iCAD(US:ICAD)2024-03-29 20:35PART I Business iCAD leads in AI-powered cancer detection, focusing on breast health and transitioning to a SaaS/DaaS model post-Xoft divestiture - iCAD is a global leader in AI-powered cancer detection, focusing on breast health with its ProFound Breast Health Suite, which offers solutions for detection, density assessment, risk evaluation, and cardiovascular risk1516 - The company is transitioning to a platform-based SaaS/DaaS (Software as a Service/Data as a Service) organization through a three-phase strategy: Realigning our Base, Strengthening our Foundation, and Investing in Growth Initiatives181935 - In October 2023, iCAD sold its Xoft (Cancer Therapy) business line to strengthen its financial position and focus solely on the Cancer Detection segment21264 - The ProFound Breast Health Suite is cleared by the US FDA, has received CE mark and Health Canada licensing, is available in over 50 countries, and has been used for more than 40 million mammograms worldwide in the last five years1730266 - iCAD holds approximately 46% of the US AI mammography market, serving 1,488 facilities out of 3,268 using AI, representing about 17% of the total US market of 8,834 certified facilities3167 - Key strategic initiatives include a 20-year partnership with Google Health to expand 2D AI solutions as an independent second reader and integration with GE Health's MyBreastAI suite3839606274 - The company's next-generation ProFound Detection V4.0, built on deep-learning neural network AI, is under FDA review and is expected to deliver significant improvements in specificity, sensitivity, and AUC (92.5%)3449 - iCAD's products and operations are subject to extensive government regulation as medical devices, including FDA premarket clearance/approval, quality system regulations, and various healthcare laws (anti-kickback, false claims, physician self-referral, data privacy)8283848586878889909293949596979899100101102103104105106107108109110111 - Emerging regulations for AI and machine learning, such as the EU AI Act, are expected to have a material impact on the company's operations, potentially requiring additional compliance measures and changes to its services112113114 Research and Development Expenses | Year Ended December 31, | 2023 (in millions) | 2022 (in millions) | | :---------------------- | :----------------- | :----------------- | | R&D Expense | $5.2 | $5.5 | Employee Headcount (as of December 31, 2023) | Category | Number of Employees | | :----------------------- | :------------------ | | Total Employees | 69 | | Full-time Employees | 67 | | Sales and Marketing | 24 | | Research and Development | 16 | | Service, Manufacturing, QA, Tech Support, Operations | 12 | | Administrative | 15 | Risk Factors The company faces financial, operational, and regulatory risks, including historical losses, SaaS transition, AI challenges, and data privacy - The company has incurred significant losses since inception, with a net loss of approximately $4.9 million in 2023 and an accumulated deficit of $272 million as of December 31, 2023, with no assurance of future profitability137140 - The FDA has indicated that the ProFound AI® Risk product is suitable for classification through the De Novo pathway, leading the company to pause US sales until regulatory clearance is obtained, which could impact commercialization efforts133145146147148 - The company's success in transitioning to a SaaS model is uncertain, with potential for slower or faster adoption than forecasted, impacting revenue recognition and cash flow135136 - Sales and market acceptance are highly dependent on coverage and reimbursement decisions by third-party payers, and cost containment measures in healthcare could adversely affect demand and pricing133154 - The use of AI, machine learning, and automated decision-making technologies in its products (ProFound Breast Health Suite) introduces legal, business, and operational risks, including potential for incorrect design, biased data, cybersecurity threats, and evolving regulatory scrutiny (e.g., EU AI Act)133157158159217 - A limited number of customers and distribution partners account for a significant portion of total revenue; in 2023, GE Healthcare accounted for 22% of total revenue, and one direct customer accounted for 8%161470 - The company's intellectual property, primarily patents, trade secrets, and copyrights, is crucial for its competitive position, but faces risks of challenges, invalidation, infringement, and the finite nature of patent protection138193194 - Compliance with complex and evolving US and foreign laws regarding privacy and data protection (e.g., HIPAA, GDPR) is critical, with potential for significant penalties (up to 4% of worldwide revenue for GDPR breaches) and reputational harm from security breaches138211212213214216218219 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - The company has no unresolved staff comments235 Cybersecurity iCAD integrates cybersecurity risk management with Board oversight and has not experienced material cybersecurity incidents to date - iCAD has integrated cybersecurity risk management into its broader risk management framework, fostering a company-wide culture of cybersecurity awareness237 - The company engages external cybersecurity consultants for threat assessments and security enhancement consultations to leverage specialized knowledge and ensure adherence to industry best practices238 - Stringent processes are in place to oversee and manage third-party cybersecurity risks, including thorough security assessments before engagement and ongoing monitoring239 - The Board's Audit Committee is responsible for cybersecurity risk oversight, receiving regular briefings (at least annually) from the Risk Management Team (CPrO, CTO, COO, CPO) and CEO on threats, initiatives, incidents, and compliance242244 - As of the reporting date, the company has not encountered cybersecurity challenges that have materially impaired its operations or financial standing240 Properties iCAD leases executive offices and warehouse space in Nashua, New Hampshire, and an office in Lyon, France - The company leases approximately 11,000 square feet for its executive offices in Nashua, New Hampshire, with the lease extended through May 31, 2026, at a monthly base rent of $16,983249 - A new 36-month lease for approximately 3,000 square feet of warehouse space in Nashua, New Hampshire, commenced in January 2024, with annual rent payments totaling approximately $46,000 for the entire term250 - iCAD also leases office space in Lyon, France251 Legal Proceedings The company is not currently a party to any material legal proceedings that would adversely affect its financial condition - The company is not currently a party to any material legal proceedings252 Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to iCAD, Inc253 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities iCAD's common stock trades on NASDAQ under 'ICAD', with 80 holders of record, no cash dividends, and no equity repurchases in 2023 - The company's common stock is traded on the NASDAQ Capital Market under the symbol "ICAD"256 - As of March 22, 2024, there were 80 holders of record of the company's common stock257 - The company has not paid any cash dividends on its common stock to date and does not expect to pay cash dividends in the foreseeable future258 - The company did not have any repurchases of equity securities in the year ended December 31, 2023260 Reserved This item is reserved and contains no information - Item 6 is reserved262 Management's Discussion and Analysis of Financial Condition and Results of Operations iCAD's 2023 revenue decreased by 12.5%, operating expenses fell 16.8%, and net cash used in operations improved by 61%, supported by the Xoft sale - iCAD completed the sale of its Xoft (Therapy) business line on October 23, 2023, and now operates as a single reporting segment: Cancer Detection The results of Xoft's operations are reflected as discontinued operations264 Revenue Components (in thousands) | Category | 2023 | 2022 | $ Change | % Change | | :--------------- | :---------- | :---------- | :---------- | :--------- | | Product revenue | $9,930 | $12,620 | $(2,690) | (21.3)% | | Services revenue | $7,388 | $7,182 | $206 | 2.9% | | Total Revenue| $17,318 | $19,802 | $(2,484)| (12.5)%| - The decrease in total revenue is primarily attributed to reduced demand, a reduction in the sales force, and a strategic shift towards a subscription model, alongside continued weakness in post-pandemic recovery269 Gross Profit (in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :----------------- | :---------- | :---------- | :---------- | :--------- | | Total Cost of Revenue | $2,533 | $2,983 | $(450) | (15.1)% | | Gross Profit | $14,785 | $16,819 | $(2,034) | (12.1)% | | Gross Profit % | 85.4% | 84.9% | | | Operating Expenses (in thousands) | Expense Category | 2023 | 2022 | $ Change | % Change | | :------------------------------ | :---------- | :---------- | :---------- | :--------- | | Engineering and product development | $5,161 | $5,493 | $(332) | (6.0)% | | Marketing and sales | $7,740 | $10,790 | $(3,050) | (28.3)% | | General and administrative | $9,324 | $10,517 | $(1,193) | (11.3)% | | Amortization and depreciation | $249 | $217 | $32 | 14.7% | | Total Operating Expenses | $22,474 | $27,017 | $(4,543)| (16.8)%| Other Income, Tax and Expense (in thousands) | Item | 2023 | 2022 | $ Change | % Change | | :------------------------------------ | :---------- | :---------- | :---------- | :--------- | | Interest expense | $(16) | $(10) | $(6) | 60.0% | | Interest income | $729 | $213 | $516 | 242.3% | | Income tax expense (benefit) | $(20) | $116 | $(136) | (117.2)% | | Income (loss) from discontinued operations, net of tax | $2,163 | $(3,738) | $5,901 | (157.9)% | - Cash and cash equivalents totaled $21.7 million as of December 31, 2023, an increase of approximately $0.4 million year-over-year, primarily due to the sale of the Xoft business line283 - Net cash used for operating activities improved by approximately 61% year-over-year, decreasing from $12.8 million in 2022 to $5.0 million in 2023, driven by cost savings initiatives284 - Net cash provided by investing activities was $3.3 million in 2023, a significant improvement from $0.5 million used in 2022, mainly due to $4.5 million (net) from the Xoft sale, partially offset by investments in a new ERP system285 - Net cash provided by financing activities was $2.0 million in 2023, primarily from the At-the-Market (ATM) sales of common stock286 Quantitative and Qualitative Disclosures About Market Risk The company is not materially exposed to foreign currency risk, with most transactions in USD, and does not use derivative instruments - The company does not believe it is subject to material foreign currency exchange rate fluctuations, as most sales and expenses are denominated in the U.S. dollar305 - iCAD does not hold derivative securities or engage in contracts with embedded derivative instruments305 Financial Statements and Supplementary Data This section incorporates audited consolidated financial statements and notes, detailing iCAD's financial position, operating results, cash flows, and equity Report of Independent Registered Public Accounting Firm BDO USA, P.C. issued an unqualified opinion on iCAD's 2023 and 2022 consolidated financial statements, with revenue contract performance obligations as a critical audit matter - BDO USA, P.C. issued an unqualified opinion on the consolidated financial statements for the years ended December 31, 2023 and 2022334 - The determination of distinct performance obligations within certain revenue contracts was identified as a critical audit matter due to the judgment and subjectivity involved338339 Consolidated Balance Sheets As of December 31, 2023, total assets decreased to $41.4 million from $51.7 million in 2022, mainly due to the Xoft divestiture Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2023 | December 31, 2022 | | :-------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $21,670 | $21,313 | | Total current assets | $29,678 | $38,241 | | Property and equipment, net | $1,823 | $704 | | Goodwill | $8,362 | $8,362 | | Total assets | $41,418 | $51,705 | | Total current liabilities | $6,748 | $13,452 | | Total liabilities | $8,001 | $16,803 | | Total stockholders' equity | $33,417 | $34,902 | - The decrease in total assets and liabilities is largely attributable to the classification and subsequent sale of the Xoft business line's assets and liabilities as held for sale in 2022 and completed in 2023344357361 Consolidated Statements of Operations iCAD reported a net loss of $4.8 million in 2023, a significant improvement from $13.7 million in 2022, driven by discontinued operations gain Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 2023 | 2022 | | :-------------------------------------- | :---------- | :---------- | | Total revenue | $17,318 | $19,802 | | Gross profit | $14,785 | $16,819 | | Total operating expenses | $22,474 | $27,017 | | Loss from operations | $(7,689) | $(10,198) | | Other income, net | $699 | $164 | | Loss from continuing operations | $(7,010) | $(9,918) | | Income (loss) from discontinued operations | $2,163 | $(3,738) | | Net loss and comprehensive loss | $(4,847)| $(13,656)| | Net loss per share, basic and diluted | $(0.19) | $(0.54) | - The significant improvement in net loss is primarily due to a $2.6 million gain on the sale of discontinued operations (Xoft business) in 2023, offsetting operational losses from that segment earlier in the year281346360 Consolidated Statements of Stockholders' Equity Stockholders' equity decreased to $33.4 million in 2023 from $34.9 million in 2022, due to net loss and stock issuance Stockholders' Equity Changes (in thousands) | Metric | December 31, 2023 | December 31, 2022 | | :--------------------------- | :---------------- | :---------------- | | Balance at beginning of year | $34,902 | $46,517 | | Issuance of common stock, net| $1,966 | — | | Stock-based compensation | $1,316 | $1,686 | | Net loss | $(4,847) | $(13,656) |\ | Balance at end of year | $33,417 | $34,902 | - The company issued 1,057,814 shares of common stock in 2023 at a weighted average price of $2.18 per share, generating $2.0 million in cash proceeds (net of issuance costs) through an At-the-Market (ATM) sales agreement349445 Consolidated Statements of Cash Flows In 2023, net cash used for operating activities decreased to $5.0 million, with investing activities providing $3.3 million from the Xoft sale Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 2023 | 2022 | | :---------------------------------- | :---------- | :---------- | | Net cash used for operating activities | $(4,964) | $(12,790) | | Net cash provided by (used for) investing activities | $3,275 | $(534) | | Net cash provided by financing activities | $2,046 | $355 | | Increase (decrease) in cash and cash equivalents | $357 | $(12,969) | | Cash and cash equivalents, end of year | $21,670 | $21,313 | - Proceeds from the sale of the Xoft business, net of transaction costs, contributed $4.5 million in cash from investing activities in 2023352 - Issuance of common stock for cash, net, provided $2.0 million in financing activities during 2023352 Notes to Consolidated Financial Statements The notes detail iCAD's accounting policies, Xoft as discontinued operations, revenue recognition, and recent accounting pronouncements - The company completed the sale of its Xoft business line in October 2023, and its results are now reported as discontinued operations, with assets and liabilities classified as held for sale in prior periods355357360361 - iCAD adopted ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326)" effective January 1, 2023, modifying its approach to estimating allowance for expected credit losses, though it did not have a material impact371415 - New accounting standards, ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures), are effective for fiscal years beginning after December 15, 2023, and 2024, respectively, and are currently being evaluated for disclosure requirements416417 Revenue Disaggregation by Sales Channels (in thousands) | Sales Channels | 2023 | 2022 | | :---------------- | :---------- | :---------- | | Direct sales force| $11,634 | $12,468 | | OEM partners | $5,684 | $7,334 | | Total | $17,318 | $19,802 | Net Loss Per Share (in thousands, except per share amounts) | Metric | 2023 | 2022 | | :-------------------------------------- | :---------- | :---------- | | Loss from continuing operations | $(7,010) | $(9,918) | | Income (loss) from discontinued operations | $2,163 | $(3,738) | | Net loss | $(4,847) | $(13,656) | | Weighted average shares (basic & diluted)| 25,613 | 25,202 | | Net loss per share (basic & diluted) | $(0.19) | $(0.54) | Goodwill and Intangible Assets (in thousands) | Asset Category | 2023 Gross Carrying Amount | 2022 Gross Carrying Amount | 2023 Net | 2022 Net | | :------------------------- | :------------------------- | :------------------------- | :------- | :------- | | Goodwill | $8,362 | $8,362 | $8,362 | $8,362 | | Total amortizable intangible assets, net | $148 | $264 | | | - As of December 31, 2023, the company has federal net operating loss carryforwards totaling approximately $158.4 million, with $48.6 million carried forward indefinitely and the remainder expiring between 2024 and 2037 A valuation allowance has been provided for U.S. federal and state NOLs460 - The company operates as one reportable operating segment: Detection, following the divestiture of the Xoft business466 - In January 2024, the company entered into a new 36-month lease for warehouse space in Nashua, NH, commencing February 1, 2024478 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure307 Controls and Procedures Management concluded iCAD's disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2023308 - Management assessed the effectiveness of internal control over financial reporting using the COSO 2013 framework and concluded it was effective as of December 31, 2023312 - No material changes in internal control over financial reporting occurred during the fourth quarter of the year ended December 31, 2023313 Other Information There is no other information to report under this item - There is no other information to report under this item314 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections There are no disclosures regarding foreign jurisdictions that prevent inspections - There are no disclosures regarding foreign jurisdictions that prevent inspections315 PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the company's 2024 Proxy Statement317 Executive Compensation Information on executive compensation is incorporated by reference from the company's 2024 Proxy Statement - Information for this item is incorporated by reference from the company's 2024 Proxy Statement318 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the company's 2024 Proxy Statement319 Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the company's 2024 Proxy Statement320 Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the company's 2024 Proxy Statement - Information for this item is incorporated by reference from the company's 2024 Proxy Statement321 PART IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Annual Report on Form 10-K, including financial statements, schedules, and exhibits - The section includes financial statements, financial statement schedules, and a list of exhibits filed with the Annual Report on Form 10-K323 - Exhibits include the At-The-Market Issuance Sales Agreement, Asset Purchase Agreement for Xoft business, Certificate of Incorporation, Amended and Restated By-laws, various employment and lease agreements, and certifications323325 Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided326