EXHIBIT 99
STATEMENT PROVIDING INFORMATION ON BUSINESS PLAN, STRATEGY AND RECENT COMBINED
PERFORMANCE
iCAD develops, engineers, manufactures and markets computer aided detection
(CAD) products for the early detection of breast cancer and other health-care
related applications. Early detection of breast cancer can save lives and often
permits less costly, less invasive and less disfiguring cancer treatment options
than when the cancer is detected at a later stage. Computer aided detection from
iCAD can detect 25% of breast cancers, an average of 14 months earlier than
screening mammography alone. In May 2003 iCAD's MammoReader(TM) product was
designated number one in every category, including system performance, system
reliability, installation/implementation, applications training, service
response time and service repair quality was designated the top-rated CAD system
for early breast cancer detection by MD Buyline, an independent evaluator of
medical capital equipment. This product retained a top rating in MD Buyline's
November 2003 report.
iCAD is the only independent, integrated digitizer hardware and CAD software
company offering computer aided detection solutions. As such, we are able to
reduce costs at each step in the CAD product design, production and assembly
process. We believe our vertical integration of CAD and hardware development
results in better integration of software and film digitizer components, lower
production costs and reduced administrative overhead. These factors have allowed
us to progressively enhance our CAD product line, while reducing the costs of
our CAD products to many customers and allowing more women to realize the
benefits inherent in the early detection of breast cancer.
On December 31, 2003, we merged with and acquired CADx Systems, Inc. and its
parent company Qualia Computing, Inc., bringing together two of the three
companies approved by the US Food and Drug Administration (FDA) to market
computer aided detection of breast cancer solutions in the United States. To
complete the merger, iCAD issued 4.3 million shares of its common stock in
exchange for all outstanding shares of Qualia Computing Inc. and CADx Systems,
Inc. This represents approximately 13% of the outstanding shares of iCAD common
stock after the merger. Additionally, iCAD paid $1.55 million in cash and
executed a 36-month secured promissory note in the amount of $4.5 million to
purchase Qualia shares that were owned by two institutional investors.
Integration of the companies is substantially complete. We have successfully
combined and integrated all research, development, engineering, regulatory,
quality, finance, MIS, administration, marketing, sales, service and support
functions. Unless otherwise indicated, the references to "iCAD", "we", "us" or
"our", refer to the combined entities, iCAD, CADx Systems, Inc. and Qualia
Computing, Inc.
MARKET AND MARKET SHARE
COMPUTER AIDED DETECTION is used to provide physicians with support in detecting
breast cancer at an early stage. There is a need for devices that facilitate the
early detection of breast cancer and other forms of cancer. For most cancers,
the earlier treatment is rendered, the greater the likelihood of successfully
managing the cancer. Some studies reveal that if breast cancer is detected while
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still localized and before metastasis spreads, the five-year survival rate is
96% or better. If the cancer spreads regionally before treatment, the survival
rate drops to under 76%. If there is distant metastasis, the survival rate drops
to around 20%.
A primary method of detecting breast cancer is through mammography screening.
Mammography is a radiographic examination of a breast. The American Cancer
Society recommends that women undergo annual mammogram examinations beginning at
age 40. Approximately 5 million additional women in the United States will be
entering the annual mammography screening category within the next 5 years. A
problem in this process, that our computer aided detection products seek to
address, is that in routine screening of mammography films an estimated 20-30%
of identifiable breast cancers are missed as a result of radiologist oversight.
In general, CAD as an adjunct to mammography screening is now reimbursable in
the United States under federal and most third party insurance programs,
providing economic support for the acquisition of CAD products by women's health
care providers.
In the United States, approximately 9,200 facilities are accredited to provide
mammography screening. To date, we estimate that approximately 1,500 CAD systems
have been sold into this market. Our combined companies account for
approximately 340 of these systems, including approximately 240 systems sold
during 2003. We believe our market share is increasing. During the fourth
quarter of 2003 on a combined basis we sold a total of approximately 115 CAD
systems, EXCLUDING systems sold to new resellers for demonstration purposes and
systems sold from the stock of iCAD, Inc.'s previous distributor. We believe our
sales represented the majority of all computer aided detection of breast cancer
systems sold during the fourth quarter, which would make us, for the first time,
the market leader in terms of unit shipments.
We believe the large majority of CAD systems sold to date have been sold to
"early adapters", including academic institutions and customers with
comparatively higher case volumes, a group that we estimate comprises less than
one-third of the overall potential market for our products. Our Second Look(R)
200 system (formerly the iCAD iQ(TM) model), introduced in December 2003, is
designed to provide a solution for the balance of the market, where lower case
volumes require a lower cost, easy to use CAD solution.
Full Field Digital Mammography ("FFDM") systems, which eliminate the film used
in conventional mammographic X-Rays, are now available from several vendors.
These systems are expected to increase as a percentage of the installed base of
mammography systems, as more clinics and women's health centers implement
digital imaging workflows. CAD technology, including iCAD's, is applicable to
mammographic images acquired through Digital Mammography systems. To date, we
have sold 70 CAD solutions for digital mammography through our OEM partners and
believe we are the current sales leader in this part of the market.
Our Howtek(TM) medical digitizer products are used in our own CAD systems and
marketed to third parties for use in the computer aided detection market, in
teleradiology and in medical image storage and management networks known as
Picture Archiving and Communications Systems, or "PACS".
4.
RECENT COMBINED FINANCIAL PERFORMANCE
Consolidated financial reporting for the merged companies will begin in the
period starting January 1, 2004. The expected impact of the merger on iCAD's
sales and financial performance can be illustrated, however, by combining the
financial results of the merged companies in 2003 and the fourth quarter of
2003. This report includes unaudited pro forma sales of iCAD and CADx assuming
that the acquisition, which occurred on December 31, 2003, took place as of
January 1, 2003. This pro forma information is considered a non-GAAP financial
measure, but is provided to present the combined companies results as if they
were combined for fiscal 2003. In addition, the pro forma combined results for
2003 include adjustments for inter-company sales. All such results are
internally prepared and unaudited, have not been reviewed by our independent
accountants, and are provided for informational purposes only and are subject to
change. Digitizer sales from iCAD to CADx have been excluded in all estimates of
combined results. We have also excluded inventory reserves and one-time
manufacturing facility improvement charges taken by Qualia and CADx in 2003, and
accounted for by Qualia prior to the merger.
For the year 2003, the companies' pro forma combined sales were approximately
$17,600,000. During the fourth quarter of 2003, pro forma combined sales were
approximately $6,000,000. The fourth quarter of 2003 demonstrated a significant
growth in revenue for the combined companies, reflecting new contributions to
CADx Systems' sales from its OEM relationships with GE Medical Systems and
Fischer Imaging Corporation, along with CADx Systems' new distribution
relationship with SourceOne Healthcare. iCAD's revenues during the fourth
quarter were reduced by postponement of certain dealer development and sales
activities during that period, in preparation for the consolidation of product
lines and sales channels after completion of our merger.
During the first quarter of 2004, iCAD reorganized its sales and sales
management to create one integrated sales team, promoting one continuum of
products on a region by region basis. During the same period, SourceOne has
reorganized its sales organization and activities, in part to better promote our
CAD products. We anticipate that sales in the first quarter of 2004 will be at
or below sales levels for the fourth quarter of 2003, as multiple changes in
sales channels, sales management and organization, product naming, positioning
and marketing are implemented.
We expect our 2004 sales to exceed the 2003 sales of the combined entities, with
factors that contributed to increased fourth quarter 2003 sales continuing,
additional contributions to sales expected from the distribution of iCAD's
MammoReader and iQ products by SourceOne, anticipated increased sales by
independent resellers, contributions from newer products aimed at
lower-case-volume customers, and contributions by our planned ClickCAD
fee-per-procedure program.
Combined gross profit for the year 2003 was approximately $11,000,000, or
approximately 67% of combined sales. Combined gross profit increased during the
fourth quarter to approximately $4,000,000, or approximately 69% of combined
sales. The combined gross profit in the fourth quarter, compares to
approximately 47% achieved by iCAD alone in the third quarter 2003. Although
there can be no assurance of our future gross margin rate, we expect that
further increases in gross margin rate will be achieved as production and other
economies of scale resulting from the merger are realized. By applying our
manufacturing experience and using existing supplier relationships, we expect to
5.
reduce component and manufacturing costs associated with the former CADx product
line by 30% to 50% during 2004, with some associated cost savings expected in
the manufacturing of previous iCAD products.
The non-GAAP financial measures presented in the preceding paragraphs and
elsewhere in this report do not replace the presentation of iCAD's GAAP
financial results and do not necessarily reflect the actual financial results of
the combined companies for the periods presented. More detailed pro forma
financial information for 2003 treating iCAD, Qualia and CADx as merged as of
January 1, 2003 and a reconciliation of the non-GAAP financial measures
contained in this report to the most comparable GAAP measures is appended to
this report. The Company has provided the non-GAAP financial measures in this
report to respond to requests it received from a major group purchasing
organization for financial information combining sales and other financial
information for iCAD, and Qualia/CADx. This information permits the group
purchasing organization to better assess the comparative market share and
financial condition of iCAD, subsequent to its merger with Qualia/CADx, and
iCAD's competitors.
Final audited results, are expected to reflect an operating and net loss for the
fourth quarter of 2003, and for the full year 2003. We expect to report
profitable operations for fiscal 2004, as a result of expected continued sales
growth, improvement in gross margins, and economies of operation achievable as a
result of the merger.
TECHNOLOGY AND DEVELOPMENT
Our computer aided detection systems operate by analyzing multiple features and
characteristics of a screening or diagnostic mammogram to recognize, identify
and "mark" those combinations of features that may represent cancer. We then
present the radiologist with a computerized "Second Look", or second opinion,
helping to reduce overlooked cancers by 23%-28%. This analysis is accomplished
by our cancer detection software, which encapsulates the knowledge from
thousands of mammography cases that were presented during the product's
development to "learn" the important distinguishing characteristics of cancerous
versus normal tissue.
Our cancer detection software is developed using our proprietary QUALIA
INSIGHT(TM) software development platform and technology. The Qualia Insight
platform includes tools and programming structures that support and enhance the
rapid creation and testing of computer solutions, which learn from and apply
existing examples of a condition like breast cancer to support the review and
decision of professionals seeking to identify that condition in practical
medical applications. We believe use of our Qualia Insight platform offers
several key benefits over CAD products currently offered by our competitors,
including reduced development time for initial software releases, reduced
development time and increased opportunity for continuous product improvements
and reduced development time and increased opportunity to apply core computer
aided detection technology to CAD for lung and colon cancers, drug screening and
other applications.
iCAD and CADx have been responsible for a range of innovations in CAD products,
including: the first system offering a clear upgrade path from film-based to
digital mammography workflows; the first and only CAD system to search for and
6.
mark clinical asymmetries; the first system to offer printed CAD results; the
first free-standing, eye-level radiologist review station; the ability to choose
between soft copy and printed CAD results; the first system to offer multiple
radiologist viewing stations; the first system to support up to twelve films in
a patient study, the first system to report above each image the number of marks
made by the CAD system and the first and only system that provides integration
of relational database technologies to ensure patient history tracking and
enhance integration with other information systems. Other innovations
incorporated into our CAD products include the first use of bar code labels to
improve workflow and reduce errors in case tracking; the first system to use the
facility's own barcodes to identify and link to CAD results; the first system to
integrate with a Mammography Information System, the first CAD system to offer
an HL-7 interface to the medical facility's information system; the first CAD
system supporting open architecture, standardized protocols and accessible data
interfaces; the ability to share digitizers between CAD and medical picture
archiving and communications ("PACS") systems; and the first and only dual
digitizer CAD system. iCAD also delivered the first digitizer designed for
mammography and women's health applications; the first and only support for
distributed patient databases, allowing remote scanning and remote access to
patient information and test results; the first and only support for remote
patient entry; the first bi-directional support for hospital and mammography
information systems; the first leveraged operating lease for CAD systems; and
the first fully-featured CAD system available at a price under $100,000.
The most recent version of our cancer detection software, SECOND LOOK 6.0, was
approved by the FDA in October 2003, with up to 96.2 percent overall cancer
detection sensitivity. Specificity, a measure of the number of marks created
that do not represent an actual cancer, was as low as 1.6 False Positives (FP)
per case. Increasingly, potential purchasers are considering marker rate in
their buying decision. The performance of our Second Look 6.0 cancer detection
software represents a substantial reduction in markers over our previous cancer
detection software, and compares favorably with the marking performance of our
competitors. The innovative design of iCAD's software allows it to operate at
multiple sensitivity points, providing the Radiologist with a selectable range
of detection sensitivity and specificity appropriate to their clinical setting.
Second Look 6.0 provides the user with a choice of three operating points, one
with higher sensitivity, another with lower false marks, and a median selection
that optimizes sensitivity and specificity.
Exploiting the benefits of our merger, we have defined those aspects of the iCAD
and former CADx software technologies which we consider "best in class",
including our Second Look 6.0 cancer detection algorithm, analysis of films for
asymmetry between breasts as an indicator of cancer, multiple case entry
options, support for up to twelve films per case and network connectivity
options. These are being incorporated into a common, configurable software code
base that will be installed in each of our products. Initial critical stages of
this process, including incorporating versions of our Second Look 6.0 technology
in additional product models, are expected to be complete in the second quarter
of 2004.
Under the leadership of Dr. Steven Rogers, Qualia's founder and iCAD's Chief
Scientist, our technologies are also being applied to the early detection of
breast cancer using ultrasound; the early detection of lung cancer utilizing
low-dose spiral Computed Tomography (CT) and the early detection of colon cancer
utilizing CT. With support provided through the FY2004 Defense Appropriations
Bill, iCAD has begun collaboration with the Walter Reed Army Medical Center and
the Windber Research Institute in Windber, PA, to develop and evaluate 3D CAD
technology for breast imaging based on existing CAD and pattern analysis
7.
techniques for conventional mammograms. One objective of this research project
is to use ultrasound imaging to reduce biopsies, which prove to be unnecessary.
Research programs in cardiovascular disease applications are also in the
planning stages.
We have applied for over 46 patents relating to many aspects of CAD, cancer
detection and medical digitizer design. To date, we have been granted 12
patents, including general method patents we believe relate to a broad portfolio
of potential medical applications for CAD.
Products
We believe the Second Look brand has the greatest brand equity and recognition
of any iCAD brand in the CAD market. For this reason, we have combined our iQ,
MammoReader and Second Look products into one "Second Look(R)" branded line of
CAD devices. In doing so, we believe we have created the broadest and most
comprehensive line of CAD products available from any company, and associated it
with a single well recognized and appropriate model brand. Case capacity, work
flow, user interface, upgradeability, digital extensions and price are among the
benefits used to distinguish Second Look models:
- ----------------------- ---------- ---------------------------------------------------------
iCAD Model(1) Cases/ Suggested
(Previous Designation) Day Selected Benefits Retail Price
- ----------------------- ---------- ---------------------------------------------------------
Second Look(R)200 Up to 20 Our economical solution for lower volume, $69,950
(iCAD iQ) value oriented customers.
o Fully Automatic workflow and processing
o Compact, easy to use and easy to
maintain.
- ----------------------- ---------- ---------------------------------------------------------
Second Look 400 Up to 80 Our modular, extensible, network-ready $99,950
(MammoReader) solution for value-oriented customers.
o Network options include immediate
HL-7 hospital information system
interface; bi-directional PenRad, MRS
and MagView mammography information
system interfaces; fully compliant
DICOM file-save capability
o Open platform Hub and spoke CAD
architecture
o Distributed case entry, case
processing and case reading allows
physicians to network between offices
o Multiple case-entry options
o Unsorted, continuous film-feed
reduces errors
o Support for bar-coded workflows for
productivity
o Asymmetry included as indicator of
potential cancers
o Optional Radiologist review stations
available
- ----------------------- ---------- ---------------------------------------------------------
- ---------
(1) Specific designations subject to change
8.
- ----------------------- ---------- ---------------------------------------------------------
iCAD Model(1) Cases/ Suggested
(Previous Designation) Day Selected Benefits Retail Price
- ----------------------- ---------- ---------------------------------------------------------
Second Look 500 Up to 80 Our clinically advanced solution for $139,950
(Second Look) customers seeking the best detection
performance available, with immediate
support for digital mammography.
o Immediate availability of Second Look
6.0 cancer detection software for
superior clinical performance
o Selectable operating points adjust
sensitivity and marking rate
o Immediate, clear and cost effective
upgrade path to support digital
mammography
o Operator-friendly graphical user
interface
o Simplified film loading
o Use of existing bar code labels
provides patient record continuity
o Support for up to 12 films per
patient ID ensures all films are on
one record number
o "Stat" case sequencing provides
immediate availability for selected
cases
o Optional Radiologist review stations
o Current accessories include PenRad,
MRS and MagView mammography
information system interfaces;
o Fully compliant DICOM file-save
capability
- ----------------------- ---------- ---------------------------------------------------------
Second Look 402 Up to Our high case load, uptime assurance $149,950
300 solution for high-case volume.
o Dual film digitizers increase
throughput and reduce critical
downtime.
o Network options include immediate
HL-7 hospital information system
interface; bi-directional PenRad, MRS
and MagView mammography information
system interfaces; fully compliant
DICOM file-save capability
o Support for Digital Mammography
planned
o Asymmetry included as indicator of
potential cancers
o Optional Radiologist review stations
available
o Support for bar-coded workflows
o Multiple case-entry options
o Unsorted, continuous film-feed
reduces errors
o Open platform Hub and spoke CAD
supported
o Distributed case entry, case
processing and case reading
- ----------------------- ---------- ---------------------------------------------------------
Second Look Digital Varies Our solution for Digital Mammography. $120,000
by
Digital o Integrated computer aided detection
System for General Electric Medical Systems
Senographe Digital Mammography
System; available from GE Medical
Systems.
o Integrated computer aided detection
for Fischer Imaging Corporation
full-field Digital Mammography
System; available from Fischer
Imaging Corporation
o Support for additional digital
mammography systems planned.
- ----------------------- ---------- ---------------------------------------------------------
Second Look AD Up to Our combined digital and film-based CAD $330,000
150 solution.
mixed
film & o Combines benefits of Second Look 500
digital and Second Look Digital.
o Available from OEM as a complete
solution and as an upgrade to select,
existing Second Look solutions.
- ----------------------- ---------- ---------------------------------------------------------
9.
- ------------------------- ---------- ---------------------------------------------------------
iCAD Model(1) Cases/ Suggested
(Previous Designation) Day Selected Benefits Retail Price
- ------------------------- ---------- ---------------------------------------------------------
MultiRAD(TM) Digitizer N/A Radiographic film digitizer for OEM, CAD, $14,995-
Picture Archiving and Communications $19,995
(PACS) and telemedicine applications.
- ------------------------- ---------- ---------------------------------------------------------
Fulcrum(TM) Digitizer N/A Radiographic film digitizer for OEM and $21,995
CAD applications.
- ------------------------- ---------- ---------------------------------------------------------
MARKETING & SALES
MARKETING
We compete aggressively in three definable divisions of the computer aided
detection market. In the high end part of the market, which accounts for most
CAD purchases, to date, our Second Look 500 and dual digitizer CAD solutions are
marketed on the basis of clinical superiority, productivity and value. New
product models are planned to further address the demands and requirements of
this market. Our competitor in this sector, historically the brand and market
leader by virtue of a substantially longer period in the market and a
substantially greater investment in advertising, marketing, and promotion, has
in many cases been selected by a CAD purchaser without considering any
alternatives. By coupling broader and more effective product distribution with
improved marketing, including effective communication of the message that iCAD
now offers more CAD alternatives than any other vendor, we believe we can
substantially improve our market share in this division.
Our first advertising, supported by complementary trade show participation,
begins in February 2004. One of the benefits of the merger is that we can
increase iCAD's advertising and marketing effectiveness, while reducing overall
the previous aggregate marketing budgets of our companies. Samples of our
advertising can be found on our website at www.icadmed.com. Information in our
website is not part of this report.
In the lower case volume division of the CAD market, where price and ease of use
are key buying decisions, we believe we are well positioned with the
introduction of our iCAD iQ (now renamed Second Look 200) computer aided
detection product. Our objective is to secure a leading market share in this
newer market area.
Marketing for our new Second Look 200 product presents us with what we believe
are unique opportunities. We believe that the Second Look 200 is a
category-defining CAD system, in the sense that it is the first product on the
market that will allow lower-volume clinics to provide CAD services to women on
a cost-effective basis. The Second Look 200 is simple to operate and
self-training in nature, has been designed to fit within the limited space
requirements of smaller mammography clinics, and is priced below currently
available CAD systems. Commencing in the second quarter of 2004, we expect to
undertake targeted advertising and marketing aimed specifically at promotion of
Second Look 200 sales.
Furthermore, as early as the second quarter of 2004, the Second Look 200 will be
made available to mammography facilities that cannot afford the outright
purchase of a CAD system, through a simple `fee-per-procedure' program that we
have already announced and branded ClickCAD(TM). Under the ClickCAD program, we
plan and expect to install Second Look 200 systems in qualified mammography
clinics at little or no up-front capital cost. The clinics will then pay us a
fee approximating $6.50 for each CAD procedure performed, an
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amount that represents less than 35% of the current standard $19.13 Federal
reimbursement rate for CAD procedures. We believe that this program will allow
mammography clinics to improve the health care delivered to women at risk,
strengthen their marketing position in attracting and keeping patients concerned
about breast cancer, reduce the legal risks associated with failure to detect
early-stage cancers, and increase their net revenues.
We have gained current sales leadership in the digital mammography division of
the CAD market through a productive OEM sales relationship with General Electric
Medical Systems and a new OEM sales relationship with Fischer Imaging
Corporation. Our objectives in this market sector are to provide exceptional
support and service to our OEM customers and their end users, while continuing
to expand product offerings and OEM sales channels.
SALES
Effective February 1, 2004, we have consolidated our full-line sales channels to
best promote and support our broad Second Look product line. iCAD Second Look
products are now distributed nationally, on a non-exclusive basis, by SourceOne
HealthCare Technologies, and by approximately 50 additional independent
resellers, including members of the National Imaging Resellers (NIR) dealer
group and Merry X-Ray corporation. Overall, some 200 field sales personnel are
now representing and promoting iCAD products in the United States.
SourceOne Healthcare Technologies, Inc. is the largest distributor of healthcare
imaging equipment, supplies, accessories and services in the United States, and
a supplier to all major medical group purchasing organizations, or GPOs.
Previously, SourceOne was the primary sales channel for CAD products offered by
R2 Technologies, Inc., our competitor. Overall, SourceOne has sold and installed
some 400 CAD systems for all of the companies that it has acted as a
distributor, representing 25%-35% of all film-based CAD systems sold and
installed in the United States, to date.
To effectively support our expanded field sales presence, we have consolidated
our field sales teams into twelve geographic regions, each with a locally-based
regional sales manager, further organized into East and West sales zones.
Regional Sales Managers are responsible for management and support of all
reseller and OEM sales activities in their regions, for all iCAD computer aided
detection products.
We maintain a National Accounts Sales Manager to work with and support group
purchasing activities and accounts, including iCAD's current relationships with
Kaiser Permanente, Premier; Healthcare Services of New England; Radiology
Partners, Inc.; MAGNET, Inc.; HealthTrust Purchasing; CareCore; and Consorta,
Inc.
Our Second Look 200 system was introduced to the market in limited quantities at
the end of 2003 and will be more broadly available beginning at the end of the
first quarter of 2004. Because the 200 system is designed to meet the needs of a
broad population of lower-case-volume clinics, we have established a separate
category of resellers, including many Merry X-Ray sales offices, that will focus
exclusively on promotion of the 200 product and our associated ClickCAD
marketing program. We expect that SourceOne, with its well-developed direct
marketing and telemarketing capabilities, will make a particularly effective
contribution to the 200 and ClickCAD promotional and sales achievements.
We are currently upgrading the Second Look 200 model to include the new Second
Look 6.0 cancer detection software, which improves cancer detection and reduces
marking of areas
11.
that are not cancers. We believe this software upgrade is particularly valuable
in lower-volume and fee-for-service applications, because the reduced marker
rate will make training and use of the Second Look 200 easier. Expanded
promotion of the Second Look 200 system and introduction of the ClickCAD fee per
procedure program will follow this near-term product upgrade.
During the fourth quarter of 2003, CADx Systems' began distribution of products
for digital mammography through General Electric Medical Systems and Fischer
Imaging Corporation. We will continue to market such products through our
existing OEM relationships, and our objective is to secure additional OEM
relationships that can contribute to sales growth in 2004.
COMPETITION
We currently face direct competition from R2 Technology, Inc., which received
FDA approval to market its CAD systems for use in mammography screening and
diagnostics substantially before iCAD. Historically, R2 has been considered the
market leader. As a result of our merger, we believe iCAD now offers the
broadest range of CAD solutions available, with performance equivalent or
superior to our competitor's. With products that are generally more affordable
than those of R2, and greatly expanded sales and distribution channels, we
believe we are increasingly well positioned to compete with R2.
Kodak, Inc. has recently announced that it has received an approvable letter
from the FDA that is the precursor to receipt from the FDA of approval for it to
market a mammography CAD solution. We also expect that other potential
manufacturers will receive FDA approval to market competing CAD products in the
near future.
MANUFACTURING, CUSTOMER SUPPORT AND SERVICE
Our New Hampshire facility is certified as a medical manufacturing facility by
the FDA and complements three experienced contract manufacturing resources (two
in New England and one in Colorado) that we use to manufacture and assemble our
products. We have manufactured complex professional or medical products,
directly and through contract, since 1986.
iCAD provides an increasing range of customer support resources through our
24-hour on-line web site and a centralized customer help desk, which deals with
customer questions and issues, manages return-to-factory service requests, and
dispatches and monitors field service operations from 8AM to 8PM EST on business
days. We have centralized our front-line customer help service in our Ohio
office, taking advantage of the existing, sophisticated phone and information
systems available there.
Installation, customer applications training and field service for our Second
Look product line are provided by our resellers, with support from six
regionally based iCAD Field Service Representatives. Our Second Look 200 system
is designed to require little or no field installation or training support and
is serviced on a return-to-factory basis.
12.
MANAGEMENT
iCAD's management team benefits from the merger of our two companies. Dr. Steven
Rogers, founder and former Chief Executive Officer of CADx' parent company,
Qualia, has become our Chief Scientist and has joined our Board of Directors.
Jim Corbett, formerly CADx' Vice President for Commercial Operations, has become
our Chief Operating Officer. W. Scott Parr continues as President and CEO of
iCAD, and a member of our Board of Directors, while Robert Howard, iCAD's
founder, continues as Chairman of our Board of Directors. At every level in our
organization, members of the former iCAD and CADx teams are now operating on an
integrated basis.
iCAD's headquarters is in Nashua, NH. In addition to finance and administration
functions, New Hampshire is our center for Product Management, Product
Engineering, and manufacturing. Our Beavercreek, Ohio facility houses the
largest part of our science, research and development activities, together with
customer service and field support, regulatory and MIS functions. Additional
cancer detection and applications research takes place in our Tampa, Florida
facility, and we maintain a satellite sales, sales support and customer support
center in San Rafael, California.
RECENT ACHIEVEMENTS
In the period immediately preceding our merger, iCAD and CADx Systems' recorded
noteworthy achievements, providing what we believe is the basis for our
achieving substantial growth and profitability during 2004. These include:
o In November, CADx made the largest single sale of CAD in history,
participating with GE Medical Systems in the sale to the Federal
Republic of Mexico of 41 CAD systems for use with GE's digital
mammography systems. This sale contributed approximately $1.4M to CADx'
fourth quarter revenues.
o iCAD resolved its patent litigation with R2 Technology.
o iCAD received FDA approval for our new Second Look 200 computer aided
detection solution for smaller clinics and women's healthcare centers.
o CADx received FDA approval for our newest software release, including
our Second Look 6.0 cancer detection software.
o iCAD entered into new distribution agreements with members of National
Imaging Resources and Merry X-Ray Corporation, reducing our reliance on
a formerly exclusive US distributor.
o In the fourth quarter of 2003, CADx began domestic distribution of our
film-based Second Look CAD product through SourceOne Healthcare, Inc.,
the nation's leading distributor of medical imaging systems, medical
equipment, radiographic consumable supplies and services.
13.
o In February 2004, iCAD and SourceOne broadened their distribution
relationship to include the full continuum of iCAD Second Look CAD
solutions.
o In the fourth quarter of 2003, General Electric Medical Systems and
Fischer Imaging Corporation began OEM distribution of our CAD products
for digital mammography applications.
o iCAD announced the award of a dual source purchasing agreement with
Kaiser Permanente, the largest private, not-for-profit health care
network in the United States.
o In August, CADx received a 2003 Customer Value Leadership Award from
Frost and Sullivan, a recognized global leader in growth consulting. The
award noted, "CADx is recognized as one of the top companies in the CAD
industry and has been recognized for their impeccable customer service,
which is rivaled only by their R&D prowess."
o In May 2003 iCAD's product was designated the top-rated CAD system for
early breast cancer detection by MD Buyline, an independent evaluator of
medical capital equipment. Our product retained a top rating in MD
Buyline's November 2003 report.
o In November 2003, iCAD raised $5.9 million in a private placement of
iCAD's common shares.
o iCAD is now the market leader in current sales of CAD for digital
mammography.
o We believe our combined companies accounted for the majority of CAD
units sold in the fourth quarter of 2003.
RISK FACTORS
There are enormous uncertainties and risks associated with iCAD's business
strategy, as there are with many other new and ambitious business plans. Our
future operating results will depend, among other factors, on our ability to
continue to increase our sales significantly, retain our current key employees
and attract additional qualified personnel. Risk factors include, but are not
limited to, our history of significant operating losses, intense competition in
all of our product lines, and the timely availability of sufficient quantities
of parts, materials and components that are, in some cases, available from sole
sources or a limited number of suppliers. There can be no assurance that we will
be able to achieve the gross margins we expect to attain or achieve our goal of
returning to profitability for 2004.
FURTHER INFORMATION
Further information on iCAD's business and operations will be found regularly in
our quarterly and annual reports to the Securities Exchange Commission, and in
quarterly earnings releases. We may not provide updates to this explanation of
strategy even if the strategy should change, our performance should fall short
of or exceed expectations discussed here,
14.
or we find we are unable to achieve any or all of the goals, objectives or
results discussed. The "Safe Harbor" statement set forth below should be
considered carefully by all readers.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
Certain statements contained in this News Release constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve a number of known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, the
risks of uncertainty of patent protection, the impact of supply and
manufacturing constraints or difficulties, product market acceptance, possible
technological obsolescence, increased competition, customer concentration and
other risks detailed in the Company's other filings with the Securities and
Exchange Commission. The words "believe", "demonstrate", "intend", "expect",
"estimate", "anticipate", "likely", 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. The Company is under no obligation to provide any updates to any
information contained in this release.
15.
iCAD / CADx UNAUDITED COMBINED RESULTS RECONCILED TO GAAP
FISCAL YEAR ENDED DECEMBER 31, 2003
PRO FORMA
HISTORICAL ONE-TIME INTERCOMPANY COMBINED
iCAD CADx CHARGES SALES RESULTS
---------------------------------------------------------------------------------
Total Sales $ 6,567,552 $ 12,233,652 $ (1,220,391) $ 17,580,813
Cost of Sales $ 2,974,710 $ 5,637,542 $ (1,220,391) $ 7,391,861
Less: Inventory Reserve $ (1,154,163) $ (1,154,163)
Manufacturing facility improvement $ (380,000) $ (380,000)
Gross Margin $ 3,592,842 $ 6,596,110 $ 11,723,115
Gross Margin % 55% 54% 67%
FISCAL QUARTER ENDED DECEMBER 31, 2003
PRO FORMA
HISTORICAL ONE-TIME INTERCOMPANY COMBINED
iCAD CADx CHARGES SALES RESULTS
---------------------------------------------------------------------------------
Total Sales $ 1,628,923 $ 4,725,508 $ (385,330) $ 5,969,101
Cost of Sales $ 741,205 $ 2,623,744 $ (385,330) $ 2,979,619
Less: Inventory Reserve $ -- $ (1,154,163) $ (1,154,163)
Gross Margin $ 887,718 $ 2,101,764 $ 4,143,645
Gross Margin % 54% 44% 69%
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