2016 Annual Report Focus on Growing Opportunities in Cancer Treatment
2016 also brought increased awareness of our Xoft®
Electronic Brachytherapy (eBx®) System® in the
treatment of nonmelanoma skin cancer (NMSC) and
early-stage breast cancer. This technology platform,
with the ability to target radiation therapy directly to a
tumor site, is supported by a growing body of clinical
data, consistently demonstrating eBx to be as safe
and effective as a traditional radiation treatment for
appropriate selected patients.
With a growing incidence rate of NMSC and our ability
to treat lesions in a painless, non-invasive manner,
we believe that our skin eBx system represents a
significant market opportunity for us. In 2016, our
revenues in skin eBx were negatively impacted by
the disruption initially caused in 2015 related to the
uncertainty of reimbursement codes and payment
rates for the treatment of NMSC. In January 2016,
new skin-specific level III reimbursement codes
for skin eBx were established in the U.S. As 2016
progressed, dermatologists became aware of the new
reimbursement levels, and we experienced growth in
new sites and procedure volumes which continued
into the first half of 2017. Supporting this growth, we
have completed targeted investments to improve our
onboarding process for new customers and selectively
added marketing resources to support dermatologists in
attracting new patients to their practice.
As part of our long-term strategy to secure national
reimbursement for our skin cancer treatment, we
continued to make strategic investments in clinical
trials. In 2016, we completed one such key study, which
compared patients treated with electronic brachytherapy
to those with similar lesions treated with Mohs surgery.
This important and encouraging data, published in a
peer-reviewed medical journal, indicated that the Xoft
skin eBx system delivered a cancer recurrence rate similar
to Mohs surgery at 3 years of patient follow-up.
Dear Shareholder:
In 2016, we made significant progress in advancing our
key product lines and enhancing our market presence.
This led to the strengthening of our competitive position,
and presents us with expanded and new opportunities
for revenue growth in the years ahead. On both the
cancer detection and therapy sides of our business, our
team is moving forward with key initiatives in clinical
research, product and pipeline development and new
market development, all aimed at building commercial
opportunities around the world.
Delivering Leading-Edge Technology in Cancer
Detection
We continued to deliver innovative software and
launched a revolutionary new workflow and cancer
detection solution built on artificial intelligence and
deep learning, which enhances 3D tomosynthesis breast
exams. Our PowerLook® Tomo Detection software was
CE marked in Europe in April 2016, and we received
PMA approval from the FDA in March of 2017. This is
the first product of its kind in the breast health market,
and we are extremely excited about its potential. While
delivering considerable advantages to patients and
clinicians, Powerlook Tomo Detection is a proven-
effective technology and presents us with a major new
substantial opportunity for global growth.
Our cancer detection software now has a platform of
over 5,000 existing installed customers. This large
installed base positions us well to rapidly leverage the
advantages of our tomosynthesis cancer detection
software, a landmark workflow tool with the potential
to transform breast cancer detection capabilities for
radiologists. The installation of our PowerLook software
in existing 3D tomosynthesis platforms and potential
conversion of 2D platforms represents a significant
market opportunity for iCAD of over $250 million, as well
as ongoing software maintenance fees.
In addition to our direct sales efforts, the PowerLook
Tomo Detection software is being offered to customers
through a partnership with the GE Healthcare. Together,
we are marketing the PowerLook Tomo Detection
software to both current and potential new customers.
Strong initial interest in the product reflects the need
for interpretive tools to support radiologists in reading
data-intensive exams in an accurate and efficient manner.
iCAD’s U.S. clinical reader study demonstrated that
radiologists could improve throughput by reducing their
average reading time by approximately 30% without
compromising detection accuracy
Board of Directors
Dr. Lawrence Howard (2)
Chairman of the Board, General Partner, Hudson Ventures, LP
Ken Ferry
Chief Executive Officer, iCAD, Inc.
Rachel Brem, M.D.(2), (3)
Director of Breast Imaging and Intervention Center
Professor & Vice Chair, Department of Radiology
The George Washington University Medical Center
Anthony F. Ecock (1), (3)
Managing Director,
The Carlyle Group
Steven Rappaport (1)
Partner, RZ Capital, LLC
Somu Subramaniam (2), (3)
Managing Partner and Co-founder of New Science Ventures
Robert Goodman, M.D.
University of Pennsylvania School of Medicine
Elliot Sussman, M.D. (1), (2)
Chairman of The Villages Health and Professor of Medicine
at the University of South Florida College of Medicine
Andrew H. Sassine
Director
Executive Officers
Ken Ferry
Chief Executive Officer
Richard Christopher
Executive Vice President, Chief Financial Officer
Stacey Stevens
Executive Vice President, Chief Strategy and Commercial Officer
(1) Audit Committee Member
(2) Compensation Committee Member
(3) Nominating & Corporate Governance Committee Member
Global Headquarters
98 Spit Brook Road, Suite 100
Nashua, NH 03062 USA
+1 866 280 2239 toll free
+1 603 882 5200 phone
+1 603 218 6658 fax
www.icadmed.com
Offices
101 Nicholson Lane
San Jose, CA 95134 USA
+1 866 280 2239 toll free
+1 408 493 1500 phone
+1 408 493 1501 fax
www.xoftinc.com
Stock Information
NASDAQ Ticker Symbol:
ICAD
Investor Relations
LifeSci Advisors
Bob Yedid,
646-597-6989
Bob@lifesciadvisors.com
Public Relations
ARPR, LLC
Erin Bocherer
erin@arpr.com
+1 855 300 8209 ext 120 phone
Sales
sales@icadmed.com
+1 866 280 2239 toll free
+1 603 882 5200 phone
Service and Support
support@icadmed.com
+1 866 280 2239 toll free
+1 603 882 5200 phone
Transfer Agent
Continental Stock
Transfer & Trust Company
1 State Street, 30th Floor
New York, NY 10004-1561
Independent Auditors
BDO USA, LLP
Boston, MA
Legal Counsel
Blank Rome, LLP
New York, NY
1
iCAD | 2016 Annual Report
Ken Ferry
Chief Executive Officer
© 2017, iCAD Inc. All rights reserved. iCAD, the PowerLook logos, Xoft, the Xoft logo, Axxent, Electronic Brachytherapy System and eBx are registered trademarks of iCAD, Inc.
Reproduction of any of the material contained herein in any format or media without the express written permission of iCAD, Inc. is prohibited.
Looking Forward to Maximizing Our Opportunities
As we work to take steps to maximize our opportunities
for growth in cancer detection and therapy, we
once again thank our shareholders, team members,
customers, and industry partners for your support.
Looking forward, we will continue to focus on effective
execution in order to achieve new levels of success,
while remaining dedicated to our core mission of making
a positive difference in the lives of people affected by
cancer.
Sincerely,
Ken Ferry
Chief Executive Officer
In our Intra-Operative Radiation Therapy (IORT) business
for breast and gynecological applications, we now
have over 60 sites treating, with over half of the sites
located outside of United States. Physician adoption
continues to grow, as measured by our disposable
balloon applicator sales, which increased by 19%
globally. To support this growth, we are investing
in, and are intently focused on, achieving regulatory
approvals in key international markets, such as China,
India, Egypt, and Saudi Arabia. Our long-term strategy
is to expand our applicator line to allow physicians to
treat additional cancers in more body locations. Building
on this momentum, iCAD is currently conducting one
of the largest breast IORT clinical studies to date, with
approximately 1,000 patients enrolled, using the Xoft
System. We remain committed to expanding the body
of literature demonstrating the proven efficacy and safety
of this important treatment for women with early-stage
breast cancer.
A Continuing Commitment to Research and
Innovation
With our business focus in cancer detection and
treatment, we are targeting two of the largest areas of
unmet need in global health. Our success will continue
to be driven by our investments in research, product
development and innovation, combined with marketing
and education programs for patients and clinicians.
As noted above, we are investing in clinical trials,
which have already reported important clinical data,
or expect them to in the near future. We expect
these trials to enhance clinical understanding and
adoption of each of our key product lines including 3D
tomosynthesis detection software, skin eBx and breast
and gynecological IORT treatments.
We believe our most compelling opportunity is with our
3D PowerLook Tomo Detection system. This innovative
technology is an excellent example of iCAD’s capabilities
in the emerging fields of Artificial Intelligence (AI) and
machine learning software platforms. This proprietary
software is one of the first implementations of AI and
machine learning in healthcare, and is already generating
meaningful revenues as a PMA-approved platform. The
launch of the PowerLook Tomo Detection software
demonstrates our core expertise in this field. We are in
the process of developing a roadmap to broaden our
AI product offerings beyond breast cancer detection
to other diagnostic applications. We have a robust
platform and significant development experience in this
area, and we look forward to expanding our portfolio of
solutions in the coming years.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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
(State or other jurisdiction
of incorporation or organization)
98 Spit Brook Road, Suite 100,
Nashua, New Hampshire
(Address of principal executive offices)
02-0377419
(I.R.S. Employer
Identification No.)
03062
(Zip Code)
Registrant’s telephone number, including area code: (603) 882-5200
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Common Stock, $.01 par value
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes___ No X .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes___ No X
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 X No___
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 X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
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 ____
Non-accelerated filer ____
Smaller reporting company X
(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 Act). Yes___ No X .
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price for the registrant's
Common Stock on June 30, 2016 was $70,242,336. Shares of voting stock held by each officer and director and by each person who, as
of June 30, 2016, may be deemed to have beneficially owned more than 10% of the outstanding voting stock have been excluded. This
determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose.
As of March 21, 2017, the registrant had 16,157,466 shares of Common Stock outstanding.
Documents Incorporated by Reference: Certain portions of the registrant’s definitive Proxy Statement for its 2017 Annual Meeting
of Stockholders are incorporated by reference into Items 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K.
“ Saf e H arbor ” Statement under the P riva te Securities L
itigation Ref orm A ct of 1995:
’ s ab ility to def end itself in litigation matters, to achiev e b usiness and strategic ob
Certain inf ormation included in this annual report on Form 10-K that are not historical f acts contain f orward look ing
statements that inv olv e a numb er of k nown and unk nown risk s, uncertainties and other f actors that could cause the actual
results, perf ormance or achiev ements of the Company to b e materially dif
f erent f rom any f uture results, perf ormance or
achiev ement expressed or implied b
y such f orward look ing statements. These risk s and uncertainties include, b ut are not
j ectiv es, the
limited to, the Company
risks of uncertainty of patent protection, the impact of supply and manufacturing constraints or difficulties, uncertainty of
f uture sales lev els, protection of patents and other proprietary rights, the impact of supply and manuf acturing constraints
or difficulties, product market acceptance, possible technological obsolescence of products, increased competition,
litigation and/ or gov ernment regulation, changes in M edicare reimb ursement policies, risk s relating to our existing and
f uture deb t ob ligations, competitiv e f actors, the ef
and other risks detailed in this report and in the Company’s other filings with the United States Securities and Exchange
Commission (“SEC”). The words “believe”, “demonstrate”, “intend”, “expect”, “estimate”, “anticipate”, “likely”, “seek”,
“would”, “could”, “may”, “consider”, “confident” and similar expressions identify forward-looking statements. Readers
are cautioned not to place undue reliance on these f orward-look ing statements, which speak only as of the date the
statement was made. Unless the context otherwise requires, the terms “iCAD”, “Company”, “we”, “our” “registrant”, and
“us” means iCAD, Inc. and any consolidated subsidiaries.
f ects of a decline in the economy or mark ets serv ed b
y the Company
I tem
1
.
G eneral
u si ness.
PA
I
iCAD, Inc. is an industry-leading provider of advanced image analysis, workflow solutions and radiation therapy for
the early identification and treatment of cancer. The Company reports in two operating segments: Cancer Detection
(“Detection”) and Cancer Therapy (“Therapy”). The Company was incorporated in 1984 as Howtek, Inc. under the laws
of the state of Delaware. In 2002 the Company changed its name to iCAD, Inc. and changed its ticker symbol to ICAD.
The iCAD website is www.i cadmed.c om. On this webs ite the f ollowing documents are ava ilabl e at no charge: annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange
Act”), as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to,
the SEC. Our SEC filings are also available on the SEC’s website at http:
lternative ly , you may access
any document we have filed by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-
0330. The information on the website listed above, is not and should not be considered part of this annual report on
Form 10-K and is not incorporated b
ef erence in this document.
/ www.s ec.gov
y r
. A
The Company’s headquarters are located in Nashua, New Hampshire, with manufacturing facilities in Nashua, New
H ampshire and, an operations, research, deve lopment, manuf acturing and warehousing f acility in San J ose, Calif ornia.
C om pany O
ve rv
i ew
and
S trateg
iCAD continues to evolve from a business focused on image analysis for the early detection of cancers to a broader
playe r in the oncology marke t. The Company
solutions that address f our ke y stages of the cancer care cyc le: detection, diagnosis, treatment and monitoring. The
Company
be lieve s that early detection, together with earlier targeted interve ntion, provi des patients and healthcare
provi ders with the be st tools ava ilabl e to achieve be tter clinical outcomes resulting in marke t demand that will drive
adoption of iCAD’s solutions.
’ s strategy is to provi de customers with a br oad portf olio of oncology
Cancer Therapy:
is the medical use of ioniz ing radiation, generally as part of cancer treatment to control or ki ll
Radiation therapy
malignant cells. Radiation therapy may
b e curativ e in a numbe r of type s of cancer if the cancer cells are localiz ed
to one area of the body. It may also be used as part of curative therapy to prevent tumor recurrence after surgery to
remove a primary malignant tumor (for example, early stages of breast cancer). The clinical goal in radiation oncology
is to delive r the highest radiation dose possibl e directly to the tumor to ki ll the cancer cells while minimiz ing radiation
loba l incidence
exposure to healthy
tissue surrounding the tumor in order to limit complications and side ef
f ects. G
1
R
T
B
/
y
rates of new cancer cases are rising, primarily due to aging populations and changing lif estyl e habi ts. H oweve r,
survi va l rates are also improvi ng as a result of earlier detection and enhanced treatment options.
The three main type s of radiation therapy are external be am radiation therapy (“EBRT”), brachytherapy or sealed
source radiation therapy , and sys temic radioisotope therapy or unsealed source radiotherapy
f erences
relates to the position of the radiation source; external is outside the body
, br achyt herapy uses sealed radioactive
inf usion or oral ingestion.
sources placed precisely
Brachytherapy uses temporary or permanent placement of radioactive sources. Conventional EBRT typically involves
multiple treatments of a tumor in up to 50 radiation sessions (fractions). In the case of brachytherapy, radiation of
healthy tissues further away from the sources is reduced. In addition, if the patient moves or if there is any tumor
movement within the body during treatment, the radiation source(s) retain their correct position in relation to the
tumor. These aspects of brachytherapy offer advantages over EBRT in that brachytherapy is able to direct high doses
of radiation to the siz e and shape of the cancerous area while sparing healthy t issue and organs.
in the treatment area, and sys temic radioisotopes are give n b
. One of the dif
y
Brachytherapy is commonly used as an effective treatment for endometrial, cervical, prostate, breast, and skin cancer,
and can also be used to treat tumors in many other body sites. Electronic Brachytherapy (eBx) is a type of radiotherapy
that utiliz es a miniaturiz ed high dose rate X
Axxent® Electronic Brachytherapy (eBx®) System® (“Xoft System”) is a proprietary electronic brachytherapy
platform designed to deliver isotope-free (non-radioactive) radiation treatment in virtually any clinical setting without
the limitations of radionuclides.
radiation directly to the cancerous site. The X of t®
-ray source to apply
The process f or deliv ering radiation therapy ty pically includes a radiation oncologist, a medical phys icist responsibl e
for planning the treatment and performing appropriate quality assurance procedures and, in certain instances, other
specialty phys icians depending upon the type of cancer e.g. a br east surgeon f or br east cancer, a dermatologist f or ski n
cancer, a gyne cologist f or endometrial or cervi cal cancer.
The Company’s Xoft System is a disruptive radiation oncology treatment solution with significant cost, mobility,
and treatment time advantages over its competitors or other standards of care. While the primary applications of this
system currently are localized breast cancer treatment using a ten to fifteen minute breast Intraoperative Radiation
Therapy (“IORT”) protocol and the treatment of non-melanoma skin cancers (“NMSC”), the Xoft System platform
can also be used to treat a wide and growing array of additional cancers, including gyne cological and other non-br east
IORT clinical indications.
There are approximately 300,000 new cases of breast cancer in the United States each year. The Company believes
that the Xoft System is uniquely well positioned to offer a differentiated treatment alternative for the approximately
111,000 of these 300,000 annual new cases of early stage breast cancer in the U.S. where patients fit the clinical criteria
to make this treatment a viable alternative to conventional radiation treatments. The Xoft System does not require a
shielded envi ronment and is relative ly small in siz e, which means that it can easily
be transported f or use in vi rtually
any clinical setting (including the operating room where IORT is delivered) under radiation oncology supervision. The
Xoft System may also be used for Accelerated Partial Breast Irradiation (“APBI”), which can be delivered twice daily
for five days. There is a growing body of clinical evidence in support of breast IORT and Category I Current Procedural
Terminology (“CPT”) codes have been in place for several years, providing reimbursement for the hospital, radiation
oncologist, and surgeon for performing the IORT treatment.
Basal and Squamous Cell Carcinoma are two of the most prevalent types of NMSC in the U.S., with more than
3.5 million cases being diagnosed annually. The Xoft System enables radiation oncologists and dermatologists
to collabo rate in of
f ering their patients a non-surgical treatment option that is particularly appropriate f or certain
challenging lesion locations on the ear, f ace, scalp, neck and extremities. X of t provi des comprehensive ski n cancer
treatment solutions to the dermatology marke t including all the necessary components to enabl e dermatologists and
radiation oncologists to deve lop, launch and expand their electronic br achyt herapy programs f or the treatment of
NMSC. Xoft also offers physics support, billing support, assistance with radiation oncology provider selection, as
well as the A xxent H ub web- ba sed sof tware platf orm that enabl es centers to improve patient saf ety , conduct treatment
planning, enhance and monitor workflow, and improve communication between clinical specialties.
In May 2015 the Company announced that one of the regional Medicare Administrative Contractors instructed
physicians to report CPT code (17999) rather than the established CPT code (0182T) for electronic brachytherapy for
treatment of NMSC. This announcement resulted in a significant disruption in the Therapy segment as a result of the
reimbursement uncertainty. Revenues for the years ended December 31, 2015 and December 31, 2016 were negatively
impacted as a result of the uncertainty. In January 2016 a new CPT code (0394T) for the treatment on non-melanoma
skin cancer utilizing electronic brachytherapy went into effect. Despite the new codes, the Company believes that
potential customers were still cautious in starting treatments under this code during 2016.
2
cove rage policies adopted b
f actors disclosed in this annual report the Company
f ected
A s the Company has noted in the risk
edicaid, as well
y
as priva te paye rs, which of ten f ollow the cove rage policies of these publ ic programs. Such policies may af
f ect which
products customers purchase and the prices customers are willing to pay f or those products in a particular j urisdiction.
The change in CPT codes for the Company’s electronic brachytherapy treatment of NMSC had a negative impact on
the Company’s revenues for the fiscal years ended December 31, 2015 and December 31, 2016.
f ederal and state gove rnmental authorities, such as M
’ s bus iness can be af
edicare and M
y
In connection with the preparation of the financial statements for the second quarter ended June 30, 2015, the Company
eva luated the Therapy reporting unit f or bot h long-live d asset and goodwill impairment. A s a result of this assessment,
the Company recorded material impairment charges in the Therapy reporting unit (see Note h and Note i to the
consolidated financial statements included herein for additional discussion).
The Company views additional Xoft System platform indications as important opportunities in both the U.S. and
international marke ts. The X of t Sys tem is also marke ted f or gyne cological cancers including endometrial and cervi cal
cancer. In 2013 the Company received FDA clearance for an application for the treatment of cervical cancer and
launched a new applicator to treat cervical cancer in 2015. Vaginal cancer is the fourth most common cancer affecting
women worldwide and cervical cancer incidence rates outside of the U.S. are very high due to inadequate penetration
of screening modalities. The Company
be lieve s an additional strategic growth opportunity exists in the application
of the Xoft System for the treatment of other cancers beyond NMSC and breast cancer in the IORT setting including
integration with minimally invasive surgical techniques and systems.
Cancer Detection:
Approximately 40 million mammograms were performed in the U.S. in 2016. Although mammography is the most
effective method for early detection of breast cancer, studies have shown that an estimated 20% or more of all breast
cancers go undetected in the screening stage. M ore than half of the cancers missed are due to obs erva tional errors.
CAD, when used in conjunction with mammography, has been proven to help reduce the risk of these observational
errors by as much as 20%. Earlier cancer detection typically leads to more effective, less invasive, and less costly
treatment options which ultimately s hould translate into improve d patient survi va l rates.
The Company
intends to address the detection and diagnosis stages of the cancer care cyc le through continued
extension of its image analys is and clinical decision support solutions f or mammography , br east tomosynt hesis,
and CT imaging. iCAD believes that advances in digital imaging techniques should bolster its efforts to develop
additional commercially viable CAD and breast density assessment advanced image analysis and workflow products.
CAD and density assessment for breast tomosynthesis is a growth area which the Company believes will provide
additional benefits for early breast cancer detection. The Company believes that CAD and breast density assessment
for tomosynthesis has the potential to help radiologists better detect cancer and manage the workflow efficiency
issues created by large 3D datasets. The Company completed development of a tomosynthesis CAD and workflow
tool in 2015 and launched the product in the European market in April 2016 and in Canada in June 2016. Pending
FDA clearance, the Company expects to begin marketing the product in the U.S. in conjunction with GE Healthcare
in the first half of 2017. The Company also developed a breast density assessment product for tomosynthesis that
assesses breast density using 2D synthetic images that are generated from 3D tomosynthesis datasets. The Company’s
tomosynthesis breast density solution is currently pending FDA clearance.
The Company believes that the CAD and breast density assessment solutions for breast tomosynthesis may represent
a significant growth opportunity over the next three to five years. With over 12,000 installation opportunities for
tomosynthesis systems in the U.S., there is a significant future opportunity for CAD and density assessment solutions
for tomosynthesis. The Company anticipates that CAD for tomosynthesis will become the standard of care in the near
future, similar to what CAD for 2D mammography is today in the U.S.
In the U.S., approximately 8,747 facilities (with approximately 16,959 full field digital mammography (“FFDM”)
and tomosynthesis mammography systems) were Mammography Quality Standards Act (MQSA) certified to provide
mammography screening in 2016. The majority of these centers are using 2D digital mammography FFDM systems
and we believe approximately 25% of the market has converted to 3D mammography or tomosynthesis.
With several European countries currently exploring the advantages of radiologists reading digital mammograms with
CAD, the Company believes there is growth opportunity for mammography CAD in the international markets both
from the analog to digital conversion and as more countries accept the use of radiologists using CAD, rather than
two radiologists having to read each case. Based on the report published by the European Commission in April 2012,
br east cancer is one of the most preva lent f orms of cancer and it is also responsib le f or the most cancer-related deaths
among women in the European Union (“EU”). The number of expected breast cancer cases based on the 2012 report
. On ave rage
was expected to continue to rise as the incidence of cancer increases steeply with age and lif e expectancy
3
b
one out of every 10 women in the EU is expected to develop breast cancer at some point in her life. As a result, most
countries in Western Europe have or are planning to implement mammography screening programs resulting in an
expected increase in the numbe r of mammograms perf ormed in the coming ye ars.
Although sales of CAD with 2D mammography in Europe have been historically lower than in the U.S., the Company
believes sales of its CAD for tomosynthesis will be adopted with a higher attachment rate in Europe than previously
due to workflow improvements and reading time reduction that we believe the solution will offer.
Reve nue:
The tabl e be low presents the rev enue and percentage of reve nue attribut abl e to the Company
in 2016, 2015 and 2014 (in thousands):
’ s products and servi ces,
F or th e y ear end ed
D ecem
b er 3
D etection:
igital &
M RI CA
rev enue
eunever desab mliF
Serv ice
D etection rev enue
Therapy
P roduct
Serv ice
Therapy rev enue
$
8,682
-
8,451
17,133
33. 0%
%0.0
%1.23
%1.56
$
11,216
01
710,8
342,91
27. 0%
%0.0
%3.91
%3.64
$
9,765
713
225,8
406,81
22. 2%
%7.0
%4.91
42. 4%
1,789
7,416
9,205
%8.6
%2.82
%9.43
279,2
933,91
113,22
%2.7
%5.64
%7.35
106,8
917,61
023,52
%6.91
38. 1%
57. 6%
Total rev enue
$
26,338
100. 0%
$
41,554
%0.001
$
429,34
%0.001
C ancer T
h erapy S
eg
ent O
ve rv
i ew
and
Prod
u cts
The X of t Sys tem utiliz es a miniaturiz ed high dose rate ye t low energy
-ray source to apply radiation directly to the
cancerous site. The goal is to direct the radiation dose to the siz e and shape of the cancerous area while sparing healthy
tissue and organs. The X of t Sys tem delive rs clinical dose rates similar to traditional radioactive sys tems. H oweve r,
f is much f aster, thus lowering the radiation
be cause of the electronic nature of the X of t technology , the dose f all of
f , there is no need f or a lead va ult as compared to
exposure outside of the prescribe d area. G
traditional isotope ba sed radiation therapy , enabl ing the X of t Sys tem to be transported to dif
f erent locations within the
same f acility or be tween multiple f acilities.
ive n this rapid dose f all of
IORT Electronic Brachytherapy can be delivered during an operative procedure, in as little as eight minutes, and may be
used as a primary or secondary modality ove r a course of days . This technology enabl es radiation oncology departments
in hospitals, clinics and physician offices to perform traditional radiotherapy treatments and offer advanced treatments
such as IORT. Current customers of the Xoft System include university research and community hospitals, private and
governmental institutions, doctors’ offices, cancer care clinics, veterinary facilities, and strategic partnerships with
radiation oncology service providers that enable the supervised delivery of the technology in dermatologist offices.
Of the approximately 300,000 women who are diagnosed with breast cancer every year in the U.S., the majority, or 60% are
diagnosed with early stage breast cancer. About 60% of early stage breast cancers qualify as candidates for treatment with
eBx. Currently, a majority of early stage breast cancer patients who are treated with radiation therapy follow a five to seven
week daily protocol of traditional external beam radiation while a small portion are treated with a five-day protocol using
b rachy therapy
Breast cancer is a relatively common disease and is often treatable by surgery, followed by radiotherapy with an additional
therapy such as chemotherapy and/or hormonal therapy. Early detection has led to earlier diagnosis with small, early stage
diseases that can b e remov ed b
icroscopic cancerous cells can b e
present and easily managed with the application of radiotherapy
. The protocol f or many y ears f or most women included a
day procedure for a lumpectomy and five to seven weeks of daily radiation. IORT allows the physician to treat the remaining
breast tissue in the operating room while the patient is still under anesthesia, eliminating the need for five to seven weeks
y local excision rather than a complete mastectomy
. M
4
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.
2
0
1
6
%
2
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1
5
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2
0
1
4
%
D
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:
1
,
of daily traditional radiation therapy. In the last few years, in Europe and in the U.S., shorter treatment protocols of external
b eam radiation therapy hy po-f ractionated to as f ew as three week s hav e emerged as alternativ es.
In a scientific paper presented at the 2010 ASCO Meeting, Dr. Jayant Vaidya of the University College London, UK,
concluded that in the 2,200 patient multinational clinical trial (TARGIT-A trial) IORT, generated with 50 kV electronic
brachytherapy, is equivalent to conventional external beam radiotherapy. In December 2012, Dr. Vaidya presented
five-year follow up data on the TARGIT-A trial at a forum in conjunction with the San Antonio Breast Cancer
Symposium. Following this presentation, in November 2013 the Lancet online published the five-year update results
of the TARGIT-A trial. The updated results of the trial demonstrated that local recurrence rates in the TARGIT (IORT)
group were within the non-inf eriority bounda ry when compared to the results in the group who receive d external be am
radiation therapy and that mortality rates from causes other than breast cancer were lower in the TARGIT (IORT)
group. In addition, the data revealed that at five years, the local recurrence rate in patients who were treated with IORT
“concurrent” with lumpectomy was 2.3% compared with the recurrence rate for patients who received traditional
external beam radiation therapy which was 1.3%. Given the study had a non-inferiority boundary of 2.5%, the study
revealed that IORT is a non-inferior treatment relative to external beam radiation therapy for patients who meet the
establ ished clinical criteria.
Additionally, in 2016, Melinda Epstein, PhD, et al. of Hoag Memorial Hospital Presbyterian in Newport Beach, CA
publ ished two clinical papers on their experience with the X of t Sys tem f or the treatment of early- stage br east cancer
with IORT. In June, the Annals of Surgical Oncology published data on 702 patients treated from June 2010 to January
2016, demonstrating a 1.7% recurrence rate. Further, less than 5% of patients had significant complications, concluding
that IORT safely delivers radiation and allows some women who cannot (or decline to) undergo whole breast radiation
to consider breast-conserving therapy rather than mastectomy. In August, The Breast Journal published 20-month
mean follow-up data on 146 patients with pure ductal carcinoma in situ (DCIS) treated with IORT. The data showed
a 2.1% recurrence rate with relatively few complications and again concluded that x-ray based IORT is a promising
treatment modality that greatly simplifies the delivery of post-excision radiation therapy.
The reimbursement for IORT has improved from 2011 when the American Medical Association (AMA) established
Category I CPT codes for IORT based on clinical evidence. These codes and payment values became effective
beginning January 2013. In 2014, CMS raised the payment value for the IORT treatment delivery code by 27%
and overall IORT reimbursement increased. Current IORT payment values have remained consistent with the values
established in 2014.
NMSC is considered an epidemic in the U.S. with over 3.5 million cases diagnosed annually. Of those cases,
approximately 20%-30% have specific diagnoses and lesion characteristics that make such patients potential candidates
f or electronic br achyt herapy
treatment. The X of t Sys tem is a vi abl e alternative treatment option f or patients with
lesions in cosmetically challenging locations (ear, nose, scalp, neck), locations that experience difficulties in healing
(lower legs, upper chest, fragile skin), patients on anticoagulants, and patients who are anxious about surgery. The Xoft
System has been used to treat more than 10,000 NMSC lesions. Additionally, the Xoft System is the only electronic
br achyt herapy sys tem with peer-revi ewed pub lished clinical data. Recent clinical data demonstrates promising local
control and supports eBx as a convenient, effective, nonsurgical treatment option offering minimal toxicity and
excellent cosmesis for eligible NMSC patients.
In 2016, electronic brachytherapy for the treatment for NMSC was reimbursed under a new skin-specific Category III
CPT code. Reimbursement is provided through a Category III electronic brachytherapy treatment delivery CPT code
along with other Category I medical physics and treatment-planning CPT codes as determined by medical necessity.
In 2015, new Category III reimbursement CPT codes for multi-fraction electronic brachytherapy applications for skin,
breast and gynecological cancers were approved by the American Medical Association (AMA) and became active as
of January 2016. Coverage policies and payment values associated with CPT codes are determined by the regional
U.S. Medicare Administrative Contractors.
yne cological cancers are also appropriate f or treatment with electronic br achyt herapy
. There are approximately
50,000 new cases of endometrial cancer each year in the U.S. and nearly 300,000 new cases worldwide. Additionally,
electronic brachytherapy is appropriate for use in other IORT clinical settings where surgical resection is unable to
completely eliminate all cancer cells. In the U.S. and international settings, IORT for prostate, pelvic, gastrointestinal,
abdom inal, spinal, and sof t tissue sarcoma applications remains a potential marke t give n the minimal shielding
requirements associated with this treatment modality.
5
G
Electronic Brachytherapy products:
Electronic Brachytherapy (eBx®) Treatment for Breast Cancer
A xxent® eBx®
The portable Axxent eBx system uses isotope-free miniaturized X-ray tube technology to deliver therapy directly to
cancer sites with minimal radiation exposure to surrounding healthy tissue. The Axxent eBx system is FDA-cleared
f or the treatment of early stage b reast cancer, endometrial cancer, cerv ical cancer, and sk in cancer, as well as f or the
treatment of other cancers or conditions where radiation therapy is indicated, including IORT. The Company offers
FDA-cleared applicators for the utilization of the Axxent eBx system including breast applicators for IORT and APBI
in the treatment of b reast cancer, v aginal applicators f or the treatment of endometrial cancer, cerv ical applicators f or
the treatment of cerv ical cancer, and sk in applicators f or the treatment of non-melanoma sk in cancers. The single-use
breast IORT and APBI applicators are offered in a variety of sizes based on clinical need. The endometrial, cervical and
skin applicators are reusable and are manufactured in various sizes based on the anatomical requirements of the patient
or the size of the lesion. The Company also provides the 50kV isotope-free energy source, a comprehensive service
warranty program, and various accessories such as the Axxent eBx Rigid Shield for internal IORT shielding. The 50kV
energy source is typically sold as an annual contract customized to individual customer volume/usage requirements.
The Company has made several enhancements to the Axxent eBx system controller including a new software interface
enabl ing enhanced sys tem f unctionality
and an upgraded high vol tage connection improvi ng sys tem perf ormance.
In 2014, the Company developed and launched a new Axxent SPX Controller which includes an optimized skin
treatment arm customized for compatibility in confined patient treatment rooms in physician office-based facilities.
This controller complements the Axxent MPX Controller which is designed for multi-application use. In 2016, the
Company unveiled a new Streamlined Module for Advanced Radiation Therapy (SMART) solution for its Xoft System
and Axxent Hub cloud-based oncology collaboration software solution. Comprising a new Wi-Fi enabled Xoft System
and enhanced Axxent Hub cloud software, the SMART solution improves workflow efficiency and the flexibility and
security of skin eBx treatments while also improving clinical collaboration and supervision.
In early 2013, the Company received FDA clearance for a new applicator for use in the treatment of cervical cancer
and launched this product in the U.S and international markets in 2015. This new applicator further expands the
Company
f er comprehensive
electronic br achyt herapy solutions to their patients in need of gyne cological radiation therapy
. Current customers of
the X of t Sys tem include unive rsity research and community hospitals, priva te and gove rnmental institutions, doctors’
offices, cancer care clinics, and veterinary facilities in the United States, the EU and Asia.
’ s product portf olio in the gy necological cancer marke t and enabl es customers to of
C ancer D etecti on S eg
ent O
ve rv
i ew
and
Prod
u cts
Mammography CAD systems use sophisticated algorithms to analyze image data and mark suspicious areas in the
indicate cancer. The locations of the abnor malities are marke d in a manner that allows the reader of the
image that may
image to reference the same areas in the original mammogram for further review. The use of CAD aids in the detection
of potential abnormalities for the radiologist to review. After initially reviewing the case films or digital images, a
radiologist reviews the CAD results and subsequently re-examines suspicious areas that warrant a second look before
making a final interpretation of the study. The radiologist determines if a clinically significant abnormality exists and
whether further diagnostic evaluation is warranted. As a medical imaging tool, CAD is most prevalent as an adjunct
to mammography given the documented success of CAD for detecting breast cancer.
Digital Mammography CAD products:
Advanced Image Analysis and Workflow Solutions in Breast Imaging (Mammography)
iCAD develops and markets a comprehensive range of high-performance CAD solutions for digital mammography
systems. iCAD’s PowerLook Mammo Detection is based on sophisticated patented algorithms that analyze the data,
automatically identifying and marking suspicious regions in 2D mammography images. The solution provides the
radiologist with a “ second look
which helps the radiologist detect actionabl e missed cancers earlier than screening
mammography alone. PowerLook Mammo Detection detects and identifies suspicious masses and micro-calcifications
utilizing image processing, pattern recognition and artificial intelligence techniques. Information from thousands
images are incorporated into these algorithms enabl ing the product to distinguish be tween
of mammography
characteristics of cancerous and normal tissue. The result is earlier detection of hard-to-find cancers, improved
workflow for radiologists, and higher quality patient care.
In June 2012, iCAD introduced its next generation PowerLook Advanced Mammography Platform® (AMP). The
technology expands on iCAD’s legacy SecondLook Digital platform and is the mammography platform upon which
6
m
”
all future breast imaging offerings from iCAD will be built. PowerLook AMP is the first product of its kind to integrate
CAD and breast density assessment software, which aids radiologists by standardizing their approach to breast density
assessment and categorization. The Company acquired the breast density assessment solution from VuComp in April
2015 and subsequently released it to market under the product name iReveal. Twenty-six states now mandate reporting
of a br east density score to patients as part of the annual mammogram, iReve al provi des a consistent and standardiz ed
reporting tool to assist with this process.
Included with PowerLook is a multi-vendor CAD and density assessment server that allows hospitals and imaging
facilities to connect up to four mammography acquisition devices regardless of vendor. This reduces the need for
separate CAD servers while lowering hardware and service costs. iCAD’s PowerLook also provides a powerful
flexible DICOM connectivity solution enabling universal compatibility with leading PACS and Review Workstations.
A dditional modules are expected to be released and integrated into P owerL ook A
in the f uture.
PowerLook Advanced Mammography Platform
is designed to f unction with leading digital mammography sys tems ( digital br east tomosyn thesis,
P owerL ook
FFDM and computed radiography) – including systems sold by GE Healthcare, Siemens Medical Systems, Fuji
Medical Systems, Hologic, Inc., Sectra Medical Systems, Philips, Carestream, IMS Giotto, Agfa Corporation, and
products have be en optimiz ed f or each digital imaging provi der ba sed
lanmed. The algorithms in P owerL ook A
upon characteristics of their unique detectors.
P owerL ook A
is a computer serve r residing on a customer’ s network that receive s patient studies f rom the imaging
modality, performs CAD and density assessment analysis and sends the results to PACS and/or review workstations.
Workflow and efficiency are critical in digital imaging environments therefore iCAD has developed flexible,
powerful DICOM integration capabilities that enable PowerLook AMP to integrate with leading picture archiving and
communication systems (“PACS”) archives and review workstations from multiple providers. iCAD has worked with
its OEM partners to ensure CAD and density assessment results are integrated and easily viewed using each review
workstation’s graphical user interface. To further improve efficiency and clinical efficacy, the most urgent or important
patient studies can be prioritized and analyzed with CAD and density assessment software first.
Magnetic Resonance Imaging (“MRI”)
In July 2012, iCAD entered into a strategic partnership agreement with Invivo Corp., a subsidiary of Philips Healthcare.
With this agreement, iCAD began developing the DynaCAD product software for breast and prostate MR image
analysis workstations to help radiologists find cancer earlier and more efficiently. Invivo sells the DynaCAD product
both directly and through the Philips global distribution network. In August, 2015, Invivo exercised a contractual
right to a perpetual paid up license in exchange for a payment of approximately $2.0 million. In January 2017, the
MRI products and related assets were sold to Invivo Corp. for $3.2 million. Prior to the January 2017 sale of the MRI
products and related assets, the paid up license f ee was be ing amortiz ed ove r the remaining lif e of the agreement.
Breast Tomosynthesis
Breast Tomosynthesis was introduced in the United States in 2010 by Hologic, Inc.. GE received FDA approval for
their tomosynthesis system in August 2014, Siemens approval followed in April 2015, and Fuji was approved in early
2017. Tomosynthesis has been demonstrated to have multiple advantages over traditional 2D mammography. It has
improve d tissue vi sualiz ation and detection and results in lower recall rates f or patients. Tomosynt hesis improve s the
sensitivity and specificity of cancer diagnosis when compared to mammography. Clinical studies indicate that digital
to distinguish malignant f rom be nign tumors and can detect early signs
br east tomosy nthesis improve s the abi lity
of cancer hidden b
ove rlapping tissues. This helps reduce the ove rall numbe r of bi opsies perf ormed and the call
back rates. Initial studies have indicated that tomosynthesis has the ability to detect 41% more invasive cancers than
conventional mammography, and it also reduces false-positives by up to 40%.
y
CAD technology can play an important role in improving the accuracy and efficiency of reading breast tomosynthesis
cases by automatically identifying breast masses and micro-calcifications. In 2015, the Company completed
development of its CAD solution for tomosynthesis to aid radiologists in their review of breast tomosynthesis as
a means of improvi ng lesion detection and reducing the time to read the large tomosynt hesis datasets. The initial
solution is developed for use with GE Healthcare’s digital breast tomosynthesis for the detection of soft tissue densities
(masses, architectural distortions and asymmetries). In January 2017, the Company submitted an amendment to its
original PMA application for its 3D tomosynthesis product, the Company is waiting for final approval from the FDA
on the application. The Company is continuing to develop a multi-vendor tomosynthesis CAD solution that will also
detect micro-calcifications.
7
M
P
A
M
P
P
M
P
M
P
Computed Tomography Applications and Colonic Polyp Detection
CT is a well-establ ished and widely used imaging technology that is used to image cross-sectional “ slices” of va rious
parts of the human body. When combined, these “slices” provide detailed volumetric representations of the imaged
areas. With recent image quality improvements and greatly increased imaging speeds, CT imaging use has expanded in
both the number of procedures performed as well as the applications for which it is utilized. While the increased image
quality and number of cross sectional slices per scan provides valuable diagnostic information, it adds to the challenge
of managing and interpreting the large vol ume of data generated. The Company
be lieve s that the challenges in CT
imaging present it with opportunities to provi de automated image analys is and clinical decision support solutions.
CTC is a less invasive technique than traditional colonoscopy for imaging the colon. However, the process of reading a
CTC exam can be lengthy and tedious as the interpreting physician is often required to traverse the entire length of the
colon multiple times. CAD technology can play an important role in improving the accuracy and efficiency of reading
CTC cases by automatically identifying potential polyps. CAD technology has been developed to aid radiologists in
their review of CTC images as a means of improving polyp detection. The Company believes that CAD could become
an important adj unct to CTC.
Advanced Image Analysis and Workflow Solutions in CT Colonography
VeraLook™
iCAD introduced a CAD solution, VeraLook, in August 2010 following FDA clearance of the product. This solution
is designed to support detection of colonic polyps in conjunction with CTC. iCAD believes that CAD for CTC is
a natural extension of iCAD’s core competencies in image analysis and image processing. The system works in
conjunction with third party display workstations and PACS vendors. Field testing of the product was initiated in 2008
and iCAD conducted a multi-reader clinical study of iCAD’s CT Colon CAD product, for use with CTC. Results of the
Company
’ s clinical study , “Impact of Computer-Aided Detection for CT Colonography in a Multireader, Multicase
Trial” demonstrated that reader sensitivity improved 5.5% for patients with both small and large polyps with use of
CAD. Use of CAD reduced specificity of readers by 2.5%. The clinical relevance of this CAD program was improved
reader performance while maintaining high reader specificity. Throughout 2016, iCAD distributed the VeraLook
product with advanced visualization reading workstations manufactured by Vital Images, a Toshiba Medical System
Group Company. In Q4 2014, iCAD received CFDA (China Food and Drug Administration) approval to sell VeraLook
in China.
S ales and
M ark eti ng
iCAD, through its Xoft subsidiary, markets the eBx system in the United States and select countries worldwide. The
Company has expanded its installed base of eBx systems in the U.S. and has established initial installations in a
number of countries located in Europe and Asia. Xoft has signed distribution agreements in Spain, The Netherlands,
Turkey, Italy, Switzerland, Portugal, Bulgaria, Russia, France, Mexico, Canada, China, Australia / New Zealand,
Taiwan, Germany, Egypt / Saudi Arabia, India, Iran, South Korea, UK and Ireland and is actively exploring market
entry i n South and Central A merica.
Xoft’s direct U.S. sales force sells the system on the basis of its clinical effectiveness as a platform high dose rate,
low energy radiation therapy solution f or hospitals, ambul atory care centers and f ree standing radiation oncology
facilities and other office-based uses, e.g. dermatology clinical practices. The Xoft System offers a distinct competitive
advantage in that it is a highly mobile unit with minimal shielding requirements that can easily be moved from room
to f acility give n its relative ly compact
to room within a single healthcare institution or be transported f rom f acility
f orm f actor.
Breast IORT is a strategic focus of the Company due to the significant clinical /lifestyle benefits to the patient and
economic advantages to the facility. NMSC is an additional strategic priority given the high incidence rate of the
disease and the benefits of the Xoft System in this clinical indication. Based on the additional clinical applications
including gynecological cancers, other IORT applications (in addition to breast IORT), as well as its potential to scale
in the future to address other indications for use, the Company believes the Xoft System offers unique flexibility and
opportunities f or growth.
Core to the Company’s eBx market development strategy is a comprehensive medical education program. Xoft actively
participates in several key industry scientific conferences in the United States and Europe including but not limited to
Miami Breast, ASBS, ABS, SSO, AAPM, ESTRO, Milan Breast, and ASTRO on an annual basis. More recently, Xoft
has participated in key dermatology conferences in the U.S. including AAD, Fall and Winter Dermatology Conferences,
ASDS, and ACMS. At select industry conferences and at independent venues, the Company provides specific additional
8
eBx professional education programs and product demonstrations in the form of live symposia in U.S. markets. The
Company expanded its medical education program in 2015 to include breast IORT and NMSC educational webinars in
both CME and non-CME formats to broaden physician awareness of the Xoft System and eBx technology in the U.S.
The Company also maintains a scientific advisory board composed of leading clinician experts who share a commitment
to raising awareness of the unique benefits the Xoft eBx system offers to providers and patients alike.
The Company further supports breast IORT through its ongoing ExBRT Clinical Trial– a post-market clinical trial
designed to enroll 1,000 patients at up to 50 sites. The study enabl es f acilities interested in treating early stage br east
cancer patients with the X of t Sys tem to participate in a common clinical protocol and f ollow enrolled patients f or
up to ten years. The Company believes that the ExBRT study is led by brachytherapy and breast care physicians
including breast surgeons, radiation oncologists, pathologists, and medical physicists from leading U.S. breast cancer
care institutions. From its inception in 2012 through February 2017, the ExBRT study has enrolled more than 800
patients at more than 20 facilities in the U.S. and Europe. Initial clinical results from the ExBRT study are expected to
be presented at key breast cancer medical conferences in 2017.
iCAD’s mammography products are sold through its direct regional sales organization in the U.S. as well as through
its OEM partners, including GE Healthcare, Fuji Medical Systems, Siemens Medical, Philips Healthcare, Agfa
Corporation, Sectra Medical Systems, Planmed, Fuji Medical Systems, IMS Giotto, and Carestream Health, Inc. The
VeraLook CTC CAD product is primarily distributed by Vital Images.
’ s cancer detection products are marke ted on the ba sis of their clinical superiority and their abi lity
The Company
to
help radiologists detect more cancers earlier, while seamlessly integrating into the clinical workflow of the radiologist.
As part of its sales and marketing efforts, iCAD has developed and executed a variety of public relations and local
outreach programs with numerous iCAD customers. Additional investments are being made in cultivating relationships
leaders discuss the f uture of
with the leaders in br east and colon solutions at national trade shows, where industry
image analys is solutions in these clinical disciplines.
C om peti ti on
The Company’s existing eBx products face competition in breast IORT primarily from one company: Carl Zeiss
Meditec, Inc., (“Zeiss”) a multinational company, where eBx products are only one of that company’s many products.
Zeiss manufactures and sells eBx products for the delivery of IORT. Zeiss has expanded their product portfolio to
include additional anatomical areas beyond breast IORT. Zeiss now offers a range of radiation therapy applicators
for use in various applications including spine, the gastrointestinal tract, skin, and endometrial cancers. Zeiss has an
established base of breast IORT installations in Europe where the majority of the TARGIT-A trial clinical sites are
located. IntraOp Medical is an additional competitor in the high dose rate (“HDR”) radiation therapy market.
The Company’s NMSC products face numerous competitors utilizing a variety of technologies. Surface Radiation
Therapy (SRT) systems, including Sensus Healthcare, directly compete with the Xoft System in this market in which
Dermatologists and Radiation Oncologists seek mobile, efficient, non-surgical treatment options. In late 2013, Elekta
received clearance for its electronic brachytherapy system “Esteya” for use in the treatment of NMSC. This system
utilizes a low energy 69.5 kV source and a range of surface applicators in a small footprint system profile. Other
competitors in the NMSC market include surgery (excision, Mohs surgery, and destruction). Mohs surgery remains the
primary treatment option for dermatologists in the majority of NMSC cases. Traditional radiation therapy including
external beam radiation therapy is also a treatment modality used to treat NMSC patients.
New market opportunities including expansion of the gynecological product portfolio and other IORT applications
beyond breast IORT will bring new competitive dynamics to the Company’s efforts. Larger, more diversified radiation
therapy companies offering a wide variety of clinical solutions for HDR brachytherapy including Varian Medical
Systems and Elekta compete in these areas. These multi-national firms offer broad product portfolios including a full
range of HDR brachytherapy afterloaders and applicators as well as traditional radiation therapy solutions including
linear accelerators, treatment planning solutions, and workflow management capabilities.
The Company
currently f aces direct competition in its cancer detection and density assessment bus iness f rom H ologic,
Inc., Volpara, Parascript, and StatLife. The Company believes that its market leadership in mammography CAD and
density assessment and strong relationships with its strategic partners will provi de it with a competitive adva ntage in
the mammography CAD and density assessment market.
The Company’s CT Colon solution faces competition from the traditional imaging CT equipment manufacturers
and emerging CAD companies. Siemens Medical, GE Healthcare, and Philips Medical Systems currently offer
polyp detection products outside the U.S. Siemens Medical received FDA clearance for CT Polyp CAD in 2014.
f er a colonic polyp detection solution as an adva nced f eature of
The Company
expects that CT manuf acturers will of
9
their image management and display products typically sold with their CT equipment. The Company believes that
current regulatory requirements present a significant barrier to entry into this market and that its market leadership in
mammography CAD provides it with a competitive advantage within the CT Colonography community.
iCAD operates in highly competitive and rapidly changing markets with competitive products available from nationally
and internationally recognized companies. Many of these competitors have significantly greater financial, technical
and human resources than iCAD and these competitors are well established in the healthcare market. In addition,
some companies have deve loped or may
deve lop technologies or products that could compete with the products the
Company manuf actures and distribut es or that would render our products obs olete or noncompetitive . M oreove r,
competitors may achieve patent protection, regulatory approva l, or product commercializ ation be f ore we do, which
would limit our abi lity to compete with them. These and other competitive pressures could have a material adve rse
ef
f ect on the Company
’ s bus iness.
M anu factu ri ng and
Professi onal S erv
i ces
The Company’s CAD products are manufactured and assembled by the Company. In addition, the Company conducts
purchasing and supply chain management, planning/scheduling, manufacturing engineering, service repairs, quality
assurance, inv entory management, and warehousing. Once the product has shipped, it is usually installed b
one of
the Company’s OEM partners at the customer site. When a product sale is made directly to the end customer by iCAD,
the product is generally installed by iCAD personnel at the customer site.
y
iCAD’s professional services staff is composed of a team of trained and specialized individuals providing
comprehensive product support on a pre-sales and post-sales ba sis. This includes pre-sale product demonstrations,
product installations, applications training, and call center management (or technical support). The support center
is the single point of contact f or the customer, provi ding remote diagnostics, troubl eshooting, training, and servi ce
dispatch. Servi ce repair ef
third party servi ce organiz ations or in
the Company
f orts are generally perf ormed at the customer site b
’ s repair technicians.
’ s repair depot b
he Company
y t
y
Controller is manuf actured and assembl ed f or X of t b
contract manuf acturers. X of t’ s
X of t’ s portabl e A xxent®
-ray source, which is used to delive r radiation directly to the cancerous site,
electronic br achyt herapy miniaturiz ed X
is manuf actured in the Company
. X of t operations consist of manuf acturing, engineering,
administration, purchasing, planning and scheduling, service repairs, quality assurance, inventory management, and
warehousing. O nce the product has shipped, it is typi cally i nstalled b
of t personnel at the customer site.
’ s San J ose, CA
f acility
y
y X
Xoft’s field service and customer service staff is composed of a team of trained and specialized individuals providing
comprehensive product support, phys ics support, radiation therapists and bi lling support on a pre-sales and post-
sales basis. The field service staff also provides product installations, maintenance, training and service repair efforts
generally perf ormed at the customer site. The customer servi ce staf
f provi des pre-sale product demonstrations,
customer support, troubl eshooting, servi ce dispatch and call center management.
G ove rnm ent R eg
lati on
The Company’s systems are medical devices subject to extensive regulation by the FDA under the Federal Food, Drug,
and Cosmetic Act with potentially significant costs for compliance. The FDA’s regulations govern, among other things,
product dev elopment, product testing, product lab eling, product storage, pre-mark et clearance or approv al, adv ertising
and promotion, and sales and distribution. The Company’s devices are also subject to FDA clearance or approval before
they can be marketed in the U.S. and may be subject to additional regulatory approvals before they can be marketed
outside the U.S. There is no guarantee that future products or product modifications will receive the necessary approvals.
The FDA’s Quality System Regulations require that the Company’s operations follow extensive design, testing,
control, documentation and other quality assurance procedures during the manufacturing process. The Company is
subject to FDA regulations covering labeling regulations and adverse event reporting including the FDA’s general
prohibi tion of promoting products f or unapprove d or of
f -labe l uses.
The Company’s manufacturing facilities are subject to periodic inspections by the FDA and corresponding state
agencies. Compliance with extensive international regulatory requirements is also required. Failure to fully comply
with applicabl e regulations could result in the Company receiv ing warning letters, non-approva ls, suspensions of
existing approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions,
and criminal prosecution.
We are also subject to a variety of federal, state and foreign laws which broadly relate to our interactions with healthcare
practitioners and other participants in the healthcare sys tem, including, among others, the f ollowing:
10
u
•
•
•
•
ba
ck,
laws, such as the Foreign Corrupt
anti-ki ck
f alse claims, phys ician self -ref erral, and anti-br ibe ry
Practices Act, or FCPA, the UK’s Bribery Act 2010, or the UK Anti-Bribery Act;
state law and regulation regarding f ee splitting and other relationships be tween health care provi ders
and non-prof essional entities, including companies provi ding management and reimbur sement servi ces;
laws regulating the privacy and security of personally identifiable information, such as the Health
Insurance Portability and Accountability Act of 1996, or HIPAA, and the Health Information Technology
for Economic and Clinical Health Act, or HITECH Act; and
healthcare ref orm laws, such as the P atient P rotection and A
f ordabl e Care A ct and the H ealth Care and
Education Affordability Reconciliation Act of 2010, which we refer to together as PPACA, which include
new regulatory mandates and other measures designed to constrain medical costs, as well as stringent
new reporting requirements of financial relationships between device manufacturers and physicians and
teaching hospitals.
In addition, we are subject to numerous federal, state, foreign and local laws relating to safe working conditions,
manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially
hazardous substances, among others. We may be required to incur significant costs to comply with these laws and
regulations in the f uture, and complyi ng with these laws may result in a material adve rse ef
f ect upon our bu siness,
financial condition and results of operations.
Additionally, in order to market and sell our products in certain countries outside of the U.S., we must obtain and
maintain regulatory approvals and comply with the regulations of each specific country. These regulations, including
the requirements for approvals, and the time required for regulatory review vary by country.
Federal, state, and f oreign regulations regarding the manuf acture and sale of medical devi ces and management servi ces
and software are subject to future change. We cannot predict what impact, if any, such changes might have on our
bus iness.
R ei
u rsem ent
The federal and state governments of the United States establish guidelines and pay reimbursements to hospitals and
edicare at the f ederal leve l and
f ree-standing clinics f or diagnostic examinations and therapeutic procedures under M
edicaid at the state leve l. P riva te insurers of ten establ ish paym ent leve ls and policies ba sed on reimbur sement rates
and guidelines establ ished b
y t
he gove rnment.
The f ederal gove rnment revi ews and adj usts cove rage policies and reimbur sement leve ls periodically and also
consider various Medicare and other healthcare reform proposals that could significantly affect both private and public
reimbur sement f or healthcare servi ces in hospitals and f ree-standing clinics. State gove rnment reimbur sement f or
servi ces is determined pursuant to each state’ s M
state law and regulations,
subject to requirements of federal law and regulations.
edicaid plan, which is estab lished b
y
Market acceptance of our medical products in the U.S. and other countries is dependent upon the purchasing and
procurement practices of our customers, patient demand f or our products and procedures, and the reimbur sement of
patients’ medical expenses b
rnment healthcare programs, priva te insurers or other healthcare payor s.
y gove
The provisions of the Affordable Care Act went into effect in 2012. We are continuing to evaluate the Affordable
Care Act and its impact on our business. We believe that elements of the program including the shift to value-based
healthcare and increased focus on patient satisfaction will benefit the Company in the future. Other elements of this
boa rd, paym ent sys tem
legislation, including comparative ef
reforms (including shared savings pilots) and other provisions, could meaningfully change the way healthcare is
deve loped and delive red, and may materially
impact numerous aspects of our bus iness, including the demand and
ava ilabi lity of our products, the reimbur sement ava ilabl e f or our products f rom gove rnmental and third-party payor s,
f ect of the repeal or
and reduced medical procedure vol umes. A dditionally , we are now eva luating the possibl e ef
replacement of the A
f ective ness research, an independent paym ent advi sory
f ordabl e Care A ct.
In May 2015, the Company announced that one of the regional Medicare Administrative Contractors instructed
physicians to report CPT code (17999) rather than the established CPT code (0182T) for electronic brachytherapy for
treatment of NMSC. This announcement resulted in a significant disruption in the Therapy segment as a result of the
reimbursement uncertainty. Revenues for the year ended December 31, 2015 and December 31, 2016 were negatively
impacted as a result of the uncertainty. In January 2016 a new CPT code (0394T) for the treatment on non-melanoma
ski n cancer utiliz ing electronic br achyt herapy w ent into ef
f ect.
11
f
m
b
M
f
I ntellectu al Property
The Company primarily relies on a comb ination of patents, trade secrets and copyr ight law, third-party and employe e
confidentiality agreements, and other protective measures to protect its intellectual property rights pertaining to our
products and technologies.
The Company has many patents covering its CAD and eBx technologies expiring between 2018 and 2028. These
patents help the Company maintain a proprietary position in its marke ts. A dditionally , the Company has a numbe r of
patent applications pending domestically, some of which have been also filed internationally, and the Company plans
to file additional domestic and foreign patent applications when it believes such protection will benefit the Company.
These patents and patent applications relate to current and future uses of iCAD’s CAD and digitizer technologies
and products, including CAD for tomosynthesis, CAD for CT colonography and lung and CAD for MRI breast and
prostate, as well as Xoft’s current and future eBx technologies and products. The Company has also secured a non-
exclusive patent license from the National Institute of Health which relates broadly to CAD in colonography, a non-
exclusive patent license f rom Cy tyc /
H ologic which relates to ba lloon applicators f or br east br achyt herapy , and a non-
exclusive license from Zeiss which relates to brachytherapy. The Company believes it has all the necessary licenses
f rom third parties f or sof tware and other technologies in its products; howeve r, we do not know if current or f uture
patent applications will issue with the f ull scope of the claims sought, if at all, or whether any patents issued will be
challenged or inva lidated.
S ou rces and
A
vai
lab
i li ty of M ateri als
be ava ilabl e f rom a sole or limited numbe r of suppliers. The Company
y
a sole manuf acturer, b
The Company depends upon a limited numbe r of suppliers and manuf acturers f or its products, and certain components
in its products may
’ s products are generally
a limited numbe r of manuf acturers or assembl ed
y
either manuf actured and assembl ed f or it b
by it from supplies it obtains from a limited number of suppliers. Critical components required to manufacture these
products, whether b
y outside manuf acturers or directly , may be ava ilabl e f rom a sole or limited numbe r of component
suppliers. The Company generally does not have long-term arrangements with any of its manuf acturers or suppliers.
The loss of a sole or ke y manuf acturer or supplier would impair the Company
’ s abi lity to delive r products to customers
’ s bus iness would be
in a timely manner and would adve rsely af
harmed if any of its manufacturers or suppliers could not meet its quality and performance specifications and quantity
and delivery requirements.
f ect its sales and operating results. The Company
M aj or C
u stom ers
The Company operates in two segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). The
Company marke ts its products f or digital mammography and cancer therapy sys tems through its direct regional sales
organization. Cancer detection products are also sold through OEM partners, including GE Healthcare, Fuji Medical
Systems, Siemens Medical and Invivo. OEM partners generated approximately 47% of detection revenues and 30% of
revenue overall. GE Healthcare was the largest single customer with approximately $3.9 million in 2016, $4.1 million
in 2015, and $4.1 million in 2014 or 15%, 10%, and 9% of total revenues, respectively.
Eng
i neeri ng an d
Prod
u ct D eve lopm ent
The Company spent $10.3 million, $9.8 million, and $8.8 million on research and development activities including
depreciation and amortization, during the years ended December 31, 2016, 2015 and 2014, respectively. Research
and deve lopment expenses are primarily
attribut ed to personnel, consulting, subc ontract, licensing and data collection
expenses relating to the Company
’ s new product deve lopment and clinical testing.
Em ploye es
As of February 2017, the Company had 118 employees, of whom 116 are full time employees, with 30 involved in
sales and marketing, 24 in research and development, 52 in service, manufacturing, technical support and operations
functions, and 12 in administrative functions. None of the Company’s employees is represented by a labor organization.
The Company c onsiders its relations with employe es to be good.
Env
i ronm ental Protecti on
Compliance with f ederal, state and local provi sions which have be en enacted or adopted regulating the discharge of
materials into the envi ronment, or otherwise relating to the protection of the envi ronment, has not had a material ef
f ect
upon the capital expenditures, earnings (losses) or competitive position of the Company.
12
i nanci al G eogr aph
i c I nform ati on
The Company’s primary market is in the United States through its direct sales force and OEM partners. Export sales
are typically through OEM and channel partners. Total export sales represented approximately $2.3 million or 9% of
revenue in 2016 as compared to $2.3 million or 6% of revenue in 2015 and $1.8 million or 4% of total revenue in 2014.
Export sales by region are as follows (in thousands):
Region
2016
2015
2014
Percent of Export sales
Europe
China
Taiwan
Canada
Other
Total
36%
21%
19%
15%
8%
100%
63%
2%
15%
11%
9%
100%
-
40%
19%
34%
7%
100%
Total Export sales
$2,323
$2,278
$1,772
Significant export sales in Europe are as follows:
Region
2016
2015
2014
Percent of Export sales
France
Spain
Bulgaria
United Kingdom
15%
7%
3%
3%
21%
5%
26%
9%
17%
3%
13%
-
F orei
gn R eg
lati ons
International sales of the Company’s products are subject to foreign government regulation, the requirements of which
vary substantially from country to country. The time required to obtain approval by a foreign country may be longer
or shorter than that required for FDA approval, and the requirements may differ. Obtaining and maintaining foreign
regulatory approva ls is an expensive and time consuming process. The Company cannot be certain that it will b e abl e
to obt ain the necessary regulatory approva ls timely or at all in any
in which it plans to marke t its
CAD products and the Axxent eBx system, and if it fails to receive and maintain such approvals, its ability to generate
revenue may be significantly diminished.
f oreign country
Prod
u ct L
i ab
i li ty I nsu rance
be lieve s that it maintains appropriate product liabi lity
insurance with respect to its products. The
The Company
Company cannot be certain that with respect to its current or f uture products, such insurance cove rage will continue
to be available on terms acceptable to the Company or that such coverage will be adequate for liabilities that may
actually be
incurred.
I tem
1
.
i sk
F actors.
We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could
f ected, and/ or in
materially adv ersely af
the f uture could af
f ect our operations. The f ollowing highlights some of the f actors that have af
f ect, our operations.
We have incurred significant losses from inception through 2016 and there can be no assurance that we will be
able to achieve and sustain future profitability.
13
F
u
A
R
We have incurred significant losses since our inception. We incurred a net loss of $10.1 million in fiscal 2016 and have
an accumulated deficit of $187.6 million at December 31, 2016. We may not be able to achieve profitability.
e rely on i ntellectu al property and
le to protect th ese ri
propri etary ri
ts to m ai ntai n ou r com peti ti
ve posi ti on and
m ay not b e
ts.
that others will not independently deve lop similar technologies or duplicate any
ab
We rely heavily on proprietary technology that we protect primarily through licensing arrangements, patents, trade
know -how and non-disclosure agreements. There can be no assurance that any pending or f uture
secrets, proprietary
patent applications will be granted or that any current or f uture patents, regardless of whether we are an owner or
a licensee of the patent, will not be challenged, rendered unenf orceabl e, inva lidated, or circumve nted or that the
rights will provi de a competitive adva ntage to us. There can also be no assurance that our trade secrets or non-
disclosure agreements will provi de meaningf ul protection of our proprietary inf ormation. Further, we cannot assure
you
us
technology deve loped b
or that our technology will not inf ringe upon patents or other rights owned b
others. There is a risk that our patent
applications will not result in granted patents or that granted patents will not provide significant protection for our products
and technology. Unauthorized third parties may infringe our intellectual property rights, or copy or reverse engineer portions
of our technology. Our competitors may independently develop similar technology that our patents do not cover. In addition,
because patent applications in the U.S. are not generally publicly disclosed until eighteen months after the application is
filed, applications may have been filed by third parties that relate to our technology. Moreover, there is a risk that foreign
intellectual property laws will not protect our intellectual property rights to the same extent as intellectual property laws in the
U.S. The rights provided by a patent are finite in time. Over the coming years, certain patents relating to current products will
expire in the U.S. and abroad thus allowing third parties to utilize certain of our technologies. In the absence of significant
patent protection, we may b e v ulnerab le to competitors who attempt to copy our products, processes or technology
y
y
In addition, in the future, we may be required to assert infringement claims against third parties, and there can be no
assurance that one or more parties will not assert inf ringement claims against us. A ny resulting litigation or proceeding
could result in significant expense to us and divert the efforts of our management personnel, whether or not such
litigation or proceeding is determined in our favor. In addition, to the extent that any of our intellectual property and
proprietary rights was eve r deemed to v iolate the proprietary rights of others in any litigation or proceeding or as a
result of any claim, we may
be preve nted f rom using them, which could cause a termination of our abi lity to sell our
products. L
itigation could also result in a j udgment or monetary da mages be ing levi ed against us.
Unfavorable results of legal proceedings could materially adversely affect our financial results
From time to time, we are a party to or otherwise invol ve d in legal proceedings, claims and gove rnment inspections or
investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of our
bus iness or otherwise. L egal proceedings are of ten lengthy , taki ng place ove r a period of ye ars with interim motions or
judgments subject to multiple levels of review (such as appeals or rehearings) before the outcome is final. Litigation is
subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations. For these
and other reasons, we may c hoose to settle legal proceedings and claims, regardless of their actual merit.
If a legal proceeding were finally resolved against us, it could result in significant compensatory damages, and in
certain circumstances punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or
injunctive relief imposed on us. If our existing insurance does not cover the amount or types of damages awarded, or
if other resolution or actions take n as a result of the legal proceeding were to restrain our abi lity to marke t one or more
of our material products or services, our consolidated financial position, results of operations or cash flows could be
materially adversely affected. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse
publ icity a nd damage to our reputation, which could adve rsely i mpact our bus iness.
We may be exposed to significant product liability for which we may not have sufficient insurance coverage or be
able to procure sufficient insurance coverage.
Our product and general liability insurance coverage may be inadequate with respect to potential claims and adequate
insurance coverage may not be available in sufficient amounts or at a reasonable cost in the future. If available at all, product
liab ility insurance f or the medical dev ice industry generally is expensiv e. Future product liab ility claims could b e costly to
def end and/ or costly to resolv e and could harm our reputation and b usiness.
i rd
y th
m ark et acceptance of ou r prod
u cts i s d epend ent u pon th e cove rage and
- party payor s. T
u rsem ent for th e u se of ou r prod
S ales and
m ad e b
rei
and
Sales and market acceptance of our medical products and the treatments facilitated by our products in the United States
gove rnment
and other countries is dependent upon the cove rage decisions and reimbur sement policies establ ished b
arke t acceptance of our products and treatments has and will
healthcare programs and priva te health insurers. M
d e appropri ate leve ls of cove rage and
ld
i rd
treatm ents faci li tated
- party payor s to prov
b
h e fai lu re of th
u cts and
u rsem ent d eci si ons
prospects.
y ou r prod
u si ness
u cts cou
ou r b
h arm
rei
y
14
W
g
h
g
h
m
b
i
m
b
va ry
continue to depend upon our customers’ abi lity
to obt ain an appropriate leve l of cove rage f or, and reimbur sement
from third-party payors for, these products and treatments. In the U.S., CMS establishes coverage and reimbursement
policies for healthcare providers treating Medicare and Medicaid beneficiaries. Under current CMS policies, varying
reimbur sement leve ls have be en establ ished f or our products and treatments. Cove rage policies f or M
edicare patients
edicare carriers in the abs ence of a national cove rage determination and reimbur sement
may
regional M
y
rates f or treatments may
ba sed on the geographic price index. Cove rage and reimbur sement policies and rates
va ry
applicabl e to patients with priva te insurance are dependent upon indivi dual priva te payor decisions which may not
follow the policies and rates established by CMS. The use of our products and treatments outside the United States
is similarly af
f oreign gove rnments and priva te insurance
carriers. We cannot provide assurance that government or private third-party payors will continue to reimburse for our
products or services using the existing codes, nor can we provide assurance that the payment rates will be adequate. If
provi ders and phys icians are unabl e to obt ain reimbur sement f or our products or servi ces at cost-ef
f ective leve ls, this
could have a material adverse effect on our business and operations. In addition, in the event that the current coding
and/ or pay ment methodology
f ect on our
bus iness and bus iness operations.
f or these products or servi ces changes, this could have a material adve rse ef
cove rage and reimbur sement policies adopted b
f ected b
y
y
Our business is dependent upon future market growth of full field digital mammography systems, digital
computer aided detection products, and tomosynthesis as well as advanced image analysis and workflow
solu ti ons for u se w
m ay not
M
occur or may occur too slowly to benefit us.
of electroni c b rach
th e m ark et gr ow
y th erapy
i s gr ow
I and
and
: th
i th
th
th
C
Our f uture bu siness is subs tantially dependent on the continued growth in the mark et f or electronic b rachy therapy , f ull
field digital mammography systems, digital computer aided detection products and tomosynthesis as well as advanced
image analysis and workflow solutions for use with MRI and CT. The marke t f or these products may not continue to
dev elop or may deve lop at a slower rate than we anticipate due to a va riety of f actors, including, general economic
conditions, delays in hospital spending for capital equipment, the significant cost associated with the procurement of full
field digital mammography systems and CAD products and MRI and CT systems and the reliance on third party insurance
reimbursement. In addition we may not be able to successfully develop or obtain FDA clearance for our proposed products.
A limited number of customers account for a significant portion of our total revenue. The loss of a principal
cu stom er cou
seri ou sly h
u rt ou r b
u si ness.
ld
Our principal sales distribution channel for our digital products is through our OEM partners which accounted for 30%
of our total revenue in 2016, with one major customer, GE Healthcare at 15% of our revenue. In addition six customers
accounted for 33% of our total revenue, which includes both OEM partners and direct customers. A limited number of major
customers have in the past and may continue in the future to account for a significant portion of our reve nue. The loss of
our relationships with principal customers or a decline in sales to principal customers could materially adve rsely af
f ect
our bus iness and operating results.
h e m ark ets for ou r new
exi sti ng p rod
u cts and
ly
d eve loped
prod
treatm ents m ay n ot d eve lop as expected
u cts and
treatm ents and
new
ly
i ntrod
u ced
enh ancem ents to ou r
The successf ul commercializ ation of our newly deve loped products and treatments and newly introduced enhancements
to our existing products and treatments are sub
j ect to numerous risks , bot h know n and unknow n, including:
•
•
•
•
•
•
•
the deve lopment of a marke t f or such product or treatment;
uncertainty of
trends relating to, or the introduction or existence of , competing products, technologies or alternative
f ective , saf er or easier to use than our products, technologies,
treatments or therapies that may b e more ef
treatments or therapies;
the perceptions of our products or treatments as compared to other products and treatments;
recommendation and support for the use of our products or treatments by influential customers, such as
hospitals, radiological practices, br east surgeons and radiation oncologists and treatment centers;
the availability and extent of data demonstrating the clinical efficacy of our products or treatments;
competition, including the presence of competing products sold b
histories, more recogniz abl e names and more establ ished distribut ion networks ; and
other technological deve lopments.
companies with longer operating
y
Often, the development of a significant market for a product or treatment will depend upon the establishment of a
reimbur sement code or an appropriate reimbur sement leve l f or use of the product or treatment. M oreove r, eve n if
addressed, such reimbursement codes or levels frequently are not established until after a product or treatment is
deve loped and commercially introduced, which can delay the successf ul commercializ ation of a product or treatment.
15
b
R
T
T
.
If we are unable to successfully commercialize and create a significant market for our newly developed products and
introduced enhancements to our existing products and treatments, our bus iness and prospects
treatments and newly
could be harmed.
I f good
impaired, we could have to take significant charges against earnings.
le assets th at w e h ave record ed
/ or oth er i ntang
i ll and
i n connecti on w
i th
ou r acq
i si ti ons b ecom e
In connection with the accounting for our acquisitions, we have recorded a significant amount of goodwill and other
intangible assets. In September 2011, we recorded an impairment of $26.8 million on our goodwill, and in June 2015,
we recorded an additional impairment of $14.0 million on our goodwill. Under current accounting guidelines, we
must assess, at least annually and potentially more frequently, whether the value of our goodwill of $14.1 million at
December 31, 2016 and our other intangible assets has been impaired. Any reduction or impairment of the value of
goodwill or other intangibl e assets will result in a charge against earnings which could materially adve rsely af
f ect our
reported results of operations in f uture periods.
The healthcare industry is highly regulated, and government authorities may determine that we have failed to
comply with applicable laws, rules or regulations.
is sub
The healthcare industry
j ect to extensive and complex f ederal, state and local laws, rules and regulations,
compliance with which imposes subs tantial costs on us. Such laws and regulations include those that are directed
at paym ent f or servi ces and the conduct of operations, preve nting f raud and abu se, and prohibi ting general bus iness
corporations, such as ours, from engaging in practices that may influence professional decision-making, such as
splitting fees with physicians. Many healthcare laws are complex, and their application to specific services and
relationships may not be clear. Further, healthcare laws differ from state to state and it is difficult to ensure our
business complies with evolving laws in all states. In addition, we believe that our business will continue to be subject
to increasing regulation, the scope and ef
f ect of which we cannot predict. Federal and state legislatures and agencies
periodically consider proposals to revise or create additional statutory and regulatory requirements. Such proposals,
if implemented, could impact our operations, the use of our servi ces, and our abi lity t o marke t new servi ces, or could
create unexpected liabi lities f or us.
be challenged. For example, regulatory authorities or other parties may
We may in the future become the subject of regulatory or other investigations or proceedings, and our interpretations
of applicab le laws, rules and regulations may
assert that our arrangements with the physician practices to which we lease equipment and provide management
services violate anti-kickback, fee splitting, or self-referral laws and regulations and could require us to restructure these
arrangements, which could have a material adverse effect on our business, financial condition, results of operations,
cash flows and the trading price of our common stock. Such investigations, proceedings and challenges could also
result in substantial defense costs to us and a diversion of management’s time and attention. In addition, violations of
these laws are punishable by monetary fines, civil and criminal penalties, exclusion from participation in government-
sponsored healthcare programs, and f orf eiture of amounts collected in vi olation of such laws and regulations, any of
which could have a material adverse effect on our business, financial condition, results of operations, cash flows and
the trading price of our common stock
e m ay
i ncu r su
b stanti al costs d efend
lati ons
and if we lose, the government could force us to restructure our operations and subject us to fines, monetary
penalti es and
as
i care and
i ng ou r i nterpretati ons of fed eral and
parti ci pati on i n gove
rnm ent- sponsored
care progr am
possi
ed
M
rnm ent reg
d e u s from
state gove
ly exclu
h ealth
s su ch
i cai
ed
j ect to extensiv e f ederal and state gov ernment
Our operations, including our arrangements with healthcare prov iders, are sub
regulation and are subject to audits, inquiries and investigations from government agencies from time to time. Those laws
may have related rules and regulations that are subject to interpretation and may not provide definitive guidance as to their
application to our operations, including our arrangements with phy sicians and prof essional corporations.
We believe we are in substantial compliance with these laws, rules and regulations based upon what we believe are reasonable
and def ensib le interpretations of these laws, rules and regulations. H owev er, f ederal and state laws are b roadly worded and
y prosecutorial, regulatory or j udicial authorities in way s that we cannot predict. A ccordingly ,
may b e interpreted or applied b
our arrangements and b usiness practices may b e the sub
j ect of gov ernment scrutiny or b e f ound to v iolate applicab le laws.
If federal or state government officials challenge our operations or arrangements with third parties that we have structured
b ased upon our interpretation of these laws, rules and regulations, the challenge could potentially disrupt our b usiness
operations and we may incur sub stantial def ense costs, ev en if we successf ully def end our interpretation of these laws, rules
and regulations. In addition, if the government successfully challenges our interpretation as to the applicability of these laws,
rules and regulations as they relate to our operations and arrangements with third parties, it may hav e a material adv erse
effect on our business, financial condition and results of operations.
16
w
i
b
u
.
W
u
b
M
d
.
In the event regulatory action were to limit or prohibit us from carrying on our business as we presently conduct it or
f rom expanding our operations into certain j urisdictions, we may need to mak e structural, operational and organiz ational
modifications to our Company or our contractual arrangements with physicians and professional corporations. Our operating
costs could increase significantly as a result. We could also lose contracts or our revenues could decrease under existing
contracts. A ny restructuring would also negativ ely impact our operations b ecause our management’ s time and attention
would b e div erted f rom running our b usiness in the ordinary course.
Regulations related to “conflict minerals” may cause us to incur additional expenses and could limit the supply
and
i ncrease th e cost of certai n m etals u sed
i n m anu factu ri ng ou
r prod
u cts.
In August 2012, the SEC adopted a rule requiring disclosures of specified minerals, known as conflict minerals, that
are necessary to the f unctionality or production of products manuf actured or contracted to be manuf actured b
publ ic
companies. The conflict minerals rule requires companies annually to diligence, disclose and report whether or not
such minerals originate from the Democratic Republic of Congo and other specified countries. The rule could affect
sourcing at competitive prices and availability in sufficient quantities of certain minerals used in the manufacture
of our products, including tungsten. The number of suppliers who provide conflict-free minerals may be limited. In
addition, there may be material costs associated with complying with the disclosure requirements, such as costs related
to determining the source of certain minerals used in our products, as well as costs of possibl e charges to products,
processes or sources of supply as a consequence of such verification activities. Since our supply chain is complex,
we may not be able to sufficiently verify the origins of the relevant minerals used in our products through the due
diligence procedures that we implement, which may harm our reputation. In addition, we may encounter challenges to
satisfy those customers who require that all of the components of our products be certified conflict-free, which could
place us at a competitive disadva ntage if we are unabl e to do so.
i th
C om pli ance w
marketing practices, and exclusion from such programs as a result of a violation of these laws could have a material
ad
u lati ons g ov erni ng th e h ealth care i nd
restri ct ou r sales and
th e m any law s and
v erse effect on ou r b
u stry cou ld
u si ness.
reg
Once our products are sold, we must comply with various U.S. federal and state laws, rules and regulations pertaining
ck laws and phys ician self -ref erral laws, rules
to healthcare f raud and abus e, including f alse claims laws, anti-ki ck
and regulations. Violations of the fraud and abuse laws are punishable by criminal and civil sanctions, including, in
some instances, exclusion f rom participation in f ederal and state healthcare programs, including M
edicaid,
Veterans Administration health programs, workers’ compensation programs and TRICARE. Compliance with these
laws could restrict our sales and marke ting practices, and exclusion f rom such programs as a result of a vi olation of
these laws could have a material adve rse ef
f ect on our bus iness.
edicare, M
ba
Anti-Kickback Statutes
The f ederal A nti-Kick
payi ng remuneration, directly or indirectly , in exchange f or or to induce:
ck Statute prohibi ts persons f rom know ingly or willf ully soliciting, receivi ng, of
ba
f ering or
• the ref erral of an indivi dual f or a servi ce or product f or which paym ent may
be made b
y
edicare,
edicaid or other gove rnment-sponsored healthcare program; or
• purchasing, ordering, arranging f or, or recommending the ordering of , any servi ce or product f or which
paym ent may be
made b
y a
gove rnment-sponsored healthcare program.
b ack Statute is b road and prohib its many arrangements and practices that are lawf ul in b usinesses outside of
The A nti-Kick
the healthcare industry. The statutory penalties for violating the Anti-Kickback Statute include imprisonment for up to five
years and criminal fines of up to $25,000 per violation. In addition, through application of other laws, conduct that violates
the A nti-Kick
b ack Statute can also giv e rise to False Claims A ct lawsuits, civ il monetary penalties and possib le exclusion
from Medicare and Medicaid and other federal healthcare programs. In addition to the Federal Anti-Kickback Statute, many
states hav e their own anti-k ick
b ack laws. Of ten, these laws closely f ollow the language of the f ederal law, although they do
not always have the same scope, exceptions, safe harbors or sanctions. In some states, these anti-kickback laws apply not
only to pay ment made b
y a gov ernment health care program b ut also with respect to other pay ers, including commercial
insurance companies.
Government officials have focused recent kickback enforcement efforts on, among other things, the sales and marketing
activ ities of healthcare companies, including medical dev ice manuf acturers, and recently hav e b rought cases against
f ered unlawf ul inducements to potential or existing customers in an
indiv iduals or entities with personnel who allegedly of
y healthcare companies
attempt to procure their b usiness. This trend is expected to continue. Settlements of these cases b
have involved significant fines and/or penalties and in some instances criminal plea or deferred prosecution agreements.
17
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Our relationships with healthcare providers and our marketing practices are subject to the federal Anti-Kickback Statute
and similar state laws.
b ack Statute can b e v iolated if “ one purpose” of a pay ment is to induce ref errals. The A nti-Kick
We are subject to the federal Anti-Kickback Statute, which prohibits the knowing and willful offer, payment, solicitation or
receipt of any f orm of “ remuneration” in return f or, or to induce, the ref erral of b usiness or ordering of serv ices paid f or b
M edicare or other f ederal programs. “ Remuneration” has b een b roadly interpreted to mean any thing of v alue, including, f or
example, gif ts, discounts, credit arrangements, and in-k ind goods or serv ices, as well as cash. Certain f ederal courts hav e
held that the A nti-Kick
Statute is b road and prohib its many arrangements and practices that are lawf ul in b usinesses outside of the healthcare
industry. Violations of the Anti-Kickback Statute can result in imprisonment, civil or criminal fines or exclusion from
b ack Statute.
M edicare and other gov ernmental programs. M any states hav e adopted laws similar to the f ederal A nti-Kick
Some of these state prohib itions apply to ref erral of patients f or healthcare items or serv ices reimb ursed b
y any pay or, not
only the M edicare and M edicaid programs. A dditionally , we could b e sub
j ect to priv ate actions b rought pursuant to the False
Claims Act’s “whistleblower” or “qui tam” provisions which, among other things, allege that our practices or relationships
b ack Statute. The False Claims A ct imposes liab ility on any person or entity who, among other things,
v iolate the A nti-Kick
y a f ederal healthcare program. The
k nowingly presents, or causes to b e presented, a f alse or f raudulent claim f or pay ment b
qui tam provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government
alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In
recent years, the number of suits brought by private individuals has increased dramatically. In addition, various states have
enacted f alse claim laws analogous to the False Claims A ct. M any of these state laws apply where a claim is sub mitted to
any third party pay or and not merely a f ederal healthcare program.
b ack
lthough we hav e attempted to structure our mark eting initiativ es and b usiness relationships to comply with the A nti-
Kick
b ack Statute, we cannot assure y ou that we will not hav e to def end against alleged v iolations f rom priv ate or pub lic
entities or that the Office of Inspector General or other authorities will not find that our marketing practices and relationships
violate the statute. If we are found to have violated the Anti-Kickback Statute or a similar state statute, we may be subject
to civil and criminal penalties, including exclusion from the Medicare or Medicaid programs, or may be required to enter
into settlement agreements with the government to avoid such sanctions. Typically, such settlement agreements require
substantial payments to the government in exchange for the government to release its claims, and may also require us to
enter into a Corporate Integrity Agreement.
Physician Self-Referral Laws
. The Stark
edicare and M
know n as the “ Stark L aw,” prohibi ts, sub
j ect to certain
The f ederal ba n on phys ician self -ref errals, commonly
exceptions, phys ician ref errals of M
edicaid patients to an entity provi ding certain “ designated health
services” if the physician or an immediate family member of the physician has any financial relationship with the
entity
L aw also prohibi ts the entity receivi ng the ref erral f rom bi lling f or any good or servi ce f urnished
pursuant to an unlawf ul ref erral, and any person collecting any amounts in connection with an unlawf ul ref erral is
person who engages in a scheme to circumve nt the Stark L aw’ s ref erral prohibi tion
obl igated to ref und these amounts. A
may be fined up to $100,000 for each such arrangement or scheme. The penalties for violating the Stark Law also
include civi l monetary penalties of up to $15,000 per servi ce, could result in denial of paym ent, disgorgements of
reimbur sement receive d under a non-compliant agreement, and possibl e exclusion f rom medicare, M
edicaid or other
federal healthcare programs. In addition to the Stark Law, many states have their own self-referral laws. Often, these
laws closely f ollow the language of the f ederal law, although they do not always have the same scope, exceptions, saf e
harbors or sanctions. In some states these self-referral laws apply not only to payment made by a federal health care
program but also with respect to other payers, including commercial insurance companies. In addition, some state laws
require physicians to disclose any financial interest they may have with a healthcare provider to their patients when
ref erring patients to that provi der eve n if the ref erral itself is not prohibi ted.
If we fail to comply with federal and state physician self-referral laws and regulations as they are currently
interpreted or may be interpreted in the future, or if other legislative restrictions are issued, we could incur a
significant loss of revenue and be subject to significant monetary penalties, which could have a material adverse
effect on our business, financial condition and results of operations.
We are subject to federal and state laws and regulations that limit the circumstances under which physicians who have
a financial relationship with entities that furnish certain specified healthcare services may refer to such entities for the
provi sion of such servi ces, including clinical labor atory servi ces, radiology and other imaging servi ces and certain
other diagnostic servi ces. These laws and regulations also prohibi t such entities f rom bi lling f or servi ces prov ided in
vi olation of the laws and regulations.
We have financial relationships with physicians in the form of equipment leases and services arrangements. While we
be lieve our arrangements with phys icians are in material compliance with applicabl e laws and regulations, gove rnment
18
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authorities might tak e a contrary position or prohibi ted ref errals may occur. Further, be cause we cannot be certain
that we will have know ledge of all phys icians who may hold an indirect ownership interest, ref errals f rom any such
phys icians may c ause us to vi olate these laws and regulations.
Violation of these laws and regulations may result in the prohibition of payment for services rendered, significant
fines and penalties, and exclusion from Medicare, Medicaid and other federal and state healthcare programs, any
of which could have a material adverse effect on our business, financial condition and results of operations. In
addition, expansion of our operations to new j urisdictions, new interpretations of laws in our existing j urisdictions,
or new physician self-referral laws could require structural and organizational modifications of our relationships with
physicians to comply with those jurisdictions’ laws. Such structural and organizational modifications could result in
lower profitability and failure to achieve our growth objectives.
False Claims Laws
The f ederal False Claims A ct, or FCA
, prohibi ts any person f rom know ingly presenting, or causing to be presented, a
f alse claim or know ingly maki ng, or causing to made, a f alse statement to obt ain paym ent f rom the f ederal gove rnment.
Those found in violation of the FCA can be subject to fines and penalties of three times the damages sustained by the
government, plus mandatory civil penalties of between $5,000 and $10,000 (adjusted for inflation) for each separate
false claim. Actions filed under the FCA can be brought by any individual on behalf of the government, a “qui tam”
action, and this indivi dual, know n as a “ relator” or, more commonly , as a “ whistlebl ower,” may share in any amounts
paid by the entity to the government in damages and penalties or by way of settlement. In addition, certain states
have enacted laws modeled after the FCA, and this legislative activity is expected to increase. Qui tam actions have
increased significantly in recent years, causing greater numbers of healthcare companies, including medical device
manuf acturers, to def end f alse claim actions, pay damages and penalties or be excluded f rom M
edicaid or
other f ederal or state healthcare programs as a result of inve stigations arising out of such actions.
edicare, M
Increased Regulatory Scrutiny of Relationships with Healthcare Providers
Certain state gove rnments and the f ederal gove rnment have enacted legislation, including the P hys ician P aym ents
f ordabl e Care A ct, aimed at increasing transparency
Sunshine A ct provi sions under the Federal P atient P rotection and A
of our interactions with healthcare providers. As a result, we are required by law to disclose payments, gifts, and other
transf ers of va lue to certain healthcare provi ders in certain states and to the f ederal gove rnment. A ny f ailure to comply
with these legal and regulatory requirements could result in a range of fines, penalties, and/or sanctions, and could
affect our business. In addition, we have devoted and will continue to devote substantial time and financial resources
to deve lop and implement enhanced structure, policies, sys tems and processes to comply with these enhanced legal
and regulatory requirements, which may also impact our business.
Third-Party Reimbursement
Because we expect to receive payment for our products directly from our customers, we do not anticipate relying
edicaid, commercial health
directly on paym ent f or any of our products f rom third-party paye rs, such as M
insurers and managed care companies. H oweve r, our bus iness will be af
f ederal
f ected b
edicaid, as well as priva te paye rs, which of ten f ollow
and state gove rnmental authorities, such as M
the cove rage policies of these publ ic programs. Such policies may af
f ect which products customers purchase and
the prices they are willing to pay
f or those products in a particular j urisdiction. For example, our bus iness will be
indirectly impacted b
the abi lity of a hospital or medical f acility to obt ain cove rage and third-party reimbur sement f or
y
procedures perf ormed using our products. These third-party paye rs may deny cov erage if they determine that a devi ce
f ective treatment methods,
used in a procedure was not medically necessary , was not used in accordance with cost-ef
as determined by the third-party payer, or was used for an unapproved indication. They may also pay an inadequate
amount f or the procedure which could cause healthcare provi ders to use a lower cost competitor’ s devi ce or perf orm
a medical procedure without our devi ce.
edicare, M
y
cove rage policies adopted b
edicare and M
Reimbur sement decisions b
paye r’ s determination that use of a product is:
y particular third-party paye rs depend upon a numbe r of f actors, including each third-party
a covered benefit under its health plan;
appropriate and medically necessary for the specific indication;
cost ef
•
•
•
• neither experimental nor inve stigational.
f ective ; and
any third-party paye rs use cove rage decisions and paym ent amounts determined b
edicare and
Medicaid Services, or CMS, which administers the U.S. Medicare program, as guidelines in setting their coverage
the Centers f or M
y
19
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M
and reimbur sement policies. M
edicare periodically revi ews its reimbur sement practices f or va rious products. A s a
result, there is no certainty as to the future Medicare reimbursement rate for our products. In addition, those third-
party paye rs that do not f ollow the CM S guidelines may adopt dif
f erent cove rage and reimbur sement policies f or our
current and future products. It is possible that some third-party payers will not offer any coverage for our current or
f uture products.
In May 2015, the Company announced that one of the regional Medicare Administrative Contractors instructed
physicians to report CPT code (17999) rather than the established CPT code (0182T) for electronic brachytherapy for
treatment of NMSC. This announcement resulted in a significant disruption in our Therapy segment as a result of the
reimbursement uncertainty. Revenues for the years ended December 31, 2015 and December 31, 2016 were negatively
impacted as a result of the uncertainty. For a further discussion, please see Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
Furthermore, the healthcare industry in the United States is increasingly focused on cost containment as government and
priv ate insurers seek to control healthcare costs b
y imposing lower pay ment rates and negotiating reduced contract rates
with third-party payers. If third-party payers deny coverage or reduce their current levels of payment, or if our production
costs increase faster than increases in reimbursement levels, we may be unable to sell our products on a profitable basis.
H ealth care reform
leg
slati on i n th e U ni ted
S tates m ay ad
ve rsely affect ou r b
u si ness and
/ or resu
lts of operati ons.
In March 2010, significant reforms to the U.S. healthcare system were adopted in the form of the Patient Protection
and Affordable Care Act (the “PPACA”). The PPACA includes provisions that, among other things, reduce and/or
limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions) and impose
new and/or increased taxes. Specifically, beginning in 2013, the medical device industry was required to subsidize
healthcare reform in the form of a 2.3% excise tax on United States sales of most medical devices. In December
2015, as part of the Omnibus Appropriations Act, collection of the medical device excise tax was suspended for 2016
and 2017. We are unable to predict whether the postponement will be continued beyond 2017. While the PPACA
is intended to expand health insurance coverage to uninsured persons in the United States, other elements of this
legislation, such as Medicare provisions aimed at improving quality and decreasing costs, comparative effectiveness
research, an independent paym ent advi sory bo ard, and pilot programs to eva luate alternative paym ent methodologies,
make it difficult to determine the overall impact on sales of, and reimbursement for, our products. We are unable
to predict what additional legislation or regulation relating to the health care industry or third-party cove rage and
reimbur sement may be enacted in the f uture or what ef
f ect such legislation or regulation would have on our bu siness.
A ny cost containment measures or other health care sys tem ref orms that are adopted could have a material and adve rse
ef
f ect on our abi lity t o commercializ e our existing and f uture products successf ully
Healthcare industry consolidation could impose pressure on our prices, reduce potential customer base and
red
u ce d em and s for ou r sys tem
s.
any hospitals and imaging centers hav e consolidated to create larger healthcare enterprises with greater marke t and
purchasing power. If this consolidation trend continues, it could reduce the size of our potential customer base and
give the resulting enterprises greater ba rgaining or purchasing power, which may
lead to erosion of the prices f or our
systems or decreased margins for our systems. In addition, when hospitals and imaging centers combine, they often
consolidate inf rastructure, and consolidation of our customers could result in f ewer ove rall customers.
u r prod
u cts and
m anu factu ri ng faci li ti es are subject to extensive regulation with potentially significant costs
for com pli ance.
Our CAD systems for the computer aided detection of cancer and Axxent eBx systems are medical devices subject
to extensive regulation by the FDA under the Federal Food, Drug, and Cosmetic Act. In addition, our manuf acturing
operations are subject to FDA regulation and we are also subject to FDA regulations covering labeling, adverse event
reporting, and the FDA’s general prohibition against promoting products for unapproved or off-label uses.
Our f ailure to f ully comply with applicabl e regulations could result in the issuance of warning letters, non-approva ls,
suspensions of existing approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions,
inj unctions, and criminal prosecution. Moreover, unanticipated changes in existing regulatory requirements or
adoption of new requirements could increase our application, operating and compliance burdens and adversely affect
our business, financial condition and results of operations.
Sales of our products in certain countries outside of the U.S. are also sub
j ect to extensive regulatory approva ls.
Obtaining and maintaining foreign regulatory approvals is an expensive and time consuming process. We cannot be
certain that we will be abl e to obt ain the necessary regulatory approva ls timely or at all in any f oreign country in which
20
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O
we plan to market our CAD products and Axxent eBx systems, and if we fail to receive such approvals, our ability to
generate revenue may be significantly diminished.
e m ay not b e ab
le to ob tai n reg
latory approval for any of th e oth er prod
u cts th at w e m ay consi
d er d eve lopi ng
We have received FDA approvals for our currently offered products. Before we are able to commercialize any new
yi ng these
product, we must obt ain regulatory approva ls f or each indicated use f or that product. The process f or satisf
regulatory requirements is lengthy and costly and will require us to comply with complex standards for research and
development, clinical trials, testing, manufacturing, quality control, labeling, and promotion of products.
u r prod
u cts m ay b
e recalled
eve n after w e h ave recei
ve d
F
or oth er gove
rnm ental approval or clearance.
If the safety or efficacy of any of our products is called into question, the FDA and similar governmental authorities in
other countries may require us to recall our products, even if our product received approval or clearance by the FDA or
a similar governmental body. Such a recall would divert the focus of our management and our financial resources and
f ect our reputation with customers and our financial condition and results of operations.
could materially and adv ersely af
e m ay b e su
i nal or ci
and disclosure of sensitive personally identifiable information.
l sancti ons i f w e fai l to com ply w
j ect to cri
i th
pri
vac y reg
lati ons regar d
i ng th e u se
Numerous state and federal laws and regulations govern the collection, dissemination, use, privacy, confidentiality,
security, availability and integrity of personally identifiable information personally identifiable information, including
The Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations that have been issued
thereunder (“HIPAA”). In the provision of services to our customers, we and our third party vendors may collect, use,
maintain and transmit patient health inf ormation in way s that are sub
j ect to many of these laws and regulations.
Our customers are covered entities, and we are a business associate of our customers under HIPAA as a result of our
contractual obligations to perform certain functions on behalf of and provide certain services to those customers. If we or any
of our subcontractors experience a breach of the privacy or security of patient information, the breach reporting requirements
and the liability for business associates under HIPAA could result in substantial financial liability and reputational harm.
Federal and state consumer laws are being applied increasingly by the Federal Trade Commission (FTC) and state
attorneys general to regulate the collection, use and disclosure of personal or patient health inf ormation, through web
sites or otherwise, and to regulate the presentation of web site content. Numerous other federal and state laws protect
the confidentiality, privacy, availability, integrity and security of personally identifiable information. These laws in
many cases are more restrictive than, and not preempted by, HIPAA and may be subject to varying interpretations
y
courts and gove rnment agencies, creating complex compliance issues f or us and our customers and potentially
exposing us to additional expense, adverse publicity and liability. We may not remain in compliance with the diverse
privacy requirements in all of the jurisdictions in which we do business.
HIPAA and federal and state laws and regulations may require users of personally identifiable information to implement
specified security measures. Evolving laws and regulations in this area could require us to incur significant additional
costs to re-design our products in a timely manner to reflect these legal requirements, which could have an adverse
impact on our results of operations.
New personally identifiable information standards, whether implemented pursuant to HIPAA, congressional action
or otherwise, could have a significant effect on the manner in which we must handle healthcare related data, and the
cost of complying with standards could be significant. If we do not properly comply with existing or new laws and
regulations related to patient health inf ormation, we could be sub
j ect to criminal or civi l sanctions.
If our security measures are breached or fail and unauthorized access is obtained to a customer’s data, our service may
be reduced, and we
be perceive d as insecure, the attractive ness of our servi ces to current or potential customers may
may incur significant liabilities.
Our servi ces invol ve the storage and transmission of customers’ proprietary
inf ormation and patient inf ormation,
including health, financial, payment and other personal or confidential information. We rely on proprietary and
f or
commercially ava ilabl e sys tems, sof tware, tools and monitoring, as well as other processes, to provi de security
processing, transmission and storage of such information. Because of the sensitivity of this information and due to
requirements under applicable laws and regulations, the effectiveness of such security efforts is very important. If
our security measures are br eached or f ail as a result of third-party action, employe e error, malf easance or otherwise,
someone may be able to obtain unauthorized access to customer or patient data. Improper activities by third-parties,
adva nces in computer and sof tware capabi lities and encrypt ion technology , new tools and discove ries and other eve nts
21
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u
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A
W
b
m
v
i
u
b
or developments may facilitate or result in a compromise or breach of our computer systems. Techniques used to obtain
unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against
a target, and we may be unable to anticipate these techniques or fail to implement adequate preventive measures. Our
security measures may not be effective in preventing such unauthorized access. If a breach of our security occurs, we
could f ace damages f or contract br each, penalties f or vi olation of applicabl e laws or regulations, possibl e lawsuits
by individuals affected by the breach and significant remediation costs and efforts to prevent future occurrences. In
f ective ness of
addition, whether there is an actual or a perceive d br each of our security , the marke t perception of the ef
our security m easures could be harmed and we could lose current or potential customers.
Our effective tax rate may fluctuate and we may incur obligations in tax jurisdictions in excess of amounts that
h ave b een accru ed
.
As a global company, we are subject to taxation in numerous countries, states and other jurisdictions. In preparing our
financial statements, we record the amount of tax payable in each of the countries, states and other jurisdictions in which
we operate. Our f uture ef
f ectiv e tax rate, howev er, may b e lower or higher than prior y ears due to numerous f actors,
including a change in our geographic earnings mix, changes in the measurement of our def erred taxes, and recently
enacted and future tax law changes in jurisdictions in which we operate. We are also subject to ongoing tax audits in
v arious j urisdictions, and tax authorities may disagree with certain positions we hav e tak en and assess additional taxes.
Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or
our current expectations, which could adversely affect our business, results of operations and cash flows.
h ange s i n i nterpretati on or appli cati on of G enerally A ccepted
A ccou nti ng Pri nci ples m ay ad
ve rsely affect ou r
operati ng r esu
lts
We prepare our financial statements to conform to GAAP. These principles are subject to interpretation by the Financial
Accounting Standards Board (“FASB”), American Institute of Certified Public Accountants, the SEC and various
other regulatory or accounting bodi es. A
change in interpretations of , or our application of , these principles can have a
significant effect on our reported results and may even affect our reporting of transactions completed before a change
is announced. In addition, when we are required to adopt new accounting standards, our methods of accounting for
certain items may change, which could cause our results of operations to fluctuate from period to period and make it
more difficult to compare our financial results to prior periods.
As our operations evolve over time, we may introduce new products or new technologies that require us to apply
f erent accounting principles, including ones regarding reve nue recognition, than we have applied in past periods.
dif
The application of different types of accounting principles and related potential changes may make it more difficult
to compare our financial results from quarter to quarter, and the trading price of our common stock could suffer or
be come more vol atile as a result.
u r recent acq
i si ti ons i nvol v e ri sk s.
We have recently completed acquisitions and we may make acquisitions in the future. Such transactions involve
numerous risks , including possibl e adve rse ef
Some of the potential risks involved with acquisitions are the following:
f ects on our operating results or the marke t price of our common stock
.
•
•
•
•
difficulty in realizing anticipated financial or strategic benefits of such acquisition;
dive rsion of capital and potential dilution of stockhol der ownership;
the risks related to increased indebtedness, as well as the risk such financing will not be available on
satisf actory t erms or at all;
dive rsion of management’ s attention and other resources f rom current operations, including potential
strain on financial and managerial controls and reporting systems and procedures;
• management of employe e relations across f acilities;
•
•
•
•
difficulties in the assimilation of different corporate cultures and practices, as well as in the
assimilation and retention of br oad and geographically di spersed personnel and operations;
difficulties and unanticipated expenses related to the integration of departments, systems (including
accounting systems), technologies, books and records, procedures and controls (including internal
accounting controls, procedures and policies), as well as in maintaining uniform standards, including
envi ronmental management sys tems;
assumption of known and unknown liabilities, some of which may be difficult or impossible to quantify;
inability to realize cost savings, sales increases or other benefits that we anticipate from such
acquisitions, either as to amount or in the expected time frame;
non-cash impairment charges or other accounting charges relating to the acquired assets; and
•
• maintaining strong relationships with our and our acquired companies’ customers after the acquisitions.
22
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If our integration efforts are not successful, we may not be able to maintain the levels of revenues, earnings or
operating efficiency that we and the acquired companies achieved or might achieve separately.
Our acquisitions may not result in the benefits and revenue growth we expect.
We integrate companies that we acquire and including the operations, services, products and personnel of each
company within our management policies, procedures and strategies. We cannot be sure that we will achieve the
benefits of revenue growth that we expect from these acquisitions or that we will not incur unforeseen additional
costs or expenses in connection with these acquisitions. To effectively manage our expected future growth, we must
continue to successf ully manage our integration of these companies and continue to improve our operational sys tems,
internal procedures, working capital management, and financial and operational controls. If we fail in any of these
areas, our bus iness could be adve rsely a f
f ected.
Our quarterly and annual operating and financial results and our gross margins are likely to fluctuate
significantly in future periods.
Our quarterly and annual operating and financial results are difficult to predict and may fluctuate significantly from
period to period. Our reve nue and results of operations may fluctuate as a result of a variety of factors that are outside
of our control including, but not limited to, general economic conditions, the timing of orders from our OEM partners,
our OEM partners ability to manufacture and ship their digital mammography systems, our timely receipt by the
FDA for the clearance to market our products, our ability to timely engage other OEM partners for the sale of our
products, the timing of product enhancements and new product introductions b
us or our competitors, the pricing of
our products, changes in customers’ budge ts, competitive conditions and the possibl e def erral of reve nue under our
reve nue recognition policies.
y
h e m ark ets for m any of ou r prod
u cts are su
j ect to ch ang
i ng t ech nolog
j ect to changing technology , new product introductions and product
The marke ts f or many products we sell are sub
enhancements, and evol vi ng industry standards. The introduction or enhancement of products embodyi
ng new
technology or the emergence of new industry standards could render our existing products obs olete or result in short
product lif e cyc les or our inability to sell our products without offering a significant discount. A ccordingly , our abi lity
to compete is in part dependent on our abi lity t o continually of
f er enhanced and improve d products.
If we are unable to successfully introduce new technology solutions or services or fail to keep pace with advances in
technology, our business, financial condition and results of operations will be adversely affected.
Our b usiness depends on our ab ility to adapt to ev olv ing technologies and industry standards and introduce new
technology solutions and services accordingly. If we cannot adapt to changing technologies, our technology solutions and
services may become obsolete, and our business would suffer. Because the healthcare information technology market is
constantly evolving, our existing Radion technology may become obsolete and fail to meet the requirements of current
and potential customers. Our success will depend, in part, on our ab ility to continue to enhance our existing technology
solutions and serv ices, dev elop new technology that addresses the increasingly sophisticated and v aried needs of our
customers, and respond to technological adv ances and emerging industry standards and practices on a timely and cost-
effective basis. The development of our proprietary technology entails significant technical and business risks. We may
not b e successf ul in dev eloping, using, mark eting, selling, or maintaining new technologies ef
f ectiv ely or adapting our
proprietary Radion technology to evolving customer requirements or emerging industry standards, and, as a result, our
business and reputation could suffer. We may not be able to introduce new technology solutions on schedule, or at all,
or such solutions may not achiev e mark et acceptance. M oreov er, competitors may dev elop competitiv e products that
could adv ersely af
y us to introduce new products or to introduce these products
on schedule could have an adverse effect on our business, financial condition and results of operations.
f ect our results of operations. A
f ailure b
We depend upon a limited number of suppliers and manufacturers for our products, and certain components
nu
i n ou r prod
b er of su ppli ers.
a sole or li
u cts m ay b
le from
e avai
i ted
lab
y
a limited numbe r of
Our products are generally either manuf actured and assembl ed f or us b
manuf acturers or assembl ed b
us f rom supplies we obt ain f rom a limited numbe r of suppliers. Critical components
required to manufacture our products, whether by outside manufacturers or directly by us, may be available from a
sole or limited number of component suppliers. We generally do not have long-term arrangements with any of our
impair our abi lity
manuf acturers or suppliers. The loss of a sole or ke y manuf acturer or supplier could materially
to delive r products to our customers in a timely manner and would adve rsely af
f ect our sales and operating results.
Our business would be harmed if any of our manufacturers or suppliers could not meet our quality and performance
specifications and quantity and delivery requirements.
a sole manuf acturer, b
y
y
23
T
b
y
.
m
m
e d
i stri
u te ou r prod
u cts i n h
ly c om peti ti
ve m ark ets and
ou r sales m ay
su ffer as a resu
lt.
We operate in highly competitive and rapidly changing markets that contain competitive products available from
nationally and internationally recognized companies. Many of these competitors have significantly greater financial,
technical and human resources than us and are well established. In addition, some companies have developed or
may deve lop technologies or products that could compete with the products we manuf acture and distribut e or that
would render our products obsolete or noncompetitive. In addition, our competitors may achieve patent protection,
regulatory approva l, or product commercializ ation that would limit our abi lity to compete with them. These and other
competitive pressures could have a material adve rse ef
f ect on our bus iness.
i sru pti ons i n serv
i ce or d am age to ou r th
i rd
- party prov
d ers’ d ata centers cou
ld
ad
ve rsely affect ou r b
u si ness.
We rely on third-parties who provide access to data centers. Our information technologies and systems are vulnerable
to damage or interruption from various causes, including (i) acts of God and other natural disasters, war and acts of
terrorism and (ii) power losses, computer systems failures, internet and telecommunications or data network failures,
operator error, losses of and corruption of data and similar events. We conduct business continuity planning according
and work with our third-party providers to protect against fires, floods, other natural disasters and general business
interruptions to mitigate the adve rse ef
f ects of a disruption, relocation or change in operating envi ronment at the data
centers we utilize. In addition, the occurrence of any of these events could result in interruptions, delays or cessations
in servi ce to our customers. A ny of these eve nts could impair or prohibi t our abi lity to provi de our servi ces, reduce
the attractiveness of our services to current or potential customers and adversely impact our financial condition and
results of operations.
In addition, despite the implementation of security measures, our infrastructure, data centers, or systems that we
interface with, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper
employe e or contractor access, computer vi ruses, programming errors, denial-of -servi ce attacks or other attacks b
third-parties seeki ng to disrupt operations or misappropriate inf ormation or similar phys ical or electronic br eaches of
security
. A ny of these can cause sys tem f ailure, including network, sof tware or hardware f ailure, which can result in
service disruptions. As a result, we may be required to expend significant capital and other resources to protect against
security br
eaches and hacke rs or to allevi ate probl ems caused b
uch br eaches.
y s
y
If our products fail to perform properly due to errors or similar problems, our business could suffer.
Complex sof tware, such as our Radion sof tware, may contain def ects or errors, some of which may remain undetected
for a period of time. It is possible that such errors may be found after the introduction of new software or enhancements
to existing software. We continually introduce new solutions and enhancements to our solutions, and, despite testing
by us, it is possible that errors may occur in our software. If we detect any errors before we introduce a solution, we
might have to delay deployment for an extended period of time while we address the problem. If we do not discover
f ect our new or current solutions or enhancements until af ter they are deploye d, we would need
sof tware errors that af
to provide enhancements to correct such errors. Errors in our software could result in:
•
•
•
•
•
•
•
•
harm to our reputation;
lost sales;
delays in commercial releases;
product liabi lity c laims;
delays in or loss of marke t acceptance of our solutions;
license terminations or renegotiations;
unexpected expenses and dive rsion of resources to remedy e rrors; and
priva cy a nd security vul
nerabi lities.
Furthermore, our customers might use our sof tware together with products f rom other companies or those that they
have developed internally. As a result, when problems occur, it might be difficult to identify the source of the problem.
Even when our software does not cause these problems, the existence of these errors might cause us to incur significant
costs, dive rt the attention of our technical personnel f rom our solution deve lopment ef
f orts; impact our reputation and
cause significant customer relations problems.
We cannot be certain of the future effectiveness of our internal controls over financial reporting or the impact
of th e sam e on ou r operati ons or th e m ark et pri ce for ou r com
m on stock
P ursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include in our A nnual Report on
Form 10-K our assessment of the effectiveness of our internal controls over financial reporting. We have dedicated a
significant amount of time and resources to ensure compliance with this legislation for the year ended December 31,
24
W
b
i
g
h
D
i
.
2016 and will continue to do so for future fiscal periods. Although we believe that we currently have adequate internal
control procedures in place, we cannot be certain that future material changes to our internal controls over financial
reporting will be effective. If we cannot adequately maintain the effectiveness of our internal controls over financial
reporting, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action
could adversely affect our financial results and the market price of our common stock.
An inability to meet the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 could adversely affect
investor confidence and, as a result, our stock price.
We are required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”).
Although we implemented procedures to comply with the requirements of Section 404, there is no assurance that
we will continue to meet the requirements. Failure to meet the ongoing requirements of Section 404, our inability to
comply with Section 404’s requirements, and the costs of ongoing compliance could have a material adverse effect on
investor confidence and our stock price.
Our future prospects depend on our ability to retain current key employees and attract additional qualified
personnel.
Our success depends in large part on the continued service of our executive officers and other key employees. We may
not be able to retain the services of our executive officers and other key employees. The loss of executive officers or
other ke y pe rsonnel could have a material adv erse ef
f ect on us.
In addition, in order to support our continued growth, we will be required to effectively recruit, develop and retain
additional qualified personnel. If we are unable to attract and retain additional necessary personnel, it could delay or
hinder our plans f or growth. Competition f or such personnel is intense, and there can be no assurance that we will
be able to successfully attract, assimilate or retain sufficiently qualified personnel. The failure to retain and attract
necessary personnel could have a material adverse effect on our business, financial condition and results of operations.
Our international operations expose us to various risks, any number of which could harm our business.
Our revenue from sales outside of the United States represented approximately 9% of our revenue for 2016. We are
sub
j ect to the risks inherent in conducting bu siness across national bounda ries, any one of which could adve rsely
impact our business. In addition to currency fluctuations, these risks include, among other things: economic downturns;
changes in or interpretations of local law, gove rnmental policy or regulation; restrictions on the transf er of f unds into
or out of the country
va ryi ng tax sys tems; and gove rnment protectionism. One or more of the f oregoing f actors could
impair our current or f uture operations and, as a result, harm our ove rall bus iness.
h e m ark et pri ce of ou r com
m on stock
h as b een, and
m ay conti nu e to b e, vol ati le w
i ch
cou
ld
red
u ce th e
m ark et pri ce of ou r com
m on stock
The publ icly traded shares of our common stock have experienced, and may experience in the future, significant price
and volume fluctuations. This marke t vol atility could reduce the marke t price of our common stock without regard to
our operating performance. In addition, the trading price of our common stock could change significantly in response
to actual or anticipated variations in our quarterly operating results, announcements by us or our competitors, factors
f ecting the medical imaging industry generally , changes in national or regional economic conditions, changes in
af
securities analys ts’ estimates f or us or our competitors’ or industry
’ s f uture perf ormance or general marke t conditions,
making it more difficult for shares of our common stock to be sold at a favorable price or at all. The marke t price of
general marke t price declines or marke t vol atility in the f uture or f uture
our common stock could also be reduced b
declines or vol atility i n the prices of stocks f or companies in our industry
y
A substantial number of shares of our common stock are eligible for future sale, and the sale of shares of
common stock into the market, or the perception that such sales may occur, may depress our stock price.
Sales of subs tantial additional shares of our common stock
in the publ ic marke t, or the perception that these sales
may occur, may significantly lower the market price of our common stock. We are unable to estimate the amount,
timing or nature of future sales of shares of our common stock. We have previously issued a substantial number of
shares of common stock, which are eligible for resale under Rule 144 of the Securities Act of 1933, as amended, or the
Securities Act, and may become freely tradable. We have also registered shares that are issuable upon the exercise of
options and warrants. If holders of options or warrants choose to exercise their securities and sell shares of common
stock issued upon the exercise in the publ ic marke t, or if holders of currently restricted common stock choose to sell
such shares of common stock in the public market under Rule 144 or otherwise, or attempt to publicly sell such shares
all at once or in a short time period, the preva iling marke t price f or our common stock m ay de cline.
25
;
T
h
.
.
Future issuances of shares of our common stock may cause significant dilution of equity interests of existing
h old ers of com
d ecrease th e m ark et pri ce of sh ares of ou r com
m on stock
m on stock
and
We have previously issued options that are exercisable into a significant number of shares of our common stock.
Should existing holders of options exercise their securities into shares of our common stock, it may cause significant
dilution of equity interests of existing holders of our common stock and reduce the market price of shares of our
common stock
si ons i n ou r corporate ch arter and
Prov
acquire us, discourage a takeover and adversely affect existing stockholders.
i n D elaw are law
cou
ld
make it more difficult for a third party to
be issued in one or more series, the terms of which may
Our certificate of incorporation authorizes the Board of Directors to issue up to 1,000,000 shares of preferred stock.
The pref erred stock may
be determined at the time of
issuance by our Board of Directors, without further action by stockholders, and may include, among other things,
voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation,
lthough there are currently no shares of pref erred
conve rsion and redemption rights, and sinki ng f und provi sions. A
stock outstanding, f uture holders of pref erred stock may have rights superior to our common stock and such rights
could also be used to restrict our abi lity t o merge with, or sell our assets to a third party
We are also sub
us f rom engaging in a “
date such person acquired that status unless appropriate board or stockholder approvals are obtained.
These provi sions could deter unsolicited take ove rs or delay or preve nt changes in our control or management, including
transactions in which stockhol ders might otherwise receive a premium f or their shares ove r the then current marke t
price. These provi sions may also limit the abi lity of stockhol ders to approve transactions that they may deem to be in
their be st interests.
j ect to the provisions of Section 203 of the Delaware G eneral Corporation L aw, which could preve nt
bus iness combi nation” with a 15% or greater stockhol der” f or a period of three ye ars f rom the
I tem
1
.
U nresolve d
S taff C om
m ents.
Not applicable
Item 2.
Properti es.
The Company’s executive offices are leased pursuant to a five-year lease (the “Lease”) that commenced on December
15, 2006, with renewals in January, 2012, and August 2016 consisting of approximately 11,000 square feet of office
space located at 98 Spit Brook Road, Suite 100 in Nashua, New Hampshire (the “Premises”). The August 2016 Lease
renewal provides for an annual base rent of $184,518 for the period from March 2017 to February 2020. Additionally,
the Company is required to pay its proportionate share of the building and real estate tax expenses and obtain insurance
f or the P remises.
The Company leases a facility consisting of approximately 24,350 square feet of office, manufacturing and warehousing
space located at 101 Nicholson Lane, San Jose, CA. The operating lease commenced September 2012 with a current
annual payment of $295,140 through September 2017, with all amounts payable in equal monthly installments. In
September 2016, the Company extended this lease for the period from October 2017 to March 2020 with annual
payments of $540,588 from October 2017 to September 2018, $558,120 from October 2018 to September 2019 and
$286,368 for the period from October 2019 to March 2020, with all amounts payable in equal monthly installments.
Additionally, the Company is required to pay its proportionate share of the building and real estate tax expenses and
obt ain insurance f or the f acility
In addition to the foregoing leases relating to its principal properties, the Company also has a lease for an additional
facility in Nashua, New Hampshire used for product repairs, manufacturing and warehousing.
If the Company is required to seek additional or replacement facilities, it believes there are adequate facilities available
at commercially r easonabl e rates.
I tem
3
L egal Proceed
i ngs .
may be a party to va rious legal proceedings and claims arising out of the ordinary course of its bu siness.
The Company
Although the final results of all such matters and claims cannot be predicted with certainty, the Company currently
be lieve s that there are no current proceedings or claims pending against it of which the ultimate resolution would have
a material adverse effect on its financial condition or results of operations. However, should we fail to prevail in any
legal matter or should seve ral legal matters be resolve d against us in the same reporting period, such matters could
have a material adverse effect on our operating results and cash flows for that particular period. In all cases, at each
26
.
.
i
.
B
.
.
reporting period, the Company eva luates whether or not a potential loss amount or a potential range of loss is proba bl e
and reasonably estimable under ASC 450, Contingencies. Legal costs are expensed as incurred.
I tem
4
i ne S afety D
i sclosu res.
Not applicable.
I tem
5
.
PA
I
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Eq
ecu ri ti es.
i ty S
The Company’s common stock is traded on the NASDAQ Capital Market under the symbol “ICAD”. The following
table sets forth the range of high and low sale prices for each quarterly period during 2016 and 2015.
Fiscal y ear ended
D ecemb er 31, 2016
First Q uarter
Second Q uarter
Third Q uarter
Fourth Q uarter
Fiscal y ear ended
D ecemb er 31, 2015
First Q uarter
Second Q uarter
Third Q uarter
Fourth Q uarter
H
igh
L ow
$
5. 24
6. 23
6. 49
5. 49
$
06.3
4. 60
4. 51
2. 82
$
11. 14
10. 86
4. 69
5. 41
$
16.7
3. 22
2. 95
2. 96
As of February 21, 2017, there were 280 holders of record of the Company’s common stock. In addition, the Company
believes that there are in excess of 3,700 holders of its common stock whose shares are held in “street name”.
to date, and the Company does not expect to
The Company has not paid any cash divi dends on its common stock
pay cash divi dends in the f oreseeabl e f uture. Future divi dend policy will depend on the Company
’ s earnings, capital
requirements, financial condition, and other factors considered relevant by the Company’s Board of Directors. There
are no non-statutory r estrictions on the Company
’ s present abi lity t o pay di vi dends.
See Item 12 of this Form 10-K for certain information with respect to the Company’s equity compensation plans in
effect at December 31, 2016.
Issuer’s Purchases of Equity Securities. For the maj ority of restricted stock units granted, the numbe r of shares issued
on the date that the restricted stock units vest is net of the minimum statutory tax withholding requirements that we pay
in cash to the appropriate taxing authorities on be half of our employe es. The Company had the f ollowing repurchases
of securities in the quarter ended December 31, 2016:
Month of purchase
October 1 - October 31, 2016
November 1 - November 30, 2016
December 1 - December 31, 2016
Total
Average
price paid per
share
Total number
of shares
purchased (1)
13,016 $ 3.77
110 $ 3.70
- $ -
3.77
$
13,126
Total number of
shares purchased
as part of
publicly
announced plans
or programs
$ -
$ -
$ -
$ -
Maximum dollar
value of shares
that may yet be
purchaed under
the plans or
programs
$ -
$ -
$ -
$ -
(1) Represents shares of common stock surrendered by employees to the Company to pay employee withholding taxes
due upon the vesting of restricted stock. These transactions are exempt under Section (4)(a)(2) of the Securities Act.
27
.
M
R
T
I
u
Item 6.
S elected
F
i nanci al D ata.
The following selected consolidated financial data is not necessarily indicative of the results of future operations and
should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and related notes included elsewhere in this Annual Report on
Form 10-K (amounts in thousands).
S elected S tatem ent of O perati ons D ata
Y ear End ed
D ecem
b er 3
Total Rev enue
G ross margin
G ross margin %
Total operating expenses
I ncome ( loss) f rom operations
Other ( expense) income, net
N et loss
N et income ( loss) per share
Basic
iluted
eighted av erage shares outstanding
cisaB
iluted
S elected B alance S
h eet D ata
Cash and cash eq uiv alents
Total current assets
Total assets
Total current liab ilities
L ong term def erred rev enue
N otes and lease pay ab le, long term
Stock holders' eq uity
$
$
$
$
$
26,338
18,518
70. 3%
28,488
( 9,970)
( 53)
( 10,099)
41,554
29,350
70. 6%
59,429
( 30,079)
( 2,352)
( 32,447)
43,924
31,227
71. 1%
30,412
815
( 1,671)
( 1,009)
33,067
23,085
69. 8%
24,861
( 1,776)
( 5,706)
( 7,608)
28,275
20,031
70. 8%
25,443
( 5,412)
( 3,919)
( 9,374)
$
$
$
$
$
$
( 0. 63)
$
( 2. 07)
$
( 0. 07)
$
( 0. 70)
$
( 0. 87)
$
( 0. 63)
$
( 2. 07)
$
( 0. 07)
$
( 0. 70)
$
( 0. 87)
239,51
15,932
686,51
15,686
690,41
14,096
10,842
10,842
10,796
10,796
A s of D ecem
b er 3
$
$
$
$
$
8,585
19,933
38,651
12,855
668
-
25,038
15,280
27,767
48,640
14,279
1,079
86
32,746
32,220
44,616
93,770
22,049
1,525
6,622
62,779
11,880
22,043
58,916
22,452
1,726
12,005
21,377
13,948
21,533
59,993
14,639
1,502
14,846
27,665
$
$
$
$
$
I tem
7
.
M anage m ent’ s D
R esu
lts of O perati ons.
i scu ssi on and
A nalys i s of F
i nanci al C ond
i ti on and
R esu
lts of O perati ons
ve rv
i ew
iCAD, Inc. is an industry-leading provider of advanced image analysis, workflow solutions and radiation therapy for
the early identification and treatment of cancer. The Company reports in two segments –Cancer Detection (“Detection”)
and Cancer Therapy (“Therapy”).
The Company has grown primarily through acquisitions to become a broad player in the oncology market.
In the Detection segment, the Company’s solutions include advanced image analysis and workflow solutions that
enabl e healthcare prof essionals to be tter serve patients b
yi ng pathologies and pinpointing the most preva lent
cancers earlier, a comprehensive range of high-performance, upgradeable Computer-Aided Detection (CAD) systems
and workflow solutions for mammography, Magnetic Resonance Imaging (MRI) and Computed Tomography (CT).
identif
y
The Company
intends to continue the extension of its superior image analys is and clinical decision support solutions
for mammography, MRI and CT imaging. iCAD believes that advances in digital imaging techniques should bolster
its efforts to develop additional commercially viable CAD/advanced image analysis and workflow products.
28
O
2
0
1
6
2
0
1
5
2
0
1
4
2
0
1
3
2
0
1
2
D
W
D
1
,
2
0
1
6
2
0
1
5
2
0
1
4
2
0
1
3
2
0
1
2
1
,
In the Therapy segment the Company offers an isotope-free cancer treatment platform technology. The Xoft Electronic
Brachytherapy System (“Xoft System”) can be used for the treatment of early-stage breast cancer, endometrial cancer,
cervical cancer and skin cancer. We believe the Xoft System platform indications represent strategic opportunities in
the United States and International markets to offer differentiated treatment alternatives. In addition, the Xoft System
generates additional recurring reve nue f or the sale of consumabl es and related accessories which will continue to drive
growth in this segment.
In May 2015 the Company announced that one of the regional Medicare Administrative Contractors instructed
physicians to report CPT code (17999) rather than the established CPT code (0182T) for electronic brachytherapy for
treatment of NMSC. This announcement resulted in a significant disruption in the Therapy segment as a result of the
reimbur sement uncertainty
.
f actors, the Company
f ederal and state gove rnmental authorities, such as M
cove rage policies adopted
A s the Company has noted in its risk
edicaid, as well as priva te paye rs, which of ten
y
f ollow the cove rage policies of these publ ic programs. Such policies may af
f ect which products customers purchase
and the prices customers are willing to pay f or those products in a particular j urisdiction. The change in CP T codes f or
the Company’s electronic brachytherapy treatment of NMSC had a negative impact on the Company’s revenues for
the fiscal years ended December 31, 2015 and December 31, 2016
’ s bu siness can be af
edicare and M
f ected b
y
In connection with the preparation of the financial statements for the second quarter ended June 30, 2015, the Company
eva luated the Therapy reporting unit f or bot h long-live d asset and goodwill impairment. A s a result of this assessment,
the Company recorded material impairment charges in the Therapy reporting unit (see Note h and Note i to the
condensed consolidated financial statements for additional discussion).
On April 29, 2015, pursuant to the terms of the Asset Purchase Agreement with VuComp, the Company purchased
VuComp’s M-Vu Breast Density product for $1,700,000 in cash.
In January 2016, the Company acquired the VuCOMP cancer detection portfolio, including the M-Vu® computer
aided detection (CAD) technology platform.
On December 16, 2016 the Company agreed to sell certain intellectual property relating to the VersaVue Software and
the DynaCAD product and related assets to Invivo for $3,200,000 in cash with a holdback reserve of $350,000. On
January 30, 2017, the Company closed this transaction.
The Company’s headquarters are located in Nashua, New Hampshire, with manufacturing facilities in Nashua, New
H ampshire and, an operations, research, deve lopment, manuf acturing and warehousing f acility in San J ose, Calif ornia.
C ri ti cal A ccou nti ng Poli ci es
The Company’s discussion and analysis of its financial condition, results of operations, and cash flows are based on
its 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 the Company to make estimates
f ect the reported amounts of assets, liabi lities, reve nue and expenses, and related disclosure
and j udgments that af
of contingent assets and liabi lities. On an on-going ba sis, the Company eva luates these estimates, including those
related to reve nue recognition, allowance f or doubt f ul accounts, inve ntory
va luation and obs olescence, intangibl e
assets, goodwill, warrants, income taxes, contingencies and litigation. A dditionally , the Company uses assumptions
and estimates in calculations to determine stock- ba sed compensation and the va lue of warrants. The Company
ba ses
its estimates on historical experience and on va rious other assumptions that it be lieve s to be reasonabl e under the
circumstances, the results of which f orm the ba sis f or maki ng j udgments about the carryi ng va lues of assets and
liabi lities that are not readily apparent f rom other sources. A ctual results may dif
f er f rom these estimates under
dif
f erent assumptions or conditions.
The Company
’ s critical accounting policies include:
Inventory;
llowance f or doubt f ul accounts;
- Reve nue recognition;
-
-
- Valuation of long-lived and intangible assets;
-
-
-
G oodwill;
Stock ba
Income taxes.
sed compensation; and
29
b
A
R eve nu e R ecogn i ti on
The Company recogniz es reve nue primarily
f rom the sale of products and f rom the sale of servi ces and supplies.
Revenue is recognized when delivery has occurred, persuasive evidence of an arrangement exists, fees are fixed or
determinabl e and collectabi lity of the related receiva bl e is proba bl e. For product reve nue, delive ry has occurred upon
shipment provi ded title and risk of loss have passed to the customer. Servi ces and supplies reve nue are considered to
be delive red as the servi ces are perf ormed or ove r the estimated lif e of the supply a greement.
The Company recognizes revenue from the sale of its digital, film-based CAD and cancer therapy products and services
in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”) and ASC Update No. 2009-
14, “Certain Arrangements That Contain Software Elements” (“ASU 2009-14”) and ASC 985-605, “Software” (“ASC
985-605”). Revenue from the sale of certain CAD products is recognized in accordance with ASC 840 “Leases” (“ASC
840”). For multiple element arrangements, revenue is allocated to all deliverables based on their relative selling prices. In
such circumstances, a hierarchy is used to determine the selling price to b e used f or allocating rev enue to deliv erab les as
follows: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”)
and (iii) best estimate of the selling price (“BESP”). VSOE generally exists only when the deliverable is sold separately
and is the price actually charged for that deliverable. The process for determining BESP for deliverables without VSOE or
TPE considers multiple factors including relative selling prices; competitive prices in the marketplace, and management
judgment; however, these may vary depending upon the unique facts and circumstances related to each deliverable.
The Company uses customer purchase orders that are sub
’ s terms and conditions or, in the case
of an Original Equipment Manufacturer (“OEM”) are governed by distribution agreements. In accordance with the
Company’s distribution agreements, the OEM does not have a right of return, and title and risk of loss passes to the
OEM upon shipment. The Company generally ships Free On Board shipping point and uses shipping documents
and third-party proof of delivery to verify delivery and transfer of title. In addition, the Company assesses whether
collection is proba bl e b
considering a numbe r of f actors, including past transaction history with the customer and the
y
creditworthiness of the customer, as obt ained f rom third party c redit ref erences.
j ect to the Company
If the terms of the sale include customer acceptance provisions and compliance with those provisions cannot be
demonstrated, all reve nue is def erred and not recogniz ed until such acceptance occurs. The Company considers all
releva nt f acts and circumstances in determining when to recogniz e reve nue, including contractual obl igations to the
customer, the customer’ s post-delive ry a cceptance provi sions, if any , and the installation process.
The Company has determined that iCAD’s digital and film based sales generally follow the guidance of FASB ASC
Topic 605 “Revenue Recognition” (“ASC 605”) as the software has been considered essential to the functionality of
the product per the guidance of ASU 2009-14. Typically, the responsibility for the installation process lies with the
OEM partner. On occasion, when iCAD is responsible for product installation, the installation element is considered a
separate unit of accounting because the delivered product has stand-alone value to the customer. In these instances, the
Company allocates revenue to the deliverables based on the framework established within ASU 2009-13. Therefore,
the installation and training revenue is recognized as the services are performed according to the BESP of the element.
Revenue from the digital and film based equipment, when there is installation, is recognized based on the relative
selling price allocation of the BESP, when delivered.
Revenue from certain CAD products is recognized in accordance with ASC 985-605. Sales of this product include
training, and the Company has established VSOE for this element. Product revenue is determined based on the residual
va lue in the arrangement and is recogniz ed when delive red. Reve nue f or training is def erred and recogniz ed when the
training has be en completed.
The Company recogniz es post contract customer support reve nue together with the initial licensing f ee f or certain
MRI products in accordance with ASC 985-605-25-71.
Sales of the Company
’ s Therapy segment products typi cally include a controller, accessories, source agreements and
services. The Company allocates revenue to the deliverables in the arrangement based on the BESP in accordance
with ASU 2009-13. Product revenue is generally recognized when the product has been delivered and service and
source rev enue is typi cally recogniz ed ove r the lif e of the servi ce and source agreement. The Company
includes
the f ollowing in servi ce and supplies reve nue: the sale of phys ics and management servi ces, the lease of electronic
brachytherapy equipment, development fees, supplies and the right to use the Company’s AxxentHub software.
P hys ics and management servi ces reve nue and deve lopment f ees are considered to be delive red as the servi ces are
perf ormed or ove r the estimated lif e of the agreement. The Company typi cally bi lls items monthly ove r the lif e of the
agreement except for development fees, which are generally billed in advance or over a 12 month period and the fee
f or treatment supplies which is generally bi
lled in adva nce.
30
The Company def ers reve nue f rom the sale of certain servi ce contracts and recogniz es the related reve nue on a
straight-line basis in accordance with ASC Topic 605-20, “Services”. The Company provides for estimated warranty
costs on original product warranties at the time of sale.
llow ance for D ou
b tfu
l A ccou nts
The Company’s policy is to maintain allowances for estimated losses from the inability of its customers to make required
payments. Credit limits are established through a process of reviewing the financial results, stability and payment history
of each customer. Where appropriate, the Company obtains credit rating reports and financial statements of customers
when determining or modif
’ s senior management rev iews accounts receiv ab le on a
periodic b asis to determine if any receiv ab les may potentially b e uncollectib le. The Company includes any accounts
receiv ab le b alances that it determines may lik ely b e uncollectib le, along with a general reserv e f or estimated prob ab le
losses b ased on historical experience, in its ov erall allowance f or doub tf ul accounts. A n amount would b e written of
f
against the allowance after all attempts to collect the receivable had failed. Based on the information available to the
Company, it believes the allowance for doubtful accounts as of December 31, 2016 is adequate.
y ing credit limits. The Company
I nve ntory
Inventory is valued at the lower of cost or market value, with cost determined by the first-in, first-out method. The
Company regularly reviews inventory quantities on hand and records a provision for excess and/or obsolete inventory
primarily ba
sed upon historical usage of its inve ntory a s well as other f actors.
L ong
ve d
A ssets
In accordance with FASB ASC Topic 360, “Property, Plant and Equipment”, (“ASC 360”), the Company assesses
long-live d assets f or impairment if eve nts and circumstances indicate it is more like ly than not that the f air v alue of
the asset group is less than the carryi ng va lue of the asset group.
ASC 360-10-35 uses “events and circumstances” criteria to determine when, if at all, an asset (or asset group) is
evaluated for recoverability. Thus, there is no set interval or frequency for recoverability evaluation. In accordance
with ASC 360-10-35-21 the following factors are examples of events or changes in circumstances that indicate the
carrying amount of an asset (asset group) may not be recoverable and thus is to be evaluated for recoverability.
• A significant decrease in the market price of a long-lived asset (asset group);
•
A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in
its phys ical condition;
A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived
asset (asset group), including an adverse action or assessment by a regulator;
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or
construction of a long-lived asset (asset group);
A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection
or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group).
•
•
•
The Company did not have any triggering events which would require an evaluation for recoverability, and accordingly
did not consider any assets to be impaired in 2016.
As a result of external factors and general uncertainty related to reimbursement for the treatment of NMSC, the Company
evaluated the long-lived assets of the Therapy segment and reviewed them for impairment in 2015. The Company
determined the “
roup” to b e the assets of the Therapy segment, which the Company considered to b e the lowest
level for which the identifiable cash flows were largely independent of the cash flows of other assets and liabilities.
A sset G
In accordance with ASC 360-10-35-17, if the carrying amount of an asset or asset group (in use or under development)
is eva luated and f ound not to be f ully recove rabl e ( the carryi ng amount exceeds the estimated gross, undiscounted
cash flows from use and disposition), then an impairment loss must be recognized. The impairment loss is measured
as the excess of the carrying amount over the assets (or asset group’s) fair value.
In connection with the preparation of the financial statements for the second quarter ended June 30, 2015, the
Company completed its analysis pursuant to ASC 360-10-35-17 and determined that the carrying value of the Asset
Group was approximately $36.8 million, which exceeded the undiscounted cash flows by approximately $2.8 million.
Accordingly the Company completed the Step 2 analysis to determine the fair value of the Asset Group. The Company
recorded long-lived asset impairment charges of approximately $13.4 million in the second quarter ended June 30,
2015 and as a result the long lived assets in the Asset Group were recorded at their current fair values.
31
A
L
i
A considerable amount of judgment and assumptions are required in performing the impairment tests, principally in
determining the fair value of the Asset Group and the reporting unit. While the Company believes the judgments and
assumptions are reasonabl e, dif
f erent assumptions could change the estimated f air va lues and, theref ore additional
impairment charges could be required. Significant negative industry or economic trends, disruptions to the Company’s
business, loss of significant customers, inability to effectively integrate acquired businesses, unexpected significant
changes or planned changes in use of the assets may adve rsely impact the assumptions used in the f air va lue estimates
and ultimately r esult in f uture impairment charges.
Intangible assets subject to amortization consist primarily of patents, technology intangibles, trade names, customer
relationships and distribution agreements purchased in the Company’s previous acquisitions. These assets are
amortized on a straight-line basis or the pattern of economic benefit over their estimated useful lives of 5 to 10 years.
G ood
i ll
In accordance with FASB ASC Topic 350-20, “Intangibles - Goodwill and Other”, (“ASC 350-20”), the Company
tests goodwill f or impairment on an annual ba sis and be tween annual tests if ev ents and circumstances indicate it is
more like ly t han not that the f air va lue of the Company i s less than the carryi ng va lue of the Company
Factors the Company c onsiders important, which could trigger an impairment of such asset, include the f ollowing:
•
•
•
•
•
significant underperformance relative to historical or projected future operating results;
significant changes in the manner or use of the assets or the strategy for the Company’s overall business;
significant negative industry or economic trends;
significant decline in the Company’s stock price for a sustained period; and
a decline in the Company
’ s marke t capitaliz ation be low net book va
lue.
The Company’s Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer (“CEO”). The Company
determined that it has two reporting units and two reportabl e segments ba sed on the inf ormation that is provi ded to the
CODM. The two segments and reporting units are Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”).
Each reportable segment generates revenue from the sale of medical equipment and related services and/or sale of
supplies. Upon initial adoption, goodwill was allocated to the reporting units based on the relative fair value of the
reporting units.
The Company would record an impairment charge if such an assessment were to indicate that the f air va lue of a
reporting unit was less than the carrying value. When the Company evaluates potential impairments outside of its
annual measurement date, judgment is required in determining whether an event has occurred that may impair the
value of goodwill or intangible assets. The Company utilizes either discounted cash flow models or other valuation
models, such as comparative transactions and marke t multiples, to determine the f air va lue of its reporting units. The
Company makes assumptions about future cash flows, future operating plans, discount rates, comparable companies,
market multiples, purchase price premiums and other factors in those models. Different assumptions and judgment
determinations could yi eld dif
f erent conclusions that would result in an impairment charge to income in the period that
such change or determination was made.
A s a result of external f actors and general uncertainty related to reimbur sement f or non-melanoma ski n cancer and in
conj unction with the long-live d asset impairment testing, the Company perf ormed an impairment assessment of the
Therapy reporting unit as of June 30, 2015. As a result the Company recorded a goodwill impairment charge of $14.0
million during the quarter ended June 30, 2015.
The implied f air v alue of the Therapy reporting unit was determined in the same manner as the manner in which the
amount of goodwill recogniz ed in a b usiness comb ination is determined. The excess of the f air v alue of the reporting
unit over the amounts assigned to its assets and liabilities is the implied amount of goodwill. The Company identified the
intangib le assets that were v alued during this process, including technology , customer relationships, trade-names, and
f orce. The allocation process was perf ormed only f or purposes of testing goodwill f or impairment.
the Company
’ s work
The Company
determined the f air va lue of the Therapy reporting unit ba sed on the present va lue of estimated f uture
cash flows, discounted at an appropriate risk adjusted rate. This approach was selected as it measures the income
producing assets, primarily technology and customer relationships. This method estimates the f air va lue ba sed upon
the ability to generate future cash flows, which is particularly applicable when future profit margins and growth are
expected to vary significantly from historical operating results.
The Company uses internal forecasts to estimate future cash flows and includes an estimate of long-term future growth
rates ba sed on the most recent vi ews of the long-term f orecast f or the reporting unit. A ccordingly , actual results can
32
w
.
differ from those assumed in the forecasts. The discount rate of approximately 17% is derived from a capital asset
pricing model and analyzing published rates for industries relevant to the reporting unit to estimate the cost of equity
financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the
respective bus inesses and in the internally de ve loped f orecasts.
Other significant assumptions include terminal value margin rates, future capital expenditures, and changes in future
working capital requirements. While there are inherent uncertainties related to the assumptions used and to the
application of these assumptions to this analys is, the income approach provi des a reasonabl e estimate of the f air va lue
of the Therapy r eporting unit.
The Step 2 test resulted in an approximate fair value of goodwill of $5.7 million which resulted in a goodwill
impairment loss of $14.0 million for the quarter ended June 30, 2015..
The Company performed the annual impairment assessment at October 1, 2016 and compared the fair value of each
of reporting unit to its carrying value as of this date. Fair value was approximately 816% of the carrying value for
the Detection reporting unit and 126% of the carrying value of the Therapy reporting unit. The carrying values of
the reporting units were determined based on an allocation of our assets and liabilities through specific allocation
of certain assets and liabi lities, to the reporting units and an apportionment of the remaining net assets ba sed on
the relative siz e of the reporting units’ reve nues and operating expenses compared to the Company as a whole. The
determination of reporting units also requires management judgment.
The Company
determined the f air va lues f or each reporting unit using a weighting of the income approach and
the marke t approach. For purposes of the income approach, f air va lue is determined ba sed on the present va lue of
estimated future cash flows, discounted at an appropriate risk adjusted rate. The Company uses internal forecasts to
estimate future cash flows and includes estimates of long-term future growth rates based on our most recent views of
the long-term f orecast f or each segment. A ccordingly , actual results can dif
f er f rom those assumed in our f orecasts.
The discount rate of approximately 15% is derived from a capital asset pricing model and analyzing published rates
for industries relevant to our reporting units to estimate the cost of equity financing. The Company uses discount
rates that are commensurate with the risks and uncertainty inherent in the respective bus inesses and in our internally
deve loped f orecasts.
traded companies with similar operating characteristics and industries. A
In the market approach, the Company uses a valuation technique in which values are derived based on market prices
of publ icly
marke t approach allows f or
comparison to actual market transactions and multiples. It can be somewhat limited in its application because the
population of potential comparabl e pub licly- traded companies can be limited due to dif
f ering characteristics of the
comparative b usiness and ours, as well as the f act that marke t data may not be ava ilabl e f or divi sions within larger
conglomerates or non-public subsidiaries that could otherwise qualify as comparable, and the specific circumstances
surrounding a market transaction (e.g., synergies between the parties, terms and conditions of the transaction, etc.)
may be
f erent or irreleva nt with respect to our bus iness.
dif
The Company corrobor ated the total f air va lues of the reporting units using a mark et capitaliz ation approach; howeve r,
this approach cannot be used to determine the f air va lue of each reporting unit va lue. The bl end of the income approach
and market approach is more closely aligned to our business profile, including markets served and products available.
In addition, required rates of return, along with uncertainties inherent in the forecast of future cash flows, are reflected
in the selection of the discount rate. Equally important, under the blended approach, reasonably likely scenarios and
associated sensitivities can be developed for alternative future states that may not be reflected in an observable market
price. The Company assesses each va luation methodology ba sed upon the releva nce and ava ilabi lity of the data at the
time the va luation is perf ormed and weight the methodologies appropriately
S tock
B ased
C om pensati on
The Company maintains stock- ba sed incentive plans, under which it provi des stock incentive s to employe es, directors
and contractors. The Company grants to employe es, directors and contractors, options to purchase common stock at
an exercise price equal to the market value of the stock at the date of grant. The Company may grant restricted stock
to employe es and directors. The underlyi ng shares of the restricted stock grant are not issued until the shares ve st, and
compensation expense is based on the stock price of the shares at the time of grant. The Company follows ASC 718,
“Compensation – Stock Compensation”, (“ASC 718”), for all stock-based compensation.
The Company uses the Black-Scholes option pricing model to value stock options which requires extensive use of
accounting judgment and financial estimates, including estimates of the expected term participants will retain their
ve sted stock options be f ore exercising them, the estimated vol atility of its common stock price ove r the expected term,
and the number of options that will be forfeited prior to the completion of their vesting requirements. Fair value of
33
.
-
restricted stock is determined ba sed on the stock price of the underlyi ng option on the date of the grant. A pplication of
alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation
and consequently, the related amounts recognized in the Consolidated Statements of Operations.
I ncom e T axes
The Company follows the liability method under ASC 740, “Income Taxes” (“ASC 740”). The primary objectives of
accounting for taxes under ASC 740 are to (a) recognize the amount of tax payable for the current year and (b) recognize
the amount of deferred tax liability or asset for the future tax consequences of events that have been reflected in the
Company’s financial statements or tax returns. The Company has provided a full valuation allowance against its deferred
tax assets at December 31, 2016 and 2015 as it is more likely than not that the deferred tax asset will not be realized.
ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 also provides guidance on
de-recognition, classification, interest and penalties, disclosure and transition.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business
combination are initially estimated as of the acquisition date and the Company revaluates these items quarterly,
with any adj ustments to preliminary estimates be ing recorded to goodwill, prov ided that the Company is within the
measurement period (which may be up to one year from the acquisition date) and continues to collect information
in order to determine their estimated values. Subsequent to the measurement period or final determination of the
tax allowance’ s or contingency
’ s estimated va lue, changes to these uncertain tax positions and tax related va luation
allowances may a f
f ect the provi sion f or income taxes presented in the Company
’ s statement of operations.
Year Ended December 31, 2016 compared to Year Ended December 31, 2015
Revenue. Revenue for the year ended December 31, 2016 was $26.3 million compared with revenue of $41.6 million
for the year ended December 31, 2015, a decrease of $15.2 million or 36.6%. Therapy revenue decreased $13.1 million
and Detection revenue decreased $2.1 million.
The table below presents the components of revenue for 2016 and 2015 (in thousands):
F or th e y ear end ed
D ecem
b er 3
h ang e
$
286,8
8,451
331,71
$
11,226
8,017
19,243
$
( 2,544)
434
( 2,110)
C
h ang e
( 22. 7) %
5. 4 %
( 11. 0) %
D etection rev enue
eunever tcudorP
Serv ice and supplies rev enue
latotbuS
Therapy rev enue
eunever tcudorP
Serv ice and supplies rev enue
latotbuS
987,1
7,416
502,9
2,972
19,339
22,311
( 1,183)
( 11,923)
( 13,106)
( 39. 8) %
( 61. 7) %
( 58. 7) %
eunever latoT
$
833,62
$
41,554
$
( 15,216)
( 36. 6) %
Detection revenues decreased 11.0 % or $2.1 million from $19.2 million for the year ended December 31, 2015
to $17.1 million for the year ended December 31, 2016. Detection product revenue decreased by $2.5 million and
Detection service revenue increased $0.4 million. The decrease in Detection product revenue is primarily due to a
$0.4 million decrease in digital CAD systems and a $2.1 million decrease in MRI products. The decrease in digital
CAD and MRI products are driven by decreases in demand primarily from our OEM customers. Detection service and
supplies revenue increased $0.4 million primarily due to increases in our installed base for Powerlook AMP.
Therapy revenue decreased 58.7% or $13.1 million to $9.2 million for the year ended December 31, 2016 from $22.3
million in the year ended December 31, 2015. The decrease in Therapy revenue was driven by a decrease in Therapy
product revenue of $1.2 million and a decrease in Therapy service and supplies revenue of $11.9 million.
34
2
0
1
6
2
0
1
5
C
%
1
,
The decrease in Therapy product and service revenue for the year ended December 31, 2016 is primarily due to
the negative impact of customer reaction to the uncertainty of reimbursement rates for NSMC in the United States.
Product revenue from the sale of our Axxent eBx systems can vary significantly due to an increase or decrease in the
number of units sold which can cause a significant fluctuation in product revenue in the period.
Gross Profit. Gross profit was $18.5 million for the year ended December 31, 2016 compared to $29.4 million for the
year ended December 31, 2015, a decrease of $10.8 million, Therapy gross profit decreased $9.9 million from $13.3
million in the year ended December 31, 2015 to $3.4 million in the year ended December 31, 2016. Detection gross
profit decreased $0.9 million from $16.0 million in the year ended December 31, 2015 to $15.1 million in the year
ended December 31, 2016. The decrease in Therapy gross profit was due primarily to the decrease in Therapy revenue.
Detection gross profit decreased due primarily to the decrease in Detection product sales, which have higher gross
profits than Detection service revenues.
Gross profit percent was 70.3% for the year ended December 31, 2016 compared to 70.6% for the year ended December
31, 2015. Included in cost of revenue for the year ended December 31, 2016 is a credit of $491,000 related to a refund
of the Medical Device Excise Tax (“MDET”). Gross profit will fluctuate due to the costs related to manufacturing,
amortization and the impact of product mix in each segment. Cost of revenue and gross profit for 2016 and 2015 were
as follows (in thousands):
stcudorP
seilppus dna ecivreS
noitaicerped dna noitazitromA
Total cost of rev enue
ross prof it
ross prof it %
tiforp ssorg noitceteD
Therapy gross prof it
ross prof it
F or th e y ear end ed
D ecem
b er 3
$
819
317,5
981,1
7,820
$
031,3
753,7
717,1
402,21
$
h ang e
)212,2(
)446,1(
)825(
)483,4(
C
h ang e
)%7.07(
)%3.22(
)%8.03(
)%9.53(
$
815,81
$
29,350
$
)238,01(
)%9.63(
70. 3%
70. 6%
( 0. 3%)
F or th e y ear end ed
D ecem
b er 3
$
$
311,51
3,405
815,81
$
$
$
h ang e
( 906)
)629,9(
)238,01(
$
C
h ang e
( 5. 7%)
)%5.47(
)%9.63(
16,019
133,31
29,350
Operating Expenses:
Operating expenses for 2016 and 2015 are as follows (in thousands):
Operating expenses:
tnempoleved tcudorp dna gnireenignE
M ark eting and sales
G eneral and administrativ e
A mortiz ation and depreciation
G oodwill and long-liv ed asset impairment
Total operating expenses
F or th e y ear end ed
D ecem
b er 3
h ang e
C
h ang e
$
$
$
815,9
10,179
7,675
1,116
-
884,82
9,163
404,21
887,8
136,1
344,72
59,429
553
( 2,225)
)311,1(
( 515)
)344,72(
)149,03(
%9.3
( 17. 9%)
)%7.21(
( 31. 6%)
-
)%1.25(
$
$
$
35
2
0
1
6
2
0
1
5
C
%
G
G
1
,
2
0
1
6
2
0
1
5
C
%
G
1
,
2
0
1
6
2
0
1
5
C
%
1
,
Engineering and Product Development. Engineering and product development costs for the year ended December
31, 2016 increased by $0.3 million or 3.9%, from $9.2 million in 2015 to $9.5 million in 2016. Therapy engineering
and product development costs decreased by approximately $0.3 million and Detection engineering and product
development costs increased by $0.6 million. The decrease in the Therapy segment is due primarily to a decrease in
personnel expenses. The increase in the Detection segment is due primarily to an increase in personnel expenses of
$0.8 million offset by a decrease in clinical trial expenses of $0.2 million. The Company continues to invest in ongoing
clinical trials, and research expenses in support of new products and reimbur sement codes.
Marketing and Sales. Marketing and sales expense for the year ended December 31, 2016 decreased by $2.2 million
or 17.9%, from $12.4 million in 2015 to $10.2 million in 2016. Therapy marketing and sales expenses decreased
approximately $2.1 million and Detection marketing and sales expenses decreased $0.1 million. The decrease in
Therapy m ark eting and sales expense was due primarily t o a decrease in personnel expenses and commissions.
General and Administrative. General and administrative expenses for the year ended December 31, 2015 decreased by
$1.1 million or 12.7%, from $8.8 million in 2015 to $7.7 million in 2016. The decrease in general and administrative
expenses was due primarily to decreases in personnel costs of $0.5 million, bad debt expense of $0.2 million and a gain
on litigation settlement in 2016 of $0.2 million and other costs of approximately $0.2 million.
Amortization and Depreciation. Amortization and depreciation decreased by $0.5 million from $1.6 million to $1.1
million. The primary decrease is due to revi sed va lues of assets due to an impairment of intangibl e assets of the
Therapy reporting unit in June 2015 which was offset by an increase in amortization due to the acquisition of VuComp
assets in January 2016.
Goodwill and long-lived asset impairment. In connection with the preparation of the financial statements for the
second quarter ended June 30, 2015, the Company evaluated the Therapy reporting unit for both long-lived asset and
goodwill impairment and recorded an impairment charge of $14.0 million related to goodwill and an impairment
charge of $13.4 million related to long-lived assets for a total of $27.4 million. There was no impairment charge in
2016.
Other Income and Expense (in thousands)
F or th e y ear end ed
D ecem
b er 3
esnepxe tseretnI
L oss f rom extinguishment of deb t
I nterest income
$
)36(
-
10
( 53)
$
$
)056(
)327,1(
12
( 2,352)
$
h ang e
785
327,1
)11(
992,2
$
h ang e %
%)3.09(
%)0.001(
%)4.25(
%)7.79(
I ncome tax expense
$
76
$
61
06
% 0.573
Interest Expense. The Company recorded $63,000 of interest expense in 2016 as compared with $650,000 of interest
expense during the year ended December 31, 2015. The reduction in interest expense is due primarily to the reduction
in interest related to the Deerfield facility agreement that was terminated on March 31, 2015.
Loss from extinguishment of debt. The loss of $1.7 million for the year ended December 31, 2015 represents the
loss associated with the payoff of the Deerfield facility agreement, which was terminated on March 31, 2015. The
Company paid $11.25 million which represented the entire obligation. The loss on extinguishment represents the
unamortiz ed discount on the Facility agreement, and the write-of
f of the def erred debt costs. The Facility A greement
was to mature on December 29, 2016 and was able to be repaid at the Company’s option without penalty or premium.
Interest income. Interest income of $10,000 and $21,000 for the years ended December 31, 2016, and 2015, respectively,
reflects income earned from our money market accounts.
Tax benefit (expense). The Company recorded tax expense of $76,000 and $16,000 for the years ended December
31, 2016, and 2015, respectively. For the year ended December 31, 2015, the Company recorded a net tax expense
of $16,000. This resulted from a tax benefit due primarily to the reversal of a deferred tax liability of approximately
$79,000 of
tax expense of approximately $95,000. The def erred tax liabi lity was the result of tax amortiz abl e
goodwill that was recognized due to the impairment of goodwill. Tax expense in 2016 and 2015 relates primarily to
state non-income and f ranchise ba sed taxes.
f set b
y
36
2
0
1
6
2
0
1
5
C
C
1
,
Year Ended December 31, 2015 compared to Year Ended December 31, 2014
Revenue. Revenue for the year ended December 31, 2015 was $41.6 million compared with revenue of $43.9 million
for the year ended December 31, 2014, a decrease of $2.4 million or 5.4%. Therapy revenue decreased $3.0 million
and Detection revenue increased $0.6 million.
The table below presents the components of revenue for 2015 and 2014 (in thousands):
F or th e y ear end ed
D ecem
b er 3
h ang e
$
11,226
8,017
19,243
$
10,082
8,522
18,604
$
1,144
( 505)
639
C
h ang e
11. 3 %
( 5. 9) %
3. 4 %
D etection rev enue
P roduct rev enue
Serv ice and supplies rev enue
Sub total
Therapy rev enue
P roduct rev enue
Serv ice and supplies rev enue
Sub total
2,972
19,339
22,311
8,601
16,719
25,320
( 5,629)
2,620
( 3,009)
( 65. 4) %
15. 7 %
( 11. 9) %
Total rev enue
$
41,554
$
43,924
$
( 2,370)
( 5. 4) %
Detection revenues increased by $0.6 million from $18.6 million for the year ended December 31, 2014 to $19.2 million
for the year ended December 31, 2015. Detection product revenue increased by $1.1 million and Detection service
revenue decreased $0.5 million. The increase in Detection product revenue is primarily due to a $0.7 million increase
in digital CAD systems and a $0.7 million increase in MRI products, offset by a $0.3 million decrease in film based
products. The increase in digital CAD and MRI products are driven by increases in demand primarily from our OEM
customers. The decline in revenue from film-based products and accessories was the result of the decreasing market for
film based products as most customers have transitioned to digital technologies. Detection service and supplies revenue
decreased $0. 5 million primarily due to the decline in customers with analog and digital serv ice contracts.
Therapy revenue decreased 11.9% or $3.0 million to $22.3 million for the year ended December 31, 2015 from $25.3
million in the year ended December 31, 2014. The decrease in Therapy revenue was driven by a decrease in Therapy
product revenue of $5.6 million offset by an increase in Therapy service and supplies revenue of $2.6 million.
The decrease in Therapy product revenue for the year ended December 31, 2015 is primarily due to the negative
impact of customer reaction to the uncertainty of reimbursement rates for NSMC in the United States. Product revenue
from the sale of our Axxent eBx systems can vary significantly due to an increase or decrease in the number of units
sold which can cause a significant fluctuation in product revenue in the period.
The increase in Therapy service and supplies revenue of $2.6 million for the year ended December 31, 2015 is due
primarily to the impact of the acquisition of the assets of Radion and DermEbx, which contributed $7.8 million of
revenue from the acquisition date through December 31, 2014. Therapy service revenue in the first six months of 2015
was approximately $13.4 million as compared to $4.6 million in the first six months of 2014. The Company acquired
DermEbx and Radion in July 2014, and the growth in revenue from the acquisition is reflected in the first six months
of 2015. Therapy service revenue in the last six months of 2015 was $5.9 million as compared to $12.2 million for the
last six months of 2014. The decrease in Therapy service and supplies revenue in 2015 is due primarily to a decrease
in the services related to electronic brachytherapy the treatment of NMSC as a result of the reimbursement uncertainty
for this procedure in the United States.
Gross Profit. Gross profit was $29.4 million for the year ended December 31, 2015 compared to $31.2 million for the
year ended December 31, 2014, a decrease of $1.9 million, Therapy gross profit decreased $2.6 million from $16.0
million in the year ended December 31, 2014 to $13.3 million in the year ended December 31, 2015. Detection gross
profit increased $0.7 million from $15.3 million in the year ended December 31, 2014 to $16.0 million in the year
ended December 31, 2015. The decrease in Therapy gross profit was due primarily to the decrease in Therapy revenue.
Detection gross profit increased due primarily to the increase in Detection product sales, which have higher gross
profits than Detection service revenues.
37
2
0
1
5
2
0
1
4
C
%
1
,
Gross profit percent was 70.6% for the year ended December 31, 2015 compared to 71.1% for the year ended December
31, 2014. Gross profit percent decreased slightly by 0.5%, due primarily to the decrease in Therapy product margins.
Gross profit will fluctuate due to the costs related to manufacturing, amortization and the impact of product mix in
each segment. Cost of revenue and gross profit for 2015 and 2014 were as follows (in thousands):
stcudorP
Serv ice and supplies
A mortiz ation and depreciation
Total cost of rev enue
G ross prof it
G ross prof it %
tiforp ssorg noitceteD
Therapy gross prof it
G ross prof it
F or th e y ear end ed
D ecem
b er 3
h ang e
C
$
031,3
7,357
1,717
402,21
$
219,4
000,6
587,1
12,697
$
)287,1(
753,1
)86(
)394(
h ang e
)%3.63(
%6.22
)%8.3(
)%9.3(
$
053,92
$
722,13
$
( 1,877)
( 6. 0%)
70. 6%
71. 1%
( 0. 5%)
F or th e y ear end ed
D ecem
b er 3
h ang e
C
$
$
$
910,61
133,31
053,92
672,51
15,951
722,13
$
$
$
743
)026,2(
( 1,877)
h ang e
4. 9%
)%4.61(
( 6. 0%)
Operating Expenses:
Operating expenses for 2015 and 2014 are as follows (in thousands):
Operating expenses:
tnempoleved tcudorp dna gnireenignE
M ark eting and sales
G eneral and administrativ e
A mortiz ation and depreciation
G oodwill and long-liv ed asset impairment
Total operating expenses
F or th e ye ar end ed
D ecem
b er 3
h ang e
C
h ang e
$
$
$
361,9
12,404
8,788
1,631
27,443
924,95
951,8
864,21
440,8
147,1
-
30,412
400,1
( 64)
744
( 110)
344,72
710,92
%3.21
( 0. 5%)
9. 2%
( 6. 3%)
-
%4.59
$
$
$
Engineering and Product Development. Engineering and product development costs for the year ended December 31,
2015 increased by $1.0 million or 12.3%, from $8.2 million in 2014 to $9.2 million in 2015. Therapy engineering and
product development costs increased by approximately $0.6 million and Detection increased by $0.4 million. Ongoing
clinical trial, consulting and research expenses in the Therapy segment increased by approximately $0.4 million, and
personnel expenses increased approximately $0.2 million.. The primary increase in the Detection segment is clinical
trial expenses of approximately $0.7 million offset by decreases in legal and other expenses of approximately $0.3
million. The Company continues to inve st in research and deve lopment to deve lop clinical evi dence f or the Therapy
segment and ongoing development to support tomosynthesis in the Detection segment.
Marketing and Sales. Marketing and sales expense for the year ended December 31, 2015 decreased by $64,000
or 0.5%, from $12.5 million in 2014 to $12.4 million in 2015. Therapy marketing and sales expenses decreased
approximately $0.3 million offset by an increase of $0.2 million in the Detection segment. The decrease in Therapy
marketing and sales expense was due primarily to a decrease in personnel expenses. The increase in the Detection
segment is primarily due to increases in personnel expense.
General and Administrative. General and administrative expenses for the year ended December 31, 2015 increased by
$0.7 million or 9.2%, from $8.0 million in 2014 to $8.8 million in 2015. The increase in general and administrative
expenses was primarily due to increases in stock c ompensation costs, insurance costs and ba d debt expense.
Amortization and Depreciation. Amortization and depreciation decreased by $0.1 million from $1.7 million to $1.6
38
2
0
1
5
2
0
1
4
C
%
1
,
2
0
1
5
2
0
1
4
C
%
1
,
2
0
1
5
2
0
1
4
C
%
1
,
million. In June 2015, the Company impaired intangible assets of the Therapy reporting unit and recorded amortization
expense ba sed on the revi sed va lues of the assets; as a result amortiz ation and depreciation f or the intangibl es decreased.
Goodwill and long-lived asset impairment. In connection with the preparation of the financial statements for the
second quarter ended June 30, 2015, the Company evaluated the Therapy reporting unit for both long-lived asset and
goodwill impairment and recorded an impairment charge of $14.0 million related to goodwill and an impairment
charge of $13.4 million related to long-lived assets for a total of $27.4 million.
Other Income and Expense (in thousands)
F or th e ye ar end ed
D ecem
b er 3
esnepxe tseretnI
G ain ( loss) f rom change in f air v alue of warrant liab ili
L oss f rom extinguishment of deb t
I nterest income
$
$
)056(
-
( 1,723)
21
( 2,352)
$
$
h ang e
1,990
)538,1(
)028(
)61(
)186(
$
h ang e %
( 75. 4) %
%)0.001(
% 8.09
%)2.34(
% 8.04
( 2,640)
538,1
)309(
73
( 1,671)
I ncome tax expense
$
16
$
351
)731(
%)5.98(
Interest Expense The Company recorded $0.7 million of interest expense in 2015 as compared with $2.6 million of
interest expense during the year ended December 31, 2014. The reduction in interest expense is due primarily to the
reduction in interest related to the Deerfield facility agreement that was terminated on March 31, 2015.
Gain from change in fair value of warrants The gain from the change in the fair value of the warrant in 2014 was due
primarily to the decrease in the Company’s stock price when the fair value of the warrant was calculated in April 2014.
In April 2014, Deerfield exercised the warrants and paid the Company $1.6 million.
Loss from extinguishment of debt. The loss of $1.7 million for the year ended December 31, 2015 represents the
loss associated with the payoff of the Deerfield facility agreement, which was terminated on March 31, 2015. The
Company paid $11.25 million which represented the entire obligation. The loss on extinguishment represents the
f of the def erred debt costs. The Facility A greement
unamortiz ed discount on the Facility agreement, and the write-of
was to mature on December 29, 2016 and was able to be repaid at the Company’s option without penalty or premium.
The loss of $0.9 million from the extinguishment of debt for the year ended December 31, 2014 represents the loss
associated with the payoff of the Deerfield revenue purchase agreement, which was terminated in April 2014.
Interest income. Interest income of $21,000 and $37,000 for the years ended December 31, 2015, and 2014, respectively,
reflects income earned from our money market accounts.
Tax benefit (expense). The Company recorded tax expense of $16,000 as compared to $153,000 for the years ended
December 31, 2015, and 2014, respectively. For the year ended December 31, 2015, the Company recorded a tax benefit
due primarily to a def erred tax liabi lity of approximately $79,000, of
tax expense of approximately $95,000.
The def erred tax liabi lity was the result of tax amortiz abl e goodwill that was recogniz ed due to the impairment of
goodwill. Tax expense in 2015 and 2014 relates primarily to state non-income and franchise based taxes.
f set b
y
S eg
ent A nalys i s
The Company operates in and reports results for two segments: Cancer Detection and Cancer Therapy. Segment
operating income (loss) includes Cost of Sales, Engineering and Product Development and Marketing and Sales
and depreciation and amortization for the respective segment. Adjusted EBITDA is a Non-GAAP measure and
excludes Stock Compensation, Depreciation and Amortization expense in the department of the respective segment.
The Company
does not allocate G eneral and A dministrative and depreciation and amortiz ation expense included in
General and Administrative expenses, as well as Other Income and Expense to a segment, and accordingly those
are included as reconciling items to the L oss be f ore income tax. These non-G
be inconsistent with
be used in conj unction with our results reported
similar measures presented b
according to U.S. GAAP. Any financial measure other than those prepared in accordance with U.S. GAAP should not
be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S.
. Management considers these non-GAAP financial measures to be an important indicator of the Company’s
operational strength and perf ormance of its bus iness and a good measure of its historical operating trends, in particular
the extent to which ongoing operations impact the Company’s overall financial performance. A summary of Segment
other companies and should only
metrics may
y
39
m
A
A
P
G
A
A
P
2
0
1
5
2
0
1
4
C
C
1
,
revenues, segment operating income (loss) and segment adjusted EBITDA for the fiscal years ended December 31,
2016, 2015, and 2014 are below (in thousands):
Y ear Ended D ecemb er 31,
2016
2015
2014
$
$
331,71
502,9
833,62
$
$
311,51
504,3
815,81
$
$
496,5
( 7,752)
( 2,058)
$
$
19,243
113,22
41,554
$
$
16,019
133,31
29,350
$
332,7
( 28,405)
( 21,172)
$
$
$
18,604
023,52
43,924
$
$
15,276
159,51
31,227
$
$
132,7
1,868
9,099
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
( 7,912)
( 63)
-
10
-
( 10,023)
5,694
493
223
696
-
7,106
( 7,752)
518
970
252
-
-
( 6,012)
)709,8(
( 650)
-
21
)327,1(
)134,23(
332,7
430
220
532
281
795,8
( 28,405)
465
1,142
1,213
504
344,72
2,263
( 8,284)
( 2,640)
538,1
37
( 903)
( 856)
132,7
352
188
515
-
682,8
1,868
178
844
1,739
-
-
926,4
$
$
$
S eg
m ent rev enu es:
noitceteD
yparehT
euneveR latoT
S eg
m ent g ross profi t:
noitceteD
yparehT
tiforp ssorg tnemgeS
S eg
m ent operati ng
i ncom e ( loss)
noitceteD
Therapy
Segment operating income ( loss)
G eneral, administrativ e, depreciation and
amortiz ation expense
I nterest expense
G ain ( loss) on f air v alue of warrant
Other income
L oss on deb t extinguishment
L oss b ef ore income tax
S eg
m ent ad
u sted
EB
D etection segment operating income
compensation
Stock
D epreciation
A mortiz ation
Restructuring
D etection adj usted EBI TD
segment operating income ( loss)
compensation
Therapy
Stock
D epreciation
A mortiz ation
Restructuring
G oodwill and long-liv ed asset impairment
Therapy
adj usted EBI TD
40
:
j
I
T
D
A
:
A
A
Detection gross profit decreased to approximately $15.1 million or 88% of revenue for the year ended December 31,
2016 from $16.0 million or 83% of revenue for the year ended December 31, 2015, which is the result of changes in
both revenue and product mix. Detection segment operating income for the year ended December 31, 2016 decreased
by $1.5 million to $5.7 million from $7.2 million for the year ended December 31, 2015. The decrease in segment
operating income for the year ended December 31, 2016 as compared to the year ended December 31, 2015 was due
primarily to the decrease in revenue for the year ended December 31, 2016 as compared to the year ended December
31, 2015. Detection operating expenses increased by $0.6 million to $9.4 million for the year ended December 31,
2016 as compared to $8.8 million for the year ended December 31, 2015, reflecting additional investments in research
and deve lopment, primarily t o support new product deve lopment.
Detection gross profit increased to approximately $16.0 million or 83% of revenue for the year ended December 31,
2015 from $15.3 million or 82% of revenue for the year ended December 31, 2014. Detection segment operating
income remained flat at $7.2 million for the years ended December 31, 2015 and 2014. Although revenue increased,
Detection operating expenses increased by $0.8 million to $8.8 million for the year ended December 31, 2015 as
compared to $8.0 million for the year ended December 31, 2014, reflecting additional investments in research and
deve lopment, primarily f or reader studies related to the deve lopment of new products.
Therapy gross profit decreased by approximately $9.9 million to $3.4 million or 37% of revenue for the year ended
December 31, 2016 from approximately $13.3 million or 60% of revenue which reflects the decline in revenue from
$22.3 million to $9.2 million for the same periods. The decline in gross profit percent is due primarily to the fixed
manufacturing expenses in cost of sales. Therapy operating expenses for the year ended December 31, 2016 were
approximately $11.2 million as compared to $14.2 million for the year ended December 31, 2015. The decrease in
operating expenses is due primarily to the cost reduction efforts initiated in 2015 due to reimbursement uncertainty.
Therapy segment operating loss improved to a loss of $7.8 million for the year ended December 31, 2016 from a
loss of $28.4 million for the period ended December 31, 2015. The operating loss of $28.4 million for the year ended
December 31, 2015 is due primarily to the impairment loss of $27.4 million.
Therapy gross profit decreased to $13.3 million or 60% of revenue for the year ended December 31, 2015 from
approximately $15.9 million or 63% of revenue for the year ended December 31, 2014. The decrease in gross profit
for the year ended December 31, 2015 as compared to the year ended December 31, 2014 is due primarily to the
decrease in revenue. Therapy segment operating loss increased to $28.4 million for the year ended December 31, 2015
from income of $1.9 million for the period ended December 31, 2014. The operating loss of $28.4 million for the year
December 31, 2015 is due primarily to the impairment loss of $27.4 million. Therapy operating expenses were $41.7
million for the year ended December 31, 2015 as compared to $14.1 million for the period ended December 31, 2014.
i ty an d
C api tal R esou rces
The Company believes that its cash and cash equivalents balance of $8.6 million as of December 31, 2016, and projected
cash balances are sufficient to sustain operations through at least the next 12 months. 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 will continue to closely monitor its liquidity and the capital and credit markets.
The Company had working capital of $7.1 million at December 31, 2016. The ratio of current assets to current
liabilities at December 31, 2016 and 2015 was 1.55 and 1.94, respectively. The decrease in working capital is due
primarily to the decrease in cash
due to operating losses in the current year. In April 2015, the Company paid
$11.25 million to repay borrowings under the Deerfield facility agreement in full.
Net cash used for operating activities for the year ended December 31, 2016 was $5.5 million as compared $1.9
million for 2015. The increase in cash used for operating activities during the year ended December 31, 2016 was due
primarily to the net loss in 2016, less the non-cash adjustments. The net change in operating assets and liabilities for
2016 was approximately $5,000 as compared to cash due to changes in operating assets and liabilities of approximately
$5.1 million in 2015. We expect that changes in operating assets and liabilities will continue to be a significant driver
of changes in cash used in or provi ded b
rations.
y ope
The net cash used for investing activities for the year ended December 31, 2016 was $0.4 million. The cash used for
investing activities in 2016 was due primarily to purchases of fixed assets.
Net cash used for financing activities for the year ended December 31, 2016 was $0.9 million, which was due primarily
to cash repayments of lease obligations. In January 2017, the Company closed the Asset Purchase agreement for $3.2
million with Invivo and received $2.9 million in cash, which was net of a $350,000 holdback in escrow.
41
L
i
q
u
i
d
The following table summarizes as of December 31, 2016, for the periods presented, the Company’s future estimated
cash payments under existing contractual obligations, and the financing obligations as noted below (in thousands).
C ontractu al O
li
g ati ons
Pay
m ents d
u e b
peri od
T otal
L ess th an 1
y ear
y ears
y ears
y ears
Operating L ease Ob ligations
$ 2,237
$ 579 $ 1,484 $ 174 $ -
Capital L ease Ob ligations
86
$ 86 - - -
Roy alty
Ob ligations
1,025
1,025 - - -
Other Commitments
T otal C ontractu al O
b li
g ati ons
L ease Obl igations:
333 333 - - -
-
$
1
3
2
1
$
$
$
$
As of December 31, 2016, the Company had three lease obligations related to its facilities.
The Company’s executive offices are leased pursuant to a five-year lease (the “Lease”) that commenced on December
15, 2006, with renewals in January, 2012, and August 2016 consisting of approximately 11,000 square feet of office
space located at 98 Spit Brook Road, Suite 100 in Nashua, New Hampshire (the “Premises”). The August 2016 Lease
renewal provides for an annual base rent of $184,518 for the period from March 2017 to February 2020. Additionally,
the Company is required to pay its proportionate share of the building and real estate tax expenses and obtain insurance
f or the P remises.
The Company leases a facility consisting of approximately 24,350 square feet of office, manufacturing and warehousing
space located at 101 Nicholson Lane, San Jose, CA. The operating lease commenced September 2012 with a current
annual payment of $295,140 through September 2017, with all amounts payable in equal monthly installments. In
September 2016, the Company extended this lease for the period from October 2017 to March 2020 with annual
payments of $540,588 from October 2017 to September 2018, $558,120 from October 2018 to September 2019 and
$286,368 for the period from October 2019 to March 2020, with all amounts payable in equal monthly installments.
Additionally, the Company is required to pay its proportionate share of the building and real estate tax expenses and
obt ain insurance f or the f acility
In addition to the foregoing leases relating to its principal properties, the Company also has a lease for an additional
facility in Nashua, New Hampshire used for product repairs, manufacturing and warehousing.
Roya lty O bl igations:
As a result of the acquisition of Xoft, the Company recorded a royalty obligation pursuant to a settlement agreement
entered into between Xoft and Hologic, in August 2007. Xoft received a nonexclusive, irrevocable, perpetual,
worldwide license, including the right to subl icense certain H ologic patents, and a non-compete cove nant as well as
an agreement not to seek further damages with respect to the alleged patent violations. In return the Company has a
remaining obligation to pay a minimum annual royalty payment of $250,000 payable through 2016. In addition to
the minimum annual roya lty paym ents, the litigation settlement agreement with H ologic also provi ded f or paym ent
of royalties based upon a specified percentage of future net sales on any products that practice the licensed rights.
The estimated f air va lue of the patent license and non-compete cove nant is $100,000 and is be ing amortiz ed ove r the
estimated remaining useful life of approximately four years. In addition, a liability has been recorded within accrued
expenses and accounts payable for minimum royalty obligations totaling $0.4 million.
In December, 2011, the Company settled patent litigation with Zeiss. The Company determined that this settlement
should be recorded as a measurement period adj ustment and accordingly recorded the present va lue of the litigation to
the opening balance sheet of Xoft. The present value of the liability is approximately $0.5 million as of December 31,
2016. The Company has a remaining obligation to pay $0.5 million in June 2017.
Notes Payable:
In December, 2011, the Company entered into several agreements pursuant to which Deerfield agreed to provide $15
42
.
b
1
-
3
3
-
5
5
+
,
6
8
1
,
0
2
3
,
4
8
4
7
4
y
million of debt. During October 2014, the Company elected to prepay the first principal payment of $3.75 million which
was originally due on the third anniversary of the date of the facility agreement in December 2014. The Company paid
the remaining outstanding obligation of $11.25 million on March 31, 2015.
Capital L ease Obl igations:
In connection with the acquisition of DermEbx and Radion, the Company assumed two separate equipment lease
obligations with payments totaling approximately $2.6 million thru May, 2017. The leases were determined to be
capital leases and accordingly the equipment was capitalized and a liability of $2.5 million was recorded. As of
December 31, 2016, the outstanding liability for the acquired equipment leases was approximately $0.1 million.
Other Commitments:
Other Commitments include non-cancelabl e purchase orders with three ke y suppliers executed in the normal course
of bus iness.
Effect of N ew
A ccou nti ng P ronou ncem ents
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) , or ASU
2014-09, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. Since then, the
FASB has also issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principals versus Agent
Considerations and ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance
Obligations and Licensing, which further elaborate on the original ASU No. 2014-09. The core principle of these
updates is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects
the consideration to which the entity expects to be entitled for those goods or services. ASU 2014-09 defines a five
step process to achieve this core principle and, in doing so, more judgments and estimates may be required within the
revenue recognition process than are required under existing U.S. GAAP. In July 2015, the FASB approved a one-year
deferral of the effective date to January 1, 2018, with early adoption to be permitted as of the original effective date of
January 1, 2017. Once this standard becomes effective, companies may use either of the following transition methods:
(i) a full retrospective approach reflecting the application of the standard in each reporting period with the option to
elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU
2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We have performed an
initial assessment of ASU 2014-09, and expect that our revenue recognition will not be materially impacted by this
new guidance. We are currently calculating the impact of all expected changes from this guidance, and expect to have
these calculations complete during the second half of fiscal 2017. After completing these calculations, we will then
determine the transition method to be applied upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, “Leases”. The standard establishes a right-of-use (“ROU”)
model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with
terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the
pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach
is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, with certain practical expedients available. We are currently
evaluating the impact of our pending adoption of the new standard on our consolidated financial statements, however
the adoption of the standard is expected to increase bot h assets and liabi lities f or leases that would previ ously have
be en of
f -b alance sheet operating leases.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.”
This update was issued as part of a simplification effort for the accounting of share-based payment transactions,
including the income tax consequences, classification of awards as either equity or liabilities, increases the amount
of employe e’ s shares repurchased f or tax withholding purposes without triggering liabi lity accounting, an accounting
policy election to account for forfeitures as they occur, and clarifies that all cash payments made on an employee’s
behalf for withheld shares should be presented as a financing activity on the statement of cash flows. The amendment
is effective for annual periods beginning after December 15, 2016, and interim periods thereafter. Early adoption is
permitted. The Company expects the adoption of ASU 2016-09 to impact net operating losses, however the Company
currently ha s a f ull va luation allowance against the net operating losses.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”, a consensus of the FASB’s
Emerging Issues Task Force. This update is intended to reduce diversity in practice in how certain transactions are
classified in the statement of cash flows. The update requires cash payments for debt prepayment or debt extinguishment
costs to be classified as cash outflows for financing activities. It also requires cash payments made soon after an
43
acquisition’s consummation date (approximately three months or less) to be classified as cash outflows for investing
activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount
of the original contingent consideration liabi lity
. P aym ents made in excess of the amount of the original contingent
consideration liability should be classified as cash outflows for operating activities. The amendment is effective for
annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted. The
Company does not expect the adoption of this amendment will have a material impact on our consolidated financial
statements.
7
.
ve and
u anti tati
I tem
We believe we are not subject to material foreign currency exchange rate fluctuations, as most of our sales and
expenses are domestic and therefore are denominated in the U.S. dollar. We do not hold derivative securities and have
not entered into contracts embe dded with deriva tive instruments, such as f oreign currency and interest rate swaps,
options, f orwards, f utures, collars, and warrants, either to hedge existing risks or f or speculative purposes.
i sclosu res ab ou t M ark et R
u ali tati
ve D
i sk
Q
8
.
I tem
See Financial Statements and Schedule attached hereto.
i nanci al S tatem ents and
u pplem entary D
S
ata.
9
.
I tem
Not Applicable.
h ange s i n and
D
i sagr eem ents w
i th
A ccou ntants on A ccou nti ng an d
F
i nanci al D
i sclosu re.
I tem
9
.
C ontrols and
Proced
u res.
( a) Eval u ati on of D
i sclosu re C ontrols and
Proced
u res.
The Company , under the supervi sion 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 annual report on Form 10-K. 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 Exchange Act) were effective as of December 31, 2016.
control sys tem, no matter how well conceive d and operated, can provi de only
reasonabl e, not abs olute, 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 sys tems, no ev aluation of controls can provi de abs olute 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-
f ective control sys tem, misstatements due to error or f raud may occur and not be detected. The Company conducts
ef
periodic eva luations to enhance, where necessary i ts procedures and controls.
) M anage m ent’ s A nnu al R eport on I nternal C ontrol O
ve r F
i nanci al R eporti ng
The Company, under the supervision and with the participation of its management, including its principal executive officer
and principal financial officer, is responsible for the preparation and integrity of the Company’s Consolidated Financial
Statements, establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act
Rule 13a-15(f)) for the Company and all related information appearing in this Annual Report on Form 10-K.
ll internal control sys tems, no matter how well designed, have inherent limitations. Theref ore, eve n those sys tems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. A
j ect to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may de teriorate.
lso, proj ections of any ev aluation of ef
f ective ness to f uture periods are sub
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016, using
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control
- Integrated Framework (2013). Based on its assessment, our Chief Executive Officer and our Chief Financial Officer
concluded that our internal control over financial reporting was effective as of December 31, 2016.
( c) C
h ange s i n I nternal C ontrol O
ve r F
i nanci al R eporti ng
The Company’s principal executive officer and principal financial officer conducted an evaluation of the Company’s
44
A
Q
.
F
C
A
A
(
b
.
A
.
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 December 31, 2016, that have materially
affected or which are reasonably likely to materially affect internal control over financial reporting. Based on that
eva luation there has be en no such change during such period.
I tem
9
.
th er I nform ati on.
Not applicable
Item 10.
Directors, Executive Officers and Corporate Governance.
PA
I
The following information includes information each director and executive officer has given us about his or her age,
all positions he or she holds, his or her principal occupation and business experience for the past five years, and the
names of other publ icly- held companies of which he or she currently serve s as a director or has serve d as a director
during the past five years. In addition to the information presented below regarding each director’s specific experience,
qualifications, attributes and skills that led our Board to the conclusion that he or she should serve as a director, we
also be lieve that all of our directors have a reputation f or integrity , honesty and adherence to high ethical standards.
They each hav e demonstrated bus iness acumen and an abi lity to exercise sound j udgment, as well as a commitment
of service to iCAD and our Board.
There are no family relationships among any of the directors or executive officers of iCAD.
N am e
ge
Posi ti on w
i th
i
Director/Officer
i nce
Dr. Lawrence Howard
Rachel Brem, MD
Anthony Ecock
Robert Goodman, MD
Steven Rappaport
Andy Sassine
Somu Subramaniam
Elliot Sussman, MD
Kenneth Ferry
Richard Christopher
Stacey Stevens
64
58
55
76
68
53
63
65
63
47
48
Chairman of the Board, and Director
Director
Director
Director
Director
Director
Director
Director
Chief Executive Officer,
and Director
Executive Vice President,
Chief Financial Officer, Treasurer
and Secretary
Executive Vice President of
arke ting and Strategy
2006
2004
2008
2014
2006
2015
2010
2002
2006
2016
2006
The Company’s Certificate of Incorporation provides for the annual election of all of its directors. The Board elects
officers on an annual basis and our officers generally serve until their successors are duly elected and qualified.
Upon the recommendation of the Company’s Nominating and Corporate Governance Committee, the Board of
Directors fixed the size of the Company’s Board at nine directors.
Dr. Lawrence Howard was appointed Chairman of the Board in 2007 and has been a director of the Company since
November 2006. Dr. Howard has been, since March 1997, a general partner of Hudson Ventures, L.P. (formerly known
as Hudson Partners, L.P.), a limited partnership that is the general partner of Hudson Venture Partners, L.P. (“HVP”),
a limited partnership that is qualified as a small business investment company. Since March 1997, Dr. Howard has
also be en a managing membe r of H udson M
that provi des
management services to HVP. Since November 2000, Dr. Howard has been a General Partner of Hudson Venture
Partners II, and a limited partner of Hudson Venture II, L.P. We believe Dr. Howard’s qualifications to serve on our
Board of Directors include his financial expertise and his understanding of our products and market.
L C, a limited liabi lity company
anagement A ssociates L
Dr. Rachel Brem is currently the Professor and Vice Chairman in the Department of Radiology at The George
Washington University Medical Center and Associate Director of the George Washington Cancer Institute. Dr. Brem
has been at the George Washington University since 2000. From 1991 to 1999 Dr. Brem was at the Johns Hopkins
Medical Institution where she introduced image guided minimally invasive surgery and previously was the Director of
45
B
O
R
T
I
I
A
C
A
D
S
M
Breast Imaging. Dr. Brem is a nationally and internationally recognized expert in new technologies for the improved
diagnosis of breast cancer and has published over 80 manuscripts. We believe Dr. Brem’s qualifications to serve on
our Board of Directors include her expertise in the medical field specifically the diagnosis of breast cancer as well as
her understanding of our products and marke t.
Anthony Ecock is a General Partner with the private equity investment firm of Welsh, Carson, Anderson & Stowe
(“WCAS”), which he joined in 2007. He has over 25 years of experience in the healthcare field with eight years in
senior management positions at leading healthcare technology companies. At WCAS, Mr. Ecock leads the Resources
Group, a team responsible for helping its 30 portfolio companies identify and implement initiatives to increase growth,
earnings and cash flow. Before joining WCAS, he served as Vice President and General Manager of GE Healthcare’s
Enterprise Sales organization from 2003 to 2007. From 1999 to 2003, he served as Senior Vice President and Global
General Manager of Hewlett Packard’s, then Agilent’s and finally Philips’ Patient Monitoring divisions. Mr. Ecock
spent his early career at the consulting firm of Bain & Company, where he was a Partner in the healthcare and technology
practices and Program Director for Consultant Training. We believe Mr. Ecock’s qualifications to serve on our Board
of Directors include his financial expertise and his years of experience in the healthcare and technology markets.
Dr. Robert Goodman is a radiation oncologist who ov ersees all aspects of care at J ersey City Radiation Oncology
.
Dr. Goodman has served with Jersey City Radiation Oncology since 2001. Prior to joining Jersey City Radiation
Oncology, from 1998-2011, Dr. Goodman served as the chair of Radiation Oncology at St. Barnabas Medical Center.
From 1977 to 1990, Dr. Goodman served as the Pancoast Professor and Chair of the Department of Radiation Oncology
at the University of Pennsylvania. Dr. Goodman also has served as Acting Executive Director of the Hospital of the
University of Pennsylvania. He has published extensively in the oncology literature in highly respected peer-reviewed
journals and has co-authored a textbook on breast cancer. We believe Dr. Goodman’s qualifications to serve on our
Board of Directors include his extensive clinical background and his business leadership experience.
Steven Rappaport has been a partner of RZ Capital, LLC since July 2002, a private investment firm that also provides
administrative services for a limited number of clients. From March 1995 to July 2002, Mr. Rappaport was Director,
President and Principal of Loanet, Inc., an online real-time accounting service used by brokers and institutions to
support domestic and international securities borrowing and lending activities. Loanet, Inc. was acquired by SunGard
Data Systems in May 2001. From March 1992 to December 1994, Mr. Rappaport was Executive Vice President
of Metallurg, Inc. (“Metallurg”), a producer and seller of high quality specialty metals and alloys, and President
of Metallurg’s subsidiary, Shieldalloy Corporation. He served as Director of Metallurg from 1985 to 1998. From
March 1987 to March 1992, Mr. Rappaport was Director, Executive Vice President and Secretary of Telerate, Inc.
(“Telerate”), an electronic distributor of financial information. Telerate was acquired by Dow Jones over a number of
years commencing in 1985 and culminating in January 1990, when it became a wholly-owned subsidiary. Mr. Rappaport
practiced corporate and tax law at the New York law firm of Hartman & Craven from August 1974 to March 1987.
He became a partner in the firm in 1979. Mr. Rappaport is currently serving as an independent director of a number
of open and closed end American Stock Exchange funds of which Credit Suisse serves as the investment adviser and
a number of open and closed end mutual funds of which Aberdeen Investment Trust serves as the adviser. In addition,
Mr. Rappaport serves as a director of several privately owned businesses and a few not for profit organizations. We
believe Mr. Rappaport’s qualifications to serve on our Board of Directors include his extensive financial and legal
expertise combined with his experience as an executive officer, partner and director.
Andy Sassine has served on the board of directors of three private companies: Gemphire Therapeutics, Inc., an early-
stage cardiovascular drug company formed by a licensing agreement with Pfizer Inc., Freedom Meditech, Inc., a
medical device company focused on the development and commercialization of first-to-market non-invasive ophthalmic
medical devices that can screen for diabetes up to six years prior to the onset of the disease; and ComHear Inc., a digital
r. Sassine previ ously serve d on the
audio sof tware and devi ce company , where he is also the chairman of the boa rd. M
board of Acorn Energy, Inc. Mr. Sassine has served on the Fidelity Investments Board of Directors since February 25,
2013. Mr. Sassine served in various positions at Fidelity Investments from 1999 to 2012, including, most recently as
Portfolio Manager. Between 2004 and 2011, he managed the Fidelity Small Cap Stock Fund, the Fidelity International
Small Cap Opportunities Fund and the Fidelity Advisor International Small Cap Opportunities Fund. Mr. Sassine
joined Fidelity as a high yield research analyst covering the Telecommunications, Satellite, Technology, Defense and
Aerospace, and Restaurant Industries and in 2001, joined the international group as a research analyst covering small
and mid-cap international stocks. Prior to joining Fidelity, he served as a vice president in the Acquisition Finance
Group at Fleet National Bank. Mr. Sassine has been a member of the Henry B. Tippie College of Business, University
of Iowa Board of Advisors since 2009 and served on the Board of Trustees at the Clarke Schools for Hearing and
Speech between 2009 and 2014. Mr. Sassine earned a Bachelor of Arts degree at the University of Iowa in 1987 and
an MBA from the Wharton School at the University of Pennsylvania in 1993. We believe Mr. Sassine’s extensive
know ledge and experience as a f und manager and boa rd membe r of other companies of a similar siz e to our company
qualifies him to serve as a member of our Board of Directors.
46
Somu Subramaniam is currently a Managing Partner and co-founder of New Science Ventures, a New York-based
venture capital firm that invests in both early and late stage companies, using novel scientific approaches to address
significant unmet needs and create order of magnitude improvements in performance. Mr. Subramaniam serves on several
Boards of companies managed in New Science Venture’s portfolio, including Achronix Semiconductor Corporation,
RF Arrays, Inc., Lightwire, Inc., Silicon Storage Technology, Inc., MagSil Corporation, Trellis BioScience, Inc., and
BioScale, Inc. Prior to starting New Science Ventures in 2004, Mr. Subramaniam was a Director at McKinsey & Co.
and at various times led their Strategy Practice, Technology Practice and Healthcare Practice. While at McKinsey,
he advi sed leading multinational companies in the pharmaceuticals, medical devi ces, bi otechnology , photonics,
software and semiconductor industries. He was also a member of McKinsey’s Investment Committee. We believe Mr.
Subramaniam’s qualifications to serve on our Board include his extensive financial and legal expertise combined with
his experience as an executive officer, partner and director.
Dr. Elliot Sussman is currently a Chairman of The Villages Health and Professor of Medicine at the University of
South Florida College of Medicine. From 1993 to 2010, Dr. Sussman served as President and Chief Executive Officer
of Lehigh Valley Health Network. Dr. Sussman served as a Fellow in General Medicine and a Robert Wood Johnson
Clinical Scholar at the University of Pennsylvania, and trained as a resident at the Hospital of the University of
Pennsylvania. Dr. Sussman is a director and the Chairperson of the compensation committee of the Board of Directors
of Universal Health Realty Income Trust, a public company involved in real estate investment trust primarily engaged
in investing in healthcare and human service-related facilities. We believe Dr. Sussman’s qualifications to serve on our
Board include his experience as a Chief Executive Officer of a leading healthcare network, combined with his medical
ba ckgr ound and his understanding of our products and marke t.
anager f or the G
loba l P atient M onitoring b usiness f or P hilips M
Kenneth Ferry has served as the Company’s Chief Executive Officer since May 2006. He has over 25 years of
experience in the healthcare technology field, with more than 10 years’ experience in senior management positions.
Prior to joining the Company, from October 2003 to May 2006, Mr. Ferry was Senior Vice President and General
edical Sys tems, a leader in the medical imaging
and patient monitoring systems business. In this role he was responsible for Research & Development, Marketing,
Business Development, Supply Chain and Manufacturing, Quality and Regulatory, Finance and Human Resources.
From September 2001 to October 2003, Mr. Ferry served as a Senior Vice President in the North America Field
Organization of Philips Medical Systems. From 1983 to 2001, Mr. Ferry served in a number of management positions
with H ewlett P acka rd Company , a globa l provi der of products, technologies, sof tware solutions and servi ces to
individual consumers and businesses and Agilent Technologies, Inc., a provider of core bio-analytical and electronic
measurement solutions to the communications, electronics, life sciences and chemical analysis industries. We believe
Mr. Ferry’s qualifications to serve on our Board of Directors include his global executive leadership skills and
significant experience as an executive in the healthcare industry.
Richard Christopher is the Company’s Executive Vice President and Chief Financial Officer. Previously, Mr.
Christopher served as Chief Financial and Operating Officer of Caliber Imaging & Diagnostics, Inc., a medical
arch
technologies company that designs, deve lops and marke ts microscopes and other proprietary sof tware. From M
2014 to October 2015, Mr. Christopher served as Chief Financial Officer of Caliber Imaging & Diagnostics, Inc.
From December 2000 to April 2013, Mr. Christopher worked for DUSA Pharmaceuticals, Inc., a vertically integrated
specialty dermatology company. During his time at DUSA Pharmaceuticals, Inc., Mr. Christopher served as Vice
President, Financial Planning and Business Analysis, Vice President, Finance and Chief Financial Officer and Director
of Financial Planning and Business Analysis. Mr. Christopher graduated from Suffolk University with a Masters of
Science Degree in Accounting and from Bentley College with a Bachelors of Science Degree in Finance.
Stacey Stevens is now the Company’s Executive Vice President, Marketing and Strategy. Ms. Stevens previously
served as the Company’s Senior Vice President of Marketing and Strategy from June 2006 to February 2016. Prior to
joining iCAD, Ms. Stevens’ experience included a variety of sales, business development, and marketing management
positions with Philips Medical Systems, Agilent Technologies, Inc. and Hewlett Packard’s Healthcare Solutions
Group (which was acquired in 2001 by Philips Medical Systems). From February 2005 until joining the Company she
was Vice President, Marketing Planning at Philips Medical Systems, where she was responsible for the leadership of
all global marketing planning functions for Philips’ Healthcare Business. From 2003 to January 2005, she was Vice
President of Marketing for the Cardiac and Monitoring Systems Business Unit of Philips where she was responsible
f or all marke ting and certain direct sales activi ties f or the A merica’ s Field Operation. P rior to that, M
s. Steve ns held
several key marketing management positions in the Ultrasound Business Unit of Hewlett-Packard/Agilent and Philips
Medical Systems. Ms. Stevens earned a Bachelor of Arts Degree in Political Science from the University of New
Hampshire, and an MBA from Boston University’s Graduate School of Management.
47
M
i t C om
i ttee and
A
i t C om
i ttee F
i nanci al Expert
Our Board of Directors maintains an Audit Committee which is composed of Mr. Rappaport (Chair), Mr. Ecock
and Dr. Sussman. Our Board has determined that each member of the Audit Committee meets the definition of an
“Independent Director” under applicable NASDAQ Marketplace Rules. In addition, the Board has determined that
each member of the Audit Committee meets the independence requirements of applicable SEC rules and that Mr.
Rappaport qualifies as an “audit committee financial expert” under applicable SEC rules.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires certain of our officers and our directors, and persons who own more than
10 percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the
SEC. Officers, directors, and greater than 10 percent stockholders are required by SEC regulation to furnish us with
copies of all Section 16(a) forms they file.
Based solely on our review of copies of such forms received by us, we believe that during the year ended December 31,
2016; all filing requirements applicable to all of our officers, directors, and greater than 10% beneficial stockholders
were timely c omplied with.
C od e of Eth
i cs
We have developed and adopted a comprehensive Code of Business Conduct and Ethics to cover all of our employees.
Copies of the Code of Business Conduct and Ethics can be obtained, without charge, upon written request, addressed to:
iCAD, Inc.
98 Spit Brook Road, Suite 100
Nashua, NH 03062
ttention: Corporate Secretary
I tem
1
.
Execu ti
ve C om pensati on.
The Company will furnish to the Securities and Exchange Commission a definitive proxy statement not later than
120 days after the end of the fiscal year ended December 31, 2016. The response to this item will be contained in
our proxy statement for our 2016 annual meeting of stockholders under the captions “Executive Compensation,”
“Compensation of Directors,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation
Committee Report,” and is incorporated herein b
ef erence.
y r
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
M atters.
The response to this item will be contained in our proxy statement for our 2017 annual meeting of stockholders in part
under the caption “Stock Ownership of Certain Beneficial Owners and Management” and in part below.
Eq
i ty C
om pensati on Plans
The following table provides certain information with respect to all of our equity compensation plans in effect as of
December 31, 2016.
48
A
u
d
m
u
d
m
A
1
u
P lan Category
N umb er of securities to b e
issued upon exercise of
outstanding options, warrants
and rights
eighted-av erage exercise price
of outstanding options, warrants
and rights
N umb er of securities remaining
av ailab le f or issuance under
compensation plans
eq uity
( excluding securities ref lected in
column ( a)
compensation plans
security
Eq uity
approv ed b
holders:
1,425,348
compensation plans
Eq uity
not approv ed b
holders ( 1)
security
0
latoT
843,524,1
50.5$
00.0$
50.5$
694,284,1
-0-
694,284,1
(1) Represents the aggregate number of shares of common stock issuable upon exercise of individual arrangements
with non-plan option holders. See Note 6 of Notes to our consolidated financial statements for a description of our
Stock Option and Stock Incentive Plans and certain information regarding the terms of the non-plan options.
I tem
1
.
Certain Relationships and Related Transactions, and Director Independence.
The response to this item is contained in our proxy statement for our 2017 annual meeting of stockholders under the
captions “Certain Relationships and Related Transactions,” “Corporate Governance Matters — Director Independence”
and “ Compensation Committee Report, and is incorporated herein b
ef erence.
y r
I tem
1
.
Pri nci pal A ccou nti ng F
ees and
S erv
i ces.
The response to this item is contained in our proxy statement for our 2017 annual meeting of stockholders under the
caption “Ratification of Appointment of Independent Registered Public Accounting Firm,” and is incorporated herein
y r
ef erence.
I tem
1
.
Exhibits, Financial Statement Schedules.
PA
I
a) The following documents are filed as part of this Annual Report on Form 10-K:
i.
ii.
iii.
2(a)
Financial Statements - See Index on page XX.
Financial Statement Schedule - See Index on page XX. All other schedules for
which provi sion is made in the applicabl e accounting regulations of the Securities
and Exchange Commission are not required under the related instructions or are
not applicabl e and, theref ore, have be en omitted.
Exhibits - the following documents are filed as exhibits to this Annual Report on
Form 10-K:
Plan and Agreement of Merger dated February 15, 2002, by and among the
Registrant, ISSI Acquisition Corp. and Intelligent Systems Software, Inc., Maha
Sallam, Kevin Woods and W. Kip Speyer. [incorporated by reference to Annex A
of the Company’s proxy statement/prospectus dated May 24, 2002 contained in
the Registrant’s Registration Statement on Form S-4, File No. 333-86454].
2(b) Amended and Restated Plan and Agreement of Merger dated as of December
15, 2003 among the Registrant, Qualia Computing, Inc., Qualia Acquisition
Corp., Steven K. Rogers, Thomas E. Shoup and James Corbett [incorporated by
reference to Exhibit 2(a) to the Registrant’s Current Report on Form 8-K for the
event dated December 31, 2003].
49
3
4
b
R
T
V
5
:
W
)
y
:
y
2(c)
2(d)
2(e)
2(f)
2(g)
3 (a)
3(b)
Asset Purchase Agreement as of dated June 20, 2008 between the Registrant and
3TP LLC dba CAD Sciences [incorporated by reference to Exhibit 2.1 to the
Registrant’s Current Report on Form 8-K for the event dated July 18, 2008]. **
Agreement and Plan of Merger dated December 15, 2010 by and among the
Registrant, XAC, Inc., Xoft, Inc. and Jeffrey Bird as representative of the Xoft,
Inc.’s stockholders [incorporated by reference to Exhibit 2.1 to the Registrant’s
Current Report on Form 8-K for the event dated December 30, 2010]. **
Asset Purchase Agreement by and between iCAD, Inc. and Radion, Inc., dated
as of July 15, 2014. [incorporated by reference to Exhibit 2.1 to the Registrant’s
Current Report on Form 8-K for the event dated July 15, 2014]. **
Asset Purchase Agreement by and between iCAD, Inc. and DermEbx, a series
of Radion Capital Partners, LLC, dated as of July 15, 2014. [incorporated by
reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K for the
event dated July 15, 2014]. **
Asset Purchase Agreement by and between iCAD, Inc. and Invivo Corporation.
[incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K for the event dated December 22, 2016]. **
Certificate of Incorporation of the Registrant as amended through June 16, 2015
[incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on
Form 10-Q filed on August 6, 2015].
Amended and Restated By-laws of the Registrant [incorporated by reference to
Exhibit 3 (b) to the Registrant’s Report on Form 10-K for the year ended December
31, 2007].
4.1(a) Form of Warrant issued on January 9, 2012 [incorporated by reference to Exhibit
4.1 of the Registrant’s report on Form 8-K filed with the SEC on January 3, 2012].
4.2(b) Form of B Warrant issued on January 9, 2012 [incorporated by reference to
Exhibit 4.2 of the Registrant’s report on Form 8-K filed with the SEC on January
3, 2012].
4.3(c) Registration Rights Agreement, dated as of December 29, 2011 [incorporated by
reference to Exhibit 4.3 of the Registrant’s report on Form 8-K filed with the SEC
on January 3, 2012].
10(a)
2002 Stock Option Plan [incorporated by reference to Annex F to the Registrant’s
Registration Statement on Form S-4 (File No. 333-86454)].*
10(b)
2004 Stock Incentive Plan [incorporated by reference to Exhibit B to the
Registrant’s definitive proxy statement on Schedule 14A filed with the SEC on
May 28, 2004].*
10(c) Form of Option Agreement under the Registrant’s 2002 Stock Option Plan
[incorporated by reference to Exhibit 10.2 to the Registrant’s quarterly report on
Form 10-Q for the quarter ended September 30, 2004].*
10(d) Form of Option Agreement under the Registrant’s 2004 Stock Incentive Plan
[incorporated by reference to Exhibit 10.3 to the Registrant’s quarterly report on
Form 10-Q for the quarter ended September 30, 2004].*
10(e)
2005 Stock Incentive Plan [incorporated by reference to Exhibit 10.1 to the
Registrant’s report on Form 8-K filed with the SEC on June 28, 2005].*
10(f)
Form of Option Agreement under the Registrant’s 2005 Stock Incentive Plan
[incorporated by reference to Exhibit 10.2 to the Registrant’s report on Form 8-K
filed with the SEC on June 28, 2005].*
50
10(g)
10(h)
10(i)
2016 Stock Incentive Plan [incorporated by reference to Exhibit 10.1 to the
Registrant’s quarterly report on Form 10-Q for the quarter ended March 31,
2016].
Form of Indemnification Agreement with each of the Registrant’s directors and
officers [incorporated by reference to Exhibit 10.6 of Registrant’s Quarterly
report on Form 10-Q for the quarter ended June 30, 2006].
Form of Indemnification Agreement with each of the Registrant’s directors and
officers [incorporated by reference to Exhibit 10.1 of Registrant’s Quarterly
report on Form 10-Q for the quarter ended September 30, 2014].
10(ji) Lease Agreement dated December 6, 2006 between the Registrant and Gregory D.
Stoyle and John J. Flatley, Trustees of the 1993 Flatley Family Trust, of Nashua,
NH [incorporated by reference to Exhibit 10(mm) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2006].
10(kj) 2007 Stock Incentive Plan, as amended [incorporated by reference to Appendix A
to the Company’s definitive proxy statement on Schedule 14A filed with the SEC
on June 16, 2009]. *
10(l)
Form of Option Agreement under the Registrant’s 2007 Stock Incentive Plan.
[incorporated by reference to Exhibit 10(vv) to the Registrant’s Report on Form
10-K for the year ended December 31, 2009]*
10(m) Form of Restricted Stock Agreement under the Registrant’s 2007 Stock Incentive
Plan. [incorporated by reference to Exhibit 10(vv) to the Registrant’s Report on
Form 10-K for the year ended December 31, 2009].*
10(n) Employment Agreement entered into as of September 25, 2012 between the
Registrant and Kenneth Ferry [incorporated by reference to Exhibit 10.1 of the
Registrant’s report on Form 8-K filed with the SEC on September 26, 2012] *
10(o) Employment Agreement entered into as of June 1, 2008 between the Registrant
and Stacey Steve ns [incorporated by reference to Exhibit 10.8 of the Registrant’s
report on Form 10-Q filed with the SEC on August 8, 2008]. *
10(p) Employment Agreement dated as of June 1, 2008 between the Registrant and
J onathan G o [incorporated by reference to Exhibit 10.9 of the Registrant’s report
on Form 10-Q filed with the SEC on August 8, 2008]. *
10(q) Employment Agreement dated April 26, 2011 between the Registrant and Kevin
C. Burns [incorporated by reference to Exhibit 10.2 of the Registrant’s report on
Form 8-K filed with the SEC on April 27, 2011].
10(r) Option Agreement dated April 26, 2011 between the Registrant and Kevin C.
Burns [incorporated by reference to Exhibit 10.3 of the Registrant’s report on
Form 8-K filed with the SEC on April 27, 2011].*
10(s)
10(t)
Facility Agreement including form of Promissory note, dated as of December
29, 2011, by and among the Company, Deerfield Private Design Fund II, L.P.,
Deerfield Private Design International II, L.P., Deerfield Special Situations Fund,
L.P., and Deerfield Special Situations Fund International Limited [incorporated
by reference to Exhibit 10.1 of the Registrant’s report on Form 8-K filed with the
SEC on January 3, 2012].
Form of Security Agreement by and among the Company, Deerfield Private
Design Fund II, L.P., Deerfield Private Design International II, L.P., Deerfield
Special Situations Fund, L.P., and Deerfield Special Situations Fund International
Limited [incorporated by reference to Exhibit 10.2 of the Registrant’s report on
Form 8-K filed with the SEC on January 3, 2012].
51
10(u)
Form of Security Agreement by and among Xoft, Inc., Deerfield Private Design
Fund II, L.P., Deerfield Private Design International II, L.P., Deerfield Special
Situations Fund, L.P., and Deerfield Special Situations Fund International Limited
[incorporated by reference to Exhibit 10.3 of the Registrant’s report on Form 8-K
filed with the SEC on January 3, 2012].
10(v) Revenue Purchase Agreement, dated as of December 29, 2011, by and among the
Company, Deerfield Private Design Fund II, L.P., Deerfield Special Situations
Fund, L.P. and Horizon Sante TTNP SARL [incorporated by reference to Exhibit
10.4 of the Registrant’s report on Form 8-K filed with the SEC on January 3,
2012].
10(w) Revenue Purchase Termination and Amendment of Facility Agreement, dated as
of April 28, 2014, by and among the Company, Deerfield Private Design Fund
II, L.P., Deerfield Special Situations Fund, L.P. and Horizon Sante TTNP SARL
[incorporated by reference to Exhibit 10.1 of the Registrant’s report on Form
10-Q filed with the SEC on May 14, 2014].
10(x)
Settlement Agreement, dated as of December 22, 2011, by and among the
Company, Carl Zeiss Meditec, AG and Carl Zeiss Meditec,Inc. [incorporated by
reference to Exhibit 10(y) to the Registrant’ s Report on Form 10-K f or the ye ar
ended December 31, 2012]
10(y) Amendment No. 1 to the Employment Agreement dated April 26, 2011 between
the Registrant and Kevin C. Burns [incorporated by reference to Exhibit 10.1 of
the Registrant’s report on Form 8-K filed with the SEC on November 25, 2013].*
10(z) Amendment No. 2 to the Employment Agreement dated April 26, 2011 between
the Registrant and Kevin C. Burns [incorporated by reference to the Registrant’s
report on Form 8-K filed with the SEC on February 11, 2015].*
10(aa) Change in Control Bonus Agreement dated October 29, 2015 between the
Registrant and Ken Ferry [incorporated by reference to Exhibit 10.1 of the
Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 4,
2015].*
10(bb) Change in Control Bonus Agreement dated October 29, 2015 between the
Registrant and Kevin Burns [incorporated by reference to Exhibit 10.2 of the
Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 4,
2015].*
10(cc) Change in Control Bonus Agreement dated October 29, 2015 between the
Registrant and Stacey Stevens [incorporated by reference to Exhibit 10.3 of the
Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 4,
2015].*
10(dd)
10(ee)
10(ff)
10(gg)
Asset Purchase Agreement dated December 16, 2016 between the Registrant and
Invivo Corporation [incorporated by reference to Exhibit 10.1 of the Registrant’s
report on Form 8-K filed with the SEC on December 22, 2016].
Employment Agreement dated November 4, 2016 between the Registrant
and Richard Christopher [incorporated by reference to Exhibit 10.1 of the
Registrant’s report on Form 8-K filed with the SEC on November 10, 2016].
First Amendment to Lease dated September 19, 2016 between the Registrant
and The Irvine Company [incorporated by reference to Exhibit 10.1 of the
Registrant’s report on Form 8-K filed with the SEC on September 21, 2016].
Employment Agreement dated December 22, 2016 between the Registrant and
Kenneth Ferry [incorporated by reference to Exhibit 10.1 of the Registrant’s
report on Form 8-K filed with the SEC on December 28, 2016].
52
10(hh)
Amendment No. 1 to Employment Agreement dated as of June 1, 2008 between
the Registrant and Stacey M. Stevens [incorporated by reference to Exhibit 10.2
of the Registrant’s report on Form 8-K filed with the SEC on December 28, 2016].
21
Subsidiaries
23.1
Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.
31.1
31.2
32.1
32.2
101
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
The following materials formatted in XBRL (eXtensible Business Reporting
Language); (i) Consolidated Balance Sheets as of December 31, 2016 and
December 31, 2015, (ii) Consolidated Statements of Operations for the twelve
months ended December 31, 2016 and 2015 and 2014, (iii) Consolidated
Statements of Cash Flows for the twelve months ended December 31, 2016 and
2015 and 2014, and (iv) Notes to Consolidated Financial Statements.
* Denotes a management compensation plan or arrangement.
** The Registrant has omitted certain schedules and exhibits pursuant to Item 601(b)(2) of Regulation
S-K and shall furnish supplementally to the SEC copies any of the omitted schedules and exhibits upon
request by the SEC.
(b) Exhibits - See (a) iii above.
(c) Financial Statement Schedule - See (a) ii above.
Item 16.
None
m ary
53
S
u
m
.
R ES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its be half b
y t he undersigned, thereunto duly a uthoriz ed.
iCAD, INC.
Date: March , 2017
By: / s/ Kenneth Ferry
Kenneth Ferry
Chief Executive Officer, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on be half of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/ s/ L awrence H oward
Dr. Lawrence Howard
/ s/ Kenneth Ferry
Kenneth Ferry
/ s/ Richard Christopher
Richard Christopher
/s/ Rachel Brem
Rachel Brem, M.D.
/s/ Anthony Ecock
Anthony Ecock
/ s/ Robe rt G oodman
Robert Goodman, M.D.
/ s/ Steve n Rappaport
Steve n Rappaport
/ s/ A ndy Sassine
A ndy S assine
/ s/ Somu Subr amaniam
Somu Subr amaniam
/s/ Elliot Sussman
Elliot Sussman, M.D.
Chairman of the Board, Director
March, 2017
March, 2017
March, 2017
March, 2017
March, 2017
March, 2017
March, 2017
March, 2017
March, 2017
March, 2017
Chief Executive Officer
Director (Principal Executive Officer)
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
54
S
I
G
N
A
T
U
D EX
T
C
T ED
F
S
T EM EN
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
As of December 31, 2016 and 2015
Consolidated Statements of Operations
For the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Cash Flows
For the years ended December 31, 2016, 2015 and 2014
P age
F2
F3
F4
F5
F6
Notes to Consolidated Financial Statements
F7-F41
F-1
I
N
O
O
N
S
O
L
I
D
A
I
N
A
N
C
I
A
L
T
A
T
S
R EPO
O
I
D EPEN
D EN
R EG
T ER ED
PU
A
F
To the Board of Directors and Stockholders of iCAD, Inc.,
Nashua, New Hampshire
We have audited the accompanying consolidated balance sheets of iCAD, Inc. and subsidiaries (the “Company”)
as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements
ba sed on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for
the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
A ccordingly , we express no such opinion. A n audit also includes examining, on a test ba sis, evi dence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provi de a reasonabl e ba sis f or our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of iCAD, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting
principles generally accepted in the United States of America.
/s/ BDO USA, LLP
Boston, Massachusetts
March, 2017
F-2
R
T
F
N
T
I
S
B
L
I
C
C
C
O
U
N
T
I
N
G
I
R
M
iCAD, INC. AND SUBSIDIARIES
C onsoli
d ated
B alance S
h eets
A ssets
Current assets:
stnelaviuqe hsac dna hsaC
Trade accounts receiv ab le, net of allowance f or doub tf ul
5102 ni 632$ dna 6102 ni 271$ fo stnuocca
ten ,
yrotnevnI
stessa tnerruc rehto dna sesnepxe diaperP
elas rof dleh stessA
stessa tnerruc latoT
and eq uipment:
P roperty
tnempiuqE
stnemevorpmi dlohesaeL
serutxif dna erutinruF
M
stessa gnitekra
noitazitroma dna noitaicerped detalumucca sseL
ytreporp teN
tnempiuqe dna
Other assets:
Other assets
I ntangib le assets, net of accumulated amortiz ation
5102 ni 698,01$ dna 6102 ni 815,7$ fo
lliwdooG
stessa rehto latoT
stessa latoT
iab ilities and Stock holders' Eq uity
Current liab ilities:
elbayap stnuoccA
sesnepxe deurccA
noitrop mret-trohs ,elbayap esael latipaC
eunever derrefeD
L
elas rof dleh seitilibai
seitilibail tnerruc latoT
seitilibail mret-gnol rehtO
noitrop mret-gnol ,eunever derrefeD
noitrop mret-gnol ,stsoc tnemeltteS
noitrop mret-gnol - esael latipaC
D ef erred tax
seitilibail latoT
Commitments and contingencies (
N ote 9)
:
, $ . 01 par v alue: authoriz ed 1,000,000 shares;
, $ . 01 par v alue: authoriz ed 30,000,000
Stock holders' eq uity
P ref erred stock
.deussi enon
Common stock
shares; issued 16,260,663 in 2016 and 15,923,349 in 2015;
5102 ni 815,737,51 dna 6102 ni 238,470,61 gnidnatstuo
latipac ni-diap lanoitiddA
ticifed detalumuccA
yrusaerT
ytiuqe 'sredlohkcots latoT
5102 dna 6102 ni serahs 138,581 ,tsoc ta
kcots
D ecem
b er 3
D ecem
b er 3
( in thousands except shares and per share data)
$
585,8
$
082,51
$
$
981,5
727,3
821,1
403,1
339,91
081,7
26
503
673
7,923
835,6
583,1
53
381,3
790,41
333,71
156,83
775,1
889,4
68
273,5
238
558,21
38
866
-
-
7
316,31
$
$
884,7
513,4
486
-
767,72
940,7
26
592
673
7,782
574,5
703,2
49
472,4
891,41
665,81
046,84
1,593
022,4
969
794,7
-
972,41
92
970,1
421
86
-
498,51
-
-
361
998,312
)906,781(
)514,1(
830,52
951
215,112
)015,771(
)514,1(
647,23
ytiuqe 'sredlohkcots dna seitilibail latoT
$
156,83
$
046,84
See accompany ing notes to consolidated financial statements.
F-3
2
0
1
6
2
0
1
5
L
1
,
1
,
iCAD, INC. AND SUBSIDIARIES
C onsoli
d ated
S tatem ents of O perati ons
Rev enue:
stcudorP
seilppus dna ecivreS
eunever latoT
Cost of Rev enue:
stcudorP
seilppus dna ecivreS
noitaicerped dna noitazitromA
eunever fo tsoc latoT
tiforp ssor
selas dna gnitekra
Operating expenses:
tnempoleved tcudorp dna gnireenignE
M
evitartsinimda dna lareneG
noitaicerped dna noitazitromA
tnemriapmi tessa devil-gnol dna lliwdooG
sesnepxe gnitarepo latoT
snoitarepo morf )ssol( emocnI
Other ( expense) income:
esnepxe tseretnI
ytilibail tnarraw fo eulav riaf ni egnahc morf niaG
tbed fo tnemhsiugnitxe morf ssoL
emocni tseretnI
ten ,esnepxe rehtO
esnepxe xat emocni erofeb ssoL
esnepxe xat emocnI
ssol evisneherpmoc dna ssol teN
N et loss per share:
cisaB
D
detuli
eighted av erage numb er of shares used in
computing loss per share:
cisaB
D
detuli
See accompanying notes to consolidated financial statements.
F or th e Y ears End ed D ecem
b er 3
( in thousands except per share data)
$
$
174,01
768,51
833,62
$
14,198
27,356
41,554
819
317,5
981,1
028,7
815,81
815,9
971,01
576,7
611,1
-
884,82
)079,9(
)36(
-
-
01
)35(
3,130
7,357
1,717
12,204
29,350
9,163
12,404
8,788
1,631
27,443
59,429
( 30,079)
( 650)
-
( 1,723)
21
( 2,352)
)320,01(
( 32,431)
67
16
18,683
25,241
43,924
4,912
6,000
1,785
12,697
31,227
8,159
12,468
8,044
1,741
-
30,412
815
( 2,640)
1,835
( 903)
37
( 1,671)
( 856)
153
$
$
$
)990,01(
$
( 32,447)
$
( 1,009)
$)36.0(
$)36.0(
$)70.2(
$)70.2(
)70.0(
)70.0(
239,51
239,51
686,51
686,51
690,41
690,41
F-4
1
,
2
0
1
6
2
0
1
5
2
0
1
4
G
W
iCAD, INC. AND SUBSIDIARIES
C onsoli
d ated
S tatem ents of S tock
h old ers’ Eq
i ty
(in thousands except shares)
C om
m on S tock
b er of
h ares I ssu ed
11,084,119
Par V alu e
111
i ti onal
i n
Pai
C api tal
166,735
A ccu
lated
D efi ci t
( 144,054)
T reasu ry
S tock
( 1,415)
tock
Eq
h old ers'
i ty
21,377
( 111)
3,726
8,556
708
28,214
1,318
( 1,009)
62,779
( 87)
366
2,135
( 32,447)
Balance at D ecemb er 31, 2013
I ssuance of common stock relativ e to
v esting of restricted stock , net of 9,904
shares f orf eited f or tax ob ligations
75,530
I ssuance of common stock f or warrants exercised
450,000
I ssuance of stock
f or acq uisitions
1,200,000
I ssuance of common stock pursuant
to stock
option plans
Sale of common stock
Stock -b ased compensation
N et loss
162,528
2,760,000
-
-
1
4
12
1
28
-
-
( 112)
3,722
8,544
707
28,186
1,318
-
-
-
-
-
-
-
( 1,009)
-
-
-
-
-
-
-
Balance at D ecemb er 31, 2014
15,732,177 $
157 $
209,100 $
( 145,063) $
( 1,415) $
I ssuance of common stock relativ e to
v esting of restricted stock , net of 13,058
shares f orf eited f or tax ob ligations
I ssuance of common stock pursuant
to stock
option plans
Stock -b ased compensation
N et loss
111,700
79,472
-
-
1
1
-
-
( 88)
365
2,135
-
-
-
-
( 32,447)
-
-
-
-
Balance at D ecemb er 31, 2015
15,923,349 $
159 $
211,512 $
( 177,510) $
( 1,415) $
32,746
I ssuance of common stock relativ e to
v esting of restricted stock , net of 27,299
shares f orf eited f or tax ob ligations
I ssuance of common stock pursuant
to stock
option plans
Stock -b ased compensation
N et loss
261,731
75,583
-
-
3
1
-
-
( 117)
197
2,307
-
-
-
-
( 10,099)
-
-
-
-
Balance at D ecemb er 31, 2016
16,260,663 $
163 $
213,899 $
( 187,609) $
( 1,415) $
See accompanying notes to consolidated financial statements.
( 114)
198
2,307
( 10,099)
25,038
F-5
u
A
d
d
N
u
m
d
-
m
u
S
S
u
iCAD, INC. AND SUBSIDIARIES
C onsoli
d ated
S tatem ents of C ash
F
low s
F or th e Y ears End ed D ecem
b er 3
( in thousands)
$
( 10,099)
$
( 32,447)
$
( 1,009)
Cash f low f rom operating activ ities:
N et loss
A dj ustments to reconcile net loss to net cash prov ided b
( used f or) operating activ ities:
A mortiz ation
D epreciation
Bad deb t prov ision
Stock -b ased compensation expense
A mortiz ation of deb t discount and deb t costs
G ain f rom acq uisition settlement
G oodwill and long-liv ed asset impairment
I nterest on settlement ob ligations
D ef erred tax liab ility
L oss ( gain) f rom change in f air v alue of warrant liab ility
L oss on disposal of assets
L oss on extinguishment of deb t
Changes in operating assets and liab ilities, net of acq uisition:
A ccounts receiv ab le
I nv entory
P repaid and other assets
A ccounts pay ab le
A ccrued expenses
D ef erred rev enue
Total adj ustments
N et cash ( used f or) prov ided b
operating activ ities
and other
Cash f low f rom inv esting activ ities:
A dditions to patents, technology
A dditions to property
A cq uisition of V uComp M
A cq uisition of V uComp M
A cq uisition of Radion I nc, and D ermEb x
N et cash used f or inv esting activ ities
and eq uipment
-V u CA
-V u Breast D ensity
Cash f low f rom f inancing activ ities:
I ssuance of common stock
Stock option exercises
arrant exercise
f or cash, net
Taxes paid related to restricted stock issuance
P rincipal pay ments of capital lease ob ligations
P rincipal repay ment of deb t f inancing, net
N et cash ( used f or) prov ided b
f inancing activ ities
I ncrease ( decrease) in cash and eq uiv alents
Cash and eq uiv alents, b eginning of y ear
Cash and eq uiv alents, end of y ear
Supplemental disclosure of cash f low inf ormation:
diap tseretnI
diap sexaT
N on-cash items f rom inv esting and f inancing activ ities:
Settlement of warrant liab ility
with purchase of common stock
I ssuance of common stock
xbEmreD dna cnI ,noidaR fo
related to acq uisition
See accompanying notes to consolidated financial statements.
$
$
$
$
$
F-6
983
1,322
177
2,307
( 23)
( 249)
-
82
7
-
10
-
2,201
596
( 504)
( 16)
309
( 2,581)
4,621
( 5,478)
( 12)
( 337)
( 6)
-
-
( 355)
-
198
-
( 114)
( 946)
-
( 862)
( 6,695)
15,280
8,585
07
76
-
-
$
$
$
1,768
1,580
383
2,135
341
-
27,443
146
-
-
125
1,723
1,772
( 1,987)
( 197)
( 557)
( 2,060)
( 2,068)
30,547
( 1,900)
( 40)
( 932)
-
( 1,700)
-
( 2,672)
-
366
-
( 87)
( 1,397)
( 11,250)
( 12,368)
( 16,940)
32,220
15,280
558
128
-
-
$
$
$
2,270
1,256
167
1,318
1,246
-
-
602
-
( 1,835)
-
903
( 840)
( 323)
11
150
296
( 612)
4,213
3,204
( 50)
( 1,214)
-
-
( 3,482)
( 4,746)
28,214
708
1,575
( 110)
( 655)
( 7,850)
21,882
20,340
11,880
32,220
1,637
157
2,151
8,556
1
,
2
0
1
6
2
0
1
5
2
0
1
4
y
y
D
W
y
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1)
Summary of Significant Accounting Policies
( a) N atu re of O perati ons and
U se of Esti
m ates
iCAD, Inc. and subsidiaries (the “Company” or “iCAD”) is a provider of advanced image analysis, workflow
solutions and radiation therapy for the early identification and treatment of cancer.
The Company has grown primarily through acquisitions to become a broad player in the oncology market.
Its solutions include advanced image analysis and workflow solutions that enable healthcare professionals
to b etter serv e patients b
y ing pathologies and pinpointing the most prev alent cancers earlier, a
comprehensive range of high-performance, upgradeable Computer-Aided Detection (CAD) systems and
workflow solutions for mammography, MRI and CT, and the Xoft System which is an isotope-free cancer
treatment platform technology. CAD is reimbursable in the U.S. under federal and most third-party insurance
programs.
y identif
The Company intends to continue the extension of its image analys is and clinical decision support solutions
for mammography, MRI and CT imaging. iCAD believes that advances in digital imaging techniques should
bolster its efforts to develop additional commercially viable CAD/advanced image analysis and workflow
products. The Company
’ s management be lieve s that early detection in combi nation with earlier targeted
interve ntion will provi de patients and care provi ders with the be st tools ava ilabl e to achieve be tter clinical
outcomes resulting in a marke t demand that will drive top line growth.
The Company’s headquarters are located in Nashua, New Hampshire, with manufacturing and contract
manufacturing facilities in New Hampshire and Massachusetts, and an operations, research, development,
manuf acturing and warehousing f acility i n San J ose, Calif ornia.
The Company operates in two segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”).
The Detection segment consists of advanced image analysis and workflow products, and the Therapy segment
consists of radiation therapy products. The Company sells its products throughout the world through its
direct sales organization as well as through various OEM partners, distributors and resellers. See Note 8 for
segment, maj or customer and geographical inf ormation.
The preparation of financial statements in conformity with generally accepted accounting principles in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of reve nue and expenses during the reporting period. A ctual results
could differ from those estimates. It is reasonably possible that changes may occur in the near term that would
af
f ect management’ s estimates with respect to assets and liabi lities.
) Pri nci ples of C onsoli
d ati on
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries: Xoft, Inc. and Xoft Solutions, LLC. All material inter-company transactions and balances have
be en eliminated in consolidation.
( c) C ash
and
cash
eq
val ents
The Company defines cash and cash equivalents as all bank accounts, money market funds, deposits and
other money marke t instruments with original maturities of 90 days or less, which are unrestricted as to
withdrawal. Cash and cash equivalents are maintained at financial institutions and, at times, balances may
exceed f ederally insured limits. The Company has neve r experienced any
losses related to these ba lances.
Insurance coverage is $250,000 per depositor at each financial institution, and the Company’s non-interest
bearing cash balances exceed federally insured limits. Interest-bearing amounts on deposit in excess of
federally insured limits at December 31, 2016 approximated $7.8 million.
) F
i nanci al i nstru
m ents
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and notes
F-7
(
b
u
i
(
d
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
) F
i nanci al i nstru
m ents (continued)
payable. Due to their short term nature and market rates of interest, the carrying amounts of the financial
instruments approximated fair value as of December 31, 2016 and 2015.
( e) A ccou nts R ecei
vab
le and
A
llow ance for D ou
b tfu
l A ccou nts
A ccounts receiv abl e are customer ob ligations due under normal trade terms. Credit limits are estab lished
through a process of reviewing the financial history and stability of each customer. The Company performs
continuing credit evaluations of its customers’ financial condition and generally does not require collateral.
The Company
’ s policy is to maintain allowances f or estimated losses f rom the inabi lity of its customers to
make required payments. The Company’s senior management reviews accounts receivable on a periodic
ba sis to determine if any receiva bl es may potentially
be uncollectibl e. The Company includes any accounts
receiva bl e ba lances that it determines may like ly be uncollectibl e, along with a general reserve f or estimated
proba bl e losses ba sed on historical experience, in its ove rall allowance f or doubt f ul accounts. A n amount
would be written off against the allowance after all attempts to collect the receivable had failed. Based on the
information available, the Company believes the allowance for doubtful accounts as of December 31, 2016
and 2015 is adequate.
$
The following table summarizes the allowance for doubtful accounts for the three years ended December 31,
Balance at b eginning of period
2016 (in thousands):
A dditions charged to costs and expenses
snoitcudeR
Balance at b eginning of period
doirep fo dne ta ecnalaB
A dditions charged to costs and expenses
snoitcudeR
$
$
$
$
$
$
$
$
$
$
$
203
383
( 350)
203
236
383
( 350)
236
236
177
)142(
236
271
177
)142(
271
73
167
( 37)
73
203
167
( 37)
203
doirep fo dne ta ecnalaB
( f) I nve ntory
Inventory is valued at the lower of cost or market value, with cost determined by the first-in, first-out method.
The Company regularly reviews inventory quantities on hand and records an allowance for excess and/or
obs olete inve ntory primarily
t
December 31, 2016 and 2015, inventories consisted of the following (in thousands):
ba sed upon the estimated usage of its inve ntory as well as other f actors. A
A s of D ecem
b er 3
Raw materials
W ork in process
Finished G oods
Raw materials
I nv entory
W ork in process
Finished G oods
I nv entory
$
$
b er 3
$
$
$
$
2,503
A s of D ecem
75
1,149
2,503
3,727
75
1,149
3,727
$
$
009,2
451
162,1
009,2
513,4
451
162,1
513,4
F-8
Eq uipment
L easehold improv ements
Furniture and f ixtures
Eq uipment
M ark eting assets
L easehold improv ements
Furniture and f ixtures
M ark eting assets
Estimated lif e
3-5 y ears
Estimated lif e
3-5 y ears
3-5 y ears
3-5 y ears
3-5 y ears
3-5 y ears
3-5 y ears
3-5 y ears
(
d
2
0
1
6
2
0
1
5
2
0
1
4
2
0
1
6
2
0
1
5
1
,
2
0
1
6
2
0
1
5
2
0
1
4
2
0
1
6
2
0
1
5
1
,
Balance at b eginning of period
$
236
$
203
$
73
A dditions charged to costs and expenses
snoitcudeR
177
)142(
383
( 350)
167
( 37)
doirep fo dne ta ecnalaB
$
271
$
236
$
203
A s of D ecem
b er 3
Raw materials
W ork in process
Finished G oods
$
$
2,503
75
1,149
3,727
009,2
451
162,1
513,4
I nv entory
iCAD, INC. AND SUBSIDIARIES
$
Notes to Consolidated Financial Statements (continued)
$
(1)
Summary of Significant Accounting Policies (continued)
Property an d
Eq
i pm ent
Property and equipment are stated at cost and depreciated using the straight-line method over the estimated
useful lives of the assets or the remaining lease term, if shorter, for leasehold improvements (see below).
Estimated lif e
Eq uipment
L easehold improv ements
Furniture and f ixtures
M ark eting assets
3-5 y ears
3-5 y ears
3-5 y ears
3-5 y ears
) L ong L
ve d
A ssets
In accordance with FASB ASC Topic 360, “Property, Plant and Equipment”, (“ASC 360”), the Company
assesses long-live d assets f or impairment if eve nts and circumstances indicate it is more like ly than not that
the f air va lue of the asset group is less than the carryi ng va lue of the asset group.
ASC 360-10-35 uses “events and circumstances” criteria to determine when, if at all, an asset (or asset group)
is evaluated for recoverability. Thus, there is no set interval or frequency for recoverability evaluation. In
accordance with ASC 360-10-35-21, the following factors are examples of events or changes in circumstances
that indicate the carrying amount of an asset (asset group) may not be recoverable and thus is to be evaluated
f or recove rabi lity
.
•
•
•
•
•
A significant decrease in the market price of a long-lived asset (asset group);
A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being
used or in its phys ical condition;
A significant adverse change in legal factors or in the business climate that could affect the value of a
long-lived asset (asset group), including an adverse action or assessment by a regulator;
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or
construction of a long-lived asset (asset group);
A current period operating or cash flow loss combined with a history of operating or cash flow losses or
a proj ection or f orecast that demonstrates continuing losses associated with the use of a long-live d asset
(asset group).
A s a result of external f actors and general uncertainty related to reimbur sement f or the treatment of non-
eva luated the long-live d assets of the Therapy segment and rev iewed
melanoma ski n cancer, the Company
them f or potential impairment. The Company determined the “
roup” to be the assets of the Therapy
segment, which the Company considered to be the lowest level for which the identifiable cash flows were
largely independent of the cash flows of other assets and liabilities.
A sset G
In accordance with ASC 360-10-35-17, if the carrying amount of an asset or asset group (in use or under
development) is evaluated and found not to be fully recoverable (the carrying amount exceeds the estimated
gross, undiscounted cash flows from use and disposition), then an impairment loss must be recognized. The
impairment loss is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value.
In connection with the preparation of the financial statements for the second quarter ended June 30, 2015,
the Company completed its analysis pursuant to ASC 360-10-35-17 and determined that the carrying value
of the Asset Group was approximately $36.8 million, which exceeded the undiscounted cash flows by
approximately $2.8 million. Accordingly the Company completed the Step 2 analysis to determine the fair
value of the asset group. The Company recorded long-lived asset impairment charges of approximately $13.4
million in the second quarter ended June 30, 2015 and as a result the long lived assets in the Asset Group
were recorded at their current f air va lues. The Company did not record any impairment charges f or the ye ar
ended December 31, 2016.
F-9
(
g
)
u
(
h
i
2
0
1
6
2
0
1
5
2
0
1
4
2
0
1
6
2
0
1
5
1
,
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
) L ong L
ve d
A ssets (continued)
A considerable amount of judgment and assumptions are required in performing the impairment tests,
principally in determining the fair value of the Asset Group. While the Company believes the judgments
f erent assumptions could change the estimated f air va lues, and, theref ore
and assumptions are reasonabl e, dif
additional impairment charges could be required. Significant negative industry or economic trends, disruptions
to the Company’s business, loss of significant customers, inability to effectively integrate acquired businesses,
unexpected significant changes or planned changes in use of the assets may adversely impact the assumptions
used in the f air va lue estimates and ultimately r esult in f uture impairment charges.
Intangible assets subject to amortization consist primarily of patents, technology, customer relationships and
trade names purchased in the Company’s previous acquisitions. These assets, which include assets from the
acquisition of the assets of VuComp, DermEbx and Radion and the acquisition of Xoft, Inc., are amortized
on a straight-line basis consistent with the pattern of economic benefit over their estimated useful lives of 5
to 15 years. A summary of intangible assets for 2016 and 2015 are as follows (in thousands):
ross Carry ing A mount
sesnecil dna stnetaP
ygolonhceT
spihsnoitaler remotsuC
emanedarT
Total amortiz ab le intangib le assets
A ccumulated A mortiz ation
P atents and licenses
Technology
Customer relationships
emanedarT
Total accumulated amortiz ation
2016
2015
$
385
765,9
292
952
10,701
$
579
14,075
268
248
15,170
eighted
av erage
usef ul lif e
5 y ears
10 y ears
7 y ears
10 y ears
$ 477 $ 451
6,754 9,996
28 201
842 952
10,896
7,518
Total amortiz ab le intangib le assets, net
$
3,183
$
4,274
Amortization expense related to intangible assets was approximately $983,000, $1,768,000 and $2,270,000
for the years ended December 31, 2016, 2015, and 2014, respectively. Estimated remaining amortization of
the Company’s intangible assets is as follows (in thousands):
m ated
Esti
am orti
z ati on
expense
$
475
115
994
073
113
918
3,183
$
F or th e y ears end ed
b er 3
D ecem
7102
8102
9102
0202
1202
Thereaf ter
F-10
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1
:
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
) G ood
i ll
In accordance with FASB Accounting Standards Codification (“ASC”) Topic 350-20, “Intangibles - Goodwill
and Other”, (“ASC 350-20”), the Company tests goodwill for impairment on an annual basis and between
annual tests if eve nts and circumstances indicate it is more like ly than not that the f air va lue of the reporting
unit is less than the carryi ng va lue of the reporting unit.
Factors the Company considers important, which could trigger an impairment of such asset, include the
f ollowing:
•
•
•
•
•
significant underperformance relative to historical or projected future operating results;
significant changes in the manner or use of the assets or the strategy for the Company’s overall business;
significant negative industry or economic trends;
significant decline in the Company’s stock price for a sustained period; and
a decline in the Company
’ s marke t capitaliz ation be low net book va
lue.
The Company would record an impairment charge if such an assessment were to indicate that the f air va lue
of a reporting unit was less than the carrying value. In evaluating potential impairments outside of the annual
measurement date, judgment is required in determining whether an event has occurred that may impair the
value of goodwill or intangible assets. The Company utilizes either discounted cash flow models or other
va luation models, such as comparative transactions and marke t multiples, to determine the f air va lue of
reporting units. The Company makes assumptions about future cash flows, future operating plans, discount
rates, comparabl e companies, marke t multiples, purchase price premiums and other f actors in those models.
Different assumptions and judgment determinations could yield different conclusions that would result in an
impairment charge to income in the period that such change or determination was made.
A s a result of external f actors and general uncertainty related to reimbur sement f or non-melanoma ski n cancer
perf ormed an impairment
and in conj unction with the long-liv ed asset impairment testing, the Company
assessment of the Therapy reporting unit as of June 30, 2015. As a result the Company recorded a goodwill
impairment charge of $14.0 million during the quarter ended June 30, 2015.
The implied f air va lue of the Therapy reporting unit was determined in the same manner as the manner
in which the amount of goodwill recogniz ed in a bus iness combi nation is determined. The excess of the
f air va lue of the reporting unit ove r the amounts assigned to its assets and liabi lities is the implied amount
of goodwill. The Company identified the intangible assets that were valued during this process, including
technology , customer relationships and trade-names. The allocation process was perf ormed only f or purposes
of testing goodwill f or impairment.
The Company determined the f air va lue of the Therapy reporting unit ba sed on the present va lue of estimated
future cash flows, discounted at an appropriate risk adjusted rate. This approach was selected as it measures
the income producing assets, primarily technology and customer relationships. This method estimates the f air
value based upon the ability to generate future cash flows, which is particularly applicable when future profit
margins and growth are expected to vary significantly from historical operating results.
The Company uses internal forecasts to estimate future cash flows and includes an estimate of long-term future
growth rates ba sed on the most recent vi ews of the long-term f orecast f or the reporting unit. A ccordingly ,
actual results can differ from those assumed in the forecasts. The discount rate of approximately 17% is
derive d f rom a capital asset pricing model and analy
ing publ ished rates f or industries releva nt to the reporting
unit to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the
risks and uncertainty i nherent in the respective bus inesses and in the internally de ve loped f orecasts.
Other significant assumptions include terminal value margin rates, future capital expenditures, and changes
in future working capital requirements. While there are inherent uncertainties related to the assumptions
used and to the application of these assumptions to this analys is, the income approach provi des a reasonabl e
estimate of the f air va lue of the Therapy r eporting unit.
F-11
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iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
) G ood
i ll (continued)
The Step 2 test resulted in an approximate fair value of goodwill of $5.7 million which resulted in a goodwill
impairment loss of $14.0 million for the quarter ended June 30, 2015.
The Company performed an annual impairment assessment at October 1, 2016 and compared the fair value of
each reporting unit to its carrying value as of this date. Fair value was approximately 816% of carrying value
for the Detection reporting unit and 126% of carrying value for the Therapy reporting unit. The carrying
va lues of the reporting units were determined ba sed on an allocation of our assets and liabi lities through
specific allocation of certain assets and liabilities to the reporting units and an apportionment of the remaining
net assets ba sed on the relative siz e of the reporting units’ reve nues and operating expenses compared to the
Company as a whole. The determination of reporting units also requires management judgment.
The Company determined the f air va lues f or each reporting unit using a weighting of the income approach
and the marke t approach. For purposes of the income approach, f air va lue is determined ba sed on the present
value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The Company used
internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates
ba sed on the most recent vi ews of the long-term f orecast f or each segment. A ccordingly , actual results can
differ from those assumed in the forecasts. The discount rate of approximately 15% is derived from a capital
asset pricing model and analy
ing publ ished rates f or industries releva nt to the reporting units to estimate
the cost of equity financing. The Company uses discount rates that are commensurate with the risks and
uncertainty i nherent in the respective bus inesses and in the internally de ve loped f orecasts.
traded companies with similar operating characteristics and industries. A
In the market approach, the Company uses a valuation technique in which values are derived based on
marke t prices of publ icly
marke t
approach allows for comparison to actual market transactions and multiples. It can be somewhat limited in its
application be cause the population of potential comparabl e publ icly- traded companies can be limited due to
f ering characteristics of the comparative bus iness and ours, as well as marke t data may not be ava ilabl e f or
dif
divisions within larger conglomerates or non-public subsidiaries that could otherwise qualify as comparable,
and the specific circumstances surrounding a market transaction (e.g., synergies between the parties, terms
and conditions of the transaction, etc.) may be different or irrelevant with respect to the business.
The Company corrobor ated the total f air va lues of the reporting units using a marke t capitaliz ation approach;
howeve r, this approach cannot be used to determine the f air va lue of each reporting unit va lue. The bl end of
the income approach and market approach is more closely aligned to the business profile of the Company,
including markets served and products available. In addition, required rates of return, along with uncertainties
inherent in the forecast of future cash flows, are reflected in the selection of the discount rate. In addition,
under the bl ended approach, reasonabl y
like ly scenarios and associated sensitivi ties can be deve loped f or
alternative future states that may not be reflected in an observable market price. The Company will assess
each va luation methodology ba sed upon the releva nce and ava ilabi lity of the data at the time the va luation is
perf ormed and weight the methodologies appropriately
In April 2015, the Company acquired VuComp’s M-Vu® Breast Density product for $1.7 million. The product
has been integrated into the Company’s Powerlook AMP system, which is a component of the Detection
reporting unit. The Company determined that the acquisition was a business combination and accordingly
recorded goodwill of $0.8 million.
In January 2016, the Company completed the acquisition of VuComp’s M-Vu CAD and other assets for
$6,000. The customers, related technology and clinical data acquired are being used for the Company’s
Cancer Detection products and the Company recorded goodwill of $293,000 to the Detection segment.
In December, 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation. The
Company will sell and convey to Buyer all right, title and interest to certain intellectual property relating
to the VersaVue Software and the DynaCAD product and related assets. As a result of the agreement, the
Company determined that it had assets held for sale as of December 31, 2016 and the sale constituted the
sale of a business. As of December 31, 2016, the Company allocated $394,000 of goodwill to assets held for
F-12
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.
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iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
) G ood
i ll (continued)
sale. The allocation was based on the fair value of the assets sold relative to the fair value of the Detection
reporting unit as of the date of the agreement.
A rollforward of goodwill activity by reportable segment is as follows (in thousands):
A ccumulated G oodwill
A ccumulated impairment
D etection
$ -
-
Therapy
$ -
-
Total
$ 47,937
( 26,828)
Fair v alue allocation
7,663
13,446
-
A cq uisition of D ermEb x and Radion
Balance at D ecemb er 31, 2014
-
7,663
6,154
19,600
6,154
27,263
A cq uisition measurement period adj ustments
A cq uisition of V uComp
tnemriapmI
Balance at D ecemb er 31, 2015
A cq uisition of V uComp
Sale of M RI assets
Balance at D ecemb er 31, 2016
800
-
8,463
116
-
)189,31(
5,735
116
800
)189,31(
14,198
293
( 394)
$ 8,362
-
-
$ 5,735
293
( 394)
$ 14,097
A ccumulated G oodwill
Fair v alue allocation
A ccumulated impairment
Balance at D ecemb er 31, 2016
699
7,663
-
$ 8,362
6,270
13,446
( 13,981)
$ 5,735
54,906
-
( 40,809)
$ 14,097
) R eve nu e R ecogn i ti on
The Company recogniz es reve nue primarily
f rom the sale of products, servi ces and supplies. Reve nue is
recognized when delivery has occurred, persuasive evidence of an arrangement exists, fees are fixed or
determinabl e and collectabi lity of the related receiva bl e is proba bl e. For product reve nue, delive ry has
occurred upon shipment provi ded title and risk of loss have passed to the customer. Servi ces and supplies
reve nue are considered to be delive red as the servi ces are perf ormed or ove r the estimated lif e of the supply
agreement.
The Company recognizes revenue from the sale of its digital, film-based CAD and cancer therapy products
and services in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-
13”) and ASC Update No. 2009-14, “Certain Arrangements That Contain Software Elements” (“ASU 2009-
14”) and ASC 985-605, “Software” (“ASC 985-605”). Revenue from the sale of certain CAD products is
recognized in accordance with ASC 840 “Leases” (“ASC 840”). For multiple element arrangements, revenue
is allocated to all deliverables based on their relative selling prices. In such circumstances, a hierarchy is used
to determine the selling price to be used for allocating revenue to deliverables as follows: (i) vendor-specific
objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best
estimate of the selling price (“BESP”). VSOE generally exists only when the deliverable is sold separately
and is the price actually charged for that deliverable. The process for determining BESP for deliverables
without VSOE or TPE considers multiple factors including relative selling prices; competitive prices in the
F-13
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iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
) R eve nu e R ecogn i ti on (continued)
marketplace, and management judgment, however, these may vary depending upon the unique facts and
circumstances related to each delive rabl e.
The Company uses customer purchase orders that are sub
’ s terms and conditions or,
in the case of an Original Equipment Manufacturer (“OEM”) are governed by distribution agreements. In
accordance with the Company’s distribution agreements, the OEM does not have a right of return, and title
and risk of loss passes to the OEM upon shipment. The Company generally ships Free On Board shipping
point and uses shipping documents and third-party proof of delivery to verify delivery and transfer of title. In
addition, the Company assesses whether collection is proba bl e b
considering a numbe r of f actors, including
y
past transaction history with the customer and the creditworthiness of the customer, as obt ained f rom third
party c redit ref erences.
j ect to the Company
If the terms of the sale include customer acceptance provisions and compliance with those provisions cannot
b e demonstrated, all rev enue is def erred and not recogniz ed until such acceptance occurs. The Company
considers all relev ant f acts and circumstances in determining when to recogniz e rev enue, including contractual
ob ligations to the customer, the customer’ s post-deliv ery acceptance prov isions, if any , and the installation
process.
The Company has determined that iCAD’s digital and film based sales generally follow the guidance of FASB
ASC Topic 605 “Revenue Recognition” (“ASC 605”) as the software has been considered essential to the
functionality of the product per the guidance of ASU 2009-14. Typically, the responsibility for the installation
process lies with the OEM partner. On occasion, when iCAD is responsible for product installation, the
installation element is considered a separate unit of accounting be cause the delive red product has stand-alone
value to the customer. In these instances, the Company allocates the revenue to the deliverables based on the
framework established within ASU 2009-13. Therefore, the installation and training revenue is recognized
as the services are performed according to the BESP of the element. Revenue from the digital and film based
equipment when there is installation, is recognized based on the relative selling price allocation of the BESP,
when delive red.
Revenue from certain CAD products is recognized in accordance with ASC 985-605. Sales of this product
include training, and the Company has established VSOE for this element. Product revenue is determined
ba sed on the residual va lue in the arrangement and is recogniz ed when delive red. Reve nue f or training is
def erred and recogniz ed when the training has be en completed.
The Company recogniz es post contract customer support reve nue together with the initial licensing f ee f or
certain MRI products in accordance with 985-605-25-71.
Sales of the Company
’ s Therapy segment products typi cally include a controller, accessories, source
agreements and servi ces. The Company allocates reve nue to the delive rabl es in the arrangement ba sed on
the BESP in accordance with ASU 2009-13. Product revenue is generally recognized when the product
has b een delive red and servi ce and/ or supplies reve nue is typi cally recogniz ed ove r the lif e of the servi ce
and/ or supplies agreement. The Company
includes in servi ce and supplies reve nue the f ollowing: the sale
of physics and management services, the lease of electronic brachytherapy equipment, development fees,
’ s A xxentH ub sof tware. P hys ics and management servi ces reve nue
supplies and the right to use the Company
and deve lopment f ees are considered to be delive red as the servi ces are perf ormed or ove r the estimated
lif e of the agreement. The Company typi cally
bi lls items monthly ove r the lif e of the agreement except f or
development fees, which are generally billed in advance or over a 12 month period and the fee for treatment
supplies which is generally bi
lled in adva nce.
The Company def ers reve nue f rom the sale of certain servi ce contracts and recogniz es the related reve nue on
a straight-line basis in accordance with ASC Topic 605-20, “Services”
. The Company provi des f or estimated
warranty c osts on original product warranties at the time of sale.
F-14
(
j
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
) C ost of R eve nu e
Cost of reve nue consists of the costs of products purchased f or resale, cost relating to servi ce including costs
of service contracts to maintain equipment after the warranty period, inbound freight and duty, manufacturing,
warehousing, material move ment, inspection, scrap, rework, depreciation and in-house product warranty
repairs, amortization of acquired technology and medical device tax. Included in cost of revenue for the
twelve months ended December 31, 2016 is a credit of $491,000 related to a refund of the Medical Device
Excise Tax (“MDET”). The MDET refund of $491,000 for the year ended December 31, 2016 related to
refunds of the MDET for the periods from April 2013 to December 2015. The MDET refund was not material
to any pr ior period or the current period; accordingly , prior periods have not be en restated.
( l) W arranty C osts
The Company provi des f or the estimated cost of standard product warranty against def ects in material and
workm anship ba sed on historical warranty trends, including the cost of product returns during the warranty
period. Warranty provisions and claims for the years ended December 31, 2016, 2015 and 2014, were as
follows (in thousands):
Beginning accrual b alance
arranty prov ision
Usage
Ending accrual b alance
$
$
$
2016
19
47
( 55)
11
2015
14
54
( 49)
19
2014
25
58
( 69)
14
$
$
$
The warranty accrual above includes long-term warranty obligations of $0, $2,000 and $5,000 for the years
ended December 31, 2016, 2015 and 2014 respectively.
) Eng
i neeri ng an d
Prod
u ct D eve lopm ent C osts
Engineering and product development costs relate to research and development efforts including Company
sponsored clinical trials which are expensed as incurred.
( n) A
ve rti si ng
C osts
The Company expenses advertising costs as incurred. Advertising expense for the years ended December 31,
2016, 2015 and 2014 was approximately $955,000, $950,000 and $882,000 respectively.
( o) N et L oss per C om
m on S
h are
The Company follows FASB ASC 260-10, “Earnings per Share”, which requires the presentation of both
ba sic and diluted earnings per share on the f ace of the statements of operations. The Company
’ s ba sic net
loss per share is computed b
the weighted ave rage numbe r of shares of common stock
y
outstanding f or the period and, if there are dilutive securities, diluted income per share is computed b
including common stock equivalents which includes shares issuable upon the exercise of stock options, net
of shares assumed to have be en purchased with the proceeds, using the treasury s tock m ethod.
divi ding net loss b
y
y
F-15
(
k
(
m
d
W
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
( o) N et L oss per C om
m on S
h are (continued)
summary of the Company
’ s calculation of net loss per share is as f ollows ( in thousands, except per share
amounts):
N et loss av ailab le to common shareholders
$
( 10,099)
$
( 32,447)
$
( 1,009)
N et loss av ailab le to common shareholders
Basic shares used in the calculation of earnings per share
$
( 10,099)
15,932
$
( 32,447)
15,686
$
( 1,009)
14,096
Basic shares used in the calculation of earnings per share
Ef
Ef
f ect of dilutiv e securities:
options
Stock
f ect of dilutiv e securities:
Restricted stock
Stock options
Restricted stock
iluted shares used in the calculation of earnings per share
iluted shares used in the calculation of earnings per share
N et loss per share :
N et loss per share :
Basic
iluted
Basic
iluted
15,932
-
-
-
-
15,932
15,932
15,686
-
-
-
-
15,686
15,686
14,096
-
-
-
-
14,096
14,096
$
$
$
$
( 0. 63)
( 0. 63)
( 0. 63)
( 0. 63)
$
$
$
$
( 2. 07)
( 2. 07)
( 2. 07)
( 2. 07)
$
$
$
$
( 0. 07)
( 0. 07)
( 0. 07)
( 0. 07)
The f ollowing tabl e summariz es the numbe r of shares of common stock f or securities, warrants and restricted
stock that were not included in the calculation of diluted net loss per share be cause such shares are antidilutive :
Common stock options
Restricted Stock
Common stock options
Restricted Stock
1,425,348
511,398
1,425,348
511,398
1,571,998
516,396
1,571,998
516,396
1,417,887
309,317
1,417,887
309,317
j ect
Restricted common stock can be issued to directors, executive s or employe es of the Company and are sub
to time-ba sed ve sting. These potential shares were excluded f rom the computation of ba sic loss per share as
these shares are not considered outstanding until ve sted.
( p) I ncom e T axes
The Company follows the liability method under ASC Topic 740, “Income Taxes”, (“ASC 740”). The
primary objectives of accounting for taxes under ASC 740 are to (a) recognize the amount of tax payable for
the current year and (b) recognize the amount of deferred tax liability or asset for the future tax consequences
of events that have been reflected in the Company’s financial statements or tax returns. The Company has
provided a full valuation allowance against its deferred tax assets at December 31, 2016 and 2015, as it is
more likely than not that the deferred tax asset will not be realized. Any subsequent changes in the valuation
allowance will be recorded through operations in the provision (benefit) for income taxes.
ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial
statements and prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 also
provides guidance on de-recognition, classification, interest and penalties, disclosure and transition.
) S tock
B ased
C om pensati on
The Company maintains stock- ba sed incentive plans, under which it provi des stock incentive s to employe es,
directors and contractors. The Company may grant to employe es, directors and contractors, options to
purchase common stock at an exercise price equal to the market value of the stock at the date of grant. The
F-16
A
(
q
-
2
0
1
6
2
0
1
5
2
0
1
4
D
D
2
0
1
6
2
0
1
5
2
0
1
4
1
,
9
3
6
,
7
4
6
2
,
0
8
8
,
3
9
4
1
,
7
2
7
,
2
0
4
2
0
1
6
2
0
1
5
2
0
1
4
D
D
2
0
1
6
2
0
1
5
2
0
1
4
1
,
9
3
6
,
7
4
6
2
,
0
8
8
,
3
9
4
1
,
7
2
7
,
2
0
4
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
) S tock
B ased
C om pensati on (continued)
Company may grant restricted stock to employe es and directors. The underlyi ng shares of the restricted stock
grant are not issued until the shares ve st, and compensation expense is ba sed on the stock price of the shares
at the time of grant. The Company follows FASB ASC Topic 718, “Compensation – Stock Compensation”
(“ASC 718”), for all stock-based compensation. Under this application, the Company is required to record
compensation expense ove r the ve sting period f or all awards granted.
The Company uses the Black-Scholes option pricing model to value stock options which requires extensive
use of accounting judgment and financial estimates, including estimates of the expected term participants will
retain their ve sted stock options be f ore exercising them, the estimated vol atility
of its common stock price
ove r the expected term, the risk
f ree rate, expected divi dend yi eld, and the numbe r of options that will be
forfeited prior to the completion of their vesting requirements.
The f air v alue of restricted stock is determined b ased on the stock price of the underly ing option on the date
of the grant. The Company granted performance based restricted stock during 2016 based on achievement of
certain revenue targets. Compensation cost for performance based restricted stock requires significant judgment
regarding prob ab ility of the perf ormance ob
j ectiv es and compensation cost is re-measured at ev ery reporting
period. As a result compensation cost could vary significantly during the performance measurement period.
Application of alternative assumptions could produce significantly different estimates of the fair value of
stock-based compensation and consequently, the related amounts recognized in the Consolidated Statements
of Operations.
( r) F ai r V alu e M
easu rem ents
The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurement and Disclosures”
(“ASC 820”). This topic 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 ASC 820 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 asset or liabi lity
transaction
between market participants on the measurement date. Valuation techniques used to measure fair value under
ASC 820 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
obs erva bl e and the last unobs erva bl e, that may be
used to measure f air va lue which are the f ollowing:
in an orderly
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 obs erva bl e or can be corrobor ated b
of the assets or liabi lities.
erva bl e marke t data f or subs tantially t he f ull term
y obs
Level 3 - Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is
significant to the fair value measurement.
The Company
marke t accounts.
’ s assets that are measured at f air va lue on a recurring ba sis relate to the Company
’ s money
The money market funds are included in cash and cash equivalents in the accompanying balance sheet, and
are considered a level 1 investment as they are valued at quoted market prices in active markets.
F-17
(
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iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
( r) F ai r V alu e M
easu rem ents (continued)
The f ollowing tabl e sets f orth Company
within the f air va lue hierarchy
’ s assets which are measured at f air va lue on a recurring ba sis b
y leve l
F ai r v alu e m easu rem ents u si ng
: (
L ev el 1
' s) as of D ecem
L ev el 2
b er 3
, 2
L ev el 3
T otal
A ssets
M oney
mark et accounts
$ 6,622
$ - $ - $ 6,622
Total A ssets
$ 6,622
$ - $ - $ 6,622
F ai r v alu e m easu rem ents u si ng
: (
L ev el 1
' s) as of D ecem
L ev el 2
b er 3
, 2
L ev el 3
T otal
A ssets
M oney
mark et accounts
$ 13,577
$ - $ - $ 13,577
Total A ssets
$ 13,577
$ - $ - $ 13,577
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets, including long-liv ed assets and goodwill, are measured at f air va lue on a nonrecurring ba sis.
These assets are recognized at fair value when they are deemed to be impaired. In 2015 the Company recorded
a $27.4 million impairment consisting of $14.0 million related to goodwill and $13.4 million related to long-
lived assets as discussed in Note (h) and Note (i) and re-measured long-lived assets and goodwill of the
Therapy reporting unit at f air va lue as of the impairment date as noted in the f ollowing tabl e. The f air va lues
of long-lived assets and goodwill were measured using Level 3 inputs.
( s) R ecently I
ssu ed
A ccou nti ng S
tand ard s
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606),
or ASU 2014-09, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP.
Since then, the FASB has also issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606),
Principals versus Agent Considerations and ASU 2016-10, Revenue from Contracts with Customers (Topic
606), Identifying Performance Obligations and Licensing, which further elaborate on the original ASU No.
2014-09. The core principle of these updates is to recognize revenue when promised goods or services are
transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled
for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in
doing so, more judgments and estimates may be required within the revenue recognition process than are
required under existing U.S. GAAP. In July 2015, the FASB approved a one-year deferral of the effective date
to January 1, 2018, with early adoption to be permitted as of the original effective date of January 1, 2017.
Once this standard becomes effective, companies may use either of the following transition methods: (i) a
full retrospective approach reflecting the application of the standard in each reporting period with the option
to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially
adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).
We have performed an initial assessment of ASU 2014-09, and expect that our revenue recognition will not
be materially impacted by this new guidance. We are currently calculating the impact of all expected changes
from this guidance, and expect to have these calculations complete during the second half of fiscal 2017. After
completing these calculations, we will then determine the transition method to b e applied upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, “Leases”. The standard establishes a right-of-use
(“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for
all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with
F-18
.
0
0
0
1
0
1
5
0
0
0
1
0
1
6
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(1)
Summary of Significant Accounting Policies (continued)
( s) R ecently I
ssu ed
A ccou nti ng S
tand ard s (continued)
classification affecting the pattern of expense recognition in the income statement. The new standard is
effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. A modified retrospective transition approach is required for lessees for capital and operating leases
existing at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements, with certain practical expedients available. We are currently evaluating the impact of our pending
adoption of the new standard on our consolidated financial statements, however the adoption of the standard
is expected to increase bot h assets and liabi lities f or leases that would previ ously have be en of
f -ba lance sheet
operating leases.
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment
Accounting.” This update was issued as part of a simplification effort for the accounting of share-based
payment transactions, including the income tax consequences, classification of awards as either equity or
liabi lities, increases the amount of employe e’ s shares repurchased f or tax withholding purposes without
triggering liabi lity accounting, an accounting policy election to account f or f orf eitures as they occur, and
clarifies that all cash payments made on an employee’s behalf for withheld shares should be presented as a
financing activity on the statement of cash flows. The amendment is effective for annual periods beginning
after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The Company expects
the adoption of ASU 2016-09 to impact net operating losses, however the Company currently has a full
va luation allowance against the net operating losses.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230)”, a consensus of
the FASB’s Emerging Issues Task Force. This update is intended to reduce diversity in practice in how
certain transactions are classified in the statement of cash flows. The update requires cash payments for debt
prepayment or debt extinguishment costs to be classified as cash outflows for financing activities. It also
requires cash payments made soon after an acquisition’s consummation date (approximately three months or
less) to be classified as cash outflows for investing activities. Payments made thereafter should be classified
as cash outflows for financing activities up to the amount of the original contingent consideration liability.
Payments made in excess of the amount of the original contingent consideration liability should be classified
as cash outflows for operating activities. The amendment is effective for annual periods beginning after
December 15, 2017, and interim periods thereafter. Early adoption is permitted. The Company does not
expect the adoption of this amendment will have a material impact on our consolidated financial statements.
(2)
Acquisitions
Acquisition of VuComp Cancer detection portfolio
On January 13, 2016, the Company completed the acquisition of the VuCOMP cancer detection portfolio,
including the M-Vu computer aided detection (CAD) technology platform. The acquisition includes an
extensive library of related clinical data, VuCOMP’s key personnel and the customer base that existed at
closing of the transaction. The acquisition of the key personnel and clinical data is expected to contribute to
the ongoing development of the Company’s CAD technology which will be used for future cancer detection
research and patents. A s the Company considered this to be a bus iness combi nation, the assets were va lued
in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”).
As noted below, the Company acquired VuComp’s M-Vu Breast Density product in April 2015. In connection
with the diligence of the January 2016 acquisition, VuComp disclosed that it had previously entered into a
license agreement pursuant to which it issued an irrevoc abl e, roya lty- f ree worldwide license to a third party
.
On December 24, 2015, iCAD notified VuComp of a claim under the April 2015 asset purchase agreement
based on the disclosure of the third party license agreement, which iCAD believed constituted a breach of
VuComp’s representation as to its exclusive ownership of its intellectual property at the time of the April
2015 transaction. In connection with the purchase of the VuComp cancer detection portfolio, the Company
provi ded a release of the af orementioned claim. The Company determined that this claim was a component
of the purchase price. The Company determined the va lue of litigation settlement as the excess of the f air
value of the business acquired over the cash consideration paid. As a result the Company recorded a gain on
F-19
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(2)
Acquisitions (continued)
litigation settlement of $249,000 in the first quarter of 2016, which is a component of the purchase price as
noted be low:
A mount ( 000' s)
hsaC
A cq uisition litigation settlement
P urchase price
6 $
249
$ 255
The amount allocated to the acquired assets was estimated primarily through the use of discounted cash flow
valuation techniques. Appraisal assumptions utilized under this method include a forecast of estimated future
net cash flows, as well as discounting the future net cash flows to their present value. The following is a
summary of the allocation of the total purchase price ba sed on the estimated f air va lues as of the date of the
acquisition and the amortizable life:
A mount ( 000' s)
Estimated
amortiz ab le lif e
Current assets
tnempiuqe dna ytreporP
stessa elbignatni elbaifitnedI
lliwdooG
seitilibail tnerruC
seitilibail mret-gnoL
P urchase price
$ 84
56
996
392
)082(
)606(
$ 255
3 Y ears
1-10 Y ears
The assets obtained in the acquisition of VuComp’s M-Vu Cancer detection portfolio (including the
M-Vu breast density product) and the anticipated future revenues are included in the Detection segment
and, accordingly , the goodwill resulting f rom the purchase price allocation is included in goodwill of the
Detection segment. The Company has tax basis in the goodwill that resulted from the VuComp acquisition
of $293,000 which is amortized over a 15 year period. Included in revenue of the Detection segment for the
year ended December 31, 2016 is approximately $0.2 million as a result of this acquisition. Pro forma results
of operations have not be en presented be cause the ef
f ect of the bus iness combi nation was not material to our
consolidated financial results.
Acquisition of VuComp M-Vu Breast Density Assets:
On April 29, 2015, pursuant to the terms of the Asset Purchase Agreement with VuComp, the Company
purchased VuComp’s M-Vu Breast Density asset for $1,700,000 in cash. The Company considered the
acquisition to be an acquisition of a business as the Company acquired the Breast Density product and certain
customer liabilities which were considered to be an integrated set of activities at acquisition. Under the terms
of the agreement, the Company acquired the breast density intellectual property product, which has been
integrated with the Company’s PowerLook Advanced Mammography Platform (AMP). PowerLook AMP is
a modular solution designed to provi de adva nced tools f or br east disease detection and analys is, including
CAD for tomosynthesis. As the Company considered this to be a business combination, the assets were
valued in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”).
The amount allocated to the acquired assets was estimated primarily through the use of discounted cash flow
valuation techniques. Appraisal assumptions utilized under this method include a forecast of estimated future
net cash flows, as well as discounting the future net cash flows to their present value. The acquired technology
F-20
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(2)
Acquisitions (continued)
is be ing amortiz ed ove r the estimated usef ul lif e of approximately eight ye ars and nine months f rom the
closing of the transaction. The f ollowing is a summary of the allocation of the total purchase price ba sed on
the estimated fair values as of the date of the acquisition and the amortizable life (in thousands):
D ev eloped Technology
lliwdooG
ecirp esahcruP
Estimated A mortiz ab le
if e
8 y ears 9 months
A mount
$ 900
008
$
007,1
The assets obtained in the acquisition of VuComp’s M-Vu Breast Density product and the anticipated future
revenues are included in the Detection segment and, accordingly, the goodwill resulting from the purchase
price allocation is included in goodwill of the Detection segment. The goodwill is deductible for income tax
purposes.
A ssets and
L
i ab
i li ti es H eld
for S ale
In December, 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation. In
accordance with the agreement, the Company sold to Invivo all right, title and interest to certain intellectual
property relating to the Company’s VersaVue Software and DynaCAD product and related assets for $3.2
million. The Company closed the transaction in January 2017 less a holdback reserve of $350,000 for a net
of approximately $2.9 million.
In accordance with ASC 360-10-35-43, the Company determined that it had assets held for sale as of
December 31, 2016. The Company performed an evaluation to determine if the sale constituted discontinued
operations and concluded that the sale did not represent a maj or strategic shif t, and accordingly
it is not
presented as discontinued operations.
In addition the Company determined the sale constituted the sale of a business in accordance with ASC 805.
In connection with the transaction, the Company allocated $394,000 of goodwill to assets held for sale. The
allocation was based on the fair value of the assets sold relative to the fair value of the Detection reporting
unit as of the date of the agreement, based on the guidance from ASC 350-20-40-3.
Assets and liabilities held for sale at December 31, 2016 are as follows (in thousands):
A ssets H eld f or Sale
A ccounts Receiv ab le
yrotnevnI
I ntangib le assets
llocated G oodwill
latoT
iab ilities H eld f or Sale
D ef erred Rev enue
latoT
$
98
2
810
394
403,1
$
$
832
238
The Company expects to record an approximate gain of $2.5 million as of the closing date.
F-21
(
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L
A
L
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
i nanci ng A rrange m ents
In December, 2011, the Company entered into several agreements with entities affiliated with Deerfield
Management, a healthcare investment fund (“Deerfield”), pursuant to which Deerfield agreed to provide $15
million in funding to the Company. The agreements consisted of a Facility Agreement (the “Facility Agreement”),
a Revenue Purchase Agreement (the “Revenue Purchase Agreement”) and the issuance of warrants to purchase
up to 550,000 shares of the Company’s common stock at an exercise price of $3.50 (the “Warrants”).
On April 30, 2014, the Company agreed to pay Deerfield $4.1 million to terminate the Revenue Purchase
A greement, which eliminated the abi lity to extend the last debt paym ent f or an additional ye ar and eliminated
the payment obligation for 2017 under the Revenue Purchase Agreement. The Company recorded a loss
of $0.9 million in connection with termination of the Revenue Purchase Agreement. In addition, Deerfield
exercised their Warrants, for an aggregate purchase price of $1,575,000, and the Company issued 450,000
shares of common stock to Deerfield, pursuant to the terms of the Warrants. The Warrants to purchase an
additional 100,000 shares of common stock were cancelled, since these Warrants were exercisable only in the
eve nt the Company e xtended the last debt paym ent f or an additional ye ar.
On March 31, 2015, the Company repaid in full the aggregate amount outstanding under the Deerfield Facility
Agreement. The Facility Agreement was to mature on December 29, 2016 and was able to be repaid prior to
the maturity date at the Company
’ s option without penalty or premium. The Company used cash on hand to
pay the $11.25 million outstanding principal amount due under the Facility Agreement and approximately
$162,000 in accrued and unpaid interest on such principal amount.
The Company recorded a loss on the extinguishment of debt of approximately $1.7 million at the termination
date in the quarter ended March 31, 2015.
The f ollowing amounts are included in interest expense in our consolidated statement of operations f or the
years ended December 31, 2016 and 2015 (in thousands):
Cash interest expense
N on-cash amortiz ation of deb t discount
A mortiz ation of deb t costs
A mortiz ation of settlement ob ligations
I nterest expense capital lease
Capital lease - f air v alue amortiz ation
Total interest expense
D ecemb er 31, 2016
$
-
-
-
82
70
( 89)
63
$
D ecemb er 31, 2015
163
$
254
13
146
220
( 146)
650
$
Cash interest expense represents the amount of interest paid in cash under the agreements, which represents
the interest of 5.75% on the Facility Agreement that was terminated in March 2015. Non-cash amortization is
the amortiz ation of the discount on the Facility A greement. The amortiz ation of debt costs represents the costs
incurred with the financing, which is primarily the facility fee and the finder’s fee which had been capitalized
and was expensed using the effective interest method. The facility fee and finders fee were written off with
the termination of the Facility
A greement and were included in the loss on extinguishment of debt . The
amortiz ation of the settlement ob ligations represent the interest associated with the settlement agreements f or
both Zeiss and Hologic, Inc.(“Hologic”), see Note 9(f) to our Consolidated Financial Statements.
F-22
(
4
)
F
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
A ccru ed
Expenses
Accrued expenses consist of the following at December 31 (in thousands):
2016
2015
$
$
and related expenses
A ccrued salary
A ccrued accounts pay ab le
A ccrued prof essional f ees
A ccrued short term settlement costs
Other accrued expenses
D ef erred rent
(6)
Stockholders’ Equity
( a) S tock
O pti ons
1,878
2,269
316
474
48
3
4,988
1,765
1,518
425
418
52
42
4,220
$
$
The Company has five stock option or stock incentive plans, which are described as follows:
The 2002 Stock Option Plan (the “2002 Plan”).
’ s common stock
The 2002 Plan was adopted by the Company’s stockholders in June 2002. The 2002 Plan provides for the
granting of non-qualifying and incentive stock options to employees and other persons to purchase up to an
aggregate of 100,000 shares of the Company
. The purchase price of each share f or which
an option is granted is determined by the Board of Directors or the Committee appointed by the Board of
Directors provided that the purchase price of each share for which an incentive option is granted cannot
’ s common stock on the date of grant, except f or options
be less than the f air marke t va lue of the Company
granted to 10% stockholders for whom the exercise price cannot be less than 110% of the market price.
Incentive options granted to date under the 2002 Plan vest 100% over periods extending from six months
to five years from the date of grant and expire no later than ten years after the date of grant, except for 10%
holders whose options expire not later than five years after the date of grant. Non-qualifying options granted
under the 2002 Plan are generally exercisable over a ten year period, vesting 1/3 each on the first, second,
and third anniversaries of the date of grant. At December 31, 2016, there are no further options available for
grant under the 2002 Plan.
The 2004 Stock Incentive Plan (the “2004 Plan”).
’ s common stock
The 2004 Plan was adopted by the Company’s stockholders in June 2004. The 2004 Plan provides for the
grant of any or all of the following types of awards: (a) stock options, (b) restricted stock, (c) deferred
stock and (d) other stock-based awards. The 2004 Plan provides for the granting of non-qualifying and
incentive stock options to employees and other persons to purchase up to an aggregate of 200,000 shares of
the Company
. The purchase price of each share f or which an option is granted is determined
by the Board of Directors or the Committee appointed by the Board of Directors provided that the purchase
price of each share f or which an option is granted cannot be less than the f air marke t va lue of the Company
’ s
common stock on the date of grant, except for incentive options granted to 10% stockholders for whom the
exercise price cannot be less than 110% of the market price. Incentive options granted under the 2004 Plan
generally vest 100% over periods extending from the date of grant to five years from the date of grant and
expire not later than ten years after the date of grant, except for 10% holders whose options expire not later
than five years after the date of grant. Non-qualifying options granted under the 2004 Plan are generally
exercisable over a ten year period, vesting 1/3 each on the first, second, and third anniversaries of the date of
grant. At December 31, 2016, there are no further shares available for grant under the 2004 Plan.
F-23
(
5
)
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(6)
Stockholders’ Equity (continued)
( a) S tock
O pti ons (continued)
The 2005 Stock Incentive Plan (the “2005 Plan”).
’ s common stock
The 2005 Plan was adopted by the Company’s stockholders in June 2005. The 2005 Plan provides for the
grant of any or all of the following types of awards: (a) stock options, (b) restricted stock, (c) deferred
stock and (d) other stock-based awards. The 2005 Plan provides for the granting of non-qualifying and
incentive stock options to employees and other persons to purchase up to an aggregate of 120,000 shares of
the Company
. The purchase price of each share f or which an option is granted is determined
by the Board of Directors or the Committee appointed by the Board of Directors provided that the purchase
price of each share f or which an option is granted cannot be less than the f air marke t va lue of the Company
’ s
common stock on the date of grant, except for incentive options granted to 10% stockholders for whom the
exercise price cannot be less than 110% of the market price. Incentive options granted under the 2005 Plan
generally vest 100% over periods extending from the date of grant to three years from the date of grant and
expire not later than five years after the date of grant, except for 10% stockholders whose options expire not
later than five years after the date of grant. Non-qualifying options granted under the 2005 Plan are generally
exercisable over a ten year period, vesting 1/3 each on the first, second, and third anniversaries of the date of
grant. At December 31, 2016, there are no further options available for grant under the 2005 Plan.
The 2007 Stock Incentive Plan (the “2007 Plan”).
The 2007 Plan was adopted by the Company’s stockholders in July 2007 and amended in June 2009. The
2007 Plan provides for the grant of any or all of the following types of awards: (a) stock options, (b) restricted
stock, (c) deferred stock and (d) other stock-based awards. Awards may be granted singly, in combination, or
in tandem. Subject to anti-dilution adjustments as provided in the 2007 Plan, (i) the 2007 Plan provides for
a total of 1,050,000 shares of the Company
’ s common stock to be ava ilabl e f or distribut ion pursuant to the
2007 Plan, and (ii) the maximum number of shares of the Company’s common stock with respect to which
stock options, restricted stock, def erred stock, or other stock- ba sed awards may be granted to any participant
under the 2007 Plan during any calendar year or part of a year may not exceed 160,000 shares.
The 2007 Plan provides that it will be administered by the Company’s Board of Directors (“Board”) or a
committee of two or more members of the Board appointed by the Board. The administrator will generally
have the authority to administer the 2007 Plan, determine participants who will be granted awards under the
2007 Plan, the size and types of awards, the terms and conditions of awards and the form and content of the
award agreements representing awards. Awards under the 2007 Plan may be granted to employees, directors,
consultants and advi sors of the Company and its subs idiaries. H oweve r, only employe es of the Company and
its subs idiaries will be eligibl e to receive options that are designated as incentive stock opt ions.
With respect to options granted under the 2007 Plan, the exercise price must be at least 100% (110% in the case of
an incentive stock option granted to a 10% stockholder) of the fair market value of the common stock subject to
the award, determined as of the date of grant. Restricted stock awards are shares of common stock that are awarded
subject to the satisfaction of the terms and conditions established by the administrator. In general, awards that do
not require exercise may be made in exchange for such lawful consideration, including services, as determined
by the administrator. At December 31, 2016, there were 57,260 shares available for issuance under the 2007 Plan.
The 2012 Stock Incentive Plan (the “2012 Plan”).
The 2012 Plan was adopted by the Company’s stockholders in May 2012 and amended in May 2014. The
2012 Plan, as amended, provides for the grant of any or all of the following types of awards: (a) stock options,
(b) restricted stock, (c) deferred stock and (d) other stock-based awards. Awards may be granted singly, in
combination, or in tandem. Subject to anti-dilution adjustments as provided in the amended 2012 Plan, (i) the
amended 2012 Plan provides for a total of 1,600,000 shares of the Company’s common stock to be available
for distribution pursuant to the amended 2012 Plan, and (ii) the maximum number of shares of the Company’s
common stock with respect to which stock options, restricted stock, def erred stock, or other stock- ba sed
awards may be granted to any participant under the amended 2012 Plan during any calendar year or part of a
year may not exceed 250,000 shares.
F-24
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(6)
Stockholders’ Equity (continued)
( a) S tock
O pti ons (continued)
The 2012 Plan provides that it will be administered by the Company’s Board of Directors (“Board”) or a
committee of two or more members of the Board appointed by the Board. The administrator will generally
have the authority to administer the 2012 Plan, determine participants who will be granted awards under the
2012 Plan, the size and types of awards, the terms and conditions of awards and the form and content of the
award agreements representing awards. Awards under the 2012 Plan may be granted to employees, directors,
consultants and advi sors of the Company and its subs idiaries. H oweve r, only employe es of the Company and
its subs idiaries will be eligibl e to receive options that are designated as incentive stock opt ions.
With respect to options granted under the 2012 Plan, the exercise price must be at least 100% (110% in the
case of an incentive stock option granted to a 10% stockholder) of the fair market value of the common stock
j ect to the award, determined as of the date of grant. Restricted stock awards are shares of common stock
sub
that are awarded sub
the administrator.
j ect to the satisf action of the terms and conditions establ ished b
In general, awards that do not require exercise may be made in exchange for such lawful consideration,
including services, as determined by the administrator. At December 31, 2016, there were 155,964 shares
available for issuance under the 2012 Plan.
y
The 2016 Stock Incentive Plan (the “2016 Plan”).
The 2016 Plan was adopted by the Company’s stockholders in May 2016. The 2016 Plan provides for the
grant of any or all of the following types of awards: (a) non-qualified stock options and incentive stock
options, (b) stock appreciation rights, (c) restricted stock awards and restricted stock units, (d) unrestricted
stock awards, (e) cash-based awards, (f) performance share awards and (g) dividend equivalent rights.
Subject to anti-dilution adjustments as provided in the 2016 Plan, (i) the 2016 Plan provides for a total of
1,700,000 shares of the Company’s common stock to be available for distribution pursuant to the 2016
Plan, and (ii) the maximum number of shares of the Company’s common stock with respect to which stock
options or stock appreciation rights may be granted to any one individual under the 2016 Plan during any
one calendar year period may not exceed 1,000,000 shares. No more than 1,000,000 shares of common stock
may be issued in the f orm of incentiv e stock options and no more than 50,000 shares of stock may be issued
pursuant to awards to non-employe e directors.
The 2016 Plan provides that it will be administered by the Company’s Compensation Committee. The
Compensation Committee has the authority to administer the 2016 Plan, determine participants, from among
the individuals eligible for awards, who will be granted awards under the 2016 Plan, make any combination
of awards to participants and determine the specific terms and conditions of awards subject to the 2016 Plan.
Awards under the 2016 Plan may be granted to full or part-time officers, employees, non-employee directors
and other key persons (including consultants) of the Company and its subsidiaries.
With respect to stock options granted under the 2016 Plan, the exercise price will be determined by the
Compensation Committee but may not be less than 100% of the fair market value of the common stock
sub
j ect to the award, determined as of the date of grant. Regarding incentive stock options, including that the
aggregate grant date f air marke t va lue of the shares of stock with respect to which incentive stock options
granted under the 2016 Plan and any other plan of the Company or its parent and subsidiary corporations
become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000.
To the extent that any incentive stock option exceeds this limit, it shall constitute a non-qualified stock
option. Restricted stock awards are shares of common stock
j ect to the satisf action of
the terms and conditions established by the Compensation Committee. In general, awards that do not require
exercise may
the
Compensation Committee. At December 31, 2016, there were 1,269,722 shares available for issuance under
the 2016 Plan.
be made in exchange f or such lawf ul consideration, including servi ces, as determined b
that are awarded sub
y
F-25
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(6)
Stockholders’ Equity (continued)
( a) S tock
O pti ons (continued)
summary of
stock opt ion activi ty f or all stock opt ion plans is as f ollows:
N umb er of
Shares
v erage
eighted A
Exercise P rice
eighted A
v erage
Remaining
Contractual Term
Outstanding, J anuary 1, 2014
ranted
Exercised
Forf eited
Outstanding, D ecemb er 31, 2014
ranted
Exercised
Forf eited
Outstanding, D ecemb er 31, 2015
ranted
Exercised
Forf eited
Outstanding, D ecemb er 31, 2016
Exercisab le at D ecemb er 31, 2014
Exercisab le at D ecemb er 31, 2015
Exercisab le at D ecemb er 31, 2016
1,334,955
281,043
( 162,528)
( 35,583)
1,417,887
363,239
( 79,472)
( 129,656)
1,571,998
127,500
( 75,583)
( 198,567)
1,425,348
955,210
1,087,725
1,054,211
$4. 75
$8. 08
$4. 36
$13. 62
$4. 34
$6. 58
$4. 60
$7. 38
$5. 05
$5. 46
$2. 62
$6. 19
$5. 05
$4. 43
$4. 33
$4. 71
6. 1 y ears
5. 2 y ears
Available for future grants at December 31, 2016 from all plans:
1,482,947
The Company
follows (amounts in thousands):
’ s stock- ba sed compensation expense, including options and restricted stock
y
category is as
Y ears End ed
D ecem
b er 3
eunever fo tsoC
Engineering and product dev elopment
selas dna gnitekra
G eneral and administrativ e expense
6 $
329
776
1,295
$
2
41 $
223
956
1,239
$
2
31 $
165
353
787
$
1
As of December 31, 2016, there was $3.8 million of total unrecognized compensation costs related to
unve sted options and restricted stock
That cost is expected to be recogniz ed ove r a weighted ave rage period
of 1.1 ye ars.
F-26
A
b
.
G
G
G
W
W
2
0
1
6
2
0
1
5
2
0
1
4
M
,
3
0
7
,
1
3
5
,
3
1
8
1
,
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(6)
Stockholders’ Equity (continued)
( a) S tock
O pti ons (continued)
Options granted under the stock incentive plans were valued utilizing the Black-Scholes model using the
f ollowing assumptions and had the f ollowing f air va lues:
Y ears End ed
D ecem
b er 3
etar tseretni eerf-ksir egarev
dleiy dnedivid detcepxE
efil detcepxE
ytilitalov detcepxE
eighted av erage exercise price
eulav riaf egareva dethgie
%89.0
enoN
sraey 5.3
%79.0
enoN
sraey 5.3
%58.0
enoN
sraey 5.3
%3.57 ot %5.86
%4.96 ot %2.46%2.57 ot %5.06
$5. 46
66.2$
$6. 58
71.3$
$8. 09
48.3$
The Company’s 2016, 2015 and 2014, average expected volatility and average expected life is based on the
average of the Company’s historical information. 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 has paid no
divi dends on its common stock i n the past and does not anticipate payi ng any di vi dends in the f uture.
Intrinsic values of options (in thousands) and the closing market price used to determine the intrinsic values
are as f ollows:
gnidnatstuO
elbasicrexE
desicrexE
Y ears End ed
D ecem
b er 3
904 $
904
102
019,1 $
016,1
713
343,6 $
426,4
180,1
13/21 ta ecirp kcots
42.3 $
71.5 $
71.9 $
) R estri cted
S tock
The Company’s restricted stock awards typically vest in either one year or three equal annual installments
with the first installment vesting one year from grant date. The Company granted a total of 162,500 shares
of performance based restricted stock during 2016 with performance measured on meeting a revenue target
based on growth for fiscal year 2017 and vesting in three equal installments with the first installment vesting
upon measurement of the goal. In addition, a maximum of 108,333 additional shares are available to be earned
ba sed on exceeding the reve nue goal. A ssumptions used to determine the va lue of perf ormance ba sed grants
of restricted stock include the probability of achievement of the specified revenue targets. Compensation
cost for performance based restricted stock requires significant judgment regarding probability of achieving
the perf ormance ob
j ective s and compensation cost is re-measured at eve ry reporting period. A s a result
compensation cost could vary significantly during the performance measurement period.
A summary of restricted stock activity for all equity incentive plans is as follows:
Beginning outstanding b alance
detnarG
detseV
detiefroF
Ending outstanding b alance
Y ears End ed
D ecem
b er 3
516,396
877,543
)030,982(
)647,16(
309,317
666,253
)857,421(
)928,02(
216,250
005,081
)434,58(
)999,1(
F-27
(
b
2
0
1
6
2
0
1
5
2
0
1
4
A
W
W
1
,
2
0
1
6
2
0
1
5
2
0
1
4
1
,
2
0
1
6
2
0
1
5
2
0
1
4
5
1
1
,
3
9
8
5
1
6
,
3
9
6
3
0
9
,
3
1
7
1
,
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(6)
Stockholders’ Equity (continued)
) R estri cted
S tock
(continued)
Intrinsic values of restricted stock (in thousands) and the closing market price used to determine the intrinsic
va lues are as f ollows:
Y ears End ed
D ecem
b er 3
gnidnatstuO
detseV
756,1 $
639
076,2 $
546
638,2 $
387
13/21 ta ecirp kcots
42.3 $
71.5 $
71.9 $
I ncom e T axes
The components of income tax expense for the years ended December 31, 2016, 2015 and 2014 are as follows
(in thousands):
2016
2015
2014
b enef it)
Current prov ision (
laredeF
etatS
D ef erred prov ision:
Federal
State
-
$
96
69
$
-
$
59
59
$
$
$
6
$
1
$
7
$
$
$
$
( 65)
)41(
( 79)
( 44)
118
74
65
14
79
Total
$
76
$
61
$
153
summary of the dif
f erences be tween the Company
’ s ef
f ectiv e income tax rate and the Federal statutory
income tax rate for the years ended December 31, 2016, 2015 and 2014 is as follows:
yrotutats laredeF
etar
State income taxes, net of f ederal b enef it
N et state impact of def erred rate change
esnepxe noitasnepmoc kcotS
lliwdoog no noitazitroma xaT
tnarraw no ssoL
fid tnenamrep rehtO
Change in v aluation allowance
stiderc xaT
fE
xat emocni evitcef
secneref
2016
2015
%0.43
2. 8%
0. 2%
)%2.3(
)%1.0(
%0.0
)%4.0(
( 37. 3%)
%2.3
)%8.0(
%0.43
2. 5%
( 0. 1%)
)%7.01(
%2.0
%0.0
)%1.0(
( 26. 6%)
%9.0
%1.0
2014
%0.43
5. 5%
13. 0%
)%6.9(
)%0.9(
%6.17
)%1.1(
( 222. 6%)
%8.001
)%4.71(
Deferred tax assets and liabilities are recognized for the expected future tax consequences of net operating
loss carryforwards, tax credit carryforwards and temporary differences between the financial statement
carryi ng amounts and the income tax ba sis of assets and liabi lities. A
va luation allowance is applied against
any net def erred tax asset if , ba sed on the ava ilabl e evi dence, it is more like ly than not that the def erred tax
assets will not be realiz ed.
F-28
(
7
)
A
(
b
2
0
1
6
2
0
1
5
2
0
1
4
1
,
:
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
I ncom e T axes (continued)
Deferred income taxes reflect the impact of “temporary differences” between the amount of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws and regulations. The Company has
f ully reserv ed the net def erred tax assets, as it is more lik ely than not that the def erred tax assets will not b e
utilized. Deferred tax assets (liabilities) are composed of the following at December 31 (in thousands):
2016
2015
I nv entory
yrotnevnI
( Section 263A
sevreser
sevreser elbavieceR
slaurcca rehtO
eunever derrefeD
A ccumulated
depreciation/ amortiz ation
snoitpo kcotS
ygolonhcet depoleveD
stiderc xaT
LON
yrrac
drawrof
N et def erred tax assets
ecnawolla noitaulaV
G oodwill tax amortiz ation
$
$
418
501
56
434
512
477
855,2
495,3
090,3
568,04
51,821
)128,15(
( 7)
( 7)
588
106
159
591
367
417
2,529
3,554
2,765
36,706
47,782
( 47,782)
D ef erred tax liab ility
$
$
-
The increase in net def erred tax assets and corresponding va luation allowance is primarily attribut abl e to
f erences in amortiz ation
additional net operating losses, additional research and deve lopment credits, and dif
periods on the Company’s intangible assets. The Company completed an asset acquisition in January 2016
which resulted in $293,307 of goodwill. For book purposes, the goodwill was classified as an indefinite lived
asset and tested f or impairment each ye ar. For tax, the Company is allowed amortiz ation expense ove r a 15
year life. Due to the indefinite life of the asset for book purposes, the Company could not assume there would
be a deferred tax asset available to offset the liability in future years. This created a tax expense in 2016 equal
to the tax effected amount of tax amortization, or $6,844 in 2016.
As of December 31, 2016, the Company has net operating loss carryforwards totaling approximately
$111.7 million expiring between 2019 and 2036. A portion of the total net operating loss carryforwards
amounting to approximately $35.3 million relate to the acquisition of Xoft, Inc. As of December 31, 2016, the
Company has provi ded a va luation allowance f or its net operating loss carry
f orwards due to the uncertainty
of the Company’s ability to generate sufficient taxable income in future years to obtain the benefit from the
utilization of the net operating loss carryforwards. In the event of a deemed change in control, an annual
limitation imposed on the utiliz ation of the net operating losses may result in the expiration of all or a portion
of the net operating loss carry
f orwards. There were no net operating losses utiliz ed f or the ye ars ended
December 31, 2016 or 2015.
The Company currently has approximately $13.8 million (including approximately $9.5 million that relate
to Xoft, Inc.) in net operating losses that are subject to limitations, of which approximately $2.0 million
(including approximately $473,000 that relates to Xoft, Inc.) can be used annually through 2035. The
Company has available tax credit carryforwards (adjusted to reflect provisions of the Tax Reform Act of
1986) to offset future income tax liabilities totaling approximately $3.1 million. The tax credits related to
X of t have be en f ully reserve d f or and as a result no def erred tax asset has be en recorded. The credits expire
in various years through 2036.
ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position tak en or expected to b e tak en in a tax return and also prov ides guidance on
de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
F-29
(
7
)
)
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
I ncom e T axes (continued)
As of December 31, 2016 and 2015, the Company had no unrecognized tax benefits and no adjustments to
liabilities or operations were required under ASC 740-10. The Company’s practice is to recognize interest
and penalty expenses related to uncertain tax positions in income tax expense, which was z ero f or the ye ars
ended December 31, 2016, 2015 and 2014. The Company files United States federal and various state income
f ederal
tax returns. G enerally , the Company
and state taxing authorities. The Company completed an examination by the Internal Revenue Service with
respect to the 2008 tax year in January 2011, which resulted in no changes to the tax return originally filed.
The Company i s not under examination b
ny ot her f ederal or state j urisdiction f or any t ax ye ar.
’ s three preceding tax ye ars remain sub
j ect to examination b
y a
y
The Company does not anticipate that it is reasonably possible that unrecognized tax benefits as of December
31, 2016 will significantly change within the next 12 months.
(8)
Segment Reporting, Geographical Information and Major Customers
( a) S eg
ent R eporti ng
In accordance with FASB Topic ASC 280, “Segments”, operating segments are defined as components of an
enterprise that engage in business activities for which discrete financial information is available and regularly
reviewed by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess
perf ormance.
The Company’s CODM is the Chief Executive Officer (“CEO”). Each reportable segment generates revenue
from the sale of medical equipment and related services and/or sale of supplies. The Company has determined
there are two segments: Cancer Detection and Cancer Therapy.
The Detection segment consists of our advanced image analysis and workflow products, and the Therapy
segment consists of our radiation therapy (“Axxent”) products, and related services. The primary factors
used by our CODM to allocate resources are based on revenues, gross profit, operating income or loss, and
earnings or loss before interest, taxes, depreciation, amortization, and other specific and non-recurring items
(“Adjusted EBITDA”) of each segment. Included in segment operating income are stock compensation,
amortiz ation of technology a nd depreciation expense. There are no intersegment reve nues.
We do not track our assets by operating segment and our CODM does not use asset information by segment
to allocate resources or make operating decisions.
F-30
m
(
7
)
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(8)
Segment Reporting, Geographical Information and Major Customers (continued)
( a) S eg
ent R eporti ng
(continued)
Segment revenues, gross profit, segment operating income or loss, and a reconciliation of segment operating
income or loss to G
loss be f ore income tax is as f ollows ( in thousands, including prior periods which
have been presented for consistency):
Y ear Ended D ecemb er 31,
2015
2014
2016
S eg
m ent rev enu es:
noitceteD
yparehT
euneveR latoT
S eg
m ent g ross profi t:
noitceteD
yparehT
tiforp ssorg tnemgeS
S eg
m ent operati ng
i ncom e ( loss)
noitceteD
Therapy
Segment operating income ( loss)
G eneral, administrativ e, depreciation and
amortiz ation expense
I nterest expense
G ain ( loss) on f air v alue of warrant
Other income
L oss on deb t extinguishment
L oss b ef ore income tax
$
$
331,71
502,9
833,62
$
$
311,51
504,3
815,81
$
$
496,5
( 7,752)
( 2,058)
$
$
19,243
113,22
41,554
$
$
16,019
133,31
29,350
$
332,7
( 28,405)
( 21,172)
$
$
$
18,604
023,52
43,924
$
$
15,276
159,51
31,227
$
$
132,7
1,868
9,099
$
$
$
( 7,912)
( 63)
-
10
-
( 10,023)
)709,8(
( 650)
-
21
)327,1(
)134,23(
$
$
$
( 8,284)
( 2,640)
538,1
37
( 903)
( 856)
Segment depreciation and amortization included in segment operating income (loss) is as follows (in
thousands):
D etection depreciation and amortiz ation
noitaicerpeD
A mortiz ation
Therapy depreciation and amortiz ation
D epreciation
A mortiz ation
$
322
696
$
022
532
$
881
515
$
970
252
$
241,1
1,213
$
448
1,739
F-31
A
A
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m
:
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(8)
Segment Reporting, Geographical Information and Major Customers (continued)
) G eogr aph
i c I nform ati on
The Company
’ s sales are made to customers, distribut ors and dealers of mammography , electronic
brachytherapy equipment and other medical equipment, and to foreign distributors of mammography and
electronic brachytherapy equipment. Export sales to a single country did not exceed 10% of total revenue in
any year. Total export sales were approximately $2.3 million or 9% of total revenue in 2016, $2.3 million or
6% of total revenue in 2015 and $1.8 million or 4% of total revenue in 2014.
As of December 31, 2016 and 2015, the Company had outstanding receivables of $0.3 million and $0.5
million, respectively, from distributors and customers of its products who are located outside of the U.S.
( c) M aj or C
u stom ers
The Company had one major customer, GE Healthcare, with revenues of approximately $3.9 million in 2016,
$4.1 million in 2015, and $4.1 million in 2014 or 15%, 10%, and 9% of total revenue, respectively. Cancer
detection products are also sold through OEM partners, including GE Healthcare, Fuji Medical Systems,
Siemens Medical, Vital Images and Invivo. For the year ended December 31, 2016, these five OEM partners
composed approximately 47% of Detection revenues and 30% of revenue overall. OEM partners composed
53% of Detection revenues and 25% of revenue overall for the year ended December 31, 2015 and 53% of
Detection revenues and 22% of revenue overall for the year ended December 31, 2014.
OEM partners represented $1.5 million or 28% of outstanding receivables as of December 31, 2016, with GE
Healthcare accounting for $1.3 million or 23% of this amount. The two largest Cancer Therapy customers
composed $0.6 million or 12% of outstanding receivables as of December 31, 2016. These six customers in
total represented $2.1 million or 40% of outstanding receivables as of December 31, 2016.
C om
i tm ents and
C onti nge nci es
( a) L ease O
li
gat i ons
As of December 31, 2016, the Company had three lease obligations related to its facilities. The Company’s
executive offices are leased pursuant to a five-year lease (the “Lease”) that commenced on December 15,
2006, with renewals in January, 2012 and August 2016 consisting of approximately 11,000 square feet of
office space located at 98 Spit Brook Road, Suite 100 in Nashua, New Hampshire (the “Premises”). The
August 2016 Lease renewal provides for an annual base rent of $184,518 for the period from March 2017 to
February 2020. Additionally, the Company is required to pay its proportionate share of the building and real
estate tax expenses and obt ain insurance f or the P remises.
The Company
leases a f acility in San J ose Calif ornia under a non-cancelabl e operating lease which
commenced in September, 2012. The facility has approximately 24,250 square feet of office, manufacturing
and warehousing space. The operating lease commenced September 2012 with a current annual payment of
$295,140 through September 2017, with all amounts payable in equal monthly installments. In September
2016, the Company extended this lease for the period from October 2017 to March 2020 with annual payments
of $540,588 from October 2017 to September 2018, $558,120 from October 2018 to September 2019 and
$286,368 for the period from October 2019 to March 2020, with all amounts payable in equal monthly
installments. Additionally, the Company is required to pay its proportionate share of the building and real
estate tax expenses and obt ain insurance f or the f acility
In addition to the foregoing leases relating to its principal properties, the Company also has a lease for an
additional facility in Nashua, New Hampshire used for product repairs, manufacturing and warehousing.
Rent expense for all leases for the years ended December 31, 2016, 2015 and 2014 was $745,000, $663,000
and $643,000, respectively.
F-32
(
b
(
9
)
m
b
.
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
C om
i tm ents and
C onti nge nci es (continued)
( a) L ease O
li
gat i ons (continued)
Future minimum rental payments due under these agreements as of December 31, 2016 are as follows (in
thousands):
Fiscal Y ear
7102
8102
9102
0202
latoT
Operating
L eases
$
975
837
647
471
732,2
$
(b) C api tal lease ob
li
gat i ons
In connection with the acquisition of the assets of DermEbx and Radion in 2014, the Company assumed two
separate equipment lease obligations with payments totaling approximately $2.6 million through May, 2017.
The leases were determined to be capital leases and accordingly the equipment was capitalized and a liability
of $2.5 million was recorded. As of December 31, 2016, the outstanding liability for the acquired equipment
leases was approximately $0.1 m illion.
Future minimum lease payments under all outstanding capital leases are as follows (in thousands):
Fiscal Y ear
7102
sub total minimum lease ob ligation
tseretni ssel
ten ,latoT
noitrop tnerruc ssel
noitrop mret gnoL
Capital
L eases
$
98
89
)3(
68
)68(
$
-
Related Party Lease:
.
A dditionally , M
’ s common stock
Kamal G ogineni is an employe e of one of the Company
’ s subs idiaries and a shareholder of the
r. G ogineni is a shareholder of Radion Capital P artners
Company
(“RCP”). RCP was the lessor under a lease between RCP and DermEbx (the “Lease”). In connection
with the Company’s acquisition of assets of Radion and DermEbx that closed in July 2014, one
of the assets and obligations that the Company acquired was the Lease. Pursuant to the Lease, the
a total of $0.1 million and the liabi lity is included in the minimum lease
Company is obl igated to pay
payments above, with remaining annual payments of $76,000 in 2017.
( c) O
th er C om
i tm ents
The Company has non-cancelabl e purchase orders with three ke y suppliers executed in the normal course
of business that total approximately $0.3 million. In connection with our employee savings plans, our
matching contribution for 2016 was approximately $0.4 million in cash. Our matching contribution for 2017
is estimated to be approximately $0.5 m illion in cash.
F-33
m
(
9
)
m
b
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
C om
i tm ents and
C onti nge nci es (continued)
) Em ploy
ent A
gr eem ents
The Company has entered into employm ent agreements with certain ke y executive s. The employm ent
agreements provi de f or minimum annual salaries and perf ormance-ba sed annual bonus compensation as
defined in their respective agreements. In addition, the employment agreements provide that if employment
is terminated without cause, the executive will receive an amount equal to their respective base salary then in
ef
r. Ferry , a period of two
ye ars f rom the date of termination, f or M
s. Steve ns, a period of eighteen months f rom
the date of termination, in each case, plus the pro rata portion of any annual bonu s earned in any employm ent
ye ar through the date of termination.
f ect f or the greater of the remainder of the original term of employm ent or, f or M
r. Christopher and M
( e) F orei
gn T ax C
lai
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. In February 2010, the CRA reviewed the matter and reduced the tax re-assessment
to approximately $703,000, excluding interest and penalties. The CRA has the right to pursue the matter
until July 2017. The Company believes that it is not liable for the re-assessment against CADx Medical and
continues to def end this position. A s the Company
be lieve s that a proba bi lity of a loss is remote, no accrual
was recorded as of December 31, 2016.
( f) R oyal ty O
li
gat i ons
In connection with prior litigation, the Company received a nonexclusive, irrevocable, perpetual, worldwide
license, including the right to subl icense certain H ologic patents, and a non-compete cove nant as well as an
agreement not to seek further damages with respect to the alleged patent violations. In return the Company
had a remaining obligation to pay a minimum annual royalty payment of $250,000 payable through 2016.
In addition to the minimum annual royalty payments, the litigation settlement agreement with Hologic also
provides for payment of royalties if such royalties exceed the minimum payment based upon a specified
percentage of f uture net sales on any products that practice the licensed rights. The estimated f air va lue of the
patent license and non-compete cove nant is $100,000 and is be ing amortiz ed ove r the estimated remaining
useful life of approximately four years. In addition, a liability has been recorded within accrued expenses and
accounts payable for future payment and for minimum royalty obligations totaling $0.4 million.
During December, 2011, the Company settled litigation with Zeiss and as of December 31, 2016, has a
remaining obligation to pay $0.5 million in June 2017. The present value of the liability is estimated at
approximately $0.4 million as of December 31, 2016.
L
i ti
gat i on
be a party to va rious legal proceedings and claims arising out of the ordinary course of
The Company may
its business. Although the final results of all such matters and claims cannot be predicted with certainty, the
Company currently
be lieve s that there are no current proceedings or claims pending against it of which the
ultimate resolution would have a material adverse effect on its financial condition or results of operations.
H oweve r, should we f ail to preva il in any legal matter or should seve ral legal matters be resolve d against us
in the same reporting period, such matters could have a material adve rse ef
f ect on our operating results and
cash flows for that particular period. In all cases, at each reporting period, the Company evaluates whether or
not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450,
Contingencies. L egal costs are expensed as incurred.
F-34
(
d
m
m
b
(
g
)
(
9
)
m
iCAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(10)
Quarterly Financial Data (in thousands, except per share data, and unaudited)
First q uarter
Second q uarter
Third q uarter
Fourth q uarter
N et
sales
G ross
profi t
$
6,038
7,369
6,003
6,928
$
4,186
5,702
4,101
4,529
N et
loss
$
$
$
$
( 2,533)
( 1,575)
( 2,675)
( 3,316)
I ncom e ( loss)
per sh are
( $0. 16)
( $0. 10)
( $0. 17)
( $0. 20)
First q uarter
Second q uarter
Third q uarter
Fourth q uarter
$
13,220
11,143
9,582
7,609
$
9,362
7,878
6,821
5,289
$
$
$
$
( 1,857)
( 27,786)
( 402)
( 2,402)
( $0. 12)
( $1. 77)
( $0. 03)
( $0. 15)
) - includes goodwill and long-liv ed asset impairment of $27. 4 million
h ted
ei
av erag e
nu
b er of
sh ares ou tstand
i ng
15,826
15,904
15,957
16,214
15,605
15,679
15,725
15,733
F-35
W
g
m
2
0
1
6
2
0
1
5
*
(
*
EXHIBIT 21
Subsidiaries of iCAD, Inc.
N ame
J urisdiction of I ncorporation/ Organiz ation
X of t, I nc.
X of t Solutions, L
L C
D elaware
D elaware
F-36
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We hereby consent to the incorporation by reference into the Registration Statements of iCAD, Inc. and subsidiaries
on Forms S-8, (No. 333-201874, 333-187660, 33-72534, No. 333-99973, No. 333-119509, No. 333-139023, No. 333-
144671 No. 333-161959 and No. 333-211656), and on Forms S-3, (No. 333-169716, 333-176777 and 333-178952),
of our report dated March xx, 2017, relating to the consolidated financial statements of iCAD, Inc. and subsidiaries as
of December 31, 2016, which appears in this Annual Report on Form10-K.
Boston, Massachusetts
March, 2017
/s/ BDO USA, LLP
F-37
EX
3
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Kenneth Ferry, certify that:
1.
iCAD, Inc.;
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 of
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material f act necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period cove red b
his report;
y t
3.
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of , and f or, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervi sion, to ensure that material inf ormation relating to the registrant,
including its consolidated subs idiaries, is made know n to us b
others within those entities, particularly during the
period in which this report is be ing prepared;
y
(b)
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
f ective ness of the disclosure controls and procedures, as of the end
presented in this report our conclusions about the ef
of the period cove red b
his report ba sed on such eva luation; and;
y t
(d)
Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: March, 2017
/ s/ Kenneth Ferry
Kenneth Ferry
Chief Executive Officer
F-38
H
I
B
I
T
1
.
1
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Richard Christopher, certify that:
1.
iCAD, Inc.;
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 of
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material f act necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period cove red b
his report;
y t
3.
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of , and f or, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervi sion, to ensure that material inf ormation relating to the registrant,
including its consolidated subs idiaries, is made know n to us b
others within those entities, particularly during the
period in which this report is be ing prepared;
y
(b)
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
f ective ness of the disclosure controls and procedures, as of the end
presented in this report our conclusions about the ef
of the period cove red b
his report ba sed on such eva luation; and;
y t
(d)
Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: March, 2017
/ s/ Richard Christopher
Richard Christopher
Chief Financial Officer, and Treasurer
F-39
EXHIBIT 32.1
iCAD, Inc.
C ER
PU
T
18 U.S.C. SECTION 1350,
T
PU
A
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
O PT ED
In connection with the Annual Report of iCAD, Inc. (the “Company”) on Form 10-K for the fiscal year ended December
31, 2016 (the “Report”), I, Kenneth Ferry, the Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company
.
Date: March, 2017
/ s/ Kenneth Ferry
Kenneth Ferry
Chief Executive Officer
F-40
T
I
F
I
C
A
T
I
O
N
R
S
U
A
N
T
O
A
S
D
R
S
U
A
N
T
O
EXHIBIT 32.2
iCAD, Inc.
C ER
PU
T
18 U.S.C. SECTION 1350,
T
PU
A
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
O PT ED
In connection with the Annual Report of iCAD, Inc. (the “Company”) on Form 10-K for the fiscal year ended December
31, 2016 (the “Report”), I, Richard Christopher, the Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company
.
Date: March, 2017
/ s/ Richard Christopher
Richard Christopher
Chief Financial Officer and Treasurer
F-41
T
I
F
I
C
A
T
I
O
N
R
S
U
A
N
T
O
A
S
D
R
S
U
A
N
T
O
Focus on Growing Opportunities in Cancer Treatment
2016 also brought increased awareness of our Xoft®
Electronic Brachytherapy (eBx®) System® in the
treatment of nonmelanoma skin cancer (NMSC) and
early-stage breast cancer. This technology platform,
with the ability to target radiation therapy directly to a
tumor site, is supported by a growing body of clinical
data, consistently demonstrating eBx to be as safe
and effective as a traditional radiation treatment for
appropriate selected patients.
With a growing incidence rate of NMSC and our ability
to treat lesions in a painless, non-invasive manner,
we believe that our skin eBx system represents a
significant market opportunity for us. In 2016, our
revenues in skin eBx were negatively impacted by
the disruption initially caused in 2015 related to the
uncertainty of reimbursement codes and payment
rates for the treatment of NMSC. In January 2016,
new skin-specific level III reimbursement codes
for skin eBx were established in the U.S. As 2016
progressed, dermatologists became aware of the new
reimbursement levels, and we experienced growth in
new sites and procedure volumes which continued
into the first half of 2017. Supporting this growth, we
have completed targeted investments to improve our
onboarding process for new customers and selectively
added marketing resources to support dermatologists in
attracting new patients to their practice.
As part of our long-term strategy to secure national
reimbursement for our skin cancer treatment, we
continued to make strategic investments in clinical
trials. In 2016, we completed one such key study, which
compared patients treated with electronic brachytherapy
to those with similar lesions treated with Mohs surgery.
This important and encouraging data, published in a
peer-reviewed medical journal, indicated that the Xoft
skin eBx system delivered a cancer recurrence rate similar
to Mohs surgery at 3 years of patient follow-up.
Dear Shareholder:
In 2016, we made significant progress in advancing our
key product lines and enhancing our market presence.
This led to the strengthening of our competitive position,
and presents us with expanded and new opportunities
for revenue growth in the years ahead. On both the
cancer detection and therapy sides of our business, our
team is moving forward with key initiatives in clinical
research, product and pipeline development and new
market development, all aimed at building commercial
opportunities around the world.
Delivering Leading-Edge Technology in Cancer
Detection
We continued to deliver innovative software and
launched a revolutionary new workflow and cancer
detection solution built on artificial intelligence and
deep learning, which enhances 3D tomosynthesis breast
exams. Our PowerLook® Tomo Detection software was
CE marked in Europe in April 2016, and we received
PMA approval from the FDA in March of 2017. This is
the first product of its kind in the breast health market,
and we are extremely excited about its potential. While
delivering considerable advantages to patients and
clinicians, Powerlook Tomo Detection is a proven-
effective technology and presents us with a major new
substantial opportunity for global growth.
Our cancer detection software now has a platform of
over 5,000 existing installed customers. This large
installed base positions us well to rapidly leverage the
advantages of our tomosynthesis cancer detection
software, a landmark workflow tool with the potential
to transform breast cancer detection capabilities for
radiologists. The installation of our PowerLook software
in existing 3D tomosynthesis platforms and potential
conversion of 2D platforms represents a significant
market opportunity for iCAD of over $250 million, as well
as ongoing software maintenance fees.
In addition to our direct sales efforts, the PowerLook
Tomo Detection software is being offered to customers
through a partnership with the GE Healthcare. Together,
we are marketing the PowerLook Tomo Detection
software to both current and potential new customers.
Strong initial interest in the product reflects the need
for interpretive tools to support radiologists in reading
data-intensive exams in an accurate and efficient manner.
iCAD’s U.S. clinical reader study demonstrated that
radiologists could improve throughput by reducing their
average reading time by approximately 30% without
compromising detection accuracy
Board of Directors
Dr. Lawrence Howard (2)
Chairman of the Board, General Partner, Hudson Ventures, LP
Ken Ferry
Chief Executive Officer, iCAD, Inc.
Rachel Brem, M.D.(2), (3)
Director of Breast Imaging and Intervention Center
Professor & Vice Chair, Department of Radiology
The George Washington University Medical Center
Anthony F. Ecock (1), (3)
Managing Director,
The Carlyle Group
Steven Rappaport (1)
Partner, RZ Capital, LLC
Somu Subramaniam (2), (3)
Managing Partner and Co-founder of New Science Ventures
Robert Goodman, M.D.
University of Pennsylvania School of Medicine
Elliot Sussman, M.D. (1), (2)
Chairman of The Villages Health and Professor of Medicine
at the University of South Florida College of Medicine
Andrew H. Sassine
Director
Executive Officers
Ken Ferry
Chief Executive Officer
Richard Christopher
Executive Vice President, Chief Financial Officer
Stacey Stevens
Executive Vice President, Chief Strategy and Commercial Officer
(1) Audit Committee Member
(2) Compensation Committee Member
(3) Nominating & Corporate Governance Committee Member
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1
iCAD | 2016 Annual Report
Ken Ferry
Chief Executive Officer
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2016 Annual Report