UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C.
20549


FORM
10-Q


(Mark
One)





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





For the
quarterly period ended March 31,
2009





OR





o
            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 1-9341





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)





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 xNO o.




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 oNO o.









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




Large
      Accelerated filer  ̈
            
            Accelerated
      filer x.Non-accelerated
      filer  ̈
            
            Smaller
      reporting company  ̈(do not check if a
      smaller reporting  company)




Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
YES oNO x.





As of the close of business on May 1,
2009 there were 45,358,375 shares outstanding of the registrant 's Common Stock,
$.01 par value.




2




iCAD,
INC.





INDEX





PAGEPART
      I
              
              FINANCIAL
      INFORMATIONItem
      1
              
              Financial
      StatementsConsolidated
      Balance Sheets as of March 31, 2009 (unaudited) and December 31,
      2008
              4Consolidated
      Statements of Operations for the three month periods ended March 31, 2009
      and March 31, 2008 (unaudited)
              5Consolidated
      Statements of Cash Flows for the three month periods ended March 31, 2009
      and March 31, 2008 (unaudited)
              6Notes
      to Consolidated Financial Statements (unaudited)
              7-13Item
      2
              
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              14-21Item
      3
              
              Quantitative
      and Qualitative Disclosures about Market Risk
              22Item
      4
              
              Controls
      and Procedures
              22PART
      II
              
              OTHER
      INFORMATIONItem
      2
              
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              23Item
      6
              
              Exhibits
              23Signatures
              
              
              24





3


iCAD, INC.  AND
      SUBSIDIARYConsolidated Balance
      Sheets
  March 31,
                                                  
                                                  
                                                  December
31,2009
                                                  
                                                  
                                                  2008Assets
                                                  
                                                  (unaudited)Current
    assets:Cash and cash
      equivalents
                                                  
                                                  $
                                                  12,878,937
                                                  
                                                  
                                                  $
                                                  13,115,715Trade accounts receivable, net of
      allowance for doubtful accounts of $50,000 in 2009 and
      2008
                                                  
                                                  
                                                  4,952,087
                                                  
                                                  
                                                  
                                                  5,570,323Inventory,
    net
                                                  
                                                  
                                                  1,277,238
                                                  
                                                  
                                                  
                                                  1,448,373Prepaid and other current
      assets
                                                  
                                                  
                                                  499,057
                                                  
                                                  
                                                  
                                                  451,402Total current
      assets
                                                  
                                                  
                                                  19,607,319
                                                  
                                                  
                                                  
                                                  20,585,813Property and
      equipment:Equipment
                                                  
                                                  
                                                  3,232,687
                                                  
                                                  
                                                  
                                                  3,492,977Leasehold
      improvements
                                                  
                                                  
                                                  75,590
                                                  
                                                  
                                                  
                                                  75,590Furniture and
      fixtures
                                                  
                                                  
                                                  358,477
                                                  
                                                  
                                                  
                                                  358,477Marketing
      assets
                                                  
                                                  
                                                  290,482
                                                  
                                                  
                                                  
                                                  287,4563,957,236
                                                  
                                                  
                                                  
                                                  4,214,500Less accumulated depreciation and
      amortization
                                                  
                                                  
                                                  2,649,237
                                                  
                                                  
                                                  
                                                  2,714,706Net property and
      equipment
                                                  
                                                  
                                                  1,307,999
                                                  
                                                  
                                                  
                                                  1,499,794Other
    assets:Deposits
                                                  
                                                  
                                                  63,194
                                                  
                                                  
                                                  
                                                  63,194Patents, net of accumulated
      amortization
                                                  
                                                  
                                                  26,447
                                                  
                                                  
                                                  
                                                  22,349Customer relationships, net of
      accumulated amortization
                                                  
                                                  
                                                  227,716
                                                  
                                                  
                                                  
                                                  236,634Technology intangibles, net of
      accumulated amortization
                                                  
                                                  
                                                  6,936,494
                                                  
                                                  
                                                  
                                                  7,142,662Tradename, net of accumulated
      amortization
                                                  
                                                  
                                                  117,800
                                                  
                                                  
                                                  
                                                  124,000Goodwill
                                                  
                                                  
                                                  43,515,285
                                                  
                                                  
                                                  
                                                  43,515,285Total other
      assets
                                                  
                                                  
                                                  50,886,936
                                                  
                                                  
                                                  
                                                  51,104,124Total
assets
                                                  
                                                  $
                                                  71,802,254
                                                  
                                                  
                                                  $
                                                  73,189,731Liabilities
      and Stockholders' EquityCurrent
      liabilities:Accounts
      payable
                                                  
                                                  $
                                                  1,721,803
                                                  
                                                  
                                                  $
                                                  2,189,093Accrued salaries and other
      expenses
                                                  
                                                  
                                                  2,018,662
                                                  
                                                  
                                                  
                                                  2,752,818Deferred
      revenue
                                                  
                                                  
                                                  2,270,118
                                                  
                                                  
                                                  
                                                  1,955,495Total current
      liabilities
                                                  
                                                  
                                                  6,010,583
                                                  
                                                  
                                                  
                                                  6,897,406Total
      liabilities
                                                  
                                                  
                                                  6,010,583
                                                  
                                                  
                                                  
                                                  6,897,406Commitments and
      contingenciesStockholders'
      equity:Preferred stock, $ .01 par value:
      authorized 1,000,000 shares; issues and outstanding 0 in 2009 and
      2008.
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Common stock, $ .01 par
      value:  authorized 85,000,000 shares; issued 45,426,251 in 2009
      and 45,403,472 in 2008; outstanding 45,358,375 in
      2009 and 45,335,596 in
      2008
                                                  
                                                  
                                                  454,183
                                                  
                                                  
                                                  
                                                  454,034Additional paid-in
      capital
                                                  
                                                  
                                                  148,579,949
                                                  
                                                  
                                                  
                                                  148,082,225Accumulated
      deficit
                                                  
                                                  
                                                  (82,292,197
                                                  )
                                                  
                                                  
                                                  (81,293,670
                                                  )Treasury stock at cost (67,876
      shares)
                                                  
                                                  
                                                  (950,264
                                                  )
                                                  
                                                  
                                                  (950,264
                                                  )Total Stockholders'
      equity
                                                  
                                                  
                                                  65,791,671
                                                  
                                                  
                                                  
                                                  66,292,325Total liabilities and
      stockholders' equity
                                                  
                                                  $
                                                  71,802,254
                                                  
                                                  
                                                  $
                                                  73,189,731




See accompanying notes to consolidated
financial statements.




4


iCAD,
  INC.Consolidated Statements of
      Operations(unaudited)
  Three Months
      Ended
                              
                              
                              Three Months
      EndedMarch 31,
    2009
                              
                              
                              March 31,
    2008RevenueProducts
                              
                              $
                              6,339,620
                              
                              
                              $
                              5,654,623Service and
      supplies
                              
                              
                              825,378
                              
                              
                              
                              777,393Total
    revenue
                              
                              
                              7,164,998
                              
                              
                              
                              6,432,016Cost of
    revenueProducts
                              
                              
                              1,054,987
                              
                              
                              
                              955,416Service and
      supplies
                              
                              
                              201,817
                              
                              
                              
                              182,769Total cost of
      revenue
                              
                              
                              1,256,804
                              
                              
                              
                              1,138,185Gross
margin
                              
                              
                              5,908,194
                              
                              
                              
                              5,293,831Operating
      expenses:Engineering and product
      development
                              
                              
                              2,161,215
                              
                              
                              
                              1,409,209Marketing and
      sales
                              
                              
                              2,945,121
                              
                              
                              
                              2,383,522General and
      administrative
                              
                              
                              1,835,311
                              
                              
                              
                              1,848,345Total operating
      expenses
                              
                              
                              6,941,647
                              
                              
                              
                              5,641,076Loss from
      operations
                              
                              
                              (1,033,453
                              )
                              
                              
                              (347,245
                              )Interest income (expense) -
      net
                              
                              
                              34,926
                              
                              
                              
                              (98,607
                              )Net loss
                              
                              $
                              (998,527
                              )
                              
                              $
                              (445,852
                              )Net loss per
      share:Basic and
      Diluted
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.01
                              )Weighted average number of shares
      used in computing loss per share:Basic and
      diluted
                              
                              
                              45,352,954
                              
                              
                              
                              39,171,876


See accompanying notes to consolidated
financial statements.


5




iCAD,
  Inc.Consolidated Statements of Cash
      Flows(unaudited)
  Three Months
      Ended
                                  
                                  
                                  Three Months
      EndedMarch 31,
    2009
                                  
                                  
                                  March 31,
    2008Cash flows from operating
      activities:Net loss
                                  
                                  $
                                  (998,527
                                  )
                                  
                                  $
                                  (445,853
                                  )Adjustments to reconcile net loss
      to net cash provided by (used for) operating
      activities:Depreciation
                                  
                                  
                                  215,871
                                  
                                  
                                  
                                  234,724Amortization
                                  
                                  
                                  291,480
                                  
                                  
                                  
                                  179,751Stock based
      compensation
                                  
                                  
                                  500,035
                                  
                                  
                                  
                                  392,059Non-cash interest expense
      associated with discount on convertible loans
    payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  7,353Changes in operating assets and
      liabilities:Accounts
      receivable
                                  
                                  
                                  618,236
                                  
                                  
                                  
                                  1,938,622Inventory
                                  
                                  
                                  171,135
                                  
                                  
                                  
                                  (172,952
                                  )Other current
      assets
                                  
                                  
                                  (47,655
                                  )
                                  
                                  
                                  (6,931
                                  )Accounts
      payable
                                  
                                  
                                  (467,290
                                  )
                                  
                                  
                                  (401,310
                                  )Accrued
      interest
                                  
                                  
                                  -
                                  
                                  
                                  
                                  102,338Accrued salaries and other
      expenses
                                  
                                  
                                  (736,318
                                  )
                                  
                                  
                                  (1,014,993
                                  )Deferred
      revenue
                                  
                                  
                                  314,623
                                  
                                  
                                  
                                  191,040Total
      adjustments
                                  
                                  
                                  860,117
                                  
                                  
                                  
                                  1,449,701Net cash provided by (used for)
      operating activities
                                  
                                  
                                  (138,410
                                  )
                                  
                                  
                                  1,003,848Cash flows from investing
      activities:Additions to property and
      equipment
                                  
                                  
                                  (98,368
                                  )
                                  
                                  
                                  (102,005
                                  )Net cash used for investing
      activities
                                  
                                  
                                  (98,368
                                  )
                                  
                                  
                                  (102,005
                                  )Cash flows from financing
      activities:Issuance of common stock for
      cash
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,085Net cash provided by (used for)
      financing activities
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,085Increase (decrease) in cash and
      equivalents
                                  
                                  
                                  (236,778
                                  )
                                  
                                  
                                  906,928Cash and equivalents, beginning of
      period
                                  
                                  
                                  13,115,715
                                  
                                  
                                  
                                  4,348,729Cash and equivalents, end of
      period
                                  
                                  $
                                  12,878,937
                                  
                                  
                                  $
                                  5,255,657




See accompanying notes to consolidated
financial statements.




6




iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


March
31, 2009





(1)           Basis
of Presentation and Significant Accounting Policies





Reference
should be made to iCAD, Inc.'s (“iCAD”, “Company”, “we”, “our” or “us”) Annual
Report on Form 10-K for the year ended December 31, 2008 for a comprehensive
summary of significant accounting policies.





The
accompanying consolidated financial statements of the Company have been prepared
in accordance with accounting principles generally accepted in the United States
of America. In the opinion of management, these unaudited interim consolidated
financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position at
March 31, 2009, the results of operations for the three month periods ended
March 31, 2009 and 2008, and cash flows for the three month periods ended March
31, 2009 and 2008. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information normally included in the footnotes prepared in
accordance with generally accepted accounting principles in the United States of
America has been omitted as permitted by the rules and regulations of the
Securities and Exchange Commission. The accompanying financial statements should
be read in conjunction with the audited financial statements and notes thereto
included in the Company’s Annual Report on Form 10−K for the fiscal year ended
December 31, 2008 filed with the Securities and Exchange Commission on March 6,
2009. The results for the three month period ended March 31, 2009 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2009, or any future period. Interim period amounts are not
necessarily indicative of the results of operations for the full fiscal
year.




(2)           Financing
Arrangements





Loan and Security
Agreement





On June 30, 2008, the Company entered
into a Loan and Security Agreement (the “RBS Loan Agreement”) with RBS Citizens,
N.A. (“RBS”).  The RBS Loan Agreement established a secured revolving
credit facility with a line of credit of up to $5,000,000.  The
borrowing base under the RBS Loan Agreement is limited to 80% of eligible
accounts receivableor, if
adjusted EBITDA (EBITDA is defined in the agreement as earnings before interest
expense, income tax expense, depreciation, amortization and SFAS 123R stock
option expense) for the quarter is greater than or equal to $1,250,000, then the
Company shall not be subject to a restriction as to availability of credit upon
theborrowing base.In the first quarter of 2009 the Companyadvised RBS that it failed to meet the Adjusted
EBITDA  covenant  contained  in  the  Loan  Agreement  and  requested  that
RBS  agree to




7




iCAD, INC.


Notes
to Consolidated Financial Statements


(Unaudited)


March
31, 2009





(2)           Financing
Arrangements(continued)





Loan and Security
Agreement(continued)




waive
such non-compliance. RBS waived the Company’s non-compliance with the Adjusted
EBITDA covenant for the quarter ended March 31, 2009 and removed the Adjusted
EBITDA covenant from the Loan Agreement on a going forward basis. As of March
31, 2009 the Company had approximately
$3,845,000 of available borrowing capacity. To date, the
Company has not borrowed any amounts under the Loan Agreement. Unless earlier
repaid, all amounts due and owing under the RBS Loan Agreement are
required to be repaid on June 30, 2009, the stated termination date of the RBS
Loan Agreement.


The RBS Loan Agreement contains certain
financial and non-financial covenants relating to the Company. The RBS Loan
Agreement also contains certain events of default.AmountsdueundertheRBSLoanAgreementandtherelatedRevolvingNote (the“Revolving Note”) dated June 30, 2008,
may be prepaid at any time,
in whole or in part, at the option of the Company, provided, however, that for
any portion of the loan accruing interest as a “LIBOR Rate Loan” (as defined in
the RBS Loan Agreement), the Company is responsible to pay any LIBOR Breakage
Fee as defined and further described in the Revolving
Note.  Anyamounts outstanding under the RBS Loan
Agreement and the associated Revolving Note will bear interest, at the Company’s
option, at a fluctuating per annum rate of interest equal to (i) Prime Rate (as
defined in the Revolving Note) plus one-half of one percent or (ii) the Adjusted
LIBOR Rate (as defined in the Revolving Note) plus the LIBOR Rate Margin (as
defined in the Revolving Note).




In connection with the RBS Loan
Agreement and the Revolving Note, the Company has entered into a Negative Pledge
Agreement dated June 30, 2008. Pursuant to the Negative Pledge Agreement, the
Company agreed, among other things, (i) not to incur any liens, other than as
permitted under the RBS Loan Agreement, with respect to the Company’s
intellectual property and (ii) not to sell or assign, other than for fair
consideration in the ordinary course of business, the Company’s intellectual
property.  In addition, the Company assigned all its assets to RBS
wherever located and whether now owned or hereafter acquired, including, without
limitation, all inventory, machinery, equipment, fixtures and other
goods.




(3)           Earning
(loss) per Share





The
Company’s basic earnings (loss) per share is computed by dividing net profit or
loss available to common stockholders by the weighted average number of shares
of common stock outstanding for the period and, if there are dilutive
securities, diluted earnings per




8





iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


March
31, 2009





(3)           Earning (loss) per Share(continued)





share is
computed by including common stock equivalents outstanding for the period in the
denominator. Common stock equivalents include shares issuable upon the exercise
of stock


options,
convertible notes and warrants, net of shares assumed to have been purchased
with the proceeds, using the treasury stock method.  A summary of the
Company’s calculation of earnings (loss) per share is as follows:




Three
MonthsMarch 31,2009
                        
                        
                        2008Basic shares used in the
      calculation of earnings (loss) per share
                        
                        
                        45,352,954
                        
                        
                        
                        39,171,876Effect of dilutive
      securities:Stock
    options
                        
                        
                        -
                        
                        
                        
                        -Stock
    warrants
                        
                        
                        -
                        
                        
                        
                        -Restricted
      stock
                        
                        
                        -
                        
                        
                        
                        -Diluted shares used in the
      calculation of  earnings per share
                        
                        
                        45,352,954
                        
                        
                        
                        39,171,876Net loss per share -
      basic
                        
                        $
                        (0.02
                        )
                        
                        $
                        (0.01
                        )Net loss per share -
      diluted
                        
                        $
                        (0.02
                        )
                        
                        $
                        (0.01
                        )




The
following table summarizes the number of shares of common stock for securities
that were not included in the calculation of diluted net loss per share because
such shares are antidilutive:




Three
MonthsMarch 31,2009
                            
                            
                            2008Stock
    options
                            
                            
                            5,235,398
                            
                            
                            
                            5,831,857Stock
    warrants
                            
                            
                            936,111
                            
                            
                            
                            1,003,311Restricted
      stock
                            
                            
                            790,324
                            
                            
                            
                            428,250Convertible Revolving Promissory
      Note
                            
                            
                            -
                            
                            
                            
                            1,484,557Convertible loans
      payable
                            
                            
                            -
                            
                            
                            
                            2,098,039Total
                            
                            
                            6,961,833
                            
                            
                            
                            10,846,014
  9


iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


March
31, 2009





(4)           Stock-Based
Compensation





The
Company follows the provisions ofStatementof Financial
Accounting Standards (“SFAS”)No. 123R,Share-Based
Payment(“SFAS
123R”) and Staff Accounting Bulletin 107 ("SAB 107") for all share-based
compensation that was not vested as of January 1, 2006. The Company adopted SFAS
123R using a modified prospective application, as permitted under
SFAS 123R. Accordingly, prior period amounts have not been restated. Under
this application, the Company is required to record compensation expense for all
awards granted after the date of adoption and for the unvested portion of
previously granted awards that remain outstanding at the date of
adoption.





The
Company issued 91,921 stock options in the three months ended March 31,
2009.  The Company did not issue any shares of restricted stock during
this three month period.  The options granted during the first three
months of 2009 had a weighted average exercise price of $1.23. The weighted
average fair value of options granted during this three month period was $0.46
and was estimated on the grant date using the Black-Scholes option-pricing model
with the following weighted average assumptions: expected volatility of 62.8%,
expected term of 3.5 years, risk-free interest rate of 1.65%, and expected
dividend yield of 0%. Expected volatility is based on peer group volatility,
also using the Company’s historical volatility within the peer
group.  The average expected life was calculated using the simplified
method under SAB 107. The risk-free rate is based on the rate ofU.S. Treasury zero-coupon issues with a
remaining term equal to the expected life of option grants.The Company recorded $500,035 for
share-based compensation in accordance with SFAS 123R for the three months ended
March 31, 2009.





For the same period in 2008,the Company issued 294,456 stock
options and 53,250 shares of restricted stock.  The options granted
during the first three months of 2008 had a weighted average exercise price of
$1.73. The weighted average fair value of options granted during the three month
period ended March 31, 2008 was $1.10 and was estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted average
assumptions: expected volatility of 62.8%, expected term of 3.5 years, risk-free
interest rate of 2.77%, and expected dividend yield of 0%.





As ofMarch 31, 2009there wasapproximately
$2,889,617 oftotal unrecognized
compensation cost related to unvested options and restricted
stock.  That cost is expected to be recognized over a weighted average
period of three years.





TheCompany’saggregate intrinsic value of options
outstandingat March 31, 2009 was $16,801. The aggregate intrinsic value ofrestricted
stockoutstandingat
March 31, 2009, was $719,195.




10




iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


March
31, 2009





(5)           Fair Value
Measurements





OnJanuary 1, 2008, the Company
adopted SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”).This Statementdefines fair value, establishes a
framework for measuring fair value under generally accepted accounting
principles and enhances disclosures about fair value measurements. Fair value is
defined under SFAS 157 as the exchange price that would be received for an asset
or paid totransfer a liability (an exit price) in
the principal or most advantageous market for the assetor liability in an orderly transaction
between market participants on the measurement date. Valuation techniques used
to measure fair value under SFAS 157 must maximize the use of observable inputs
and minimize the use of unobservable inputs. The 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:




§
            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.





The adoption of this statement did not
have a material impact on the Company’s consolidated results of operations and
financial condition.





In accordance with SFAS 157, the
Company’s financial assetsthatare measured at fair value on a
recurring basis as of March 31, 2009are cash equivalents.  The
cash equivalents are measured using level one inputs.




11




iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


March
31, 2009





(6)           Commitments
and Contingencies





In July
2007, a dissolved former Canadian subsidiary of the Company, CADx Medical
Systems Inc. (“CADx Medical”), received a tax re-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.  The Company believes that it will not be liable for the
re-assessment against CADx Medical and no accrual was recorded as of March 31,
2009.  The Company responded to the notice outlining its grounds of
objection with respect to the re-assessment.  The CRA responded
acknowledging receipt of the correspondence and advised that they intend to
schedule a review on the matter.





(7)           Income
Taxes





Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48, "Accounting for Uncertainty in Income Taxes—an interpretation of FASB
Statement No. 109" ("FIN 48").  At March 31, 2009, the Company had no
material unrecognized tax benefits and no adjustments to liabilities or
operations were required under FIN 48.  The Company does not expect
that the unrecognized tax benefits will materially increase within the next
twelve months. The Company did not recognize any interest or penalties related
to uncertain tax positions at March 31, 2009. The Company files United States
federal income tax returns and income tax returns in various state and local
jurisdictions. The Company currently is not under examination by the Internal
Revenue Service or other jurisdictions for any tax years.  No income
tax expense was provided for the three months ending March 31,
2009.  The Company’s effective income tax rate was 6% for the three
months ended March 31, 2008. The effective income tax rate is based upon the
estimated income for the year. For 2008 the Company’s effective tax rate varied
from the statutory tax rate principally due to federal and state net operating
loss carryforwards available.





(8)           Goodwill





In
accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS
142”), 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 Company is less than its carrying value. Events that
would indicate impairment and trigger an interim impairment assessment include,
but are not limited to, current economic and market conditions, changes in its
results of operations and changes in its forecasts or market expectation
relating to future results.





12





iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


March
31, 2009





(8)           Goodwill(continued)


The
Company’s goodwill arose in connection with its acquisitions in June 2002 and in
December 2003.  The Company operates in one segment and as one
reporting unit since its products perform the same basic function, have common
sales channels and resellers, and are developed and supported by one central
staff.  Therefore, the Company uses market capitalization as the best
evidence of fair value (market capitalization is calculated using the quoted
closing share price of the Company’s common stock at its annual impairment date
of October 1, multiplied by the number of common shares outstanding) of the
Company.  The Company tests goodwill for impairment by comparing its
market capitalization (fair value) to its carrying value. The fair value of the
Company is compared to the carrying amount at the same date as the basis to
determine if an impairment exists.  The Company performed the step one
fair value comparison as of October 1, 2008 and on that date the Company’s
market capitalization exceeded its carrying value.
 
 Due to
current economic and market conditions, the Company’s market capitalization
has fluctuated since the impairment test date and at March 31,
2009 was below its carrying value. The Company considers its
market capitalization over a period of time, including the period subsequent to
the period ending March 31, 2009.  The Company believes that its
market capitalization alone does not fully capture the fair value of its
business as a whole, or the substantial value that an acquirer would obtain from
its ability to obtain control of the Company.  As such, the Company
applies a control premium to its market capitalization to determine a more
reasonable fair value, which seeks to give effect to the increased consideration
a potential acquirer would be required to pay in order to gain sufficient
ownership to set policies, direct operations and make decisions related to the
Company. The Company does not believe that its goodwill was impaired at March
31, 2009.
 
 The
current macroeconomic environment, however, continues to be challenging and the
Company cannot be certain of the duration of these conditions and their
potential impact on its future stock price performance or
operations.




13





Item
2.     Management's Discussion and Analysis of
Financial Condition and Results
of    Operations





"Safe
Harbor" Statement under the Private Securities Litigation Reform Act of 1995:
Certain information included in this Item 2 and elsewhere in this Form 10-Q that
are not historical facts contain forward looking statements that involve a
number of known and unknown risks, uncertainties and other factors that could
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievement
expressed or implied by such forward looking statements.  These risks
and uncertainties include, but are not limited to, uncertainty of future sales
levels, protection of patents and other proprietary rights, the impact of supply
and manufacturing constraints or difficulties, product market acceptance,
possible technological obsolescence of products, increased competition,
litigation and/or government regulation, changes in Medicare reimbursement
policies, competitive factors,  the effects of a decline in the
economy in markets served by the Company and other risks detailed in the
Company’s other filings with the Securities and Exchange
Commission.  The words “believe”, “demonstrate”, “intend”, “expect”,
“estimate”, “anticipate”, “likely”, “seek”, “should” and similar expressions
identify forward-looking statements.  Readers are cautioned not to
place undue reliance on those forward-looking statements, which speak only as of
the date the statement was made.




Results
of Operations





Overview





iCAD is
an industry-leading provider of advanced image analysis and workflow solutions
that enable radiologists and other healthcare professionals to better serve
patients by identifying pathologies and pinpointing cancer earlier. iCAD offers
a comprehensive range of high-performance, expandable Computer-Aided Detection
(CAD) systems and workflow solutions for mammography (film-based, digital
radiography (DR) and computed radiography (CR), Magnetic Resonance Imaging
(MRI), and Computed Tomography (CT)).  iCAD’s solutions aid in the
early detection of the most prevalent cancers including breast, prostate and
colon cancer.  Early detection of cancer is the key to better
prognosis, less invasive and lower treatment costs, and higher survival rates.
Performed as an adjunct to mammography screening, CAD has quickly become the
standard of care in breast cancer detection, helping radiologists improve
clinical outcomes while enhancing workflow. Computer-enhanced breast and
prostate MRI analysis streamlines case interpretation workflow and generates
more robust information for more effective patient treatment.  CAD for
mammography screening is also reimbursable in the United States under federal
and most third-party insurance programs.  Since receiving U.S. Food
and Drug Administration (“FDA”) approval for the Company’s first breast cancer
detection product in January 2002, nearly three thousand of iCAD’s CAD systems
have been placed in mammography practices worldwide.  iCAD is the only
stand alone company offering CAD solutions for the early detection of breast
cancer.





iCAD’s
CAD mammography products have been shown to detect up to 72 percent of the
cancers that biopsy proved were missed on the previous mammogram, an average of
15 months earlier.  Our advanced pattern recognition technology
analyzes images to identify patterns and then uses sophisticated mathematical
analysis to mark suspicious areas.




14




The Company intends to apply its corecompetencies in pattern recognition and
algorithm development in disease detectionto its product development
efforts.Itsfocus is on the development and
marketing of cancer detection products for disease states where there are
established or emerging protocols for screening as a standard of
care.  iCAD expects to pursuedevelopment or acquisition of products
forselect disease statesthat demonstrate one or
more of the following:it
is clinically proven that screening has a significant positive impact on patient
outcomes, where there is an opportunity to
lower health care costs, where screening is non-invasive or minimally invasive
and where public awareness is high. Virtual colonoscopy (CTC) is a technology
that has evolved rapidly in recent years.Based on the results of the National CT
Colonography trial the
Company expects that the market for virtual colonoscopy will grow along with the
procedures for early detection of colon cancer.  This trial
demonstratedthat CTC is highly accurate for the
detection of intermediate and large polyps and that the accuracy of CTC is
similar toacolonoscopy.  CT Colonography
or CTC is emerging as an alternative imaging procedure for evaluation of the
colon. The Companyhasdevelopeda product for computer aided detection
of polypsin the colonusing CTCandis near completion of the analysis of
the clinical trial data.  The Company expects to file a 510(k) application
with the FDA early in the second quarter of 2009.Colorectal cancer has been shown to be
highlypreventable with
early detection and removal of polyps.




The
Company’s CAD systems include proprietary algorithm and other technology
together with standard computer and display equipment. CAD systems for the
film-based analog mammography market also include a radiographic film digitizer,
manufactured by the Company and others for the digitization of film-based
medical images.  In July 2008, the Company acquired pharmaco-kinetic
based CAD products that aid in the interpretation of contrast enhanced MRI
images of the breast and prostate and began marketing these products in the
fourth quarter of 2008.





The
Company’s headquarters are located in southern New Hampshire, with manufacturing
and contract manufacturing facilities in New Hampshire and Massachusetts and
research and development facilities in Ohio and New York.




Critical
Accounting Policies





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. 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 basis, we evaluate these
estimates, including those related to accounts receivable allowance, inventory
valuation and obsolescence, intangible assets, income taxes, warranty
obligations, contingencies and litigation. Additionally, the Company uses
assumptions and estimates in calculations to determine stock-based compensation.
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.





The
Company’s critical accounting policies are set forth in its Annual Report on
Form 10-K for the fiscal year ended December 31, 2008. The Company believes that
revenue recognition is a critical accounting policy because it is governed by
multiple complex accounting rules, however there are no significant estimates or
assumptions used in recording the Company’s revenue.





15





Quarter Ended March 31, 2009
compared to Quarter Ended March 31, 2008





Revenue.Revenue for the
three month period ended March 31, 2009 was $7,164,998 compared with revenue of
$6,432,016 for the three month period ended March 31, 2008 for an increase of
$732,982 or 11.4%.  Sales of iCAD’s digital CAD and MRI products
increased $491,455 or 11.5% to $4,777,121, compared to sales of $4,285,666 in
2008.  This increase is due primarily to the release, early in the
second quarter of 2008, of the Company’s SecondLook® Digital
CAD for sale with Fujifilm Computed Radiography for Mammography (“FCRm”) systems, an increase in
revenue from the Company’s international OEM customers due to the continued
increased global demand for Full Field Digital Mammography (“FFDM”) systems and
digital CAD technology for the detection of breast cancer and initial sales of
its MRI products, offset by a
decrease in revenue from some of the Company’s domestic OEM
customers.





Revenue
from iCAD’s film based products increased 14.1% or $193,542, to $1,562,499 in
the first quarter of 2009 compared to $1,368,957 in the first quarter of 2008.
This increase is largely due to the continued positive market demand of the
Company’s TotalLook Mammo Advantage product introduced late in the first quarter
of 2008.  The TotalLook Mammo Advantage product is used for digitizing
film based prior mammography exams for comparative reading with current
mammography exams.





Service
and supply revenue increased 6.2% or $47,985 in the first quarter of 2009, to
$825,378 compared to $777,393 in the first quarter in 2008.  The
increase in the Company’s service revenue is due primarily to increased service
contract revenue on the Company’s digital and TotalLook products, offset by a
slight reduction in time and material billings for repair services due in part
to certain of its older film based products no longer being
supported.  Service contract revenue, as a percentage of total service
revenue, increased by 11% over service contract revenue recorded in the first
three months of 2008.




Three months ended March
      31,2009
                                  
                                  
                                  2008
                                  
                                  
                                  Change
                                  
                                  
                                  % ChangeDigital & MRI
      revenue
                                  
                                  $
                                  4,777,121
                                  
                                  
                                  $
                                  4,285,666
                                  
                                  
                                  $
                                  491,455
                                  
                                  
                                  
                                  11.5
                                  %Film based
      revenue
                                  
                                  
                                  1,562,499
                                  
                                  
                                  
                                  1,368,957
                                  
                                  
                                  
                                  193,542
                                  
                                  
                                  
                                  14.1
                                  %Service & supply
      revenue
                                  
                                  
                                  825,378
                                  
                                  
                                  
                                  777,393
                                  
                                  
                                  
                                  47,985
                                  
                                  
                                  
                                  6.2
                                  %Total
    revenue
                                  
                                  $
                                  7,164,998
                                  
                                  
                                  $
                                  6,432,016
                                  
                                  
                                  $
                                  732,982
                                  
                                  
                                  
                                  11.4
                                  %




16




Additionally,
the Company’s international sales for the first quarter 2009 increased 62.6% to
$1,183,600, from $727,830 in the prior year first quarter. The increase was the
result of sales from the Company’s new global partnerships such as Sectra, Agfa
and Planmed that were launched in recent quarters, as well as from the other
ongoing OEM partners.   The Company believes that the
international markets offer a growing opportunity and expects to continue to
leverage new opportunities with additional global partners and additional
products.





Gross Margin.Gross margin
increased slightly to 82.5% for the three month period ended March 31, 2009
compared to 82.3% in the same three month period in 2008. The increase in gross
margin is primarily attributable to increased volume of the Company’s digital
products which have a higher gross margin than its film based
products.





Engineering and Product Development.Engineering and product development costs for the three month period
ended March 31, 2009 increased by $752,006 or 53.4%, from $1,409,209 in 2008 to
$2,161,215 in 2009.  The increase in engineering and product
development costs was primarily due to an increase in personnel and related
costs of $195,000, resulting from staff increases to support the Company’s
product development programs, including its new MRI products, $353,000 in
consulting and subcontracting services relating to the licensing and clinical
trial costs for its CT Colon product, and $131,000 in amortization expense
relating to the acquisition of assets of CAD Sciences in the third quarter of
2008. In addition, during the first quarter of 2009 the Company experienced an
increase in legal, consulting, subcontracting, rent, education and stock based
compensation expenses totaling $184,000.  These expenses were offset
by a decrease of $111,000 rent expense relating to the one time charge recorded
in the first quarter of 2008 for the loss on subleased space relating to its
Ohio facility.





Marketing and Sales.Marketing and sales expense for the three month period ended March 31,
2009 increased by $561,599 or 23.6%, from $2,383,522 in 2008 to $2,945,121 in
2009.  The increase in marketing and sales expense for the three month
period ended March 31, 2009, primarily resulted from an increase in personnel
and related costs of $325,000, increased sales commissions due to increased
revenue of $136,000, and increases in travel and related telephone expenses of
$53,000, stock based compensation of $40,000 and Website design of
$23,000.  These increases in marketing and sales expenses were offset
by a decrease of $16,000 in warranty related costs.





General and Administrative.General and administrative expenses for the three month period ended
March 31, 2009 decreased slightly by $13,034 from $1,848,345 in 2008 to
$1,835,311 in 2009.  The decrease in general and administrative
expense during the first quarter of 2009 was due primarily to the decrease in
general legal costs of $35,000, amortization expense of $19,000 due to fully
amortized patents, and various administrative expenses totaling $3,000, offset
by an increase in stock based compensation expense of $44,000.





Interest Income/Expense. Net
interest income/expense for the three month period ended March 31, 2009
decreased by $133,533, from interest expense of $98,607 in the first quarter of
2008 to interest income of $34,926 in the same period of
2009.   This decrease in expense is due primarily to the
extinguishment of the Company’s outstanding convertible loans during the second
and third quarters of 2008 and an increase in interest income generated from the
Company’s money market accounts.




17




Net Loss.As a result of the
foregoing, the Company recorded a net loss of ($998,527) or ($0.02) per share
for the three month period ended March 31, 2009 on revenue of $7,164,998,
compared to a net loss of ($445,852) or ($0.01) per share on revenue of
$6,432,016 for the three months ended March 31, 2008.





Backlog.  The
Company’s product backlog (excluding service and supplies) as of March 31, 2009
totaled approximately $714,108 as compared to $2,143,702 as of March 31, 2008
and $1,137,000 at December 31, 2008.  It is expected that the majority
of the backlog at March 31, 2009 will be shipped within the current fiscal year.
Backlog as of any particular period should not be relied upon as indicative of
the Company’s net revenues for any future period as a large amount of the
Company’s product is booked and shipped within the same quarter.





Liquidity
and Capital Resources





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, cash expected to be generated from continuing operations, as well as
the anticipated availability of a credit line under the RBS Loan
Agreement.  At this point in time, our liquidity has not been
materially impacted by the recent and unprecedented disruption in the current
capital and credit markets and we do not expect that it will be materially
impacted in the near future. We will continue to closely monitor our liquidity
and the capital and credit markets.





On June
30, 2008, the Company entered into the RBS Loan Agreement with
RBS.  The RBS Loan Agreement established a secured revolving credit
facility with a line of credit of up to $5,000,000.  The borrowing
base under the RBS Loan Agreement is limited to 80% of eligible accounts
receivable or, if adjusted EBITDA (EBITDA is defined in the agreement as
earnings before interest expense, income tax expense, depreciation, amortization
and SFAS 123R stock option expense) for the quarter is greater than or equal to
$1,250,000, then the Company shall not be subject to a restriction as to
availability of credit upon the borrowing base. In the first quarter of 2009 the Companyadvised RBS that it failed to meet the Adjusted EBITDA covenant contained
in the Loan Agreement and requested that RBS agree to waive such non-compliance.
RBS waived the Company’s non-compliance with the Adjusted EBITDA covenant for
the quarter ended March 31, 2009 and removed the Adjusted EBITDA covenant from
the Loan Agreement on a going forward basis.  As of March 31, 2009 the
Company had approximately $3,845,000 of available borrowing capacity. Unless
earlier repaid, all amounts due and owing under the RBS Loan Agreement are
required to be repaid on June 30, 2009, the stated termination date of the RBS
Loan Agreement. The Company expects to renew the Loan Agreement at June 30,
2009, although there can be no assurance that it will do so.





The RBS
Loan Agreement contains certain financial and non-financial covenants relating
to the Company. The RBS Loan Agreement also contains certain events of default.
Amounts  due  under  the  RBS  Loan  Agreement  and  the  related  Revolving  Note
(the “Revolving Note”) dated June 30, 2008, may be prepaid at any time, in whole
or in part, at the option of the Company, provided, however, that for any
portion of the loan accruing interest as a “LIBOR Rate Loan” (as defined in the
RBS Loan Agreement), the Company is responsible to pay any LIBOR Breakage Fee as
defined and further described in the Revolving Note.  Any amounts
outstanding under the RBS Loan Agreement and the associated Revolving Note will
bear interest, at the Company’s option, at a fluctuating per annum rate of
interest equal to (i) Prime Rate (as defined in the Revolving Note) plus
one-half of one percent or (ii) the Adjusted LIBOR Rate (as defined in the
Revolving Note) plus the LIBOR Rate Margin (as defined in the Revolving
Note).




18




In
connection with the RBS Loan Agreement and the Revolving Note, the Company has
entered into a Negative Pledge Agreement dated June 30, 2008. Pursuant to the
Negative Pledge Agreement, the Company agreed, among other things, (i) not to
incur any liens, other than as permitted under the RBS Loan Agreement, with
respect to the Company’s intellectual property and (ii) not to sell or assign,
other than for fair consideration in the ordinary course of business, the
Company’s intellectual property.  In addition, the Company assigned
all its assets to RBS wherever located and whether now owned or hereafter
acquired, including, without limitation, all inventory, machinery, equipment,
fixtures and other goods.





The
Company's ability to generate cash adequate to meet its future capital
requirements will depend primarily 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.





At March
31, 2009, the Company had current assets of $19,607,319, current liabilities of
$6,010,583 and working capital of $13,596,736. The ratio of current assets to
current liabilities was 3.3:1





Net cash
used for operating activities for the three months ended March 31, 2009 was
$136,248, compared to net cash provided by operating activities of $1,003,848
for the same period in 2008.  The cash used for operating activities
for the three months ended March 31, 2009 resulted from the net loss of
$998,527, an increase in other current assets of $47,655, and decreases in
accounts payable of $467,290 and accrued expenses of $734,156, which were offset
by the decreases in accounts receivable of $618,236, inventory of $171,135 and
deferred revenue of $314,623, plus non-cash items including depreciation and
amortization totaling $507,351 and stock based compensation of
$500,035.





The net
cash used for investing activities, which consisted of additions to property and
equipment, for the three month period ended March 31, 2009 was $98,368, compared
to $102,005 for the comparable period in 2008.





Net cash
used for financing activities for the three months ended March 31, 2009 was $0,
compared to net cash provided by financing activities of $5,085 for the same
period in 2008.




19




Contractual
Obligations





The
following table summarizes, for the periods presented, the Company’s future
estimated cash payments under existing contractual obligations.




Contractual
      Obligations
                                            
                                            Payments due by
      periodTotal
                                            
                                            
                                            Less than 1
      year
                                            
                                            
                                            1-3 years
                                            
                                            
                                            3-5 years
                                            
                                            
                                            5+ yearsLease
      Obligations*
                                            
                                            $
                                            1,112,792
                                            
                                            
                                            $
                                            423,919
                                            
                                            
                                            $
                                            688,873
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Total Contractual
      Obligations
                                            
                                            $
                                            1,112,792
                                            
                                            
                                            $
                                            423,919
                                            
                                            
                                            $
                                            688,873
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -


* The
Company’s lease obligations is shown net of sublease amounts.




Recent
Accounting Pronouncements





In April2009, the FASB issued FSP 157-4,
“Determining Whether a
Market Is Not Active and a Transaction Is Not Distressed”. FSP 157-4 provides guidelines for
making fair value measurements more consistent with the principles presented in
SFAS No. 157. FSP 157-4 provides additional authoritative guidance in
determining whether a market is active or inactive, and whether a transaction is
distressed, is applicable to all assets and liabilities (i.e. financial and
non-financial) and will require enhanced disclosures. FSP 157-4 is effective for
all periods ending after June 15, 2009. The Company is currently in the process
of evaluating the impact of this pronouncement.





InApril2009, the FASB issued FSP 107-1
and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments”.FSP 107-1 and APB 28-1, amends SFAS
No. 107, “Disclosures
about Fair Value of Financial Instruments”, to require disclosures about fair
value of financial instruments in interim as well as in annual financial
statements. FSP 107-1 also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those disclosures in all
interim financial statements. FSP 107-1 and APB 28-1 is effective for all
reporting periods ending after June 15, 2009. The Company is currently in the
process of evaluating the impact of this pronouncement.





Effective
January 1, 2009, the Company adopted EITF Issue No. 07-05, “Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own
Stock”, which addresses the accounting for certain instruments as derivatives
under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. Under this new pronouncement, specific guidance is provided
regarding requirements for an entity to consider embedded features as indexed to
the entity’s own stock. The adoption of EITF 07-05 did not have any impact on
the Company’s financial position, results of operations or cash
flows.




20




Effective
January 1, 2009, the Company adopted FASB Staff Position APB 14-1, “Accounting
for Convertible Debt Instruments That May Be Settled In Cash upon Conversion
(Including Partial Cash Settlement)”. FSP APB 14-1 specifies that issuers of
such instruments should separately account for the liability and equity
components in a manner that will reflect the entity’s nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods. This FSP
should be applied retrospectively for all periods presented. The adoption of FSP
APB 14-1 did not have any impact on the Company’s financial position, results of
operations or cash flows.





Effective
January 1, 2009, the Company adopted FSP 157-2, Effective Date of SFAS
No. 157. FSP 157-2 delayed the effective date of SFAS No. 157 for all
non-financial assets and non-financial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), until January 1, 2009. These include goodwill and
other non-amortizable intangible assets. The adoption of FSP 157-2 did not have
a material impact on the Company’s financial position, results of operations or
cash flows.





Effective
January 1, 2009, the Company adopted FSP 142-3, “Determination of the
Useful Life of Intangible Assets”. FSP 142-3 amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible Assets”. The adoption of FSP 142-3 did not have
any impact on the Company’s financial position, results of operations or cash
flows.




Effective
January 1, 2009, the Company adopted SFAS No. 141-R, “Business
Combinations”. This statement replaces SFAS No. 141, but retains the
fundamental requirements in SFAS No. 141 that the acquisition method
of accounting be used for all business combinations. This statement requires an
acquirer to recognize and measure the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree at their
fair values as of the acquisition date. The statement requires acquisition costs
and any restructuring costs associated with the business combination to be
recognized separately from the fair value of the business combination.
SFAS No. 141-R establishes requirements for recognizing and measuring
goodwill acquired in the business combination or a gain from a bargain purchase
as well as disclosure requirements designed to enable users to better interpret
the results of the business combination. Early adoption of this statement was
not permitted. The adoption of SFAS No. 141-R will impact the Company’s
financial position, results of operations and cash flows to the extent it
conducts acquisition-related activities and/or consummates business combinations
in the future.





EffectiveJanuary 1, 2009, the Company adopted
FSP 141-R-1, “Accounting
for Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies”.This
FSP amends and clarifies SFAS No. 141-R, “Business Combinations”, to address application issues on
initial recognition and measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies in a business
combination.Early adoption of this statement was not permitted. The
impact of adopting FSP 141-R-1 on the Company’s consolidated financial
statements will depend on the economic terms of any future business
combinations.




21




Item
3.                   Quantitative and Qualitative
Disclosures about Market Risk





Not
applicable.




Item 4.                   Controls and
Procedures




The Company, under the supervision and
with the participation of its management, including its principal executive
officer and principal financial officer, evaluated the effectiveness of the
design and operation of its disclosure controls and procedures as of the end of
the period covered by this report. Based on this evaluation, the principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934 (”Exchange Act”)) were effective at the
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. The Company conducts periodic evaluations to enhance,
where necessary its procedures and controls.





The Company’s principal executive
officer and principal financial officer conducted an evaluation of the Company's
internal control over financial reporting (as defined in Exchange Act Rule
13a-15(f)) to determine whether any changes in internal control over financial
reporting occurred during the quarter ended March 31, 2009, 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.





22





PART
II      OTHER INFORMATION





Item
2.                   Unregistered Sales of Equity
Securities and Use of Proceeds





The following table represents
information with respect to purchasesof common stock made by the Company
during the three months endedMarch 31, 2009:




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 programsJanuary 1 - January 31,
      2009
                                              
                                              
                                              973
                                              
                                              
                                              $
                                              1.26
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -February 1 - February 28,
      2009
                                              
                                              
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -March 1 - March 31,
      2009
                                              
                                              
                                              1,089
                                              
                                              
                                              $
                                              0.86
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -Total
                                              
                                              
                                              2,062
                                              
                                              
                                              $
                                              0.71
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -




(1)Represents shares of
common stock surrenderedby employeesto the
Company to pay employee withholding taxes due upon the vesting of
restrictedstock.




Item
6.                   Exhibits





Exhibit
No.                                Description





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





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





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





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




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Signatures





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






iCAD, Inc.(Registrant)  Date:
              May 8,
      2009
              
              
              By:
              /s/ Kenneth M.
      FerryKenneth M.
      FerryPresident, Chief
      Executive Officer, DirectorDate:
              Mary 8,
      2009
              
              
              
              /s/ Darlene M.
      Deptula-HicksDarlene M.
      Deptula-HicksExecutive Vice
      President of Finance and
      Chief Financial Officer, Treasurer





24