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~~June 30, ~~2017~~

2021

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

For the transition period from
to

Commission file number

001-09341

iCAD, Inc.

(Exact name of registrant as specified in its charter)


Delaware		02-0377419
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



98 Spit Brook Road, Suite 100, Nashua, NH		03062
(Address of principal executive offices)		(Zip Code)

(603)

882-5200

(Registrant’s telephone number, including area code)

Not Applicable

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

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


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	ICAD	The Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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	~~☐ (do not check if a smaller reporting company)~~☒	Smaller reporting company	☒


		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act) YES ☐ NO ☒.

As of the close of business on ~~November 13, 2017~~July 30, 2021, there

were ~~16,511,655~~25,035,893

shares outstanding of the registrant’s Common Stock, ~~$.01~~$0.01 par value.

Table of Contents

iCAD, Inc.

INDEX


		Page
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2021 (unaudited) and December 31, ~~2016~~2020		3

	Condensed Consolidated Statements of Operations (unaudited) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~September~~June 30, ~~2016~~2020		4

	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~September~~June 30, ~~2016~~2020		5

	~~Notes to Condensed~~ Consolidated ~~Financial~~ Statements of Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2021 and June 30, 2020		~~6-28~~6

~~Item 2~~	Notes to Condensed Consolidated Financial Statements (unaudited)		8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~29-41~~31

Item 3	Quantitative and Qualitative Disclosures about Market Risk		41

Item 4	Controls and Procedures		41

PART II	OTHER INFORMATION		42

Item 41	~~Controls and Procedures~~Legal Proceedings		42

~~PART II~~ Item 1A	~~OTHER INFORMATION~~Risk Factors

~~Item 1~~	~~Legal Proceedings~~		43

Item 1A6	~~Risk Factors~~Exhibits		43

~~Item 2~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~		43

~~Item 6~~	~~Exhibits~~		4344

	Signatures		45

Table of Contents

iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

~~(Unaudited)~~

(In thousands except for share data)

   September 30, December 31,
   2017 2016
Assets
Current assets:

Cash and cash equivalents
   $ 11,261 $ 8,585
Trade accounts receivable, net of allowance for doubtful accounts of $209 in 2017 and $172 in 2016
   7,189 5,189
Inventory, net
   3,340 3,727
Prepaid expenses and other current assets
   949 1,128
Assets held for sale
   —   1,304


Total current assets
   22,739 19,933


Property and equipment, net of accumulated depreciation of $7,245 in 2017 and $6,538 in 2016
   972 1,385
Other assets
   53 53
Intangible assets, net of accumulated amortization of $7,333 in 2017 and $7,518 in 2016
   2,055 3,183
Goodwill
   10,128 14,097


Total assets
   $ 35,947 $ 38,651


Liabilities and Stockholders’ Equity
Current liabilities:

Accounts payable
   $ 1,346 $ 1,577
Accrued and other expenses
   4,935 4,988
Lease payable - current portion
   12 86
Notes payable - current portion
   317 —
Liabilities held for sale
   —   832
Deferred revenue
   5,021 5,372


Total current liabilities
   11,631 12,855


Other long-term liabilities
   140 83
Lease payable, long-term portion
   30 —
Notes payable, long-term portion
   5,612 —
Deferred revenue, long-term portion
   525 668
Deferred tax
   12 7


Total liabilities
   17,950 13,613


Commitments and Contingencies (Note 6, 7 and 9)

Stockholders’ equity:

Preferred stock, $ .01 par value: authorized 1,000,000 shares; none issued.
   —   —
Common stock, $ .01 par value: authorized 30,000,000 shares; issued 16,627,705 in 2017 and 16,260,663 in 2016; outstanding 16,441,874 in 2017 and 16,074,832 in 2016
   167 163
Additionalpaid-in capital
   216,875 213,899
Accumulated deficit
   (197,630 ) (187,609 )
Treasury stock at cost, 185,831 shares in 2017 and 2016
   (1,415 ) (1,415 )


Total stockholders’ equity
   17,997 25,038


Total liabilities and stockholders’ equity
   $ 35,947 $ 38,651

(Unaudited)

June 30,

December 31,


2021

2020

Assets
Current assets:

Cash and cash equivalents
   $ 37,889 $ 27,186
Trade accounts receivable, net of allowance for doubtful accounts of $104 in 2021 and $111 in 2020
   11,107 10,027
Inventory, net
   2,861 3,144
Prepaid expenses and other current assets
   1,742 1,945


Total current assets
   53,599 42,302


Property and equipment, net of accumulated depreciation of $6,935 in 2021 and $6,778 in 2020
   921 744
Operating lease assets
   1,370 1,758
Other assets
   1,532 1,527
Intangible assets, net of accumulated amortization of $8,610 in 2021 and $8,494 in 2020
   777 889
Goodwill
   8,362 8,362


Total assets
   $ 66,561 $ 55,582


Liabilities and Stockholders’ Equity
Current liabilities:

Accounts payable
   $ 1,039 $ 2,869
Accrued and other expenses
   6,606 7,039
Lease payable - current portion    851 726
Deferred revenue
   5,964 6,117


Total current liabilities
   14,460 16,751
Lease payable, long-term portion
   646 1,075
Notes payable, long-term portion
   —   6,960
Deferred revenue, long-term portion
   424 267
Deferred tax
   4 4


Total liabilities
   15,534 25,057
Commitments and Contingencies (Note 7)
   0 0
Stockholders’ equity:

Preferred stock, $0.01 par value: authorized 1,000,000 shares; NaN issued.
   0—   0—
Common stock, $0.01 par value: authorized 30,000,000 shares; issued
25,213,302
as of June 30, 2021 and
23,693,735
as of December 31, 2020.

Outstanding 25,027,471 as of June 30, 2021 and 23,508,575 as of December 31, 2020.
   251 236
Additional
paid-in
capital
   299,049 273,639
Accumulated deficit
   (246,858 ) (241,935 )
Treasury stock at cost, 185,831 shares in 2021 and 2020
   (1,415 ) (1,415 )


Total stockholders’ equity
   51,027 30,525


Total liabilities and stockholders’ equity
   $ 66,561 $ 55,582

See accompanying notes to condensed consolidated financial statements.

Table of Contents

iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands except for per share data)

   Three Months Ended September 30, Nine Months Ended September 30,
   2017 2016 2017 2016
Revenue:

Products
   $ 3,426 $ 2,014 $ 9,225 $ 7,460
Service and supplies
   3,574 3,989 10,975 11,950


Total revenue
   7,000 6,003 20,200 19,410
Cost of revenue:

Products
   636 236 1,349 611
Service and supplies
   1,458 1,370 4,169 3,911
Amortization and depreciation
   263 296 847 899


Total cost of revenue
   2,357 1,902 6,365 5,421


Gross profit
   4,643 4,101 13,835 13,989


Operating expenses:

Engineering and product development
   2,254 2,360 7,060 6,835
Marketing and sales
   2,580 2,322 8,172 7,379
General and administrative
   1,944 1,783 6,067 5,586
Amortization and depreciation
   107 288 345 867
Gain on sale of MRI assets
   —   —   (2,508 ) —
Goodwill and long-lived asset impairment
   4,700 —   4,700 —


Total operating expenses
   11,585 6,753 23,836 20,667


Loss from operations
   (6,942 ) (2,652 ) (10,001 ) (6,678 )
Interest expense
   (36 ) (15 ) (51 ) (59 )
Other income
   3 2 3 9


Other expense, net
   (33 ) (13 ) (48 ) (50 )
Loss before income tax expense
   (6,975 ) (2,665 ) (10,049 ) (6,728 )


Tax benefit (expense)
   42 (10 ) 28 (55 )
Net loss and comprehensive loss
   $ (6,933 ) $ (2,675 ) $ (10,021 ) $ (6,783 )


Net loss per share:

Basic
   $ (0.42 ) $ (0.17 ) $ (0.62 ) $ (0.43 )


Diluted
   $ (0.42 ) $ (0.17 ) $ (0.62 ) $ (0.43 )


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

Basic
   16,424 15,957 16,291 15,896


Diluted
   16,424 15,957 16,291 15,896

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020

Revenue:

Products
   $ 4,552 $ 2,888 $ 10,109 $ 6,683
Service and supplies
   3,274 2,679 6,361 5,435


Total revenue
   7,826 5,567 16,470 12,118
Cost of revenue:

Products
   1,377 537 2,786 1,554
Service and supplies
   832 575 1,699 1,502
Amortization and depreciation
   79 98 158 195


Total cost of revenue
   2,288 1,210 4,643 3,251


Gross profit
   5,538 4,357 11,827 8,867


Operating expenses:

Engineering and product development
   2,268 1,878 4,460 4,089
Marketing and sales
   3,429 2,631 6,853 6,239
General and administrative
   2,652 2,110 4,803 4,642
Amortization and depreciation
   60 49 115 101


Total operating expenses
   8,409 6,668 16,231 15,071


Loss from operations
   (2,871 ) (2,311 ) (4,404 ) (6,204 )
Interest expense
   (28 ) (115 ) (140 ) (245 )
Other income
   5 33 7 75
Loss on extinguishment of debt
   (386 ) —   (386 ) (341 )
Loss on fair value of convertible debentures
   —   —   —   (7,464 )


Other expense, net
   (409 ) (82 ) (519 ) (7,975 )
Loss before income tax expense
   (3,280 ) (2,393 ) (4,923 ) (14,179 )


Tax expense
   —   (5 ) —   (31 )


Net loss and comprehensive loss
   $ (3,280 ) $ (2,398 ) $ (4,923 ) $ (14,210 )


Net loss per share:

Basic
   $ (0.13 ) $ (0.11 ) $ (0.20 ) $ (0.67 )


Diluted
   $ (0.13 ) $ (0.11 ) $ (0.20 ) $ (0.67 )


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

Basic
   24,989 22,396 24,462 21,275


Diluted
   24,989 22,396 24,462 21,275

See accompanying notes to condensed consolidated financial statements.

Table of Contents

iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

~~(unaudited)~~

   For the nine months ended
September 30,
   2017 2016
   (in thousands)
Cash flow from operating activities:

Net loss
   $ (10,021 ) $ (6,783 )
Adjustments to reconcile net loss to net cash used for by operating activities:

Amortization
   394 753
Depreciation
   798 1,013
Bad debt provision
   44 133
Stock-based compensation expense
   3,073 1,648
Amortization of debt discount and debt costs
   (6 ) (13 )
Interest on settlement obligations
   26 69
Deferred tax expense
   6 —
Gain from acquisition litigation settlement
   —   (249 )
Goodwill and long-lived asset impairment
   4,700 —
Loss on disposal of assets
   26 9
Gain on sale of MRI assets
   (2,158 ) —
Changes in operating assets and liabilities (net of the effect of acquisitions):

Accounts receivable
   (2,062 ) 2,706
Inventory
   389 (82 )
Prepaid and other current assets
   179 (483 )
Accounts payable
   (231 ) (281 )
Accrued expenses
   (23 ) 78
Deferred revenue
   (699 ) (2,380 )


Total adjustments
   4,456 2,921


Net cash used for operating activities
   (5,565 ) (3,862 )


Cash flow from investing activities:

Additions to patents, technology and other
   (2 ) (8 )
Additions to property and equipment
   (362 ) (248 )
Acquisition of VuCompM-Vu CAD
   —   (6 )
Sale of MRI assets
   2,850 —


Net cash provided by (used for) investing activities
   2,486 (262 )


Cash flow from financing activities:

Stock option exercises
   57 188
Taxes paid related to restricted stock issuance
   (151 ) (65 )
Debt issuance costs
   (74 ) —
Principal payments of capital lease obligations
   (77 ) (796 )
Proceeds from debt financing, net
   6,000 —


Net cash provided by (used for) financing activities
   5,755 (673 )


Increase (decrease) in cash and equivalents
   2,676 (4,797 )
Cash and equivalents, beginning of period
   8,585 15,280


Cash and equivalents, end of period
   $ 11,261 $ 10,483


Supplemental disclosure of cash flow information:

Interest paid
   $ 14 $ 63


Taxes paid
   $ 52 $ 65


Escrow due from MRI asset sale
   $ 350 $ —


Equipment purchased under capital lease
   $ 42 $ —

(Unaudited)

For the Six Months ended


June 30,


2021

2020

   (in thousands)
Cash flow from operating activities:

Net loss
   $ (4,923 ) $ (14,210 )
Adjustments to reconcile net loss to net cash used for operating activities:

Amortization
   157 154
Depreciation
   115 142
Bad debt provision
   (3 ) 119
Stock-based compensation
   1,446 2,077
Amortization of debt discount and debt costs
   17 53
Loss on extinguishment of debt
   386 341
Deferred tax expense
   —   1
Change in fair value of convertible debentures
   —   7,464
Changes in operating assets and liabilities:

Accounts receivable
   (924 ) 3,201
Inventory
   284 (737 )
Prepaid and other assets
   510 (19 )
Accounts payable
   (1,829 ) (569 )
Accrued expenses
   (736 ) (1,650 )
Deferred revenue
   (77 ) 60


Total adjustments
   (654 ) 10,637


Net cash used for operating activities
   (5,577 ) (3,573 )


Cash flow from investing activities:

Additions to patents, technology and other
   —   (6 )
Additions to property and equipment
   (336 ) (180 )


Net cash used for investing activities
   (336 ) (186 )


Cash flow from financing activities:

Issuance of common stock pursuant to stock option plans
   636 100
Issuance of common stock pursuant to Employee Stock Purchase Plan
   114 —
Proceeds from issuance of common stock, net
   23,229 12,289
Principal repayment of debt financing
   (7,363 ) (4,638 )
Repayment on line of credit
   —   (2,000 )
Proceeds from notes payable
   —   6,957
Debt issuance costs
   —   (37 )


Net cash provided by financing activities
   16,616 12,671


Increase in cash and equivalents
   10,703 8,912
Cash and cash equivalents, beginning of period
   27,186 15,313


Cash and cash equivalents, end of period
   $ 37,889 $ 24,225


Supplemental disclosure of cash flow information:

Interest paid
   $ 92 $ 127


Taxes paid
   $ —   $ 31


Issuance of common stock upon conversion of debentures
   —   21,164


Right-of-use
assets obtained in exchange for new operating lease liabilities
   $ —   $ 69

See accompanying notes to condensed consolidated financial statements.

~~iCAD, INC. AND SUBSIDIARIES~~

Table of Contents
Consolidated Statements of Stockholders’ Equity Year to Date
(In thousands except shares)

Common Stock

Additional


Number of

Paid-in

Accumulated

Treasury

Stockholders’


Shares Issued

Par Value

Capital

Deficit

Stock

Equity

Balance at December 31, 2020
   23,694,406    236    273,639    (241,935 ) (1,415 ) $ 30,525
Issuance of common stock relative to vesting of restricted stock
   29,166    —      —      —   —   —
Issuance of common stock, net
   1,393,738    14    23,215    —   —   23,229
Issuance of common stock pursuant to stock option plans
   83,748    1    635    —   —   636
Issuance of common stock pursuant Employee Stock Purchase Plan
   12,244    —      114    —   —   114
Stock-based compensation
   —      —      1,446    —   —   1,446
Net loss
   —      —      —      (4,923 ) —   (4,923 )








Balance at June 30, 2021
   25,213,302    $ 251    $ 299,049    $ (246,858 ) $ (1,415 ) $ 51,027








Consolidated Statements of Stockholders’ Equity Quarter to Date
(In thousands except shares)

Common Stock

Additional


Number of

Paid-in

Accumulated

Treasury

Stockholders’


Shares Issued

Par Value

Capital

Deficit

Stock

Equity

Balance at March 31, 2021
   25,143,432    251    298,106    (243,578 ) (1,415 ) $ 53,364
Issuance of common stock relative to vesting of restricted stock
   9,166    —      —      —   —   —
Issuance of common stock, net
   54,814    —    365    —   —   365
Issuance of common stock pursuant to stock option plans
   —      —      —      —   —   —
Issuance of common stock pursuant Employee Stock Purchase Plan
   5,890    —      67    —   —   67
Stock-based compensation
   —      —      511    —   —   511
Net loss
   —      —      —      (3,280 ) —   (3,280 )








Balance at June 30, 2021
   25,213,302    $ 251    $299,049    $ (246,858 ) $ (1,415 ) $ 51,027








6
Table of Contents
Consolidated Statements of Stockholders’ Equity Year to Date
(In thousands except shares)

Common Stock


Number of
Shares Issued

Par
Value

Additional
Paid-in

Capital

Accumulated
Deficit

Treasury
Stock

Stockholders’
Equity

Balance December 31, 2019
   $ 19,546,151    196    $ 230,615 $ (224,325 ) $ (1,415 ) $ 5,071
Issuance of common stock relative to vesting of restricted stock
   68,724    —      (131 ) —   —   (131 )
Issuance of common stock pursuant to stock option plans
   44,966    1    231 —   232
Stock Issuance Net
   1,562,500    16    12,158 —   —   12,174
ESPP Issuance
   18,465    —      115 —   —   115
Issuance of stock upon conversion of Debentures
   1,819,466    18    21,146 —   —   21,164
Stock-based compensation
   —      —      2,077 —   —   2,077
Net loss
   —      —      —   (14,210 ) —   (14,210 )






Balance at June 30, 2020
   $ 23,060,272    $ 231    $ 266,211 $ (238,535 ) $ (1,415 ) $ 26,492






Consolidated Statements of Stockholders’ Equity Quarter to Date
(In thousands except shares)

Common Stock

Additional

Paid-in

Capital


Number of
Shares
Issued

Par
Value

Accumulated
Deficit

Treasury
Stock

Stockholders’
Equity

Balance at March 31, 2020
   21,425,916    $ 215    $ 252,420 $ (236,137 ) $ (1,415 ) $ 15,083
Issuance of common stock relative to vesting of restricted stock
   45,224    —      (131 ) —   —   (131 )
Issuance of common stock pursuant to stock option plans
   8,167    —      36 —   —   36
Stock Issuance Net
   1,562,500    16    12,158 —   —   12,174
ESPP Issuance
   18,465       115 —   —   115
Stock-based compensation
   —      —      1,613 —   —   1,613
Net loss
   —      —      —   (2,398 ) —   (2,398 )






Balance at June 30, 2020
   23,060,272    $ 231    $ 266,211 $ (238,535 ) $ (1,415 ) $ 26,492






7
Table of Contents

Notes to Condensed Consolidated Financial ~~Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

Statements:

Note 1 -– Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of iCAD, Inc. and its subsidiaries ~~(“iCAD”~~(together “iCAD” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). In the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company at ~~September~~June 30, ~~2017,~~2021, the results of operations of the Company for the three and ~~nine month periods~~

six-months

ended ~~September~~June 30, ~~2017~~2021 and ~~2016, and~~2020, cash flows of the Company for the ~~nine month periods~~

six-months

ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~ 2020, and stockholders’ equity for the Company for the three and

six-months

ended June 30, 2021 and 2020.

Although the Company believes that the disclosures made in these interim financial statements are adequate to make the information presented not misleading, certain information normally included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of the Securities and Exchange Commission ~~(“SEC”~~(the “SEC”). The accompanying interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form

10-K

for the fiscal year ended December 31, ~~2016~~2020 filed with the SEC on March ~~24, 2017.~~15, 2021. The results for the three and ~~nine month periods~~

six-months

ended ~~September~~June 30, ~~2017~~2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2017,~~2021, or any future period.

Segments

The Company reports the results of ~~two~~2 segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). The Detection segment consists of ~~our~~ advanced image analysis and workflow products. The Therapy segment consists of ~~our~~ radiation therapy (“Axxent”) ~~products, physics~~products.

Risk and ~~management~~Uncertainty

On March 12, 2020, the World Health Organization declared

COVID-19

to be a pandemic. In an effort to contain and mitigate the spread of the

COVID-19

pandemic, the United States, many countries in Europe, as well as Canada and China, imposed unprecedented restrictions on travel, and there have been business closures and reductions in economic activity in countries that have had significant outbreaks of

COVID-19.

As a provider of devices and services ~~development fees, supplies,~~ to the health care industry, the Company’s operations have been materially affected in part due to

stay-at-home

and ~~fees~~social distancing orders as well as uncertainty in the market. Significant uncertainty remains as to the continuing impact of the

COVID-19

pandemic on the Company’s operations and on the global economy as a whole.

Table of Contents

It is currently not possible to predict the duration of the pandemic or the time needed for economic activity to return to prior levels. The

COVID-19

pandemic has resulted in significant financial market volatility and uncertainty. Although the United States and other countries have made significant progress related to vaccinating significant portions of their populations, the efficacy of each individual vaccine against the multiple strains of the

COVID-19

virus is unknown. Moreover, a new “wave” of

COVID-19

cases may exacerbate the increased levels of market disruption and volatility seen in the recent past will have an adverse effect on the Company’s ability to access capital, on its business, results of operations and financial condition, and on the market price of its common stock.

The Company’s results for the ~~AxxentHub software platform.~~

~~Revenue Recognition~~

quarter ending June 30, 2021 reflect a negative impact from the

COVID-19

pandemic due to some healthcare facilities’ additional focus on

COVID-19.

Although the Company does not provide guidance to investors relating to its future results of operations, its results for the quarter ending September 30, 2021, and possibly future quarters, could reflect a continued negative impact from the

COVID-19

pandemic for similar reasons. The duration and severity of the pandemic is unknown, and so the continued effect on the Company’s results over the long term is uncertain.

Although the Company did not experience any material impact to trade accounts receivable losses in the quarter ended June 30, 2021, the Company’s exposure may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current

COVID-19

pandemic, or other customer-specific factors. The Company ~~recognizes revenue primarily~~has not historically experienced significant trade account receivable losses, but it is possible that there could be a material adverse impact from potential adjustments of the ~~sale~~carrying amount of ~~products and from~~trade account receivables as hospitals’ cash flows are impacted by their response to the ~~sale~~

COVID-19

pandemic.

Recently Adopted Accounting Pronouncements

There are no significant recently adopted accounting pronouncements. For a full list of ~~services and supplies.~~ the Company’s response to all relevant recent accounting pronouncements, please refer to Note 13 below.

Revenue Recognition

Revenue is recognized when ~~delivery has occurred, persuasive evidence~~a customer obtains control of ~~an arrangement exists, fees are fixed~~promised goods or ~~determinable and collectability~~services. The amount of revenue recognized reflects the ~~related receivable is probable. For product revenue, delivery has occurred upon shipment provided title and risk of loss have passed to~~consideration which the ~~customer. Services and supplies revenue are considered~~Company expects to be ~~delivered as~~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.

Table of Contents

Disaggregation of Revenue

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


	Three months ended June 30, 2021
	Reportable Segments
	Detection		Therapy		Total
Major Goods/Service Lines
Products	$	3,164	$	2,119	$	5,283
Service contracts		1,625		371		1,996
Supply and source usage agreements		—		529		529
Professional services		—		18		18
Other		—		—	��	—

	$	4,789	$	3,037	$	7,826

Timing of Revenue Recognition
Goods transferred at a point in time	$	3,164	$	2,136	$	5,300
Services transferred over time		1,625		901		2,526

	$	4,789	$	3,037	$	7,826

Sales Channels
Direct sales force	$	3,188	$	1,252	$	4,440
OEM partners		1,601		—		1,601
Channel partners		—		1,785		1,785

	$	4,789	$	3,037	$	7,826


	Six months ended June 30, 2021
	Reportable Segments
	Detection		Therapy		Total
Major Goods/Service Lines
Products	$	7,325	$	4,222	$	11,547
Service contracts		3,183		711		3,894
Supply and source usage agreements		—		1,010		1,010
Professional services		—		19		19
Other		—		—		—

	$	10,508	$	5,962	$	16,470

Timing of Revenue Recognition
Goods transferred at a point in time	$	7,325	$	4,240	$	11,565
Services transferred over time		3,183		1,722		4,905

	$	10,508	$	5,962	$	16,470

Sales Channels
Direct sales force	$	7,063	$	1,926	$	8,989
OEM partners		3,445		—		3,445
Channel partners		—		4,036		4,036

	$	10,508	$	5,962	$	16,470

Table of Contents


	Three months ended June 30, 2020
	Reportable Segments
	Detection		Therapy		Total
Major Goods/Service Lines
Products	$	2,702	$	575	$	3,277
Service contracts		1,403		385		1,788
Supply and source usage agreements		—		490		490
Professional services		—		—		—
Other		12		—		12

	$	4,117	$	1,450	$	5,567

Timing of Revenue Recognition
Goods transferred at a point in time	$	2,714	$	605	$	3,319
Services transferred over time		1,403		845		2,248

	$	4,117	$	1,450	$	5,567

Sales Channels
Direct sales force	$	2,709	$	805	$	3,514
OEM partners		1,408		—		1,408
Channel partners		—		645		645

	$	4,117	$	1,450	$	5,567


	Six months ended June 30, 2020
	Reportable Segments
	Detection		Therapy		Total
Major Goods/Service Lines
Products	$	5,802	$	1,921	$	7,723
Service contracts		2,750		732		3,482
Supply and source usage agreements		—		861		861
Professional services		—		11		11
Other		41		—		41

	$	8,593	$	3,525	$	12,118

Timing of Revenue Recognition
Goods transferred at a point in time	$	5,843	$	1,988	$	7,831
Services transferred over time		2,750		1,537		4,287

	$	8,593	$	3,525	$	12,118

Sales Channels
Direct sales force	$	4,881	$	2,274	$	7,155
OEM partners		3,712		—		3,712
Channel partners		—		1,251		1,251

	$	8,593	$	3,525	$	12,118

Table of Contents

Products.

Product revenue consists of sales of cancer detection products, cancer therapy systems, cancer therapy applicators (including disposable applicators) and other accessories that are ~~performed or over the estimated life of the supply agreement.~~

typically shipped with a cancer therapy system. The Company transfers control and generally recognizes ~~revenue~~a sale when the product is shipped from the ~~sale of its digital, film-based CAD and cancer therapy products and services in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) UpdateNo. 2009-13,~~ ~~“Multiple-Deliverable Revenue Arrangements” (“ASU2009-13”)~~ ~~and ASC UpdateNo. 2009-14,~~ ~~“Certain Arrangements That Contain Software Elements” (“ASU2009-14”)~~ ~~and ASC985-605,~~ ~~“Software” (“ASC985-605”).~~ ~~Revenue from the sale of certain CAD products is~~

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

recognized in accordance with ASC 840 “Leases” (“ASC 840”). For multiple element arrangements, revenue is allocated to all deliverables based on their relative selling prices. In such circumstances, a hierarchy is used to determine the selling price to be used for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of the selling price (“BESP”). VSOE generally exists only when the deliverable is sold separately and is the price actually charged for that deliverable. The process for determining BESP for deliverables without VSOEmanufacturing or TPE considers multiple factors including relative selling prices; competitive prices in the marketplace, and management judgment; however, these may vary depending upon the unique facts and circumstances related to each deliverable.

The Company uses customer purchase orders that are subject to the Company’s terms and conditions or, in the case of an Original Equipment Manufacturer (“OEM”) are governed by distribution agreements. In accordance with the Company’s distribution agreements, the OEM does not have a right of return, and title and risk of loss passes to the OEM upon shipment. The Company generally ships Free On Board shipping point and uses shipping documents and third-party proof of delivery to verify delivery and transfer of title. In addition, the Company assesses whether collection is probable by considering a number of factors, including past transaction history with the customer and the creditworthiness of the customer, as obtained from third party credit references.

If the terms of the sale include customer acceptance provisions and compliance with those provisions cannot be demonstrated, all revenue is deferred and not recognized until such acceptance occurs. The Company considers all relevant facts and circumstances in determining when to recognize revenue, including contractual obligationswarehousing facility to the customer ~~the customer’s post-delivery acceptance provisions, if any, and the installation process.~~

unless an individual contract states otherwise.

Service Contracts.

The Company ~~has determined that iCAD’s digital~~sells service contracts under which it provides professional services, including product installations, maintenance, training, and ~~film based sales generally follow the guidance of FASB ASC Topic 605 “Revenue Recognition” (“ASC 605”) as the software has been considered essential~~service repairs, and in certain cases equipment leases, to ~~the functionality~~hospitals, imaging centers, radiology practices, radiation oncologists and treatment centers. These contracts represent separate performance obligations of the ~~product per the guidance of ASU2009-14.~~ Typically, the responsibility for the installation process lies with the OEM partner. On occasion, when iCAD is responsible for product installation, the installation element is considered a separate unit of accounting because the delivered product has stand-alone value to the customer. In these instances, the Company allocates revenue to the deliverables based on the framework established within ASU~~2009-13.~~ Therefore, the installation and training revenue is recognized as the services are performed according to the BESP of the element. Revenue from the digital and film based equipment, when there is installation, is recognized based on the relative selling price allocation of the BESP, when delivered.

~~Revenue from certain CAD products is recognized in accordance with ASC985-605.~~ Sales of these products include training, and the Company has established VSOE for this element. Product revenue is determined based on the residual value in the arrangement and is recognized when delivered. Revenue for training is deferred and recognized when the training has been completed.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

~~The Company recognizes post contract customer support revenue together with the initial licensing fee for certain MRI products in accordance with ASC985-605-25-71.~~ ~~In January 2017 the Company sold certain MRI assets to Invivo.~~

~~Sales of the Company’s Therapy segment products typically include a controller, accessories, source agreements and services.~~Company. The Company allocates revenue to ~~the deliverables in the arrangement~~each performance obligation based on the ~~BESP in accordance~~Standalone Selling Price (“SSP”). Revenue for lease and

non-lease

components, or the entire arrangement when accounted for under ASC 606, “Revenue from Contracts with ~~ASU2009-13.~~ ~~Product revenue~~Customers” (“ASC 606”), is ~~generally~~ recognized ~~when the product has been delivered and service and source revenue is typically recognized~~on a straight-line basis over the life of the service and source agreement. The Company includes the following in service and supplies revenue: the sale of physics and management services, the lease of electronic brachytherapy equipment, development fees, supplies and the right to use the Company’s AxxentHub software. Physics and management services revenue and development fees are considered to be delivered as the services are performed or over the estimated lifeterm of the agreement. The service contracts range from 12 months to 48 months. The Company typically ~~bills items monthly over~~receives payment at the ~~life~~inception of the ~~agreement except for development fees, which are generally billed in advance or over a 12 month period~~contract and ~~the fee for treatment supplies which is generally billed in advance.~~

~~The Company defers revenue from the sale of certain service contracts and~~ recognizes ~~the related~~ revenue on a straight-line basis ~~in accordance with ASC Topic605-20,~~ ~~“Services”.~~over the term of the agreement.

Supply and Source Usage Agreements.

Revenue from supply and source usage agreements is recognized on a straight-line basis over the term of the supply or source usage agreement.

These agreements represent a separate performance obligation of the Company. The Company allocates revenue to each performance obligation based on the SSP.

Professional Services.

Revenue from fixed fee service contracts is recognized on a straight-line basis over the term of the agreement. Revenue from professional service contracts entered into with customers on a time and materials basis is recognized over the term of the agreement in proportion to the costs incurred in satisfying the obligations under the contract.

Other.

Other revenue consists primarily of miscellaneous products and services. The Company transfers control and recognizes a sale when the product is shipped from the manufacturing or warehousing facility to the customer or the installation services are performed.

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 ~~for estimated warranty costs on original product warranties~~information about receivables, current and

non-current

contract assets, and contract liabilities from contracts with customers (in thousands).

Contract balances


	Balance at		Balance at
	June 30, 2021		December 31, 2020
Receivables, which are included in ‘Trade accounts receivable’	$	11,107	$	10,027
Current contract assets, which are included in “Prepaid and other assets”		742		481
Non-current contract assets, which are included in “other assets”		1,478		1,434
Contract liabilities, which are included in “Deferred revenue”		6,388		6,384

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 ~~time~~beginning of ~~sale.~~

~~Cost~~each annual service period.

The Company’s accounts receivable from contracts with customers, net of ~~Revenue~~

~~Cost~~allowance for doubtful accounts, was $

11.1

million and $

10.0

million as of June 30, 2021 and December 31, 2020, respectively.

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 invoiced or invoiceable. 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 invoice 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 invoice within one year. The

non-current

contract asset balance consists of net unbilled revenue balances with one customer which the ~~costs~~Company expects to be able to invoice in more than one year.

Table of ~~products purchased for resale, costs relating to service including personnel costs for physicists, management services and radiation therapists, costs~~Contents

Contract liabilities, or deferred revenue from contracts with customers, is primarily composed of service contracts to maintain equipment after the warranty period, product installation, training, customer support, certain warranty repair costs, inbound freight and duty, cost of supplies, manufacturing, warehousing, material movement, inspection, scrap, rework, amortization, depreciation and~~in-house~~ ~~product warranty repairs. Included in cost of revenue for the nine months ended September 30, 2016 is a credit of $467,000~~fees related to ~~a refund~~long-term service arrangements, which are generally invoiced in advance. Deferred revenue also includes payments for installation and training that has not yet been completed and other offerings for which the Company has been paid in advance and earn the revenue when it transfers control of the ~~Medical Device Excise Tax (“MDET”).~~product or service. The ~~MDET refund~~balance of ~~$467,000 is~~deferred revenue at June 30, 2021 and December 31, 2020 was as follows (in thousands):


Contract liabilities	June 30, 2021		December 31, 2020
Short term	$	5,964	$	6,117
Long term		424		267

Total	$	6,388	$	6,384

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


	Six Months Ended June 30, 2021
Balance at beginning of period	$	6,384
Deferral of revenue		6,393
Recognition of deferred revenue		(6,389	)

Balance at end of period	$	6,388

The Company expects to recognize estimated revenues related to ~~refunds~~performance obligation that are unsatisfied (or partially satisfied) in the amounts of ~~the MDET for the periods~~approximately $3.8 million in 2021, $3.0 million in 2022, and $1.2 million each year from ~~April 2013 to December 2015. The MDET refunds were not material to any prior period; accordingly, prior periods were not restated.~~

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

2023 through 2025.

Table of Contents

Note 2 -– Net Loss per Common Share

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

A summary of the Company’s calculation of net loss per share is as follows (in thousands except per share amounts):

   Three Months Ended    Nine Months Ended
   September 30,    September 30,
   2017    2016    2017    2016
Net loss
   $ (6,933 )    $ (2,675 )    $ (10,021 )    $ (6,783 )








Shares used in the calculation of basic and diluted net loss per share
   16,424    15,957    16,291    15,896
Effect of dilutive securities:

Stock options
   —      —      —      —
Restricted stock
   —      —      —      —








Diluted shares used in the calculation of net loss per share
   16,424    15,957    16,291    15,896








Net loss per share - basic and diluted
   $ (0.42 )    $ (0.17 )    $ (0.62 )    $ (0.43 )


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Net loss	$	(3,280	)	$	(2,398	)	$	(4,923	)	$	(14,210	)

Shares used in the calculation of basic and diluted net loss per share		24,989			22,396			24,462			21,275

Diluted shares used in the calculation of net loss per share		24,989			22,396			24,462			21,275

Net loss per share - basic and diluted	$	(0.13	)	$	(0.11	)	$	(0.20	)	$	(0.67	)

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

   Period Ended
   September 30,
   2017    2016
Stock options
   1,426,513    1,569,166
Restricted stock
   507,147    392,148




Stock options and restricted stock
   1,933,660    1,961,314


	As of June 30,
	2021		2020
Stock options		2,176,607		2,006,221
Restricted stock		21,613		70,992

Total		2,198,220		2,077,213

Note 3 ~~- Business Combinations~~

~~Acquisition~~– Inventory

Inventory is valued at the lower of ~~VuComp Cancer detection portfolio~~

~~On January 13, 2016,~~cost or net realizable value, with cost determined by the

first-in,

first-out

method. The

Company ~~completed~~

regularly reviews inventory quantities on hand and records a reserve for excess and/or obsolete inventory primarily based upon the ~~acquisition of the VuCOMP cancer detection portfolio, including theM-Vu~~ computer aided detection (CAD) technology platform. The acquisition includes an extensive library of related clinical data, VuCOMP’s key personnel and the customer base that existed at closing of the transaction. The acquisition of the key personnel and clinical data is expected to contribute to the ongoing development of the Company’s CAD technology which will be used for future cancer detection research and patents. As the Company considered this to be a business combination, the assets were valued in accordance with ASC Topic 805, “~~Business Combinations~~~~” (“ASC 805”).~~

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

~~The Company acquired VuComp’sM-Vu~~ Breast Density product in April 2015. In connection with the diligence of the January 2016 acquisition, VuComp disclosed that it had previously entered into a license agreement pursuant to which it issued an irrevocable, royalty-free worldwide license to a third party. On December 24, 2015, iCAD notified VuComp of a claim under the April 2015 asset purchase agreement based on the disclosure of the third party license agreement, which iCAD believed constituted a breach of VuComp’s representation as to its exclusive ownershipestimated usage of its intellectual property at the time of the April 2015 transaction. In connection with the purchase of the VuComp cancer detection portfolio, the Company provided a release of the aforementioned claim. The Company determined that this claim was a component of the purchase price. The Company determined the value of litigation settlement as the excess of the fair value of the business acquired over the cash consideration paid. As a result the Company recorded a gain on litigation settlement of $249,000 in general and administrative expenses during the first quarter of 2016, which is a component of the purchase price as noted below:

   Amount (000’s)
Cash
   $ 6
Acquisition litigation settlement
   249


Purchase price
   $ 255

The amount allocated to the acquired assets was estimated primarily through the use of discounted cash flow valuation techniques. Appraisal assumptions utilized under this method include a forecast of estimated future net cash flows,inventory as well as ~~discounting the future net cash flows to their present value. The following is a summary~~other factors. Inventory consisted of the ~~preliminary allocation~~following (in thousands) and includes an inventory reserve of ~~the total purchase price based on the estimated fair values as~~approximately $0.2 million for both periods ended June 30, 2021 and December 31, 2020.


	June 30, 2021			December 31, 2020
Raw materials	$	1,518		$	1,538
Work in process		192			76
Finished Goods		1,381			1,774

Inventory Gross		3,091			3,388
Inventory Reserve		(230	)		(244	)

Inventory Net	$	2,861		$	3,144

Table of ~~the date of the acquisition and the amortizable life:~~

   Amount (000’s)    Estimated amortizable
life
Current assets
   $ 84
Property and equipment
   65    3 Years
Identifiable intangible assets
   699    1-10 Years
Goodwill
   293
Current liabilities
   (280 )
Long-term liabilities
   (606 )



Purchase price
   $ 255

~~The assets obtained in the acquisition of VuComp’sM-Vu~~ ~~Cancer detection portfolio (including theM-Vu~~ breast density product) and the anticipated future revenues are included in the Detection segment and, accordingly, the goodwill resulting from the purchase price allocation is included in goodwill of the Detection segment.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

Contents

Note 4 ~~- Sale of MRI Assets~~

~~In December 2016, the Company entered into an Asset Purchase~~– Financing Arrangements

(a) Loan and Security Agreement with Invivo Corporation. In accordance with the agreement, the Company sold to Invivo all right, title and interest to certain intellectual property relating to the Company’s VersaVue Software and DynaCAD product and related assets for $3.2 million. The Company closed the transaction on January– Western Alliance Bank

On March 30, 2017 less a holdback reserve of $350,000 for a net of approximately $2.9 million. The holdback reserve of $350,000 has been recorded as an asset in other assets and will be paid to the Company within eighteen months from the closing date, less any amounts, if any, due and payable or reserved under the indemnification provisions in the Asset Purchase agreement.

The Company determined the sale constituted the sale of a business in accordance with ASC 805. The Company performed an evaluation to determine if the sale constituted discontinued operations and concluded that the sale did not represent a major strategic shift, and accordingly it was not considered to be discontinued operations. In connection with the transaction, the Company allocated $394,000 of goodwill which was a component of the gain on the sale. The allocation was based on the fair value of the assets sold relative to the fair value of the Detection reporting unit as of the date of the agreement, based on the guidance from ASC~~350-20-40-3.~~

~~The value of the net assets sold is as follows (in thousands):~~

Assets

Accounts Receivable
   $ 116
Intangible assets
   810
Allocated Goodwill
   394


Total Assets
   $ 1,320


Liabilities

Deferred Revenue
   $ 746


Total Liabilities
   $ 746


Net Assets Sold
   $ 574

In connection with the sale the Company agreed to provide certain transition services to Invivo. The fair value of the transition services were determined based on the cost to provide plus a reasonable profit margin and have been recognized as revenue over the term of approximately ninety days from the closing date. The Company recorded a gain of $2.5 million as of January 30, 2017. The components of the gain on the sale are as follows (in thousands):

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

Gain on Sale

Cash received
   $ 2,850
Holdback reserve
   350
Fair value of transition services
   (118 )
Net Assets sold
   (574 )


Total
   $ 2,508

~~Note 5 - Inventory~~

~~The components of inventory, net of allowance for obsolete, unmarketable or slow-moving inventories, are summarized as follows (in thousands):~~

   as of September 30,
2017    as of December 31,
2016
Raw materials
   $ 2,033    $ 2,503
Work in process
   139    75
Finished Goods
   1,168    1,149




Inventory
   $ 3,340    $ 3,727

~~Note 6 - Debt financing~~

~~On August 7, 2017~~2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with ~~Silicon Valley~~Western Alliance Bank (the “Bank”) that ~~provides~~provided an initial term loan ~~facility (the “Term~~(“Term Loan”) facility of ~~$6.0~~$7.0 million and a ~~$4.0~~$5.0 million revolving line of ~~credit (the “Revolving Loan”).~~credit.

Interest in arrears on the Term Loan began to be repaid on April 1, 2020 and will continue to be paid on the first of each successive month thereafter until the principal repayment starts. Commencing on the principal repayment date March 1, 2022 and continuing on the first day of each month thereafter, the Company will make equal monthly payments of principal, together with applicable interest in arrears, to the Bank. The ~~Company also has~~interest rate is set at 1% above the ~~option to secure an additional $3.0 million under~~Prime Rate, which is defined in the Loan Agreement ~~for a total~~as the greater of ~~$9.0 million~~4.25% or the Prime Rate published in ~~2018, subject to meeting a net revenue minimum of at least $35.0 million for a trailing twelve month period ending prior to July 30, 2018 (the “Revenue Milestone”).~~

~~The Term Loan accrues interest at prime rate. The Company will begin repayment on Sept 1, 2018 in 36 equal monthly installments of principal. Subject to meeting~~ the ~~Revenue Milestone, the Company could elect to defer repayment~~Money Rates section of the ~~Term Loan to March 1, 2019 in 30 equal monthly payments.~~

~~The outstanding Revolving Advances will accrue interest at a floating per annum rate equal to 1.50% above the prime rate for periods when the ratio~~Western Edition of the ~~Company’s unrestricted cash to the Company’s outstanding liabilities to the Bank plus the amount~~Wall Street Journal. The Prime Rate as of the Company’s total liabilities that mature within one year is at least 1.25 to 1.0. At all other times, the interest rate shall be 0.50% above the prime rate. The outstanding Term Loan Advances will accrue interest at a floating per annum rate equal to the prime rate.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

~~The maturity date of the Revolving Advances and the Term Loan Advances is August 7, 2021. However, the maturity date will become April 30, 2019, April~~June 30, 2020 or April 30, 2021 if, on or before October 30, 2018, or 2019 or 2020, as applicable, the Company does not agree in writing to the net revenue covenant levels proposed by the Bank with respect to the upcoming applicable calendar year.

If the Revolving Advances are paid in full and the Loan Agreement is terminated prior to the maturity date, then the Company will pay to the Bank a termination fee in an amount equal to two percent (2.0%) of the maximum revolving line of credit. If the Company prepays the Term Loan Advances prior to the maturity date, then the Company will pay to the Bank an amount equal to~~1.0%-3.0%~~ of the Term Loan Advances, depending on when such Term Loan Advances are repaid. The Loan Agreement requires the Company to maintain net revenues during the trailing six month period ending on the last day of each calendar quarter as follows: June 30, 2017 - $10.25 million; September 30, 2017 - $11.5 million; December 31, 2017 - $14 million; March 31, 2018 - $15 million; June 30, 2018 - $15.25 million; and September 30, 2018 and December 31, 2018 - $15.5 million. As of September 30, 2017 the Company is in compliance with the revenue covenants in the Loan Agreement.

was 3.25%.

In connection with the ~~credit line,~~Loan Agreement, the Company incurred approximately ~~$74,000~~$141,000 of closing costs. ~~In accordance with ASU2015-03~~ ~~the~~The closing costs have been ~~deducted~~deduced from the carrying value of the debt and will be amortized ~~over~~through March 30, 2022, the ~~expected term~~maturity date of ~~36 months.~~

the Term Loan.

On April 27, 2021, the Company repaid its obligations in the aggregate amount of $7,354,283

and terminated the Loan Agreement with the Bank, and the Company’s collateral securing the facility was released. The ~~current~~Company accounted for this repayment ~~schedule~~and retirement as an extinguishment of the Loan Agreement. In addition to the outstanding principal and accrued interest, the Company was required to pay

the $122,500 final payment, a termination fee of $50,000 and other closing costs totaling approximately $15,000. The Company also wrote off unamortized original closing costs as of the extinguishment date. The Company recorded a loss on extinguishment of approximately $386,000 related to the repayment and retirement of the Loan Agreement. The loss on extinguishment was composed of approximately $140,000 for a prepayment fee, $122,000 for the unaccrued final payment, $65,000 termination and other fees, and $58,000 for the unamortized and other

closing costs from origination of the loan.

(b) Loan and Security Agreement – Silicon Valley Bank

On August 7, 2017, the Company entered into a Loan and Security Agreement, which was subsequently modified several times through November 1, 2019 (as amended, the “SVB Loan Agreement”), with Silicon Valley Bank that provided an initial term loan ~~is based on repayment beginning on September 1, 2018. If the Revenue Milestone is met,~~facility of

$6.0 million and a $4.0 million revolving line of credit.

On March 30, 2020, the Company ~~could elect~~elected to ~~defer~~repay all outstanding obligations (including accrued interest) and retire the SVB Loan Agreement. The Company accounted for this repayment ~~until~~and retirement as an extinguishment of the SVB Loan Agreement. In addition to the outstanding principal and accrued interest, the Company was required to pay the $510,000 final payment, a termination fee of $114,000 and other costs totaling $10,000. The Company also wrote off unamortized original closing costs as of the extinguishment date. In March ~~2019.~~2020 the Company recorded a loss on extinguishment of approximately $341,000 related to the repayment and retirement of the SVB Loan Agreement. The ~~carrying~~loss on extinguishment was composed of approximately $185,000 for the unaccrued final payment, $114,000 termination fee, and $42,000 of unamortized and other closing costs.

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On December 20, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional and accredited investors (the “Investors”), including, but not limited to, all directors and executive officers of the Company at the time, pursuant to which the Investors purchased unsecured subordinated convertible debentures (the “Convertible Debentures”) with an aggregate principal amount of approximately $7.0 million in a private placement.

On February 21, 2020 (the “Conversion Date”), the conditions permitting a forced conversion were met, and the Company elected to exercise its forced conversion right under the terms of the Convertible Debentures.

As a result of this election, all of the outstanding Convertible Debentures were converted, at a conversion price of $4.00 per share, into 1,742,500 shares of the Company’s common stock. In accordance with the make-whole provisions in the Convertible Debentures, the Company also issued an additional 76,966 shares of its common stock. The make-whole amount represented the total interest which would have accrued through the maturity date of the Convertible Debentures, less the amounts previously paid, totaling $697,000. The conversion prices related to the make-whole amount were dependent on whether the Investors were related parties or unrelated third parties.

Accounting Considerations and Fair Value Measurements Related to the Convertible Debentures

The Company had previously elected to make

a one-time, irrevocable

election to utilize the fair value option to account for the Convertible Debentures as a single hybrid instrument at its fair value, with changes in fair value from period to period being recorded either in current earnings, or as an element of other comprehensive income (loss), for the portion of the change in fair value determined to relate to the Company’s own credit risk. The Company believed that the election of the fair value option allowed for a more meaningful representation of the total fair value of its obligation under the Convertible Debentures and allowed for a better understanding of how changes in the external market environment and valuation assumptions impact such fair value.

As of the December 31, 2019 valuation and the prior measurement dates, the Company utilized a Monte Carlo simulation model to estimate the fair value of the ~~Term Loan (net~~Convertible Debentures. The simulation model was designed to capture the potential settlement features of ~~debt issuance costs)~~the Convertible Debentures, in conjunction with simulated changes in the Company’s stock price and the probability of certain events occurring. The simulation utilized 100,000 trials or simulations to determine the estimated fair value.

The simulation utilized the assumptions that if the Company was able to exercise its forced conversion right (if the requirements to do so were met), that it would do so in 100% of such scenarios. Additionally, if an event of default occurred during the simulated trial (based on the Company’s probability of default), the Investors would opt to redeem the Convertible Debentures in 100% of such scenarios. If neither event occurred during a simulated trial, the simulation assumed that the Investor would hold the Convertible Debentures until the maturity date. The value of the cash flows associated with each potential settlement were discounted to present value in each trial based on either the risk-free rate (for an equity settlement) or the effective discount rate (for a redemption or cash settlement).

The Company also recorded a final adjustment to the Convertible Debentures based on their fair value on the Conversion Date, just prior to the forced conversion being completed. Given that the Company’s prior simulation model included the assumption that the Company would elect to force conversion in 100% of scenarios when the requirements were met, the final valuation was based on the actual results of the forced conversion. As such, the Company based the final fair value adjustment to the Convertible Debentures just prior to conversion on the number of shares of common stock that were issued to the Investors upon conversion and the fair value of the Company’s common stock as of ~~September 30, 2017 is~~the Conversion Date.

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The key inputs to the valuation models that were utilized to estimate the fair value of the Convertible Debentures included:


Input	December 31, 2019			February 21, 2020
Company’s stock price	$	7.77		$	11.64
Conversion price		4.00			4.00
Remaining term (years)		1.97			0.00
Equity volatility		49.00	%		N/A
Risk free rate		1.57	%		N/A
1 Probability of default event		0.45	%		N/A
1 Utilization of Forced Conversion (if available)		100.00	%		100.00	%
1 Exercise of Default Redemption (if available)		100.00	%		N/A
1 Effective discount rate		18.52	%		N/A

1	Represents a Level 3 unobservable input, as defined in Note 8 - Fair Value Measurements, below.

The Company’s stock price was based on the closing stock price on the valuation date. The conversion price was based on the contractual conversion price included in the SPA.

The remaining term was determined based on the remaining time period to maturity of the Convertible Debentures, or remaining term under the expectation of the Company’s election of its forced conversion right.

The Company’s equity volatility estimate was based on the Company’s historical equity volatility, the Company’s implied and observed volatility of option pricing, and the historical equity and observed volatility of option pricing for a selection of public companies.

The risk-free rate was determined based on U.S. Treasury securities with similar terms.

The probability of the occurrence of a default event was based on Bloomberg’s

1-year

estimate of default risk for the Company (extrapolated over the remaining term).

The utilization of the forced conversion right and the default redemption right was based on management’s best estimate of both features being exercised upon the occurrence of the related contingent events.

The effective discount rate utilized at the December 31, 2019 valuation date was based on yields on

CCC-rated

debt instruments with terms equivalent to the remaining term of the Convertible Debentures. The credit rating estimate was based on the implied credit rating determined at issuance and no changes were identified by the Company that would impact this assessment.

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The fair value and principal value of the Convertible Debentures as of December 31, 2019 and the Conversion Date was as follows (in thousands):

   September 30,
2017
Short-term
   $ 317
Long-term
   5,612


Total
   $ 5,929

~~Interest expense~~


Convertible Debentures	December 31, 2019		February 21, 2020
Fair value, in accordance with fair value option	$	13,642	$	21,164

Principal value outstanding	$	6,970	$	6,970

In February 2020 the Company recorded a loss from the change in fair value of the Convertible Debentures of approximately $7.5 million for period through the Conversion Date which is described in the additional fair value disclosures related to the ~~loan~~Convertible Debentures in Note 8.

Upon the consummation of the forced conversion, the Company issued 1,816,466 shares of common stock with a fair value of approximately $21.2 million, which was reclassified to stockholders’ equity.

(d) Principal and Interest Payments Related to Financing Arrangements

The Company no longer has any financing agreements as of June 30, 2021.

The following amounts are included in interest expense in the Company’s consolidated statement of operations for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2017 is as follows~~2021 and 2020 (in thousands):

   September 30,
2017
Three months ended
   $ 33
Nine month ended
   33

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Cash interest expense	$	26	$	95	$	118	$	138
Interest on convertible debentures		—		0		—		49
Accrual of notes payable final payment		2		8		9		39
Amortization of debt costs		—		12		13		19

Total interest expense	$	28	$	115	$	140	$	245

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Note ~~7 -~~5 – Lease Commitments

~~Operating leases~~

~~Facilities~~

Under ASC 842, “Leases” (“ASC 842”), the Company determines if an arrangement contains a lease at inception. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment (i.e., an identified asset) for a period of time in exchange for consideration. Leases are ~~leased under~~classified as either operating leases ~~expiring~~or financing leases. At lease inception, the Company recognizes a lease liability equal to the present value of the remaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as for lease incentives. The Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company determines the incremental borrowing rates for its leases by applying its applicable, fully collateralized borrowing rate, with adjustment as appropriate for the lease term. The lease term at ~~various dates through March 2020.~~ the lease commencement date is determined based on the

non-cancellable

period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option. The Company considers a number of factors when evaluating whether the options in its lease contracts are reasonably certain of exercise, such as length of time before option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or economic penalties.

Right-of-use

assets and obligations for short-term leases (leases with an initial term of 12 months or less) are not recognized in the consolidated balance sheet. Lease expense for short-term leases is recognized on a straight-line basis over the lease term. The Company does not sublease any of its leased assets to third parties. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company has lessor agreements that contain lease and

non-lease

components. As the Company has determined that the

non-lease

component of these agreements is the predominant component, the Company accounted for the complete agreement under ASC 606 upon adoption of ASC 842.

ASC 842 includes a number of reassessment and

re-measurement

requirements for lessees based on certain triggering events or conditions, including whether a contract is or contains a lease, assessment of lease term and purchase options, measurement of lease payments, assessment of lease classification and assessment of the discount rate. The Company reviewed the reassessment and

re-measurement

requirements and identified two lease modifications which are reflected in the table below showing the maturity of the Company’s lease liabilities as of June 30, 2021. This includes an extension of an operating lease for the facility leased by the Company in San Jose, California as well as some equipment. In addition, there were no impairment indicators identified during the quarter ended June 30, 2021 that required an impairment test for the Company’s

right-of-use

assets or other long-lived assets in accordance with ASC 360 10 “Property Plant and Equipment” (“ASC 360”).

Certain of ~~these~~the Company’s leases ~~contain renewal options. Rent~~include variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain

non-lease

components that transfer a distinct service to the Company, such as common area maintenance services. The Company has elected to not separate its accounting of lease components and

non-lease

components for real estate and equipment leases.

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Components of Leases:

The Company has leases for office space and office equipment. The leases have remaining lease terms ranging from less than one year to two years and nine months as of June 30, 2021.

The components of lease expense ~~under operating leases was $229,000 and $665,000~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively and $178,000 and $516,000 for the three and nine months ended September 30, 2016, respectively.~~

~~Future minimum lease payments as of September 30, 2017 under operating leases are as follows: (in thousands)~~

Fiscal Year
   Operating
Leases
2017
   $ 318
2018
   738
2019
   746
2020
   174


Total
   $ 1,976

~~Capital leases~~

In August, 2017, the Company assumed an equipment lease obligation with payments totaling $50,000. The leases were determined to be capital leases and accordingly the equipment was capitalized and a liability of $42,000 was recorded. The equipment will be depreciated over the expected life of 3 years. Minimum lease payments2021 are as follows (in thousands):

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes~~


		Three Months		Six Months
		Ended June 30,		Ended June 30,
Lease Cost	Classification	2021		2021
Operating lease cost - Right of Use Asset	Operating expenses	$	217	$	434
Operating lease cost - Variable	Operating expenses		7	$	64

Total		$	224	$	498

Other information related to ~~Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

Fiscal Year
   Capital
Lease
2017
   4
2018
   16
2019
   17
2020
   13


subtotal minimum lease obligation
   50
less interest
   (8 )


Total, net
   42
less current portion
   (12 )


long term portion
   $ 30

In connection with the Radion/DermEbx Acquisition which closed in July 2014, the Company assumed two separate equipment lease obligations with payments totaling approximately $2.6 million through May 2017. The leases ~~were determined to be capital leases and accordingly the equipment~~ was ~~capitalized and a liability~~as follows (in thousands):


		Three Months		Six Months
	Ended June 30,		Ended June 30,
	2021		2021
Cash paid from operating cash flows for operating leases	$	233	$	351


	As of June 30, 2021
Weighted-average remaining lease term of operating leases		1.72
Weighted-average discount rate for operating leases		5.6	%

Table of $2.5 million was recorded. In connection with the acquisition, the Company recorded a fair value adjustment to interest expense and amortized the adjustment over the life of the related lease. As of September 30, 2017, there was no further liability for the acquired equipment leases.

~~Related Party Lease:~~

~~Kamal Gogineni is an employee of one~~Contents

Maturity of the Company’s ~~subsidiaries and a stockholder~~lease liabilities as of June 30, 2021 was as follows (in thousands):


As of June 30, 2021:	Operating Leases
2021		459
2022		899
2023		211
2024		5

Total lease payments		1,574
Less: imputed interest		(77	)

Total lease liabilities		1,497
Less: current portion of lease liabilities		(851	)

Long-term lease liabilities	$	646

Note 6 – Stockholders Equity

(a) Financing Activity

On March 2, 2021, the Company entered into an underwriting agreement with Guggenheim Securities, LLC, as representative of the several underwriters thereto, in connection with an underwritten public offering of

1,393,738

shares of the Company’s common ~~stock. Additionally, Mr. Gogineni is a shareholder~~stock at an offering price of ~~Radion Capital Partners (“RCP”). RCP was the lessor under a lease between RCP~~$

18.00

per share. The offering closed on March 5, 2021 for gross proceeds of approximately $

25.1

million and ~~DermEbx (the “Lease”). In connection with the Company’s acquisition~~net proceeds of ~~assets of Radion, Inc. and DermEbx that closed in July 2014, one of the assets and obligations that the Company acquired was the Lease. Pursuant~~approximately $

23.2

million to the ~~Lease, the Company paid approximately $76,000 to RCP in 2017. As of September 30, 2017, there is no further obligation.~~

~~Note 8 -~~Company.

(b) Stock-Based Compensation

~~The Company follows the guidance in ASC Topic 718, “~~~~Compensation – Stock Compensation~~”, ~~(“ASC 718”).~~

The Company granted options to purchase ~~57,352~~0 and 428,938 shares of the Company’s stock during the three and six months ended June 30, 2021 respectively. The full amount of options were granted in the ~~three months ended September 30, 2017.~~first quarter of 2021. Options granted ~~under~~unde

the

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

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016
Average risk-free interest rate
   1.56%    0.84%    1.52%    0.87%
Expected dividend yield
   None    None    None    None
Expected life
   3.5 years    3.5 years    3.5 years    3.5 years
Expected volatility
   64.2% to 67.0%    68.6% to 75.3%    64.2% to 72.0%    68.6% to 75.3%
Weighted average exercise price
   $4.28    $5.49    $4.39    $5.57
Weighted average fair value
   $2.02    $2.67    $2.12    $2.71

~~The Company’s stock-based compensation expense, including options and restricted stock by category is as follows~~values (in thousands):

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Cost of revenue
   $ 1    $ 1    5    $ 5
Engineering and product development
   76    82    633    289
Marketing and sales
   132    162    854    476
General and administrative
   294    201 ��    1,581    878








   $ 503    $ 446    $ 3,073    $ 1,648


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2021	2020	2021	2020
Average risk-free interest rate	N/A	0.26%	0.20%	0.79%
Expected dividend yield	NaN	NaN	NaN	NaN
Expected life	3.5 years	3.5 years	3.5 years	3.5 years
Expected volatility	N/A	64.0% to 65.7%	66.0% to 66.0%	50.2 to 65.7%
Weighted average exercise price	N/A	$10.76	$18.00	$10.11
Weighted average fair value	N/A	$4.96	$8.37	$4.34


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020

Cost of revenue	$	2	$	24	$	16	$	24
Engineering and product development		58		288		208		343
Marketing and sales		128		490		481		548
General and administrative		323		811		741		1,162

	$	511	$	1,613	$	1,446	$	2,077

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As of ~~September~~June 30, ~~2017,~~2021, unrecognized compensation cost (in thousands) related to ~~unexercisable~~unvested options and unvested restricted stock and the weighted average ~~remaining period~~term of such equity instruments is as follows:

Remaining expense
$ 2,504
Weighted average term
1.1 years


Remaining expense	$	3,113
Weighted average term		1.2

The Company’s restricted stock awards typically vest in either one year or three equal annual installments with the first installment vesting one year from the grant date.

The Company granted a total of 162,500 shares of performance based restricted stock during 2016 with performance measured on meeting a revenue target based on growth for fiscal year 2017 and vesting in three equal installments with the first installment vesting upon measurement of the goal. In addition, a maximum of 108,333 additional shares are available to be earned based on exceeding the revenue goal. Assumptions used to determine the value of performance based grants of restricted stock include the probability of achievement of the specified revenue targets. Compensation cost for performance based restricted stock requires significant judgment regarding probability of achieving the performance objectives and compensation cost is~~re-measured~~ ~~at every reporting period. As a result compensation cost could vary significantly during the performance measurement period. The Company granted 153,480 and 392,055~~did 0t grant any shares of restricted stock ~~with either time based~~during the three-months ended June 30, 2021 or ~~immediate vesting in~~2020. The Company

granted

22,488 and 0

shares of restricted stock during the ~~three~~six-months ended June 30, 2021 and ~~nine months ended September 30, 2017,~~2020, respectively. Included in the restricted shares granted in the second quarter of 2017 are 172,668 shares that were issued in lieu of cash bonus payments and was approved by the Board of Directors in February 2017. The number of shares granted were determined based the amount of approved bonus divided by the stock price of the Company at the date of issuance.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

The Company’s aggregate intrinsic value for stock options and restricted stock outstanding is as follows (in thousands):

   Period Ended
September 30,
Aggregate intrinsic value
   2017    2016
Stock options
   $ 1,050    $ 1,748
Restricted stock
   2,242    2,039


	As of
	June 30,
Aggregate intrinsic value	2021		2020
Stock options	$	20,324	$	8,992
Restricted stock		374		709

The ~~intrinsic value~~Company issued 34,814 and 83,748 shares of common stock upon the exercise of outstanding stock options ~~exercised during~~in the three and
six

months ended June 30, 2021 respectively. The Company received cash proceeds of approximately $364,000 and $636,000 in the three and ~~nine months~~six-months ended ~~September~~June 30, ~~2017 was $12,000 and $50,000, respectively. The intrinsic value of stock options exercised during the three and nine months September 30, 2016 was $189,000 and $195,000,~~2021 respectively. The intrinsic value of restricted shares that vested in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 was $0.2 million and ~~$1.7~~$0.5 million respectively. ~~The intrinsic value of~~There were 10,041 and 30,041 restricted shares that vested in the three and ~~nine~~
six months ended ~~September~~June 30, ~~2016~~2021 respectively.

Employee Stock Purchase Plan

In December 2019, the 2019 Employee Stock Purchase Plan (“ESPP”) was ~~$0.0 million~~adopted by the Company’s Board of Directors (the “Board”) and ~~$1.0 million,~~approved by stockholders, effective January 1, 2020.

The ESPP provides for the issuance of up to 950,000 shares of common stock, subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The ESPP may be terminated or amended by the Board at any time. Certain amendments to the ESPP require stockholder approval.

Substantially all of the Company’s employees whose customary employment is for more than 20 hours a week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or value of the Company’s shares of common stock is not eligible to participate in the ESPP.

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Any eligible employee can enroll in the ESPP as of the beginning of a respective quarterly accumulation period. Employees who participate in the ESPP may purchase shares by authorizing payroll deductions of up to 15% of their base compensation during an accumulation period. Unless the participating employee withdraws from participation, accumulated payroll deductions are used to purchase shares of common stock on the last business day of the accumulation period (the “Purchase Date”) at a price equal to 85% of the lower of the fair market value on (i) the Purchase Date or (ii) the first day of such accumulation period. Under applicable tax rules, no employee may purchase more than $25,000 worth of common stock, valued at the start of the purchase period, under the ESPP in any calendar year.

The Company issued 5,890 and 12,212 shares under the ESPP in the three and

six-months

ended June 30, 2021 respectively.

The Company recorded approximately $26,000 and $53,000 of stock-based compensation expense pursuant to ESPP for the three and

six-months

ended June 30, 2021 respectively. The next accumulation period under the ESPP commenced on March 31, 2021 and ended on June 30, 2021, and the related shares purchased by the participants were issued in July 2021. As of June 30, 2021, the Company recorded a liability of approximately $79,000 related to employee withholdings in connection with the ESPP accumulation period ended June 30, 2021, which was included as a component of accrued expenses and other current liabilities.

Note ~~9 -~~7 – Commitments and Contingencies

~~Foreign Tax Claim~~

~~In July 2007, a dissolved former Canadian subsidiary of the Company, CADx Medical Systems Inc. (“CADx Medical”), received a taxre-assessment~~ of approximately $6,800,000 from the Canada Revenue Agency (“CRA”) resulting from CRA’s audit of CADx Medical’s Canadian federal tax return for the year ended December 31, 2002. In February 2010 the CRA reviewed the matter and reduced the tax~~re-assessment~~ ~~to approximately $703,000, excluding interest and penalties. The Company believes that it is not liable for there-assessment~~ ~~against CADx Medical and no accrual has been recorded for this matter as of September 30, 2017.~~

~~Settlement Obligations~~

In connection with the acquisition of Xoft in 2010, the Company recorded a royalty obligation pursuant to a settlement agreement entered into between Xoft and Hologic in August 2007. Xoft received a nonexclusive, irrevocable, perpetual, worldwide license, including the right to sublicense certain Hologic patents, and a~~non-compete~~ covenant as well as an agreement not to seek further damages with respect to the alleged patent violations. In return, the Company had a remaining obligation to pay a minimum annual royalty payment to Hologic, of $250,000 payable through 2016. In addition to the minimum annual royalty payments, the litigation settlement agreement with Hologic also provided for payment of royalties based upon a specified percentage of future net sales on

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

any products that utilize the licensed rights. The Company has a liability within accounts payable and accrued expenses for future payment and for the remaining minimum royalty obligations totaling $448,000 as of September 30, 2017. The Company recorded interest expense of approximately $10,000 and $30,000 in the three and nine months September 30, 2016, respectively, related to this obligation.

In December, 2011, the Company agreed to a settlement related to litigation with Carl Zeiss Meditec AG. In July 2017, the Company paid the remaining $500,000 due and there is no further obligation to Zeiss. The Company recorded interest expense of approximately $0 and $26,000 in the three and nine months ended September 30, 2017, respectively and $13,000 and $39,000 in the three and nine months ended September 30, 2016, respectively related to this obligation.

Other Commitments

The Company is obligated to pay approximately ~~$0.8~~$4.0 million for firm purchase obligations to suppliers for future product and service ~~deliverables.~~

deliverables and $0.5 million for minimum royalty obligations.

Litigation

In December 2016, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Invivo Corporation (“Invivo”). In accordance with the Asset Purchase Agreement, the Company sold to Invivo all right, title and interest to certain intellectual property relating to the Company’s VersaVue Software and DynaCAD product and related assets for $3.2 million. The Company closed the transaction on January 30, 2017 less a holdback reserve of $350,000 (the “Escrowed Amount”) for net proceeds of approximately $2.9 million.

On September 5, 2018, third-party Yeda Research and Development Company Ltd. (“Yeda”), filed a complaint (the “Complaint”) against the Company and Invivo in the United States District Court for the Southern District of New York, captioned Yeda Research and Development Company Ltd. v. iCAD, Inc. and Invivo Corporation, Case No.

1:18-cv-08083-GBD,

related to the Company’s sale of the VersaVue software and DynaCAD product under the Asset Purchase Agreement. Yeda alleged, among other things, that the Company infringed upon Yeda’s source code, which was originally licensed to the Company, by using it in the products that the Company sold to Invivo and that it is entitled to damages that could include, among other things, profits relating to the sales of these products. On April 13, 2021, the Company and Yeda entered into a Settlement and Release Agreement (the “Settlement Agreement”) whereby the Company furnished to Yeda a

one-time

cash payment of $85,000 and received a full,

non-conditional

release from Yeda of any and all claims related to the Complaint and the subject of the Complaint. Neither the Company nor Invivo acknowledged any wrongdoing at any point in connection with the Complaint or the subject matter thereof. The Escrowed Amount was reserved, in part, to cover any legal expenses related to the Asset Purchase Agreement and the transactions contemplated therein. The remaining balance of the Escrowed Amount following such expenses is due and payable to the Company in accordance with the terms of the Asset Purchase Agreement. The Company and Invivo agreed that Invivo would pay $50,000

of the Escrowed Amount and the Company expensed approximately $93,000 in the three-months ended June 30, 2021.

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 ~~our~~the Company’s operating results and cash flows for that particular period. The Company may be a party to certain actions that have been filed against the Company which are being vigorously defended. The Company has determined that potential losses in these matters are neither probable or reasonably possible at this time. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, ~~Contingencies.~~“Contingencies.” Legal costs are expensed as incurred.

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Note 108 - Fair Value Measurements

~~The Company follows the provisions of ASC Topic 820, “~~~~Fair Value Measurement and Disclosures~~~~”, (“ASC 820”). This topic defines fair value, establishes a framework for measuring fair value under US GAAP and enhances disclosures about fair value measurements.~~

Fair value is defined ~~under ASC 820~~ 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 ~~assetor~~asset

or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value ~~under ASC 820~~ must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

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.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

~~Our~~

The Company’s financial instruments ~~include~~consist of cash and cash equivalents, accounts receivable, accounts payable, ~~certain accrued liabilities~~ and ~~debt. The~~notes payable and convertible debentures. Due to their short-term nature and market rates of interest, the carrying amounts of ~~our cash and cash equivalents (which are composed primarily of deposit and overnight sweep accounts), accounts receivable, accounts payable and certain accrued liabilities approximate~~the financial instruments (except the Convertible Debentures, which were measured at fair value ~~due to~~in accordance with the ~~short maturity of these instruments. The carrying value of our term loan approximates~~ fair value ~~due to the market rate~~option election) approximated fair value as of ~~the stated interest rate.~~

February 21, 2020 and December 31, 2019.

The Company’s assets and liabilities that are measured at fair value on a recurring basis ~~relate to~~include the Company’s money market ~~accounts.~~

accounts and Convertible Debentures.

The ~~Company’s~~ money market ~~funds~~accounts are included in cash and cash equivalents in the accompanying consolidated balance ~~sheets~~sheet and are considered a Level 1 ~~investment~~measurement as they are valued at quoted market prices in active markets.

The Convertible Debentures were recorded as a separate component of the Company’s consolidated balance sheet and are considered a Level 3 measurement due to the utilization of significant unobservable inputs in their valuation. See Note 4(b) for a discussion of these fair value measurements.

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

Fair value measurements using: (000’s) as of December 31, 2016

   Level 1    Level 2    Level 3    Total
Assets

Money market accounts
   $ 6,622    $ —      $ —      $ 6,622








Total Assets
   $ 6,622    $ —      $ —      $ 6,622








Fair value measurements using: (000’s) as of September 30, 2017

   Level 1    Level 2    Level 3    Total
Assets

Money market accounts
   $ 10,054    $ —      $ —      $ 10,054








Total Assets
   $ 10,054    $ —      $ —      $ 10,054

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

~~Items Measured at Fair Value on a Nonrecurring Basis~~

Certain assets, including long-lived assets and goodwill, are measured at fair value on a nonrecurring basis. These assets are recognized at fair value when they are deemed to be impaired. The Company recorded a $4.7 million impairment in the quarter ended September 30, 2017 which consistedhierarchy (in thousands).


Fair Value Measurements as of December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Money market accounts	$	27,186		—		—	$	27,186

Total Assets	$	27,186		—		—	$	27,186

Fair Value Measurements (in thousands) as of June 30, 2021
	Level 1		Level 2		Level 3		Total
Assets

Money market accounts	$	37,889		—		—	$	37,889

Total Assets	$	37,889		—		—	$	37,889

Table of ~~$4.0 million related to goodwill and $0.7 million related to long-lived assets as discussed in~~ Contents

Note 12 and Note 13 and remeasured long-lived assets and goodwill of the Therapy reporting unit at fair value as of the impairment date as noted in the following table. The fair values of long-lived assets and goodwill were measured using Level 3 inputs.

Fair value measurements using: (000’s) as of September 30, 2017

   Level 1    Level 2    Level 3    Total
Non-recurring assets

Long-lived and intangible assets
   $ —      $ —      $ 780    $ 780
Goodwill
   —      —      1,766    1,766








Total Assets
   $ —      $ —      $ 2,546    $ 2,546

~~Note 11~~9 - Income Taxes

The Coronavirus Aid, Relief, and Economic Security Act was enacted on March 27, 2020 and did not have a material impact on the Company’s provision for income taxes for the three and six months ended June 30, 2021.

The Company recorded an income tax ~~benefit~~provision of ~~$42,000 and $28,000~~ $

for the three and ~~nine~~six months

ended ~~September~~June 30, ~~2017, respectively, as compared to a provision of $10,000~~2021, and ~~$55,000~~ $5,000 and

31,000

for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~2020. The Company adopted ASU

2019-12

as of January 1, 2021, in accordance with this provision

non-income

and state franchise taxes are now classified as a component of operating expenses in General and Administrative expense. Income based tax ~~benefit~~expense will continue to be recognized as tax expense in the Consolidated Financial Statements. Tax expense for ~~the~~ three and ~~nine~~six months ended ~~September~~June 30, ~~2017 is~~2020 represent

non-income

and state franchise tax, however the ~~result of applying for research and development credits~~expense was not reclassified to operating expenses in ~~New Hampshire. In the second quarter of 2017, the Company applied for $50,000 of research and development credits from New Hampshire.~~ accordance with ASU

2019-12.

The Company ~~anticipates the credits to be allocated for the 2016 tax year as well as the 2017 tax year. The research and development credits have been utilized to decrease the New Hampshirenon-income~~ ~~tax liability to zero. The $42,000 benefit for the quarter is a result of the utilization of these credits and the decrease of the overall state tax.. At September 30, 2017, the Company~~ had no

material unrecognized tax benefits and a deferred tax liability of ~~$12,400~~ approximately $

4,000

related to tax amortizable goodwill. ~~The Company recorded a deferred tax liability of approximately $1,900 through September 30, 2017.~~ No other adjustments were required under ASC 740, “Income ~~Taxes”.~~Taxes.” The Company does not expect that ~~the~~its unrecognized tax benefits will materially increase within the next 12 months. The Company did not recognize any interest or penalties related to uncertain tax positions at ~~September~~June 30, ~~2017.~~

~~On January 1, 2017, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)No. 2016-09,~~~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ ~~(“ASU2016-09”).~~ ~~Under ASU2016-09,~~ excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement, and excess tax benefits are recognized regardless of whether the benefit reduces taxes payable in the current period. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. As a result of the adoption, the net operating loss deferred tax assets increased by $2.1 million and are offset by a corresponding increase in the valuation allowance. 2021.

The Company files United States federal income tax returns and

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

income tax returns in various states and local jurisdictions. The Company’s three preceding tax years remain subject to examination by federal and state ~~taxing~~tax authorities. In addition, because the Company has net operating loss carry-forwards, the Internal Revenue Service and state jurisdictions are permitted to audit earlier years and propose adjustments up to the amount of net operating loss generated in those years. The Company is not currently under examination by any federal or state jurisdiction for any tax years.

Note 1210 - Goodwill

~~In accordance with FASB ASC Topic350-20,~~ ~~“Intangibles - Goodwill and Other”, (“ASC350-20”),~~ ~~the~~

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 ~~the~~its carrying ~~value~~value. There were 0 impairment indicators present as of ~~the reporting unit. The Company’s annual test date is October 1~~^st ~~of each year.~~

June 30, 2021.

Factors the Company considers important, which could trigger an impairment of such asset, include the following:

significant underperformance relative to historical or projected future operating results;

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

significant negative industry or economic trends;

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

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

The Company would record an impairment charge ifwhen such an assessment ~~were to indicate~~indicates that the fair value of a reporting unit ~~was~~is less than the carrying value. In evaluating potential impairments outside of the annual measurement date, judgment is required in determining whether an event has occurred that may impair the value of goodwill or intangible assets.

The Company utilizes either discounted cash flow models or other valuation models, such as comparative transactions and market multiples, to determine the fair value of reporting units. The Company makes assumptions about future cash flows, future operating plans, discount rates, comparable companies, market multiples, purchase price premiums and other factors in those models. Different assumptions and judgment determinations could yield different conclusions that would result in an impairment charge to income in the period that such change or determination was made.

~~As a result~~

Table of the underperformance of the Therapy reporting unit as compared to expected future results, the Company determined there was a triggering event in the third quarter of 2017. As a result, the Company completed an interim impairment assessment. The interim test resulted in the fair value of the Therapy reporting unit being less than the carrying value of the reporting unit. Contents

The Company ~~did not identify a triggering event within the Detection reporting unit and accordingly did not perform an interim test.~~

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

~~The Company elected to early adopt ASU2017-04,~~ ~~Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment (“ASU2017-04”).~~ ~~ASU2017-04~~ specifies that goodwill impairment is the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. In accordance with the standard, the fair value of the Therapy reporting unit was $3.5 million and the carrying value was $7.5 million. The deficiency of $4.0 million was recorded as an impairment charge in the quarter ended September 30, 2017.

The carrying values of the reporting units were determined based on an allocation of our assets and liabilities through specific allocation of certain assets and liabilities to the reporting units and an apportionment of the remaining net assets based on the relative size of the reporting units’ revenues and operating expenses compared to the Company as a whole. The determination of reporting units also requires management judgment.

~~The Company determined~~determines the fair values for each reporting unit using a weighting of the income approach and the market approach. For purposes of the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The Company ~~used~~uses internal forecasts to estimate future cash flows and includes ~~an estimate~~estimates of long-term future growth rates based on ~~the~~its most recent views of the long-term forecast for each segment. Accordingly, actual results can differ from those assumed in the Company’s forecasts. ~~The discount rate of approximately 18% is~~Discount rates are derived from a capital asset pricing model and by analyzing published rates for industries relevant to the Company’s reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses of its reporting units and in the Company’s internally developed forecasts.

In the market approach, the Company uses a valuation technique in which values are derived based on market prices of publicly traded companies with similar operating characteristics and in similar industries. A market approach allows for comparison to actual market transactions and multiples. It can be somewhat limited in its application because the population of potential comparable publicly-traded companies can be limited due to differing characteristics of the comparative business and ~~ours,~~the Company, as well as the fact that market data may not be available for divisions within larger conglomerates or

non-public

subsidiaries that could otherwise qualify as comparable, and the specific circumstances surrounding a market transaction (e.g., synergies between the parties, terms and conditions of the transaction, etc.) may be different or irrelevant with respect to the business.

The Company ~~corroborated~~corroborates the total fair values of the reporting units using a market capitalization approach; however, this approach cannot be used to determine the fair value of each reporting ~~unit value.~~unit. The blend of the income approach and market approach is more closely aligned to the business profile of the Company, including markets served and products available. In addition, required rates of return, along with uncertainties inherent in the forecast of future cash flows, are reflected in the selection of the discount rate. In addition, under the blended approach, reasonably likely scenarios and associated

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

sensitivities can be developed for alternative future states that may not be reflected in an observable market price. The Company will assess each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and ~~weight~~weights the methodologies appropriately.

The Company has two operating segments, Detection and Therapy, as further discussed in Note ~~3, in April 2015, the Company acquired VuComp’sM-Vu~~^® ~~Breast Density product for $1.7 million. The product was integrated into the Company’s Powerlook AMP system, which is a component~~12 below.

Table of the Detection reporting unit. The Company determined that the acquisition was a business combination and recorded goodwill of $0.8 million to the Detection segment. In January 2016, the Company completed the acquisition of VuComp’s~~M-Vu~~ CAD and other assets for $6,000. The customers, related technology and clinical data acquired are being used for the Company’s Cancer Detection products and the Company recorded goodwill of $293,000 to the Detection segment.

In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation. The Company sold and conveyed to Buyer all right, title and interest to certain intellectual property relating to the VersaVue Software and the DynaCAD product and related assets. As a result of the Asset Purchase Agreement, the Company determined that the sale constituted the sale of a business and the Company allocated $394,000 of goodwill to assets held for sale as of December 31, 2016. The allocation was based on the fair value of the assets sold relative to the fair value of the Detection reporting unit as of the date of the Asset Purchase Agreement. The Company closed the transaction on January 30, 2017, and goodwill was a component of the net assets sold as of the closing date.

Contents

A ~~roll forward~~rollforward of goodwill activity by reportable segment is as follows (in thousands):

   Detection    Therapy    Total
Balance at December 31, 2016
   8,362    5,735    14,097






Impairment
   —      (3,969 )    (3,969 )






Balance at September 30, 2017
   $ 8,362    $ 1,766    $ 10,128






Accumulated Goodwill
   699    6,270    54,906
Fair value allocation
   7,663    13,446    —
Accumulated impairment
   —      (17,950 )    (44,778 )






Balance at September 30, 2017
   $ 8,362    $ 1,766    $ 10,128


	Consolidated reporting unit			Detection			Therapy			Total

Accumulated Goodwill	$	47,937		$	—		$	—		$	47,937
Accumulated impairment		(26,828	)		—			—			(26,828	)
Fair value allocation		(21,109	)		7,663			13,446			—
Acquisition of DermEbx and Radion		—			—			6,154			6,154
Acquisition measurement period adjustments		—			—			116			116
Acquisition of VuComp		—			1,093			—			1,093
Sale of MRI assets		—			(394	)					(394	)
Impairment		—			—			(19,716	)		(19,716	)

Balance at December 31, 2020 and June 30, 2021		—			8,362			—			8,362

Note ~~13 -~~11 – Long-lived assets

~~In accordance with FASB ASC Topic 360, “Property, Plant and Equipment” (“ASC 360”), the~~

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 ~~carrying value~~determination of ~~the asset group.~~

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

~~ASC360-10-35~~ ~~uses “events and circumstances” criteria to determine~~ when, if at all, an asset (or asset group) is evaluated for ~~recoverability. Thus, there~~recoverability is ~~no set interval or frequency for recoverability evaluation. In accordance with ASC360-10-35-21~~ ~~the~~based on “events and circumstances.” The following factors are examples of events or changes in circumstances that indicate the carrying amount of an asset ~~(asset~~(or asset group) may not be recoverable and thus is to be evaluated for recoverability.

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

A significant adverse change in the extent or manner in which a long-lived asset ~~(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 ~~(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 ~~(asset~~(or asset group); and

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

~~In accordance with ASC360-10-35-17,~~ if

The Company determined there were no such triggering events in the quarter ended June 30, 2021.

If the carrying amount of an asset or asset group (in use or under development) is evaluated and found not to be fully recoverable ~~(the~~(e.g., the carrying amount exceeds the estimated gross, undiscounted cash flows from use and disposition), then an impairment loss must be recognized. The impairment loss is measured as the excess of the carrying amount over the ~~assets (or asset group’s)~~ fair ~~value.~~

The Company completed an interim goodwill impairment assessment for the Therapy reporting unit and noted that there was a goodwill impairment (see Note 13). As a result, the Company determined this was a triggering event for long-lived assets. Accordingly, the Company completed an analysis pursuant to ASC~~360-10-35-17~~ ~~and determined that the carrying~~ value of the asset ~~group exceeded~~(or asset group). The Company determined the ~~undiscounted~~“Asset Group” of the Company to be the assets of the Therapy segment and the Detection segment, which the Company considers to be the lowest level for which the identifiable cash flows ~~and that long-lived assets~~ were ~~impaired. The Company recorded long-lived asset impairment charges of approximately $0.7 million in the third quarter ended September 30, 2017 based on the deficiency between the book value~~largely independent of the cash flows of other assets and ~~the fair value as determined in the analysis. At September 30, 2017, the long lived assets in the asset group are recorded at their current fair values.~~

liabilities.

A considerable amount of judgment and assumptions are required in performing the impairment tests, principally in determining the fair value of the asset group and the reporting unit. While the Company believes ~~the~~that its judgments and assumptions are reasonable, different assumptions could change the estimated fair values and, therefore additional impairment charges could be required. Significant negative industry or economic trends, disruptions to the Company’s business, loss of significant customers, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets may adversely impact the assumptions used in the fair value estimates and ultimately result in future impairment charges.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

Table of Contents

Note ~~14 -~~12 – Segment Reporting

~~In accordance with FASB Topic ASC 280, “~~~~Segments~~~~”, operating~~

Operating segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance.

The Company’s CODM is the ~~CEO.~~Chief Executive Officer. Each reportable segment generates revenue from the sale of medical equipment and related services and/or sale of supplies. The Company has determined there are ~~two~~2 segments, ~~Cancer~~ Detection and ~~Cancer~~ Therapy.

The Detection segment consists of ~~our~~the Company’s advanced image analysis and workflow products, and the Therapy segment consists of ~~our~~the Company’s radiation therapy ~~Axxent~~ products, “Axxent,” and related services. The primary factors used by ~~our~~the Company’s CODM to allocate resources are based on revenues, gross profit, operating income, and earnings or loss before interest, taxes, depreciation, amortization, and other specific and

non-recurring

items ~~(“Adjusted EBITDA”)~~ of each segment. Included in segment operating income are stock compensation, amortization of technology and depreciation expense. There are no intersegment revenues.

~~Our~~

The Company does not track assets by operating segment and the Company’s CODM does not use asset information by segment to allocate resources or make operating decisions.

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

Segment revenues, gross profit, segment operating income or loss, and a reconciliation of segment operating income or loss to US GAAP loss before income tax is as follows (in thousands):

   Three Months Ended
September 30,    Nine Months Ended
September 30,
   2017    2016    2017    2016
Segment revenues:

Detection
   $ 4,346    $ 4,134    $ 13,066    $ 12,961
Therapy
   2,654    1,869    7,134    6,449








Total Revenue
   $ 7,000    $ 6,003    $ 20,200    $ 19,410








Segment gross profit:

Detection
   $ 3,822    $ 3,586    $ 11,553    $ 11,429
Therapy
   821    515    2,282    2,560








Segment gross profit
   $ 4,643    $ 4,101    $ 13,835    $ 13,989








Segment operating income (loss):

Detection
   1,475    1,250    4,261    4,494
Therapy
   (6,451 )    (2,055 )    (10,627 )    (5,398 )








Segment operating income (loss)
   $ (4,976 )    $ (805 )    $ (6,366 )    $ (904 )








General, administrative, depreciation and amortization expense
   $ (1,966 )    $ (1,847 )    $ (6,143 )    $ (5,774 )
Interest expense
   (36 )    (15 )    (51 )    (59 )
Gain on sale of MRI assets
   —      —      2,508    —
Other income
   3    2    3    9








Loss before income tax
   $ (6,975 )    $ (2,665 )    $ (10,049 )    $ (6,728 )


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
Segment revenues:
Detection	$	4,789		$	4,117		$	10,508		$	8,593
Therapy		3,037			1,450			5,962			3,525

Total Revenue	$	7,826		$	5,567		$	16,470		$	12,118

Segment gross profit:
Detection	$	4,005		$	3,533		$	8,730		$	7,000
Therapy		1,533			824			3,097			1,867

Segment gross profit	$	5,538		$	4,357		$	11,827		$	8,867

Segment operating income (loss):
Detection	$	52		$	201		$	993		$	(145	)
Therapy		(250	)		(432	)		(562	)		(1,438	)

Segment operating income (loss)	$	(198	)	$	(231	)	$	431		$	(1,583	)

General, administrative, depreciation and amortization expense	$	(2,673	)	$	(2,080	)	$	(4,835	)	$	(4,621	)
Interest expense		(28	)		(115	)		(140	)		(245	)
Other income		5			33			7			75
Loss on extinguishment of debt		(386	)		0			(386	)		(341	)
Fair value of convertible debentures		—			—			—			(7,464	)

Loss before income tax	$	(3,280	)	$	(2,393	)	$	(4,923	)	$	(14,179	)

Table of Contents

Note 1513 - Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In ~~May 2014,~~December 2019, the ~~FASB~~Financial Accounting Standard Board (the “FASB”) issued ASU~~No. 2014-09,~~ ~~“Revenue from Contracts with Customers”~~

2019-12,

“Income Taxes (Topic ~~606), or~~ 740): Simplifying the Accounting for Income Taxes” (“ASU~~2014-09,~~ ~~which superseded nearly all~~

2019-12”).

ASU

2019-12

is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and amending existing ~~revenue recognition guidance under U.S. GAAP. Since then,~~guidance. ASU

2019-12

is effective for the ~~FASB has also issued ASU2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606), Principals versus Agent Considerations~~Company for the fiscal year and ~~ASU2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing, which further elaborate on the original ASUNo. 2014-09.~~ The core principle of these updates is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled for those goods or services. ASU~~2014-09~~ defines a five step process to achieve this core principle and, in doing so, more judgments and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In July 2015, the FASB approved a~~one-year~~ ~~deferral of the effective date to~~interim periods therein beginning January 1, 2018, with early adoption to be permitted as of the original effective date of January 1, 2017. Once this standard becomes effective, companies may use either of the following transition methods: (i) a full retrospective approach

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

reflecting the application of the standard in each reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU~~2014-09~~ ~~recognized at the date of adoption (which includes additional footnote disclosures).~~

2021. The Company ~~has performed an assessment of its revenue streams and customer classes. The Company has used this information to develop an implementation plan which it expects to complete during~~notes that the fourth quarter of 2017. The Company does not expect that its revenue recognition will be materially impacted by the new guidance. The Company is also assessing the impact of the guidance on its contract costs in order to determine the magnitude of impact. The Company currently expects to adopt the guidance using the modified retrospective approach, and will finalize this selection along with completion of the implementation plan.

There are also certain considerations related to internal control over financial reporting that are associated with implementing Topic 606. The Company is evaluating its internal control framework over revenue recognition to identify any changes that may need to be made in relation to the implementation process, as well as upon adoption of ASU

2019-12

resulted in the ~~new guidance.~~

~~In addition, disclosure requirements under the new guidance~~reclassification of an immaterial amount from income tax expense to

non-income

tax included in Topic 606 have been significantly expanded in comparison to the disclosure requirements under the current guidance. The Company’s implementation phase includes designing and implementing the appropriate internal controls to obtain and disclose the information required under Topic 606.

~~The Company expects to adopt certain practical expedients and make certain policy elections~~operating expenses related to the accounting for ~~significant finance components, sales~~state and Franchise taxes, ~~shipping and handling, costs~~with no impact to ~~obtain a contract and immaterial promised goods~~the Company’s consolidated income, equity or ~~services, which will mitigate certain impacts of adopting Topic 606. The Company also expects to review the tax impact, if any, that Topic 606 will have on the financial statements.~~

cash flows.

Recently Issued Accounting Standards Not Yet Adopted

In ~~February~~June 2016, the FASB issued

ASU~~No. 2016-02,~~ ~~“Leases”. The standard establishes aright-of-use~~ ~~(“ROU”~~ 2016-13, “Financial

Instruments—Credit Losses (Topic 326)”

(“ASU 2016-13”),

which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.

ASU 2016-13

replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. In November 2019, the FASB elected to defer the adoption date of ASU

2016-13

for public business entities that ~~requires~~meet the definition of a ~~lessee~~smaller reporting company to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning2022. Early adoption of the ~~earliest comparative period presented~~guidance in ~~the financial statements, with certain practical expedients available. We are~~ASU

2016-13

is permitted. The Company is currently evaluating the impact ~~of our pending adoption of the new standard on our consolidated financial statements, however~~that the adoption of ASU

2016-13

will have on its consolidated financial statements.

In March 2020, the ~~standard~~FASB issued ASU

2020-04,

“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU

2020-04”). ASU

2020-04

was issued because the London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities, and at the end of 2021, banks will no longer be required to report information that is used to determine LIBOR. As a result, LIBOR is expected to ~~increase both assets~~be discontinued as a benchmark interest rate. Other interest rates used globally could also be discontinued for similar reasons. ASU

2020-04

provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. Companies can apply the ASU immediately. However, the guidance will only be available for a limited time (generally through December 31, 2022). The Company is currently evaluating the impact that the adoption of ASU

2020-04

will have on its consolidated financial statements.

In August 2020, the FASB issued ASU

2020-06,

“Debt – Debt with Conversion and ~~liabilities~~Other Options (Subtopic

470-20)

and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic

815-40):

Accounting for ~~leases that would previously have beenoff-balance~~ ~~sheet operating leases.~~

~~iCAD, INC. AND SUBSIDIARIES~~

~~Notes~~Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU

2020-06”).

ASU

2020-06

was issued to ~~Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~September 30, 2017~~

~~On January 1, 2017, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)No. 2016-09,~~ ~~“Compensation—Stock Compensation” (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU2016-09”),~~ ~~which simplifies several aspects of~~simplify the accounting for ~~employee share-based payment transactions, including income taxes consequences, classification of awards~~convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as ~~either~~a single liability instrument and more convertible preferred stock as a single equity ~~or liabilities, and classification~~instrument with no separate accounting for embedded conversion features. ASU

2020-06

removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU

2020-06

also simplifies the diluted earnings per share calculation in ~~the statement of cash flows. Under~~certain areas. ASU~~2016-09,~~ excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement, and excess tax benefits are recognized regardless of whether the benefit reduces taxes payable in the current period. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. As a result of the adoption, the net operating loss deferred tax assets increased by $2.1 million and are offset by a corresponding increase in the valuation allowance.

~~In August 2016, the FASB issued ASU2016-15,~~ “Statement of Cash Flows (Topic 230)”, a consensus of the FASB’s Emerging Issues Task Force. This update is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The update requires cash payments for debt prepayment or debt extinguishment costs to be classified as cash outflows for financing activities. It also requires cash payments made soon after an acquisition’s consummation date (approximately three months or less) to be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities. The amendment

2020-06

is effective for ~~annual periods beginning after December 15, 2017,~~the Company for the fiscal year and interim periods ~~thereafter.~~therein beginning January 1, 2022. Early adoption is permitted. The Company ~~does not expect~~is currently evaluating the impact that the adoption of ~~this amendment~~ ASU

2020-06

will have ~~a material impact~~ on ~~our~~its consolidated financial statements.

Note 14 – Subsequent Events

The Company held its 2021 annual meeting of stockholders on July 15, 2021 (the “Meeting”). The Company’s stockholders approved all matters submitted by the Company to the stockholders for approval at the Meeting (the “Proposals”), including a proposal to approve and adopt an amendment to the Certificate of Incorporation (the “Amendment to the Certificate of Incorporation”) to increase the Company’s authorized shares of common stock from 30,000,000 shares to 60,000,000 shares, and a proposal to approve an amendment to the Company’s 2016 Stock Incentive Plan, as amended, to increase the number of shares of common stock available thereunder from 2,600,000 shares to 4,700,000 shares and to increase the aggregate number of incentive stock options available thereunder from 1,000,000 to 2,000,000 (the “Plan Amendment”). Following stockholder approval of all Proposals at the Meeting, the Company filed the Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware on July 21, 2021, and the Plan Amendment was made effective as of July 15, 2021.

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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~~statements that may be deemed “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements ~~that~~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 following: the impact of the

COVID-19

pandemic on the Company’s business and the global economy; uncertainty of future sales and expense levels, protection of patents and other proprietary rights, the impact of supply and manufacturing constraints or difficulties, regulatory changes and requirements applicable to our products, product market acceptance, possible technological obsolescence of products, increased competition, integration of ~~the~~ acquired businesses, the impact of litigation and/or government regulation, changes in Medicare reimbursement policies, competitive factors, the effects of a decline in the economy in markets served by the Company and other risks detailed in the Company’s other filings with the Securities and Exchange Commission. The words “believe”, “plan”, “intend”, “expect”, “estimate”, “anticipate”, “likely”, “seek”, “should”, “would”, “could” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on ~~those~~ forward-looking statements, which speak only as of the date the statement was made.

Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date of such statements.

Results of Operations

Overview

iCAD, ~~delivers~~Inc. is a global medical technology company providing innovative cancer detection and ~~radiation~~ therapy solutions and services that enable clinicians to find and treat cancers earlier and while enhancing patient care. iCAD offers a comprehensive range of upgradeable computer aided detection (CAD) and workflow solutions to support rapid and accurate detection of breast and colorectal cancers. iCAD’s Xoft^® ~~Axxent~~^® ~~Electronic Brachytherapy (eBx~~^®~~) System~~^® ~~is a painless,non-invasive~~ technology that delivers high dose rate, low energy radiation, which targets cancer while minimizing exposure to surrounding healthy tissue. The Xoft System is FDA cleared and CE marked for use anywhere in the body, including treatment of~~non-melanoma~~ skin cancer, early-stage breast cancer and gynecological cancers. The comprehensive iCAD technology platforms include advanced hardware and software as well as management services designed to support cancer detection and radiation therapy treatments.

solutions. The Company ~~has grown primarily through acquisitions including CADx, Qualia Computing, CAD Sciences, Xoft, DermEbx, Radion~~reports in two segments: Detection and VuComp. The Radion/DermEbx acquisition extended the Company’s position as a larger player in the oncology market, including the components that enable dermatologists and radiation oncologists to develop, launch and manage their electronic brachytherapy (“eBx”) programs for the treatment of~~non-melanoma~~ skin cancer (“NMSC”). The VuComp acquisition included an extensive library of related clinical data which we use for cancer detection research and patents, as well as key personnel and expanded our customer base.

Therapy.

In the Detection segment, ~~our industry-leading~~the Company’s solutions include (i) advanced image analysis and workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier, and (ii) a comprehensive range of high-performance, ~~upgradeable~~Artificial Intelligence and Computer-Aided Detection (CAD) systems and workflow solutions for 2D and 3D mammography, Magnetic Resonance Imaging (MRI) and Computed Tomography (CT).

In the Therapy segment, the Company offers the Xoft System, an isotope-free cancer treatment platform technology. The ~~Company intends to continue~~Xoft System can be used for the ~~extension~~treatment of ~~its image analysis~~early-stage breast cancer, endometrial cancer, cervical cancer and clinical decision support solutions for mammography and CT imaging. The Company believes that advances in digital imaging techniques, such as 3D mammography, should bolster its efforts to develop additional commercially viable CAD/advanced image analysis and workflow products. Innonmelanoma skin cancer.

On January ~~2016,~~30, 2017, the Company completed the ~~acquisition~~sale of ~~VuComp’sM-Vu~~ ~~cancer detection portfolio includingM-Vu~~ CAD for $6,000. The acquisition provided clinical data for research and an additional customer install base to sell the Company’s cancer detection solutions. In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation. The Company sold and conveyed to Invivo all right, title and interest to certain intellectual property relating to the VersaVue Software and the DynaCAD product and related ~~assets.~~assets to Invivo for $3,200,000 in cash with a holdback amount of $350,000. The Company ~~closed~~recently settled litigation with a third-party relating to this transaction, as further described in “Item 1—Legal Proceedings” and Note 7 hereto. The three and six months ended June 30, 2021 includes a $0.4 million charge related to the ~~transaction on January 30, 2017, and recorded a gain~~loss on the ~~sale~~extinguishment of ~~approximately $2.5~~debt while the three and six months ended June 30, 2020 included a $7.8 million ascharge related to the losses on the extinguishment of ~~the closing date.~~debentures and debt. In ~~March 2017,~~April 2021, the Company ~~announced that it received Premarket Approval from the U.S. Food and Drug Administration (the “FDA”) for the Powerlook Tomo Detection product.~~

~~In the Therapy segment, the Company offers an isotope-free cancer treatment platform technology. The Xoft Electronic Brachytherapy System (“Xoft eBx”) can be~~ used ~~for the treatment~~approximately $7.4 million of ~~early- stage breast cancer, endometrial cancer, cervical cancer and skin cancer. We believe the Xoft eBx system platform indications represent strategic opportunities~~cash to repay its credit facility in the United States and international markets to offer differentiated treatment alternatives. In addition, the Xoft eBx system generates additional recurring revenue for the sale of consumables and related accessories and offer solutions that enable dermatologists and radiation oncologists to develop, launch and manage their eBx programs for the treatment of NMSC.

~~As we have discussed in our risk factors noted in our Annual Report on Form10-K~~ filed with the SEC for the year ended December 31, 2016, our business can be affected by coverage policies adopted by federal and state governmental authorities, such as Medicare and Medicaid, as well as private payers, which often follow the coverage policies of these public programs. Such policies may affect which products customers purchase and the prices customers are willing to pay for those products in a particular jurisdiction.

full.

The Company’s headquarters are located in Nashua, New Hampshire, with a manufacturing facility in New Hampshire and an operations, research, development, manufacturing and warehousing facility in San Jose, California.

COVID-19

Impact

On March 12, 2020, the World Health Organization declared

COVID-19

to be a pandemic. In an effort to contain and mitigate the spread of the

COVID-19

pandemic, the United States, many countries in Europe, as well as Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of

COVID-19.

As a provider of devices and services to the health care industry, our operations have been materially affected. Significant uncertainty remains as to the continuing impact of the

COVID-19

pandemic on our operations and on the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. The

COVID-19

pandemic has resulted in significant financial market volatility and uncertainty. A worsening level of market disruption and volatility seen in the recent past will have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common stock. Our results for the quarter ending June 30, 2021 reflect a negative impact from the

COVID-19

pandemic, due to some healthcare facilities’ additional focus on

COVID-19.

Although we do not provide guidance to investors relating to our results of operations, our results for the quarter ending September 30, 2021, and possibly future quarters, could reflect a continued negative impact from the

COVID-19

pandemic for similar reasons.

During the first quarter of fiscal 2020, the Company entered into an equity distribution agreement with JMP Securities to provide for an

at-

the-market

offering program to provide additional potential liquidity through the sale of common stock having a value of up to $25.0 million (the “ATM Facility”). On December 17, 2020 the company sold 470,704 shares of common stock under the ATM Facility for gross proceeds of approximately $6.6 million and net proceeds of approximately $6.1 million. On

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March 2, 2021, the Company terminated the ATM Facility. Also on March 2, 2021, the Company entered into an underwriting agreement with Guggenheim Securities, LLC, as representative of the several underwriters thereto, in connection with an underwritten public offering of 1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share. The offering closed on March 5, 2021 for gross proceeds of approximately $25.1 million and net proceeds of approximately $23.2 million to the Company. The Company believes that its current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand of $37.9 million at June 30, 2021 and anticipated revenue and cash collections. However, the resurgence of the

COVID-19

pandemic could affect our liquidity.

Critical Accounting ~~Policies~~

Estimates

The Company’s discussion and analysis of its financial condition, results of operations, and cash flows are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United ~~States of America.~~ States.

The

preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an~~on-going~~ ongoing basis, the Company evaluates these estimates, including those related to revenue recognition, allowance for doubtful accounts, ~~receivable allowance,~~ inventory valuation and obsolescence, intangible assets, goodwill, income taxes, ~~warranty obligations,~~ contingencies, and litigation. Additionally, the Company uses assumptions and estimates in calculations to determine stock-based ~~compensation.~~compensation, the fair value of convertible debentures, and evaluation of litigation. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Due to the

COVID-19

pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form

10-Q.

These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Other than as described herein, there have been no additional material changes to our critical accounting policies as discussed in our Annual Report on Form

10-K

for the fiscal year ended December 31, 2020 field with the SEC on March 15, 2021 (the “2020

10-K”).

For a comprehensive list of the Company’s critical accounting policies, reference should be made to the ~~Annual Report on Form10-K~~ ~~for the year~~2020

10-K.

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Three and six months ended ~~December 31, 2016 filed on March 24, 2017.~~

June 30, 2021 compared to three and six months ended June 30, 2020.

Revenue: (in thousands)

Three months ended ~~September~~June 30, ~~2017 compared to~~2021 and 2020:

Three months ended June 30,


2021

2020

Change

% Change

Detection revenue

Product revenue
   $ 3,164    $ 2,702    $ 462    17.1 %
Service and supplies revenue
   1,625    1,415    210    14.8 %








Subtotal
   4,789    4,117    672    16.3 %








Therapy revenue

Product revenue
   1,388    186    1,202    646.2 %
Service and supplies revenue
   1,649    1,264    385    30.5 %








Subtotal
   3,037    1,450    1,587    109.4 %








Total revenue
   $ 7,826    $ 5,567    $ 2,259    40.6 %

Total revenue increased by approximately $2.3 million, or 40.6%, from $5.6 million for the three months ended ~~September~~June 30, ~~2016~~

~~Revenue: (in thousands)~~

   Three months ended September 30,
   2017    2016    Change    % Change
Detection revenue

Product revenue
   $ 2,758    $ 1,991    $ 767    38.5 %
Service revenue
   1,588    2,143    (555 )    (25.9 )%








Subtotal
   4,346    4,134    212    5.1 %








Therapy revenue

Product revenue
   668    23    645    2804.3 %
Service revenue
   1,986    1,846    140    7.6 %








Subtotal
   2,654    1,869    785    42.0 %








Total revenue
   $ 7,000    $ 6,003    $ 997    16.6 %

~~Three months ended September 30, 2017 and 2016:~~

~~Total revenue for the three month period ended September 30, 2017 was $7.0 million compared with revenue of $6.0~~2020 to $7.8 million for the three ~~month period~~months ended ~~September~~June 30, ~~2016, an increase of approximately $1.0 million, or 16.6%.~~2021. The increase ~~in revenue was~~is due to ~~increases in Detection revenues of approximately $0.2 million and~~ an increase in Therapy revenue of approximately ~~$0.8~~$1.6 million and Detection revenue of $0.7 million.

Detection product revenue increased by approximately ~~$0.8 million from $2.0 million to $2.8~~$0.5 million, or ~~38.5% in~~17.1%, from $2.7 million for the three ended June 30, 2020 to $3.2 million for the three months ended ~~September~~June 30, ~~2017 as compared to the three months ended September 30, 2016.~~2021. The overall increase is due primarily to an increase in ~~digital systems driven by increases~~direct customer revenue of $0.3 million and an increase in ~~sales~~original equipment manufacturer customer revenue of $0.2 million, in each case relating primarily to ~~our OEM partners.~~

revenue from 3D imaging and density assessment products. The Company also believes that the COVID-19 pandemic adversely affected revenues during the three months ended June 30, 2020.

Detection service and supplies revenue, ~~decreased~~which is primarily sold to direct customers, increased by ~~approximately $0.6~~$0.2 million, or 14.8%, from ~~$2.1~~$1.4 million in the three months ended ~~September~~June 30, ~~2016~~2020 to $1.6 million in the three months ended ~~September~~June 30, 2017. The decrease in service and supplies revenue is due primarily to the decrease in service revenue associated with the MRI business. Service and supplies revenue reflects the sale of service contracts to our installed base of customers. Service and supplies revenue related to our installed base of customers can vary from quarter to quarter.

2021.

Therapy product revenue ~~was~~increased by approximately ~~$0.7~~$1.2 million, or 646.2%, from $0.2 million for the three months ended ~~September~~June 30, ~~2017 as compared~~2020 to ~~$23,000~~$1.4 million for the three months ended ~~September~~June 30, ~~2016. The increase in~~2021. Therapy product revenue ~~for the quarter ended September 30, 2017~~ is ~~due~~related to ~~the sale of Axxent eBx systems in the quarter. Product revenue from~~ the sale of our Axxent ~~eBx~~ systems and can vary significantly from quarter to quarter due to ~~an increase or decrease~~changes in the number of units sold, ~~which can cause a significant fluctuation in~~and the average selling price. The Company believes that Therapy product revenue was adversely affected by the

COVID-19

pandemic during the three months ended June 30, 2020, due to

stay-at-home

and social distancing orders as well as the uncertainty in the ~~period.~~

market.

Therapy service and ~~supply~~supplies revenue ~~was~~increased by approximately ~~$2.0~~$0.4 million, or 30.5%, from $1.3 million for the three months ended

~~September~~ June 30, ~~2017 as compared~~2020 to ~~$1.9~~$1.7 million for the three months ended ~~September~~June 30, ~~2016.~~2021. The Company believes that Therapy service and supplies revenue, specifically the use of balloons for procedures, was adversely affected by the

COVID-19

pandemic during the three months ended June 30, 2020, due to

stay-at-home

and social distancing orders as well as the uncertainty in the market. The Company saw higher service and supplies revenues due to higher balloon sales in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The Company is not able to predict how the

COVID-19

pandemic will affect future Therapy service and supplies revenue.

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Six months ended June 30, 2021 and 2020:


	Six months ended June 30,
	2021		2020		$ Change		% Change
Detection revenue
Product revenue	$	7,325	$	5,802	$	1,523		26.2	%
Service revenue		3,183		2,791		392		14.0	%

Subtotal		10,508		8,593		1,915		22.3	%

Therapy revenue
Product revenue		2,784		881		1,903		216.0	%
Service revenue		3,178		2,644		534		20.2	%

Subtotal		5,962		3,525		2,437		69.1	%

Total revenue	$	16,470	$	12,118	$	4,352		35.9	%

Total revenue increased by approximately $4.4 million, or 35.9%, from $12.1 million for the six months ended June 30, 2020 to $16.5 million for the six months ended June 30, 2021. The increase is due to an increase in Therapy revenue of approximately $2.4 million and an increase in Detection revenue of $1.9 million.

Detection product revenue increased by approximately $1.5 million, or 26.2%, from $5.8 million for the six months ended June 30, 2020 to $7.3 million for the six months ended June 30, 2021. The overall increase is due primarily to an increase in direct customer revenue of $1.7 million and offset by a decrease in original equipment manufacturer customer revenue of $0.2 million, in each case relating primarily to revenue from 3D imaging and density assessment products. The Company also believes that the COVID-19 pandemic adversely affected revenues during the six months ended June 30, 2020.

Detection service and supplies revenue, which is primarily sold to direct customers, increased by $0.4 million, or 14.0%, from $2.8 million in the ~~services~~six months ended June 30, 2020 to $3.2 million in the six months ended June 30, 2021.

Therapy product revenue increased by approximately $1.9 million, or 216%, from $0.9 million for the six months ended June 30, 2020 to $2.8 million for the six months ended June 30, 2021. Therapy product revenue is related to ~~electronic brachytherapy~~the sale of our Axxent systems and can vary significantly from quarter to quarter due to changes in the number of units sold, and the average selling price. The Company believes that Therapy product revenue was adversely affected by the

COVID-19

pandemic during the six months ended June 30, 2020, due to

stay-at-home

and social distancing orders as well as the uncertainty in the market.

Therapy service and supplies revenue increased by approximately $0.5 million, or 20.2%, from $2.6 million for~~non-melanoma~~ ~~skin cancer (“NMSC”).~~

the six months ended June 30, 2020 to $3.2 million for the six months ended June 30, 2021. The Company believes that Therapy service and supplies revenue, specifically the use of balloons for procedures, was adversely affected by the

COVID-19

pandemic during the three months ended June 30, 2020, due to

stay-at-home

and social distancing orders as well as the uncertainty in the market. The Company saw higher service and supplies revenues due to higher balloon sales in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The Company is not able to predict how the

COVID-19

pandemic will affect future Therapy service and supplies revenue.

Table of Contents

Cost of Revenue and Gross Profit: (in thousands)

   Three months ended September 30,
   2017 2016 Change    % Change
Products
   $ 636 $ 236 $ 400    169.5 %
Service and supplies
   1,458 1,370 88    6.4 %
Amortization and depreciation
   263 296 (33 )    (11.1 )%




Total cost of revenue
   $ 2,357 $ 1,902 $ 455    23.9 %




Gross profit
   $ 4,643 $ 4,101 $ 542    13.2 %
Gross profit %
   66.3 % 68.3 %    (2.0 )%
   Three months ended September 30,
   2017 2016 Change    % Change
Detection gross profit
   $ 3,822 $ 3,586 $ 236    6.6 %
Therapy gross profit
   821 515 306    59.4 %




Gross profit
   $ 4,643 $ 4,101 $ 542    13.2 %

Three months ended June 30, 2021 and 2020:


	Three months ended June 30,
	2021		2020		$ Change			% Change
Products	$	1,377	$	537	$	840			156.4	%
Service and supplies		832		575		257			44.7	%
Amortization and depreciation		79		98		(19	)		(19.4	)%

Total cost of revenue	$	2,288	$	1,210	$	1,078			89.1	%

Gross profit	$	5,538	$	4,357	$	1,181			27.1	%


	Three Months Ended
	June 30,
	2021		2020
Segment gross profit:
Detection	$	4,005	$	3,533
Therapy		1,533		824

Segment gross profit	$	5,538	$	4,357

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Gross profit for the three ~~month period~~months ended ~~September~~June 30, ~~2017~~2021 was ~~$4.6~~approximately $5.5 million, or ~~66.3%~~70.8% of revenue, as compared to ~~$4.1~~$4.4 million, or ~~68.3%~~78.3% of revenue, for the three months ended June 30, 2020. The

COVID-19

pandemic adversely affected revenues from Detection products and the Therapy segment in the three ~~month period~~months ended ~~September~~June 30, ~~2016. Gross~~2020, which resulted in lower gross profit ~~percent changes are primarily due to changes~~in both segments in 2020. The higher gross profit as a percentage of sales in the ~~mix of business, consulting costs~~three months ended June 30, 2020 was primarily related to~~non-recurring~~ ~~engineering revenue, additional manufacturing investments and amortization~~ product mix, with lower margin Therapy products being a greater percentage of ~~acquired intangibles.~~

total sales in the three months ended June 30, 2021 than in the three months ended June 30, 2020.

Cost of products increased by approximately ~~$0.4~~$0.8 million, or 156.4%, from ~~approximately $0.2~~$0.5 million for the three months ended ~~September~~June 30, ~~2016~~2020 to ~~approximately $0.6million~~$1.4 million for the three months ended ~~September~~June 30, ~~2017. The increase is due primarily the increase in therapy product revenue for the third quarter of 2017. The cost~~2021. Cost of product revenue as a percentage of product revenue was approximately ~~19%~~18.6% for the three months ended ~~September~~June 30, ~~2017~~2020 as compared to ~~12%~~30.3% for the three months ended ~~September~~June 30, ~~2016.~~2021. The increase in cost of ~~product revenue~~products is primarily due to the increased sales in both Therapy and Detection resulting in increases in cost of products of $0.3 and $0.1 million respectively. The higher cost of products as a percentage of sales in the three months ended June 30, 2021 was primarily related to product ~~revenue is due primarily to~~mix, with lower margin Therapy products being a greater percentage of total sales in the ~~sale of Axxent eBx controllers which have a higher cost of revenue~~three months ended June 30, 2021 than ~~Detection products.~~in the three month period ended June 30, 2020.

~~The cost~~

Cost of service and supplies ~~was $1.5~~increased by approximately $0.3 million, or 44.7%, from $0.6 million for the three months ended ~~September~~June 30, ~~2017 as compared~~2020 to ~~$1.4~~$0.8 million for the three months ended ~~September~~June 30, ~~2016. The cost~~2021. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately ~~41%~~21.5% for the ~~quarter~~three months ended ~~September~~June 30, ~~2017 and 34%~~2020 as compared to 25.4% for the ~~quarter~~three months ended ~~September~~June 30, ~~2016.~~

~~Amortization~~2021. The higher cost of service and ~~depreciation was approximately $0.3 million in each~~supplies as a percentage of ~~the three month periods ended September 30, 2016 and September 30, 2017.~~

~~Operating Expenses: (in thousands)~~

   Three months ended September 30,
   2017    2016    Change    Change %
Operating expenses:

Engineering and product development
   $ 2,254    $ 2,360    $ (106 )    (4.5 )%
Marketing and sales
   2,580    2,322    258    11.1 %
General and administrative
   1,944    1,783    161    9.0 %
Amortization and depreciation
   107    288    (181 )    (62.8 )%
Goodwill and long-lived asset impairment
   4,700    —      4,700    0.0 %








Total operating expenses
   $ 11,585    $ 6,753    $ 4,832    71.6 %

~~Operating expenses increased by approximately $4.8 million or 71.6%~~sales in the three months ended ~~September~~June 30, ~~2017. The increase is due~~2021 was primarily related to product mix, with lower margin Therapy products being a greater percentage of total sales in the ~~goodwill and long lived asset impairment of $4.7 million.~~

~~Engineering and Product Development.~~~~Engineering and product development costs were approximately $2.3 million for~~three months ended June 30, 2021 than in the three month period ended ~~September~~June 30, ~~2017 as compared~~2020.

Amortization and depreciation, which relates primarily to ~~$2.4 million for the three month periods ended September 30, 2016. Detection engineering~~acquired intangible assets and ~~product development costs were $1.3 million for each~~depreciation of ~~the three month periods ended September 30, 2017~~machinery and ~~September 30, 2016. Therapy engineering and product development costs decreased by~~equipment, was approximately $0.1 ~~million to $1.0~~ million for the three months ended ~~September~~June 30, ~~2017 from $1.1 million for the three~~2021 and 2020.

Six months ended ~~September~~June 30, ~~2016. The Company continues to invest in strategic initiatives such as the development of clinical evidence in both Detection~~2021 and ~~Therapy, development of breast tomosynthesis products and ongoing enhancements to our electronic brachytherapy products.~~

~~Marketing and Sales.~~Marketing and sales expenses increased by $0.3 million or 11.1%, from $2.3 million in the three month period ended September 30, 2016 to $2.6 million in the three month period ended September 30, 2017. Detection marketing and sales expense increased $0.2 million from $0.9 million in the three months ended September 30, 2016 to $1.1 million for the three months ended September 30, 2017. The increase in Detection marketing and sales expenses was due primarily to increases in commissions and stock compensation. Therapy marketing and sales expense increased by $0.1 million from $1.5 million in the three months ended September 30, 2016 to $1.6 million in the three months ended September 30, 2017.

~~General and Administrative.~~General and administrative expenses increased by $0.2 million or 9.0%, from $1.8 million in the three month period ended September 30, 2016 to $1.9 million in the three month period ended September 30, 2017. The increase was due primarily to an increase in consulting and personnel costs.

~~Amortization and Depreciation.~~Amortization and depreciation is primarily related to acquired intangible assets and depreciation related to machinery and equipment. Amortization and depreciation decreased to approximately $0.1 million in the quarter ended September 30, 2017 from $0.3 million for the quarter ended September 30, 2016. The decrease is due primarily to the sale of MRI assets in January 2017.

~~Goodwill and long-lived asset impairment.~~In the third quarter of 2017, the Company determined there was a triggering event, and accordingly completed an interim goodwill and long-lived asset impairment In the quarter ended September 30, 2017, the Company recorded an impairment charge of $4.0 million related to goodwill and $0.7 million related to intangible assets.

~~Other Income and Expense: (in thousands)~~

   Three months ended September 30,
   2017    2016    Change    Change %
Interest expense
   $ (36 )    $ (15 )    (21 )    140.0 %
Interest income
   3    2    1    50.0 %








   $ (33 )    $ (13 )    $ (20 )    153.8 %








Tax benefit (expense)
   $ 42    $ (10 )    $ 52    (520.0 )%

~~Interest expense~~. Interest expense of $36,000 increased by $21,000 or 140.0% for the three month period ended September 30, 2017 as compared to interest expense of $15,000 in the three month period ended September 30, 2016. The increase in interest expense is due primarily to the interest expense associated with the Silicon Valley Bank term loan signed in August, 2017.

~~Other income.~~ ~~Other income was $3,000 and $2,000, respectively, for the three month periods ended September 30, 2017 and 2016.~~

~~Tax benefit (expense).~~ The Company had a tax benefit of $42,000 for the three month period ended September 30, 2017 as compared to tax expense of $10,000 for the three month period ended September 30, 2016. The tax benefit for the quarter ended September 30, 2017 is the result of applying for New Hampshire research and development credits. Tax expense for the quarter ended September 30, 2016 is due primarily to state~~non-income~~ ~~and franchise based taxes.~~

~~Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016~~

~~Revenue: (in thousands)~~

   Nine months ended September 30,
   2017    2016    Change    % Change
Detection revenue

Product revenue
   $ 7,970    $ 6,580    $ 1,390    21.1 %
Service revenue
   5,096    6,381    (1,285 )    (20.1 )%








Subtotal
   13,066    12,961    105    0.8 %








Therapy revenue

Product revenue
   1,255    880    375    42.6 %
Service revenue
   5,879    5,569    310    5.6 %








Subtotal
   7,134    6,449    685    10.6 %








Total revenue
   $ 20,200    $ 19,410    $ 790    4.1 %

~~Nine months ended September 30, 2017 and 2016:~~

Total revenue for the nine month period ended September 30, 2017 was $20.2 million compared with revenue of $19.4 million for the nine month period ended September 30, 2016, an increase of approximately $0.8 million, or 4.1%. The increase in revenue was due to a $0.7 million increase in Therapy revenue and an increase in Detection revenues of approximately $0.1 million.

Detection product revenue increased by approximately $1.4 million from $6.6 million to $8.0 million or 21.1% in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016. The increase is due primarily to an increase in CAD revenues of $2.2 million offset by decreases in MRI revenue of approximately $0.7 million and $0.1 million in colon revenue. The decrease in MRI revenue is due primarily to the sale of the Company’s MRI assets in January 2017.

Detection service and supplies revenue decreased by approximately $1.3 million from $6.4 million in the nine months ended September 30, 2016 to $5.1 million in the nine months ended September 30, 2017. The decrease in service and supplies is due primarily to the sale of the Company’s MRI assets in January 2017. Service and supplies revenue reflects the sale of service contracts to our installed base of customers. We expect service and supplies revenue related to our installed base of customers to vary from quarter to quarter as customers transition from 2D CAD to digital tomosynthesis.

Therapy product revenue was approximately $1.3 million for the nine months ended September 30, 2017 as compared to $0.9 million for the nine months ended September 30, 2016. Product revenue from the sale of our Axxent eBx systems can vary significantly due to an increase or decrease in the number of units sold which can cause a significant fluctuation in product revenue in the period.

Therapy service and supplies revenue increased approximately $0.3 million from $5.6 million in the nine months ended September 30, 2016 to $5.9 million for the nine months ended September 30, 2017. The increase in Therapy service and supplies revenue is due primarily to an increase in the services related to electronic brachytherapy for NMSC.

~~Cost of Revenue and Gross Profit: (in thousands)~~

   Nine months ended September 30,
   2017 2016 Change    % Change
Products
   $ 1,349 $ 611 $ 738    120.8 %
Service and supplies
   4,169 3,911 258    6.6 %
Amortization and depreciation
   847 899 (52 )    (5.8 )%




Total cost of revenue
   $ 6,365 $ 5,421 $ 944    17.4 %




Gross profit
   $ 13,835 $ 13,989 $ (154 )    (1.1 )%
Gross profit %
   68.5 % 72.1 %    (3.6 )%
   Nine months ended September 30,
   2017 2016 Change    % Change
Detection gross profit
   $ 11,553 $ 11,429 $ 124    1.1 %
Therapy gross profit
   2,282 2,560 (278 )    (10.9 %)




Gross profit
   $ 13,835 $ 13,989 $ (154 )    (1.1 %)

2020:


	Six months ended June 30,
	2021		2020		$ Change			% Change
Products	$	2,786	$	1,554	$	1,232			79.3	%
Service and supplies		1,699		1,502		197			13.1	%
Amortization and depreciation		158		195		(37	)		(19.0	)%

Total cost of revenue	$	4,643	$	3,251	$	1,392			42.8	%

Gross profit	$	11,827	$	8,867	$	2,960			33.4	%


	Six Months Ended June 30,
	2021		2020
Segment gross profit:
Detection	$	8,730	$	7,000
Therapy		3,097		1,867

Segment gross profit	$	11,827	$	8,867

Gross profit for the ~~nine month period~~six months ended ~~September~~June 30, ~~2017~~2021 was ~~$13.9~~approximately $11.8 million, or ~~68.5%~~71.8% of revenue, as compared to ~~$14.0~~$8.9 million, or ~~72.1%~~73.2% of revenue, for the six months ended June 30, 2020. The

COVID-19

pandemic adversely affected revenues from Detection products and the Therapy segment in the ~~nine month period~~six months ended ~~September~~June 30, ~~2016. Gross~~2020, which resulted in lower gross profit ~~percent changes are primarily due to changes~~in both segments in 2020. The higher gross profit as a percentage of sales in the ~~mix of business, consulting costs~~six months ended June 30, 2020 was primarily related to~~non-recurring~~ ~~engineering revenue, additional manufacturing investments and amortization~~ product mix, with lower margin Therapy products being a greater percentage of ~~acquired intangibles. Gross profit for~~total sales in the ~~nine~~six months ended ~~September~~June 30, ~~2016 includes a recovery of~~2021 than in the ~~medical device excise tax of approximately $0.5 million due to a refund.~~

six months ended June 30, 2020.

Cost of products increased by approximately ~~$0.7~~$1.2 million, ~~to $1.3~~or 79.3%, from $1.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 from approximately $0.6~~2020 to $2.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016, which is due primarily to an increase in Detection product revenue as well as a recovery of medical device excise tax in cost of product revenue of $0.3 million in 2016. The cost~~2021. Cost of product revenue as a percentage of product revenue was approximately ~~15%~~23.3% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 as compared to 8%27.6% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. The increase in cost of ~~product revenue~~products is primarily due to the increased sales in both Therapy and Detection resulting in increases in cost of products of $1.0 and $0.2 million respectively. The higher cost of products as a percentage of ~~product revenue is due~~sales in the six months ended June 30, 2021 was primarily ~~to the recovery of medical device excise tax in 2016. Cost of product revenue can vary due~~related to product ~~mix.~~mix, with lower margin Therapy products being a greater percentage of total sales in the six months ended June 30, 2021 than in the six months ended June 30, 2020.

~~The cost~~

Table of Contents

Cost of service and supplies increased by ~~$0.3~~approximately $0.2 million, or 13.1%, from ~~$3.9~~$1.5 million infor the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2020 to ~~$4.2~~$1.7 million infor the ~~nine~~six months ended ~~September~~June 30, ~~2017. The cost~~2021. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately ~~38%~~27.6% for the ~~quarter~~six months ended ~~September~~June 30, ~~2017 and 33%~~2020 as compared to 26.7% for the ~~quarter~~six months ended ~~September~~June 30, ~~2016.~~2021. The ~~increase in cost of service supplies is due primarily to the recovery of medical device excise tax of $0.2 million in 2016, which also decreased the~~lower cost of service and supplies ~~revenue~~ as a percentage of ~~revenue~~sales in ~~2016.~~the six months ended June 30, 2021 was primarily related to reduced personnel costs as a percentage of total cost of service and supplies.

Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was approximately ~~$0.9~~$0.2 million ~~in each of~~for both the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2021 and ~~September 30, 2017.~~2020.

Operating Expenses: (in thousands)

   Nine months ended September 30,
   2017    2016    Change    Change %
Operating expenses:

Engineering and product development
   $ 7,060    $ 6,835    $ 225    3.3 %
Marketing and sales
   8,172    7,379    793    10.7 %
General and administrative
   6,067    5,586    481    8.6 %
Amortization and depreciation
   345    867    (522 )    (60.2 )%
Goodwill and long-lived asset impairment
   4,700    —      4,700    0.0 %
Gain from sale of MRI assets
   (2,508 )    —      (2,508 )    0.0 %








Total operating expenses
   $ 23,836    $ 20,667    $ 3,169    15.3 %

Three months ended June 30, 2021 and 2020:


	Three months ended June 30,
	2021		2020		Change		Change %
Operating expenses:
Engineering and product development	$	2,268	$	1,878	$	390		20.8	%
Marketing and sales		3,429		2,631		798		30.3	%
General and administrative		2,652		2,110		542		25.7	%
Amortization and depreciation		60		49		11		22.4	%

Total operating expenses	$	8,409	$	6,668	$	1,741		26.1	%

Operating expenses increased by approximately ~~$3.2~~$1.7 million, or ~~15.3%~~26.1%, from $6.7 million in the ~~nine~~three months ended ~~September~~June 30, ~~2017 as compared~~2020 to $8.4 million in the three months ended June 30, 2021. The Company took steps throughout 2020 to reduce operating expenses during the

COVID-19

pandemic and this was evident in the three-months ended June 30, 2020. The Company reinstated furloughed employees and resumed some business travel based on relaxation of COVID-19 restrictions and the strength of the business, but the Company continues to take a disciplined approach with expenses, given the lingering risk of COVID-19 related negative impacts to the nine months ended September 30, 2016. In the first quarter of 2017, the Company sold certain MRI assets to Invivo and recorded a gain on the sale of $2.5 million, which was offset by the goodwill and long lived asset impairment of $4.7 million, recorded in the third quarter of 2017.

business.

Engineering and Product ~~Development.~~Engineering and product development costs were approximately $7.1 million for the nine month period ended September 30, 2017 as compared to $6.8 million for the nine month period ended September 30, 2016, an increase of $225,000 or 3.3%Development

. Therapy engineering and product development costs increased from $3.1 million in the nine months ended September 30, 2016 to $3.2 million for the nine months ended September 30, 2017. Detection engineeringEngineering and product development costs increased by ~~$0.2~~approximately $0.4 million, ~~to $3.9~~or 20.8%, from $1.9 million for the ~~nine month period~~three months ended ~~September~~June 30, ~~2017 from $3.7~~2020 to $2.3 million for the ~~nine month period~~three-months ended ~~September~~June 30, ~~2016.~~2021. The ~~Company continues~~increase is primarily due to ~~invest in strategic initiatives such as the development~~personnel costs related to reinstatement of ~~ongoing clinical evidence, development of breast tomosynthesis products and additional enhancements to our electronic brachytherapy products.~~

furloughed employees.

Marketing and ~~Sales.~~Sales

. Marketing and sales expenses increased by approximately $0.8 million, or ~~10.7%~~30.3%, from ~~$7.4~~$2.6 million in the ~~nine month period~~three months ended ~~September~~June 30, ~~2016~~2020, to ~~$8.2~~$3.4 million in the ~~nine month period~~three months ended ~~September~~June 30, ~~2017.~~2021. Both Detection and Therapy marketing and sales ~~expense~~each increased ~~$0.2~~by approximately $0.4 million ~~from $4.7 million in~~The increase is primarily due to personnel costs including increased travel as compared to the ~~nine~~three months ended ~~September~~June 30, ~~2016 to $4.9 million for~~2020 when travel was impacted by the nine months ended September 30, 2017. Detection marketing and sales costs increased by $0.5 million from $2.7 million in the nine months ended September 30, 2016 to $3.2 million for the nine months ended September 30, 2017. The increase in Detection marketing and sales costs is due primarily to increases in commissions and stock compensation.

COVID-19

pandemic.

General and ~~Administrative.~~Administrative

. General and administrative expenses increased by approximately $0.5 million, or 25.7.0%, from ~~$5.6~~$2.1 million in the ~~nine month period~~three months ended ~~September~~June 30, ~~2016~~2020 to ~~$6.1~~$2.6 million infor the ~~nine month period~~three months ended ~~September~~June 30, ~~2017.~~2021. The increase ~~was~~is primarily due ~~primarily~~ to ~~an increase in stock compensation~~personnel costs ~~and a $249,000 gain on settlement of litigation~~ related to ~~the acquisition~~reinstatement of ~~VuCompM-Vu~~ ~~CAD in January 2016.~~

furloughed employees.

Amortization and Depreciation.

Amortization and depreciation, iswhich relates primarily ~~related~~ to acquired intangible assets and depreciation ~~related to~~of machinery and ~~equipment. Amortization and depreciation decreased~~equipment, increased by ~~$0.5 million~~approximately $11,000, or 22.4% from ~~$0.9 million in~~$49,000 for the ~~nine month period~~three months ended ~~September~~June 30, ~~2016~~2020 to ~~$0.3 million in~~$60,000 for the ~~nine month period~~three months ended ~~September~~June 30, ~~2017. The decrease is due primarily to the sale~~2021.

Table of ~~MRI assets in January 2017.~~

~~Gain from sale of MRI assets.~~The Company entered into an Asset Purchase Agreement with Invivo Corporation to sell certain MRI assets in December 2016 and the transaction closed on January 30, 2017. As a result, the Company recorded a gain on sale from MRI assets of $2.5 million in the first quarter of 2016.

Contents

Other Income and Expense: (in thousands)

   Nine months ended September 30,
   2017    2016    Change    Change %
Interest expense
   $ (51 )    $ (59 )    $ 8    (13.6 )%
Interest income
   3    9    (6 )    (66.7 )%








   $ (48 )    $ (50 )    $ 2    (4.0 )%








Tax benefit (expense)
   $ 28    $ (55 )    $ 83    (150.9 )%

Three months ended June 30, 2021 and 2020:

Three months ended June 30,

   2021    2020    Change    Change %
Interest expense
   $ (28 )    $ (115 )    $ 87    (75.7 )%
Other income
   5    33    (28 )    (84.8 )%
Loss on extinguishment of debt
   (386 )    —      —      0.0 %








   $ (409 )    $ (82 )    $ 59    (72.0 )%








Tax benefit (expense)
   —      (5 )    5    (100.0 )%

Interest expense

. Interest expense decreased $87,000, or 75.7%, from $115,000 in the three months ended June 30, 2020 to $28,000 for the three months ended June 30, 2021. The decrease is due to the timing of ~~$51,000~~termination of the Loan Agreement.

Other income

. Other income decreased by ~~$8,000~~approximately $28,000, or ~~13.6%~~84.8%, from $33,000 for the ~~nine month period~~three months ended ~~September~~June 30, ~~2017~~2020 to $5,000 for the three months ended June 30, 2021.

Loss on extinguishment of debt:

The Company recorded a loss on extinguishment of approximately $386,000 related to the repayment and retirement of the Loan Agreement as of the three months ended June 30, 2021. The loss on extinguishment was composed of approximately $140,000 for a prepayment fee, $122,000 for the unaccrued final payment, $65,000 termination and other fees, and $58,000 for the unamortized and other closing costs from opening the loan.

Tax expense

. Tax expense decreased by approximately $5,000, or 100%, from $5,000 for the three months ended June 30, 2020 to $0 for the three months ended June 30, 2021. The Company has approximately $13,000 in

non-income

related tax expense classified in operating expenses under ASU

2019-12

that had previously been classified here in tax expense. Tax expense is due to state

non-income

and franchise-based taxes.

Operating Expenses: (in thousands)

Six months ended June 30, 2021 and 2020:


	Six months ended June 30,
	2021		2020		Change		Change %
Operating expenses:
Engineering and product development	$	4,460	$	4,089	$	371		9.1	%
Marketing and sales		6,853		6,239		614		9.8	%
General and administrative		4,803		4,642		161		3.5	%
Amortization and depreciation		115		101		14		13.9	%

Total operating expenses	$	16,231	$	15,071	$	1,160		7.7	%

Operating expenses increased by approximately $1.1 million, or 7.7%, from $15.1 million in the six months ended June 30, 2020 to $16.2 million in the six months ended June 30, 2021. The Company took steps throughout 2020 to reduce operating expenses during the

COVID-19

pandemic and this was evident in the six months ended June 30, 2020. The Company reinstated furloughed employees and resumed some business travel based on relaxation of COVID-19 restrictions and the strength of the business, but the Company continues to take a disciplined approach with expenses, given the lingering risk of COVID-19 related negative impacts to the business.

Engineering and Product Development

. Engineering and product development costs increased by approximately $0.4 million, or 9.1%, from $4.1 million for the six months ended June 30, 2020, to $4.5 million for the six months ended June 30, 2021. The increase is primarily due to personnel costs related to reinstatement of furloughed employees.

Marketing and Sales

. Marketing and sales expenses increased by approximately $0.6 million, or 9.8%, from $6.2 million in the six months ended June 30, 2020, to $6.8 million in the six months ended June 30, 2021. Both Detection and Therapy marketing and each sales increased by approximately $0.3 million. The increase is primarily due to personnel costs including increased travel as compared to ~~interest expense~~the six months ended June 30, 2020 when travel was impacted by the

COVID-19

pandemic.

Table of ~~$59,000~~Contents

General and Administrative

. General and administrative expenses increased by approximately $0.2 million, or 3.5%, from $4.6 million in the ~~nine month period~~six months ended ~~September~~June 30, ~~2016. Interest expense~~2020 to $4.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021. The increase is primarily due to personnel costs related to reinstatement of furloughed employees.

Amortization and Depreciation.

Amortization and depreciation which relates primarily to ~~notes payable.~~acquired intangible assets and depreciation of machinery and equipment, increased by approximately $14,000, or 13.9% from $101,000 for the six months ended June 30, 2020, to $115,000 for the six months ended June 30, 2021.

Other Income and Expense: (in thousands)

Six months ended June 30, 2021 and 2020:


	Six months ended June 30,
	2021			2020			Change			Change %
Interest expense	$	(140	)	$	(245	)	$	105			(42.9	)%
Other income		7			75			(68	)		(90.7	)%
Loss on extinguishment of debt		(386	)		(341	)		(45	)		13.2	%
Loss on fair value of debentures		—			(7,464	)		7,464			(100.0	)%

	$	(519	)	$	(7,975	)	$	7,456			(93.5	)%

Tax expense	$	—		$	(31	)	$	31			(100.0	)%

Interest expense

. Interest expense decreased $105,000, or 42.9%, from $245,000 in the six months ended June 30, 2020 to $140,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2016 related primarily~~2021. The decrease is due to ~~capital leases which were paid in 2017.~~

~~Interest income.~~ ~~Interest~~the timing of termination of the Loan Agreement.

Other income ~~was $3,000 and $9,000~~

. Other income decreased by approximately $68,000, or 90.7%, from $75,000 for the ~~nine month period~~six months ended ~~September~~June 30, ~~2017~~2020 to $7,000 for the six months ended June 30, 2021.

Loss on extinguishment of debt:

The Company recorded a loss on extinguishment of approximately $386,000 related to the repayment and ~~September~~retirement of the Loan Agreement as of the three months ended June 30, ~~2016, respectively~~2021. The loss on extinguishment was composed of approximately $140,000 for a prepayment fee, $122,000 for the unaccrued final payment, $65,000 termination, and other fees, and $58,000 for the unamortized and other closing costs from opening the loan. In March 2020 the Company recorded a loss on extinguishment of approximately $341,000 related to the repayment and retirement of the SVB Loan Agreement. The loss on extinguishment was composed of approximately $185,000 for the unaccrued final payment, $114,000 termination fee, and $42,000 of unamortized and other closing costs.

Loss on fair value of debentures

. The Company recorded a loss of approximately $7.5 million in the six months ended June 30, 2020, which reflected ~~income earned~~an increase in the fair value of the unsecured subordinated convertible debentures issued in December 2018 from ~~our money market accounts.~~

$13.7 million at December 31, 2019 to $21.2 million at February 21, 2020. Upon the consummation of the forced conversion of the debentures, the Company issued 1,816,466 shares of common stock with a fair value of approximately $21.2 million, which was reclassified to stockholders’ equity during the three and

six-months

ending June 30, 2020. As a result of the forced conversion there was no fair value adjustment for the six months ended June 30, 2021.

Tax ~~benefit (expense)~~expense

. Tax expense decreased by approximately $31,000, or 100%, from $31,000 for the six months ended June 30, 2020 to $0 for the six months ended June 30, 2021. The Company ~~had a tax benefit of $28,000 for the nine month period ended September 30, 2017 as compared to~~has approximately $26,000 in

non-income

related tax expense ~~of $55,000 for the nine month period ended September 30, 2016. The~~classified in operating expenses under ASU

2019-12

that had previously been classified here in tax ~~benefit for the nine months ended September 30, 2017 is the result of applying for New Hampshire research and development credits.~~expense. Tax expense ~~for the nine months ended September 30, 2016~~ is due ~~primarily~~ to state

non-income

and ~~franchise based~~franchise-based taxes.

Table of Contents

Liquidity and Capital Resources

~~We believe~~

The Company believes that ~~our current liquidity~~its cash and ~~capital resources~~cash equivalents balance of $37.9 million as of June 30, 2021, and projected cash balances are sufficient to sustain operations through at least the next 12 ~~months,~~months. The Company’s ability to generate cash adequate to meet its future capital requirements will depend primarily ~~due~~on operating cash flow. If sales or cash collections are reduced from current expectations, or if expenses and cash requirements are increased, the Company may require additional financing, although there are no guarantees that the Company will be able to obtain the financing if necessary. In addition, the resurgence of the

COVID-19

pandemic could affect our liquidity. The Company will continue to closely monitor its liquidity and the capital and credit markets.

The Company’s cash on ~~hand. Our projected cash needs include planned capital expenditures, lease~~hand as of June 30, 2021 includes proceeds from the March 2, 2021 underwritten public offering of 1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share resulting in net proceeds of approximately $23.2 million. On April 27, 2021, the Company repaid its obligations in the aggregate amount of $7,354,283 under and ~~settlement commitments,~~terminated the Loan Agreement entered into with the Bank on March 30, 2020 and ~~other long-term obligations.~~

amended on June 22, 2020 and the Company’s collateral securing the facility was released.

On April 27, 2020, the Company issued 1,562,500 shares of common stock to several institutional investors at a price of $8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately $12.5 million, and the Company received net proceeds of approximately $12.3 million. The Company also entered into the ATM Facility with JMP Securities in March 2020 to provide for additional potential liquidity. The ATM facility provided for the sale of common stock having a value of up to $25.0 million. On December 17, 2020 the Company sold 470,704 shares of common stock under the ATM Facility for gross proceeds of approximately $6.6 million and net proceeds of approximately $6.1 million. As of ~~September 30, 2017,~~December 31, 2020, $18.4 million in capacity remained under the ATM Facility. On March 2, 2021, the Company ~~has current assets~~terminated the ATM Facility.

On March 2, 2021, the Company entered into an underwriting agreement with Guggenheim Securities, LLC, as representative of ~~$22.4 million which includes $11.3 million~~the several underwriters thereto, in connection with an underwritten public offering of ~~cash and cash equivalents. Current liabilities are $11.6~~1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share. The offering closed on March 5, 2021 for gross proceeds of approximately $25.1 million and net proceeds of approximately $23.2 million to the Company.

The Company had net working capital ~~is $10.8 million.~~of $39.2 million at June 30, 2021. The ratio of current assets to current liabilities at June 30, 2021 and December 31, 2020 was 1.92:1. In January 2017, the Company received $2.8 million from the sale of MRI assets to Invivo. In August 2017 the Company entered into a debt facility that provides an initial term loan of $6.0 million3.71 and ~~a $4.0 million revolving line of credit. The Company also has the option to secure an additional $3.0 million in term loan in 2018, subject to meeting certain revenue milestones.~~

     For the nine months
ended September 30,
         2017            2016
     (in thousands)
Net cash used for operating activities
     $ (5,565 )    $ (3,862 )
Net cash provided by (used for) investing activities
     2,486    (262 )
Net cash provided by (used for) financing activities
     5,755    (673 )




Increase (decrease) in cash and equivalents
     $ 2,676    $ (4,797 )

2.53 respectively.


	For the six months ended June 30,
	2021			2020
	(in thousands)
Net cash used for operating activities	$	(5,577	)	$	(3,573	)
Net cash used for investing activities		(336	)		(186	)
Net cash provided by financing activities		16,616			12,671

Increase in cash and equivalents	$	10,703		$	8,912

Net cash used for operating activities for the ~~nine month period~~six months ended ~~September~~June 30, ~~2017~~2021 was $5.6 million, compared to ~~net cash used for operating activities of $3.9~~$3.6 million for the ~~nine month period~~six months ended ~~September~~June 30, ~~2016.~~2020. The net cash used for operating activities for the ~~nine month period~~six months ended ~~September~~June 30, ~~2017 resulted~~2021 primarily ~~from~~reflects our net loss and ~~from~~ working capital changes resulting from ~~increases in accounts receivable,~~ decreases in accounts payable and accrued expenses as well as an increase in accounts receivable offset by ~~the cash provided due to the~~a decrease in inventory and prepaid ~~expenses.~~and other assets. We expect that net cash used for or provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, ~~specifically~~ the timing of when we recognize revenue, ~~our~~collections of accounts receivable ~~collections~~ and the timing of other payments.

~~The net~~

Net cash provided by investing activities for the nine month period ended September 30, 2017 of $2.5 million was due to the cash received from the sale of MRI assets offset by purchases of property and equipment. Cash used for investing activities for the ~~nine month period~~six months ended ~~September~~June 30, ~~2016~~2021 was ~~$0.3 million, which represents~~$336,000, compared to $186,000 for the six months ended June 30, 2020. The net cash used for investing activities for the six months ended June 30, 2021 and 2020 is primarily for purchases of property and equipment.

Net cash provided by financing activities for the ~~nine month period~~six months ended ~~September~~June 30, ~~2017~~2021 was ~~$5.8~~$16.6 million, as compared to ~~net cash used for financing activities of $0.7~~$12.7 million for the ~~nine month period~~six months ended ~~September~~June 30, ~~2016. Cash~~2020. Net cash provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 is ~~due~~ primarily from the March 2, 2021 underwritten public offering of 1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share resulting in net proceeds of approximately $23.2 million. This was offset by repayment of the Loan Agreement to the Bank. The company also received $0.6 million from the issuance of common stock pursuant the Company’s stock option plan and $0.1 million for from the issuance of common stock pursuant the Employee Stock Purchase

Table of Contents

Plan. Net cash provided by financing activities for the

six-months

ended June 30, 2020 was $12.7 million is primarily from the $12.3 million in net proceeds from the ~~$6.0~~issuance of common stock and $7.0 million from the Loan Agreement with the Bank, offset by $4.6 million in repayment of the term loan with SVB and ~~taxes paid on the issuance of restricted stock to employees. Cash used for financing activities for the nine month period ended September 30, 2016 represents primarily repayments of capital leases.~~

~~Contractual Obligations~~

~~The following table summarizes, for the periods presented, our future estimated cash payments under existing contractual obligations (in thousands).~~

Contractual Obligations
   Payments due by period
   Total    Less than
1 year    1-3 years    3-5 years    5+ years
Operating Lease Obligations
   $ 1,848    $ 742    $ 1,106    $ —      $ —
Capital lease obligations
   42    $ 12    30    —      —
Settlement Obligations
   500    500    —      —      —
Notes Payable
   6,615    591    4,324    1,700    —
Other Commitments
   825    632    84    32    77










Total Contractual Obligations
   $ 9,830    $ 2,477    $ 5,544    $ 1,732    $ 77

~~Operating lease obligations are the minimum payments due under these obligations.~~

~~Settlement obligations represent the remaining payments~~$2.0 million in repayment of the ~~obligations to Hologic. The Company paid $0.5 million in July 2017 which represented the remaining settlement obligation to Zeiss.~~

~~Other commitments represent firm purchase obligations to suppliers for future product and service deliverables.~~

revolving loan with SVB.

Recent Accounting Pronouncements

See Note 1413 to the Condensed Consolidated Financial Statements.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

~~We believe we are~~

The Company believes that it is not subject to material foreign currency exchange rate fluctuations, as substantially all of ~~our~~its sales and expenses are denominated in the U.S. dollar. ~~We do~~The Company does not hold derivative securities and ~~have~~has not entered into contracts embedded with derivative instruments, such as foreign currency and interest rate swaps, options, forwards, futures, collars or warrants, either to hedge existing risks or for speculative purposes.

Item 4.

Controls and Procedures

~~Our~~

The Company’s management, with the participation of ~~our~~its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of ~~our~~its disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, as of ~~September~~June 30, ~~2017,~~2021, the principal executive officer and principal financial officer concluded that ~~our~~the Company’s disclosure controls and procedures (as defined in Rule

13a-15(e)

of the Securities Exchange Act of 1934, ~~(“Exchange~~as amended (the “Exchange Act”)) were effective at ~~the~~a reasonable level of assurance.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. ~~We conduct~~The Company conducts periodic evaluations to enhance, where necessary, ~~our procedures~~its controls and ~~controls.~~

~~Our~~procedures.

The Company’s principal executive officer and principal financial officer conducted an evaluation of ~~our~~the Company’s internal control over financial reporting (as defined in Rule

13a-15(f)

of the Exchange ~~Act Rule 13a-15(f)) to determine whether any~~Act) and have determined there are no changes in its internal ~~control~~controls over financial reporting ~~occurred~~ during the quarter ended ~~September~~June 30, ~~2017,~~2021 that have materially affected or which are reasonably likely to materially affect internal control over financial reporting. ~~Based on that evaluation, there has been no such change during such period.~~

Table of Contents

PART II OTHER INFORMATION

~~Item 1. Legal Proceedings~~

Item 1.

Legal Proceedings

Please refer to the detailed discussion regarding litigation set forth in Note 87 of the Notes to Condensed Consolidated Financial Statements in this Form

10-Q.

In December 2016, the Company entered into the Asset Purchase Agreement with Invivo. In accordance with the Asset Purchase Agreement, the Company sold to Invivo all right, title and interest to certain intellectual property relating to the Company’s VersaVue Software and DynaCAD product and related assets for $3.2 million. The Company closed the transaction on January 30, 2017 less the Escrowed Amount, a holdback reserve of $350,000, for net proceeds of approximately $2.9 million.

On September 5, 2018, third-party Yeda, filed the Complaint against the Company and Invivo in the United States District Court for the Southern District of New York, captioned Yeda Research and Development Company Ltd. v. iCAD, Inc. and Invivo Corporation, Case No.

1:18-cv-08083-GBD,

related to the Company’s sale of the VersaVue software and DynaCAD product under the Asset Purchase Agreement. Yeda alleged, among other things, that the Company infringed upon Yeda’s source code, which was originally licensed to the Company, by using it in the products that the Company sold to Invivo and that it is ~~involved~~entitled to damages that could include, among other things, profits relating to the sales of these products. On April 13, 2021, the Company and Yeda entered into the Settlement Agreement whereby the Company furnished to Yeda a

one-time

cash payment of $85,000 and received a full,

non-conditional

release from Yeda of any and all claims related to the Complaint and the subject of the Complaint. Neither the Company nor Invivo acknowledged any wrongdoing at any point in connection with the Complaint or the subject matter thereof. The Escrowed Amount was reserved, in part, to cover any legal expenses related to the Asset Purchase Agreement and the transactions contemplated therein. The remaining balance of the Escrowed Amount following such expenses is due and payable to the Company in accord with the terms of the Asset Purchase Agreement. However, the Company is unaware of the amount Invivo may claim it is entitled to of the Escrowed Amount, if any, under the Asset Purchase Agreement. The Company and Invivo agreed that Invivo would pay $50,000 of the Escrowed Amount and the Company expensed approximately $93,000 in the three-months ended June 30, 2021.

In addition to the forgoing, the Company may be party to various legal matters that are in the process of litigation or settled in the ordinary course of business. Although the final results of all such matters and claims cannot be predicted with certainty, we believe that the ultimate resolution of all such matters and claims will not have a material adverse effect on our financial condition. However, such matters could have a material adverse effect on our operating results and cash flows for a particular period.

Table of Contents~~Item 1A. Risk Factors:~~

Item 1A.

Risk Factors

We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect our operations. ~~Our~~In addition to the risk factor below, factors that have affected our Company are described in Part I, Item 1A of our Annual Report on Form

10-K ~~filed with the SEC~~

for the year ended December 31, ~~2016~~2020 as filed with the SEC on March ~~24, 2017. There~~15, 2021 and are incorporated by reference herein.

We expect the novel coronavirus

(COVID-19)

pandemic to have a significant effect on our results of operations. In addition, it has resulted in significant financial market volatility, and its impact on the global economy appears to be significant. A worsening of the pandemic will have a material adverse impact on our business, results of operations and financial condition and on the market price of our common stock.

On March 12, 2020, the World Health Organization declared

COVID-19

to be a pandemic. In an effort to contain and mitigate the spread of the

COVID-19

pandemic, the United States, many countries in Europe, as well as Canada and China, have imposed unprecedented restrictions on travel, and there have been ~~no material~~business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of

COVID-19.

As a provider of devices and services to the health care industry, our operations have been materially affected. Significant uncertainty remains as to the impact of the

COVID-19

pandemic has resulted in significant financial market volatility and uncertainty. A worsening of the levels of market disruption and volatility seen in the recent past will have an adverse effect on our ability to access capital, on our business, results of operations and financial condition, and on the market price of our common stock. Our results for the quarter ending June 30, 2021 reflect a negative impact from the

COVID-19

pandemic due to some healthcare facilities’ additional focus on

COVID-19.

COVID-19

pandemic for similar reasons. Depending upon the duration and severity of the pandemic, the effect on our results over the long term is uncertain.

The Company’s exposure to trade accounts receivable losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the ~~risks affecting iCAD since~~current

COVID-19

pandemic, or other customer-specific factors. The Company has historically not experienced significant trade account receivable losses, but it is possible that there could be a material adverse impact from potential adjustments of the ~~filing~~carrying amount of ~~our Form 10-K.~~

trade account receivables as hospitals’ cash flows are impacted by their response to the

COVID-19

pandemic.

Table of Contents

Item 2.6.

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

Exhibits

Month of purchase
   Total number
of shares
purchased (1)    Average
price paid per
share    Total number of
shares
purchased as
part of publicly
announced plans
or programs    Maximum dollar
value of shares
that may yet be
purchaed under
the plans or
programs
July 1 - July 31, 2017
   —      $ —      $ —      $ —
August 1 - August 30, 2017
   7,629    3.77    —      —
September 1 - September 31, 2017
   —      —      —      —








Total
   7,629    $ 3.77    $ —      $ —

~~(1)~~

~~Represents shares of common stock surrendered by employees to the Company to pay employee withholding taxes due upon the vesting of restricted stock.~~

~~Item 6.~~

~~Exhibits~~


Exhibit No.		Description

~~31.1~~3.1*		Certificate of Incorporation, as amended.

10.1*		2016 Stock Incentive Plan, as amended.

10.2		Consulting Agreement dated April 16, 2021, by and between iCAD, Inc. and Charles Carter (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on April 28, 2021).

31.1*		Certification of ~~Chief~~Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

~~31.2~~31.2*		Certification of ~~Chief~~Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

~~32.1~~32.1**    Certification of ~~Chief~~Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
~~32.2~~32.2**    Certification of ~~Chief~~Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
~~101~~101*    The following materials formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, (ii) Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, (iii) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, (iv) Condensed Statements of Stockholders’ Equity for the three and ~~(iv)~~six months ended June 30, 2021 and June 30, 2020 and (v) Notes to Condensed Consolidated Financial Statements.
104* Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

*	Filed herewith

**	Furnished herewith

Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			iCAD, Inc.
				~~iCAD, Inc.~~
		(Registrant)

Date:~~November 14, 2017~~ August 6, 2021	By:	/s/ ~~Kenneth M. Ferry~~Michael Klein
	Name:	~~Kenneth M. Ferry~~Michael Klein
	Title:	Chief Executive Officer ~~Director~~ (Principal Executive Officer)

Date:~~November 14, 2017~~ August 6, 2021	By:	/s/ ~~Richard Christopher~~ Charles R. Carter
	Name:	~~Richard Christopher~~ Charles R. Carter
	Title:	Chief Financial Officer (Principal Financial Officer)


	September 30,			December 31,
	2017			2016
Assets
Current assets:
Cash and cash equivalents	$	11,261		$	8,585
Trade accounts receivable, net of allowance for doubtful accounts of $209 in 2017 and $172 in 2016		7,189			5,189
Inventory, net		3,340			3,727
Prepaid expenses and other current assets		949			1,128
Assets held for sale		—			1,304

Total current assets		22,739			19,933

Property and equipment, net of accumulated depreciation of $7,245 in 2017 and $6,538 in 2016		972			1,385
Other assets		53			53
Intangible assets, net of accumulated amortization of $7,333 in 2017 and $7,518 in 2016		2,055			3,183
Goodwill		10,128			14,097

Total assets	$	35,947		$	38,651

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,346		$	1,577
Accrued and other expenses		4,935			4,988
Lease payable - current portion		12			86
Notes payable - current portion		317			—
Liabilities held for sale		—			832
Deferred revenue		5,021			5,372

Total current liabilities		11,631			12,855

Other long-term liabilities		140			83
Lease payable, long-term portion		30			—
Notes payable, long-term portion		5,612			—
Deferred revenue, long-term portion		525			668
Deferred tax		12			7

Total liabilities		17,950			13,613

Commitments and Contingencies (Note 6, 7 and 9)
Stockholders’ equity:
Preferred stock, $ .01 par value: authorized 1,000,000 shares; none issued.		—			—
Common stock, $ .01 par value: authorized 30,000,000 shares; issued 16,627,705 in 2017 and 16,260,663 in 2016; outstanding 16,441,874 in 2017 and 16,074,832 in 2016		167			163
Additionalpaid-in capital		216,875			213,899
Accumulated deficit		(197,630	)		(187,609	)
Treasury stock at cost, 185,831 shares in 2017 and 2016		(1,415	)		(1,415	)

Total stockholders’ equity		17,997			25,038

Total liabilities and stockholders’ equity	$	35,947		$	38,651


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue:
Products	$	3,426		$	2,014		$	9,225		$	7,460
Service and supplies		3,574			3,989			10,975			11,950

Total revenue		7,000			6,003			20,200			19,410
Cost of revenue:
Products		636			236			1,349			611
Service and supplies		1,458			1,370			4,169			3,911
Amortization and depreciation		263			296			847			899

Total cost of revenue		2,357			1,902			6,365			5,421

Gross profit		4,643			4,101			13,835			13,989

Operating expenses:
Engineering and product development		2,254			2,360			7,060			6,835
Marketing and sales		2,580			2,322			8,172			7,379
General and administrative		1,944			1,783			6,067			5,586
Amortization and depreciation		107			288			345			867
Gain on sale of MRI assets		—			—			(2,508	)		—
Goodwill and long-lived asset impairment		4,700			—			4,700			—

Total operating expenses		11,585			6,753			23,836			20,667

Loss from operations		(6,942	)		(2,652	)		(10,001	)		(6,678	)
Interest expense		(36	)		(15	)		(51	)		(59	)
Other income		3			2			3			9

Other expense, net		(33	)		(13	)		(48	)		(50	)
Loss before income tax expense		(6,975	)		(2,665	)		(10,049	)		(6,728	)

Tax benefit (expense)		42			(10	)		28			(55	)
Net loss and comprehensive loss	$	(6,933	)	$	(2,675	)	$	(10,021	)	$	(6,783	)

Net loss per share:
Basic	$	(0.42	)	$	(0.17	)	$	(0.62	)	$	(0.43	)

Diluted	$	(0.42	)	$	(0.17	)	$	(0.62	)	$	(0.43	)

Weighted average number of shares used in computing loss per share:
Basic		16,424			15,957			16,291			15,896

Diluted		16,424			15,957			16,291			15,896


	For the nine months ended September 30,
	2017			2016
	(in thousands)
Cash flow from operating activities:
Net loss	$	(10,021	)	$	(6,783	)
Adjustments to reconcile net loss to net cash used for by operating activities:
Amortization		394			753
Depreciation		798			1,013
Bad debt provision		44			133
Stock-based compensation expense		3,073			1,648
Amortization of debt discount and debt costs		(6	)		(13	)
Interest on settlement obligations		26			69
Deferred tax expense		6			—
Gain from acquisition litigation settlement		—			(249	)
Goodwill and long-lived asset impairment		4,700			—
Loss on disposal of assets		26			9
Gain on sale of MRI assets		(2,158	)		—
Changes in operating assets and liabilities (net of the effect of acquisitions):
Accounts receivable		(2,062	)		2,706
Inventory		389			(82	)
Prepaid and other current assets		179			(483	)
Accounts payable		(231	)		(281	)
Accrued expenses		(23	)		78
Deferred revenue		(699	)		(2,380	)

Total adjustments		4,456			2,921

Net cash used for operating activities		(5,565	)		(3,862	)

Cash flow from investing activities:
Additions to patents, technology and other		(2	)		(8	)
Additions to property and equipment		(362	)		(248	)
Acquisition of VuCompM-Vu CAD		—			(6	)
Sale of MRI assets		2,850			—

Net cash provided by (used for) investing activities		2,486			(262	)

Cash flow from financing activities:
Stock option exercises		57			188
Taxes paid related to restricted stock issuance		(151	)		(65	)
Debt issuance costs		(74	)		—
Principal payments of capital lease obligations		(77	)		(796	)
Proceeds from debt financing, net		6,000			—

Net cash provided by (used for) financing activities		5,755			(673	)

Increase (decrease) in cash and equivalents		2,676			(4,797	)
Cash and equivalents, beginning of period		8,585			15,280

Cash and equivalents, end of period	$	11,261		$	10,483

Supplemental disclosure of cash flow information:
Interest paid	$	14		$	63

Taxes paid	$	52		$	65

Escrow due from MRI asset sale	$	350		$	—

Equipment purchased under capital lease	$	42		$	—


	For the Six Months ended
	June 30,
	2021			2020
	(in thousands)
Cash flow from operating activities:
Net loss	$	(4,923	)	$	(14,210	)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization		157			154
Depreciation		115			142
Bad debt provision		(3	)		119
Stock-based compensation		1,446			2,077
Amortization of debt discount and debt costs		17			53
Loss on extinguishment of debt		386			341
Deferred tax expense		—			1
Change in fair value of convertible debentures		—			7,464
Changes in operating assets and liabilities:
Accounts receivable		(924	)		3,201
Inventory		284			(737	)
Prepaid and other assets		510			(19	)
Accounts payable		(1,829	)		(569	)
Accrued expenses		(736	)		(1,650	)
Deferred revenue		(77	)		60

Total adjustments		(654	)		10,637

Net cash used for operating activities		(5,577	)		(3,573	)

Cash flow from investing activities:
Additions to patents, technology and other		—			(6	)
Additions to property and equipment		(336	)		(180	)

Net cash used for investing activities		(336	)		(186	)

Cash flow from financing activities:
Issuance of common stock pursuant to stock option plans		636			100
Issuance of common stock pursuant to Employee Stock Purchase Plan		114			—
Proceeds from issuance of common stock, net		23,229			12,289
Principal repayment of debt financing		(7,363	)		(4,638	)
Repayment on line of credit		—			(2,000	)
Proceeds from notes payable		—			6,957
Debt issuance costs		—			(37	)

Net cash provided by financing activities		16,616			12,671

Increase in cash and equivalents		10,703			8,912
Cash and cash equivalents, beginning of period		27,186			15,313

Cash and cash equivalents, end of period	$	37,889		$	24,225

Supplemental disclosure of cash flow information:
Interest paid	$	92		$	127

Taxes paid	$	—		$	31

Issuance of common stock upon conversion of debentures		—			21,164

Right-of-use assets obtained in exchange for new operating lease liabilities	$	—		$	69


	Common Stock				Additional
	Number of				Paid-in		Accumulated			Treasury			Stockholders’
	Shares Issued		Par Value		Capital		Deficit			Stock			Equity
Balance at December 31, 2020		23,694,406		236		273,639		(241,935	)		(1,415	)	$	30,525
Issuance of common stock relative to vesting of restricted stock		29,166		—		—		—			—			—
Issuance of common stock, net		1,393,738		14		23,215		—			—			23,229
Issuance of common stock pursuant to stock option plans		83,748		1		635		—			—			636
Issuance of common stock pursuant Employee Stock Purchase Plan		12,244		—		114		—			—			114
Stock-based compensation		—		—		1,446		—			—			1,446
Net loss		—		—		—		(4,923	)		—			(4,923	)

Balance at June 30, 2021		25,213,302	$	251	$	299,049	$	(246,858	)	$	(1,415	)	$	51,027


	Common Stock
	Number of Shares Issued		Par Value		Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Stockholders’ Equity
Balance December 31, 2019	$	19,546,151		196	$	230,615		$	(224,325	)	$	(1,415	)	$	5,071
Issuance of common stock relative to vesting of restricted stock		68,724		—		(131	)		—			—			(131	)
Issuance of common stock pursuant to stock option plans		44,966		1		231			—						232
Stock Issuance Net		1,562,500		16		12,158			—			—			12,174
ESPP Issuance		18,465		—		115			—			—			115
Issuance of stock upon conversion of Debentures		1,819,466		18		21,146			—			—			21,164
Stock-based compensation		—		—		2,077			—			—			2,077
Net loss		—		—		—			(14,210	)		—			(14,210	)

Balance at June 30, 2020	$	23,060,272	$	231	$	266,211		$	(238,535	)	$	(1,415	)	$	26,492


	Common Stock				Additional Paid-in Capital
	Number of Shares Issued		Par Value		Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Stockholders’ Equity
Balance at March 31, 2020		21,425,916	$	215	$	252,420		$	(236,137	)	$	(1,415	)	$	15,083
Issuance of common stock relative to vesting of restricted stock		45,224		—		(131	)		—			—			(131	)
Issuance of common stock pursuant to stock option plans		8,167		—		36			—			—			36
Stock Issuance Net		1,562,500		16		12,158			—			—			12,174
ESPP Issuance		18,465				115			—			—			115
Stock-based compensation		—		—		1,613			—			—			1,613
Net loss		—		—		—			(2,398	)		—			(2,398	)

Balance at June 30, 2020		23,060,272	$	231	$	266,211		$	(238,535	)	$	(1,415	)	$	26,492


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net loss	$	(6,933	)	$	(2,675	)	$	(10,021	)	$	(6,783	)

Shares used in the calculation of basic and diluted net loss per share		16,424			15,957			16,291			15,896
Effect of dilutive securities:
Stock options		—			—			—			—
Restricted stock		—			—			—			—

Diluted shares used in the calculation of net loss per share		16,424			15,957			16,291			15,896

Net loss per share - basic and diluted	$	(0.42	)	$	(0.17	)	$	(0.62	)	$	(0.43	)


	Period Ended
	September 30,
	2017		2016
Stock options		1,426,513		1,569,166
Restricted stock		507,147		392,148

Stock options and restricted stock		1,933,660		1,961,314


	Amount (000’s)
Cash	$	6
Acquisition litigation settlement		249

Purchase price	$	255


	Amount (000’s)			Estimated amortizable life
Current assets	$	84
Property and equipment		65			3 Years
Identifiable intangible assets		699			1-10 Years
Goodwill		293
Current liabilities		(280	)
Long-term liabilities		(606	)

Purchase price	$	255


Assets
Accounts Receivable	$	116
Intangible assets		810
Allocated Goodwill		394

Total Assets	$	1,320

Liabilities
Deferred Revenue	$	746

Total Liabilities	$	746

Net Assets Sold	$	574


Gain on Sale
Cash received	$	2,850
Holdback reserve		350
Fair value of transition services		(118	)
Net Assets sold		(574	)

Total	$	2,508


	as of September 30, 2017		as of December 31, 2016
Raw materials	$	2,033	$	2,503
Work in process		139		75
Finished Goods		1,168		1,149

Inventory	$	3,340	$	3,727


Fiscal Year	Operating Leases
2017	$	318
2018		738
2019		746
2020		174

Total	$	1,976


Fiscal Year	Capital Lease
2017		4
2018		16
2019		17
2020		13

subtotal minimum lease obligation		50
less interest		(8	)

Total, net		42
less current portion		(12	)

long term portion	$	30


	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Average risk-free interest rate	1.56%	0.84%	1.52%	0.87%
Expected dividend yield	None	None	None	None
Expected life	3.5 years	3.5 years	3.5 years	3.5 years
Expected volatility	64.2% to 67.0%	68.6% to 75.3%	64.2% to 72.0%	68.6% to 75.3%
Weighted average exercise price	$4.28	$5.49	$4.39	$5.57
Weighted average fair value	$2.02	$2.67	$2.12	$2.71


	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Cost of revenue	$	1	$	1			5	$	5
Engineering and product development		76		82			633		289
Marketing and sales		132		162			854		476
General and administrative		294		201	��		1,581		878

	$	503	$	446		$	3,073	$	1,648


	Period Ended September 30,
Aggregate intrinsic value	2017		2016
Stock options	$	1,050	$	1,748
Restricted stock		2,242		2,039


	For the nine months ended September 30,
	2017			2016
	(in thousands)
Net cash used for operating activities	$	(5,565	)	$	(3,862	)
Net cash provided by (used for) investing activities		2,486			(262	)
Net cash provided by (used for) financing activities		5,755			(673	)

Increase (decrease) in cash and equivalents	$	2,676		$	(4,797	)


Contractual Obligations	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		5+ years
Operating Lease Obligations	$	1,848	$	742	$	1,106	$	—	$	—
Capital lease obligations		42	$	12		30		—		—
Settlement Obligations		500		500		—		—		—
Notes Payable		6,615		591		4,324		1,700		—
Other Commitments		825		632		84		32		77

Total Contractual Obligations	$	9,830	$	2,477	$	5,544	$	1,732	$	77


Month of purchase	Total number of shares purchased (1)		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum dollar value of shares that may yet be purchaed under the plans or programs
July 1 - July 31, 2017		—	$	—	$	—	$	—
August 1 - August 30, 2017		7,629		3.77		—		—
September 1 - September 31, 2017		—		—		—		—

Total		7,629	$	3.77	$	—	$	—



~~32.1~~32.1**		Certification of ~~Chief~~Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

~~32.2~~32.2**		Certification of ~~Chief~~Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

~~101~~101*		The following materials formatted in XBRL (eXtensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, (ii) Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, (iii) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, (iv) Condensed Statements of Stockholders’ Equity for the three and ~~(iv)~~six months ended June 30, 2021 and June 30, 2020 and (v) Notes to Condensed Consolidated Financial Statements.

104*		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).