UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
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OR
|| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9341
ICAD, INC.
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(Exact name of registrant as specified in its charter)
Delaware 02-0377419
- ---------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4 Townsend West, Suite 17, Nashua, NH 03063
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(603) 882-5200
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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 |X| NO |_| .
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) YES |_| NO |X| .
As of the close of business on August 9, 2004 there were 34,084,879 shares
outstanding of the issuer's Common Stock, $.01 par value.
ICAD, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 2004
(unaudited) and December 31, 2003 3
Consolidated Statements of Operations for the
three and six month periods ended June 30, 2004
and 2003 (unaudited) 4
Consolidated Statements of Cash Flows for the six
month periods ended June 30, 2004 and 2003 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Item 3 Quantitative and Qualitative Disclosures about Market Risk 12
Item 4 Controls and Procedures 12
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 12-13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13-14
Signatures 15
2
ICAD, INC.
Consolidated Balance Sheets
June 30, December 31,
------------- -------------
2004 2003
------------- -------------
Assets (unaudited)
------
Current assets:
Cash and equivalents $ 3,000,687 $ 5,101,051
Trade accounts receivable, net of allowance for doubtful
accounts of $374,000 in 2004 and $105,000 in 2003 3,751,834 3,343,296
Inventory 960,778 2,123,642
Prepaid and other current assets 676,328 547,014
------------- -------------
Total current assets 8,389,627 11,115,003
------------- -------------
Property and equipment:
Equipment 1,942,773 1,825,147
Leasehold improvements 37,904 26,489
Furniture and fixtures 135,544 133,562
------------- -------------
2,116,221 1,985,198
Less accumulated depreciation and amortization 836,384 717,635
------------- -------------
Net property and equipment 1,279,837 1,267,563
------------- -------------
Other assets:
Patents, net of accumulated amortization 356,178 379,178
Technology intangibles, net of accumulated amortization 5,272,131 5,580,172
Tradename, Distribution agreements and other,
net of accumulated amortization 935,933 1,115,000
Goodwill 43,334,174 43,205,220
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Total other assets 49,898,416 50,279,570
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Total assets $ 59,567,880 $ 62,662,136
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 2,355,522 $ 3,979,488
Accrued interest 545,583 333,652
Accrued expenses 1,640,656 1,988,476
Deferred revenue 411,547 216,500
Convertible subordinated debentures 10,000 10,000
Current maturities of notes payable 1,573,871 1,233,390
------------- -------------
Total current liabilities 6,537,179 7,761,506
Loans payable to related party 3,630,000 3,630,000
Notes payable, less current maturities 2,623,216 3,375,000
------------- -------------
Total liabilities 12,790,395 14,766,506
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Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $ .01 par value: authorized
1,000,000 shares; issued and outstanding
7,435 in 2004 and 2003, with the aggregate
liquidation value of $1,257,500 in 2004 and 2003, plus
7% annual dividend 74 74
Common stock, $ .01 par value: authorized
50,000,000 shares; issued 34,034,643 in 2004
and 33,704,809 shares in 2003; outstanding
33,966,767 in 2004 and 33,636,933 shares in 2003 340,346 337,048
Additional paid-in capital 121,126,890 120,395,390
Accumulated deficit (73,739,561) (71,886,618)
Treasury stock at cost (67,876 shares) (950,264) (950,264)
------------- -------------
Total Stockholders' equity 46,777,485 47,895,630
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Total liabilities and stockholders' equity $ 59,567,880 $ 62,662,136
============= =============
See accompanying notes to consolidated financial statements
3
ICAD, INC.
Consolidated Statements of Operations
(unaudited)
Three Months Six Months
June 30, June 30,
-------------------------- ----------------------------
2004 2003 2004 2003
Sales $ 5,636,586 $ 1,337,517 $ 11,063,467 $ 3,551,529
Cost of Sales 1,661,447 592,583 3,490,693 1,502,168
----------- ------------ ------------ ------------
Gross Margin 3,975,139 744,934 7,572,774 2,049,361
----------- ------------ ------------ ------------
Operating expenses:
Engineering and product development 1,084,356 609,545 2,796,397 1,193,798
General and administrative 1,164,662 1,104,063 2,544,168 1,500,295
Marketing and sales 1,532,852 306,992 3,772,539 546,704
----------- ------------ ------------ ------------
Total operating expenses 3,781,870 2,020,600 9,113,104 3,240,797
----------- ------------ ------------ ------------
Income (loss) from operations 193,269 (1,275,666) (1,540,330) (1,191,436)
Interest expense - net 146,811 9,478 312,613 17,150
----------- ------------ ------------ ------------
Net income (loss) $ 46,458 $ (1,285,144) $ (1,852,943) $ (1,208,586)
Preferred dividend 36,911 36,912 70,161 73,417
----------- ------------ ------------ ------------
Net income (loss) available to common shareholders $ 9,547 $ (1,322,056) $ (1,923,104) $ (1,282,003)
=========== ============ ============ ============
Net income (loss) per share
Basic $ 0.00 $ (0.05) $ (0.06) $ (0.05)
Diluted $ 0.00 $ (0.05) $ (0.06) $ (0.05)
Weighted average number of shares used
in computing income (loss) per share
Basic 33,872,955 26,378,729 33,790,603 26,364,567
Diluted 35,424,384 26,378,729 33,790,603 26,364,567
See accompanying notes to consolidated financial statements
4
ICAD, INC.
Consolidated Statements of Cash Flows
(unaudited)
Six Months Six Months
June 30, 2004 June 30, 2003
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Cash flows from operating activities:
Net loss $(1,852,943) $(1,208,586)
----------- -----------
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation 134,182 55,306
Amortization 511,609 181,947
Loss on disposal of assets 21,110 --
Changes in operating assets and liabilities:
Accounts receivable (452,259) 378,227
Inventory 1,162,864 33,859
Other current assets (166,568) (93,082)
Accounts payable (1,623,966) 265,911
Accrued expenses (202,758) (747,373)
Deferred revenue 195,047 --
----------- -----------
Total adjustments (420,739) 74,795
----------- -----------
Net cash used for operating activities (2,273,682) (1,133,791)
----------- -----------
Cash flows from investing activities:
Additions to patents, software development and other (1,501) (50,000)
Additions to property and equipment (167,566) (76,484)
Additional acquisition costs of CADx (47,979) --
----------- -----------
Net cash used for investing activities (217,046) (126,484)
----------- -----------
Cash flows from financing activities:
Issuance of common stock for cash 801,667 73,085
Proceeds of convertible note payable to principal
stockholders -- 630,000
Payment of note payable (411,303) (32,191)
----------- -----------
Net cash provided by financing activities 390,364 670,894
----------- -----------
Decrease in cash and equivalents (2,100,364) (589,381)
Cash and equivalents, beginning of period 5,101,051 1,091,029
----------- -----------
Cash and equivalents, end of period $ 3,000,687 $ 501,648
=========== ===========
Non-cash items from investing and financing activities:
Accrued dividends on convertible preferred stock $ 66,869 $ 73,417
=========== ===========
See accompanying notes to consolidated financial statements
5
ICAD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2004
(1) ACCOUNTING POLICIES
In the opinion of management all adjustments and accruals (consisting only
of normal recurring adjustments), which are necessary for a fair
presentation of operating results are reflected in the accompanying
consolidated financial statements. Reference should be made to iCAD,
Inc.'s ("iCAD" or "Company") Annual Report on Form 10-K for the year ended
December 31, 2003 for a summary of significant accounting policies.
Interim period amounts are not necessarily indicative of the results of
operations for the full fiscal year.
(2) LOAN PAYABLE TO RELATED PARTY
The Company has a Revolving Loan and Security Agreement (the "Loan
Agreement") with Mr. Robert Howard, Chairman of the Board of Directors of
the Company, under which Mr. Howard has agreed to advance funds, or to
provide guarantees of advances made by third parties in an amount up to
$5,000,000. Outstanding advances are collateralized by substantially all
of the assets of the Company and bear interest at prime interest rate plus
2% with a minimum of 8%. Mr. Howard is entitled to convert outstanding
advances made by him under the Loan Agreement into shares of the Company's
common stock at any time based on the closing market price of the
Company's common stock at the lesser of the market price at the time each
advance is made or at the time of conversion. At June 30, 2004, $3,630,000
was outstanding under the Loan Agreement and $1,370,000 was available for
future borrowings.
(3) ACQUISITION OF QUALIA COMPUTING, INC.
On December 31, 2003, the Company completed the acquisition of Qualia
Computing, Inc., a privately held company based in Beavercreek Ohio, and
its subsidiaries, including CADx Systems, Inc. (together "CADx"), 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 acquisition, iCAD issued
4,300,000 shares of its common stock, representing approximately 13% of
the outstanding shares of iCAD common stock after the merger.
Additionally, iCAD paid $1,550,000 in cash and executed a 36-month secured
promissory note in the amount of $4,500,000 to purchase Qualia shares that
were owned by two institutional investors. The purchase price of
approximately $31,000,000 has been allocated to net assets acquired based
upon an appraisal of their fair values, but the allocation is subject to
further adjustment.
6
ICAD, INC.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2004
(4) STOCK-BASED COMPENSATION
The Company accounts for its stock based compensation plans in accordance
with the provisions of APB Opinion No 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure". Under APB
Opinion No. 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of
grant, no compensation cost is recognized.
The Company estimates the fair value of each granting of options at the
grant date using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2004: no dividends paid;
expected volatility of 80.2%; risk-free interest rate of 3.03% and
expected life of 4 years. The weighted-average assumptions used for grants
in 2003 were: no dividends paid; expected volatility of 79.4%; risk-free
interest rate of 2.91% and 2.34% and expected lives of 4 and 5 years.
Had compensation cost for the Company's option plans been determined using
the fair value method at the grant dates, the effect on the Company's net
income (loss) and net income (loss) per share for the three and six month
periods ended June 30, 2004 and 2003 would have been as follows:
Three Months Six Months
June 30, June 30,
----------------------- --------------------------
2004 2003 2004 2003
-------- ----------- ----------- -----------
Net income (loss) available to
common stockholders as reported $ 9,547 $(1,322,056) $(1,923,104) $(1,282,003)
Deduct: Total stock-based
employee compensation
determined under fair value
method for all awards, net
of related tax effects (92,386) (92,780) (184,772) (162,403)
-------- ----------- ----------- -----------
Pro forma net loss available to
common stockholders $(82,839) $(1,414,836) $(2,107,876) $(1,444,406)
======== =========== =========== ===========
Basic and diluted loss per share
As reported $ (.00) $ (.05) $ (.06) $ (.05)
Pro forma $ (.00) $ (.05) $ (.06) $ (.05)
7
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 forward looking statements that
involve a number of known and unknown risks, uncertainties and other factors
that could cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievement
expressed or implied by such forward looking statements. These risks and
uncertainties include, but are not limited to, uncertainty of future sales
levels, protection of patents and other proprietary rights, the impact of supply
and manufacturing constraints or difficulties, product market acceptance,
possible technological obsolescence of products, increased competition,
litigation and/or government regulation, changes in Medicare reimbursement
policies, competitive factors, the effects of a decline in the economy in
markets served by the Company and other risks detailed in the Company's other
filings with the Securities and Exchange Commission. The words "believe",
"demonstrate", "intend", "expect", "estimate", "anticipate", "likely", "seek",
"should" and similar expressions identify forward-looking statements. Readers
are cautioned not to place undue reliance on those forward-looking statements,
which speak only as of the date the statement was made.
RESULTS OF OPERATIONS
OVERVIEW
iCAD 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.
On December 31, 2003, iCAD merged with and acquired CADx. This merger brought
together two of the three companies with approval from the FDA to market
computer aided systems for the earlier detection of breast cancer. This
acquisition gives iCAD, what it believes to be, the broadest line of CAD systems
for detection of breast cancer, including the leading CAD solution for the
growing digital mammography market. In addition, the acquisition expanded the
Company's distribution channels, which contributed to immediate growth in sales,
and expanded the Company's new product development group, which the Company
believes will accelerate its entry into additional markets.
Following the acquisition of CADx, iCAD consolidated and positioned its current
products, and reorganized and greatly expanded its sales channels. Over the
balance of 2004, the Company's objective is to build on its achievements in the
first six months of 2004 by aggressively marketing and promoting its new,
lower-cost Second Look 200(TM) solutions for the early detection of breast
cancer, and its ClickCAD(TM) fee-per-procedure programs that seek to make
Computer Aided Detection technology affordable and accessible to smaller volume
mammography clinics and all women at risk of breast cancer.
8
As a result of the Company's acquisition of CADx, the Company entered the first
quarter of 2004 with the overhead of two companies, and expense and cost
structure reflected in first quarter losses. The Company reduced operating
expenses from $5.3 million in the first quarter of 2004 to under $3.8 million in
the second quarter of 2004, in part through a reduction in personnel from 110 at
the beginning of the first quarter of 2004 to approximately 70 at the beginning
of the second quarter of 2004.
iCAD is the only independent, integrated digitizer hardware and CAD software
company offering computer aided detection solutions for the detection of breast
cancer and other health-care related applications. As such, the Company is able
to reduce costs at each step in the CAD product design, production and assembly
process. The Company believes that its 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 iCAD to enhance its CAD product line, while reducing the
costs of the Company's CAD products to many customers and allowing more women to
realize the benefits inherent in the early detection of breast cancer.
The Company's CAD systems include proprietary software technology together with
standard computer and display equipment. CAD systems for the film-based
mammography market also include a radiographic film digitizer manufactured by
the Company. iCAD also manufactures medical film digitizers for a variety of
medical imaging and other applications. The Company believes that iCAD's
experience in providing film digitizers and software for medical picture
archiving and communications and telemedicine applications contributes to the
successful integration of the Company's CAD products into networked and digital
mammography environments. The Company's headquarters are located in southern New
Hampshire, with contract manufacturing facilities in New Hampshire and
Connecticut.
QUARTER ENDED JUNE 30, 2004 COMPARED TO QUARTER ENDED JUNE 30, 2003 AND SIX
MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003
Sales. Sales of the Company's CAD and medical imaging products for the three and
six month periods ended June 30, 2004 increased to $5,636,586 and $11,063,467,
respectively, compared with sales of CAD and medical imaging products for the
three and six month periods ended June 30, 2003 of $1,337,517 and $3,551,529.
The sales increase during 2004 was due in large part to contributions from
acquired CADx products and sales channels, which are not included in 2003
results. During the first and second quarter of 2004 iCAD concentrated its
distribution development efforts on SourceOne Healthcare, Inc. (CADx' national
distributor prior to merger), and on selected complementary independent
resellers.
iCAD has identified the following factors as potentially contributing to
increased sales in future periods: (1) sales by and through additional
resellers; (2) sales of additional products, especially the Company's lower
price Second Look 200 CAD of breast cancer system; and (3) contribution from a
fee per service program, which the Company calls ClickCAD(TM), which the Company
began actively promoting in the third quarter of 2004.
9
Gross Margins. Gross margin increased in the three and six month periods ended
June 30, 2004 to 71% and 68%, respectively, compared to 56% and 58% in the
comparable periods in 2003. The increase in gross margin is due primarily to
increases in sales of higher margin products for digital mammography. Although
there can be no assurance of its future gross margin rate, the Company expects
that continued sales of its higher margin CAD products and increasing production
economies and economies of scale resulting from the merger with CADx will
support gross margins at comparable levels to those experienced during the three
and six month periods of 2004. In the third quarter of 2004 margins may be
adversely impacted by a summer decline in sale of CAD for digital mammography
and pricing and other promotions associated with launch of the Company's new
Second Look 200 product line.
Engineering and Product Development. Engineering and product development costs
for the three and six month periods ended June 30, 2004 increased from $609,545
and $1,193,798, respectively, in 2003 to $1,084,356 and $2,796,397 in 2004. The
increase in engineering and product development costs results primarily from the
Company's addition, as a result of its acquisition of CADx, of a software
technology development group to support its CAD products and new product
development. The Company also redirected a portion of its research and
engineering resources to accelerate the delivery of new iCAD products, such as
applying iCAD's core CAD and clinical decision support technologies to
additional medical applications. Additionally, during the first quarter of 2004
the Company took action following its merger with CADx to reduce its workforce
and close its office and software development group located in Tampa, Florida.
In connection with these measures, the Company incurred approximately $280,000
in non-recurring engineering severance benefits and office closure expenses.
Over the remainder of 2004, the Company expects engineering and product
development costs to decline as a percentage of sales, as sales are expected to
increase at a greater rate than development costs.
General and Administrative. General and administrative expenses in the three and
six month periods ended June 30, 2004 increased from $1,104,063 and $1,500,295,
respectively, in 2003 to $1,164,662 and 2,544,168 in 2004. The increase in
general and administrative expenses is due to increases in salaries,
administrative costs and amortization of intangible assets, resulting from the
Company's acquisition of CADx. Additional increases in general and
administrative expenses in the first quarter of 2004, reflects approximately
$50,000 in non-recurring severance benefits and other expenses associated with
reductions of staff made possible by the combination of CADx and iCAD and a
write-off of fixed assets relating to the closure of the iCAD office in Tampa,
Florida. The Company anticipates that general and administrative costs will
increase in absolute terms for the remainder of 2004, due to the increase in
consulting cost associated with the Company's compliance with Section 404 of the
Sarbanes-Oxley Act of 2002. The Company expects that overall general and
administrative expenses will decline as a percentage of sales, as sales are
expected to increase at a greater rate than general and administrative expenses.
Marketing and Sales Expenses. Marketing and sales expenses for the three and six
month periods ended June 30, 2004 increased from $306,992 and $546,704,
respectively, in 2003 to $1,532,852 and $3,772,539 in 2004. The increase in
marketing and sales expenses results primarily from the Company's addition, as a
result of its acquisition of CADx, of sales, marketing and service organizations
to support its CAD products and distribution channels. The Company took action
following the merger to reduce its workforce, close its office in San Rafael,
California, and eliminate duplication in marketing and other activities. The
Company incurred approximately $200,000 in non-recurring marketing and sales
severance benefits and office closure expenses in the first quarter of 2004.
Over the remainder of 2004, the Company expects marketing and sales expenses to
decline as a percentage of sales, as sales increase.
10
Interest Expense. Net interest expense for the three and six month periods ended
June 30, 2004 increased from $9,478 and $17,150, respectively, in 2003 to
$146,811 and $312,613 in 2004. This increase is due primarily to the addition,
as a result of iCAD's acquisition of CADx, of a 36-month secured promissory note
in the amount of $4,500,000 to purchase CADx shares that were owned by two
institutional investors.
Net Income (Loss). As a result of the foregoing, the Company recorded net income
of $46,458 or $0.00 per share for the three month period ended June 30, 2004 on
sales of $5,636,586 compared to a net loss of ($1,285,144) or ($0.05) per share
from the same period in 2003 on sales of $1,337,517. The loss for the six months
ended June 30, 2004 was ($1,852,943) or ($0.06) per share on sales of
$11,063,467 compared with a net loss of ($1,208,586) or ($0.05) per share on
sales of $3,551,529 for the six months ended June 30, 2003. The acquisition of
CADx was accounted for as a purchase on December 31, 2003, and accordingly, the
operations of CADx are not included in the consolidated financial statements for
the three and six month periods of 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to generate cash adequate to meet its requirements depends
primarily on operating cash flow and the availability of a $5,000,000 credit
line under the Loan Agreement with its Chairman, Mr. Robert Howard, of which
$1,370,000 was available at June 30, 2004. The Company's current operating and
financial projections and plans indicate that current liquidity and capital
resources are sufficient to support and sustain operations through 2004. If
sales or cash collections are reduced from current expectations, or if expenses
and cash requirements are increased, the Company may require additional
financing. Historically, the Company has secured additional cash through
additional extensions of credit by its Chairman.
At June 30, 2004 the Company had current assets of $8,389,627, current
liabilities of $6,537,179 and working capital of $1,852,448. The ratio of
current assets to current liabilities was 1.3:1
Net cash used for operating activities for the six months ended June 30, 2004
was $2,273,682 compared to $1,133,791 for the same period in 2003. The cash was
used primarily to fund the net loss of $1,852,943, offset partially by non-cash
depreciation, amortization and loss on disposal of assets totaling $666,901 and
changes in accounts receivable, inventory and accounts payable. The net cash
used in investing activities for the six months ended June 30, 2004 was $217,046
compared to $126,484 for the same period in 2003. The cash used in investing
activities included the addition of $167,566 for tooling, computer equipment,
and leasehold improvements. Net cash provided by financing activities in the six
months ended June 30, 2004 was $390,364 compared to $670,894 for the same period
in 2003. The increase in cash during the first six months of 2004, was primarily
due to the net proceed of approximately $425,000 from the sale of 90,000 shares
of the Company's common stock for $5.00 per share upon the exercise of certain
investment rights that were granted to institutional investors in November 2003
in connection with the Company's private placement described below.
11
On November 24, 2003, the Company sold 1,260,000 shares of its common stock for
$5.00 per share in a private placement to institutional investors. The Company
also issued to such investors' additional investment rights to purchase up to an
additional 315,000 shares of its common stock at $5.00 per share. The net
proceeds to the Company for the 1,260,000 shares sold were approximately
$5,919,000. A total of 90,000 shares of the Company's common stock were issued
in connection with the exercise of certain additional investment rights in the
first quarter of 2004. The remaining investment rights expired unexercised. The
net proceeds to the Company for the 90,000 shares sold were approximately
$425,000. Ladenburg Thalmann & Co. Inc. served as placement agent for these
transactions for which it received compensation in the amount of approximately
$404,000 and a five year warrant to purchase 67,200 shares of the Company's
Common Stock at $5.00 per share.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The Company, under the supervision and with the participation of its management,
including 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, the principal executive officer and principal
financial officer concluded that the Company's disclosure controls and
procedures are effective in reaching a reasonable level of assurance that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time period specified in the Securities and
Exchange Commission's rules and forms.
The principal executive officer and principal financial officer also conducted
an evaluation of internal control over financial reporting ("Internal Control")
to determine whether any changes in Internal Control occurred during the quarter
ended June 30, 2004 that have materially affected or which are reasonably likely
to materially affect Internal Control. Based on that evaluation, there have been
no such changes during the quarter ended June 30, 2004.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 29, 2004 the Company held an Annual Meeting of Stockholders at which the
following matters were voted on by the security holders of iCAD, Inc. The
results of the vote are as follows:
1. To elect three Class II directors to hold office until the Annual Meeting of
Stockholders to be held in 2007 and until their respective successors have been
duly elected and qualified;
12
Names of Nominees Number of Number of
- -----------------
Class II Votes For Votes Withheld
- ----------------- --------- --------------
James Harlan 27,559,448 441,477
Maha Sallam 27,563,566 437,359
Elliot Sussman 27,692,963 307,962
2. Approval of an Amendment to the Company's Loan Agreement with Robert Howard
The motion to adopt an amendment to the provision of the Company's Loan
Agreement with the Company's Chairman of the Board, Robert Howard, to increase
the principal amount that may be advanced to the Company under the Loan
Agreement from $4,000,000 to $5,000,000 was approved by the stockholders by a
vote of 17,050,241 shares FOR the proposal, 880,392 shares AGAINST the proposal
and 62,714 shares ABSTAINING from voting and 10,007,578 shares NOT VOTED.
3. Adoption of 2004 Stock Incentive Plan
The proposal to approve and adopt the Company's 2004 Stock Incentive Plan was
approved by the stockholders by a vote of 16,371,298 shares FOR the proposal,
1,564,864 shares AGAINST the proposal, 57,185 shares ABSTAINING from voting and
10,007,578 shares NOT VOTED.
Item 5. Other Information
On August 9, 2004 Dr. Maha Sallam, the Company's Executive Vice President,
established a trading plan in accordance with Rule 10b5-1 of the Securities
Exchange Act of 1034. Under this plan which Dr. Sallam established in order to
begin to diversify her personal financial portfolio, she has directed a broker
to sell, over a 12 month period, up to 240,000 shares of iCAD common stock,
which represents approximately 11% of the total shares of iCAD common stock
currently owned by Dr. Sallam and her husband.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
10.1 2004 Stock Incentive Plan (incorporated by reference to Exhibit B
of the Company's definitive proxy statement on Schedule 14A filed
with the Securities and Exchange Commission on May 28, 2004).
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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32.1 Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) During the quarter ended June 30, 2004 a Form 8-K was furnished under
item 12 to report the issuance of a press release announcing iCAD's financial
results for the quarter ended March 31, 2004.
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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.
(Registrant) iCAD, Inc.
Date: August 12, 2004 By: /s/ W. Scott Parr
---------------------------------- -----------------------------------
W. Scott Parr
President, Chief Executive Officer,
Director
Date: August 12, 2004 By: /s/ Annette L. Heroux
------------------------------------ ----------------------------------
Annette L. Heroux
Vice President of Finance,
Chief Financial Officer
15