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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, 2010
 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 o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(do not check if a smaller reporting company)
 o þ




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##### 



PAGEPART I FINANCIAL INFORMATIONItem 1 Financial Statements (unaudited)Balance Sheets as of September 30, 2010 and
December 31, 2009
    
    
    3Statements of Operations for the three and
nine month periods ended September 30, 2010
and 2009
    
    
    4Statements of Cash Flows for the nine month
periods ended September 30, 2010 and 2009
    
    
    5Notes to Consolidated Financial Statements
    
    
    6-11Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    12-18Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4 Controls and Procedures
    
    
    19PART II OTHER INFORMATIONItem 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 6 Exhibits
    
    
    20Signatures
    
    
    21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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iCAD, Inc.
 
 Balance Sheets
 September 30,
    
    
    December 31,2010
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    18,115,731
    
    
    $
    16,248,031Trade accounts receivable, net of allowance for doubtful
accounts of $50,000 in 2010 and $84,000 in 2009
    
    
    3,118,398
    
    
    
    4,692,614Inventory, net
    
    
    701,507
    
    
    
    1,094,115Prepaid expenses and other current assets
    
    
    503,270
    
    
    
    393,490Total current assets
    
    
    22,438,906
    
    
    
    22,428,250Property and equipment:Equipment
    
    
    2,848,598
    
    
    
    2,873,012Leasehold improvements
    
    
    74,107
    
    
    
    72,612Furniture and fixtures
    
    
    344,700
    
    
    
    344,700Marketing assets
    
    
    292,613
    
    
    
    292,6133,560,018
    
    
    
    3,582,937Less accumulated depreciation and amortization
    
    
    2,773,640
    
    
    
    2,661,083Net property and equipment
    
    
    786,378
    
    
    
    921,854Other assets:Deposits
    
    
    32,126
    
    
    
    63,194Patents, net of accumulated amortization
    
    
    118,536
    
    
    
    90,027Customer relationships, net of accumulated amortization
    
    
    175,894
    
    
    
    200,407Technology intangibles, net of accumulated amortization
    
    
    5,261,636
    
    
    
    6,093,294Tradename, net of accumulated amortization
    
    
    80,600
    
    
    
    99,200Goodwill
    
    
    43,515,285
    
    
    
    43,515,285Total other assets
    
    
    49,184,077
    
    
    
    50,061,407Total assets
    
    $
    72,409,361
    
    
    $
    73,411,511Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    1,109,758
    
    
    $
    1,365,558Accrued salaries and other expenses
    
    
    2,704,726
    
    
    
    2,199,286Deferred revenue
    
    
    3,912,418
    
    
    
    3,139,567Total current liabilities
    
    
    7,726,902
    
    
    
    6,704,411Long-term warranty expense
    
    
    17,088
    
    
    
    23,275Long-term deferred revenue
    
    
    479,035
    
    
    
    375,183Total liabilities
    
    
    8,223,025
    
    
    
    7,102,869Commitments and contingencies (Note 5)Stockholders equity:Preferred stock, $ .01 par value: authorized 1,000,000 shares;
none issued
    
    
    
    
    
    
    Common stock, $ .01 par value: authorized 85,000,000
shares; issued 46,012,496 in 2010 and 45,746,736 in 2009;
outstanding 45,944,620 in 2010 and 45,678,860 in 2009
    
    
    460,125
    
    
    
    457,467Additional paid-in capital
    
    
    151,251,081
    
    
    
    150,062,733Accumulated deficit
    
    
    (86,574,606
    )
    
    
    (83,261,294
    )Treasury stock at cost (67,876 shares)
    
    
    (950,264
    )
    
    
    (950,264
    )Total stockholders equity
    
    
    64,186,336
    
    
    
    66,308,642Total liabilities and stockholders equity
    
    $
    72,409,361
    
    
    $
    73,411,511
 See accompanying notes to consolidated financial statements.
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iCAD, Inc.
 
 Statements of Operations
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009RevenueProducts
    
    $
    4,059,327
    
    
    $
    6,084,567
    
    
    $
    13,987,413
    
    
    $
    17,246,281Service and supplies
    
    
    1,527,030
    
    
    
    1,021,703
    
    
    
    4,216,752
    
    
    
    2,754,874Total revenue
    
    
    5,586,357
    
    
    
    7,106,270
    
    
    
    18,204,165
    
    
    
    20,001,155Cost of revenueProducts
    
    
    544,767
    
    
    
    917,481
    
    
    
    1,769,402
    
    
    
    2,864,806Service and supplies
    
    
    166,750
    
    
    
    164,505
    
    
    
    512,774
    
    
    
    527,201Total cost of revenue
    
    
    711,517
    
    
    
    1,081,986
    
    
    
    2,282,176
    
    
    
    3,392,007Gross margin
    
    
    4,874,840
    
    
    
    6,024,284
    
    
    
    15,921,989
    
    
    
    16,609,148Operating expenses:Engineering and product development
    
    
    1,714,474
    
    
    
    1,702,263
    
    
    
    4,795,946
    
    
    
    5,601,756Marketing and sales
    
    
    2,766,646
    
    
    
    2,577,319
    
    
    
    8,641,393
    
    
    
    8,174,752General and administrative
    
    
    1,804,926
    
    
    
    1,654,909
    
    
    
    6,131,079
    
    
    
    5,206,303Total operating expenses
    
    
    6,286,046
    
    
    
    5,934,491
    
    
    
    19,568,418
    
    
    
    18,982,811Income (loss) from operations
    
    
    (1,411,206
    )
    
    
    89,793
    
    
    
    (3,646,429
    )
    
    
    (2,373,663
    )Other income
    
    
    
    
    
    
    
    
    
    
    275,000
    
    
    
    Interest income (expense)  net
    
    
    18,620
    
    
    
    22,965
    
    
    
    58,117
    
    
    
    88,641Net income (loss)
    
    $
    (1,392,586
    )
    
    $
    112,758
    
    
    $
    (3,313,312
    )
    
    $
    (2,285,022
    )Net income (loss) per shareBasic and Diluted
    
    $
    (0.03
    )
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.03
    )
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    (0.05
    )Weighted average number of shares used
in computing income (loss) per shareBasic
    
    
    45,921,952
    
    
    
    45,620,763
    
    
    
    45,782,449
    
    
    
    45,463,078Diluted
    
    
    45,921,952
    
    
    
    46,101,765
    
    
    
    45,782,449
    
    
    
    45,463,078
 See accompanying notes to consolidated financial statements.
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iCAD, INC.
 
 Statements of Cash Flows
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2009Cash flows from operating activities:Net loss
    
    $
    (3,313,312
    )
    
    $
    (2,285,022
    )Adjustments to reconcile net loss
to net cash provided by operating activities:Depreciation
    
    
    367,137
    
    
    
    604,095Amortization
    
    
    874,839
    
    
    
    877,220Gain on sale of patent
    
    
    (275,000
    )
    
    
    Stock based compensation
    
    
    1,261,225
    
    
    
    1,494,894Changes in operating assets and liabilities:Accounts receivable
    
    
    1,574,216
    
    
    
    1,186,459Inventory
    
    
    392,608
    
    
    
    156,424Prepaid expenses, other current assets and deposits
    
    
    (78,712
    )
    
    
    (70,098
    )Accounts payable
    
    
    (255,800
    )
    
    
    (1,206,057
    )Accrued salaries, warranty and other expenses
    
    
    499,253
    
    
    
    (1,012,598
    )Deferred revenue
    
    
    876,703
    
    
    
    813,885Total adjustments
    
    
    5,236,469
    
    
    
    2,844,224Net cash provided by operating activities
    
    
    1,923,157
    
    
    
    559,202Cash flows from investing activities:Additions to patents, technology and other
    
    
    (28,578
    )
    
    
    (88,549
    )Additions to property and equipment
    
    
    (231,659
    )
    
    
    (126,544
    )Proceeds from sale of patent
    
    
    275,000
    
    
    
    Net cash provided by (used for) investing activities
    
    
    14,763
    
    
    
    (215,093
    )Cash flows from financing activities:Issuance of common stock for cash
    
    
    
    
    
    
    23,494Taxes paid related to restricted stock issuance
    
    
    (70,220
    )
    
    
    Net cash provided by (used for) financing activities
    
    
    (70,220
    )
    
    
    23,494Increase in cash and equivalents
    
    
    1,867,700
    
    
    
    367,603Cash and equivalents, beginning of period
    
    
    16,248,031
    
    
    
    13,115,715Cash and equivalents, end of period
    
    $
    18,115,731
    
    
    $
    13,483,318
 See accompanying notes to consolidated financial statements.
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iCAD, Inc.
 
 Notes to Consolidated Financial Statements
 (Unaudited)
 September 30, 2010
 (1)
    
    Basis of Presentation and Significant Accounting Policies
   Subsequent Events (Topic 855)  Amendments to Certain Recognition and Disclosure
Requirements .
  6




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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2010
 (2)
    
    Net (Loss) Income per Common Share
  
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net (loss) income
    
    $
    (1,392,586
    )
    
    $
    112,758
    
    
    $
    (3,313,312
    )
    
    $
    (2,285,022
    )Basic shares used in the
calculation of net (loss)
income per share
    
    
    45,921,952
    
    
    
    45,620,763
    
    
    
    45,782,449
    
    
    
    45,463,078Effect of dilutive securities:Stock options
    
    
    
    
    
    
    327,574
    
    
    
    
    
    
    
    Restricted stock
    
    
    
    
    
    
    153,428
    
    
    
    
    
    
    
    Diluted shares used in the
calculation of net (loss)
income per share
    
    
    45,921,952
    
    
    
    46,101,765
    
    
    
    45,782,449
    
    
    
    45,463,078Net loss per share  basic
    
    $
    (0.03
    )
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    (0.05
    )Net loss per share  diluted
    
    $
    (0.03
    )
    
    $
    0.00
    
    
    $
    (0.07
    )
    
    $
    (0.05
    )
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock options
    
    
    5,239,307
    
    
    
    3,157,678
    
    
    
    5,239,307
    
    
    
    5,341,355Stock warrants
    
    
    
    
    
    
    936,111
    
    
    
    
    
    
    
    936,111Restricted stock
    
    
    800,242
    
    
    
    31,500
    
    
    
    800,242
    
    
    
    496,4876,039,549
    
    
    
    4,125,289
    
    
    
    6,039,549
    
    
    
    6,773,953
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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2010
 (3)
    
    Stock-Based Compensation
 Compensation
- Stock Compensation,
      8




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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2010
 (4)
    
    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
   (5)
    
    Commitments and Contingencies
   9




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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2010
 (6)
    
    Income Taxes
 Income Taxes .
 (7)
    
    Goodwill
 Intangibles  Goodwill and Other
   10




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iCAD, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2010
 (8)
    
    Recent Accounting Pronouncements
 Business Combinations
  11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Results of Operations
 Overview
    12




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Ô
    13




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Critical Accounting Policies
   Quarter Ended September 30, 2010 compared to Quarter Ended September 30, 2009 and Nine Months
Ended September 30, 2010 compared to Nine Months Ended September 30, 2009
 Revenue.
    14




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Three months ended September 30,2010
    
    
    2009
    
    
    Change
    
    
    % ChangeDigital & MRI CAD revenue
    
    $
    3,311,234
    
    
    $
    4,808,683
    
    
    $
    (1,497,449
    )
    
    
    -31.1
    %Film based revenue
    
    
    748,093
    
    
    
    1,275,884
    
    
    
    (527,791
    )
    
    
    -41.4
    %Service & supply revenue
    
    
    1,527,030
    
    
    
    1,021,703
    
    
    
    505,327
    
    
    
    49.5
    %Total revenue
    
    $
    5,586,357
    
    
    $
    7,106,270
    
    
    $
    (1,519,913
    )
    
    
    -21.4
    %
 Nine months ended September 30,2010
    
    
    2009
    
    
    Change
    
    
    % ChangeDigital & MRI CAD revenue
    
    $
    11,467,862
    
    
    $
    12,685,228
    
    
    $
    (1,217,366
    )
    
    
    -9.6
    %Film based revenue
    
    
    2,519,551
    
    
    
    4,561,053
    
    
    
    (2,041,502
    )
    
    
    -44.8
    %Service & supply revenue
    
    
    4,216,752
    
    
    
    2,754,874
    
    
    
    1,461,878
    
    
    
    53.1
    %Total revenue
    
    $
    18,204,165
    
    
    $
    20,001,155
    
    
    $
    (1,796,990
    )
    
    
    -9.0
    %
 Gross Margin.
 Engineering and Product Development.
  15




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Engineering and Product Development.
 Marketing and Sales.
 General and Administrative.
  16




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Other Income:
 Interest Income/Expense
 Net Income/(Loss).
 Backlog.
 Liquidity and Capital Resources
     17




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Contractual Obligations
  Payments due by periodLess than 1Contractual Obligations
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5+ yearsLease Obligations*
    
    $
    423,745
    
    
    $
    131,425
    
    
    $
    292,320
    
    
    $
    
    
    
    $
    Total Contractual Obligations
    
    $
    423,745
    
    
    $
    131,425
    
    
    $
    292,320
    
    
    $
    
    
    
    $
    
 *
    
    The Companys lease obligations is shown net of sublease amounts. Recent Accounting Pronouncements
 Business Combinations
  18




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
     19




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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
    
    
    purchaed underof shares
    
    
    price paid per
    
    
    announced plans
    
    
    the plans orMonth of purchase
    
    purchased (1)
    
    
    share
    
    
    or programs
    
    
    programsJuly 1  July 31, 2010
    
    
    14,992
    
    
    $
    2.00
    
    
    $
    
    
    
    $
    August 1  August 31, 2010
    
    
    1,403
    
    
    $
    1.94
    
    
    $
    
    
    
    $
    September 1  September
30, 2010
    
    
    540
    
    
    $
    1.73
    
    
    $
    
    
    
    $
    Total
    
    
    16,935
    
    
    $
    1.89
    
    
    $
    
    
    
    $
    
 (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.
  20




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iCAD, Inc. 
(Registrant)Date: November 9, 2010
    By:
    /s/ Kenneth M. FerryKenneth M. FerryPresident, Chief Executive Officer, DirectorDate: November 9, 2010
    By:
    /s/ Darlene M. Deptula-HicksDarlene M. Deptula-HicksExecutive Vice President of Finance
and Chief Financial Officer, Treasurer  21