10-Q 1 icad20230930_10q.htm FORM 10-Q icad20230930_10q.htm
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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

OR

 

         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                 

 

Commission file number 001-09341

 


 

iCAD, Inc.

(Exact name of registrant as specified in its charter)

 


 

Delaware

02-0377419

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

  

98 Spit Brook Road, Suite 100, Nashua, NH

03062

(Address of principal executive offices)

(Zip Code)

 

(603) 882-5200

(Registrants telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 


 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

symbol(s)

Name of each exchange

on which registered

Common Stock, $0.01 par value

ICAD

The Nasdaq Stock Market LLC

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.    Yes  ☒    No  ☐.

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer

Accelerated filer

    

Non-accelerated filer

Smaller reporting company

    
  

Emerging growth company

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes      No  ☒.

 

As of the close of business on November 8, 2023, there were 26,352,733 shares outstanding of the registrant’s Common Stock, $0.01 par value.

 



 

 

 

iCAD, Inc.

 

INDEX

 

   

Page

PART I

FINANCIAL INFORMATION

 
     

Item 1

Financial Statements

 
     
 

Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2023 and December 31, 2022

1

     
 

Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2023 and 2022

2

     
 

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended September 30, 2023 and 2022

3

     
 

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2023 and 2022

4

     
 

Notes to Condensed Consolidated Financial Statements (unaudited)

5

     

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

     

Item 3

Quantitative and Qualitative Disclosures about Market Risk

24

     

Item 4

Controls and Procedures

25

     

PART II

OTHER INFORMATION

26

     

Item 1A

Risk Factors

26

     

Item 6

Exhibits 

27

     
 

Signatures

28

 

 

 

 

iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except for share data)

(Unaudited)

 

  

September 30,

  

December 31,

 
  

2023

  

2022

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $19,046  $21,313 

Trade accounts receivable, net of allowance for credit losses of $230 and $100 as of September 30, 2023 and December 31, 2022, respectively

  4,865   5,769 

Inventory, net

  992   2,054 

Prepaid expenses and other current assets

  1,603   1,571 

Current assets held for sale

  5,837   7,534 

Total current assets

  32,343   38,241 

Property and equipment, net of accumulated depreciation of $991 and $851 as of September 30, 2023 and December 31, 2022, respectively

  1,285   704 

Operating lease assets

  514   670 

Other assets

  47   19 

Intangible assets, net of accumulated amortization of $8,459 and $8,372 as of September 30, 2023 and December 31, 2022, respectively

  177   264 

Goodwill

  8,362   8,362 

Deferred tax assets

  104   116 

Noncurrent assets held for sale

  2,996   3,329 

Total assets

 $45,828  $51,705 

Liabilities and Stockholders’ Equity

        

Current liabilities:

        

Accounts payable

 $1,098  $1,446 

Accrued and other expenses

  2,385   2,541 

Lease payable—current portion

  197   217 

Deferred revenue—current portion

  3,343   3,653 

Current liabilities held for sale

  4,389   5,595 

Total current liabilities

  11,412   13,452 

Lease payable, net of current

  317   455 

Deferred revenue, net of current

  844   393 

Deferred tax

  6   6 

Noncurrent liabilities held for sale

  2,214   2,497 

Total liabilities

  14,793   16,803 
         

Commitments and Contingencies (Note 12)

          

Stockholders’ equity:

        

Preferred stock, $0.01 par value: authorized 1,000,000 shares; none issued.

      

Common stock, $0.01 par value: authorized 60,000,000 shares; issued 26,440,464 and 25,446,407 as of September 30, 2023 and December 31, 2022, respectively; outstanding 26,254,633 and 25,260,576 as of September 30, 2023 and December 31, 2022, respectively.

  264   254 

Additional paid-in capital

  305,924   302,899 

Accumulated deficit

  (273,738)  (266,836)

Treasury stock at cost, 185,831 shares as of both September 30, 2023 and December 31, 2022

  (1,415)  (1,415)

Total stockholders’ equity

  31,035   34,902 

Total liabilities and stockholders’ equity

 $45,828  $51,705 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except for per share data)

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Revenue:

                               

Products

  $ 2,198     $ 2,536     $ 6,961     $ 9,866  

Service and supplies

    1,875       1,823       5,617       5,301  

Total revenue

    4,073       4,359       12,578       15,167  

Cost of revenue:

                               

Products

    263       348       1,099       1,253  

Service and supplies

    267       280       951       916  

Amortization and depreciation

    22       27       65       81  

Total cost of revenue

    552       655       2,115       2,250  

Gross profit

    3,521       3,704       10,463       12,917  

Operating expenses:

                               

Engineering and product development

    1,147       1,407       3,909       4,359  

Marketing and sales

    1,495       2,761       5,690       8,206  

General and administrative

    2,042       2,649       7,650       7,804  

Amortization and depreciation

    56       52       186       169  

Total operating expenses

    4,740       6,869       17,435       20,538  

Loss from operations

    (1,219 )     (3,165 )     (6,972 )     (7,621 )

Other income/ (expense):

                               

Interest expense

          (7 )     (2 )     (7 )

Interest income

    195       71       528       89  

Other income (expense), net

    (9 )     (2 )     (8 )     (45 )

Other income (expense), net

    186       62       518       37  

Loss before provision for income taxes

    (1,033 )     (3,103 )     (6,454 )     (7,584 )

Provision for income taxes

    (4 )           (13 )      

Loss from continuing operations

    (1,037 )     (3,103 )     (6,467 )     (7,584 )

Loss from discontinued operations, net of tax

    (337 )     (795 )     (435 )     (2,977 )

Net loss and comprehensive loss

  $ (1,374 )   $ (3,898 )   $ (6,902 )   $ (10,561 )

Net loss per share:

                               

Loss from continuing operations, basic and diluted

  $ (0.04 )   $ (0.12 )   $ (0.25 )   $ (0.30 )

Loss from discontinued operations, basic and diluted

  $ (0.01 )   $ (0.03 )   $ (0.02 )   $ (0.12 )

Net loss per share

  $ (0.05 )   $ (0.15 )   $ (0.27 )   $ (0.42 )

Weighted average number of shares used in computing loss per share:

                               

Basic and diluted

    25,597       25,204       25,374       25,183  

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders Equity

(In thousands, except shares)

(Unaudited)

 

  

For the three months ended September 30, 2023

 
  

Common Stock

  

Additional

             
  

Number of

  

Paid-in

  

Accumulated

  

Treasury

  

Stockholders’

 
  

Shares Issued

  

Par Value

  

Capital

  

Deficit

  

Stock

  

Equity

 

Balance at June 30, 2023

  25,446,407  $254  $303,699  $(272,364) $(1,415) $30,174 

Issuance of common stock pursuant to stock option plans

  35,809  $  $80         80 

Issuance of common stock, net of issuance costs of $336

  958,248  $10  $1,831         1,841 

Stock-based compensation

        314         314 

Net loss

           (1,374)     (1,374)

Balance at September 30, 2023

  26,440,464  $264  $305,924  $(273,738) $(1,415) $31,035 

  

  

For the nine months ended September 30, 2023

 
  

Common Stock

  

Additional

             
  

Number of

  

Paid-in

  

Accumulated

  

Treasury

  

Stockholders

 
  

Shares Issued

  

Par Value

  

Capital

  

Deficit

  

Stock

  

Equity

 

Balance at December 31, 2022

  25,446,407  $254  $302,899  $(266,836) $(1,415) $34,902 

Issuance of common stock pursuant to stock option plans

  35,809  $  $80         80 

Issuance of common stock, net of issuance costs of $336

  958,248  $10  $1,831         1,841 

Stock-based compensation

        1,114         1,114 

Net loss

           (6,902)     (6,902)

Balance at September 30, 2023

  26,440,464  $264  $305,924  $(273,738) $(1,415) $31,035 

  

   

For the three months ended September 30, 2022

 
   

Common Stock

   

Additional

                         
   

Number of

   

Paid-in

   

Accumulated

   

Treasury

   

Stockholders’

 
   

Shares Issued

   

Par Value

   

Capital

   

Deficit

   

Stock

   

Equity

 

Balance at June 30, 2022

    25,373,858     $ 254     $ 301,994     $ (259,843 )   $ (1,415 )   $ 40,990  

Issuance of common stock pursuant to stock option plans

    45,000             127                   127  

Issuance of common stock pursuant Employee Stock Purchase Plans

    10,077             34                   34  

Stock-based compensation

                405                   405  

Net loss

                      (3,898 )           (3,898 )

Balance at September 30, 2022

    25,428,935     $ 254     $ 302,560     $ (263,741 )   $ (1,415 )   $ 37,658  

  

   

For the nine months ended September 30, 2022

 
   

Common Stock

   

Additional

                         
   

Number of

   

Paid-in

   

Accumulated

   

Treasury

   

Stockholders’

 
   

Shares Issued

   

Par Value

   

Capital

   

Deficit

   

Stock

   

Equity

 

Balance at December 31, 2021

    25,326,086     $ 253     $ 300,859     $ (253,180 )   $ (1,415 )   $ 46,517  

Issuance of common stock related to vesting of restricted stock

    875                                

Issuance of common stock pursuant to stock option plans

    73,833       1       205                   206  

Issuance of common stock pursuant Employee Stock Purchase Plans

    28,141             127                   127  

Stock-based compensation

                1,369                   1,369  

Net loss

                      (10,561 )           (10,561 )

Balance at September 30, 2022

    25,428,935     $ 254     $ 302,560     $ (263,741 )   $ (1,415 )   $ 37,658  

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

   

For the Nine Months ended

 
   

September 30,

 
   

2023

   

2022

 

Cash flow from operating activities:

               

Net loss

  $ (6,902 )   $ (10,561 )

Adjustments to reconcile net loss to net cash used for operating activities:

               

Amortization

    142       158  

Depreciation

    202       246  

Non-cash lease expense

    409       549  

Bad debt provision

    189       510  

Stock-based compensation

    1,114       1,369  

Deferred tax

    12        

Changes in operating assets and liabilities:

               

Accounts receivable

    1,903       (91 )

Inventory

    1,472       (1,459 )

Prepaid and other assets

    38       7  

Accounts payable

    (509 )     (351 )

Accrued and other expenses

    (1,022 )     (98 )

Lease liabilities

    (420 )     (602 )

Deferred revenue

    (141 )     663  

Total adjustments

    3,389       901  

Net cash used for operating activities

    (3,513 )     (9,660 )

Cash flow from investing activities:

               

Additions to patents, technology and other

          (10 )

Additions to property and equipment

    (487 )     (355 )

Capitalization of internal-use software development costs

    (188 )      

Net cash used for investing activities

    (675 )     (365 )

Cash flow from financing activities:

               

Proceeds from option exercises pursuant to stock option plans

    80       206  

Proceeds from issuances of common stock, net of issuance costs

    1,841        

Proceeds from issuance of common stock pursuant to Employee Stock Purchase Plans

          127  

Net cash provided by financing activities

    1,921       333  

Decrease in cash and cash equivalents

    (2,267 )     (9,692 )

Cash and cash equivalents, beginning of period

    21,313       34,282  

Cash and cash equivalents, end of period

  $ 19,046     $ 24,590  

Supplemental disclosure of cash flow information:

               

Interest paid

  $     $ 7  

Amendment to right-of-use assets obtained in exchange for operating lease liabilities

  $     $ 2,434  

 

See accompanying notes to condensed consolidated financial statements.

 

 

iCAD, INC. AND SUBSIDIARIES

(In thousands, except for share and per share data or as noted)

 

 

Notes to Condensed Consolidated Financial Statements:

 

Note 1 Basis of Presentation and Significant Accounting Policies

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements of iCAD, Inc. and its subsidiaries (together “iCAD” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. It is reasonably possible that changes may occur in the near term that would affect management’s estimates with respect to assets and liabilities. In the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company at September 30, 2023, the results of operations of the Company for the three and nine months ended September 30, 2023 and 2022, cash flows of the Company for the nine months ended September 30, 2023 and 2022, and stockholders’ equity of the Company for the three and nine months ended September 30, 2023 and 2022.

 

As discussed in Note 2, the Company completed the sale of its Xoft business line on October 23, 2023. The applicable assets and liabilities of the Xoft business have been classified as held for sale in the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, and the results of its operations for all periods presented are reflected as discontinued operations in the Condensed Consolidated Statements of Operations. Unless otherwise indicated, all disclosures and amounts in the Notes to Condensed Consolidated Financial Statements relate to the Company’s continuing operations.

 

Although the Company believes that the disclosures made in these interim financial statements are adequate to make the information presented not misleading, certain information normally included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 31, 2023. The results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for fiscal year ending December 31, 2023, or any interim or any future period.

 

Principles of Consolidation and Business Segments

 

The condensed consolidated financial statements include the accounts of iCAD, Inc. and its wholly owned subsidiaries: Xoft, Inc., Xoft Solutions, LLC, iCAD France, LLC and iCAD Italy, LLC. All material inter-company transactions and balances have been eliminated in consolidation.

 

The Company previously reported the results of two segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). The Detection segment consists of advanced image analysis and workflow products for the detection of cancer. The Therapy segment consists of radiation therapy (“Xoft”, “Axxent”) products for the treatment of certain cancers.  As discussed in Note 2, the Company completed the sale of its Xoft business line on October 23, 2023. The applicable assets and liabilities of the Xoft business have been classified as held for sale in the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, and the results of its operations for all periods presented are reflected as discontinued operations in the Condensed Consolidated Statements of Operations. Unless otherwise indicated, all disclosures and amounts in the Notes to Condensed Consolidated Financial Statements relate to the Company’s continuing operations, or its Detection segment.

 

Assets and Liabilities Held for Sale

 

The Company classifies its assets and liabilities as held for sale when management commits to a plan to sell the assets, the assets are ready for immediate sale in their present condition, an active program to locate buyers has been initiated, the sale of the assets is probable and expected to be completed within one year, the assets are marketed at reasonable prices in relation to their fair value and it is unlikely that significant changes will be made to the plan to sell the assets. The Company measures the value of its assets and liabilities held for sale at the lower of the carrying amount or fair value, less cost to sell.

 

Assets and liabilities held for sale in the Condensed Consolidated Balance Sheets pertain to applicable assets and liabilities of the Xoft business. See Note 2 for additional information.

 

Risk and Uncertainty

 

On  March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, the United States and most countries of the world imposed some level of unprecedented restrictions such as travel bans and business closures which caused substantial reductions in economic activity. As a provider of devices and services to the health care industry, the Company believes its operations have been materially affected in all periods presented. While the worst of the disruptions appear to have subsided as of June 30, 2023, the Company continues to be impacted by slowness in the overall economic recovery. The Company’s expected results for future periods could reflect a continuing negative impact from the COVID-19 pandemic for similar or additional reasons.

 

In late  February 2022, Russian military forces launched significant military action against Ukraine. In early October 2023, an armed conflict between Hamas-led Palestinian militant groups and Israeli military forces broke out with a Hamas attack on southern Israel, to which Israeli military forces retaliated. Sustained conflict and disruption in the regions has continued and is likely to continue. Economic, civil, military and political uncertainty  may arise or increase in regions where the Company operates or derives revenue. Further, countries from which the Company derives revenue  may experience military action and/or civil and political unrest;  may be subject to government export controls, economic sanctions, embargoes, or trade restrictions; and experience currency, inflation, and interest rate uncertainties. While the impact to the Company has been limited to date, it is not possible to predict the potential outcome should the conflict expand and/or additional sanctions be imposed. For the three and nine months ended September 30, 2023, approximately 16% and 14%, respectively, of the Company's revenue was derived from customers located outside the United States.


 

Recently Adopted Accounting Pronouncements

 

In  June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaced the then-existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. In  November 2019, the FASB elected to defer the adoption date of ASU 2016-13 for public business entities that meet the definition of a smaller reporting company to fiscal years beginning after  December 15, 2022.  Early adoption of the guidance in ASU 2016-13 was permitted.  The Company adopted ASU 2016-13 effective  January 1, 2023.  Adoption caused the Company to modify its approach to estimating its allowance for potentially uncollectable accounts receivable. Specifically, the Company began applying an expected credit loss model that uses historical loss rates of its accounts receivable for the previous twelve months as well as expectations about the future where the Company has been able to develop forecasts to support its estimates.  Adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements.

 

5

 

 

 

Note 2 Discontinued Operations

 

On October 22, 2023, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”), by and among (i) the Company, Xoft Solutions, LLC, a Delaware limited liability company, and Xoft, Inc., a Delaware corporation, each a wholly owned subsidiary of the Company (collectively with the Company, the “Sellers” and each, a “Seller”), and (ii) Elekta Inc., a Georgia corporation, and Nucletron Operations B.V., a company organized under the laws of the Netherlands (together, “Buyers” and each a “Buyer”), pursuant to which the Company agreed to transfer to the Buyers substantially all of the assets and liabilities primarily related to the Company’s Xoft business lines (the “Business”), including with respect to employees, contracts, intellectual property and inventory, for a cash payment of approximately $5.76 million dollars from the Buyers to the Company payable no later than November 6, 2023, and the assumption by Buyers of all liabilities relating to the Business (the “Transaction”). This payment is guaranteed by Elekta AB, a company organized under the laws of Sweden, the ultimate parent company of the Buyers. 

 

The closing of the Transaction occurred simultaneously with the execution of the Purchase Agreement.

 

In connection with the Transaction, the parties entered into a transition services agreement pursuant to which the Company will provide certain migration and transition services to facilitate an orderly transition of the operation of the Business to the Buyers during the 5-month period following consummation of the Transaction, extendable at the option of the parties.

 

The Purchase Agreement contains certain representations, warranties, covenants and indemnification provisions, including for breaches of covenants and for losses resulting from the Company’s liabilities specifically excluded from the Transaction.

 

The Business, which had previously been presented as a separate reporting segment, meets the criteria for being reported as a discontinued operation and has been segregated from continuing operations. The following table summarizes the results from discontinued operations:

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2023     2022     2023     2022  

Revenue

  $ 1,414     $ 1,998     $ 4,551     $ 6,287  
Total cost of sales     (916 )     (1,328 )     (2,516 )     (4,029 )
Gross profit   $ 498     $ 670     $ 2,036     $ 2,258  
Total operating expenses     (835 )     (1,465 )     (2,471 )     (5,235 )
Provision for income taxes                        
Loss from discontinued operations, net of tax   $ (337 )   $ (795 )   $ (435 )   $ (2,977 )

 

Total operating expenses presented in the table above exclude amounts that had previously been allocated to the Business for certain shared marketing expenses.  The previously allocated amounts were less than $0.1 million and $0.2 million for the three months ended September 30, 2023 and 2022, respectively.  The previously allocated amounts were $0.3 million and $0.5 million for the nine months ended September 30, 2023 and 2022, respectively.  The previously allocated expenses are included in the Marketing and sales line for all periods presented in the Condensed Consolidated Statements of Operations.

 

The following table summarizes the assets and liabilities held for sale in the Company's Consolidated Balance Sheets:

 

    September 30, 2023     December 31, 2022  

Assets

               
Accounts receivable, net of allowance for credit losses   $ 1,941     $ 3,129  
Inventories, net     2,925       3,335  
Prepaid expenses and other current assets     971       1,070  
Total current assets held for sale   $ 5,837     $ 7,534  
Net property and equipment   $ 345     $ 370  
Operating lease assets     2,438       2,691  
Other assets     213       268  
Total noncurrent assets held for sale   $ 2,996     $ 3,329  
Liabilities                
Accounts payable   $ 358     $ 527  
Accrued and other expenses     1,358       2,140  
Lease payable - current portion     452       365  
Deferred revenue - current portion     2,221       2,563  
Total current liabilities held for sale   $ 4,389     $ 5,595  
Lease payable, net of current     2,004       2,348  
Deferred revenue, net of current     210       149  
Noncurrent liabilities held for sale   $ 2,214     $ 2,497  

 

The Business is included in the Company's Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023.  Estimated cash provided by the Business during the nine months ended September 30, 2023 was approximately $0.1 million given the previously announced furlough and limited investment during that time.  Estimated cash used by the Business during the nine months ended September 30, 2022 was approximately $3 million, primarily from operating activities.   

 

 

Note 3 Fair Value Measurements

 

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurement and Disclosures” (“ASC 820”), which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company applies the fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following:

 

 

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

 

 

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

 

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

 

 

 

The assigned level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Money market funds included in cash and cash equivalents in the accompanying consolidated balance sheet are considered a Level 1 measurement as they are valued at quoted market prices in active markets.

 

 

 

The following table sets forth the Company’s assets which are measured at fair value on a recurring basis by level within the fair value hierarchy:

 

Fair Value Measurements as of September 30, 2023

 

  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets

                

Money market accounts

 $15,342  $  $  $15,342 

Total Assets

 $15,342  $  $  $15,342 

 

Fair Value Measurements as of December 31, 2022

 

  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets

                

Money market accounts

 $15,067  $  $  $15,067 

Total Assets

 $15,067  $  $  $15,067 

 

  

There were no Level 2 or 3 instruments measured at fair value as of  September 30, 2023 or December 31, 2022.

 

6

 
 

Note 4 - Revenue

 

Revenue Recognition

 

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

 

Disaggregation of Revenue

 

The following tables presents the Company’s revenues disaggregated by major good or service line, timing of revenue recognition, and sales channel, reconciled to its reportable segments.

 

   

Three months ended September 30, 2023

 

Major Goods/Service Lines

       

Products

  $ 2,198  

Service contracts

    1,875  
    $ 4,073  

Timing of Revenue Recognition

       

Goods transferred at a point in time

  $ 1,834  

Services transferred over time

    2,239  
    $ 4,073  

Sales Channels

       

Direct sales force

    2,825  

OEM partners

    1,248  
    $ 4,073  

 

7

 
   

Nine months ended September 30, 2023

 

Major Goods/Service Lines

       

Products

  $ 6,961  

Service contracts

    5,617  
    $ 12,578  

Timing of Revenue Recognition

       

Goods transferred at a point in time

  $ 5,779  

Services transferred over time

    6,799  
    $ 12,578  

Sales Channels

       

Direct sales force

  $ 8,287  

OEM partners

    4,291  
    $ 12,578  

 

   

Three months ended September 30, 2022

 

Major Goods/Service Lines

       

Products

  $ 2,536  

Service contracts

    1,823  
    $ 4,359  

Timing of Revenue Recognition

       

Goods transferred at a point in time

  $ 2,510  

Services transferred over time

    1,849  
    $ 4,359  

Sales Channels

       

Direct sales force

  $ 2,947  

OEM partners

    1,412  
    $ 4,359  

 

8

 
   

Nine months ended September 30, 2022

 

Major Goods/Service Lines

       

Products

  $ 9,866  

Service contracts

    5,301  
    $ 15,167  

Timing of Revenue Recognition

       

Goods transferred at a point in time

  $ 9,844  

Services transferred over time

    5,323  
    $ 15,167  

Sales Channels

       

Direct sales force

  $ 9,347  

OEM partners

    5,820  
    $ 15,167  

 

Products. Product revenue consists of sales of cancer detection systems and perpetual licenses. The Company transfers control and recognizes a sale when the product is shipped from the manufacturing or warehousing facility to the customer.

 

Service. The Company sells service contracts in which the Company provides professional services including product installations, maintenance, training and service repairs. The service contracts range from 12 months to 48 months. The Company typically receives payment at the inception of the contract and recognizes revenue on a straight-line basis over the term of the agreement.

 

As discussed in Note 2, the Company completed the sale of its Xoft (Therapy) business line on October 23, 2023.

 

 

Contract Balances

 

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

 

Contract balances

 

   

Balance at

   

Balance at

   

Balance at

 
   

September 30, 2023

   

December 31, 2022

   

December 31, 2021

 

Receivables, which are included in ‘Trade accounts receivable’

  $ 4,865     $ 5,769     $ 4,263  

Current contract assets, which are included in “Prepaid and other assets”

  $ 1,194     $ 748     $ 1,895  

Non-current contract assets, which are included in “other assets”

  $ 43     $ 15     $ 844  

Contract liabilities, which are included in “Deferred revenue”

  $ 4,187     $ 4,046     $ 3,621  

 

9

 

Timing of revenue recognition may differ from timing of invoicing of customers. The Company records a receivable when revenue is recognized prior to receipt of cash payment and the Company has the unconditional right to such consideration, or unearned revenue when cash payments are received or due in advance of performance. For multi-year agreements, the Company generally invoices customers annually at the beginning of each annual service period.

 

The Company records net contract assets or contract liabilities on a contract-by-contract basis. The Company records a contract asset for unbilled revenue when the Company’s performance is in excess of amounts billed or billable. The Company classifies the net contract asset as either a current or non-current based on the expected timing of the Company’s right to bill under the terms of the contract. The current contract asset balance primarily relates to the net unbilled revenue balances with two significant customers, which the Company expects to be able to bill for within one year. The non-current contract asset balance consists of net unbilled revenue balances with one customer which the Company expects to be able to bill for in more than one year.

 

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

 

   

Nine Months

 
   

Ended September 30,

 
   

2023

 

Balance at beginning of period

  $ 4,046  

Deferral of revenue

    5,810  

Recognition of deferred revenue

    (5,669 )

Balance at end of period

  $ 4,187  

 

As of September 30, 2023, the aggregate amount of unsatisfied, or partially satisfied, performance obligations from contracts with customers was $4.2 million. The Company expects to recognize approximately $3.3 million of its remaining performance obligations as revenue over the next 12 months. The remainder of the balance is expected to be recognized over the next two to three years.

 

 

 

Note 5 Net Loss per Common Share

 

The Company’s basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period.

 

A summary of the Company’s calculation of loss per share is as follows (in 000s, except for Net loss per share):

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2023

   

2022

   

2023

   

2022

 

Loss from continuing operations

  $ (1,037 )   $ (3,103 )   $ (6,467 )   $ (7,584 )

Loss from discontinued operations

    (337 )     (795 )     (435 )     (2,977 )

Net loss

  $ (1,374 )   $ (3,898 )   $ (6,902 )   $ (10,561 )

Shares used in the calculation of basic and diluted net loss per share

    25,597       25,204       25,374       25,183  

Loss per share from continuing operations - basic and diluted

  $ (0.04 )   $ (0.12 )   $ (0.25 )   $ (0.30 )

Loss per share from discontinued operations - basic and diluted

    (0.01 )     (0.03 )     (0.02 )     (0.12 )

Net loss per share - basic and diluted

  $ (0.05 )   $ (0.15 )   $ (0.27 )   $ (0.42 )

 

The shares of the Company’s common stock issuable upon the exercise of stock options and vesting of restricted stock that were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive are as follows:

 

   

September 30,

 
   

2023

   

2022

 

Stock options

    3,209,591       2,624,154  

Total

    3,209,591       2,624,154  

 

10

 
 

Note 6 Inventories

 

The Company values its inventory at the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead and is determined using the first-in, first-out (FIFO) method. On a quarterly basis, management reviews inventory quantities on hand and analyzes the provision for excess and obsolete inventory based primarily on product expiration dating and estimated sales forecast, which is based on sales history and anticipated future demand. Inventory consisted of the following and includes an inventory reserve of $45,000 at both September 30, 2023 and December 31, 2022.

 

  

September 30, 2023

  

December 31, 2022

 

Raw materials

 $971  $1,910 

Work in process

  16   134 

Finished goods

  50   55 

Inventory gross

  1,037   2,099 

Inventory reserve

  (45)  (45)

Inventory net

 $992  $2,054 

 

 

Note 7 Goodwill

 

The Company tests goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of the reporting unit is less than its carrying value. Factors the Company considers important, which could trigger an impairment of such asset, include the following:

 

•         significant underperformance relative to historical or projected future operating results;

 

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

 

•         significant negative industry or economic trends;

 

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

 

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

 

The Company considered indicators of impairment, and there were no triggering events identified, no indication of impairment of the Company’s goodwill and no impairment charges recorded during the three months ended September 30, 2023 or 2022.

 

 

Note 8 Long-lived Assets

 

The Company assesses long-lived assets for impairment if events and circumstances indicate it is more likely than not that the fair value of the asset group is less than its carrying value.

 

There is no set interval or frequency for recoverability evaluation. Rather, the determination of when, if at all, an asset (or asset group) is evaluated for recoverability is based on “events and circumstances.” The following factors are examples of events or changes in circumstances that indicate the carrying amount of an asset (or asset group) may not be recoverable and thus is to be evaluated for recoverability.

 

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

 

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

 

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

 

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

 

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

 

The Company determined there were no such triggering events in the period ended September 30, 2023.

 

11

 
 

Note 9  Lease Commitments

 

In accordance with ASC Topic 842, "Leases" ("ASC 842"), the Company determines if an arrangement contains a lease at inception. A lease is an operating or financing contract, or part of a contract, that conveys the right to control the use of an identified tangible asset for a period of time in exchange for consideration.

 

At lease inception, the Company recognizes a lease liability equal to the present value of the remaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as for lease incentives. In determining the present value of the lease payments, the Company calculates an incremental borrowing rate, which is determined by estimating the Company’s applicable, fully collateralized borrowing rate, with adjustment as appropriate for lease term. The lease term at the lease commencement date is determined based on the non-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an extension option if the Company is reasonably certain to exercise that option.

 

Assumptions made by the Company at the commencement date of each lease are re-evaluated upon occurrence of certain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

 

Right-of-use assets and obligations for leases with an initial term of 12 months or less are considered short term and are a) not recognized in the consolidated balance sheet and b) recognized as an expense on a straight-line basis over the lease term. The Company does not sublease any of its leased assets to third parties and the Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company has lessor agreements that contain lease and non-lease components, but the Company is accounting for the complete agreement under ASC 606 after determining that the non-lease component is the predominant component of these agreements.

 

ASC 842 includes a number of reassessment and remeasurement requirements for lessees based on certain triggering events or conditions. There were no impairment indicators identified during the three and nine months ended September 30, 2023 that would require impairment testing of the Company’s right-of-use assets.

 

Certain of the Company’s leases include variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain non-lease components that transfer a distinct service to the Company, such as common area maintenance services. The Company has elected to separate the accounting for lease components and non-lease components for real estate and equipment leases.

 

Components of Leases:

 

The Company has leases for office space and office equipment. The leases expire at various dates through 2028.

 

   

Three Months Ended

  

Nine Months Ended

 

Lease Cost

Classification

 

September 30, 2023

  

September 30, 2023

 

Operating lease cost - Right of Use Asset

Operating expenses

 $63  $186 

 

12

 

Other information related to leases was as follows:

 

  

Three Months

  

Nine Months

 
  

Ended September 30, 2023

  

Ended September 30, 2023

 

Cash paid from operating cash flows for operating leases

 $65  $193 

 

  

As of September 30,

 
  

2023

 

Weighted-average remaining lease term of operating leases (years)

  2.0%

Weighted-average discount rate for operating leases

  6.8%

 

Maturity of the Company’s lease liabilities as of September 30, 2023 was as follows:

 

2023

 $64 

2024

  219 

2025

  204 

2026

  85 

Total lease payments

  572 

Less: effects of discounting

  (58)

Total lease liabilities

  514 

Less: current portion of lease liabilities

  197 

Long-term lease liabilities

 $317 

 

13

 
 

Note 10 Stockholders Equity

 

Stock-Based Compensation

 

The Company granted options to purchase 562,774 and 1,103,916 shares of the Company’s stock during the three and nine months ended September 30, 2023 , respectively. The full amount of options were granted in the first nine months of 2023.

 

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

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Cost of revenue

 $1  $1  $3  $2 

Engineering and product development

  56   37   188   182 

Marketing and sales

  75   133   268   441 

General and administrative

  171   234   655   744 
  $303  $405  $1,114  $1,369 

 

During the three months ended March 31, 2023, the Company recorded incremental stock-based compensation of approximately $0.23 million as a result of modifications of certain stock option awards.  The modifications related to extending the contractual life of certain stock options by five years for four grantees whose awards were scheduled to expire during 2023.  In addition, the amount of time to exercise vested stock options upon termination for one grantee was extended from 90 days to 24 months.   

 

As of September 30, 2023, there was approximately $1.2 million of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted average period of 1.70 years.  

 

Options granted under the Company’s stock incentive plans were valued utilizing the Black-Scholes model using the following assumptions and had the following fair values:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2023

  

2022

  

2023

  

2022

 

Average risk-free interest rate

  4.94%  n/a*   4.30%  1.90%

Expected dividend yield

 

None

  

None

  

None

  

None

 

Expected life (in years)

  2.5   n/a*   2.9   3.5 

Expected volatility

  84.3% - 134.4%   n/a*   72.7% to 134.4%   66.3% to 70.5% 

Weighted average exercise price

 $2.70   n/a*  $1.82  $5.22 

Weighted average fair value

 $1.34   n/a*  $0.97  $2.46 

 

* The Company granted no options during the three months ended September 30, 2022.

 

The Company’s 2023 and 2022 average expected volatility and average expected life is based on the average of the Company’s historical information. The risk-free rate is based on the rate of U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of option grants. The Company has paid no dividends on its common stock in the past and does not anticipate paying any dividends in the future.

 

The Company did not grant any shares of restricted stock during the three-months ended September 30, 2023 or 2022.  The Company’s restricted stock awards typically vest in either one year or three equal annual installments with the first installment vesting one year from the grant date. The grant date fair value for restricted stock awards is based on the quoted market value of Company stock on the grant date.

 

14

 

A summary of stock option activity for all stock option plans for the period ended September 30, 2023 is as follows:

 

  

Number of

  

Weighted Average

  

Intrinsic

 
  

Options

  

Exercise Price

  

Value

 

Outstanding as of December 31, 2022

  2,610,992  $7.54  $ 

Granted

  1,179,868  $1.82    

Exercised

  (35,809) $2.24  $2 

Cancelled

  (544,127) $4.98     

Outstanding as of September 30, 2023

  3,210,924  $5.61  $969 

Options Exercisable as of December 31, 2022

  1,619,855  $6.47  $ 

Options Exercisable as of September 30, 2023

  2,042,460  $7.13  $47 

 

Employee Stock Purchase Plan

 

In December 2019, the Company’s Board of Directors adopted, and the stockholders approved the 2019 Employee Stock Purchase Plan (“ESPP”), effective January 1, 2020. The ESPP provides for the issuance of up 950,000 shares of common stock, subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The ESPP may be terminated or amended by the Board of Directors at any time. Certain amendments to the ESPP require stockholder approval.  In October 2022, the Company suspended the ESPP such that the accumulation period from October 1, 2022 through December 31, 2022 and beyond will not occur.

 

Prior to the Company's suspension of the ESPP, any eligible employee could enroll as of the beginning of a respective quarterly accumulation period. Employees who participated in the ESPP were able to purchase shares by authorizing payroll deductions of up to 15% of their base compensation during an accumulation period. Unless the participating employee withdrew from participation, accumulated payroll deductions were used to purchase shares of common stock on the last business day of the accumulation period (the “Purchase Date”) at a price equal to 85% of the lower of the fair market value on (i) the Purchase Date or (ii) the first day of such accumulation period. Under applicable tax rules, no employee was able to purchase more than $25,000 worth of common stock, valued at the start of the purchase period, under the ESPP in any calendar year.  Substantially all of the Company’s employees whose customary employment is for more than 20 hours a week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or value of the Company’s shares of common stock is not eligible to purchase shares under the ESPP.

 

The Company issued 8,683 and 18,064 shares under the ESPP in the three and nine months ended September 30, 2022, respectively. The Company recorded approximately $12,000 and $22,000 of stock-based compensation expense pursuant to ESPP for the three and nine months ended September 30, 2022, respectively. 

 

 

Note 11 Income Taxes

 

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which the Company operates and the development of tax planning strategies during the year. As such, there can be significant volatility in interim tax provisions. 

 

Income tax expense was approximately $4,000 and approximately $13,000 for the three and nine months ended September 30, 2023, respectively. The effective tax rates for the three and nine months ended September 30, 2023 and 2022 were less than 1% in each period. The difference between the Company’s effective tax rates in 2023 and 2022 compared to the U.S. statutory tax rate of 21% is primarily due to changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company has valuation allowances against substantially all of its net operating loss carryforwards and tax credit carryforwards.

 

15

 
 

Note 12  Commitments and Contingencies

 

Other Commitments

 

The Company is obligated to pay approximately $1.1 million for firm purchase obligations to suppliers for future product and service deliverables and $0.4 million for minimum royalty obligations.

 

Litigation

 

The Company may be a party to various legal proceedings and claims arising out of the ordinary course of its business. Although the final results of all such matters and claims cannot be predicted with certainty, the Company currently believes that there are no current proceedings or claims pending against it the ultimate resolution of which would have a material adverse effect on its financial condition or results of operations. However, should the Company fail to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, such matters could have a material adverse effect on the Company’s operating results and cash flows for that particular period. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, “Contingencies.” Legal costs are expensed as incurred.

 

 

Note 13  Restructuring

 

On March 20, 2023, the Company committed to a restructuring plan intended to support its long-term strategic goals and reduce operating expenses by further aligning its cost structure to focus on areas the Company believes are more likely to generate the best long-term results, in light of current industry and macroeconomic environments (the “RIF”). The Company reduced its workforce by approximately 28%, decreasing its headcount by approximately 23 employees, predominantly from the Company’s detection business unit. Xoft, Inc., a wholly-owned subsidiary of the Company, furloughed 12 of its employees, or approximately 50% of its workforce. As discussed in Note 2, the Company completed the sale of its Xoft business line on October 23, 2023.   

 

The Company has incurred charges of $0.2 million related to the RIF, all of which were recognized during the nine months ended September 30, 2023.  All of the incurred charges are one-time, cash expenses and were recorded primarily in Cost of revenue and Marketing and sales in the Company's Condensed Consolidated Statements of Operations.  While the Company does not expect to record additional charges related to the RIF, the amounts are subject to change until finalized and the Company may incur additional costs during the remainder of 2023.  

 

The Company's accrual for restructuring charges for the nine months ended September 30, 2023 was follows (in thousands):

 

Balance as of January 1, 2023

  $  
Charges     178  
Cash payments     (160 )
Balance as of September 30, 2023   $ 18  

 

 

Note 14  Issuances of Common Stock

 

As previously disclosed, on August 11, 2023, the Company entered into an at-the-market issuance sales agreement (the “Sales Agreement”) with Craig-Hallum Capital Group LLC whereby the Company, at its discretion, may issue and sell up to $25 million of shares of the Company's common stock, from time to time, by any method deemed to be an “at-the-market” offering, as defined in Rule 415 of the Securities Act, or any method specified in the Sales Agreement.  During the three months ended September 30, 2023, the Company sold 958,248 shares of its common stock at a weighted average price of $2.26 per share resulting in cash proceeds of $1.8 million, net of issuance costs, pursuant to the Sales Agreement.  In addition, subsequent to September 30, 2023, the Company has sold 37,266 shares of its common stock at a weighted average price of $1.46 per share resulting in cash proceeds of approximately $53,000, net of issuance costs, pursuant to the Sales Agreement.

 

16

   
 

Item 2.         Managements Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.  Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. As a result of many factors, including those factors set forth in the section titled Risk Factors, our actual results could differ materially from those discussed in or implied by these forward-looking statements. Please also refer to the section titled Special Note Regarding Forward Looking Statements.

 

Special Note Regarding Forward Looking Statements

 

Certain information included in this Item 2 and elsewhere in this Form 10-Q that are not historical facts contain statements that may be deemed “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements involve or may involve a number of known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to the following: the continuing impact of the COVID-19 pandemic, the outcomes of our commercial and strategic arrangements (including our respective arrangements with Google Health and Radiology Partners), the continuing impact of military and political conflict in Eastern Europe and the Middle East, the ability to achieve business and strategic objectives, the risks of uncertainty of patent protection, the impact of supply and manufacturing constraints or difficulties, 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, risks relating to potential future debt obligations, competitive factors, the effects of a decline in the economy or markets served by the Company, and other risks detailed in this report and in the Company’s other filings with the United States Securities and Exchange Commission (the “SEC”). The words “believe”, “plan”, “intend”, “expect”, “estimate”, “anticipate”, “likely”, “seek”, “should”, “would”, “could” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date the statement was made. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date of such statements.

 

Unless the context otherwise requires, the terms “iCAD”, the “Company”, “we”, “our”, “registrant”, and “us” mean iCAD, Inc. and its consolidated subsidiaries.

 

Results of Operations

 

Overview

 

iCAD, Inc. is a global medical technology company providing innovative cancer detection. Prior to the third quarter of 2023, the Company had two reporting segments: Detection and Therapy.  The Company completed the sale of its Xoft (Therapy) business line on October 23, 2023. The applicable assets and liabilities of the Xoft business have been classified as held for sale in the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, and the results of its operations for all periods presented are reflected as discontinued operations in the Condensed Consolidated Statements of Income. Unless otherwise indicated, all disclosures and amounts in the Notes to Condensed Consolidated Financial Statements relate to the Company’s continuing operations.  Accordingly, the Company now has only one reporting segment, Detection.

 

The Company’s solutions include (i) advanced image analysis and workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier, and (ii) a solutions suite of high-performance, Artificial Intelligence and Computer-Aided Detection (CAD) systems and workflow solutions for 2D and 3D mammography, Magnetic Resonance Imaging (MRI) and Computed Tomography (CT) that focus on cancer detection, breast density assessment, and short-term cancer risk estimation.

 

The Company’s headquarters is located in Nashua, New Hampshire, with a manufacturing facility in New Hampshire and an office in Lyon, France.

 

COVID-19 Impact

 

On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, the United States and most countries of the world imposed some level of unprecedented restrictions such as travel bans and business closures which caused substantial reductions in economic activity. As a provider of devices and services to the health care industry, we believe our operations have been materially affected in all periods presented. While the worst of the disruptions seem to have subsided as of September 30, 2023, and the pandemic emergency has been deemed to be over, we continue dealing with the impact of slowness in the overall economic recovery. Our expected results for the year ended December 31, 2023, including any interim or future periods, could reflect a continuing negative impact from continuing negative economic conditions. 

 

 

We believe that our current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand of $19.0 million at September 30, 2023 and anticipated revenue and cash collections as well as cost savings actions taken.

 

Global Conflicts Impact

 

In late February 2022, Russian military forces launched significant military action against Ukraine. In early October 2023, an armed conflict between Hamas-led Palestinian militant groups and Israeli military forces broke out with a Hamas attack on southern Israel, to which Israeli military forces retaliated. Sustained conflict and disruption in the regions has continued and is likely to continue. Economic, civil, military and political uncertainty may arise or increase in regions where the Company operates or derives revenue. Further, countries from which we derive revenue may experience military action and/or civil and political unrest; may be subject to government export controls, economic sanctions, embargoes, or trade restrictions; and experience currency, inflation, and interest rate uncertainties. While the impact to us has been limited to date, it is not possible to predict the potential outcome should the conflict expand and/or additional sanctions be imposed. For the three and nine months ended September 30, 2023, approximately 16% and 15%, respectively, of the Company's revenue was derived from customers located outside the United States.  No individual country outside of the United States accounted for more than 10% of revenue during those periods.

 

Xoft Sale

 

The Company completed the sale of its Xoft business line on October 23, 2023. The applicable assets and liabilities of the Xoft business have been classified as held for sale in the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, and the results of its operations for all periods presented are reflected as discontinued operations in the Condensed Consolidated Statements of Income. Unless otherwise indicated, all disclosures and amounts relate to the Company’s continuing operations.  In addition, the Company now has one reporting segment, Detection.

 

Critical Accounting Estimates

 

Our discussion and analysis of financial condition, results of operations, and cash flows are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

 

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to revenue recognition, allowances for credit losses on accounts receivable, inventory valuation and obsolescence, intangible assets, goodwill, income taxes, contingencies, and litigation. Additionally, we use assumptions and estimates in calculations to determine stock-based compensation, and evaluation of litigation. We base estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

Due to the COVID-19 pandemic and its lingering impact, global armed conflicts and related political uncertainty, as well as dramatic inflation, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

 

Other than as described herein, there have been no additional material changes to our critical accounting estimates as discussed in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023. For a comprehensive list of our critical accounting estimates, reference should be made to the 2022 10-K.

 

Three and nine months ended September 30, 2023 compared to three and nine months ended September 30, 2022 (in thousands, except share data or as noted)

 

Revenue

 

Three months ended September 30, 2023 and 2022:

 

   

Three Months Ended September 30,

 
   

2023

   

2022

   

$ Change

   

% Change

 

Product revenue

  $ 2,198     $ 2,536     $ (338 )     (13.3 )%

Service and supplies revenue

    1,875       1,823       52       2.9 %

Total revenue

    4,073       4,359       (286 )     (6.6 )%

 

Total revenue decreased by approximately $0.3 million or (6.6%), from $4.4 million for the three months ended September 30, 2022 to $4.1 million for the three months ended September 30, 2023. The decrease is due primarily to reduced demand, a reduction in sales force in 2022, our shift to a subscription model and continued weakness in recovery to pre-pandemic levels prior to Covid-19.  During the third quarter of 2023, we have seen an increased customer demand for subscription licenses, which currently remains a small portion of the Company’s total license revenue. We believe this trend could accelerate, and we have begun to shift our marketing efforts to a subscription model. An increase in subscription revenue would negatively impact revenue in the short term, because revenue from subscription licenses are recognized over time, as opposed to being recognized upon delivery for perpetual licenses. 

 

 

Detection product revenue decreased by approximately $0.3 million, or (13.3%), from $2.5 million for the three months ended September 30, 2022 to $2.2 million for the three months ended September 30, 2023. The overall decrease is due primarily to the impact of our transition to a subscription model and ongoing challenges faced in the economy and market competition.

 

Detection service and supplies revenue, which is primarily sold to direct customers, was flat at approximately $1.8 million for the three months ended September 30, 2022  compared to the three months ended September 30, 2023.  

 

 

 

Nine Months Ended September 30, 2023 and 2022:

 

   

Nine Months Ended September 30,

 
   

2023

   

2022

   

$ Change

   

% Change

 

Product revenue

  $ 6,961     $ 9,866     $ (2,905 )     (29.4 )%

Service and supplies revenue

    5,617       5,301       316       6.0 %

Total revenue

    12,578       15,167       (2,589 )     (17.1 )%

 

Total revenue decreased by approximately $2.6 million or (17.1%), from $15.1 million for the nine months ended September 30, 2022 to $12.6 million for the nine months ended September 30, 2023. The decrease is due primarily to reduced demand, a reduction in sales force in 2022, our shift to a subscription model and continued weakness in recovery to pre-pandemic levels prior to Covid-19 as well as market competition.  During the first nine months of 2023, we have seen an increased customer demand for subscription licenses, which currently remains a small portion of the Company’s total license revenue. We believe this trend could accelerate, and we have begun to shift our marketing efforts to a subscription model. An increase in subscription revenue would negatively impact revenue in the short term, because revenue from subscription licenses are recognized over time, as opposed to being recognized upon delivery for perpetual licenses. 

 

Detection product revenue decreased by approximately $2.9 million, or (29.4%), from $9.9 million for the nine months ended September 30, 2022 to $7.0 million for the nine months ended September 30, 2023. The overall decrease is due primarily to the impact of our transition to a subscription model and ongoing challenges faced in the economy as well as market competition.

 

Detection service and supplies revenue, which is primarily sold to direct customers, increased by approximately $0.3 million, or 6.0%, from $5.3 million for the nine months ended September 30, 2022 to $5.6 million in the nine months ended September 30, 2023.  The increase is due primarily to the timing of delivery on service and supply agreements.

 

 

Cost of Revenue and Gross Profit:

 

Three months ended September 30, 2023 and 2022:

 

Cost of Revenue and Gross Profit:

 

Three Months Ended September 30,

 
   

2023

   

2022

   

$ Change

   

% Change

 

Products

  $ 263     $ 348     $ (85 )     (24.4 )%

Service and supplies

    267       280       (13 )     (4.6 )%

Amortization and depreciation

    22       27       (5 )     (18.5 )%

Total cost of revenue

  $ 552     $ 655     $ (103 )     (15.7 )%

 

   

Three Months Ended September 30,

 
   

2023

   

2022

   

$ Change

   

% Change

 

Gross profit

  $ 3,521     $ 3,704     $ (183 )     (4.9 )%

 

Gross profit for the three months ended September 30, 2023 was approximately $3.5 million, or 86.4% of revenue, as compared to $3.7 million, or 85.0% of revenue, for the three months ended September 30, 2022. 

 

Cost of products decreased by approximately $85,000, or (24.4)%, from $348,000 for the three months ended September 30, 2022 to $263,000 for the three months ended September 30, 2023. The decrease is due primarily to lower product sales.  Cost of product revenue as a percentage of product revenue was approximately 13.7% for the three months ended September 30, 2022 as compared to 12.0% for the three months ended September 30, 2023. 

 

Cost of service and supplies was approximately flat for the three months ended September 30, 2022 and September 30, 2023. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 15.4% for the three months ended September 30, 2022 as compared to 14.2% for the three months ended September 30, 2023. The cost of service and supplies as a percentage of revenue decreased primarily as a result of the relative mix of service and supplies in the comparable periods.

 

Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was approximately flat for the three months ended September 30, 2023 and 2022.

 

 

Nine Months Ended September 30, 2023 and 2022:

 

Cost of Revenue and Gross Profit:

 

Nine Months Ended September 30,

 
   

2023

   

2022

   

$ Change

   

% Change

 

Products

  $ 1,099     $ 1,253     $ (154 )     (12.3 )%

Service and supplies

    951       916       35       3.8 %

Amortization and depreciation

    65       81       (16 )     (19.8 )%

Total cost of revenue

  $ 2,115     $ 2,250     $ (135 )     (6.0 )%

 

   

Nine Months Ended September 30,

 
   

2023

   

2022

   

$ Change

   

% Change

 

Gross profit

  $ 10,463     $ 12,917     $ (2,454 )     (19.0 )%

 

Gross profit for the nine months ended September 30, 2023 was approximately $10.5 million, or 83.2% of revenue, as compared to $12.9 million, or 85.2% of revenue, for the nine months ended September 30, 2022. 

 

Cost of products decreased by approximately $0.2 million, or (12.3)%, from $1.3 million for the nine months ended September 30, 2022 to $1.1 million for the nine months ended September 30, 2023. The decrease is due primarily to lower product sales. Cost of product revenue as a percentage of product revenue was approximately 12.7% for the nine months ended September 30, 2022 as compared to 15.8% for the nine months ended September 30, 2023. The product mix in the nine-month period ended September 30, 2023 compared to the same period in 2022 included more products with a higher relative cost of sales.

 

Cost of service and supplies decreased by approximately flat for the nine months ended September 30, 2022  compared to the nine months ended September 30, 2023. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 17.3% for the nine months ended September 30, 2022 as compared to 16.9% for the nine months ended September 30, 2023. The cost of service and supplies as a percentage of revenue decreased primarily as a result of the relative mix of service and supplies in the comparable periods.

 

Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was less approximately flat for the nine months ended September 30, 2023 and 2022.

 

 

Operating Expenses:

 

Three months ended September 30, 2023 and 2022:

 

   

Three Months Ended September 30,

 
   

2023

   

2022

   

$ Change

   

% Change

 

Operating expenses:

                               

Engineering and product development

  $ 1,147     $ 1,407     $ (260 )     (18.5 )%

Marketing and sales

    1,495       2,761       (1,266 )     (45.9 )%

General and administrative

    2,042       2,649       (607 )     (22.9 )%

Amortization and depreciation

    56       52       4       7.7 %

Total operating expenses

  $ 4,740     $ 6,869     $ (2,129 )     (31.0 )%

 

Operating expenses decreased by approximately $2.1 million, or (31.0)%, from $6.9 million in the three months ended September 30, 2022 to $4.7 million in the three months ended September 30, 2023.

 

Engineering and Product Development. Engineering and product development costs decreased by approximately $0.3 million, or (18.5)%, from $1.4 million in the three months ended September 30, 2022 to $1.1 million in the three months ended September 30, 2023.  The decrease is due primarily to cost savings actions taken by management.

 

Marketing and Sales. Marketing and sales expenses decreased by approximately $1.3 million, or (45.9)%, from $2.8 million in the three months ended September 30, 2022 to $1.5 million in the three months ended September 30, 2023. The decrease was primarily related to lower headcount and commission expense during the comparable periods.  

 

General and Administrative. General and administrative expenses decreased by approximately $0.6 million, or (22.9%), from $2.6 million in the three months ended September 30, 2022 to $2.0 million in the three months ended September 30,2023  

 

Amortization and Depreciation. Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, were flat for the three months ended September 30, 2023 and 2022.

 

Nine Months Ended September 30, 2023 and 2022:

 

   

Nine Months Ended September 30,

 
   

2023

   

2022

   

$ Change

   

% Change

 

Operating expenses:

                               

Engineering and product development

  $ 3,909     $ 4,359     $ (450 )     (10.3 )%

Marketing and sales

    5,690       8,206       (2,516 )     (30.7 )%

General and administrative

    7,650       7,804       (154 )