| Basis of Presentation and Significant Accounting Policies | Note 1 - Basis of Presentation and Significant Accounting
Policies
The accompanying condensed consolidated financial statements of
iCAD, Inc. and subsidiaries (“iCAD” or the
“Company”) have been prepared in accordance with
accounting principles generally accepted in the United States of
America (“US GAAP”). In the opinion of management,
these unaudited interim condensed consolidated financial statements
reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial
position of the Company at September 30, 2018, the results of
operations of the Company for the three and nine month periods
ended September 30, 2018 and 2017, and cash flows of the
Company for the nine month periods ended September 30, 2018
and 2017.
Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented
not misleading, certain information normally included in the
footnotes prepared in accordance with US GAAP has been omitted
as permitted by the rules and regulations of the Securities and
Exchange Commission (“SEC”). The accompanying financial
statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31,
2017 filed with the SEC on March 30, 2018. The results for the
three and nine month periods ended September 30, 2018 are not
necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2018, or any future
period.
On a quarterly basis the Company evaluates whether there are
conditions or events, considered in the aggregate, that would raise
substantial doubt about the entity’s ability to continue as a
going concern. Substantial doubt exists when conditions and events,
considered in the aggregate, indicate it is probable that the
Company will be unable to meet its obligations as they become due
during the one-year
raise substantial doubt about our ability to continue as a going
concern. However, the Company believes alternative sources of
capital are available including from other sources of debt
financings and/or future sales of its equity securities. In
addition, the Company has made and can make additional reductions
to reduce near term cash requirements. One or more of these
mitigating responses, together with anticipated revenues, are
expected to provide the Company with sufficient liquidity to
continue as a going concern. There are no assurances, however, that
in the event the Company is not successful in obtaining the
necessary waivers or modifications to the Loan Agreement, that
other sources of capital will be available, or, if available, the
Company will be able to secure such capital on favorable terms. The
Company’s failure to secure the necessary waivers or
modifications, to generate enough revenue, control or further
reduce expenditures and/or to secure capital from other sources may
result in an inability of the Company to continue as a going
concern. Our financial statements do not include any adjustments
that might be necessary if we are unable to continue as a going
concern.
Segments
The Company reports the results of two segments: Cancer Detection
(“Detection”) and Cancer Therapy
(“Therapy”). The Detection segment consists of our
advanced image analysis and workflow products. The Therapy segment
consists of our radiation therapy (“Axxent”) products,
physics and management services, development fees, supplies, and
fees for the AxxentHub software platform.
Revenue Recognition
Adoption of ASC Topic 606, “Revenue from Contracts with
Customers”
On January 1, 2018, the Company adopted the new accounting
standard ASC 606, “Revenue from Contracts with
Customers” and all the related amendments (Topic 606) using
the modified retrospective method for all contracts not completed
as of the date of adoption. For contracts that were modified before
the effective date, the Company reflected the aggregate effect of
all modifications when identifying performance obligations and
allocating transaction price in accordance with practical expedient
ASC
606-10-65-1-(f)-4,
A significant portion of the Company’s revenue continues to
be recognized when products are shipped from manufacturing or
warehousing facilities. Revenue generated from fixed fee service
contracts and source agreements continues to be recognized on a
straight-line basis over the term of the agreement. Revenue
generated from professional service contracts entered into with
customers on a time and material basis is recognized over the term
of the agreement in proportion to the costs incurred in satisfying
the obligations under the contract. Components of certain fixed fee
service contracts are accounted for as a lease and therefore are
outside the scope of Topic 606. See Note 1 for further details.
We recorded a net increase to opening retained earnings of
$0.1 million as of January 1, 2018 due to the cumulative
impact of adopting Topic 606, with the impact primarily related to
the deferral of commissions on our long-term service arrangements
and warranty periods greater than one year, which previously were
expensed as incurred but under the amendments to ASC 340-40
The cumulative effect of the changes made to the Company’s
consolidated balance sheet for the adoption of Topic 606 were as
follows (in thousands):
Selected Balance
Sheet Balance at Adjustments Due 2014-09 Balance at
Assets
Prepaid expenses and other current assets $ 1,100 $ 147 $ 1,247
Liabilities
Deferred revenue
— 409 409
Contract liabilities 5,910 (370 ) 5,540
Stockholders’ equity
Accumulated deficit (201,865 ) 108 (201,973 )
In accordance with the requirements of the new standard, the
disclosure of the impact of the adoption on our consolidated
balance sheet and statement of operations was as follows (in
thousands):
As of September 30,
2018
Selected Balance
Sheet As Reported Balances without Effect of Change
Assets
Prepaid expenses and other current assets $ 1,217 $ 986 $ (231 )
Liabilities
Accrued expenses 3,767 3,767
—
Deferred revenue 332 332
—
Contract liabilities 5,766 5,863 97
Deferred tax 2 2
—
Stockholders’ equity
Accumulated deficit (207,430 ) (207,564 ) (134 )
The impact to revenues as a result of applying Topic 606 for the
three and nine months ended September 30, 2018 was an increase
of $67,000 and $63,000, respectively (table in thousands).
Three months ended September 30, 2018
Nine months ended September 30, 2018
Selected Statement of
Operations As Reported Balances without Effect of Change As Reported Balances without Effect of Change
Revenue
Products $ 3,093 $ 3,036 $ 57 $ 9,301 $ 9,215 $ 86
Service and supplies 3,099 3,089 $ 10 9,366 9,355 11
Cost of revenue
Products 603 603
— 1,598 1,598
—
Service and supplies 752 752
— 2,743 2,743
—
Operating expenses
Marketing and sales 2,100 2,118 (18 ) 6,272 6,528 (256 )
Interest expense (118 ) (118 )
— (373 ) (373 )
—
Other income 28 28
— 79 79
—
Tax benefit (expense) (26 ) (26 )
— (43 ) (43 )
—
Net loss (1,365 ) (1,450 ) (85 ) (5,673 ) (6,026 ) (353 )
Revenue Recognition
In accordance with ASC 606, revenue is recognized when a customer
obtains control of promised goods or services. The amount of
revenue recognized reflects the consideration to which the Company
expects to be entitled to receive in exchange for these goods or
services and excludes any sales incentives or taxes collected from
customer which are subsequently remitted to government authorities.
To achieve this core principle, the Company applies the following
five steps:
1)
Identify the contract(s) with a
customer
2)
Identify the performance obligations in the
contract
3)
Determine the transaction price
4)
Allocate the transaction price to the performance
obligations in the contract
5)
Recognize revenue when (or as) the Company
satisfies a performance obligation
The Company recognizes revenue from its contracts with customers
primarily from the sale of products and from the sale of services
and supplies. Revenue is recognized when control of the promised
goods or services is transferred to a customer, in an amount that
reflects the consideration we expect to be entitled to in exchange
for those goods or services. For product revenue, control has
transferred upon shipment provided title and risk of loss have
passed to the customer. Services and supplies are considered to be
transferred as the services are performed or over the term of the
service or supply agreement. The Company enters into contracts that
can include various combinations of products and services, which
are generally capable of being distinct and accounted for as
separate performance obligations. The Company’s hardware is
generally highly dependent on, and interrelated with, the
underlying software and the software is considered essential to the
functionality of the product. In these cases, the hardware and
software license are accounted for as a single performance
obligation and revenue is recognized at the point in time when
ownership is transferred to the customer. Taxes assessed by a
governmental authority that are both imposed on and concurrent with
a specific revenue-producing transaction, that are collected by the
Company from a customer, are excluded from revenue. Shipping and
handling costs associated with outbound freight after control of a
product has transferred to a customer are accounted for as
fulfillment costs and are included in cost of revenue.
Disaggregation of Revenue
The following tables presents our revenues disaggregated by major
good or service line, timing of revenue recognition, and sales
channel, reconciled to our reportable segments (in thousands).
Three months ended September 30, 2018
Reportable
Segments
Detection Therapy Total
Major Goods/Service Lines
Products $ 2,394 $ 1,162 $ 3,556
Service contracts 1,341 373 1,714
Supply and source usage agreements
— 599 599
Professional services
— 68 68
Other 58 63 121
$ 3,793 $ 2,265 $ 6,058
Timing of Revenue Recognition
Goods transferred at a point in time $ 2,394 $ 1,206 $ 3,600
Services transferred over time 1,399 1,059 2,458
$ 3,793 $ 2,265 $ 6,058
Sales Channels
Direct sales force $ 2,340 $ 1,798 $ 4,138
OEM partners 1,453
— 1,453
Channel partners
— 467 467
$ 3,793 $ 2,265 $ 6,058
Total Revenue
Revenue from contracts with customers $ 3,793 $ 2,265 $ 6,058
Revenue from lease components 134
— 134
$ 3,927 $ 2,265 $ 6,192
Nine months ended September 30, 2018
Reportable
Segments
Detection Therapy Total
Major Goods/Service Lines
Products $ 7,369 $ 3,406 $ 10,775
Service contracts 3,978 1,082 5,060
Supply and source usage agreements
— 1,686 1,686
Professional services
— 262 262
Other 167 303 470
$ 11,514 $ 6,739 $ 18,253
Timing of Revenue Recognition
Goods transferred at a point in time $ 7,369 $ 3,676 $ 11,045
Services transferred over time 4,145 3,063 7,208
$ 11,514 $ 6,739 $ 18,253
Sales Channels
Direct sales force $ 6,180 $ 5,756 $ 11,936
OEM partners 5,334
— 5,334
Channel partners
— 983 983
$ 11,514 $ 6,739 $ 18,253
Total Revenue
Revenue from contracts with customers $ 11,514 $ 6,739 $ 18,253
Revenue from lease components 414
— 414
$ 11,928 $ 6,739 $ 18,667
Three months ended September 30, 2017(1)
Reportable
Segments
Detection Therapy Total
Major Goods/Service Lines
Products $ 2,758 $ 1,364 $ 4,122
Service contracts 1,385 322 1,707
Supply and source usage agreements
— 507 507
Professional services
— 99 99
Other 60 362 422
$ 4,203 $ 2,654 $ 6,857
Timing of Revenue Recognition
Goods transferred at a point in time 2,758 1,552 $ 4,310
Services transferred over time 1,445 1,102 2,547
$ 4,203 $ 2,654 $ 6,857
Sales Channels
Direct sales force $ 1,788 $ 2,084 $ 3,872
OEM partners 2,415
— 2,415
Channel partners
— 570 570
$ 4,203 $ 2,654 $ 6,857
Total Revenue
Revenue from contracts with customers $ 4,203 $ 2,654 $ 6,857
Revenue from lease components 143
— 143
$ 4,346 $ 2,654 $ 7,000
(1)
As noted above, prior period amounts have not been
adjusted under the modified retrospective method.
Nine months ended September 30, 2017(1)
Reportable
Segments
Detection Therapy Total
Major Goods/Service Lines
Products $ 7,970 $ 3,365 $ 11,335
Service contracts 4,324 1,126 5,450
Supply and source usage agreements
— 1,454 1,454
Professional services
— 167 167
Other 334 1,022 1,356
$ 12,628 $ 7,134 $ 19,762
Timing of Revenue Recognition
Goods transferred at a point in time 7,970 3,703 $ 11,673
Services transferred over time 4,658 3,431 8,089
$ 12,628 $ 7,134 $ 19,762
Sales Channels
Direct sales force $ 5,899 $ 6,254 $ 12,153
OEM partners 6,729
— 6,729
Channel partners
— 880 880
$ 12,628 $ 7,134 $ 19,762
Total Revenue
Revenue from contracts with customers $ 12,628 $ 7,134 $ 19,762
Revenue from lease components 438
— 438
$ 13,066 $ 7,134 $ 20,200
(1)
As noted above, prior period amounts have not been
adjusted under the modified retrospective method.
Products.
Service Contracts. non-lease
Supply and Source Usage Agreements.
Professional Services.
Other.
Significant Judgments
The Company’s contracts with customers may include promises
to transfer multiple products and services to a customer.
Determining whether products and services are considered distinct
performance obligations that should be accounted for separately
versus together may require significant judgment. For arrangements
with multiple performance obligations, the Company allocates
revenue to each performance obligation based on its relative
standalone selling price. Judgment is required to determine the
standalone selling price for each distinct performance obligation.
The Company generally determines standalone selling prices based on
the prices charged to customers and uses a range of amounts to
estimate standalone selling prices when we sell each of the
products and services separately and need to determine whether
there is a discount that needs to be allocated based on the
relative standalone selling prices of the various products and
services. The Company typically has more than one range of
standalone selling prices for individual products and services due
to the stratification of those products and services by customers
and circumstances. In these instances, the Company may use
information such as the type of customer and geographic region in
determining the range of standalone selling prices.
The Company may provide credits or incentives to customers, which
are accounted for as variable consideration when estimating the
transaction price of the contract and amounts of revenue to
recognize. The amount of variable consideration to include in the
transaction price is estimated at contract inception using either
the estimated value method or the most likely amount method based
on the nature of the variable consideration. These estimates are
updated at the end of each reporting period as additional
information becomes available and revenue is recognized only to the
extent that it is probable that a significant reversal of any
amounts of variable consideration included in the transaction price
will not occur. The Company provides for estimated warranty costs
on original product warranties at the time of sale.
Contract Balances
Contract liabilities are a component of deferred revenue, and
contract assets are a component of prepaid and other current
assets. The following table provides information about receivables,
contract assets, and contract liabilities from contracts with
customers (in thousands).
Contract balances
Balance at
Receivables, which are included in ‘Trade accounts
receivable’ $ 6,128
Contract assets, which are included in “Prepaid and other
current assets” 19
Contract liabilities, which are included in “Deferred
revenue” 5,766
Timing of revenue recognition may differ from timing of invoicing
to customers. The Company records a receivable when revenue is
recognized prior to receipt of cash payments and the Company has
the unconditional right to such consideration, or unearned revenue
when cash payments are received or due in advance of performance.
For multi-year agreements, the Company generally invoices customers
annually at the beginning of each annual service period.
The opening balance of accounts receivable from contracts with
customers, net of allowance for doubtful accounts, was
$8.5 million as of January 1, 2018. As of
September 30, 2018, accounts receivable, net of allowance for
doubtful accounts, was $6.1 million.
The Company will record a contract asset for unbilled revenue when
the Company’s performance is in excess of amounts billed or
billable. The Company has classified the contract asset balance as
a component of prepaid expenses and other current assets as of
January 1, 2018 and September 30, 2018. The opening
balance of contract assets was $166,000 as of January 1, 2018.
As of September 30, 2018, the contract asset balance was
$19,000.
Deferred revenue from contracts with customers is primarily
composed of fees related to long-term service arrangements, which
are generally billed in advance. Deferred revenue also includes
payments for installation and training that has not yet been
completed and other offerings for which we have been paid in
advance and earn the revenue when we transfer control of the
product or service. Deferred revenue from contracts with customers
is included in deferred revenue in the consolidated balance sheets.
Deferred revenue on the consolidated balance sheet also includes
$369,000 and $332,000 at December 31, 2017 and
September 30, 2018, respectively of amounts associated with
service contracts accounted for under Topic 840. The balance of
deferred revenue at December 31, 2017 and September 30,
2018 is as follows (in thousands):
December 31, 2017 Contract Lease revenue Total
Short term $ 5,044 $ 360 $ 5,404
Long term 497 9 506
Total $ 5,541 $ 369 $ 5,910
September 30, 2018 Contract Lease revenue Total
Short term $ 5,402 $ 320 $ 5,722
Long term 364 12 376
Total $ 5,766 $ 332 $ 6,098
Changes in deferred revenue from contracts with customers were as
follows (in thousands):
Nine Months Ended September 30, 2018
Balance at beginning of period $ 5,541
Adoption adjustment 39
Deferral of revenue 7,995
Recognition of deferred revenue (7,809 )
Balance at end of period $ 5,766
We expect to recognize approximately $2.1 million of the
deferred amount in 2018, $3.8 million in 2019, and
$0.2 million thereafter.
Assets Recognized from the Costs to Obtain a Contract with a
Customer
We recognize an asset for the incremental costs of obtaining a
contract with a customer if we expect the benefit of those costs to
be longer than one year. We have determined that certain
commissions programs meet the requirements to be capitalized. The
opening balance of capitalized costs to obtain a contract was
$117,000 as of January 1, 2018. As of September 30, 2018,
the balance of capitalized costs to obtain a contract was $256,000.
The Company has classified the capitalized costs to obtain a
contract as a component of prepaid expenses and other current
assets as of January 1, 2018 and September 30, 2018.
Changes in the balance of capitalized costs to obtain a contract
were as follows (in thousands):
Nine Months Ended September 30, 2018
Balance at beginning of period $ 117
Deferral of costs to obtain a contract 293
Recognition of costs to obtain a contract (154 )
Balance at end of period $ 256
Practical Expedients and Exemptions
The Company has elected to make the following accounting policy
elections through the adoption of the following practical
expedients:
Right to Invoice
Where applicable, the Company will recognize revenue from a
contract with a customer in an amount that corresponds directly
with the value to the customer of the Company’s performance
completed to date and the amount to which the entity has a right to
invoice.
Sales and Other Similar Taxes
The Company will exclude sales taxes and similar taxes from the
measurement of transaction price and will ensure that it complies
with the disclosure requirements of ASC 235-10-50-1 50-6.
Significant Financing Component
The Company will not adjust the promised amount of consideration
for the effects of a significant financing component if the Company
expects, at contract inception, that the period between when the
entity transfers a promised good or service to a customer and when
the customer pays for that good or service will be one year or
less.
Cost to Obtain a Contract
The Company will recognize the incremental costs of obtaining a
contract as an expense when incurred if the amortization period of
the asset that the Company otherwise would have recognized is one
year or less and there are no renewal periods on which the Company
does not pay commissions that are not commensurate with those
originally paid.
Promised Goods or Services that are Immaterial in the Context of
a Contract
The Company has elected to assess promised goods or services as
performance obligations that are deemed to be immaterial in the
context of a contract. As such, the Company will not aggregate and
assess immaterial items at the entity level. That is, when
determining whether a good or service is immaterial in the context
of a contract, the assessment will be made based on the application
of ASC 606 at the contract level.
The Company does not disclose the value of unsatisfied performance
obligations for (i) contracts with an original expected length
of one year or less and (ii) contracts for which we recognize
revenue at the amount to which we have the right to invoice for
services performed.
Cost of Revenue
Cost of revenue consists of the costs of products purchased for
resale, costs relating to service including personnel costs for
physicists, management services and radiation therapists, costs of
service contracts to maintain equipment after the warranty period,
product installation, training, customer support, certain warranty
repair costs, inbound freight and duty, cost of supplies,
manufacturing, warehousing, material movement, inspection, scrap,
rework, amortization, depreciation and in-house |
