##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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
    
    (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)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large Accelerated filer o
    
    Accelerated filer
þ
    
    Non-accelerated filer o
(do not check if a smaller reporting company)
    
    Smaller reporting company þ
 YES o NO þ.




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##### 



PAGEPART I FINANCIAL INFORMATIONItem 1 Financial Statements (unaudited)Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Operations for the three and nine month periods ended September 30, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2009 and 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-12Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-21Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4 Controls and Procedures
    
    
    21-22PART II OTHER INFORMATIONItem 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 6 Exhibits
    
    
    23Signatures
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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iCAD, INC.
 
 Consolidated Balance Sheets
 September 30,
    
    
    December 31,2009
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    13,483,318
    
    
    $
    13,115,715Trade accounts receivable, net of allowance for doubtful
accounts of $50,000
    
    
    4,383,864
    
    
    
    5,570,323Inventory, net
    
    
    1,291,949
    
    
    
    1,448,373Prepaid and other current assets
    
    
    524,250
    
    
    
    451,402Total current assets
    
    
    19,683,381
    
    
    
    20,585,813Property and equipment:Equipment
    
    
    3,267,379
    
    
    
    3,492,977Leasehold improvements
    
    
    75,590
    
    
    
    75,590Furniture and fixtures
    
    
    358,477
    
    
    
    358,477Marketing assets
    
    
    290,481
    
    
    
    287,4563,991,927
    
    
    
    4,214,500Less accumulated depreciation and amortization
    
    
    2,969,684
    
    
    
    2,714,706Net property and equipment
    
    
    1,022,243
    
    
    
    1,499,794Other assets:Deposits
    
    
    60,444
    
    
    
    63,194Patents, net of accumulated amortization
    
    
    51,551
    
    
    
    22,349Customer relationships, net of accumuated amortization
    
    
    209,510
    
    
    
    236,634Technology intangibles, net of accumulated amortization
    
    
    6,370,513
    
    
    
    7,142,662Tradename, net of accumulated amortization
    
    
    105,400
    
    
    
    124,000Goodwill
    
    
    43,515,285
    
    
    
    43,515,285Total other assets
    
    
    50,312,703
    
    
    
    51,104,124Total assets
    
    $
    71,018,327
    
    
    $
    73,189,731Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    983,036
    
    
    $
    2,189,093Accrued salaries and other expenses
    
    
    1,773,708
    
    
    
    2,752,818Deferred revenue
    
    
    2,769,380
    
    
    
    1,955,495Total current liabilities
    
    
    5,526,124
    
    
    
    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 45,723,574 in 2009 and 45,403,472
in 2008; outstanding 45,655,698 in 2009 and
45,335,596 in 2008
    
    
    457,235
    
    
    
    454,034Additional paid-in capital
    
    
    149,563,924
    
    
    
    148,082,225Accumulated deficit
    
    
    (83,578,692
    )
    
    
    (81,293,670
    )Treasury stock at cost (67,876 shares)
    
    
    (950,264
    )
    
    
    (950,264
    )Total stockholders equity
    
    
    65,492,203
    
    
    
    66,292,325Total liabilities and stockholders equity
    
    $
    71,018,327
    
    
    $
    73,189,731
 See accompanying notes to consolidated financial statements.
  3




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iCAD, INC.
 
 Consolidated Statements of Operations
  Three Months
    
    
    Nine MonthsSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008RevenueProducts
    
    $
    6,084,567
    
    
    $
    10,322,512
    
    
    $
    17,246,281
    
    
    $
    25,654,259Service and supplies
    
    
    1,021,703
    
    
    
    871,119
    
    
    
    2,754,874
    
    
    
    2,520,877Total revenue
    
    
    7,106,270
    
    
    
    11,193,631
    
    
    
    20,001,155
    
    
    
    28,175,136Cost of revenueProducts
    
    
    917,481
    
    
    
    1,588,501
    
    
    
    2,864,806
    
    
    
    4,014,143Service and supplies
    
    
    164,505
    
    
    
    193,451
    
    
    
    527,201
    
    
    
    639,834Total cost of revenue
    
    
    1,081,986
    
    
    
    1,781,952
    
    
    
    3,392,007
    
    
    
    4,653,977Gross margin
    
    
    6,024,284
    
    
    
    9,411,679
    
    
    
    16,609,148
    
    
    
    23,521,159Operating expenses:Engineering and product development
    
    
    1,702,263
    
    
    
    1,905,841
    
    
    
    5,601,756
    
    
    
    4,818,645Marketing and sales
    
    
    2,577,319
    
    
    
    3,340,072
    
    
    
    8,174,752
    
    
    
    8,533,061General and administrative
    
    
    1,718,479
    
    
    
    1,942,582
    
    
    
    5,243,873
    
    
    
    5,726,819Total operating expenses
    
    
    5,998,061
    
    
    
    7,188,495
    
    
    
    19,020,381
    
    
    
    19,078,525Income (loss) from operations
    
    
    26,223
    
    
    
    2,223,184
    
    
    
    (2,411,233
    )
    
    
    4,442,634Interest income (expense)  net
    
    
    22,965
    
    
    
    (27,610
    )
    
    
    88,641
    
    
    
    (210,314
    )Net income (loss) before provision for income taxes
    
    $
    49,188
    
    
    $
    2,195,574
    
    
    $
    (2,322,592
    )
    
    $
    4,232,320Provision (benefit) for income taxes
    
    
    (63,570
    )
    
    
    101,000
    
    
    
    (37,570
    )
    
    
    197,000Net income (loss)
    
    $
    112,758
    
    
    $
    2,094,574
    
    
    $
    (2,285,022
    )
    
    $
    4,035,320Net income (loss) per shareBasic
    
    $
    0.00
    
    
    $
    0.05
    
    
    $
    (0.05
    )
    
    $
    0.10Diluted
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    (0.05
    )
    
    $
    0.09Weighted average number of shares used
in computing income (loss) per shareBasic
    
    
    45,620,763
    
    
    
    42,953,932
    
    
    
    45,463,078
    
    
    
    40,487,297Diluted
    
    
    46,101,765
    
    
    
    46,578,716
    
    
    
    45,463,078
    
    
    
    45,241,275
 See accompanying notes to consolidated financial statements.
  4




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iCAD, INC.
 
 Consolidated Statements of Cash Flows
  Nine Months
    
    
    Nine MonthsSeptember 30, 2009
    
    
    September 30, 2008Cash flows from operating activities:Net Income (loss)
    
    $
    (2,285,022
    )
    
    $
    4,035,320Adjustments to reconcile net income (loss)
to net cash provided by operating activities:Depreciation
    
    
    604,095
    
    
    
    677,170Amortization
    
    
    877,220
    
    
    
    640,689Loss on disposal of assets
    
    
    
    
    
    
    20,982Stock based compensation
    
    
    1,494,894
    
    
    
    1,354,635Non-cash interest expense associated with discount
on convertible loans payable
    
    
    
    
    
    
    22,059Changes in operating assets and liabilities:Accounts receivable
    
    
    1,186,459
    
    
    
    584,514Inventory
    
    
    156,424
    
    
    
    (15,280
    )Prepaid and other current assets
    
    
    (70,098
    )
    
    
    (239,510
    )Accounts payable
    
    
    (1,206,057
    )
    
    
    (368,336
    )Accrued salaries and other expenses
    
    
    (1,012,598
    )
    
    
    457,161Deferred revenue
    
    
    813,885
    
    
    
    455,767Total adjustments
    
    
    2,844,224
    
    
    
    3,589,851Net cash provided by operating activities
    
    
    559,202
    
    
    
    7,625,171Cash flows from investing activities:Additions to property and equipment
    
    
    (126,544
    )
    
    
    (534,214
    )Additions to patents and other assets
    
    
    (88,549
    )
    
    
    Acquisition of CAD Sciences
    
    
    
    
    
    
    (2,000,000
    )Net cash used for investing activities
    
    
    (215,093
    )
    
    
    (2,534,214
    )Cash flows from financing activities:Issuance of common stock for cash
    
    
    23,494
    
    
    
    1,868,902Payment of convertible notes payable
    
    
    
    
    
    
    (258,906
    )Net cash provided by financing activities
    
    
    23,494
    
    
    
    1,609,996Increase in cash and equivalents
    
    
    367,603
    
    
    
    6,700,953Cash and equivalents, beginning of period
    
    
    13,115,715
    
    
    
    4,348,729Cash and equivalents, end of period
    
    $
    13,483,318
    
    
    $
    11,049,682Supplemental disclosure of cash flow information:Interest paid
    
    $
    8,726
    
    
    $
    55,598Taxes paid
    
    $
    89,048
    
    
    $
    282,590Non-cash items from investing and financing activities:Fair market value of iCAD common stock issued to acquire
assets of CAD Sciences
    
    $
    
    
    
    $
    3,000,000Conversion of convertible notes payable and related accrued
interest into common stock
    
    $
    
    
    
    $
    6,356,917
 See accompanying notes to consolidated financial statements.
  5




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iCAD, Inc.
 
 Notes to Consolidated Financial Statements
 (Unaudited)
 September 30, 2009
 (1)
    
    Basis of Presentation and Significant Accounting Policies
    New Accounting Pronouncements and Changes in Accounting Policy
 The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162
  6




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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2009
 (2)
    
    Financing Arrangements
 Loan and Security Agreement
  (3)
    
    Net Income (loss) per Share
   7




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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2009
 (3)
    
    Net Income (loss) per Share(continued)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    112,758
    
    
    $
    2,094,574
    
    
    $
    (2,285,022
    )
    
    $
    4,035,320Add interest relating to convertible loans payable
    
    
    
    
    
    
    38,868
    
    
    
    
    
    
    
    238,488Net income (loss)  diluted
    
    $
    112,758
    
    
    $
    2,133,442
    
    
    $
    (2,285,022
    )
    
    $
    4,273,808Basic shares used in the calculation of net income (loss) per share
    
    
    45,620,763
    
    
    
    42,953,932
    
    
    
    45,463,078
    
    
    
    40,487,297Effect of dilutive securities:Stock options
    
    
    327,574
    
    
    
    1,917,916
    
    
    
    
    
    
    
    1,720,431Restricted stock
    
    
    153,428
    
    
    
    244,592
    
    
    
    
    
    
    
    68,233Convertible loans payable
    
    
    
    
    
    
    1,462,276
    
    
    
    
    
    
    
    2,965,314Diluted shares used in the calculation of net income (loss) per
share
    
    
    46,101,765
    
    
    
    46,578,716
    
    
    
    45,463,078
    
    
    
    45,241,275Net income (loss) per share :Basic
    
    $
    0.00
    
    
    $
    0.05
    
    
    $
    (0.05
    )
    
    $
    0.10Diluted
    
    $
    0.00
    
    
    $
    0.04
    
    
    $
    (0.05
    )
    
    $
    0.09
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Stock options
    
    
    3,157,678
    
    
    
    965,266
    
    
    
    5,341,355
    
    
    
    1,931,322Stock warrants
    
    
    936,111
    
    
    
    1,003,311
    
    
    
    936,111
    
    
    
    1,003,311Restricted stock
    
    
    31,500
    
    
    
    5,000
    
    
    
    496,487
    
    
    
    5,0004,125,289
    
    
    
    1,973,577
    
    
    
    6,773,953
    
    
    
    2,939,633
  8




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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2009
 (4)
    
    Stock-Based Compensation
 Compensation
 Stock Compensation,
     9




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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2009
 (4)
    
    Stock-Based Compensation(continued)
  (5)
    
    Fair Value Measurements
 Fair Value Measurement and
Disclo
 
    
    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
    10




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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2009
 (6)
    
    Commitments and Contingencies
  (7)
    
    Income Taxes
 Income Taxes"
 (8)
    
    Goodwill
 Intangibles  Goodwill and Other
  11




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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2009
 (8)
    
    Goodwill(continued)
   12




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Results of Operations
 Overview
    13




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Ô
   Critical Accounting Policies
   14




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Quarter Ended September 30, 2009 compared to Quarter Ended September 30, 2008 and Nine Months
Ended September 30, 2009 compared to Nine Months Ended September 30, 2008
 Revenue.
    15




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Three months ended September 30,2009
    
    
    2008
    
    
    Change
    
    
    % ChangeDigital & MRI CAD
revenue
    
    $
    4,808,683
    
    
    $
    8,155,673
    
    
    $
    (3,346,990
    )
    
    
    -41.0
    %Film based revenue
    
    
    1,275,884
    
    
    
    2,166,839
    
    
    
    (890,955
    )
    
    
    -41.1
    %Service & supply revenue
    
    
    1,021,703
    
    
    
    871,119
    
    
    
    150,584
    
    
    
    17.3
    %Total revenue
    
    $
    7,106,270
    
    
    $
    11,193,631
    
    
    $
    (4,087,361
    )
    
    
    -36.5
    %
 Nine months ended September 30,2009
    
    
    2008
    
    
    Change
    
    
    % ChangeDigital & MRI CAD
revenue
    
    $
    12,685,228
    
    
    $
    20,403,283
    
    
    $
    (7,718,055
    )
    
    
    -37.8
    %Film based revenue
    
    
    4,561,053
    
    
    
    5,250,976
    
    
    
    (689,923
    )
    
    
    -13.1
    %Service & supply revenue
    
    
    2,754,874
    
    
    
    2,520,877
    
    
    
    233,997
    
    
    
    9.3
    %Total revenue
    
    $
    20,001,155
    
    
    $
    28,175,136
    
    
    $
    (8,173,981
    )
    
    
    -29.0
    %
 Gross Margin.
 Engineering and Product Development.
   16




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Marketing and Sales.
 General and Administrative.
 Interest Income/(Expense)
 Provision (benefit) for Income Taxes.
 Net Income/(Loss).
  17




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Backlog.
 Liquidity and Capital Resources
       18




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Contractual Obligations
  Payments due by periodLess than 1Contractual Obligations
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5+ yearsLease Obligations*
    
    $
    824,666
    
    
    $
    135,793
    
    
    $
    688,873
    
    
    $
    
    
    
    $
    Total Contractual
Obligations
    
    $
    824,666
    
    
    $
    135,793
    
    
    $
    688,873
    
    
    $
    
    
    
    $
    
 *
    
    The Companys lease obligations is shown net of sublease amounts. Recent Accounting Pronouncements
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles
   19




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20




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Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4.
    
    Controls and Procedures
   21




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22




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PART II OTHER INFORMATION
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
  Total number of
    
    
    Maximum dollarshares purchased
    
    
    value of sharesas part of
    
    
    that may yet beTotal number
    
    
    Average
    
    
    publicly
    
    
    purchased underof shares
    
    
    price paid per
    
    
    announced plans
    
    
    the plans orMonth of purchase
    
    purchased (1)
    
    
    share
    
    
    or programs
    
    
    programsJuly 1  July 31, 2009
    
    
    14,992
    
    
    $
    1.18
    
    
    $
    
    
    
    $
    August 1  August 31, 2009
    
    
    1,059
    
    
    $
    1.42
    
    
    $
    
    
    
    $
    September 1  September
30, 2009
    
    
    506
    
    
    $
    2.40
    
    
    $
    
    
    
    $
    Total
    
    
    16,557
    
    
    $
    1.67
    
    
    $
    
    
    
    $
    
 (1)
    
    Represents shares of common stock surrendered by employees to the Company to pay employee
withholding taxes due upon the vesting of restricted stock. 
 Item 6.
    
    Exhibits
 Exhibit No.
    
    Description31.1
    
    
    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.
 
  23




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iCAD, Inc.(Registrant)Date: November 9, 2009
    
    By:
    
    /s/ Kenneth M. Ferry

Kenneth M. FerryPresident, Chief Executive Officer, DirectorDate: November 9, 2009
    
    By:
    
    /s/ Darlene M. Deptula-Hicks

Darlene M. Deptula-HicksExecutive Vice President of Financeand Chief Financial Officer, Treasurer
  24