stock. In June 2019,stock pursuant 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.
Contractual Obligations
The Company had the following commitments as of June 30, 2020:Company’s stock option plan.
 
   
Total
   
Less than 1
year
   
1-3
years
   
3-5
years
   
5+ years
 
Operating Lease Obligations
  $2,496,532   $922,858   $1,564,314   $9,360   $ —   
Finance Lease Obligations
   4,683    4,683    —      —      —   
Settlement Obligations
   463,262    463,262    —      —      —   
Notes Payable
   8,039,336    372,604    5,312,740    2,353,992    —   
Other Commitments
   4,456,329    4,456,329    —      —      —   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total Contractual Obligations
  $ 15,460,143   $ 6,219,737   $6,877,054   $2,363,352   $—   
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
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Operating and Capital Lease Obligations are the minimum payments due under these obligations.
Settlement Obligations represent the remaining payments under the settlement agreement with Hologic, Inc.
Notes Payable – principal and interest represents the payments due under the term loan from the Bank.
Other 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.
 
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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 its sales and expenses are denominated in the U.S. dollar. The Company does not hold derivative securities and 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%23% 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
The Company’s management, with the participation of its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, as of June 30, 2020,March 31, 2021, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures (as defined in Rule
13a-15(e)
of the Securities Exchange Act of 1934, (“Exchangeas amended (the “Exchange Act”)) were effective at thea reasonable level of assurance.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluations to enhance, where necessary, the Company’s proceduresits controls and controls.procedures.
The Company’s principal executive officer and principal financial officer conducted an evaluation of the Company’s internal control over financial reporting (as defined in Exchange Act Rule
13a-15(f))
of the Exchange Act) and have determined there are no changes in its internal controls over financial reporting during the quarter ended June 30, 2020,March 31, 2021 that have materially affected or which are reasonably likely to materially affect internal control over financial reporting.
 
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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
10-Q.
In December 2016, the Company entered into anthe Asset Purchase Agreement with Invivo Corporation.Invivo. In accordance with the agreement,Asset Purchase Agreement, the Company sold to Invivo all right, title and interest to certain intellectual property relating to the Company’s VersaVue Software and DynaCAD product and related assets for $3.2 million. The Company closed the transaction on January 30, 2017 less the Escrowed Amount, a holdback reserve of $350,000, for a net proceeds of approximately $2.9 million.
On September 5, 2018, third-party Yeda, Research and Development Company Ltd. (“Yeda”), filed a complaint (“the Complaint”)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,alleged, among other things, that the Company infringed upon Yeda’s source code, which was originally licensed to the Company, by using it in the products that the Company sold to Invivo and that it is entitled to damages that could include, among other things, profits relating to the sales of these products. IfOn April 13, 2021, the Company and Yeda entered into the Settlement Agreement whereby the Company furnished to Yeda a
one-time
cash payment of $85,000 and received a full,
non-conditional
release from Yeda of any and all claims related to the Complaint and the subject of the Complaint. Neither the Company nor Invivo acknowledged any wrongdoing at any point in connection with the Complaint or the subject matter thereof. The Escrowed Amount was reserved, in part, to cover any legal expenses related to the Asset Purchase Agreement and the transactions contemplated therein. The remaining balance of the Escrowed Amount following such expenses is due and payable to the Company in accord with the terms of the Asset Purchase Agreement. However, the Company is foundunaware of the amount Invivo may claim it is entitled to have infringed Yeda’s copyright or breached its agreements with Yeda,of the Company could be obligated to pay to Yeda substantial monetary damages.Escrowed Amount, if any, under the Asset Purchase Agreement.
In addition to the forgoing, the Company may be 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.
 
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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. In addition to the risk factor below, factors that have affected our Company are described in Part I, Item 1A of our Annual Report on Form
10-K
for the year ended December 31, 20192020 as filed with the SEC on March 11, 202015, 2021 and are incorporated by reference herein.
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 declared
COVID-19
to be a pandemic. In an effort to contain and mitigate the spread of the
COVID-19
many countries, includingpandemic, the United States, many countries in Europe, as well as Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of
COVID-19.
As a provider of devices and services to the health care industry, our operations have been materially affected. Significant uncertainty remains as to the potential impact of the
COVID-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. 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 couldwill 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 June 30, 2020March 31, 2021 reflect a negative impact from the
COVID-19
pandemic as the typical sales cycle and ordering patterns were still disrupted due to some healthcare facilities’ additional focus on
COVID-19.
Although we do not provide guidance to investors relating to our results of operations, our results for the quarter ending SeptemberJune 30, 2020,2021, and possibly future quarters, could reflect a negative impact from the
COVID-19
pandemic for similar reasons. Depending upon the duration and severity of the pandemic, the continuing effect on our results over the long term is uncertain.
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.
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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 current
COVID-19
pandemic, or other customer-specific factors. Although theThe Company has historically not experienced significant trade account receivable losses, but it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade account receivables as hospitals’ cash flows are impacted by their response to the
COVID-19
pandemic.
 
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Item
6.
Exhibits
 
Exhibit
    No.    
  
Description
  10.1*†10.1  First Amendment to Loan and Security Agreement, dated June 16, 2020, between iCAD, Inc., Xoft, Inc., Xoft Solutions LLC and Western Alliance Bank.2016 Stock Incentive Plan as amended December 2018 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on February 19, 2021).
  10.2  Form of Securities PurchaseConsulting Agreement dated as of April 23, 2020,16, 2021, by and between iCAD, Inc. and the purchasers party theretoCharles Carter (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on April 27, 2020)28, 2021).
  10.3Amendment to Employment Agreement, dated May 26, 2020, between iCAD, Inc. and Michael Klein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 29, 2020).
  10.4Employment Agreement, dated May 26, 2020, between iCAD, Inc. and Stacey Stevens (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on May 29, 2020).
  10.5Employment Agreement, dated May 26, 2020, between iCAD, Inc. and R. Scott Areglado (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on May 29, 2020).
  10.6Employment Agreement, dated May 26, 2020, between iCAD, Inc. and Jonathan Go (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the SEC on May 29, 2020).
  31.1*31.1 *  Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2*31.2 *  Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1**32.1 **  Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2**32.2 **  Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  101*101 *  The following materials formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets as of June 30, 2020March 31, 2021 and December 31, 2019,2020, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, (iii) Condensed Consolidated Statements of Cash Flows for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, (iv) Condensed Statements of Stockholders’ Equity for the three months ended March 31, 2021 and six-month period ended June 30,March 31, 2020 and 2019 and (v) Notes to Condensed Consolidated Financial Statements.
  104*104 *  Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).
 
*
Filed herewith
**
Furnished herewith
†
Portions of this exhibit, marked by brackets, have been omitted pursuant to Item 601(b)(10)(iv) of Regulation
S-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.
 
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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.
 
                iCAD, Inc.            
(Registrant)
Date: May 4, 2021                 iCAD, Inc.            
                (Registrant)
Date
: August 7, 2020
  By: 
/s/ Michael Klein
  Name: Michael Klein
  Title: 
Chief Executive Officer
(Principal Executive Officer)
Date
: August 7, 2020
Date: May 4, 2021		  By: 
/s/ R. Scott Areglado
  Name: R. Scott Areglado
  Title: 
Chief Financial Officer
(Principal Financial Officer)
 
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