UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C.
20549


FORM
10-Q


(Mark
One)





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





For the
quarterly period ended June 30,
2009





OR





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





For the
transition period from ________________ to ________________





Commission
file number 1-9341





iCAD,
      Inc.(Exact
      name of registrant as specified in its
charter)





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





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  ̈.




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, 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  ̈ NO
x.





As of the close of business on August
3, 2009 there were 45,634,985 shares outstanding of the registrant 's
Common Stock, $.01 par value.








iCAD,
INC.





INDEX





PAGEPART
      I
                    
                    FINANCIAL
      INFORMATIONItem
      1
                    
                    Financial
      Statements (unaudited)Consolidated
      Balance Sheets as of June 30, 2009 and December 31, 2008
                    3Consolidated
      Statements of Operations for the three and six month periods ended June
      30, 2009 and 2008
                    4Consolidated
      Statements of Cash Flows for the six month periods ended June 30, 2009 and
      2008
                    5Notes
      to Consolidated Financial Statements
                    6-11Item
      2
                    
                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    12-20Item
      3
                    
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    20Item
      4
                    
                    Controls
      and Procedures
                    20-21PART
      II
                    
                    OTHER
      INFORMATIONItem
      4
                    
                    Submission
      of Matters to a Vote of Security Holder
                    21Item
      6
                    
                    Exhibits
                    22Signatures
                    
                    
                    23


2





iCAD,
INC.





Consolidated
Balance Sheets





June 30,
                    
                    
                    December 31,2009
                    
                    
                    2008AssetsCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    13,175,298
                    
                    
                    $
                    13,115,715Trade
      accounts receivable, net of allowance for doubtful accounts of
      $50,000
                    
                    
                    3,381,343
                    
                    
                    
                    5,570,323Inventory,
      net
                    
                    
                    1,479,085
                    
                    
                    
                    1,448,373Prepaid
      and other current assets
                    
                    
                    434,195
                    
                    
                    
                    451,402Total
      current assets
                    
                    
                    18,469,921
                    
                    
                    
                    20,585,813Property
      and equipment:Equipment
                    
                    
                    3,226,762
                    
                    
                    
                    3,492,977Leasehold
      improvements
                    
                    
                    75,590
                    
                    
                    
                    75,590Furniture
      and fixtures
                    
                    
                    358,477
                    
                    
                    
                    358,477Marketing
      assets
                    
                    
                    290,481
                    
                    
                    
                    287,4563,951,310
                    
                    
                    
                    4,214,500Less
      accumulated depreciation and amortization
                    
                    
                    2,821,747
                    
                    
                    
                    2,714,706Net
      property and equipment
                    
                    
                    1,129,563
                    
                    
                    
                    1,499,794Other
      assets:Deposits
                    
                    
                    63,194
                    
                    
                    
                    63,194Patents,
      net of accumulated amortization
                    
                    
                    51,551
                    
                    
                    
                    22,349Customer
      relationships, net of accumulated amortization
                    
                    
                    218,613
                    
                    
                    
                    236,634Technology
      intangibles, net of accumulated amortization
                    
                    
                    6,658,962
                    
                    
                    
                    7,142,662Tradename,
      net of accumulated amortization
                    
                    
                    111,600
                    
                    
                    
                    124,000Goodwill
                    
                    
                    43,515,285
                    
                    
                    
                    43,515,285Total
      other assets
                    
                    
                    50,619,205
                    
                    
                    
                    51,104,124Total
      assets
                    
                    $
                    70,218,689
                    
                    
                    $
                    73,189,731Liabilities and Stockholders'
      EquityCurrent
      liabilities:Accounts
      payable
                    
                    $
                    1,458,821
                    
                    
                    $
                    2,189,093Accrued
      salaries and other expenses
                    
                    
                    1,610,120
                    
                    
                    
                    2,752,818Deferred
      revenue
                    
                    
                    2,249,280
                    
                    
                    
                    1,955,495Total
      current liabilities
                    
                    
                    5,318,221
                    
                    
                    
                    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
      45,592,852 in 2009 and 45,403,472 in 2008; outstanding 45,524,976 in 2009
      and 45,335,596 in 2008
                    
                    
                    455,928
                    
                    
                    
                    454,034Additional
      paid-in capital
                    
                    
                    149,086,254
                    
                    
                    
                    148,082,225Accumulated
      deficit
                    
                    
                    (83,691,450
                    )
                    
                    
                    (81,293,670
                    )Treasury
      stock at cost (67,876 shares)
                    
                    
                    (950,264
                    )
                    
                    
                    (950,264
                    )Total
      Stockholders' equity
                    
                    
                    64,900,468
                    
                    
                    
                    66,292,325Total
      liabilities and stockholders' equity
                    
                    $
                    70,218,689
                    
                    
                    $
                    73,189,731





See
accompanying notes to consolidated financial statements.


3





iCAD,
INC.





Consolidated
Statements of Operations


(unaudited)





Three Months Ended
                  
                  
                  Six Months EndedJune 30,
                  
                  
                  June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008RevenueProducts
                  
                  $
                  4,822,094
                  
                  
                  $
                  9,677,125
                  
                  
                  $
                  11,161,715
                  
                  
                  $
                  15,331,748Service
      and supplies
                  
                  
                  907,793
                  
                  
                  
                  872,364
                  
                  
                  
                  1,733,170
                  
                  
                  
                  1,649,757Total
      revenue
                  
                  
                  5,729,887
                  
                  
                  
                  10,549,489
                  
                  
                  
                  12,894,885
                  
                  
                  
                  16,981,505Cost
      of revenueProducts
                  
                  
                  893,086
                  
                  
                  
                  1,470,227
                  
                  
                  
                  1,950,987
                  
                  
                  
                  2,425,642Service
      and supplies
                  
                  
                  160,131
                  
                  
                  
                  263,614
                  
                  
                  
                  359,034
                  
                  
                  
                  446,383Total
      cost of revenue
                  
                  
                  1,053,217
                  
                  
                  
                  1,733,841
                  
                  
                  
                  2,310,021
                  
                  
                  
                  2,872,025Gross
      margin
                  
                  
                  4,676,670
                  
                  
                  
                  8,815,648
                  
                  
                  
                  10,584,864
                  
                  
                  
                  14,109,480Operating
      expenses:Engineering
      and product development
                  
                  
                  1,738,278
                  
                  
                  
                  1,503,595
                  
                  
                  
                  3,899,493
                  
                  
                  
                  2,912,804Marketing
      and sales
                  
                  
                  2,652,312
                  
                  
                  
                  2,809,466
                  
                  
                  
                  5,597,433
                  
                  
                  
                  5,192,989General
      and administrative
                  
                  
                  1,690,083
                  
                  
                  
                  1,935,891
                  
                  
                  
                  3,525,394
                  
                  
                  
                  3,784,237Total
      operating expenses
                  
                  
                  6,080,673
                  
                  
                  
                  6,248,952
                  
                  
                  
                  13,022,320
                  
                  
                  
                  11,890,030Income
      (loss) from operations
                  
                  
                  (1,404,003
                  )
                  
                  
                  2,566,696
                  
                  
                  
                  (2,437,456
                  )
                  
                  
                  2,219,450Interest
      income (expense) - net
                  
                  
                  30,750
                  
                  
                  
                  (84,098
                  )
                  
                  
                  65,676
                  
                  
                  
                  (182,705
                  )Net
      income (loss) before provision for income taxes
                  
                  $
                  (1,373,253
                  )
                  
                  $
                  2,482,598
                  
                  
                  $
                  (2,371,780
                  )
                  
                  $
                  2,036,745Provision
      for income taxes
                  
                  
                  26,000
                  
                  
                  
                  96,000
                  
                  
                  
                  26,000
                  
                  
                  
                  96,000Net
      income (loss)
                  
                  $
                  (1,399,253
                  )
                  
                  $
                  2,386,598
                  
                  
                  $
                  (2,397,780
                  )
                  
                  $
                  1,940,745Net
      income (loss) per share:Basic
                  
                  $
                  (0.03
                  )
                  
                  $
                  0.06
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.05Diluted
                  
                  $
                  (0.03
                  )
                  
                  $
                  0.06
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.05Weighted
      average number of shares used in computing income (loss) per
      share:Basic
                  
                  
                  45,412,573
                  
                  
                  
                  39,308,978
                  
                  
                  
                  45,382,928
                  
                  
                  
                  39,240,427Diluted
                  
                  
                  45,412,573
                  
                  
                  
                  44,635,496
                  
                  
                  
                  45,382,928
                  
                  
                  
                  44,179,709





See
accompanying notes to consolidated financial statements.


4





iCAD,
INC.





Consolidated
Statements of Cash Flows


(unaudited)





Six Months Ended
                
                
                Six Months EndedJune 30, 2009
                
                
                June 30, 2008Cash
      flows from operating activities:Net
      income (loss)
                
                $
                (2,397,780
                )
                
                $
                1,940,745Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
                
                
                432,349
                
                
                
                458,829Amortization
                
                
                584,386
                
                
                
                359,503Stock-based
      compensation
                
                
                1,002,722
                
                
                
                816,643Non-cash
      interest expense associated with discount on convertible loans
      payable
                
                
                -
                
                
                
                14,706Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                2,188,980
                
                
                
                321,492Inventory
                
                
                (30,712
                )
                
                
                (323,913
                )Other
      current assets
                
                
                17,207
                
                
                
                (325,808
                )Accounts
      payable
                
                
                (730,272
                )
                
                
                (226,647
                )Accrued
      interest
                
                
                -
                
                
                
                142,214Accrued
      salaries and other expenses
                
                
                (1,142,698
                )
                
                
                (601,534
                )Deferred
      revenue
                
                
                293,785
                
                
                
                400,880Total
      adjustments
                
                
                2,615,747
                
                
                
                1,036,365Net
      cash provided by operating activities
                
                
                217,967
                
                
                
                2,977,110Cash
      flows from investing activities:Additions
      to property and equipment
                
                
                (161,585
                )
                
                
                (198,348
                )Net
      cash used for investing activities
                
                
                (161,585
                )
                
                
                (198,348
                )Cash
      flows from financing activities:Issuance
      of common stock for cash
                
                
                3,201
                
                
                
                251,472Payment
      of convertible notes payable
                
                
                -
                
                
                
                (258,906
                )Net
      cash provided by (used for) financing activities
                
                
                3,201
                
                
                
                (7,434
                )Increase
      in cash and equivalents
                
                
                59,583
                
                
                
                2,771,328Cash
      and equivalents, beginning of period
                
                
                13,115,715
                
                
                
                4,348,729Cash
      and equivalents, end of period
                
                $
                13,175,298
                
                
                $
                7,120,057Supplemental
      disclosure of cash flow information:Interest
      paid
                
                $
                7,509
                
                
                $
                55,598Non-cash
      items from investing and financing activities:Conversion
      of convertible notes payable into common stock
                
                $
                -
                
                
                $
                2,500,000





See
accompanying notes to consolidated financial statements.


5


iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


June
30, 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 June
30, 2009, the results of operations for the three and six month periods ended
June 30, 2009 and 2008, and cash flows for the six month periods ended June 30,
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 and six month periods ended June 30, 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 was
limited to 80% of eligible accounts receivable or, if adjusted EBITDA (EBITDA is
defined in the RBS Loan Agreement as earnings before interest expense, income
tax expense, depreciation, amortization and SFAS 123R stock option expense) for
the quarter was greater than or equal to $1,250,000, then the Company was not
subject to a restriction as to availability of credit upon the borrowing
base.  In the first quarter of 2009 the Company advised RBS that it
failed to meet the Adjusted
EBITDA  covenant  contained  in  the  RBS
Loan  Agreement  and  requested  that
RBS  agree to  waive such
non-compliance.   On April 27, 2009 the Company


6


iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


June
30, 2009





(2)          Financing
Arrangements(continued)





Loan and Security
Agreement(continued)





executed
an amendment, dated as of April 22, 2009, to the RBS Loan Agreement by which 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
RBS Loan Agreement on a going forward basis.  The RBS Loan Agreement
expired on June 30, 2009.  The Company did not borrow any amounts
under the RBS Loan Agreement during the term and is currently evaluating its
options regarding a possible renewal of the RBS Loan Agreement.





(3)           Earning
(loss) per Share





The
Company’s basic earnings (loss) per share is computed by dividing net profit or
loss by the weighted average number of shares of common stock outstanding for
the period and, if there are dilutive securities, diluted earnings per 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 Months Ended
                          
                          
                          Six Months EndedJune 30,
                          
                          
                          June 30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Net
      income (loss)
                          
                          $
                          (1,399,253
                          )
                          
                          $
                          2,386,598
                          
                          
                          $
                          (2,397,780
                          )
                          
                          $
                          1,940,745Add
      interest relating to convertible loans payable
                          
                          
                          -
                          
                          
                          
                          79,893
                          
                          
                          
                          -
                          
                          
                          
                          173,570Net
      income (loss) - diluted
                          
                          $
                          (1,399,253
                          )
                          
                          $
                          2,466,491
                          
                          
                          $
                          (2,397,780
                          )
                          
                          $
                          2,114,315Basic
      shares used in the calculation of earnings per share
                          
                          
                          45,412,573
                          
                          
                          
                          39,308,978
                          
                          
                          
                          45,382,928
                          
                          
                          
                          39,240,427Effect
      of dilutive securities:Stock
      options
                          
                          
                          -
                          
                          
                          
                          1,545,516
                          
                          
                          
                          -
                          
                          
                          
                          1,180,134Restricted
      stock
                          
                          
                          -
                          
                          
                          
                          58,834
                          
                          
                          
                          -
                          
                          
                          
                          14,705Convertible
      loans payable
                          
                          
                          -
                          
                          
                          
                          3,722,168
                          
                          
                          
                          -
                          
                          
                          
                          3,744,443Diluted
      shares used in the calculation of  earnings per
      share
                          
                          
                          45,412,573
                          
                          
                          
                          44,635,496
                          
                          
                          
                          45,382,928
                          
                          
                          
                          44,179,709Net
      income (loss) per share :Basic
                          
                          $
                          (0.03
                          )
                          
                          $
                          0.06
                          
                          
                          $
                          (0.05
                          )
                          
                          $
                          0.05Diluted
                          
                          $
                          (0.03
                          )
                          
                          $
                          0.06
                          
                          
                          $
                          (0.05
                          )
                          
                          $
                          0.05


7


iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


June
30, 2009





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





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




Three Months Ended
                  
                  
                  Six Months EndedJune 30,
                  
                  
                  June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Stock
      options
                  
                  
                  5,287,192
                  
                  
                  
                  1,813,655
                  
                  
                  
                  5,287,192
                  
                  
                  
                  1,988,844Stock
      warrants
                  
                  
                  936,111
                  
                  
                  
                  1,003,311
                  
                  
                  
                  936,111
                  
                  
                  
                  1,003,311Restricted
      stock
                  
                  
                  630,323
                  
                  
                  
                  -
                  
                  
                  
                  630,323
                  
                  
                  
                  855,0006,853,626
                  
                  
                  
                  2,816,966
                  
                  
                  
                  6,853,626
                  
                  
                  
                  3,847,155





(4)           Stock-Based
Compensation





The
Company follows the provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 123(R), 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 169,483 stock options in the six months ended June 30,
2009.  The Company did not issue any shares of restricted stock during
this six month period.  The options granted during the first six
months of 2009 had a weighted average exercise price of $1.13. The weighted
average fair value of the options granted during this six month period was $0.42
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 1.69%, 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 of U.S. Treasury
zero-coupon issues with a remaining term equal to the expected life of option
grants. The Company recorded $1,002,722 for share-based compensation in
accordance with SFAS 123R for the six months ended June 30, 2009.





For the
same period in 2008, the Company issued 351,123 stock options and 533,250 shares
of restricted stock.  The options granted during the six months of
2008 had a weighted  average exercise  price of
$2.17.  The weighted average fair value
of  the  options granted
during the six month period ended June 30, 2008 was $0.95 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 2.98%, and expected dividend yield of 0%. The
Company recorded $816,643 for share-based compensation in accordance with SFAS
123R.


8


iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


June
30, 2009





(4)           Stock-Based
Compensation (continued)





As of
June 30, 2009 there was approximately $2,414,743 of total unrecognized
compensation expense related to unvested options and restricted
stock.  That expense is expected to be recognized over a weighted
average period of three years.





The
Company’s aggregate intrinsic value of options outstanding at June 30, 2009 was
$111,198.  The aggregate intrinsic value of restricted stock outstanding at
June 30, 2009 was $819,420.





(5)           Fair
Value Measurements





On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”). This Statement defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and enhances
disclosures about fair value measurements. Fair value is defined under SFAS 157
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 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


9


iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


June
30, 2009





(5)           Fair
Value Measurements (continued)





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.





In
accordance with SFAS 157, the Company’s financial assets that are measured at
fair value on a recurring basis as of June 30, 2009 are cash
equivalents.  The cash equivalents are measured using level one
inputs.





(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 June 30,
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 June 30, 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 June 30, 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.  Income tax
expense of $26,000 was provided for the six months ending June 30,
2009.  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.


10


iCAD,
INC.


Notes
to Consolidated Financial Statements


(Unaudited)


June
30, 2009





(8)           Goodwill





In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, 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.





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 June 30, 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 June 30,
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 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.  The Company does not
believe that its goodwill was impaired at June 30, 2009.


11


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, more than 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.


12





The
Company intends to apply its core competencies in pattern recognition and
algorithm development in disease detection to its product development efforts.
Its focus 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 pursue development or
acquisition of products for select disease states that 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 demonstrated that CTC is highly accurate for the
detection of intermediate and large polyps and that the accuracy of CTC is
similar to a colonoscopy.  CT Colonography or CTC is emerging as an
alternative imaging procedure for evaluation of the colon. The Company has
developed VeralookÔ, a
product for computer aided detection of polyps in the colon using CTC and has
completed the analysis of the clinical trial data.  The Company filed a
510(k) application with the FDA in the second quarter of 2009 seeking FDA
approval to market Veralook in the United States. Colorectal cancer has been
shown to be highly preventable 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.


13





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.





Quarter Ended June 30, 2009
compared to Quarter Ended June 30, 2008 and Six Months Ended June 30, 2009
compared to Six Months Ended June 30, 2008





Revenue.Total revenue for
the three and six month periods ended June 30, 2009 was $5,729,887 and
$12,894,885, respectively, compared with revenue of $10,549,489 and $16,981,505
for the three and six month periods ended June 30, 2008, for a decrease of
$4,819,602 and $4,086,620 or 45.7% and 24.1%, respectively.  The
decrease in revenue for the three and six month periods ended June 30, 2009 was
due primarily to the decrease in digital and MRI CAD revenue during the second
quarter partially offset by increases in film-based revenue and service and
supply revenue.





The
Company’s digital and MRI CAD revenue for the second quarter of 2009 decreased
$4,862,520 or 61.1%, to $3,099,425, compared to sales of $7,961,945 in the same
period in 2008.  This decrease is due primarily to the softening U.S.
demand for Full Field Digital Mammography (“FFDM”) systems and digital CAD
technology for the detection of breast cancer, partially offset by an increase
in international revenue due to new global partnerships as well as from existing
OEM partners. The Company’s international revenue increased 72.9% to $1,198,787
in the second quarter of 2009 compared to $693,182 in the second quarter of
2008.  The Company believes that the softening of the U.S. digital
mammography market is temporary due to current economic conditions and that
nearly half of the U.S. Market has yet to convert to digital
technology.





Revenue
from iCAD’s film based products for the three and six month periods ended June
30, 2009 increased 0.4% and 6.5%, respectively, to $1,722,669 and $3,285,169,
compared to $1,715,180 and $3,084,137 in the three and six month periods ended
June 30, 2008.  This increase is largely due to the continued positive
market demand for the Company’s TotalLook Mammo AdvantageÔ 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.  The Company believes that the demand
for the TotalLook Mammo Advantage will continue to grow as the ongoing
transition to digital CAD technology creates a growing need for comparative
reading software.





Service
and supply revenue for the three and six month periods ended June 30, 2009
increased 4.1% and 5.1%, respectively, to $907,793 and $1,733,170, compared to
$872,364 and $1,649,757 in the three and six month periods ended June 30,
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, which continue to grow as the Company’s installed based of customer’s
migrate from warranty to service contracts.  Service contract revenue
represented 92% of the Company’s total service and supply revenue for the second
quarter of 2009.


14





Three months ended June 30,2009
                
                
                2008
                
                
                Change
                
                
                % ChangeDigital
      & MRI CAD revenue
                
                $
                3,099,425
                
                
                $
                7,961,945
                
                
                $
                (4,862,520
                )
                
                
                -61.1
                %Film
      based revenue
                
                
                1,722,669
                
                
                
                1,715,180
                
                
                
                7,489
                
                
                
                0.4
                %Service
      & supply revenue
                
                
                907,793
                
                
                
                872,364
                
                
                
                35,429
                
                
                
                4.1
                %Total
      revenue
                
                $
                5,729,887
                
                
                $
                10,549,489
                
                
                $
                (4,819,602
                )
                
                
                -45.7
                %





Six months ended June 30,2009
                
                
                2008
                
                
                Change
                
                
                % ChangeDigital
      & MRI CAD revenue
                
                $
                7,876,546
                
                
                $
                12,247,611
                
                
                $
                (4,371,065
                )
                
                
                -35.7
                %Film
      based revenue
                
                
                3,285,169
                
                
                
                3,084,137
                
                
                
                201,032
                
                
                
                6.5
                %Service
      & supply revenue
                
                
                1,733,170
                
                
                
                1,649,757
                
                
                
                83,413
                
                
                
                5.1
                %Total
      revenue
                
                $
                12,894,885
                
                
                $
                16,981,505
                
                
                $
                (4,086,620
                )
                
                
                -24.1
                %





Gross Margin.Gross margin
decreased to 81.6% and 82.1% for the three and six month periods ended June 30,
2009 compared to 83.6% and 83.1%, respectively, in the same three and six month
periods in 2008.   The decrease in gross margin for the three and
six month periods of 2009 is primarily attributable to lower sales 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 and six month
periods ended June 30, 2009 increased by $234,683 or 15.6% and $986,689 or
33.9%, respectively, from $1,503,595 and $2,912,804 in 2008 to $1,738,278 and
$3,899,493, respectively, in 2009.  The increase in engineering and
product development costs during the three and six month periods ended June 30,
2009 was primarily due to an increase in personnel and related costs of $119,000
and $278,000, respectively, resulting from staff increases to support the
Company’s new MRI CAD products and quality and regulatory function, $133,000 and
$264,000, respectively, in amortization expense relating to the acquisition of
assets of CAD Sciences in the third quarter of 2008, and $54,000 and $454,000,
respectively, in consulting, subcontracting and data collection services
relating to the licensing and clinical trial costs for its CT Colon
product.  In addition, during the three and six month periods the
Company experienced an increase in other consulting and licensing, rent,
regulatory, and stock based compensation expenses totaling $122,000 and
$115,000, respectively.  These expenses were offset by a decrease of
$128,000 and $107,000, respectively, in bonus accrual and $65,000 and $17,000,
respectively, in legal and travel expenses. The
Company reduced previously accrued bonus expense as it currently anticipates
that it will not achieve the previously established performance based metrics
that are required to be met for the bonuses to be paid.




Marketing and Sales.Marketing and sales expense for the three month period ended June 30,
2009 decreased by $157,154 or 5.6%, from $2,809,466 in 2008 to $2,652,312 in
2009. The decrease in marketing and sales expense during this three month period
was primarily due to the decrease of $216,000 in bonus accrual and $155,000 in
sales commissions due to the decrease in revenue.  In addition, during
this three month period the Company recorded decreases in consulting,
subcontracted services, advertising, promotional, relocation, depreciation, and
freight totaling $136,000.  These decreases were offset by an increase
of $260,000 in personnel and related costs, $40,000 in stock based compensation
expense and approximately $50,000 in trade show and various office
expenses.


15





Marketing
and sales expense for the six month period ended June 30, 2009 increased
$404,444 or 7.8%, from $5,192,989 in 2008 to $5,597,433 in 2009. The increase in
marketing and sales expense for the six month period ended June 30, 2009
primarily resulted from an increase in personnel and related costs of $567,000
approximately half of which is in support of our new MRI CAD products, stock
based compensation expense of $80,000, and increases in consulting,
subcontracting, advertising, promotional and web design services totaling
$58,000.  These increases in marketing and sales expenses were offset
by decreases of $198,000 in bonus accrual, $32,000 in travel and various office
expenses, $31,000 in warranty related costs, $22,000 in relocation costs and
$18,000 in commission due to the decrease in revenue.  The Company reduced
previously accrued bonus expense as it currently anticipates that it will not
achieve the previously established performance based metrics that are required
to be met for the bonuses to be paid.





General and Administrative.General and administrative expenses for the three and six month periods
ended June 30, 2009 decreased by $245,808 or 12.7% and $258,843 or 6.8%,
respectively, from $1,935,891 and $3,784,237 in 2008 to $1,690,083 and
$3,525,394 in 2009.  The decrease in general and administrative
expense during the three and six month periods ended June 30, 2009 was due
primarily to the decreases in bonus accrual of $235,000 and $231,000,
respectively, amortization expense of $20,000 and $39,000, due to fully
amortized patents, and decreases in various administrative expenses totaling
$43,000 and $79,000, respectively.  The Company reduced previously
accrued bonus expense as it currently anticipates that it will not achieve the
previously established performance based metrics that are required to be met for
the bonuses to be paid.  These decreases were partially offset by increases
in personnel and related expenses and in stock based compensation expense
totaling $52,000 and $90,000, respectively.





Interest Income/(Expense).
Net interest income/(expense) for the three and six month periods ended June 30,
2009 decreased $114,848 and $248,381, respectively, from interest expense of
$84,098 and $182,705 in 2008, to interest income of $30,750 and $65,676 in 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 increased cash
balance and associated interest earned from its money market
accounts.





Provision for Income Taxes.The provision for income taxes for the three and six month periods ended
June 30, 2009 decreased to $26,000 from $96,000 for the three and six month
periods of 2008.  The income tax provision consists of an estimate for
federal alternative minimum tax expense and various state income taxes based
upon the estimated effective income tax rate for the full fiscal
year.





Net Income/(Loss).As a result of the
foregoing, the Company recorded a net loss of ($1,399,253) or ($0.03) per basic
share for the three month period ended June 30, 2009 on revenue of $5,729,887,
compared to net income of $2,386,598 or $0.06 per basic and diluted share for
the three month period ended June 30, 2008 on revenue of
$10,549,489.  The net loss for the six months ended June 30, 2009 was
($2,397,780) or ($0.05) per basic share on revenue of $12,894,885, compared to
net income of $1,940,745 or $0.05 per basic and diluted share on revenue of
$16,981,505 for the six months ended June 30, 2008.


16





Backlog.  The
Company’s product backlog (excluding service and supplies) as of June 30, 2009
totaled approximately $511,418 as compared to $2,930,666 as of June 30, 2008 and
$714,108 at March 31, 2009.  It is expected that the majority of the
backlog at June 30, 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 and projected cash balances from continuing operations. 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.  The Company does not currently have any alternate source
of financing.  The Company will continue to closely monitor its
liquidity and capital resources 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 was limited to 80% of eligible accounts
receivable or, if adjusted EBITDA (EBITDA is defined in the RBS Loan Agreement
as earnings before interest expense, income tax expense, depreciation,
amortization and SFAS 123R stock option expense) for the quarter was greater
than or equal to $1,250,000, then the Company was not subject to a restriction
as to availability of credit upon the borrowing base. In the first quarter of
2009 the Company advised RBS that it failed to meet the Adjusted EBITDA covenant
contained in the RBS Loan Agreement and requested that RBS agree to waive such
non-compliance. On April 27, 2009 the Company executed an amendment, dated as of
April 22, 2009, to the RBS Loan Agreement by which 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 RBS Loan Agreement on a
going forward basis.  The RBS Loan Agreement expired on June 30,
2009.  The Company did not borrow any amounts under the RBS Loan
Agreement during the term and is currently evaluating its options regarding a
possible renewal of the RBS Loan Agreement.





At June
30, 2009 the Company had current assets of $18,469,921, current liabilities of
$5,318,221 and working capital of $13,151,700. The ratio of current assets to
current liabilities was 3.5:1





Net cash
provided by operating activities for the six months ended June 30, 2009 was
$217,967, compared to net cash provided by operating activities of $2,977,110
for the same period in 2008.  The cash provided by operating
activities for the six months ended June 30, 2009 resulted from the net loss of
$2,397,780, decreases in accounts receivable and other current assets totaling
$2,206,187 and an increase in deferred revenue of $293,785, plus non-cash items
including, depreciation and amortization of $1,016,735 and stock based
compensation of $1,002,722, offset by an increase in inventory of $30,712, and a
decrease in accounts payable of $730,272 and accrued expenses of
$1,142,698.


17





The net
cash used for investing activities, consisted of additions to property and
equipment for the six month period ended June 30, 2009, was $161,585 compared to
$198,348 for the comparable period in 2008.





Net cash
provided by financing activities for the six months ended June 30, 2009 was
$3,201, compared to net cash used for financing activities of $7,434 for the
same period in 2008.  The cash provided by financing activities during
2009 was due to cash received from the issuance of common stock relating to the
exercise of stock options.





Contractual
Obligations





The
following table summarizes, for the periods presented, the Company’s future
estimated cash payments under existing contractual obligations at June 30,
2009.





Contractual Obligations
                    
                    Payments due by periodTotal
                    
                    
                    Less than 1
                      year
                    
                    
                    1-3 years
                    
                    
                    3-5 years
                    
                    
                    5+ yearsLease Obligations*
                    
                    $
                    968,729
                    
                    
                    $
                    279,856
                    
                    
                    $
                    688,873
                    
                    
                    $
                    -
                    
                    
                    $
                    -Total Contractual
    Obligations
                    
                    $
                    968,729
                    
                    
                    $
                    279,856
                    
                    
                    $
                    688,873
                    
                    
                    $
                    -
                    
                    
                    $
                    -


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





Recent
Accounting Pronouncements





In
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles”. This standard replaces SFAS No. 162, “The Hierarchy of
Generally Accepted Accounting Principles”, and establishes only two levels of
U.S. GAAP, authoritative and non-authoritative. The FASB Accounting Standards
Codification (the “Codification”) will become the source of authoritative,
non-governmental GAAP, except for rules and interpretive releases of the
SEC, which are sources of authoritative GAAP for SEC registrants. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification will become non-authoritative. This statement is effective for
financial statements for interim or annual reporting periods ending after
September 15, 2009. We will use the new guidelines and numbering system
prescribed by the Codification when referring to U.S. GAAP beginning in the
third quarter of fiscal 2009. As the Codification was not intended to change or
alter existing U.S. GAAP, it will not have any impact on our financial position,
results of operations or cash flows.





Effective
June 30, 2009, the Company adopted SFAS No. 165, “Subsequent Events”. This
statement is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In particular,
this statement sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The adoption of SFAS No. 165 did not have
any impact on the Company’s financial position, results of operations or cash
flows.


18





In April
2009, 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 adoption of FSP 157-4 did not have
any impact on the Company’s financial position, results of operations or cash
flows.





In April
2009, 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 adoption of FSP 107-1 and
APB 28-1 did not have any impact on the Company’s financial position, results of
operations or cash flows.





Effective
January 1, 2009, the Company adopted 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.





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.


19





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.





Effective
January 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.





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.


20





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 June
30, 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.





PART
II      OTHER INFORMATION





Item
4.         Submission of Matters to a
Vote of Security Holders.





At the
Company’s Annual Meeting of Stockholders held on June 23, 2009 the stockholders
of the Company entitled to vote at the meeting voted to elect the seven
individuals named below to serve as directors of the Company to hold office
until the Annual Meeting of Stockholders to be held in 2010 and until their
successors have been duly elected and qualified.





1)
            The
      votes cast by stockholders with respect to the election of directors were
      as follows:





Votes
      Cast
              
              VotesDirector
              
              "For"
              
              WithheldDr.
      Lawrence Howard
              
              39,698,931
              
              840,650Kenneth
      Ferry
              
              40,270,239
              
              269,342Rachel
      Brem, M.D.
              
              40,275,800
              
              263,781Anthony
      Ecock
              
              39,760,718
              
              778,863Steven
      Rappaport
              
              39,707,549
              
              832,032Maha
      Sallam
              
              40,327,609
              
              211,972Elliot
      Sussman, M.D.
              
              40,283,067
              
              256,514





2)
            The
      votes cast by stockholders with respect to the approval of an amendment to
      the Company’s 2007 Stock Incentive Plan that increased the number of
      shares available for issuance under the plan by 3,000,000 shares were as
      follows:





17,728,736
shares FOR the proposal, 1,454,317 shares AGAINST the proposal, 74,091 shares
ABSTAINING from voting, and 21,282,437 shares NOT VOTED


21


Item
6.                   Exhibits





Exhibit No.
              
              Description10.1
              
              First
      Amendment dated as of April 22, 2009 to the June 30, 2008 Loan and
      Security Agreement between the Company and RBS. (1)10.2
              
              2007
      Stock Incentive Plan, as amended on June 23, 2009. (2)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.


(1)
Incorporated by reference to the exhibit filed with the Company’s Current Report
on Form 8-K for the event dated April 27, 2009.





(2)
Incorporated by reference to Appendix A to the Company’s definitive proxy
statement on Schedule 14A filed with the SEC on May 6, 2009.


22


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:
                    August 7, 2009
                    
                    By:
                    /s/ Kenneth M. Ferry.Kenneth
      M. FerryPresident,
      Chief Executive Officer,DirectorDate:
                    August 7, 2009
                    
                    By:
                    /s/ Darlene M. Deptula-Hicks.Darlene
      M. Deptula-HicksExecutive
      Vice President of Financeand
      Chief Financial Officer, Treasurer andSecretary


23