iCAD

2020 Annual Report

Pioneering innovative cancer detection and therapy solutions 

Dear Shareholder,

Innovation. While it has always been the heart of iCAD since our 
founding and the reason for our many successes to date, never 
did we expect to be so challenged to innovate by a year-long, 
global pandemic. However, I’m proud to say, not only have we 
succeeded in fi nding creative solutions to the hurdles we’ve 
encountered, but we’ve discovered that there has never been 
a greater need for our cancer detection and therapy solutions. 
We fi rmly believe that we are in the right place at the right time 
and I am pleased to provide this brief summary of our many 
accomplishments in 2020 as we look excitedly ahead to 2021.

ProFound AI®

With an enormous backlog of mammograms due to the ongoing 
pandemic, there is an obvious and growing need for innovative 
technologies like ours - AI soft ware that is being deployed as an 
essential solution to make high-end medical capital equipment 
more productive, more effi  cient, and even more cost-eff ective, 
while also providing sites with a clear marketing advantage and the 
ability to preferentially attract patients. 

A good illustration of the essential need for ProFound AI for both 
productivity and clinical performance is our second quarter of 
2020 sale and shipment of 50 licenses to SimonMed, a nationwide 
medical imaging provider and among the largest physician 
radiology practices in the U.S. SimonMed provides real-time 
screening feedback while patients are on-site, vastly improving the 
patient health care experience.

While the pandemic did present us with signifi cant sales 
challenges due to trade shows and other events being canceled 
or going virtual, we took proactive steps that proved to be 
even more successful than some of our traditional marketing 
approaches. These included hosting educational webinars and 
launching strategic digital marketing initiatives - programs that 
continue to attract large audiences with measurable engagement 
and overwhelmingly positive responses from participants. For 
example, in the second quarter of 2020 alone, we generated more 
sales leads from our virtual programming than we generated in 
all of 2019 at in-person trade shows. These eff orts helped lead to 
product revenue growth for our fl agship high-margin ProFound AI 
technology of 44% in the third quarter over second quarter 2020 
revenues.

In addition, in October 2020, we celebrated Breast Cancer 
Awareness Month, executing an aggressive public relations and 
digital media campaign targeted at key local markets with a goal 
to raise visibility around the importance of breast health during the 
pandemic. Our eff orts resulted in print articles that generated more 
than 1,000 digital news stories, as well as several broadcast news 
stories that together garnered a potential audience reach of more 
than 500 million viewers worldwide.

Now selling in more than 25 countries globally, we fi nished the 
year reaching an important milestone – reporting that more than 
1,000 licenses had been sold since the ProFound AI suite of 
products was launched and, notably, that our sales distribution 
now spans all major mammography system vendors, including 

Michael Klein, Chairman and 
Chief Executive Officer

enterprise-wide viewing applications. Further, we reported that we 
are in the late stages of pre-launch evaluation of a next-generation 
ProFound AI soft ware that is designed to further enhance 
productivity and clinical performance, which we introduced in 
2021. 

Importantly, our recent agreement with Change Healthcare has 
opened up a new market and a new sales channel for us. With 
this agreement, we have eff ectively expanded our commercial 
capabilities, enabling us to collaborate with multiple new sales 
specialists who will serve as the vanguard for an emerging pay-per-
patient revenue model. 

Furthermore, in December, we announced a fi ve-year partnership 
with Solis Mammography, the largest independent provider of 
mammography and breast health services in the United States. 
Aft er a thorough evaluation of all available AI solutions, the 
nationwide network chose our platform powered by Panorama 
as the sole breast health AI solution to integrate with their 
3D mammography systems throughout their entire network. 
This agreement further validates the unparalleled benefi ts our 
technology provides to both patients and radiologists alike while 
positioning us well for continued growth.

ProFound AI Risk

In mid-2020, we launched our new mammography risk soft ware 
on a limited basis in the U.S. and Europe, helping transform breast 
cancer screening from age-based screening to risk-adaptive 
precision screening. Distinct from our iCAD soft ware, which 
detects cancers on the day of screening, our risk product is the 
fi rst and only commercially available clinical decision support 
tool providing accurate two-year breast cancer risk estimation 
personalized for each woman. The product is backed by data 
published this year in the peer-reviewed journal, Radiology, 
showing that our technology signifi cantly outperformed existing 
breast cancer risk models. ProFound AI Risk is the prototype 
outcome of an eight-year collaborative journey with the prestigious 
Karolinska Institute in Sweden. We intend to introduce ProFound 
AI Risk for 3D mammography formally in the fi rst half of 2021, 
midyear.

Delivering a full course of radiation treatment in one day, at 
the time of surgery, could potentially enable select patients to 
replace weeks of post-operative EBRT while also minimizing 
COVID-19 exposure to patients and clinicians. We look forward 
to reporting additional clinical results from these studies in 2021
and continuing the evaluation of the system across a broad 
range of cancers. 

Looking Ahead 

Additionally, we recently announced the appointment of 
Santosh Kesari, MD, PhD, a world-renowned neuro-oncologist, 
as Principal Investigator of an international multi-center clinical
trial evaluating the Xoft Systion as the sole radiation therapy to
treat recurrent glioblastoma (GBM) following surgical excision of 
the malignancy. The study commenced in early 2021 at leading 
academic institutions and community hospitals worldwide. 
This study is currently listed on www.clinicaltrials.gov and is 
recruiting patients at multiple sites.

Sincerely,

Chairman and Chief Executive Officer

The Xoft System 

Throughout the year, we highlighted advancements in the use 
of our Xoft System, which is FDA-cleared and CE-marked for the
treatment of cancer anywhere in the body using a miniaturized
x-ray source to deliver a precise, concentrated dose of radiation
directly to a tumor site.

•

In February 2020, we announced that the first metastatic 
brain tumor was treated in the U.S. with intraoperative 
radiation therapy (IORT) using our Xoft® Axxent® Electronic 
Brachytherapy (eBx®) System®, initiating a clinical trial on 
IORT for patients with large brain metastases treated with
neurological resection.

• Data presented at the virtual American Society of Clinical 
Oncology (ASCO) Annual Meeting in May 2020 showed
promising clinical research supporting Xoft Brain IORT as 
a viable treatment option for patients with glioblastoma
(GBM). We have subsequently announced the launch of an
investigator-initiated global Phase 2 multi-center clinical trial
evaluating the use of the Xoft System as the sole radiation
therapy to treat recurrent GBM following surgical excision 
of malignant brain tumors. The Principal Investigator of 
this study, which is planned to commence this month at 
leading academic institutions and community hospitals 
worldwide, is Santosh Kesari, MD, PhD, a world-renowned 
neuro-oncologist. Xoft Brain IORT has the potential to 
extend lives and address a substantial unmet need in the
treatment of recurrent GBM. There is currently no highly
effective approach to treat these patients and the repeated 
use of external beam radiotherapy (EBRT) is often limited by 
a relatively high risk of radiation toxicity. Specifically, Xoft 
Brain IORT may provide an approach that improves patient
outcomes, as well as their quality of life, while reducing
treatment complications as a result of a shorter treatment
duration compared to EBRT. 

•

In late November 2020, we also announced positive data 
supporting the use of the Xoft System in patients with early 
stage breast and endometrial cancers that were presented
during the European Society for Radiotherapy & Oncology 
(ESTRO) 2020 virtual meeting. 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020
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 001-09341

iCAD, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

02-0377419
(I.R.S. Employer
Identification No.)

98 Spit Brook Road, Suite 100, Nashua, New Hampshire
(Address of principal executive offices)

03062
(Zip Code)
Registrant’s telephone number, including area code: (603) 882-5200
Securities registered pursuant to Section 12(b) of the Act:
Trading
Symbol(s)

Title of Class

Common Stock, $0.01 par value

ICAD
Securities registered pursuant to Section 12 (g) of the Act:
None

Name of each exchange
on which registered

The NASDAQ Stock Market LLC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ‘ No È
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 È
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 È No ‘
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be
submitted 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). Yes È No ‘.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ‘
Non-accelerated filer È

‘
Accelerated filer
Smaller reporting company È
Emerging growth company ‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
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, 2020 was $208,752,980. Shares of voting stock held by each officer and director and by each
person who, as of June 30, 2020, may be deemed to have beneficially owned more than 10% of the outstanding voting stock have
been excluded. This determination of affiliate status for purposes of this calculation is not necessarily a conclusive determination of
affiliate status for any other purpose.
As of March 8, 2021, the registrant had 24,918,458 shares of its common stock outstanding.
Documents Incorporated by Reference: Certain portions of the registrant’s definitive Proxy Statement for its 2021 Annual Meeting of
Stockholders are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:

Certain information included in this Annual Report on Form 10-K that are not historical facts contain forward
looking statements that involve a number of known and unknown risks, uncertainties and other factors that could
cause the actual results, performance or achievements of the Company to be materially different from any future
results, performance or achievement expressed or implied by such forward looking statements. These risks and
uncertainties include, but are not limited to, the continued impact of the COVID-19 pandemic, its ability to
achieve business and strategic objectives, the risks of uncertainty of patent protection, the impact of supply and
manufacturing constraints or difficulties, uncertainty of future sales levels, protection of patents and other
proprietary rights, the impact of supply and manufacturing constraints or difficulties, product market acceptance,
possible technological obsolescence of products, increased competition, litigation and/or government regulation,
changes in Medicare reimbursement policies, risks relating to our existing and future debt obligations,
competitive factors, the effects of a decline in the economy or markets served by the Company 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 forward-looking statements,
which speak only as of the date the statement was made. Except as required by law, we assume no obligation to
update or revise these forward-looking statements for any reason, even if new information becomes available in
the future.

Unless the context otherwise requires, the terms “iCAD”, “Company”, “we”, “our” “registrant”, and “us” means
iCAD, Inc. and its consolidated subsidiaries.

Item 1.

Business.

General

PART I

iCAD, Inc. is a global medical technology company providing innovative cancer detection and therapy solutions.
The Company reports in two operating segments: Cancer Detection (“Detection”) and Cancer Therapy
(“Therapy”). Originally incorporated in Delaware in 1984 as Howtek, Inc., the Company changed its name in
2002 to iCAD, Inc. The Company’s headquarters are located in Nashua, New Hampshire.

iCAD continues to evolve from a business focused on image analysis for the early detection of cancers to a
broader player in the cancer therapy market. The Company’s strategy is to provide patients and clinicians with a
broad portfolio of innovative clinical and workflow solutions and technologies that address the two primary
stages of the cancer care cycle, namely detection and treatment. The Company believes that its products can
enhance early cancer detection and earlier targeted intervention, which could result in better health outcomes,
overall savings to the healthcare system, and increased market demand and adoption of iCAD’s solutions.

Cancer Detection Segment

Background and Overview

According to the World Cancer Research Fund, breast cancer is the most common cancer in women worldwide,
and the second most common cancer overall, with more than two million new cases diagnosed worldwide in
2020. Approximately 39 million mammography procedures were performed in the United States in 2020.
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. The American Cancer
Society estimates that, overall, screening mammograms do not find approximately one in five breast cancers.

2

Observational errors are responsible for more than half of cancers missed, but artificial intelligence (“AI”) and
computer-aided detection (“CAD”) have been proven to reduce the risk of observational errors in mammography.
These cancer detection solutions can improve interpretation workflow by using sophisticated deep learning
artificial-intelligence algorithms designed to rapidly and accurately analyze image data and mark suspicious
areas in the image that may warrant a second look or possibly contain a significant abnormality. iCAD’s
technology has potential applications to aid in the diagnosis of many types of cancer.

In the United States, digital breast tomosynthesis (“DBT”) is rapidly replacing full-field digital mammography
(“FFDM”) in breast cancer screening due to its clinical value in cancer detection. However, DBT presents
significant workflow challenges to radiologists who face the additional workload and time required to accurately
read the extensive amount of increased image data contained in DBT cases. Further, as incidence rates of cancer
continue to rise, it is becoming increasingly important to find cancer sooner, optimize radiology workflow and
reduce unnecessary recalls resulting from false positives. iCAD’s technology has the potential to address each of
these challenges.

The Company offers a variety of AI, CAD, and breast density and risk assessment solutions for use with
mammography, breast tomosynthesis, and Computed Tomography (“CT”) imaging, at both the detection and
diagnosis stages of the cancer care cycle. These products have the potential to help healthcare providers better
detect cancer and improve workflow efficiency. The Company completed development of a DBT cancer
detection and workflow solution built on AI using deep learning in 2015 and launched the product in the
European market in April 2016, in Canada in June 2016, and in the United States after U.S. Food and Drug
Administration (“FDA”) premarket approval in April 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 2D FFDM breast density solution received FDA 510(k)
clearance in December 2013 and the Company added 2D synthetic image support in December 2018.

In July 2020, the Company introduced ProFound AI Risk, the world’s first image-based 2-year risk assessment
model. This novel risk model, which assesses short-term breast cancer risk based primarily on information found
in a 2D mammogram, received a CE mark in Europe. In September of 2020, ProFound AI Risk was introduced in
the U.S. market as a decision support tool for radiologists. On March 12, 2021, ProFound AI 3.0 was cleared by
the FDA, through a 510(k) review, for commercial use in the United States for reading DBT exams from
compatible DBT systems. This new version offers additional clinical and workflow improvements when
compared to the previous version of the product.

According to the FDA, as of January 2021, the United States alone had approximately 8,677 Mammography
Quality Standards Act (“MQSA”) certified facilities providing mammography screening, which contained
approximately 22,553 MQSA accredited FFDM and DBT units. While the majority of these centers are still
using 2D FFDM systems either alone or in combination with DBT, the Company believes approximately 73% of
the units are DBT capable units based on January 2021 MQSA data.

Based on the number of DBT units relative to the total units left to be converted to DBT, and accordingly the
large number of installation opportunities, the Company believes that its cancer detection and breast density
assessment solutions for DBT may represent a significant growth opportunity in the United States. The Company
believes that there is also a growth opportunity for 2D mammography AI solutions in international markets, both
from the analog to digital conversion and as more countries adopt the practice of radiologists using AI, rather
than having two radiologists read each case. Furthermore, some western European countries have or are planning
to implement mammography screening programs, which may increase the number of mammograms performed in
those countries.

Breast Health Solutions Suite

The Company’s breast health solutions suite includes cancer detection solutions for 2D and 3D mammography,
automated breast density assessment for 2D and 3D mammography, and breast cancer risk assessment for 2D

3

mammography with plans to introduce support for breast cancer risk assessment for 3D mammography in 2021.
These solutions are designed to improve clinicians’ performance and enhance breast cancer screening.

PowerLook

PowerLook is the Company’s back-end architecture platform, which hosts the AI algorithm solutions and
manages the communications between (i) imaging acquisition systems, and (ii) image storage and review
systems such as Picture Archive and Communication Systems (“PACS”) and breast imaging viewing and
interpretation systems. As workflow and efficiency are critical in digital imaging environments, PowerLook
includes a powerful and flexible DICOM (Digital Image and Communications in Medicine) compliant
connectivity solution, which is designed to enable universal compatibility with leading PACS and review
workstations. iCAD has worked with its industry partners to ensure optimal integration into the graphical user
interface of their PACS and review workstations. The algorithms supported on the platform have also been
optimized for and tested with each supported digital imaging acquisition manufacturer based upon characteristics
of their unique detectors.

The Company has released a new generation of the PowerLook platform (version 10.0), which consists of a
hybrid-server environment, where algorithm processing still occurs on-premise (within the hospital) but the
tracking of the usage is possible in the cloud. This makes it possible for iCAD to implement operational-budget
pricing models and a gradual switch to the recurring revenue stream. This is a stepping stone to potentially
hosting the Company’s algorithms purely in the cloud, and could enable scalability and a future SaaS business
model for the Company.

SecondLook

SecondLook is a machine learning-based cancer detection algorithm that analyzes 2D FFDM images to identify
and mark suspicious masses and calcifications. This technology provides radiologists with a “second look” that
helps detect potentially actionable cancers earlier than screening mammography alone. SecondLook uses a
sophisticated, patented machine learning algorithm designed to identify the masses and calcifications that are
most likely to be malignant. The algorithm was trained using data from 2D mammography studies, enabling the
product to distinguish between characteristics of cancerous and normal tissue. This enables earlier detection of
hard-to-find cancers, improved workflow for radiologists, and higher quality patient care. SecondLook first
received FDA premarket approval in 2002 and is currently available in the United States, Canada, Europe, and
Asia.

Automated Density Assessment

The Company’s Automated Density Assessment solution aids radiologists by standardizing their approach to
breast density assessment and categorization. The solution provides an automated, consistent and standardized
density assessment based on the American College of Radiation’s BI-RADS 5th Edition density categorization
system, which is particularly important in states that mandate reporting a breast density score to patients as part
of their annual mammogram. The latest version of the Company’s automated density solution, which added
support for the synthetic 2D images from GE and Hologic, received FDA 510(k) clearance in August 2018.

ProFound AI

DBT was introduced in the United States in 2010. Tomosynthesis has been demonstrated to have multiple
advantages over 2D mammography, including improved tissue visualization and detection, resulting in lower
recall rates for patients. Clinical studies indicate that DBT improves the ability to distinguish malignant from
benign tumors and can better detect malignant lesions hidden by overlapping tissues. This helps reduce the
number of unnecessary biopsies and false positive recall rates. Initial studies have indicated that physicians using
tomosynthesis have the ability to detect 41% more invasive cancers than those using conventional
mammography, and also have reduced false-positives by up to 15%. While DBT has been shown to have clinical
benefits for screening mammography, it can also significantly increase radiologist’s interpretation time.

4

AI can also play an important role in improving the efficiency of reading breast tomosynthesis cases by
identifying suspicious breast masses and calcifications.

In early 2018, the Company received the CE mark for its multi-vendor, artificial intelligence DBT cancer
detection and workflow solution, Powerlook Tomo Detection 2.0, which was later rebranded as ProFound AI for
DBT. The product also received clearance for clinical use in Canada in mid-2018 and was FDA 510(k) cleared in
December 2018. On March 12, 2021, ProFound AI 3.0 was cleared by the FDA, through a 510(k) review, for
commercial use in the United States for reading DBT exams from compatible DBT systems. This new version
offers additional clinical and workflow improvements when compared to the previous version of the product.

ProFound AI for DBT is a deep-learning algorithm specifically designed to detect malignant soft-tissue densities
and calcifications in DBT exams by analyzing each DBT image, or slice. In early 2018, the Company completed
a non-FDA large multi-reader, multi-case crossover design clinical reader study, which concluded that ProFound
AI increased radiologist clinical performance by improving radiologist sensitivity by an average of 8%,
improving radiologist specificity by an average of 6.9% and reducing recall rates in non-cancer cases by an
average of 7.2%. The reader study also showed that the product can reduce DBT reading times by an average of
52.7%. Results from this reader study were published in the peer-reviewed journal, Radiology: Artificial
Intelligence, in July 2019.

iCAD will continue to focus on advancing the performance of its ProFound AI for DBT solution through
algorithm improvements and training on larger datasets.

The Company has Original Equipment Manufacturer (“OEM”) relationships with GE, Siemens, and Fuji Medical
Systems’ women’s health businesses and expects to use ProFound AI to expand its OEM partnerships with other
mammography system and PACS providers. In 2020, one of the largest outpatient medical imaging providers and
largest physician radiology practices in the United States adopted ProFound AI throughout its nationwide
network. In 2020 iCAD entered into a five-year partnership with Solis Mammography, the largest independent
provider of mammography and breast health services in the United States, whereby iCAD will provide Solis
Mammography’s nationwide network with its latest AI breast health solutions, including ProFound AI for DBT
and ProFound AI Risk.

The Company also developed ProFound AI for 2D Mammography, which is targeted at the European market,
where 2D mammography remains the primary procedure for breast cancer screening. ProFound AI for 2D
Mammography was launched in Europe in June 2019 at the Société Française d’Imagerie de la Femme medical
conference and received CE approval in July 2019.

ProFound AI™ Risk

ProFound AI Risk is the first and only commercially available clinical decision support tool that provides an
accurate and personalized two-year breast cancer risk estimation, based solely on a screening mammogram. The
Company worked with leading researchers at the Karolinska Institutet in Stockholm, Sweden, one of the world’s
foremost medical research universities, to create ProFound AI Risk. ProFound AI Risk is driven primarily by
data from existing mammography images. Unlike existing risk models that focus on longer term risk based on
family history and clinical lifestyle factors, ProFound AI Risk focuses on a short-term interval. ProFound
AI Risk received a CE Mark in Europe in July 2020, and Profound AI 3.0 was cleared by the FDA, through a
510(k) review, on March 12, 2021. In September 2020, iCAD announced the publication of data in the peer-
reviewed journal, Radiology, indicating that ProFound AI Risk more accurately identifies the prospect of near-
term development of breast-cancer than traditional risk models.

Magnetic Resonance Imaging (“MRI”) Applications—Breast and Prostate Cancer Detection

In addition to mammography and CT imaging modalities, the interpretation of MRI exams also benefits from
advanced image analysis and clinical decision support tools. Radiologists turn to MRI to examine the soft tissues,

5

blood vessels, and organs in the head, neck, chest, abdomen, and pelvis to help them diagnose and monitor
tumors, heart problems, liver diseases and other organs, such as breast and prostate for possible links to cancer.
MRI uses magnets and radio waves instead of x-rays to produce very detailed, cross-sectional images of the
body, and can be used to look specifically at those areas. We previously developed MRI assets which were
subsequently sold, and are exploring future possible opportunities in MRI applications.

MRI is an effective tool to detect breast cancer as well as prostate cancer. While MRI is a more expensive option
than traditional mammography, it enables physicians to view tumors which may have been missed during routine
screenings. The American Cancer Society published guidelines in the March/April 2007 CA: A Cancer Journal
of Clinicians, recommending that women at high risk for breast cancer augment their annual mammogram with
an annual breast MRI. The guidelines recommended MRI scans for women with a lifetime risk of breast cancer
of 20%-25% or greater, including women with a strong family history of breast or ovarian cancer and women
who were treated for Hodgkin’s disease. The American College of Radiology and Society of Breast Imaging
endorsed these recommendations in the Journal of the American College of Radiology.

Accurate staging of prostate cancer has been a significant challenge for practitioners. Of the over 225,000 men
who are diagnosed with prostate cancer every year in the United States, most have slow-growing tumors that
likely will not lead to death or require invasive treatment, though the diagnosis does cause patient anxiety and
requires close monitoring. With advanced diagnostic imaging tools, physicians may more accurately stage the
severity of prostate cancer and minimize a patient’s exposure to unnecessary and painful biopsies.

In the future, the Company believes that MRI imaging may have an expanded role in the management of prostate
cancer patients, particularly for management strategies involving active surveillance. As more men consider
“watchful waiting” or delaying active treatment of their cancer, advances in imaging will help inform these
decisions, based more on better imaging than on assumptions relating to estimates of growth of prostate cancer.

Prostate Cancer Screening

Prostate Al

In the United States alone, there are over 225,000 cases of prostate cancer diagnosed annually. The annual global
volume is estimated to be at least 650,000 in developed countries.

Over the past several years, the use of the Prostate – Specific Antigen (“PSA”) screening has declined, resulting
in sub-optimal screening for prostate cancer. More recently, multi-parametric MRI has been relied upon
increasingly for both initial diagnosis and for tracking of men previously diagnosed and in “active surveillance.”

The Company intends to explore opportunities in the prostate screening market, including to seek to acquire large
data sets of prostate images and develop new and unique algorithms to assist with the reading, interpretation and
detection of proliferative prostate disease.

The Company will be required to complete development and then seek and obtain clearance from the FDA prior
to being able to offer and sell the product to end users.

Colon Cancer Screening

Background and Overview

Colon cancer is the third most common cancer diagnosed globally, with more than 1.1 million new cases
diagnosed worldwide in 2020.

CT is a well-established and widely used imaging technology that is used to image cross-sectional “slices” of
various parts of the human body. When combined, these “slices” provide detailed volumetric representations of

6

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 volume of data generated. The
Company believes that the challenges in CT imaging present it with opportunities to provide automated image
analysis and clinical decision support solutions.

CT Colonography (“CTC”) is a less invasive technique than traditional colonoscopy for imaging the colon when
screening for cancer. 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 images by automatically identifying and
highlighting polyps that can progress into cancer. 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 adjunct to CTC.

Colon Cancer Screening Products

VeraLook

VeraLook is the Company’s FDA-cleared solution designed to support detection of colonic polyps in conjunction
with CTC. The product is distributed with advanced visualization reading workstations manufactured by Vital
Images (an affiliate of Toshiba Medical System Group) and Philips Healthcare. It is a natural extension of the
Company’s core competencies in image analysis and image processing.

Field testing of the product was initiated in 2008. Results of the Company’s multi-reader clinical study
demonstrated that the use of VeraLook improved reader sensitivity by 5.5% for patients with both small and
large polyps, and slightly reduced specificity of readers by 2.5%. The clinical relevance of VeraLook was
improved overall reader performance while maintaining high reader specificity.

VeraLook received FDA 510(k) clearance in 2010 and was CE marked in 2009.

The VeraLook CTC computer aided detection product is distributed globally by Vital Images, an affiliate of
Canon Group, and by Philips Healthcare in the U.S. market. VeraLook is integrated with the CTC applications of
both companies.

Cancer Therapy Segment

Background and Overview

Radiation therapy is the medical use of ionizing radiation, generally as part of cancer treatment to control or kill
malignant cells. Radiation therapy may be curative in a number of types of cancer if the cancer cells are localized
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-stage breast cancer). The clinical goal in radiation
oncology is to deliver the highest radiation dose possible directly to the tumor to kill the cancer cells while
minimizing radiation exposure to healthy tissue surrounding the tumor in order to limit complications and side
effects.

The three main types of radiation therapy are (i) external beam radiation therapy (“EBRT”), which involves a
radiation source positioned outside the body, (ii) brachytherapy, which uses sealed radioactive sources placed
precisely inside the body in the treatment area, and (iii) systemic radioisotopes, which are given by infusion or
oral ingestion. Brachytherapy uses temporary or permanent placement of radioactive sources.

Conventional EBRT typically involves multiple treatments of a tumor in up to 40 radiation sessions.
Brachytherapy offers the benefit of reduced radiation exposure to healthy tissues further away from the radiation

7

source. In addition, if the patient moves or if there is any tumor movement within the body during treatment, the
radiation source retains its correct position in relation to the tumor. Thus, brachytherapy offers an advantage over
EBRT in its ability to better direct high doses of radiation to the size and shape of the cancerous area while
sparing healthy tissue and organs.

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 utilizes a miniaturized high dose rate X-ray source to apply radiation directly to the
cancerous site.

Cancer Therapy

Introduction

The Xoft 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. It is FDA-cleared, CE marked and licensed in a growing
number of countries for the treatment of cancer anywhere in the body, including early-stage breast cancer,
non-melanoma skin cancers (“NMSC”), and gynecological cancers. The Xoft System utilizes a miniaturized high
dose rate, low energy X-ray source to apply radiation directly to the cancerous site. The goal is to direct the
radiation dose to the size and shape of the cancerous area while sparing healthy tissue and organs.

The Company’s commercial focus for the Xoft System in recent years has been the treatment of early-stage
breast cancer, gynecological cancers and NMSC. Emerging applications include a wide and growing array of
cancers including brain, prostate and rectal tumors. Given that the Xoft System has regulatory clearance for the
treatment of cancer anywhere in the body, treatments for emerging applications may not require additional
regulatory clearance.

The Xoft System delivers clinical dose rates similar to traditional radioactive systems. However, because of the
electronic nature of the Xoft System technology, the dose fall-off is faster. This lowers the radiation exposure
outside of the targeted area and eliminates the need for a dedicated shielded treatment environment such as that
required with traditional isotope-based radiation therapy. Because the Xoft System is relatively small in size, it
can easily be transported for use in virtually any clinical setting under radiation oncology supervision (including
the operating room where intraoperative radiation therapy (“IORT”) is delivered). Current customers of the Xoft
System include university research and community hospitals, cancer care clinics, veterinary facilities, and
dermatology offices that have established strategic partnerships with radiation oncology service providers for
supervised treatment delivery.

Cancer Therapy Products

Background and Overview

Approximately 300,000 women are diagnosed with breast cancer every year in the United States. Currently,
many early-stage breast cancer patients who are treated with radiation therapy follow a four-to-six-week daily
protocol of traditional external beam radiation, while a small portion are treated with brachytherapy. IORT aims
to simplify radiation treatment for early-stage breast cancer patients by delivering one precise dose of radiation
directly to the lumpectomy cavity in a single, safe and effective procedure. The Xoft System may also be used
for accelerated partial breast irradiation (“APBI”).

The Company continues to make enhancements to the Xoft System controller, including upgrades to the software
interface and the high voltage connection, and the Streamlined Module for Advanced Radiation Therapy
(“SMART”) platform which uses the Axxent Hub cloud-based oncology collaboration software solution. The
SMART platform is an adaptive, patient-centric solution designed to improve workflow efficiency, flexibility,

8

safety and security of a skin eBx program. This comprehensive platform provides all members of the care team
with a collaborative environment in which to manage patient workflow, and is Wi-Fi enabled, eliminating
challenges related to exchanging current, accurate patient data among providers.

The Company offers FDA-cleared applicators for the utilization of the Xoft System, including breast applicators
for IORT and APBI in the treatment of breast cancer, vaginal applicators for the treatment of endometrial cancer,
cervical applicators for the treatment of cervical cancer, and skin applicators for the treatment of NMSC. The
flexible single-use breast applicators are offered in a variety of sizes and lengths 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 Xoft System includes a 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 under an annual contract and is
customized to individual customer volume and usage requirements.

The primary applications of the Xoft System involve localized breast cancer treatment using a ten to fifteen-
minute breast IORT protocol. However, the Xoft System can also be used to treat a wide and growing array of
additional cancers, including NMSC, gynecological, various forms of brain cancer, including recurrent
glioblastoma (“GBM”), and other non-breast IORT clinical indications. The Company believes 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.

Approximately 297,000 cases of brain and nervous system tumors are diagnosed worldwide per year. GBM is the
most common and aggressive type of malignant primary brain tumor, with a median survival estimated to be 10
to 12 months. In 2020, the first metastatic brain tumor was treated in the United States with IORT using the Xoft
System. This procedure marked the start of a clinical trial at the James Graham Brown Center at the University of
Louisville on IORT for patients with large brain metastases treated with neurological resection with the Xoft
System. As of December 2020, researchers at the James Graham Brown Cancer Center had treated four patients
in this trial.

A retrospective analysis published in World Neurosurgery in 2019 by Alexey Krivoshapkin, MD, PhD, et al.
examined the repeat resection and the various methods of IORT for the treatment of malignant brain gliomas,
including high-energy linear accelerators and modern, integrated brachytherapy solutions using both solid and
balloon applicators.

The Xoft System is also currently being studied for the treatment of other types of brain tumors in various
institutions worldwide, including the European Medical Center, in Russia. In a matched study by Alexey Gaytan,
MD, PhD, neurosurgeon at the European Medical Center in Moscow, Russia, 30 patients were treated for
recurrent GBM. The IORT group was treated with a single fraction of radiation immediately following surgical
resection, without chemotherapy or temozolomide following surgery. The comparison group was treated with
routine postoperative adjuvant chemotherapy with or without concomitant or sequential EBRT.

Updated clinical findings from this study were presented at the American Society of Clinical Oncology Virtual
Scientific Program in May 2020. As of December 2019, overall survival was 27 months in the IORT group,
compared to 21 months in the EBRT group. The local progression free survival range for the IORT group was
between 3.5 and 39 months, compared to two to 10 months for the EBRT group. As of December
2019, eight patients from the IORT group were still alive, whereas none of the patients in the EBRT group
survived.

New data from this study were also presented at the EANS Virtual Congress in October 2020. As of May 2020,
five patients from the IORT group were still alive, whereas none of the patients in the EBRT group survived. The
survival of patients in the IORT group ranged from 16 to 59 months after the initial GBM diagnosis.

9

In 2020, iCAD announced the appointment of Santosh Kesari, MD, PhD, a world-renowned neuro-oncologist, as
Principal Investigator of an international multi-center clinical trial evaluating the Xoft System as the sole
radiation therapy to treat recurrent GBM following surgical excision of malignancy.

In addition, the Xoft System was used for the first time in Europe to treat brain cancer in 2020. The treatment
occurred at the Miguel Servet University Hospital in Spain, where a patient was treated for a brain metastasis
from Ewing’s Sarcoma.

There are approximately 3.5 million cases of NMSC diagnosed annually in the United States. The Xoft System is
a viable alternative treatment option for 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. Clinical data published from 2015 to 2017 demonstrates promising local control and
supports eBx as a convenient, effective, nonsurgical treatment option offering minimal toxicity and improved
cosmesis for eligible NMSC patients.

There are approximately 50,000 new cases of endometrial cancer each year in the United States and more than
800,000 new cases worldwide. In 2017, the first-ever European analysis of electronic brachytherapy using the
Xoft System for endometrial and cervical cancer treatment was presented at the European Society for
Radiotherapy and Oncology annual meeting. Researchers from Miguel Servet University Hospital in Zaragoza,
Spain presented promising study results demonstrating improved outcomes in acute toxicity in 29 endometrial or
cervical cancer patients treated with the Xoft System from September 2015 to September 2016. Additional
research showed that compared to an iridium isotope, the Xoft System delivered a lower dose of radiation to
surrounding healthy organs at risk, such as the bladder and rectum. In April 2019, two additional Spanish centers
announced adoption of the Xoft System, bringing the number of installations across Spain with the Xoft System
to seven, spread across four major regions.

In August 2018, the Xoft System received regulatory consent from India’s Atomic Energy Regulatory Board,
making the Company’s full suite of electronic brachytherapy products available to clinicians and patients across
India. In 2017, the Company’s balloon applicators were cleared by China’s National Medical Products
Administration (“NMPA”) for the treatment of early-stage breast cancer. With NMPA authorization, the
complete suite of Xoft System products is now available to clinicians and patients in China. In addition to the
Chinese market, the Company continues to build positive momentum and has regulatory authorization in key
geographies such as Spain, Australia, and Switzerland.

Additionally, electronic brachytherapy is appropriate for use in other IORT clinical settings where surgical
resection is unable to completely eliminate all cancer cells. The Company believes that IORT for prostate, pelvic,
gastrointestinal, abdominal, spinal, and soft tissue sarcoma applications are potential markets given the minimal
shielding requirements associated with this treatment modality. In September 2019, the Company unveiled new
and updated advancements for the Xoft System at the American Society for Radiation Oncology (“ASTRO”)
annual meeting. This included new applicators for minimally-invasive robotic surgery, including prostate, an
advanced prototype for early-stage rectal cancers, and extended-length balloon applicators, available in 25 cm
and 50 cm lengths, which offer added versatility and the potential for additional applications for the Xoft System
in different areas of the body. Based on these additional clinical applications and the potential to scale the Xoft
System in the future to address other indications for use, the Company believes the Xoft System offers unique
flexibility and opportunities for growth.

Studies

In 2016, Melinda Epstein, PhD, of Hoag Memorial Hospital Presbyterian in Newport Beach, California and
co-authors published two clinical papers on their experience with the Xoft System for the treatment of early-stage
breast cancer with IORT. In June 2016, the Annals of Surgical Oncology published data on 702 patients treated

10

from June 2010 to January 2016, demonstrating a 1.7% recurrence rate. Further, less than 5% of patients had
significant complications, indicating that IORT allows some women who cannot (or decline to) undergo whole
breast radiation to consider breast-conserving therapy rather than mastectomy. In August 2016, The Breast
Journal published 20-month mean follow-up data on 146 patients with pure ductal carcinoma in situ treated with
IORT. The data showed a 2.1% recurrence rate with relatively few complications and again concluded that x-ray
based IORT has the potential to be a promising treatment modality that may simplify the delivery of post-
excision radiation therapy.

In 2017, researchers from Hoag Memorial Hospital Presbyterian published another clinical paper in the Annals of
Surgical Oncology on their experience with the Xoft System in treating 204 early-stage breast cancers in a
prospective, X-ray IORT trial from June 2010 to September 2013. With a median follow-up of 50 months, results
indicated there were seven ipsilateral breast tumor events, no regional or distant recurrences, and no breast
cancer-related deaths. Kaplan-Meier analysis projects that 2.9% of patients will recur locally at 4 years. The
site’s low complication and recurrence rates support the cautious use and continued study of IORT in selected
women with low-risk breast cancer. The Hoag Memorial Hospital Presbyterian IORT series is currently the
largest single-facility IORT series with the Xoft System in the United States.

Also, in 2017, the Company announced results of a landmark study that demonstrated the economic benefits of
IORT compared to EBRT in the treatment of early-stage breast cancer. The analysis demonstrated that IORT
could result in direct cost savings for the U.S. healthcare system of more than $630 million over the lifetime of
patients diagnosed annually with early-stage breast cancer, as well as could significantly benefit patient health by
minimizing radiation exposure and offering a better quality of life. The results of the study were published in
November 2017 in the peer-reviewed Cost Effectiveness and Resource Allocation and the study determined
IORT to be the preferred method of treatment for early-stage breast cancer.

As the Company continues to focus on broadening global awareness and patient access to IORT, 2017 also
brought meaningful progress in the area of international research. Physicians from Taiwan published a clinical
paper in November 2017 in the peer-reviewed PLOS One journal. The multi-center study examined patient
selection and the oncologic safety of IORT with the Xoft System for the management of early-stage breast
cancer. From 2013 to 2015, 26 hospitals in Taiwan performed a total of 261 IORT procedures. With a mean
follow-up of 15.6 months, locoregional recurrence was observed in 0.8% of patients. The study concluded that
preliminary results of IORT in Taiwan showed it is well accepted by patients and clinicians.

Finally, in 2017, the Company announced that results of a matched-pair cohort study of 369 early-stage NMSC
patients treated with the Xoft System or Mohs micrographic surgery showed that rates of recurrence of cancer
were virtually identical at a mean follow-up of 3.4 years. Mohs micrographic surgery is accepted as the most
effective technique for removing basal cell carcinoma and squamous cell carcinoma. The study results were
published online in the peer-reviewed Journal of Contemporary Brachytherapy.

In 2018, several additional key pieces of clinical evidence supporting IORT with the Xoft System were
published. With a mean follow-up of 55 months, outcomes published in The American Journal of Surgery
showed that breast cancer recurrence rates of patients who were treated with IORT using the Xoft System and
complied with adjuvant medical therapy were comparable to those seen in the cornerstone TARGIT-A study,
which evaluated IORT but did not use the Xoft System. The study reviewed results of 184 patients with breast
cancer from November 2011 to January 2016 completing Institutional Review Board (“IRB”)-approved IORT
protocol. The recurrence rate for the 184 total IORT patients was 5.4 percent at a mean follow-up of 55 months;
however, the recurrence rate was 2 percent lower for the patients who complied with adjuvant medical therapy.
The difference in recurrence rates between the group complying with versus declining adjuvant medical therapy
was statistically significant. To date, this study presents the most long-term research of IORT using the Xoft
System published in a peer-reviewed journal.

Further in 2018, a long-term study of 1,000 tumors performed at Hoag Memorial Hospital Presbyterian and in the
Annals of Surgical Oncology showed that IORT is a clinically effective, faster and easier alternative to whole

11

breast radiation therapy following breast-conserving surgery for selected low-risk patients at a median follow-up
of 36 months. To date, this study presents analysis of the largest series of early-stage breast cancers treated with
IORT using the Xoft System published in a peer-reviewed journal.

In 2019, study results from the first cervical cancer cases for eight patients treated with the Xoft System at the
Hospital Universitario Miguel Servet in Zaragoza, Spain were published in the Journal of Applied Clinical
Medical Physics. Researchers found the treatment offered promising results at 1 month follow up, with no
recurrences and low toxicity. The study concluded that electronic brachytherapy is a good alternative to treating
cervical cancer in centers without access to conventional high-dose-rate interstitial brachytherapy.

Clinical data supporting the Xoft System for the treatment of various gynecological cancers, including cervical
and uterine, were also presented in 2019 at the European Society for Radiotherapy and Oncology meeting by
researchers from the Hospital Universitario Miguel Servet and the Jewish General Hospital in Montreal, Québec,
Canada. A study conducted by researchers from the Hospital Universitario Miguel Servet concluded that
electronic brachytherapy is an alternative to high dose-rate brachytherapy with a good rate of overall survival and
progression free disease. The retrospective study conducted by researchers at the Jewish General Hospital
suggested that electronic brachytherapy could replace high-dose-rate brachytherapy in uterine cancer with similar
target coverage, maximum dose to surrounding structures, and treatment times and that additional studies would
be needed to evaluate efficacy.

Preliminary results of the Company’s international, multi-center clinical trial in the Xoft System were unveiled
during an oral presentation at the 60th ASTRO annual meeting at the Henry B. Gonzalez Convention Center in
San Antonio, Texas on October 23, 2018. In the presentation, A.M. Nisar Syed, MD, Principal Study
Investigator, Medical Director, Radiation Oncology & Endocurietherapy, MemorialCare Cancer Institute, Long
Beach Memorial Medical Center, and Professor of Radiation Oncology, UCI Medical Center and Harbor-UCLA
School of Medicine, detailed clinical techniques and outcomes of IORT using the Xoft System at the time of
breast conserving surgery with findings based upon ASTRO suitability criteria. The trial enrolled 1,200 patients
between May 2012 and July 2018 at 28 international and U.S.-based institutions. With a median follow up of 1.6
years, less than one percent of patients had cancer regrowth (ipsilateral recurrence) or developed new primary
cancers in the other breast. Treatment was generally well tolerated with grade 3, 4 and 5 adverse events occurring
in 37 patients. Mean treatment time was 10.5 minutes.

At the ASTRO Virtual Annual Meeting in October 2020, researchers presented new data supporting the Xoft
System for the treatment of early-stage breast cancer and endometrial cancer. In a study involving 1,200 patients
with early-stage breast cancer treated with the Xoft System from May 2012 to July 2018 across 27 institutions
worldwide, researchers concluded that IORT with the Xoft System is safe, with low morbidity, low local
recurrence and excellent cosmetic results. In a study of 236 patients with endometrial cancer from September
2015 to May 2020, with a median follow up of 34 months, researchers concluded the Xoft System is a feasible
alternative to HDR brachytherapy for the treatment of endometrial cancer that offers long-term benefits for
patients, staff and the overall healthcare system.

Researchers from Miguel Servet University Hospital in Spain presented several studies supporting the
Xoft System at the European Society for Radiotherapy & Oncology
(ESTRO) virtual meeting in November 2020. In a study analyzing 193 patients from 2015 to 2019, where one
group was treated with the Xoft System combined with external radiation and one group was treated with the
Xoft System, researchers established electronic brachytherapy for endometrial cancer as a feasible alternative to
HDR brachytherapy, equal in effectiveness to Iridium 192, with long-term benefits for patients. Researchers
concluded that the Xoft System provided the same dosimetric coverage in the area of treatment as traditional
brachytherapy with a marked reduction in dosage to organs at risk.

In another study presented at ESTRO 2020, researchers created 3D printed anatomic models that allowed them to
create simulations to measure possible radiation doses in nearby organs, such as the lung and heart, where it is

12

not possible to place a detector to perform in vivo dosimetry. Results calculated the maximum doses
to radiochromic film representing the left lung and heart of 20 patients treated from the left breast measured
retrospectively. Researchers concluded it was possible to measure and verify doses in the lung and heart for
IORT treatments, enabling more accurate recommendations for a particular type of treatment.

A third study presented at ESTRO 2020 examined the results of 480 patients treated with IORT from May 2015
to October 2019 with treatment verification and in vivo dose measurements to understand the in vivo dose in the
skin. Researchers concluded the skin doses were low with less than 1% of the cases exhibiting early toxicity of
acute grade 3 dermatitis and no cases of higher grade dermatitis.

Sales and Marketing

Cancer Detection

In November 2020, iCAD announced that more than 1,000 ProFound AI licenses had been sold since the product
was launched, and the Company has now sold almost 1,200 licenses through December 31, 2020. In North
America, iCAD sells its AI mammography products through a direct regional sales force and through the
Company’s OEM partners, which include GE Healthcare, Hologic, Fujifilm Medical Systems, and Siemens
Medical Systems. In Europe, the Company has also developed reseller relationships with regional distributors,
which it plans to expand. In 2019, the Company announced that its Breast Health Solutions suite will be available
on the Nuance AI Marketplace, the first portal for improving radiologist productivity with one-stop access to a
wide range of AI diagnostic models from within the industry’s most widely used radiology reporting platform.
This portal will provide the Company’s consolidated, at-scale access to users of Nuance PowerScribe, the
radiology reporting system trusted by approximately 80 percent of U.S. radiologists and its PowerShare Network,
which connects more than 8,000 healthcare organizations.

In 2020, iCAD signed a distribution agreement with Change Healthcare, a leading independent healthcare
technology company focused on insights, innovation and accelerating the transformation of the U.S. healthcare
system. The agreement will expand access to ProFound AI for more hospitals and imaging centers across North
America.

Additionally, as part of its sales and marketing efforts, the Company engages in a variety of public relations and
local outreach programs with numerous customers and continues to cultivate relationships with industry leaders
in breast cancer solutions, including at trade shows where the future of medical image analysis solutions is
discussed.

Cancer Treatment

iCAD markets the Xoft System in the United States and select countries worldwide through its wholly-owned
subsidiary, Xoft, Inc. (“Xoft”). In the United States, Xoft utilizes a direct sales force and selected partners. Xoft
has established partnerships in Australia, Bangladesh, Bulgaria, China, Egypt, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Russia, Saudi Arabia, Spain, Sweden, Switzerland, Taiwan, Turkey, and
the United Kingdom. Additionally, further commercial efforts are being targeted in Central and South America.

A comprehensive medical education program is a key part to the Company’s eBx market development strategy.
Xoft actively participates in key industry scientific conferences and independent venues in the United States and
Europe where we provide professional education programs and product demonstrations relating to eBx. The goal
of these programs and demonstrations is to broaden physician awareness of the Xoft System and eBx technology.

Competition

The Company 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

13

financial, technical and human resources than iCAD and are well-established in the healthcare market. In
addition to the existing technologies or products that compete with the Company’s products, some companies
may develop technologies or products that compete with the products the Company manufactures and distributes
or that would render our products obsolete or noncompetitive. Moreover, competitors may achieve patent
protection, regulatory approval, or product commercialization before we do, which would limit our ability to
compete with them. We believe that efficacy, safety profile, cost, and reimbursement are the primary competitive
factors that will affect the success of our products.

Cancer Detection

The Company currently faces direct competition in its cancer detection and breast density assessment businesses
from Hologic (Marlborough, MA), Volpara (Rochester, NY), ScreenPoint Medical (Nijmegen, Netherlands),
Densitas (Halifax, Nova Scotia, Canada), and Therapixel (Paris, France). The Company believes that its market
leadership in mammography cancer detection, density assessment, risk assessment and strong relationships with
its strategic partners will provide it with a competitive advantage in the cancer detection and breast density
assessment businesses.

The Company’s VeraLook product faces competition from the traditional imaging CT equipment manufacturers
and emerging CAD companies. Siemens Medical (Tarrytown, NY), GE Healthcare (Chicago, IL), and Philips
Medical Systems (Andover, MA) currently offer polyp detection products outside the United States. A significant
barrier to adoption in the United States has been a lack of reimbursement for CTC for colon cancer screening.
The Company expects that CT manufacturers will offer a colonic polyp detection solution as an advanced feature
of their image management and display products typically sold with their CT equipment, but current regulatory
requirements for the sector present a significant barrier to entry and the Company believes that its market
leadership in mammography AI may provide it with a competitive advantage within the CTC community.

Cancer Treatment

The Company’s eBx products face competition in breast IORT primarily from Carl Zeiss Meditec (“Zeiss”)
(Dublin, CA), which has an established base of breast IORT installations in Europe. Zeiss manufactures and sells
eBx products for the delivery of IORT, for both breast and additional anatomical areas, including the spine,
gastrointestinal tract, skin, and endometrial cancers. Sensus Healthcare (Boca Raton, FL) and IntraOp Medical
(Sunnyvale, CA) are other competitors in the breast IORT market.

The expansion of the Company’s gynecological product portfolio and new IORT applications beyond breast
IORT have increased the competitive dynamic of the Company’s business. Larger and more diversified radiation
therapy companies offer a wide variety of clinical solutions for HDR brachytherapy, including Varian Medical
Systems (Milpitas, CA) and Elekta (Stockholm, Sweden). These companies offer broad product portfolios, which
include a full range of HDR brachytherapy afterloaders and applicators, traditional radiation therapy solutions,
treatment planning solutions, and workflow management capabilities.

The Company’s NMSC products face competition from other mobile non-surgical treatment options (such as
Sensus Healthcare’s Surface Radiation Therapy system and Elekta’s Esteya system), surgical treatment options
and traditional radiation therapy.

In September 2020, Centers for Medicare & Medicaid Services (“CMS”) issued a final rule establishing the
Radiation Oncology Advanced Payment Model, a bundled payment model for radiotherapy treatment that
incentivizes physician selection of high quality, lower cost treatment modalities like Xoft’s electronic
brachytherapy for treatment of breast and other cancers. In the final notice, CMS did not include IORT
treatments (including CPT codes 77424 and 77425) within the new alternative payment model for radiation
oncology. As a result, whether or not a particular physician practice or hospital is subject to the new radiation
oncology payment model, IORT services covered by Medicare will continue to be subject to the existing

14

payment systems for physician services and hospital outpatient services. The model was supposed to begin in
2021, but Congress passed legislation to delay the start of the new payment model until 2022.

Stakeholders are encouraging CMS to make significant changes to the model before it takes effect. Medicare has
not yet posted the final version of the rule outlining the details of the program.

Manufacturing and Professional Services

The Company manufactures and assembles its CAD products. When a product sale is made to an end-customer
by one of the Company’s OEM partners, it is usually installed at the customer site by the OEM partner or the
Company. When iCAD makes a product sale directly to the end customer, the product is generally installed by
iCAD personnel at the customer site.

iCAD’s professional services staff provides comprehensive product support on a pre-sales and post-sales basis.
Product support includes pre-sale product demonstrations, product installations, applications training, and
technical support. The Company’s support center is a single point of contact for the end-customer, and provides
remote diagnostics, troubleshooting, training, and service dispatch. Service repair efforts are generally performed
at the customer site by third party service organizations or in the Company’s repair depot by the Company’s
repair technicians.

Xoft’s portable Xoft System is manufactured and assembled by contract manufacturers. Xoft’s miniaturized eBx
X-ray source is manufactured by the Company at its San Jose, CA facility. Once the product has shipped, it is
typically installed by Xoft personnel at the customer site.

Xoft’s professional services staff provides comprehensive product support, physician support, radiation therapists
and billing support on a pre-sales and post-sales basis. Field service staff is involved in product installation,
maintenance, training and service repair. Customer service staff provides pre-sale product demonstrations,
customer support, troubleshooting, service dispatch and call center management.

Government Regulation

The Company’s operations, products and customers are subject to extensive government regulation by numerous
government agencies. Our software, hardware systems and related accessories are regulated as medical devices in
each of the jurisdictions where we operate, and our customers are subject to applicable provider quality
standards.

Manufacturing and Sales

In the United States, numerous laws and regulations govern the processes by which our products are brought to
market. These include the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations,
which govern, among other things, quality standards for product development, manufacturing, testing, labeling,
storage, premarket clearance or approval, advertising and promotion, sales and distribution, and post-market
surveillance of medical devices.

For devices, in the United States, FDA’s premarket clearance or approval process controls the entry of products
into the market, unless a device is exempt from premarket review. Whether a product requires clearance (510(k)
premarket notification) or approval (premarket approval, “PMA”) depends on the FDA’s risk-based classification
of the device. Some of our products require submission of a premarket notification demonstrating that our device
is at least as safe and effective, that is, “substantially equivalent” to a legally marketed device that is not required
to be approved under a PMA. Once we receive an order from FDA declaring our device to be substantially
equivalent, our product is “cleared” for commercial marketing in the United States. Other products of ours
require submission of a PMA, which requires non-clinical and clinical data supporting the safety and

15

effectiveness of the device. Once we receive FDA approval of our PMA application based on FDA’s
determination that the application contains sufficient, valid scientific evidence to assure that the device is safe
and effective for its intended use(s), we may market the device.

After our products enter the market, we and our products continue to be subject to FDA regulation. For example,
the FDA Quality System Regulations (“QSR”) require manufacturers to establish a quality system including
extensive design, testing, control, documentation and other quality assurance procedures designed to ensure that
their products consistently meet applicable FDA requirements and manufacturer specifications. Our third-party
manufacturers are also required to comply with applicable parts of the QSR. Manufacturers are subject to
periodic inspections by the FDA to determine compliance with QSR. If at the conclusion of an inspection, FDA
has made any observations that may constitute violations of applicable requirements, it may issue an FDA Form
483 (“483”) requiring corrective action within a limited amount of time. If any observations are not addressed
and/or corrective action taken, FDA may issue a warning letter and or take other enforcement action. The
Company also is subject to FDA regulations covering labeling and adverse event reporting as well as the FDA’s
general prohibition against promoting products for unapproved or “off-label” uses. Failure to comply fully with
applicable regulations could lead to delayed marketing clearance or approval or enforcement action, including
483s, warning letters, product seizures, import/export refusal, civil or criminal penalties, injunctions, and
criminal prosecution.

Similarly, medical device regulators in other jurisdictions require various levels of clearance, approval,
certification, licensure and/or consent before regulated medical devices can be lawfully commercialized in those
jurisdictions as well as ongoing compliance with manufacturing and other regulatory requirements. These
approvals, the time required for regulatory review, and the continuing compliance requirements vary by
jurisdiction. Obtaining and maintaining foreign regulatory approvals and maintaining compliance is an expensive
and time-consuming process. Increasingly, medical device manufacturers are adopting globally harmonized
quality standards as developed by the International Organization for Standardization, and risk management
standards. Manufacturers of software as a medical device are further subject to specific security standards.

Additionally, the U.S. government regulates the transfer of information, commodities, technology and software
considered to be strategically important to the United States in the interest of national security, economic and/or
foreign policy concerns. A complicated network of federal agencies and inter-related regulations in the United
States that govern exports, collectively referred to as “Export Controls.” These regulate the shipment or transfer,
by whatever means, of controlled items, software, technology, or services out of the United States. Exported
medical products are also subject to the regulatory requirements of each country to which the medical product is
exported.

Healthcare Laws

The Company is also subject to a variety of federal and state regulations in the United States and regulations in
other jurisdictions that relate to our interactions with healthcare practitioners, government officials, purchasing
decision makers, and other stakeholders across healthcare systems. These regulations, discussed in more detail
below, include among others, the following:

•

anti-kickback, false claims, and physician self-referral statutes;

• U.S. state laws and regulations regarding fee splitting and other relationships between healthcare

providers and non-professional entities, such as companies that provide management and
reimbursement support services;

•

anti-bribery laws, such as the U.S. Foreign Corrupt Practices Act, the UK Anti-Bribery Act, the
Canadian Corruption of Foreign Public Officials Act, and guidance promulgated by certain multi-
national groups, such as the United Nations Convention Against Corruption and the Organization for
Economic Cooperation and Development Convention on Combatting Bribery of Foreign Public
Officials in International Business Transactions;

16

•

•

laws regulating the privacy and security of health data, protected health information and personally
identifiable information. These include the U.S. Health Insurance Portability and Accountability Act of
1996 (“HIPAA”), the Health Information Technology for Economic and Clinical Health Act, the
General Data Protection Regulation (“GDPR”) in the EU, and the Personal Information Protection and
Electronic Documents Act in Canada; and

healthcare reform laws in the United States, such as the Affordable Care Act (“ACA”) and the 21st
Century Cures Act, which include new regulatory mandates and other measures designed to reduce the
rate of medical inflation. These include, among other things, stringent new reporting requirements of
financial relationships between device manufacturers and physicians and teaching hospitals.

These laws and regulations are extremely complex, open to interpretation, and, in some cases, still evolving. If
our operations are found to violate any of the foreign, federal, state or local laws and regulations which govern
our activities, we may be subject to litigation, government enforcement actions, and applicable penalties, which
could include civil and criminal penalties, damages, fines, exclusion from participation in certain payer programs
or curtailment of our operations. Compliance obligations under these various laws are often detailed and onerous,
further contributing to the risk that we could be found to be out of compliance with particular requirements. The
risk of being found in violation of these laws and regulations is further increased by the fact that many of them
have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a
variety of interpretations.

The FDA, CMS, the Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), the
Department of Justice, states’ attorneys general and other governmental authorities actively enforce the laws and
regulations discussed above. In the United States, medical device companies have been the target of numerous
government prosecutions and investigations alleging violations of law, including claims asserting impermissible
off-label promotion of medical devices, payments intended to influence the referral of federal or state healthcare
business, and submission of false claims for government reimbursement. While we make every effort to comply
with applicable laws, we cannot rule out the possibility that the government or other third parties could interpret
these laws differently and challenge our practices under one or more of these laws. The risk of liability under
certain federal and state laws is increased by the right of individual plaintiffs, known as relators, to bring an
action alleging violations of such laws and potentially be awarded a share of any damages or penalties ultimately
awarded to the applicable government body. Violations of these laws may lead to civil and criminal penalties,
damages, fines, exclusion from participation in certain payer programs or curtailment of our operations.

We are subject to numerous laws governing safe working conditions, manufacturing practices, environmental
protection, fire hazard control and disposal of hazardous or potentially hazardous substances, among others, both
at the U.S. federal and state levels, and similar laws in other jurisdictions. We may be required to incur
significant costs to comply with these laws and regulations in the future, which may result in a material adverse
effect upon our business, financial condition and results of operations.

Federal, state, and foreign regulations regarding the manufacture and sale of medical devices and management
services and software are subject to future change. We cannot predict what impact, if any, such changes might
have on our business.

Anti-Kickback Laws

The federal Anti-Kickback Statute (“AKS”) prohibits persons from knowingly or willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, in exchange for or to induce:

•

•

the referral of an individual for a service or product for which payment may be made by Medicare,
Medicaid or other government-sponsored healthcare program; or

purchasing, ordering, arranging for, or recommending the ordering of, any service or product for which
payment may be made by a government-sponsored healthcare program.

17

The AKS is broad and prohibits many arrangements and practices that are lawful in businesses outside of the
healthcare industry. The statutory penalties for violating the AKS include imprisonment for up to ten years and
fines of up to $100,000 per violation. In addition, through application of other laws, conduct that violates the
AKS can also give rise to False Claims Act (“FCA”) lawsuits and other penalties.

Congress and the HHS-OIG have established a large number of statutory exceptions and regulatory safe harbors.
An arrangement that fits squarely into an exception or safe harbor is immune from prosecution under the AKS.
We train and educate employees and marketing representatives on the AKS and their obligations thereunder, and
we endeavor to comply with the applicable safe harbors. However, the failure to comply with the exceptions and
safe harbor requirements does not always impose liability under the AKS, as long as the arrangement does not
implicate the principal policy objectives. Thus, some of our arrangements that may not be covered by a safe
harbor, like many other common and non-abusive arrangements, nevertheless likely do not pose a material risk of
program abuse or warrant the imposition of sanctions because they do not implicate any of the AKS’s principal
policy objectives. However, we cannot offer assurances that, with respect to any arrangements that do not
squarely meet an exception or safe harbor, we will not have to defend against alleged violations of the AKS.
Allegations of violations of the AKS also may be brought under the federal Civil Monetary Penalty Law, which
requires a lower burden of proof than other fraud and abuse laws, including the AKS.

Government officials have focused recent kickback enforcement efforts on, among other things, the sales and
marketing activities of healthcare companies, including medical device manufacturers, and have brought cases
against individuals or entities with personnel who allegedly offered unlawful inducements to potential or existing
customers in an attempt to procure their business. This trend is expected to continue. Settlements of these cases
by healthcare companies have involved significant fines and/or penalties and in some instances criminal pleas or
deferred prosecution agreements.

In addition to the federal AKS, many states have their own anti-kickback laws. Often, these laws closely follow
the language of the federal 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 payment made by a government health care
program but also with respect to other payers, including commercial insurance companies.

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

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 provision of such services, including clinical laboratory services, radiology and other imaging
services and certain other diagnostic services. These laws and regulations also prohibit such entities from billing
for services provided in violation of the laws and regulations.

This federal ban on physician self-referrals, commonly known as the “Stark Law,” prohibits, subject to certain
exceptions, physician referrals of Medicare and Medicaid patients to an entity providing certain “designated
health services” if the physician or an immediate family member of the physician has any financial relationship
with the entity. The Stark Law also prohibits the entity receiving the referral from billing for any good or service
furnished pursuant to an unlawful referral. It further obligates any person collecting any amounts in connection
with an unlawful referral to refund these amounts. A person who engages in a scheme to circumvent the Stark
Law’s referral prohibition may be fined up to $172,137 for each such arrangement or scheme. The penalties for
violating the Stark Law also include civil monetary penalties of up to $25,820 per service, and could result in

18

denial of payment, disgorgements of reimbursement received under a non-compliant agreement, and possible
exclusion from Medicare, Medicaid or other federal healthcare programs.

In addition to the Stark Law, many states have their own self-referral laws. Often, these laws closely follow the
language of the federal law, although they do not always have the same scope, exceptions, safe harbors or
sanctions. In some states these self-referral laws apply not only to payment made by a government health care
program but also payments made by 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 referring patients to that provider, even if the referral itself is not prohibited.

We have financial relationships with physicians in the form of equipment leases and services arrangements. Our
financial relationships with referring physicians and their immediate family members must comply with the Stark
Law by meeting an applicable exception. Unlike the AKS, failure to meet an exception under the Stark Law
results in a violation of the Stark Law, even if such violation is technical in nature. We attempt to structure our
relationships to meet a Stark Law exception, but the regulations implementing the exceptions are detailed and
complex, and underwent significant changes in 2020, and therefore, we cannot provide assurance that every
relationship complies fully with the Stark Law.

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 jurisdictions, new interpretations of laws in our existing
jurisdictions, 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.

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, or exclusion from participation in
federal healthcare programs which could have a material adverse effect on our business, financial condition and
results of operations.

False Claims Laws

The federal FCA prohibits any person from knowingly presenting, or causing to be presented, a false claim or
knowingly making, or causing to made, a false statement to obtain payment from the federal government. If we
violate the AKS or Stark Law, improperly bill for our services, retain overpayments longer than 60 days after
identification, or fail to act with reasonable diligence to investigate credible information regarding potential
overpayments, we may be found to violate the federal FCA.

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 $11,803 to $23,607 per false claim or statement. The qui tam
or “whistleblower” provisions of the FCA 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, causing greater numbers of healthcare companies, including medical device manufacturers, to
defend false claim actions, pay damages and penalties or be excluded from Medicare, Medicaid or other federal
or state healthcare programs.

In addition, various states have enacted false claim laws analogous to the FCA, and this legislative activity is
expected to increase. Many of these state laws apply where a claim is submitted to any third-party payer and not
merely a federal healthcare program.

19

Increased Regulatory Scrutiny of Relationships with Healthcare Providers

Certain state governments and the federal government have enacted legislation, including the Physician
Payments Sunshine Act provisions under the ACA, aimed at increasing transparency of our interactions with
healthcare providers. As a result, we are required by law to disclose payments, gifts, and other transfers of value
to certain healthcare providers in certain states and to the federal government. Any failure to comply with these
legal and regulatory requirements could result in a range of fines, penalties, and/or sanctions, and could affect our
business. We have devoted and will continue to devote substantial time and financial resources to develop and
implement enhanced structure, policies, systems and processes to comply with these enhanced legal and
regulatory requirements, which may also impact our business.

U.S. Coverage and Reimbursement

In the United States, the federal and state governments establish guidelines and pay reimbursements to hospitals,
freestanding clinics (independent diagnostic treatment facilities), and medical professionals for diagnostic
examinations and therapeutic procedures under the federal Medicare program and the joint federal/state Medicaid
program. CMS reviews and adjusts Medicare and Medicaid coverage policies and reimbursement levels
periodically and considers various Medicare and other healthcare reform proposals that could significantly affect
private and public reimbursement for healthcare services. State governments determine Medicaid reimbursement
pursuant to state law and regulations. Many third-party payers use coverage decisions and payment amounts
determined by CMS to set their coverage and reimbursement policies.

Because we expect to receive payment for our products directly from our customers, we do not anticipate relying
directly on payment for any of our products from third-party payers, such as Medicare, Medicaid, commercial
health insurers and managed care companies. However, our business will be affected by coverage and payment
policies adopted by federal and state governmental authorities for Medicare and Medicaid, as well as private
payers, which often follow the coverage policies of these public programs. Such policies may affect which
products customers purchase and the prices they are willing to pay for those products in a particular jurisdiction.
For example, our business will be indirectly impacted by the ability of a hospital or medical facility to obtain
coverage and third-party reimbursement for procedures performed using our products. Third-party payers may
deny coverage or pay an amount for the procedure that healthcare providers deem inadequate, which could cause
such providers to use a lower-cost product from our competitors or perform a medical procedure without our
device.

Reimbursement decisions by individual third-party payers depend upon each third-party payer’s evaluation of a
number of factors, including some or all of the following:

• whether the product or service is a covered benefit under its health plan;

• whether the product or service is appropriate and medically necessary for the specific indication;

•

cost effectiveness of the product or service;

• whether the product is being used in a manner consistent with its FDA-approved or cleared label (i.e.,

“on-label”); and

•

a determination that the product or service is neither experimental nor investigational (e.g., that its use
is supported by relevant evidence in the peer reviewed literature, its use is supported by medical
professional society treatment guidelines).

In 2016, the American Medical Association (“AMA”) implemented a skin-specific Category III CPT code for
electronic brachytherapy for the treatment of NMSC. Reimbursement for the treatment delivery may be provided
through the Category III CPT code, 0394T, which covers high dose rate electronic brachytherapy, skin surface
application, per fraction, and includes basic dosimetry, when performed. There are additional Category I CPT
codes reportable with the service as determined by physician orders, medical necessity, and documentation.

20

Coverage policies and payment values associated with CPT code 0394T are determined by the regional Medicare
Administrative Contractors. Though some Medicare Administrative Contractors do not reimburse for CPT code
0394T, there are several others that either have published rates for the 0394T code or reimburse on a
case-by-case basis.

Category III CPT codes are designed as temporary codes for experimental services. Without further action by the
AMA, Category III CPT codes sunset five years after the initial publication or extension of the code. The AMA
has accepted the retention of CPT code 0394T, extending the code until 2025. At that time, CPT code 0394T may
receive a Category I CPT code. Alternatively, the AMA may determine the code should be further extended or
archived.

The healthcare industry in the United States is increasingly focused on cost containment as government and
private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced
contract rates with third-party payers. The ACA went into effect in 2012 and in subsequent years. While 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, there could be negative consequences on patient access to
new technologies. Other elements of this legislation, including comparative effectiveness research, payment
system reforms (such as shared savings pilots) and other provisions, could meaningfully change the way
healthcare is delivered and paid for in the United States, and may materially impact numerous aspects of our
business, including the demand for and availability of our products, the reimbursement available for our products
from governmental and third-party payers, and reduced medical procedure volumes.

On September 18, 2020, CMS finalized a rule regarding its new Radiation Oncology model (the “RO Model”),
designed, according to CMS, to improve the quality of care for cancer patients receiving radiotherapy and reduce
Medicare expenditures through bundled payments. In the final notice, CMS did not include IORT treatments
(including CPT codes 77424 and 77425) within the new alternative payment model for radiation oncology. As a
result, whether or not a particular physician practice or hospital is subject to the new radiation oncology payment
model, IORT services covered by Medicare will continue to be subject to the existing payment systems for
physician services and hospital outpatient services. On December 2, 2020, an interim final rule was published by
CMS, to take effect no earlier than January 1, 2022.

We are evaluating the effect that changes and proposed changes to the ACA and Biden Administration policies,
and the adopted RO Model by the CMS, may have on our business. We cannot predict whether the ACA will be
repealed, replaced, or modified or how such repeal, replacement or modification may be timed or structured. As a
result, we cannot quantify or predict the effect of such repeal, replacement, or modification might have on our
business and results of operations. However, any changes that lower reimbursement for our products or reduce
medical procedure volumes could adversely affect our business and results of operations.

Reimbursement in Other Jurisdictions

Typically, coverage and payment for healthcare products and services in other jurisdictions is determined
through a public tender process that takes into consideration the results of a cost-effectiveness or value analysis
conducted by a federal government-level technology assessment group, and through reference to coverage and
payment policies established for the same or similar product/service in comparable jurisdictions.

Market acceptance of our medical products in both the United States and other countries is dependent upon the
purchasing and procurement practices of our customers, patient demand for our products and procedures, and the
reimbursement policies of patients’ medical expenses set by government healthcare programs, private insurers or
other healthcare payers.

21

Intellectual Property

The Company primarily relies on a combination of patents, trade secrets and copyright law, third-party and
employee confidentiality agreements, and other protective measures to protect its intellectual property rights
pertaining to its products and technologies.

The Company has certain patents to its ongoing programs that expire between 2021 and 2029. These patents help
the Company maintain a proprietary position in its markets. The Company does not believe that the patents
expiring in 2021 are material to its business. Additionally, the Company has a number 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 cancer detection technologies
and products, including cancer detection solutions for tomosynthesis, CAD for CT colonography and lung and
CAD for MRI breast and prostate. 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 from
Cytyc/Hologic which relates to balloon applicators for breast brachytherapy, and a non-exclusive license from
Zeiss which relates to brachytherapy.

Sources and Availability of Materials

The Company depends upon a limited number of suppliers and manufacturers for its products, and certain
components in its products may be available from a sole or limited number of suppliers. The Company’s
products are generally either manufactured and assembled by a sole manufacturer or a limited number of
manufacturers or assembled by it from supplies it obtains from a limited number of suppliers. Critical
components required to manufacture these products, whether by outside manufacturers or directly, may be
available from a sole or limited number of component suppliers. The Company generally does not have long-
term arrangements with any of its manufacturers or suppliers.

Engineering and Product Development

Our products have been developed by our own research and development staff or were developed by the
companies we acquired. Research and development expenses are primarily attributable to personnel, consulting,
subcontract, licensing and data collection expenses relating to the Company’s new product development and
clinical testing. We believe our products are competitive and that none of the current versions of our products are
approaching obsolescence. We have invested, and expect to continue to invest in new research and development
and enhancements of our current products to maintain our competitive position. For the years ended
December 31, 2020, 2019 and 2018, we incurred $8.2 million, $9.4 million, and $9.6 million of research and
development expense, respectively.

Human Capital Resources

As of December 31, 2020, the Company had 114 employees, of whom 113 are full time employees, with 42
involved in sales and marketing, 28 in research and development, 30 in service, manufacturing, technical support
and operations functions, and 14 in administrative functions. None of the Company’s employees are represented
by a labor organization. The Company considers its relations with employees to be good.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and
integrating our existing and future employees, advisors and consultants. In addition to competitive base salaries,
the other competitive benefits that we provide to employees include incentive plans, and paid vacation. The
principal purposes of these employee benefits are to attract, retain, reward and motivate our personnel and to
provide long-term incentives that align the interests of employees with the interests of our stockholders.

22

Foreign Regulations

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 approvals is an expensive and time-consuming process. We cannot be certain that
we will be able to obtain the necessary regulatory approvals timely or at all in any foreign country in which we
plan to market our CAD products and the Xoft System, and if we fail to receive and maintain such approvals, our
ability to generate revenue may be significantly diminished.

Available Information

The Company files annual, quarterly and current reports, proxy or stockholder information statements and other
information with the SEC. The SEC maintains a website that contains reports, proxy and information statements,
certain and other information that we may file electronically with the SEC (http://www.sec.gov). We also make
available for download free of charge through our website our annual report on Form 10-K, our quarterly reports
on Form 10-Q and 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 (the “Exchange Act”) as soon as
reasonably practicable after we have filed it electronically with, or furnished it to, the SEC. We maintain our
corporate website at http://www.icadmed.com. Our website and the information contained therein or connected
thereto are not incorporated into this Annual Report on Form 10-K.

Item 1A. Risk Factors.

We operate in a changing environment that involves numerous known and unknown risks and uncertainties that
could materially adversely affect our operations. The following highlights some of the factors that have affected,
and/or in the future could affect, our operations.

The following is a summary of certain important factors that may make an investment in our company
speculative or risky. You should carefully consider the fuller risk factor disclosure set forth in this Annual
Report, in addition to the other information herein, including the section of this report titled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and
related notes.

• We have incurred significant losses from inception through 2020 and there can be no assurance that we

will be able to achieve and sustain future profitability.

• Our quarterly and annual operating and financial results and our gross margins are likely to fluctuate

significantly in future periods.

• We expect the novel coronavirus (COVID-19) pandemic to have a significant effect on our results of
operations. In addition, it has resulted in significant financial market volatility, and its impact on the
global economy appears to be significant. A continuation or worsening of the pandemic will have a
material adverse impact on our business, results of operations and financial condition and on the
market price of our common stock.

• The markets for our products and treatments and newly introduced enhancements to our existing

products and treatments may not develop as expected, we continue to face barriers to broad market
acceptance.

• An unfavorable resolution of the Yeda litigation could have a material adverse effect on our business,

financial condition, results of operations and cash flows.

•

Sales and market acceptance of our products is dependent upon the coverage and reimbursement
decisions made by third-party payers, including carve-out radiology benefits managers. The failure of

23

third-party payers to provide appropriate levels of coverage and reimbursement, and/or meeting prior
authorization and other requirements for approval to use our products and treatments facilitated by our
products could harm our business and prospects.

• A limited number of customers account for a significant portion of our total revenue. The loss of a

principal customer could seriously hurt our business.

• The markets for many of our products are subject to changing technology.

• We distribute our products in highly competitive markets and our sales may suffer as a result.

• We rely on intellectual property and proprietary rights to maintain our competitive position and may

not be able to protect these rights.

• Our future prospects depend on our ability to retain current key employees and attract additional

qualified personnel.

• The market price of our common stock has been, and may continue to be volatile, which could reduce

the market price of our common stock.

•

Future issuances of shares of our common stock may cause significant dilution of equity interests of
existing holders of common stock and decrease the market price of shares of our common stock.

Risks Related to our Financial Position, Operating Results and Need for Additional Capital

We have incurred significant losses from inception through 2020 and there can be no assurance that we will
be able to achieve and sustain future profitability.

We have incurred significant losses since our inception. We incurred a net loss of $17.6 million in 2020 and have
an accumulated deficit of $241.9 million at December 31, 2020. We may not be able to achieve profitability.

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 revenue 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 or approval 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 by
us or our competitors, the pricing of our products, changes in customers’ budgets, competitive conditions and the
possible deferral of revenue under our revenue recognition policies.

Risks Related to Our Business and Our Company

We expect the novel coronavirus (COVID-19) pandemic to have a significant effect on our results of
operations. In addition, it has resulted in significant financial market volatility, and its impact on the global
economy appears to be significant. A continuation or worsening of the pandemic will have a material adverse
impact on our business, results of operations and financial condition and on the market price of our common
stock.

On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain
and mitigate the spread of the COVID-19 pandemic, the United States, many countries in Europe, as well as
Canada and China, have imposed unprecedented restrictions on travel, and there have been business closures and
a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19. As a
provider of devices and services to the health care industry, our operations have been materially affected.

24

Significant uncertainty remains as to the continuing impact of the COVID-19 pandemic on our operations and on
the global economy as a whole. It is currently not possible to predict how long the pandemic will last or the time
that it will take for economic activity to return to prior levels. The COVID-19 pandemic has resulted in
significant financial market volatility and uncertainty. A continuation or worsening of the levels of market
disruption and volatility seen in the recent past will have an adverse effect on our ability to access capital, on our
business, results of operations and financial condition, and on the market price of our common stock. Our results
for the year ending December 31, 2020 reflect a negative impact from the COVID-19 pandemic, as the typical
sales cycle and ordering patterns were still disrupted due to some healthcare facilities’ additional focus on
COVID-19. Although we do not provide guidance to investors relating to our results of operations, our results for
future quarters could reflect a continuing negative impact from the COVID-19 pandemic for similar reasons.
Depending upon the duration and severity of the pandemic, the continuing effect on our results over the long
term is uncertain.

The impact of the COVID-19 pandemic on our future revenue is also relevant to the minimum revenue covenant
under our Loan and Security Agreement (“Loan Agreement”) with Western Alliance Bank (the “Bank”). If at any
point the Company is not in compliance with this covenant and is unable to obtain an amendment or waiver from
the Bank, such noncompliance may result in an event of default under the Loan Agreement, which could permit
acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the
scheduled due date. The Company was required, historically, to seek modifications from its prior lender to avoid
non-compliance with certain earlier covenants. With the COVID-19 pandemic affecting the world economy, the
company cannot assure that it will be able to continue to satisfy the applicable minimum revenue covenant.

The Company’s exposure to trade accounts receivable losses may increase if its customers are adversely affected
by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with
local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other
customer-specific factors. The Company has historically not experienced significant trade account receivable
losses, but it is possible that there could be a material adverse impact from potential adjustments of the carrying
amount of trade account receivables as hospitals’ cash flows are impacted by their response to the COVID-19
pandemic.

The markets for our products and treatments and newly introduced enhancements to our existing products
and treatments may not develop as expected, we continue to face barriers to broad market acceptance.

The successful commercialization of our newly developed products and treatments and newly introduced
enhancements to our existing products and treatments are subject to numerous risks, both known and unknown,
including:

• market acceptance of our products;

•

•

•

•

•

•

•

uncertainty of the development of a market for such product or treatment;

trends relating to, or the introduction or existence of, competing products, technologies or alternative
treatments or therapies that may be more effective, safer or easier to use than our products,
technologies, 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, breast surgeons and radiation oncologists and treatment centers and
U.S. and international medical professional societies;

the availability and extent of data demonstrating the clinical efficacy of our products or treatments;

competition, including the presence of competing products sold by companies with longer operating
histories, more recognizable names and more established distribution networks; and

other technological developments.

25

Often, the development of a significant market for a product or treatment will depend upon the establishment of
appropriate reimbursement for use of the product or treatment. Moreover, even if addressed, such reimbursement
levels frequently are not established until after a product or treatment is developed and commercially introduced,
which can delay the successful commercialization of a product or treatment.

If we are unable to successfully commercialize and create a significant market for our newly developed products
and treatments and newly introduced enhancements to our existing products and treatments, our business and
prospects could be harmed.

Unfavorable results of legal proceedings could materially adversely affect our financial results

From time to time, we are a party to or otherwise involved in legal proceedings, claims and government
inspections or investigations and other legal matters, both inside and outside the United States, arising in the
ordinary course of our business or otherwise. Legal proceedings are often lengthy, taking place over a period of
years 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 choose to settle legal
proceedings and claims, regardless of their actual merit.

A legal proceeding finally resolved against us, 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. If our existing insurance does not cover the amount or types of damages awarded, or if other
resolutions or actions taken as a result of the legal proceeding were to restrain our ability to market 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 publicity and damage to our reputation, which could adversely impact our business.

An unfavorable resolution of the Yeda litigation could have a material adverse effect on our business,
financial condition, results of operations and cash flows.

In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation (“Invivo”).
On September 5, 2018, a third-party, Yeda Research and Development Company Ltd., filed a complaint (the
“Yeda Litigation”) against the Company and Invivo in the United States District Court for the Southern District
of New York, asserting various claims against the Company and Invivo. The Company and Invivo filed motions
to dismiss the complaint. On September 5, 2019, the Court granted Invivo’s Motion to Dismiss in its entirety and
granted the Company’s Motion to Dismiss as it relates to Yeda’s breach of contract and misappropriation of trade
secrets claims. On October 22, 2019, Yeda filed an Amended Complaint against only the Company asserting
claims for (i) copyright infringement; and (ii) a replead breach of contract claim. The Company filed its Answer
to Yeda’s Amended Complaint on November 5, 2019. Yeda alleges, among other things, that the Company
infringed upon Yeda’s source code, which was originally licensed to the Company, by using it in the products
that the Company sold to Invivo and that it is entitled to damages that could include, among other things, profits
relating to the sales of these products. If the Company is found to have infringed Yeda’s copyright or breached its
agreements with Yeda, the Company could be obligated to pay to Yeda substantial monetary damages. We
cannot predict the outcome of the Yeda Litigation or the amount of time and expense that will be required to
resolve the lawsuit. If such litigation were to be determined adversely to our interests, or if we were forced to
settle such matter for a significant amount, such resolution or settlement could have a material adverse effect on
our business, results of operations and financial condition. Please refer to the detailed discussion regarding
litigation set forth in Part I, Item 3 of this Annual Report on Form 10-K.

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

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available at all, product liability insurance for the medical device industry generally is expensive. Future product
liability claims could be costly to defend and/or costly to resolve and could harm our reputation and business.

Sales and market acceptance of our products is dependent upon the coverage and reimbursement decisions
made by third-party payers, including carve-out radiology benefits managers. The failure of third-party payers
to provide appropriate levels of coverage and reimbursement, and/or meeting prior authorization and other
requirements for approval to use our products and treatments facilitated by our products could harm our
business and prospects.

Sales and market acceptance of our medical products and the treatments facilitated by our products in the United
States and other countries is dependent upon the coverage decisions and reimbursement policies established by
government healthcare programs and private health insurers. Market acceptance of our products and treatments
has and will continue to depend upon our customers’ ability to obtain an appropriate level of coverage for, and
reimbursement from third-party payers for, these products and treatments. In the United States, CMS establishes
coverage and reimbursement policies for healthcare providers treating Medicare and Medicaid beneficiaries.
Under current CMS policies, varying reimbursement levels have been established for our products and
treatments. In the absence of a national coverage determination, coverage policies for Medicare patients may
vary by regional Medicare Administrative Contractors. Reimbursement rates for treatments vary based on the
geographic price index, the site of service, and other factors. Coverage and reimbursement policies and rates
applicable to patients with private insurance are dependent upon individual private payer 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 affected by coverage and reimbursement policies adopted by foreign governments and, to a
lesser extent, private insurance carriers. On September 18, 2020, CMS finalized a rule regarding its new RO
Model, designed, according to CMS, to improve the quality of care for cancer patients receiving radiotherapy and
reduce Medicare expenditures through bundled payments. In the final notice, CMS did not include IORT
treatments (including CPT codes 77424 and 77425) within the new alternative payment model for radiation
oncology. As a result, whether or not a particular physician practice or hospital is subject to the new radiation
oncology payment model, IORT services covered by Medicare will continue to be subject to the existing
payment systems for physician services and hospital outpatient services. On December 2, 2020, CMS announced
the interim final rule related to CMS’s new RO Model, which will take effect no earlier than January 1, 2022. We
cannot provide assurance that government or private third-party payers will continue to reimburse our products
or services, nor can we provide assurance that the payment rates will be adequate. If providers and physicians are
unable to obtain adequate reimbursement for our products or services, this could have a material adverse effect
on our business and operations. In addition, in the event that the current methodology for calculating payment for
these products or services changes, this could have a material adverse effect on our business and business
operations. We cannot guarantee that providers and physicians will be able to obtain adequate reimbursement for
our products or services under the RO model as proposed, or at all.

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
solutions for use with MRI and CT and the market growth of electronic brachytherapy. This growth may not
occur or may occur too slowly to benefit us.

Our future business is substantially dependent on the continued growth in the market for electronic
brachytherapy, full 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 market
for these products may not continue to develop or may develop at a slower rate than we anticipate due to a
variety of factors, including, general economic conditions, delays in hospital spending for capital equipment, the
significant costs 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. If the market for the products
and technologies upon which our products are dependent does not grow or grows too slowly, this could have a
material adverse effect on our business.

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A limited number of customers account for a significant portion of our total revenue. The loss of a principal
customer could seriously hurt our business.

A limited number of major customers have in the past and may continue in the future to account for a significant
portion of our revenue. Our principal sales distribution channel for our digital products is through our OEM
partners. In 2020, our OEM partners accounted for 28% of our total revenue, with one major customer, GE
Healthcare, accounting for 17% of our revenue. In addition, in 2020, five customers, consisting of both OEM and
direct customers, accounted for 37% of our total revenue. The loss of our relationships with principal customers
or a decline in sales to principal customers could materially adversely affect our business and operating results.

If goodwill and/or other intangible assets that we have recorded in connection with our acquisitions become
impaired, we could have to take significant charges against earnings.

In connection with the accounting for our acquisitions, we have recorded a significant amount of goodwill and
other intangible assets. We have recorded multiple impairments in the past: $26.8 million in September 2011,
$14.0 million in June 2015, $4.7 million in September 2017 and $2.0 million in December 2017. Under current
accounting, we must assess, at least annually and potentially more frequently, whether the value of our goodwill
of $8.4 million at December 31, 2020 and our other intangible assets have been impaired. Any reduction or
impairment of the value of goodwill or other intangible assets will result in a charge against earnings which could
materially adversely affect our reported results of operations in future periods.

Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of amounts
that have been accrued.

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 future effective tax rate, however, may be lower or higher than prior years
due to numerous factors, including a change in our geographic earnings mix, changes in the measurement of our
deferred taxes, and recently enacted and future tax law changes in jurisdictions in which we operate. We are also
subject to ongoing tax audits in various jurisdictions, and tax authorities may disagree with certain positions we
have taken 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.

Our ability to use our net operating loss carryovers and certain other tax attributes may be limited.

Under the Internal Revenue Code of 1986, as amended (the “Code”), a corporation is generally allowed a
deduction for net operating losses (“NOLs”) carried over from a prior taxable year. Under that provision, we can
carryforward our NOLs to offset our future taxable income, if any, until such NOLs are used or expire. The same
is true of other unused tax attributes, such as tax credits. Under the Tax Cut and Jobs Act of 2017 (the “Tax
Act”), federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but
the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states
will conform to the federal Tax Act.

In addition, under Section 382 of the Code, and corresponding provisions of state law, if a corporation undergoes
an “ownership change,” which is generally defined as a greater than 50 percent change, by value, in its equity
ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss
carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. We
may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of
which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss
carryforwards or other tax attributes is materially limited, it would harm our future operating results by
effectively increasing our future tax obligations.

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Acquisitions may not result in the benefits and revenue growth we expect.

We integrate companies that we acquire 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 successfully manage our integration of these companies and continue to improve our
operational systems, internal procedures, working capital management, and financial and operational controls. If
we fail in any of these areas, our business could be adversely affected.

The markets for many of our products are subject to changing technology.

Our business depends on our ability to adapt to evolving 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 may suffer. Because the healthcare information
technology market is constantly evolving, our existing technology may become obsolete and fail to meet the
requirements of current and potential customers. Our success will depend, in part, on our ability to continue to
enhance our existing technology solutions and services, develop new technology that addresses the increasingly
sophisticated and varied needs of our customers, and respond to technological advances 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 be successful in developing, using, marketing,
selling, or maintaining new technologies effectively or adapting our proprietary 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 achieve
market acceptance. Moreover, competitors may develop competitive products that could adversely affect our
results of operations. Our failure 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.

We depend upon a limited number of suppliers and manufacturers for our products, and certain components
in our products may be available from a sole or limited number of suppliers.

Our products are generally either manufactured and assembled for us by a sole manufacturer, by a limited
number of manufacturers or assembled by us from supplies we obtain from a limited number 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 manufacturers or suppliers. The loss of a sole or key manufacturer or supplier
could materially impair our ability to deliver products to our customers in a timely manner and would adversely
affect 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.

Additionally, our suppliers and manufacturers are, and will continue to be, subject to extensive government
regulation in connection with the manufacture of any medical devices. Our suppliers and manufacturers must
ensure that they are compliant with applicable quality system and other regulatory requirements, as mandated by
the FDA and other regulatory authorities. If our materials suppliers or manufacturers face manufacturing or
quality control problems this may lead to delays in product production or shipment or our supplier or
manufacturer no longer being able to continue operations. 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.

We distribute our products in highly competitive markets and our sales may suffer as a result.

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

29

financial, technical and human resources than us and are well established. In addition, some companies have
developed or may develop technologies or products that could compete with the products we manufacture and
distribute or that would render our products obsolete or noncompetitive. Our competitors may achieve patent
protection, regulatory approval, or product commercialization that would limit our ability to compete with them.
These and other competitive pressures could have a material adverse effect on our business.

Disruptions in service or damage to our third-party providers’ data centers could adversely affect our
business.

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 and work with our third-party providers to protect against fires, floods, other natural disasters
and general business interruptions to mitigate the adverse effects of a disruption, relocation or change in
operating environment at the data centers we utilize. In addition, the occurrence of any of these events could
result in interruptions, delays or cessations in service to our customers. Any of these events could impair or
prohibit our ability to provide our services, 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 employee or contractor access, computer viruses, programming errors, denial-of-service attacks or
other attacks by third-parties seeking to disrupt operations or misappropriate information or similar physical or
electronic breaches of security. Any of these can cause system failure, including network, software or hardware
failure, which can result in service disruptions. As a result, we may be required to expend significant capital and
other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches.

If our products fail to perform properly due to errors or similar problems, our business could suffer.

Despite testing, complex software; may contain defects or errors. Addressing software errors may delay
development of our solutions, and if discovered after deployment, may require the expenditure of substantial
time and resources to correct. Errors in our software could result in:

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harm to our reputation;

lost sales;

delays in commercial releases;

product liability claims;

delays in or loss of market acceptance of our solutions;

license terminations or renegotiations;

unexpected expenses and diversion of resources to remedy errors; and

privacy and security vulnerabilities.

Furthermore, our customers might use our software together with products from 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, divert the attention of our technical personnel from our solution development efforts;
impact our reputation and cause significant customer relations problems.

30

We rely on intellectual property and proprietary rights to maintain our competitive position and may not be
able to protect these rights.

We rely heavily on proprietary technology that we protect primarily through licensing arrangements, patents,
trade secrets, proprietary know-how and non-disclosure agreements. There can be no assurance that any pending
or future patent applications will be granted or that any current or future patents, regardless of whether we are an
owner or a licensee of the patent, will not be challenged, rendered unenforceable, invalidated, or circumvented or
that the rights will provide a competitive advantage to us. There can also be no assurance that our trade secrets or
non-disclosure agreements will provide meaningful protection of our proprietary information. Further, we cannot
assure you that others will not independently develop similar technologies or duplicate any technology developed
by us or that our technology will not infringe upon patents or other rights owned by others. Unauthorized third
parties may infringe our intellectual property rights or copy or reverse engineer portions of our technology. In
addition, because patent applications in the United States 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 United States. The rights provided by a
patent are finite in time. The Company has certain patents that expire between 2021 and 2029. In the absence of
significant patent protection, we may be vulnerable to competitors who attempt to copy our products, processes
or technology.

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 infringement claims against us. Any 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, if any of our intellectual property and
proprietary rights are deemed to violate the proprietary rights of others, we may be prevented from using those
intellectual property or proprietary rights, which could prevent us from being able to sell our products. Litigation
could also result in a judgment or monetary damages being levied against us.

Healthcare industry consolidation could impose pressure on our prices, reduce potential customer base and
reduce demands for our systems.

Many hospitals and imaging centers have consolidated to create larger healthcare enterprises with greater market
and purchasing power. When hospitals and imaging centers combine, they often consolidate infrastructure, and
consolidation of our customers could result in fewer overall customers. If this consolidation trend continues, it
could reduce the size of our potential customer base, reduce demand for our systems, give the resulting
enterprises greater bargaining or purchasing power, and may lead to erosion of the prices for our systems or
decreased margins for our systems, all of which would adversely affect our ability to generate revenue.

Clinical trials are very expensive, lengthy, and difficult to design and implement and have uncertain
outcomes, and, as a result, we may suffer delays or suspensions in current or future trials which would have a
material adverse effect on our ability to obtain regulatory approvals timely or at all, and if we fail to receive
such approvals, our ability to generate revenues.

Clinical trials involve a time-consuming and expensive process with an uncertain outcome, and the results of
earlier trials are not necessarily predictive of future results. Human clinical trials are difficult to design and
implement and very expensive, due in part to being subject to rigorous regulatory requirements.

Additionally, we may encounter problems at any stage of the trials that cause us to abandon or repeat clinical
trials. The commencement and completion of clinical trials may be delayed by several factors, including:

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non-approval of an investigational device exemption (IDE), which is required by the FDA for the study
in humans of a significant risk device that is not approved for the indication being studied;

failure to reach an agreement with contract research organizations or clinical trial sites;

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•

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failure of third-party contract research organizations to properly implement or monitor the clinical trial
protocols;

failure of IRBs to approve our clinical trial protocols or suspension or termination of our clinical trial
by the IRB, DSMB, or the FDA;

slower than expected rates of patient recruitment and enrollment, which may be further negatively
impacted by the COVID-19 global pandemic;

inability to retain patients in clinical trials, which may be further negatively impacted by the
COVID-19 global pandemic;

lack of effectiveness during clinical trials;

unforeseen safety issues;

inability or unwillingness of medical clinical investigators and institutional review boards to follow our
clinical trial protocols;

failure of clinical investigators or sites to maintain necessary licenses or permits or comply with good
clinical practices, or GCP, or other regulatory requirements; and

lack of sufficient funding to finance the clinical trials.

In addition, we or regulatory authorities may suspend our clinical trials at any time if it appears that we are
exposing participants to unacceptable health risks or if the regulatory authorities find deficiencies in our
regulatory submissions or the conduct of these trials. Any suspension of clinical trials will delay possible
regulatory approval, increase costs, and adversely impact our ability to develop products and generate revenue.

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 key personnel could have a material adverse effect 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 for growth. Competition for 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 20% of our revenue for 2020. We
are subject to the risks inherent in conducting business across national boundaries, any one of which could
adversely impact our business. In addition to currency fluctuations, these risks include, among other things:
economic downturns; changes in or interpretations of local law, governmental policy or regulation; changes in
healthcare practice patterns; restrictions on the transfer of funds into or out of the country; varying tax systems;
and government protectionism. One or more of the foregoing factors could impair our current or future
operations and, as a result, harm our overall business.

Our existing and future debt obligations could impair our liquidity and financial condition, and our lenders
could foreclose on our assets in the event we are unable to meet our debt obligations.

In connection with our Loan Agreement, the Bank agreed to provide up an initial term loan facility of
$7.0 million and a $5.0 million revolving line of credit. The Loan Agreement requires the Company to either

32

(i) meet a minimum revenue covenant, or (ii) maintain a ratio of unrestricted cash at the Bank to aggregate
indebtedness owed to the Bank of at least 1.25 to 1.00. The Company was compliant with these covenants as of
December 31, 2020 but cannot provide any assurance as to its future compliance due to, in part, the uncertainty
of the effect of the COVID-19 pandemic on the world economy and the U.S. health system. If at any point the
Company is not in compliance with certain covenants under the Loan Agreement and is unable to obtain an
amendment or waiver, such noncompliance may result in an event of default under the Loan Agreement, which
could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness
before the scheduled due date. The Company was required, periodically in the past, to seek modifications from
its prior lender to avoid non-compliance with its earlier covenants.

The Loan Agreement

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requires us to dedicate a portion of our cash flow to payments on our debt obligations, which reduces
the availability of our cash flow to fund working capital, capital expenditures and other corporate
requirements;

imposes restrictions on our ability to incur indebtedness, other than permitted indebtedness, and could
impede us from obtaining additional financing in the future for working capital, capital expenditures,
mergers, acquisitions and general corporate purposes;

imposes restrictions on us with respect to the use of our available cash, including in connection with
future acquisitions;

requires us to agree by a certain date with the Bank regarding minimum revenue levels for the 2021
calendar year. Failure to agree will result in acceleration of the indebtedness under the Loan
Agreement; and

requires us to provide certain financial information on a monthly and annual basis. Failure to do so will
result in acceleration of the indebtedness under the Loan Agreement.

In addition, the Loan Agreement

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could impair our liquidity;

could make it more difficult for us to satisfy our other obligations;

• make us more vulnerable in the event of a downturn in our business prospects and could limit our

flexibility to plan for, or react to, changes in our licensing markets;

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could result in a prepayment or make-whole premium if we elected to prepay the indebtedness under
the Loan Agreement prior to its maturity date; and

could place us at a competitive disadvantage when compared to our competitors who have less debt.

We have pledged substantially all of our assets to secure our obligations under the Loan Agreement. If we were
to fail in the future to make any required payment under the Loan Agreement or fail to comply with the financial
and operating covenants contained in the therein, in some cases subject to applicable cure periods, we would be
in default regarding the Loan Agreement. Such default would enable the lenders under the Loan Agreement to
foreclose on the assets securing such debt and could significantly diminish the market value and marketability of
our common stock and could result in the acceleration of the payment obligations under our indebtedness.

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Risks Related to Regulation of our Industry

The healthcare industry is highly regulated, and government authorities may determine that we have failed to
comply with applicable laws, rules or regulations. Additionally, we may incur substantial costs defending our
interpretations of U.S. federal and state government regulations, and if we lose, the government could force us
to restructure our operations and subject us to fines, monetary penalties and possibly exclude us from
participation in U.S. government-sponsored health care programs such as Medicare and Medicaid.

Both in the United States and in other jurisdictions, the healthcare industry is subject to extensive and complex
federal, state and local laws, rules and regulations, compliance with which imposes substantial costs on us. Such
laws and regulations include those that are directed at payment for services and the conduct of operations,
preventing fraud and abuse, and prohibiting general business corporations, such as ours, from engaging in
practices that may influence professional decision-making, such as splitting fees with physicians. In addition, we
believe that our business will continue to be subject to increasing regulation as legislatures and governmental
agencies periodically consider proposals to revise or create new requirements, particularly in response to and
following the COVID-19 pandemic, the scope and effect of which we cannot predict. Such proposals, if
implemented, could impact our operations, the use of our services, and our ability to market new services, and
could create unexpected liabilities for us.

Many healthcare laws are complex, and their application to specific services and relationships may not be clear.
The laws often 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 physicians and professional
corporations. Further, healthcare laws differ from jurisdiction to jurisdiction and it is difficult to ensure our
business complies with evolving laws in all jurisdictions.

Consequently, our operations, including our arrangements with healthcare providers, are subject to audits,
inquiries and investigations from government agencies from time to time. We believe we are in substantial
compliance with these laws, rules and regulations based upon what we believe are reasonable and defensible
interpretations of these laws, rules and regulations. However, U.S. federal and state laws are broadly worded and
may be interpreted or applied by prosecutorial, regulatory or judicial authorities in ways that we cannot predict.
Accordingly, we may in the future become the subject of regulatory or other investigations or proceedings, and
our interpretations of applicable laws, rules and regulations may be challenged. Any challenge to our operations
or arrangements with third parties that we have structured based upon our interpretation of these laws, rules and
regulations could potentially disrupt business operations and lead to substantial defense costs and a diversion of
management’s time and attention, even if we successfully defend our interpretation. In addition, if the
government successfully challenges our interpretation of the applicability of these laws, rules and regulations as
they relate to our operations and arrangements, it may have a material adverse effect on our business, financial
condition, results of operations, cash flows, and the trading price of our common stock.

In the event regulatory action were to limit or prohibit us from carrying on our business as we presently conduct
it or from expanding our operations into certain jurisdictions, we may need to make structural, operational and
organizational 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. Any restructuring would also negatively impact our operations
because our management’s time and attention would be diverted from running our business in the ordinary
course.

Compliance with the many laws and regulations governing the healthcare industry could restrict our sales and
marketing practices, and other relationships with healthcare professionals.

Once our products are sold, we must comply with various U.S. federal and state healthcare fraud and abuse laws,
rules and regulations pertaining false claims, kickbacks and physician self-referral. Violations of the fraud and
abuse laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from

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participation in federal and state healthcare programs, including Medicare, Medicaid, Veterans Administration
health programs, workers’ compensation programs and TRICARE. Compliance with these laws could restrict our
sales and marketing practices, and any challenge to our practices could disrupt our operations and lead to
substantial defense costs and a diversion of management’s time and attention, even if we successfully defend our
practices. If we are unable to successfully defend our practices, in addition to incurring significant expense in
defending ourselves, we could be subject to a significant settlement, monetary penalties, and costs related to
implementation of changes to our practices, which could have a material adverse effect on our business.

Healthcare reform legislation in the United States may adversely affect our business and/or results of
operations.

In March 2010, significant reforms to the U.S. healthcare system were adopted in the form of the ACA. The
ACA 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. While the
ACA 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 payment advisory board, and pilot programs to evaluate alternative
payment 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 coverage and reimbursement may be enacted in the future or what effect such legislation or regulation
would have on our business. Any cost containment measures or other health care system reforms that are adopted
could have a material and adverse effect on our ability to commercialize our existing and future products
successfully. We cannot predict whether the ACA will be repealed, replaced, or modified or how such repeal,
replacement or modification may be timed or structured. As a result, we cannot quantify or predict the effect of
such repeal, replacement, or modification might have on our business and results of operations. However, any
changes that lower reimbursement for our products or reduce medical procedure volumes could adversely affect
our business and results of operations.

Our products and manufacturing facilities are subject to extensive regulation with potentially significant costs
for compliance.

In the United States, our CAD systems and Xoft Systems are medical devices subject to extensive regulation by
the FDA under the FDCA. The FDA’s regulation of our products includes our manufacturing operations, product
labeling, adverse event reporting, and the FDA’s general prohibition against promoting products for unapproved
or “off-label” uses.

Our failure to fully comply with applicable regulations could result in the issuance of warning letters,
non-approvals, suspensions of existing approvals, civil penalties and criminal fines, product seizures and recalls,
operating restrictions, injunctions, and criminal prosecution. Moreover, unanticipated changes in existing
regulatory requirements or adoption of new requirements could increase our 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 United States are also subject to extensive regulatory
approvals. Obtaining and maintaining foreign regulatory approvals is an expensive and time-consuming process.
We cannot be certain that we will be able to obtain the necessary regulatory approvals timely or at all in any
foreign country in which we plan to market our CAD products and Xoft Systems, and if we fail to receive such
approvals, our ability to generate revenue may be significantly diminished.

We may not be able to obtain regulatory approval for any of the other products that we may consider
developing.

We have received the required premarket approvals from FDA or the equivalent foreign authority in the relevant
jurisdictions in which we currently offer our products. Before we are able to commercialize any new product or

35

promote a new indicated use of an existing product, we must obtain the required regulatory approvals. The
process for satisfying these 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. Additionally, even if we receive regulatory approval for a new product or indicated
use in one jurisdiction, our products may be subject to separate regulatory approval in each country or
jurisdiction in which we plan to market our products. We cannot be certain that we will be able to obtain the
necessary regulatory approvals timely or at all in any country or jurisdiction. Successfully obtaining regulatory
approval in one jurisdiction does not guarantee approval in another; however, a delay or failure to obtain
regulatory approval in one jurisdiction may negatively affect the regulatory process in another. If we are unable
to obtain regulatory approval for other products or indicated uses, our ability to generate sufficient revenue to
continue our business may be significantly impacted.

Our products may be recalled even after we have received FDA or other governmental approval or clearance.

If the safety or efficacy of any of our products is called into question, we may initiate or the FDA and similar
governmental authorities in other countries may press us to implement or even require a product recall, 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 could materially and adversely affect our
reputation with customers and our financial condition and results of operations.

We are subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data
protection, and other matters. We may be subject to criminal or civil sanctions if we fail to comply with privacy
and security regulations regarding the use and disclosure of sensitive personally identifiable information.

Numerous state and federal laws and regulations govern the collection, dissemination, use, privacy,
confidentiality, security, availability and integrity of personally identifiable information, including HIPAA. In the
provision of services to our customers, we and our third-party vendors may collect, use, maintain and transmit
patient health information in ways that are subject to many of these laws and regulations. We are also subject to
laws and regulations in foreign countries covering data privacy and other protection of health and employee
information that may be more onerous than corresponding U.S. laws, including in particular the laws of Europe.

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. In the ordinary course of our business, we collect and store sensitive data, including personally
identifiable information received from of our customers. The secure processing, maintenance and transmission of
this information is critical to our operations. Despite our security measures and business controls, our
information technology and infrastructure may be vulnerable to attacks by hackers, breached due to employee
error, malfeasance or other disruptions or subject to the inadvertent or intentional unauthorized release of
information. Any such occurrence could compromise our networks and the information stored thereon could be
accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information by us or our
subcontractors could (i) result in legal claims or proceedings, liability under laws that protect the privacy of
personal information and regulatory penalties, (ii) disrupt our operations and the services we provide to our
customers and (iii) damage our reputation, any of which could adversely affect our profitability, revenue and
competitive position.

Federal and state consumer laws are being applied increasingly by the Federal Trade Commission and state
attorneys general to regulate the collection, use and disclosure of personal or patient health information, 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 by courts and government agencies, creating complex compliance issues for 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 each of the jurisdictions in which we do business.

36

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 information, we could be subject to criminal or civil sanctions.

Data protection laws in the United States, Europe and around the world may restrict our activities and
increase our costs.

Various statutes and rules in the United States, Europe and around the world regulate privacy and data protection
which may affect our collection, use, storage, and transfer of information both abroad and in the United States.
New laws and regulations are being enacted, so that this area remains in a state of flux. Monitoring and
complying with these laws require substantial financial resources. Failure to comply with these laws may result
in, among other things, civil and criminal liability, negative publicity, restrictions on further use of data, and/or
liability under contractual warranties. In addition, changes in these laws (including newly released interpretations
of these laws by courts and regulatory bodies) may limit our data access, use and disclosure, and may require
increased expenditures by us.

The European Union’s General Data Protection Regulation (“GDPR”) requires us to meet new and more
stringent requirements regarding the handling of personal data about EU residents. Failure to meet the GDPR
requirements could result in penalties of up to 4% of worldwide revenue.

Risk Related to our Common Stock

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 substantial additional shares of our common stock in the public market, 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 (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 or convert their
securities and sell shares of common stock issued upon the such exercise or conversion in the public market, 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
prevailing market price for our common stock may decline.

We have a limited number of shares of common stock available for future issuance which could adversely
affect our ability to raise capital or consummate acquisitions.

We are currently authorized to issue 30,000,000 shares of common stock under our amended Certificate of
Incorporation (“Certificate of Incorporation”). As of December 31, 2020, we had issued 23,508,575 shares of
common stock and had approximately 1,869,507 shares of common stock reserved for issuance upon exercise of
options granted, 29,166 shares of common stock reserved for vesting of restricted stock and 907,394 shares of
common stock reserved for issuance under our Employee Stock Purchase Plan. On March 5, 2021, we closed an
underwritten public offering of 1,393,738 shares of common stock at a public offering price of $18.00 per share,
such that as the date of this Annual Report on Form 10-K we have issued 24,918,458 shares of common stock.

37

Due to the limited number of authorized shares of common stock available for issuance, we may not be able to
raise additional equity capital or complete a merger, other business combination or partnership unless we
increase the number of shares we are authorized to issue. We intend to seek stockholder approval to increase the
number of our authorized shares of common stock at our 2021 annual meeting of stockholders, but we can
provide no assurance that we will succeed in amending our Certificate of Incorporation to increase the number of
shares of common stock we are authorized to issue.

If we do not receive the requisite stockholder approval, our operations could be materially adversely impacted. In
addition, an increase in the authorized number of shares of common stock and the subsequent issuance of such
shares could have the effect of delaying or preventing a change in control of the Company without further action
by our stockholders.

Provisions in our Certificate of Incorporation and in Delaware law could make it more difficult for a third
party to acquire us, discourage a takeover and adversely affect existing stockholders.

Our Certificate of Incorporation authorizes the Board of Directors to issue up to 1,000,000 shares of preferred
stock. The preferred stock may be issued in one or more series, the terms of which 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, conversion and redemption rights, and sinking fund provisions. Although there are currently no
shares of preferred stock outstanding, future holders of preferred stock may have rights superior to our common
stock and such rights could also be used to restrict our ability to merge with or sell our assets to a third party.

We are also subject to the provisions of Section 203 of the Delaware General Corporation Law, which could
prevent us from engaging in a “business combination” with a 15% or greater stockholder” for a period of three
years from the date such person acquired that status unless appropriate board or stockholder approvals are
obtained.

These provisions could deter unsolicited takeovers or delay or prevent changes in our control or management,
including transactions in which stockholders might otherwise receive a premium for their shares over the then
current market price. These provisions may also limit the ability of stockholders to approve transactions that they
may deem to be in their best interests.

The market price of our common stock has been, and may continue to be volatile, which could reduce the
market price of our common stock.

The publicly traded shares of our common stock have experienced, and may experience in the future, significant
price and volume fluctuations. This market volatility could reduce the market 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 affecting the medical imaging industry generally, changes in national or regional
economic conditions, changes in securities analysts’ estimates for us or our competitors’ or industry’s future
performance or general market conditions, making it more difficult for shares of our common stock to be sold at
a favorable price or at all. The market price of our common stock could also be reduced by general market price
declines or market volatility in the future or future declines or volatility in the prices of stocks for companies in
our industry.

38

General Risk Factors

Security breaches and other disruptions could compromise our information and expose us to liability, which
would cause our business and reputation to suffer and could subject us to substantial liabilities.

If our security measures are breached or fail and unauthorized access is obtained to a customer’s data, our service
may be perceived as insecure, the attractiveness of our services to current or potential customers may be reduced,
and we may incur significant liabilities.

Our services involve the storage and transmission of customers’ proprietary information and patient information,
including health, financial, payment and other personal or confidential information. We rely on proprietary and
commercially available systems, software, tools and monitoring, as well as other processes, to provide security
for 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. However, there can be no assurance that we will not be subject to cybersecurity incidents that bypass
our security measures, impact the integrity, availability or privacy of personally identifiable information or other
data subject to privacy laws or disrupt our information systems, devices or business, including our ability to
deliver services to our customers. As a result, cybersecurity, physical security and the continued development
and enhancement of our controls, processes and practices designed to protect our enterprise, information systems
and data from attack, damage or unauthorized access remain a priority for us. As cyber threats continue to
evolve, we may be required to expend significant additional resources to continue to modify or enhance our
protective measures or to investigate and remediate any cybersecurity vulnerabilities. The occurrence of any of
these events could result in (i) harm to customers; (ii) business interruptions and delays; (iii) the loss,
misappropriation, corruption or unauthorized access of data; (iv) litigation, including potential class action
litigation, and potential liability under privacy, security and consumer protection laws or other applicable laws;
(v) reputational damage; and (vi) federal and state governmental inquiries, any of which could have a material,
adverse effect on our financial position and results of operations and harm our business reputation.

Changes in interpretation or application of Generally Accepted Accounting Principles may adversely affect
our operating results.

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 bodies. 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
different accounting principles, including ones regarding revenue recognition, than we have applied in past
periods. 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 become more volatile as a result.

We cannot be certain of the future effectiveness of our internal controls over financial reporting or the impact
of the same on our operations or the market price for our common stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), we are required to include in our
Annual 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, 2020 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 our

39

internal controls over financial reporting will continue to 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.

Changes in credit markets or to our credit rating could impact our ability to obtain financing for business
operations or result in increased borrowing costs and interest expense.

Our credit ratings reflect each credit rating agency’s opinion of our financial strength, operating performance and
ability to meet our debt obligations at the time such opinion is issued. We utilize the short- and long-term debt
markets to obtain capital from time to time. Adverse changes in our credit ratings may result in increased
borrowing costs for future long-term debt or short-term borrowing facilities and may limit financing options,
including access to the unsecured borrowing market. Such changes may also breach restrictive covenants under
current or future debt facilities or instruments, which could reduce our operating flexibility. Macroeconomic
conditions, such as continued or increased volatility or disruption in the credit markets, may adversely affect our
ability to refinance existing debt or obtain additional financing for working capital, capital expenditures or fund
new acquisitions.

Future issuances of shares of our common stock may cause significant dilution of equity interests of
existing holders of common stock and decrease the market price of shares of our common stock.

We have previously issued options that are exercisable or convertible into a significant number of shares of our
common stock. Should existing holders of options exercise their options for 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.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2.

Properties.

The Company’s executive offices are leased pursuant to a lease originally entered into in December 2006. The
lease covers approximately 11,000 square feet of office space located at 98 Spit Brook Road, Suite 100 in
Nashua, New Hampshire. As amended, the lease expires in February 2023 and the annual base rent is $214,812.
Additionally, the Company is required to pay its proportionate share of the building and real estate tax expenses
and obtain insurance for the facility.

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. As amended, the lease expires in March 2023, with annual payments of $628,260 until March 2021,
$645,792 from April 2021 to March 2022 and $666,240 from April 2022 to March 2023. Additionally, the
Company is required to pay its proportionate share of the building and real estate tax expenses and obtain
insurance for the facility.

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 reasonable rates.

40

Item 3.

Legal Proceedings.

In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation (the “Asset
Purchase Agreement”). In accordance with the Asset Purchase 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 on January 30, 2017 less a
holdback reserve of $350,000 for net proceeds of approximately $2.9 million.

On September 5, 2018, third-party Yeda Research and Development Company Ltd. (“Yeda”), filed a complaint
(the “Complaint”) against the Company and Invivo in the United States District Court for the Southern District of
New York, captioned Yeda Research and Development Company Ltd. v. iCAD, Inc. and Invivo Corporation,
Case No. 1:18-cv-08083-GBD, related to the Company’s sale of the VersaVue software and DynaCAD product
under the Asset Purchase Agreement. In the Complaint, Yeda asserted claims for: (i) copyright infringement and
misappropriation of trade secrets against both the Company and Invivo, (ii) breach of contract against the
Company only, and (iii) tortious interference with existing business relationships and unjust enrichment against
Invivo only. The Company and Invivo filed Motions to Dismiss the Complaint on December 21, 2018. On
January 18, 2019, Yeda filed Oppositions to the Motions to Dismiss. The Company and Invivo submitted
responses to the Opposition to the Motion to Dismiss on February 8, 2019. The Court held oral argument on the
Motions to Dismiss on March 27, 2019. On September 5, 2019, the Court granted Invivo’s Motion to Dismiss in
its entirety and granted the Company’s Motion to Dismiss as it relates to Yeda’s breach of contract and
misappropriation of trade secrets claims. On October 22, 2019, Yeda filed an Amended Complaint against only
the Company asserting claims for (i) copyright infringement, and (ii) a replead breach of contract claim. The
Company filed its Answer to Yeda’s Amended Complaint on November 5, 2019. Yeda alleges, among other
things, that the Company infringed upon Yeda’s source code, which was originally licensed to the Company, by
using it in the products that the Company sold to Invivo and that it is entitled to damages that could include,
among other things, profits relating to the sales of these products. If the Company is found to have infringed
Yeda’s copyright or breached its agreements with Yeda, the Company could be obligated to pay to Yeda
substantial monetary damages.

In addition to the foregoing, the Company may be a party to various legal proceedings and claims arising out of
the ordinary course of its business. Although the final results of all such matters and claims cannot be predicted
with certainty, the Company currently believes that there are no current proceedings or claims pending against it
the ultimate resolution of which would have a material adverse effect on its financial condition or results of
operations, other than as set forth above. However, should the Company fail to prevail in any legal matter or
should several legal matters be resolved against the Company in the same reporting period, such matters could
have a material adverse effect on the Company’s operating results and cash flows for that particular period. The
Company may be party to certain actions that have been filed against the Company which are being vigorously
defended. The Company has determined that potential losses in these matters are neither probable or reasonably
possible at this time. 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.” Legal
costs are expensed as incurred.

Item 4. Mine Safety Disclosures.

Not applicable.

41

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities.

The Company’s common stock is traded on the NASDAQ Capital Market under the symbol “ICAD”.

As of March 8, 2021, there were 96 holders of record of the Company’s common stock.

The Company has not paid any cash dividends on its common stock to date, and the Company does not expect to
pay cash dividends in the foreseeable future. Future dividend policy will depend on the Company’s earnings,
capital requirements, financial condition, and other factors considered relevant by the Company’s Board of
Directors. The Company’s Loan and Security Agreement with Western Alliance Bank restricts the Company’s
present ability to pay dividends.

Information with respect to the Company’s equity compensation plans in effect at December 31, 2020 will be
included in the Company’s 2021 Proxy Statement and is incorporated herein by reference.

Issuer’s Purchases of Equity Securities. For the majority of restricted stock units granted to employees under the
applicable stock incentive plan, the number 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 tax authorities on
behalf of our employees. The Company did not have any repurchases of securities in the quarter ended
December 31, 2020.

Item 6.

Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

Overview

iCAD, Inc. is a global medical technology company providing innovative cancer detection and therapy solutions.
The Company reports in two segments: Detection and Therapy.

In the Detection segment, the Company’s solutions include (i) advanced image analysis and workflow solutions
that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most
prevalent cancers earlier, and (ii) a comprehensive range of high-performance, Artificial Intelligence and
Computer-Aided Detection (CAD) systems and workflow solutions for 2D and 3D mammography, Magnetic
Resonance Imaging (MRI) and Computed Tomography (CT).

In the Therapy segment, the Company offers the Xoft System, an isotope-free cancer treatment platform
technology. The Xoft System can be used for the treatment of early-stage breast cancer, endometrial cancer,
cervical cancer and nonmelanoma skin cancer.

On January 30, 2017, the Company completed the sale of 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 amount
of $350,000. The Company is currently involved in litigation with a third-party relating to this transaction, as
further described in “Item 3—Legal Proceedings.”

The Company’s headquarters are located in Nashua, New Hampshire, with a manufacturing facility in New
Hampshire and an operations, research, development, manufacturing and warehousing facility in San Jose,
California.

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Critical Accounting Estimates

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 and judgments that affect
the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, the Company evaluates these estimates, including those related to revenue
recognition, allowance for doubtful accounts, inventory valuation and obsolescence, intangible assets, goodwill,
income taxes, contingencies and litigation. Additionally, the Company uses assumptions and estimates in
calculations to determine stock-based compensation, the fair value of convertible debentures and the evaluation
of litigation. The Company bases its estimates on historical experience and on various other assumptions that it
believes to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.

As of January 1, 2019, the Company adopted ASC Topic 842. Refer to Note 1 to the consolidated financial
statements for disclosure of the changes related to this adoption.

The Company’s critical accounting policies include:

• Revenue recognition;

• Valuation of long-lived and intangible assets;

• Goodwill;

•

•

Stock based compensation; and

Income taxes;

Revenue Recognition

On January 1, 2018, the Company adopted FASB ASC Topic 606, “Revenue from Contracts with Customers”
and all the related amendments (“Topic 606”) using the modified retrospective method for all contracts not
completed as of the date of adoption. The Company recognized the cumulative effect of initially applying the
new standard as an adjustment to the opening balance of retained earnings at the adoption date. The comparative
information has not been restated and continues to be reported under the accounting standards in effect for those
periods.

The Company recognizes revenue primarily from the sale of products and from the sale of services and supplies.
Under Topic 606, revenue is recognized when a customer obtains control of promised goods or services. The
amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive
in exchange for these goods or services and excludes any sales incentives or taxes collected from customers
which are subsequently remitted to government authorities. To achieve this core principle, the Company applies
the following five steps:

1)

Identify the contract(s) with a customer—A contract with a customer exists when (i) the Company
enters into an enforceable contract with a customer that defines each party’s rights regarding the goods
or services to be transferred and identifies the payment terms related to those goods or services, (ii) the
contract has commercial substance and, (iii) the Company determines that collection of substantially all
consideration for goods or services that are transferred is probable based on the customer’s intent and
ability to pay the promised consideration.

2)

Identify the performance obligations in the contract—Performance obligations promised in a
contract are identified based on the goods or services that will be transferred to the customer that are

43

both capable of being distinct, whereby the customer can benefit from the good or service either on its
own or together with other resources that are readily available from third parties or from the Company,
and are distinct in the context of the contract, whereby the transfer of the goods or services is
separately identifiable from other promises in the contract. To the extent a contract includes multiple
promised goods or services, the Company must apply judgment to determine whether promised goods
or services are capable of being distinct and distinct in the context of the contract. If these criteria are
not met the promised goods or services are accounted for as a combined performance obligation. If
options to purchase additional goods or services are included in customer contracts, the Company
evaluates the option in order to determine if the Company’s arrangement include promises that may
represent a material right and needs to be accounted for as a performance obligation in the contract
with the customer.

3) Determine the transaction price—The transaction price is determined based on the consideration to
which the Company will be entitled in exchange for transferring goods or services to the customer. To
the extent the transaction price includes variable consideration; the Company estimates the amount of
variable consideration that should be included in the transaction price utilizing either the expected
value method or the most likely amount method depending on the nature of the variable consideration.
Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable
that a significant future reversal of cumulative revenue under the contract will not occur.

4) Allocate the transaction price to the performance obligations in the contract—If the contract
contains a single performance obligation, the entire transaction price is allocated to the single
performance obligation. Contracts that contain multiple performance obligations require an allocation
of the transaction price to each performance obligation based on a relative standalone selling price
(“SSP”) basis unless the transaction price is variable and meets the criteria to be allocated entirely to a
performance obligation or to a distinct good or service that forms part of a single performance
obligation.

5) Recognize revenue when (or as) the Company satisfies a performance obligation—The Company
satisfies performance obligations either over time or at a point in time as discussed in further detail
below. Revenue is recognized at the time the related performance obligation is satisfied by transferring
a promised good or service to a customer.

The Company recognizes revenue from its contracts with customers primarily from the sale of products
and from the sale of services and supplies. Revenue is recognized when control of the promised goods
or services is transferred to a customer, in an amount that reflects the consideration to which we expect
to be entitled in exchange for those goods or services. For product revenue, control has transferred
upon shipment provided title and risk of loss have passed to the customer. Services and supplies are
considered to be transferred as the services are performed or over the term of the service or supply
agreement.

The Company enters into contracts that can include various combinations of products and services, which are
generally capable of being distinct and accounted for as separate performance obligations. Determining whether
products and services are considered distinct performance obligations that should be accounted for separately
versus together may require significant judgment. For arrangements with multiple performance obligations, the
Company allocates revenue to each performance obligation based on its relative standalone selling price. The
Company generally determines standalone selling prices based on the prices charged to customers when each of
the products and services are sold separately. If the standalone selling price of a product or service is not
observable through past transactions, the Company estimates the standalone selling price taking into account
available information such as market conditions and internally approved pricing guidelines related to the
performance obligations.

The Company’s hardware is generally highly dependent on, and interrelated with, the underlying license. In these
cases, the hardware and software license are accounted for as a single performance obligation and revenue is
recognized at the point in time when ownership is transferred to the customer.

44

Upon the adoption of ASC 842, effective January 1, 2019, the lease components of certain fixed fee service
contracts are no longer being separately accounted for under the lease guidance, and the entire contract is being
accounted for under ASC 606. Upon the adoption of ASC 606, effective January 1, 2018, and until the adoption
of ASC 842 referred to above, these lease components were accounted for as a lease in accordance with ASC
840, “Leases” (“ASC 840”), and the remaining consideration was allocated to the other performance obligations
identified in accordance with ASC 606.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-
producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping
and handling costs associated with outbound freight after control of a product has transferred to a customer are
accounted for as fulfillment costs and are included in cost of revenue.

The Company also recognizes an asset for the incremental costs of obtaining a contract with a customer if we
expect the benefit of those costs to be longer than one year, in accordance with ASC Topic 340-40, “Other Assets
and Deferred Costs: Contracts with Customers.” The Company has determined that certain commissions
programs meet the requirements to be capitalized.

See Note 1 to the consolidated financial statements for details of the Company’s accounting policies related to
revenue recognition.

Goodwill

In accordance with FASB ASC Topic 350-20, “Intangibles—Goodwill and Other,” the Company tests goodwill
for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely
than not that the fair value of the Company is less than the carrying value of the Company.

Factors the Company considers important, which could trigger an impairment of such asset, include the
following:

•

•

•

•

•

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 market capitalization below net book value.

The Company’s Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer. The Company
determined that it has two reporting units and two reportable segments based on the information that is provided
to the CODM. The two segments and reporting units are Detection and 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 records an impairment charge if such an assessment were to indicate that the fair value 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 market multiples, to determine the fair value 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 yield different conclusions that would result in an impairment
charge to income in the period that such change or determination was made.

45

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 analysis, the income approach provides a reasonable estimate of the
fair value of the reporting units.

The Company determines the fair value of reporting units based on the present value 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 fair 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.

Fair values for the reporting units are based on a weighting of the income approach and the market approach. For
purposes of the income approach, fair value is determined based on the present value 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 forecast for each segment. Accordingly, actual results can differ from those assumed in our forecasts.
Discount rates are derived from a capital asset pricing model and by 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 businesses and in our internally developed
forecasts.

In the market approach, the Company uses a valuation technique in which values are derived based on market
prices of publicly traded companies with similar operating characteristics and industries. A market approach
allows for comparison to actual market transactions and multiples. It can be somewhat limited in its application
because the population of potential comparable publicly-traded companies can be limited due to differing
characteristics of the comparative business and ours, as well as the fact that market data may not be available for
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 our business.

The Company corroborates the total fair values of the reporting units using a market capitalization approach;
however, this approach cannot be used to determine the fair value of each reporting unit value. The blend 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 valuation methodology
based upon the relevance and availability of the data at the time the valuation is performed and weights the
methodologies appropriately.

The Company performed the annual impairment assessment at October 1, 2020 and compared the fair value of
each of reporting unit to its carrying value as of this date. Fair value of the Detection reporting unit exceeded the
carrying value by approximately 2,044%. Goodwill for the Therapy reporting unit was fully impaired prior to the
year ended December 31, 2017. 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 liabilities, to the reporting
units and an apportionment of the remaining net assets based on the relative size of the reporting units’ revenues
and operating expenses compared to the Company as a whole. The determination of reporting units also requires
management judgment.

46

Long Lived Assets

In accordance with FASB ASC Topic 360, “Property, Plant and Equipment” (“ASC 360”), the Company assesses
long-lived assets for impairment if events and circumstances indicate it is more likely than not that the fair value
of the asset group is less than the carrying value 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 physical 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).

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 assets (or asset group’s) fair value.

The Company did not record any impairment charges for the years ended December 31, 2020 or December 31,
2019.

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 reasonable, different assumptions could change the estimated fair values and,
therefore 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 fair value estimates and ultimately result in future 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.

Stock-Based Compensation

The Company maintains stock-based incentive plans, under which it provides stock incentives to employees,
directors and contractors. The Company grants to employees, 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 employees and directors. The underlying shares of the restricted stock grant are not
issued until the shares vest, and compensation expense is based on the stock price of the shares at the time of

47

grant. The Company follows ASC 718, “Compensation – Stock Compensation”, (“ASC 718”), for all stock-
based compensation. The Company has granted performance based restricted stock based on achievement of
certain revenue targets. Compensation cost for performance based restricted stock requires significant judgment
regarding probability of the performance objectives and compensation cost is re-measured at every reporting
period. As a result, compensation cost could vary significantly during the performance measurement period.

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 vested stock options before exercising them, the estimated volatility of its common stock price over the
expected term, and the number of options that will be forfeited prior to the completion of their vesting
requirements. Fair value of restricted stock is determined based on the stock price of the underlying option on the
date of the grant. 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.

Income Taxes

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, 2020 and 2019 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.

Discussion of Operating Results:

Year Ended December 31, 2020 compared to Year Ended December 31, 2019

Revenue. Revenue for the year ended December 31, 2020 was $29.7 million compared with revenue of
$31.3 million for the year ended December 31, 2019, a decrease of $1.6 million, or 5.2%. Detection revenue
decreased by $0.3 million and Therapy revenue decreased by $1.3 million.

48

The table below presents the components of revenue for 2020 and 2019 (in thousands):

Twelve months ended December 31,

2020

2019

$ Change % Change

Detection revenue

Product revenue . . . . . . . . . . . . . . . . . . . . . . .
Service revenue . . . . . . . . . . . . . . . . . . . . . . .

$16,291
5,706

$16,788
5,531

$ (497)
175

Subtotal

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21,997

22,319

(322)

Therapy revenue

Product revenue . . . . . . . . . . . . . . . . . . . . . . .
Service revenue . . . . . . . . . . . . . . . . . . . . . . .

Subtotal

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,612
5,089

7,701

2,979
6,042

9,021

(367)
(953)

(1,320)

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$29,698

$31,340

$(1,642)

(3.0)%
3.2%

(1.4)%

(12.3)%
(15.8)%

(14.6)%

(5.2)%

Detection revenues decreased by $0.3 million, or 1.4%, from $22.3 million for the year ended December 31,
2019 to $22.0 million for the year ended December 31, 2020.

Detection product revenue decreased by $0.5 million and Detection service revenue increased by $0.2 million.
The Company believes that Detection product revenue was adversely affected in 2020 by the COVID-19
pandemic, as the typical sales cycle and ordering patterns were disrupted due to some healthcare facilities’
additional focus on COVID-19. The primary impact occurred during the second and third quarters of 2020. The
total impact was partially offset by an increase in revenue in the fourth quarter of 2020 as compared to the fourth
quarter of 2019. The Company is not able to predict how the COVID-19 pandemic will affect future revenue and
order volume. The $0.2 million increase in Detection service revenue was due primarily to an increase in service
revenue from direct customers. The Company did not see a significant impact of the COVID-19 pandemic on
Detection service revenue in 2020 as compared to 2019 but is not able to predict how the COVID-19 pandemic
could affect future Detection service revenue.

Therapy revenue decreased 14.6%, or $1.3 million, to $7.7 million for the year ended December 31, 2020 from
$9.0 million in the year ended December 31, 2019.

Therapy product revenue decreased by $0.4 million and Therapy service revenue decreased by $1.0 million.
Therapy product revenue for the year ended December 31, 2020 was adversely affected by the COVID-19
pandemic, due to stay-at-home and social distancing orders as well as the uncertainty in the market. Therapy
product revenue is related to the sale of our Xoft Systems and can vary significantly from quarter to quarter due
to changes in the number of units sold, and the average selling price. We expect Therapy sales to continue to vary
as the sales of controller units can represent a significant component of Therapy product revenue. We believe
Therapy service revenue was negatively impacted primarily due to the lack of ability to treat patients, mostly in
the second and third quarters, due to the additional focus by healthcare professionals on the COVID-19
pandemic.

Gross Profit. Gross profit was $21.3 million for the year ended December 31, 2020 compared to $24.2 million
for the year ended December 31, 2019, a decrease of $2.9 million, or 11.9%. Detection gross profit decreased by
$0.8 million from $18.6 million in the year ended December 31, 2019 to $17.8 million in the year ended
December 31, 2020. Detection gross profit as a percentage of Detection revenue decreased to 81.2% in the year
ended December 31, 2020 from 84% in the year ended December 31, 2019. The decrease was due primarily to
higher installation costs and equipment costs to support processing of higher resolution and increased volume of
3D images. Therapy gross profit decreased by $2.1 million from $5.6 million in the year ended December 31,
2019 to $3.5 million in the year ended December 31, 2020. This decrease is largely due to Therapy revenue being

49

adversely affected by the COVID-19 pandemic, due to stay-at-home and social distancing orders as well as the
uncertainty in the market. Therapy gross profit as a percentage of Therapy revenue decreased to 45% in the year
ended December 31, 2020 from 62% in the year ended December 31, 2019.

Gross profit as a percentage of revenue was 71.9% for the year ended December 31, 2020 compared to 77.3% for
the year ended December 31, 2019. Gross profit as a percentage of revenue will fluctuate due to the costs related
to manufacturing, amortization and the impact of product mix in each segment.

The COVID-19 pandemic adversely affected revenues from Detection products and the Therapy segment in the
year ended December 31, 2020, and as a result, gross profit in both segments. The primary impact of the
COVID-19 pandemic was felt during the second and third quarters of 2020. However, the Company continued to
follow steps taken during the second and third quarters of 2020 to reduce operating expenses, including cutting
non-essential travel, implementing employee furloughs and terminations, reducing employee salaries by 10%,
and cancelling most in-person trade shows. These measures offset some of the impact on gross profit caused by
COVID-19. Salary reductions, employee furloughs, and certain other of these measures were ended in the fourth
quarter of 2020.

Cost of revenue and gross profit for 2020 and 2019 were as follows (in thousands):

Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and depreciation . . . . . . . . . . . . . . . . . . . .

$ 5,000
2,965
379

$ 3,278
3,438
397

$ 1,722
(473)
(18)

52.5%
(13.8)%
100.0%

Total cost of revenue . . . . . . . . . . . . . . . . . . . . . . .

$ 8,344

$ 7,113

$ 1,231

17.3%

Twelve months ended December 31,

2020

2019

Change

% Change

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
profit % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,354

$24,227

$(2,873)

(11.9)%

71.9%

77.3%

Detection gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Therapy gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$17,856
3,498

$18,627
5,600

$ (771)
(2,102)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,354

$24,227

$(2,873)

(4.1)%
(37.5)%

(11.9)%

For the year ended December 31,

2020

2019

Change

% Change

Operating Expenses:

Operating expenses for 2020 and 2019 were as follows (in thousands):

Year ended December 31,

2020

2019

Change

Change %

Operating expenses: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineering and product development
. . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . .
Amortization and depreciation . . . . . . . . . . . . . . . .

$ 8,114
13,312
9,117
199

$ 9,271
13,634
7,443
276

$(1,157)
(322)
1,674
(77)

(12.5)%
(2.4)%
22.5%
(27.9)%

Total operating expenses . . . . . . . . . . . . . . . . .

$30,742

$30,624

$

118

0.4%

50

Operating expenses were $30.7 million for the year ended December 31, 2020, compared to $30.6 million for the
year ended December 31, 2019, an increase of $0.1 million or 0.4%. The Company was able to keep operating
expenses relatively flat after implementing ongoing cost-cutting measures prompted by the COVID-19 pandemic
in the second quarter of 2020. These cost-cutting measures followed increased expenditures in the year ended
December 31, 2019 as the Company invested in additional commercial resources prior to the onset of the
COVID-19 pandemic.

Engineering and Product Development. Engineering and product development costs for the year ended
December 31, 2020 decreased by $1.2 million, or 12.5%, from $9.3 million in 2019 to $8.1 million in 2020.The
decrease was largely due to decreased personnel as a result of the cost-cutting measures prompted by the
COVID-19 pandemic.

Marketing and Sales. Marketing and sales expense for the year ended December 31, 2020 decreased by
$0.3 million, or 2.4%, from $13.6 million in 2019 to $13.3 million in 2020. The decrease in marketing and sales
expense was due primarily to decreased personnel and trade show costs through the implementation of cost-
cutting measures prompted by the COVID-19 pandemic. The decrease was offset by an increase in costs in the
first three months of the year when the Company invested in additional commercial resources to help drive sales
of new Detection products prior to the onset of the COVID-19 pandemic.

General and Administrative. General and administrative expenses for the year ended December 31, 2020
increased by $1.7 million, or 22.5%, from $7.4 million in 2019 to $9.1 million in 2020. The increase was due
primarily to an increase in stock compensation and legal expenses and was offset by cost-cutting measures
prompted by the COVID-19 pandemic.

Amortization and Depreciation. Amortization and depreciation expenses for the year ended December 31, 2020
decreased by $0.1 million, or 27.9%, from $0.3 million in 2019 to $0.2 million in 2020. The Company’s
depreciable and amortizable assets have remained relatively consistent between 2020 and 2019.

Other Income, Tax and Expense (in thousands)

Year ended December 31,

2020

2019

Change

Change %

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt
. . . . . . . . . . . . . . . . . . . .
Loss on fair value of debentures . . . . . . . . . . . . . . . . . . . .

$ (476)
97
(341)
(7,464)

$ (784)
344
—
(6,671)

$

308
(247)
(341)
(793)

(39.3)%
(71.8)%
0.0%
11.9%

$(8,184)

$(7,111)

$(1,073)

15.1%

Tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

38

$

43

$

(5)

(11.6)%

Interest Expense. The Company recorded $0.5 million of interest expense in the year ended December 31, 2020
as compared with $0.8 million of interest expense in the year ended December 31, 2019.

Interest income. Interest income of $0.1 million and $0.3 million for the years ended December 31, 2020 and
2019, respectively, reflects income earned from our money market accounts.

Loss on fair value of debentures. The Company recorded a loss of $7.5 million in 2020, which reflected an
increase in the fair value of the unsecured subordinated convertible debentures (the “Convertible Debentures”)
liability from approximately $13.7 million at December 31, 2019 to $21.2 million at February 21, 2020, the
forced conversion date. Upon the consummation of the forced conversion, the Company issued 1,816,466 shares
of common stock with a fair value of approximately $21.2 million, and the Convertible Debenture liability was
reclassified to stockholders’ equity.

51

Tax expense. The Company had tax expense of $38,000 for the year ended December 31, 2020 as compared to
tax expense of $43,000 for the year ended December 31, 2019.

Discussion of Operating Results:

Year Ended December 31, 2019 compared to Year Ended December 31, 2018

Revenue. Revenue for the year ended December 31, 2019 was $31.3 million compared with revenue of
$25.6 million for the year ended December 31, 2018, an increase of $5.7 million, or 22.3%. Detection revenue
increased by $5.4 million and Therapy revenue increased by $0.3 million.

The table below presents the components of revenue for 2019 and 2018 (in thousands):

Twelve months ended December 31,

2019

2018

Change % Change

Detection revenue

Product revenue . . . . . . . . . . . . . . . . . . . . . . . .
Service revenue . . . . . . . . . . . . . . . . . . . . . . . .

$16,788
5,531

$10,783
6,081

$6,005
(550)

Subtotal

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,319

16,864

5,455

Therapy revenue

Product revenue . . . . . . . . . . . . . . . . . . . . . . . .
Service revenue . . . . . . . . . . . . . . . . . . . . . . . .

Subtotal

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,979
6,042

9,021

2,328
6,429

8,757

651
(387)

264

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$31,340

$25,621

$5,719

55.7%
(9.0)%

32.3%

28.0%
(6.0)%

3.0%

22.3%

Detection revenues increased 32.3%, or $5.4 million, from $16.9 million for the year ended December 31, 2018
to $22.3 million for the year ended December 31, 2019. Detection product revenue increased by $6.0 million and
Detection service revenue decreased by $0.6 million. The $6.0 million increase in Detection product revenue was
due primarily to a $2.1 million increase in OEM system sales and a $3.9 million increase in direct product sales.
Detection service revenue decreased by $0.6 million, which was due primarily to a decrease of approximately
$0.8 million primarily due to the conversion and upgrade cycle from Secondlook digital to Tomosynthesis 3D
CAD offset by an increase of $0.2 million of service related to our 3D products.

Therapy revenue increased 3.0%, or $0.3 million, to $9.0 million for the year ended December 31, 2019 from
$8.7 million in the year ended December 31, 2018. The increase in Therapy revenue was due to an increase in
Therapy product revenue of $0.7 million offset by a decrease in Therapy service revenue of $0.4 million.

The increase in Therapy product revenue for the year ended December 31, 2019 was due primarily to an increase
of $0.6 million related to sales outside of the United States (“OUS”) controller sales in 2019. The decrease in
Therapy service revenue was due to reductions in source agreements and disposable applicators in the United
States. Overall, the Therapy business increased by $1.1 million, or 67% OUS, offset by decreases in the U.S.
business of $0.8 million, or 12%. We expect Therapy sales to continue to vary as the sales of controller units can
represent a significant component of Therapy product revenue.

Gross Profit. Gross profit was $24.2 million for the year ended December 31, 2019 compared to $19.4 million
for the year ended December 31, 2018, an increase of $4.8 million, or 24.8%. Detection gross profit increased by
$3.9 million from $14.7 million in the year ended December 31, 2018 to $18.6 million in the year ended
December 31, 2019. Detection gross profit increased due primarily to the increase in Detection revenue.
Detection gross profit as a percentage of Detection revenue decreased to 84% in the year ended December 31,
2019 from 87% in the prior year as a result of higher equipment costs to support processing higher resolution 3D

52

images. Therapy gross profit increased by $0.9 million from $4.7 million in the year ended December 31, 2018 to
$5.6 million in the year ended December 31, 2019. Therapy gross profit as a percentage of Therapy revenue
improved to 62% in the year ended December 31, 2019 from 54% in the prior year. The improvement in Therapy
gross profit as a percentage of revenue was due to the reduced cost of services and cost structure improvements
related to the exit of the skin subscription business in January 2018.

Gross profit percent was 77.3% for the year ended December 31, 2019 compared to 75.8% for the year ended
December 31, 2018. 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 2019 and 2018 were as follows (in
thousands):

Twelve months ended December 31,

2019

2018

Change % Change

Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and depreciation . . . . . . . . . . . . . . . . . . . .

$ 3,278
3,438
397

$ 2,161
3,627
403

$1,117
(189)
(6)

Total cost of revenue . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,113

$ 6,191

$ 922

Gross profit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
profit % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$24,227

$19,430

$4,797

77.3%

75.8%

51.7%
(5.2)%
100.0%

14.9%

24.7%

Operating Expenses:

Operating expenses for 2019 and 2018 were as follows (in thousands):

For the year ended December 31,

2019

2018

Change

% Change

Operating expenses:

Engineering and product development . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . .
Amortization and depreciation . . . . . . . . . . . . . . . .

$ 9,271
13,634
7,443
276

$ 9,445
8,693
9,117
305

$ (174)
4,941
(1,674)
(29)

(1.8)%
56.8%
(18.4)%
(9.5)%

Total operating expenses . . . . . . . . . . . . . . . .

$30,624

$27,560

$ 3,064

11.1%

Engineering and Product Development. Engineering and product development costs for the year ended
December 31, 2019 decreased by $0.2 million, or 1.9%, from $9.5 million in 2018 to $9.3 million in 2019.
Detection engineering and product development costs increased by $0.2 million. The increase in Detection
research and development expense was due to an increase in personnel and data collection costs offset by
decreases in clinical expenses and consulting costs. Therapy engineering and product development costs
decreased by approximately $0.4 million. The decrease in the Therapy segment was due primarily to a decrease
in personnel expenses and clinical expenses. Engineering and product development costs support the Company’s
strategy to build improved and larger datasets to train the Detection algorithm and support for clinical data in the
Therapy segment.

Marketing and Sales. Marketing and sales expense for the year ended December 31, 2019 increased by
$4.9 million, or 56.8%, from $8.7 million in 2018 to $13.6 million in 2019. Detection marketing and sales
expenses increased by $4.6 million. The increase in Detection marketing and sales expense was due to increases
in personnel costs, commissions and tradeshow expenses. Therapy marketing and sales expenses increased
approximately $0.3 million. The increase in Therapy marketing and sales expense was due primarily to an
increase in personnel expenses, and travel. The Company made significant investments in the commercial
infrastructure to support its strategy to grow top line revenue.

53

General and Administrative. General and administrative expenses for the year ended December 31, 2019
decreased by $1.7 million, or 18.4%, from $9.1 million in 2018 to $7.4 million in 2019. The decrease in general
and administrative expenses was due primarily to $1.0 million of severance costs incurred in the year ended
December 31, 2018, legal settlement costs of $0.4 million and decreases in stock compensation and bad debt.

Amortization and Depreciation. Amortization and depreciation expenses were consistent between 2019 and 2018
at $0.3 million. The Company’s depreciable and amortizable assets have remained relatively consistent between
2019 and 2018.

Other Income and Expense (in thousands)

For the year ended December 31,

2019

2018

Change

Change %

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on fair value of debentures . . . . . . . . . . . . . . . . . . . . .

$ (784)
344
—
(6,671)

$(504)
110
(451)
—

(280)
234
451
(6,671)

55.6%
212.7%
(100.0)%
—

$(7,111)

$(845)

$(6,266)

741.5%

Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . .

$

43

$ 42

1

2.4%

Interest Expense. The Company recorded $0.8 million of interest expense in 2019 as compared with $0.5 million
of interest expense during the year ended December 31, 2018. In December 2018, the Company issued the
unsecured subordinated convertible debentures (the “Convertible Debentures”) and as a result, interest expense
increased.

Interest income. Interest income of $0.3 million and $0.1 million for the years ended December 31, 2019 and
2018, respectively, reflects income earned from our money market accounts.

Financing costs. The Company recorded $0.5 million of expenses in 2018 in connection with the issuance of the
Convertible Debentures in December 2018.

Loss on fair value of debentures. The Company recorded a loss of $6.7 million in 2019, which reflects an
increase in the fair value of the Convertible Debentures liability from approximately $7.0 million at
December 31, 2018 to $13.6 million at December 31, 2019. The Company expects the fair value of the
Convertible Debentures to change from quarter to quarter as changes in the underlying stock price of the
Company drive changes in the fair value of these instruments.

Tax expense. The Company had tax expense of $43,000 for the year ended December 31, 2019 as compared to
tax expense of $42,000 for the year ended December 31, 2018. Tax expense for both the years ended
December 31, 2019 and 2018 was due primarily to state non-income and franchise-based taxes.

54

Segment Analysis

The Company operates in and reports results for two segments: Detection and Therapy. Segment operating
income (loss) includes cost of sales, engineering and product development, marketing and sales, and depreciation
and amortization for the respective segment. A summary of Segment revenues, segment gross profit and segment
operating income (loss) for the fiscal years ended December 31, 2020, 2019, and 2018 are below (in thousands):

Year Ended December 31,

2020

2019

2018

Segment revenues:

Detection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Therapy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 21,997
7,701

$ 22,319
9,021

$16,864
8,757

Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 29,698

$ 31,340

$25,621

Segment gross profit:

Detection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Therapy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17,856
3,498

$ 18,627
5,600

$14,709
4,721

Segment gross profit

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 21,354

$ 24,227

$19,430

Segment operating income (loss):

Detection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Therapy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,719
(3,028)

$ 2,564
(1,476)

$ 3,412
(2,373)

Segment operating income (loss)

. . . . . . . . . . . . . . . . . .

$

(309)

$ 1,088

$ 1,039

General administrative . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of convertible debentures . . . . . . . . . . . .

$ (9,079)
(476)
—
(341)
97
(7,464)

$ (7,486)
(784)
—

$ (9,169)
(504)
(451)

345
(6,671)

110

Loss before income tax . . . . . . . . . . . . . . . . . . . . . . . . . .

$(17,572)

$(13,508)

$ (8,975)

Detection gross profit decreased to approximately $17.9 million, or 81% of revenue, for the year ended
December 31, 2020 from $18.6 million, or 84% of revenue, for the year ended December 31, 2019. The decrease
in Detection gross profit was due primarily to the decrease in Detection revenue. Detection segment operating
income for the year ended December 31, 2020 increased by $0.1 million to $2.7 million from $2.6 million for the
year ended December 31, 2019. The increase in Detection segment operating income was due primarily to a
decrease in operating expenses. Detection operating expenses decreased by $1.0 million to $15.1 million for the
year ended December 31, 2020 from $16.1 million for the year ended December 31, 2019.

Detection gross profit increased to approximately $18.6 million, or 83% of revenue, for the year ended
December 31, 2019 from $14.7 million, or 87% of revenue, for the year ended December 31, 2018. The increase
in Detection gross profit was due primarily to the increase in Detection revenue. Detection segment operating
income for the year ended December 31, 2019 decreased by $0.8 million to $2.6 million from $3.4 million for the
year ended December 31, 2018. The decrease in Detection segment operating income for the year ended
December 31, 2019 as compared to the year ended December 31, 2018 was due primarily to increased operating
expenses for the year ended December 31, 2019 compared to the year ended December 31, 2018. Detection
operating expenses increased by $4.8 million to $16.1 million for the year ended December 31, 2019 compared
to $11.3 million for the year ended December 31, 2018, reflecting increased research and development and
increased marketing and sales expenses, primarily due to clinical development costs, personnel related expenses
and consulting costs.

55

Therapy gross profit decreased by approximately $2.1 million to $3.5 million, or 45% of revenue, for the year
ended December 31, 2020 from approximately $5.6 million or 62% of revenue for the year ended December 31,
2019. The decrease in Therapy gross profit was partly due to the $1.3 million reduction in revenue and increased
costs incurred prior to the implementation of cost-cutting measures in response to the COVID-19 pandemic.
Therapy operating expenses decreased by $0.5 million to $6.6 million for the year ended December 31, 2020
from $7.1 million for the year ended December 31, 2019. Therapy segment operating loss increased to
$3.0 million for the year ended December 31, 2020 from $1.5 million for the year ended December 31, 2019. The
increase in Therapy segment operating loss was due primarily to the decreased revenue of $1.3 million.

Therapy gross profit increased by approximately $0.9 million to $5.6 million, or 62% of revenue, for the year
ended December 31, 2019 from approximately $4.7 million or 54% of revenue for the year ended December 31,
2018. The increase in Therapy gross profit was due to decreased manufacturing costs of $0.5 million and
increased revenue of $0.3 million. Therapy operating expenses for both the years ended December 31, 2019 and
2018 were approximately $7.1 million, respectively. Therapy segment operating loss decreased to a loss of
$1.5 million for the year ended December 31, 2019 from a loss of $2.4 million for the year ended December 31,
2018. The decrease in loss was due primarily to the decreased manufacturing costs of $0.5 million and increased
revenue of $0.3 million.

Liquidity and Capital Resources

The Company believes that its cash and cash equivalents balance of $27.2 million as of December 31, 2020, 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’s cash on hand includes proceeds from the Loan and Security Agreement entered into with the
Bank on March 31, 2020. The Company and the Bank amended the Loan and Security Agreement on June 22,
2020 (as amended, the “Loan Agreement”). The Loan Agreement includes certain financial covenants tied to
minimum revenue and the ratio of the Company’s unrestricted cash at the Bank to its indebtedness under the
Loan Agreement. The COVID-19 pandemic has resulted in significant financial market volatility and uncertainty.
A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an
adverse effect on the Company’s ability to maintain compliance with the covenants under the Loan Agreement. If
at any point the Company is not in compliance with certain covenants and is unable to obtain an amendment or
waiver from the Bank, such noncompliance may result in an event of default under the Loan Agreement, which
could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness
before the scheduled due date.

Even if an event of default were to occur under the Loan Agreement, the Company believes that its current
liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily
due to cash on hand of $27.2 million and anticipated revenue and cash collections. However, the resurgence of
the COVID-19 pandemic could affect our liquidity.

On April 27, 2020, the Company issued 1,562,500 shares of common stock to several institutional investors at a
price of $8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately
$12.5 million, and the Company received net proceeds of approximately $12.3 million. The Company has also
entered into an at-the-market offering program with JMP Securities (the “ATM”) to provide for additional
potential liquidity. The Company’s ATM facility provides for the sale of common stock having a value of up to
$25.0 million. On December 17, 2020 the company sold 470,704 shares of common stock under the ATM

56

facility. The gross proceeds were approximately $6.6 million, and the Company received net proceeds of
approximately $6.1 million. As of December 31, 2020, $18.4 million in capacity remains under the ATM facility.
On March 2, 2021, the Company terminated the ATM.

The Company had net working capital of $25.6 million at December 31, 2020. The ratio of current assets to
current liabilities at December 31, 2020 and 2019 was 2.53 and 1.55, respectively.

Net cash used for operating activities for the year ended December 31, 2020 was $7.0 million, compared to
$7.1 million for 2019.

The net cash used for investing activities for the year ended December 31, 2020 was $0.5 million compared to
$0.3 million for the year ended December 31, 2019. The cash used for investing activities in both 2020 and 2019
was due primarily to purchases of fixed assets.

Net cash provided by financing activities for the year ended December 31, 2020 was $19.3 million, which was
primarily related to the registered direct offering resulting in net proceeds of $12.3 million and the sale of stock
related to the ATM resulting in net proceeds of $6.1 million. Net cash provided by financing activities for the
year ended December 31, 2019 was $10.5 million which was primarily related to $9.4 million in net proceeds
from an issuance of common stock and $1.4 million received from the exercise of employee stock options.

The CARES Act allowed employers to defer the depot and payment of employers share of Social Security
payroll taxes that would otherwise have been owed from the date of enactment of the legislation through
December 31, 2020. The legislation requires that the deferred taxes be paid over the two-year period, with half
the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. As of December
31, 2020, the Company has recorded the $0.4 million payment deferral within “Accrued and other benefits.”

On March 2, 2021, the Company entered into an underwriting agreement with Guggenheim Securities, LLC, as
representative of the several underwriters thereto, in connection with an underwritten public offering of
1,393,738 shares of the Company’s common stock at an offering price of $18.00 per share. The Offering closed
on March 5, 2021 and resulted in net proceeds of approximately $23.2 million to the Company.

Lease Obligations:

Operating Leases:

As of December 31, 2020, the Company had three lease obligations related to its facilities.

The Company’s executive offices are leased pursuant to a five-year lease that commenced on December 15,
2006, consisting of approximately 11,000 square feet of office space located at 98 Spit Brook Road, Suite 100 in
Nashua, New Hampshire. As amended, the lease expires in February 2023 and the annual base rent is $214,812.
Additionally, the Company is required to pay its proportionate share of the building and real estate tax expenses
and obtain insurance for the facility.

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. As amended, the lease expires in March 2023, with annual payments of $628,260 until March 2021,
$645,792 from April 2021 to March 2022 and $666,240 from April 2022 to March 2023. Additionally, the
Company is required to pay its proportionate share of the building and real estate tax expenses and obtain
insurance for the facility.

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.

57

Finance Leases:

In August 2017, the Company assumed an equipment lease obligation with payments, including interest payable,
totaling $50,000. The lease was determined to be a capital lease and, accordingly, the equipment was capitalized
and a liability of $42,000 was recorded. The equipment is being depreciated over the expected life of 3 years.
The lease term expired in August of 2020.

Settlement Obligations:

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 sublicense certain Hologic patents, and a non-compete
covenant 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 provided for payment of royalties based upon a specified percentage of future net sales on any
products that practice the licensed rights. The estimated fair value of the patent license and non-compete
covenant is $100,000 and was amortized over the estimated useful life of approximately four years. As of
December 31, 2020, the remaining liability for minimum royalty obligations totaling $0.1 million is recorded
within accrued expenses and accounts payable.

Notes Payable:

On March 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with
Western Alliance Bank (the “Bank”) that provided an initial term loan (“Term Loan”) facility of $7.0 million and
a $5.0 million revolving line of credit.

The Loan Agreement was amended effective June 16, 2020. The Loan Agreement requires the Company to either
(i) meet a minimum revenue covenant, or (ii) maintain a ratio of unrestricted cash at the Bank to aggregate
indebtedness owed to the Bank of at least 1.25 to 1.00. The Company was compliant with these covenants as of
December 31, 2020.

If at any point the Company is not in compliance with certain covenants under the Loan Agreement and is unable
to obtain an amendment or waiver, such noncompliance may result in an event of default under the Loan
Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay
such indebtedness before the scheduled due date. The Company was required, periodically in the past, to seek
modifications from its prior lender to avoid non-compliance with its earlier covenants.

Interest in arrears on the Term Loan began to be repaid on April 1, 2020 and will continue to be paid on the first
of each successive month thereafter until the principal repayment starts. Commencing on the principal repayment
date March 1, 2022 and continuing on the first day of each month thereafter, the Company will make equal
monthly payments of principal, together with applicable interest in arrears, to the Bank. The interest rate is set at
1% above the Prime Rate, which is defined in the Loan Agreement as the greater of 4.25% or the Prime Rate
published in the Money Rates section of the Western Edition of the Wall Street Journal. The Prime Rate as of
December 31, 2020 was 3.25%.

The Company has the option to prepay all, but not less than all, of the Term Loan advanced by the Bank under
the Loan Agreement. The Company prepayment is subject to payment of (1) all outstanding principal of the
Term Loan plus accrued and unpaid interest thereon through the prepayment date, (2) the final payment
($122,500 or 1.75% of the original loan amount), (3) a prepayment fee (3% of the principal balance if prepaid
prior to first March 30, 2021, 2% of principal if prepaid after March 30, 2021 but before June 30, 2022, or 1% of
principal if prepaid after March 30, 2022) plus (4) all other obligations that are due and payable, including the
Bank’s expenses and interest at the default rate with respect to any past due amounts.

58

Obligations to the Bank under the Loan Agreement are secured by a first priority security interest in the
Company’s assets, except for certain permitted liens that have priority to the Bank’s security interest by
operation of law.

In connection with the Loan Agreement, the Company incurred approximately $141,000 of closing costs. The
closing costs have been deduced from the carrying value of the debt and will be amortized through March 30,
2022, the maturity date of the Term Loan.

The maturity date of the revolving loan is March 30, 2022 and there was no outstanding amount as of
December 31, 2020.

Loan and Security Agreement – Silicon Valley Bank

On August 7, 2017, the Company entered into a Loan and Security Agreement with Silicon Valley Bank, which
was subsequently amended several times (as amended, the “SVB Loan Agreement”). The SVB Loan Agreement
provided an initial term loan facility of $6.0 million and a $4.0 million revolving line of credit.

On March 30, 2020, the Company elected to repay all outstanding obligations (including accrued interest) and
retire the SVB Loan Agreement. The Company accounted for this repayment and retirement as an
extinguishment of the SVB Loan Agreement. In addition to the outstanding principal and accrued interest, the
Company was required to pay the $510,000 final payment, a termination fee of $114,000 and other costs totaling
$10,000. The Company also wrote off unamortized original closing costs as of the extinguishment date. The
Company recorded a loss on extinguishment of approximately $341,000 related to the repayment and retirement
of the SVB Loan Agreement. The loss on extinguishment was composed of approximately $185,000 for the
unaccrued final payment, the $114,000 termination fee, and $42,000 of unamortized and other closing costs.

Convertible Debentures

On December 20, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain
institutional and accredited investors (the “Investors”), including, but not limited to, all directors and executive
officers of the Company at the time, pursuant to which the Investors purchased Convertible Debentures with an
aggregate principal amount of approximately $7.0 million in a private placement.

On February 21, 2020 (the “Conversion Date”), the conditions permitting a forced conversion were met, and the
Company elected to exercise its forced conversion right under the terms of the Convertible Debentures.

As a result of this election, all of the outstanding Convertible Debentures were converted, at a conversion price of
$4.00 per share, into 1,742,500 shares of the Company’s common stock. In accordance with the make-whole
provisions in the Convertible Debentures, the Company also issued an additional 76,966 shares of its common
stock. The make-whole amount represented the total interest which would have accrued through the maturity date
of the Convertible Debentures, less the amounts previously paid, totaling $697,000. The conversion prices related
to the make-whole amount were dependent on whether the Investors were related parties or unrelated third
parties.

Accounting Considerations and Fair Value Measurements Related to the Convertible Debentures

The Company had previously elected to make a one-time, irrevocable election to utilize the fair value option to
account for the Convertible Debentures as a single hybrid instrument at its fair value, with changes in fair value
from period to period being recorded either in current earnings, or as an element of other comprehensive income
(loss), for the portion of the change in fair value determined to relate to the Company’s own credit risk. The
Company believed that the election of the fair value option allowed for a more meaningful representation of the
total fair value of its obligation under the Convertible Debentures and allowed for a better understanding of how
changes in the external market environment and valuation assumptions impact such fair value.

59

As of the December 31, 2019 valuation and the prior measurement dates, the Company utilized a Monte Carlo
simulation model to estimate the fair value of the Convertible Debentures. The simulation model was designed to
capture the potential settlement features of the Convertible Debentures, in conjunction with simulated changes in
the Company’s stock price and the probability of certain events occurring. The simulation utilized 100,000 trials
or simulations to determine the estimated fair value.

The simulation utilized the assumptions that if the Company was able to exercise its forced conversion right (if
the requirements to do so were met), that it would do so in 100% of such scenarios. Additionally, if an event of
default occurred during the simulated trial (based on the Company’s probability of default), the Investors would
opt to redeem the Convertible Debentures in 100% of such scenarios. If neither event occurred during a
simulated trial, the simulation assumed that the Investor would hold the Convertible Debentures until the
maturity date. The value of the cash flows associated with each potential settlement were discounted to present
value in each trial based on either the risk-free rate (for an equity settlement) or the effective discount rate (for a
redemption or cash settlement).

The Company also recorded a final adjustment to the Convertible Debentures based on their fair value on the
Conversion Date, just prior to the forced conversion being completed. Given that the Company’s prior simulation
model included the assumption that the Company would elect to force conversion in 100% of scenarios when the
requirements were met, the final valuation was based on the actual results of the forced conversion. As such, the
Company based the final fair value adjustment of approximately $7.5 million to the Convertible Debentures just
prior to conversion on the number of shares of common stock that were issued to the Investors upon conversion
and the fair value of the Company’s common stock as of the Conversion Date.

Other Commitments

Other Commitments include non-cancelable purchase orders with key suppliers executed in the normal course of
business.

Effect of New Accounting Pronouncements

See note 1 (t) in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

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 embedded with derivative instruments, such as foreign currency and interest
rate swaps, options, forwards, futures, collars, and warrants, either to hedge existing risks or for speculative
purposes.

Item 8.

Financial Statements and Supplementary Data.

See Financial Statements and Schedule attached hereto.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures.

The Company, under the supervision and with the participation of its management, including its principal
executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its

60

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, 2020.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because
of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and
not be detected. The Company conducts periodic evaluations to enhance, where necessary its procedures and
controls.

(b) Management’s Annual Report on Internal Control Over Financial Reporting.

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.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject 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 deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020,
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, 2020.

(c) Changes in Internal Control Over Financial Reporting.

The Company’s principal executive officer and principal financial officer conducted an evaluation of the
Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) to determine
whether any changes in internal control over financial reporting occurred during the quarter ended December 31,
2020, that have materially affected or which are reasonably likely to materially affect internal control over
financial reporting. Based on that evaluation there has been no such change during such period.

Item 9B. Other Information.

Not applicable.

61

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item 10 of Form 10-K will be included in the Company’s 2021 Proxy Statement
to be filed with the SEC in connection with the solicitation of proxies for the Company’s 2021 Annual Meeting
of Stockholders (the “2021 Proxy Statement”) and is incorporated herein by reference.

Item 11. Executive Compensation.

The information required by this Item 11 of Form 10-K will be included in the Company’s 2021 Proxy Statement
and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters.

The information required by this Item 12 of Form 10-K will be included in the Company’s 2021 Proxy Statement
and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item 13 of Form 10-K will be included in the Company’s 2021 Proxy Statement
and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

The information required by this Item 14 of Form 10-K will be included in the Company’s 2021 Proxy Statement
and is incorporated herein by reference.

62

Item 15. Exhibits, Financial Statement Schedules.

a) The following documents are filed as part of this Annual Report on Form 10-K:

PART IV

i.

ii.

iii.

1

2

3(a)

3(b)

4

10(a)

10(b)

10(c)

10(d)

10(e)

10(f)

10(g)

10(h)

Financial Statements - See Index on page F-1

Financial Statement Schedule - See Index on page F-1. All other schedules for which provision is made
in the applicable accounting regulations of the Securities and Exchange Commission are not required
under the related instructions or are not applicable and, therefore, have been omitted.

Exhibits - the following documents are filed as exhibits to this Annual Report on Form 10-K:

Underwriting Agreement, dated March 2, 2021, by and between iCAD, Inc. and Guggenheim
Securities, LLC (incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed with
the SEC on March 5, 2021).

Asset Purchase Agreement, dated December 16, 2016, between the Company and Invivo Corporation.
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
December 22, 2016). **

Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form
10-Q filed with the SEC on August 6, 2015).

Amended and Restated By-laws (incorporated by reference to Exhibit 3(b) to the Current Report on
Form 10-K filed with the SEC on March 17, 2008.

Description of Registrant’s Securities

2016 Stock Incentive Plan as Amended December 2018 (incorporated by reference to Annex A to the
definitive proxy statement on Form DEF14A filed with the SEC on November 20, 2018).*

Amendment to 2016 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed with the SEC on February 19, 2021).

Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 of Quarterly Report on
Form 10-Q filed with the SEC on November 15, 2014).

Lease Agreement, dated December 6, 2006, between the Company 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 Annual Report on Form 10-K filed with the SEC on March 22, 2007).

Employment Agreement between the Company and Michael Klein dated January 13, 2020
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
January 17, 2020).*

Amendment to Employment Agreement, dated March 26, 2020, between iCAD, Inc. and Michael Klein
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
May 29, 2020).*

Employment Agreement, dated May 26, 2020, between the Company and Stacey Stevens (incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on May 29, 2020).*

Employment Agreement, dated May 26, 2020, between the Company and Scott Areglado (incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on May 29, 2020). *

10(i)

Employment Agreement, dated May 26, 2020, between the Company and Jonathan Go (incorporated
by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the SEC on May 29, 2020). *

63

10(j)

10(k)

10(l)

10(m)

10(n)

10(o)

10(p)

21.1

23.1

31.1

31.2

32.1

32.2

101

Asset Purchase Agreement, dated December 16, 2016, between the Company and Invivo Corporation
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
December 22, 2016).

First Amendment to Lease, dated September 19, 2016, between the Company and The Irvine Company
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
September 21, 2016).

2012 Stock Incentive Plan (incorporated by reference to Appendix B to the definitive proxy statement
on Form DEF14A filed with the SEC on April 9, 2012).*

Amendment No. 1 to the 2012 Stock Incentive Plan (incorporated by reference to Appendix A to the
definitive proxy statement on Form DEF14A filed with the SEC on April 2, 2014).*

2019 Employee Stock Purchase Plan (incorporated by reference to Appendix A to the definitive proxy
statement on Form DEF14A filed with the SEC on November 8, 2019).

Loan and Security Agreement, dated as of March 30, 2020, by and between Western Alliance Bank,
iCAD, Inc., Xoft, Inc. and Xoft Solutions LLC (incorporated by reference to Exhibit 10.2 to the
Current Report on Form 8-K filed with the SEC on March 31, 2020).

First Amendment to Loan and Security Agreement, dated June 16, 2020, between iCAD, Inc., Xoft,
Inc., Xoft Solutions LLC and Western Alliance Bank (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q filed with the SEC on August 7, 2020).

Subsidiaries

Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.

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, 2020 and December 31, 2019, (ii) Consolidated
Statements of Operations for the years ended December 31, 2020, 2019 and 2018, (iii) Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018, (iv)
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018, and
(v) Notes to Consolidated Financial Statements.

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

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.

Item 16. Form 10-K Summary.

None.

64

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 15, 2021

iCAD, INC.

By: /s/ Michael Klein

Michael Klein
Chief Executive Officer, Executive Chairman

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

/s/ Michael Klein

Michael Klein

/s/ R. Scott Areglado

R. Scott Areglado

/s/ Nathaniel Dalton

Nathaniel Dalton

/s/ Rakesh Patel

Rakesh Patel, MD

/s/ Andy Sassine

Andy Sassine

/s/ Susan Wood

Susan Wood, Ph.D

Executive Chairman, Director, Chief Executive Officer
(Principal Executive Officer)

Chief Financial Officer
(Principal Financial and Accounting Officer)

Director

Director

Director

Director

Date

March 15, 2021

March 15, 2021

March 15, 2021

March 15, 2021

March 15, 2021

March 15, 2021

65

[THIS PAGE INTENTIONALLY LEFT BLANK]

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets As of December 31, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Operations For the years ended December 31, 2020, 2019 and 2018 . . . .

Consolidated Statements of Stockholders’ Equity For the years ended December 31, 2020, 2019 and

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows For the years ended December 31, 2020, 2019 and 2018 . . . .

Page

F-2

F-4

F-5

F-6

F-7

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8–F-42

F-1

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors
iCAD, Inc.
Nashua, New Hampshire

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of iCAD, Inc. (the “Company”) as of
December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and
the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,
in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, on January 1, 2019, the Company changed its
method of accounting for leases due to the adoption of ASU 2016-02, Leases (ASC 842).

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express
no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit committee
and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and
(2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit
matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we
are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter
or on the accounts or disclosures to which it relates.

F-2

Revenue recognition - Identification of distinct performance obligations in certain customer arrangements with
non-standard terms

As described in Note 1(k) to the consolidated financial statements, management assesses relevant contractual
terms in its customer arrangements to determine the performance obligations and recognizes revenue upon
transfer of control of the promised goods or services in an amount that reflects the consideration the Company
expects to receive in exchange for those products or services. The Company enters into certain contracts with
customers with non-standard terms and conditions that may include promises to transfer multiple products and
services where management exercises significant judgment in assessing contractual terms in these arrangements
to identify and evaluate whether performance obligations should be accounted for separately versus together.

We identified the determination of distinct performance obligations within contracts with non-standard terms as a
critical audit matter. Significant judgment can be required to determine the performance obligations in a contract
with non-standard terms and whether they are distinct. Auditing these aspects involved especially challenging
auditor judgment due to the nature and extent of audit effort required to address these matters and the evaluation
of audit evidence obtained related to whether such performance obligations were appropriately identified and
evaluated by management.

The primary procedures we performed to address this critical audit matter included:

• Evaluating management’s accounting policies and practices, including the reasonableness of management’s
judgments and assumptions related to the identification of each distinct performance obligation and its
pattern of delivery.

• Testing these agreements together with their underlying documents and company assessments to evaluate
the appropriate identification of each distinct performance obligation and its respective pattern of revenue
recognition.

/s/ BDO USA, LLP

We have served as the Company’s auditor since 1989.

Boston, Massachusetts

March 15, 2021

F-3

iCAD, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

Assets

Current assets:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade accounts receivable, net of allowance for doubtful accounts of $111 in
2020 and $136 in 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Property and equipment:

Equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other assets:

Operating lease assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization of $8,494 in 2020 and

$8,186 in 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Current liabilities:

Liabilities and Stockholders’ Equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable, current
Lease payable, current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease payable, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable, long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible debentures payable to non-related parties, at fair value . . . . . . . .
Convertible debentures payable to related parties, at fair value . . . . . . . . . . . .
Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commitments and contingencies (Note 9)

Stockholders’ equity:

December 31,

December 31,

2020

2019

(in thousands except shares and per share data)

$ 27,186

$ 15,313

10,027
3,144
1,945
42,302

6,765
62
319
376
7,522
6,778
744

1,758
1,527

889
8,362
12,536
$ 55,582

$

2,869
7,039
—
726
6,117
16,751
1,075
267
6,960
—
—

4
25,057

9,819
2,611
1,453
29,196

6,304
62
319
376
7,061
6,510
551

2,406
50

1,183
8,362
12,001
$ 41,748

$

1,990
6,590
4,250
758
5,248
18,836
1,837
356
2,003
12,409
1,233
3
36,677

Preferred stock, $ .01 par value: authorized 1,000,000 shares; none

issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Common stock, $ .01 par value: authorized 30,000,000 shares; issued

23,693,735 in 2020 and 19,546,151 in 2019. Outstanding 23,508,575 in
2020 and 19,360,320 in 2019.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost, 185,831 shares in 2019 and 2018 . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . .

—

—

236
273,639
(241,935)
(1,415)
30,525
$ 55,582

196
230,615
(224,325)
(1,415)
5,071
$ 41,748

See accompanying notes to consolidated financial statements.

F-4

iCAD, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended December 31,

2020

2019

2018

(in thousands except per share data)

Revenue:

Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 18,903
10,795

$ 19,767
11,573

$13,111
12,510

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29,698

31,340

25,621

Cost of Revenue:

Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,000
2,965
379

8,344

3,278
3,438
397

7,113

2,161
3,627
403

6,191

Gross profit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21,354

24,227

19,430

Operating expenses:

Engineering and product development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization and depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,114
13,312
9,117
199

30,742

9,271
13,634
7,443
276

9,445
8,693
9,117
305

30,624

27,560

Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9,388)

(6,397)

(8,130)

Other expense

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on fair value of convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . .

(476)
97
—
(341)
(7,464)

(784)
344
—
—
(6,671)

Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8,184)

(7,111)

(504)
110
(451)
—
—

(845)

Loss before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(17,572)
38

(13,508)
43

(8,975)
42

Net loss and comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(17,610) $(13,551) $ (9,017)

Net loss per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

(0.80) $
(0.80) $

(0.74) $ (0.54)
(0.74) $ (0.54)

Weighted average number of shares used in computing net loss per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22,140
22,140

18,378
18,378

16,685
16,685

See accompanying notes to consolidated financial statements.

F-5

iCAD, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity
(in thousands except shares)

Balance at December 31, 2017 . . . . . .
Cumulative impact from the adoption
of ASC 606 (see Note 1) . . . . . . . .
Issuance of common stock relative to
vesting of restricted stock, net of
56,946 shares forfeited for tax
obligations . . . . . . . . . . . . . . . . . . .

Issuance of common stock pursuant

to stock option plans . . . . . . . . . . . .
Stock-based compensation . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . .

Common Stock

Number of
Shares Issued

Par Value

Additional
Paid-in
Capital

Accumulated Treasury

Deficit

Stock

Stockholders’
Equity

16,711,512

$167

$217,389

$(201,865) $(1,415)

$ 14,276

—

—

—

108

—

108

265,442

89,556
—
—

3

1

—
—

(183)

—

203
1,505
—

—
—
(9,017)

—

—
—
—

(180)

204
1,505
(9,017)

Balance at December 31, 2018 . . . . . .

17,066,510

$171

$218,914

$(210,774) $(1,415)

$ 6,896

Issuance of common stock relative to
vesting of restricted stock, net of
29,887 shares forfeited for tax
obligations . . . . . . . . . . . . . . . . . . .

Issuance of common stock pursuant

to stock option plans . . . . . . . . . . . .
Issuance of common stock, net
. . . . .
Stock-based compensation . . . . . . . . .
Net Loss . . . . . . . . . . . . . . . . . . . . . . .

167,843

429,980
1,881,818
—
—

2

4
19

—
—

(198)

—

1,396
9,334
1,169
—

—
—
—
(13,551)

—

—
—
—
—

(196)

1,400
9,353
1,169
(13,551)

Balance at December 31, 2019 . . . . . .

19,546,151

$196

$230,615

$(224,325) $(1,415)

$ 5,071

Issuance of common stock relative to
vesting of restricted stock, net of
20,247 shares forfeited for tax
obligations . . . . . . . . . . . . . . . . . . .

Issuance of common stock pursuant

to stock option plans . . . . . . . . . . . .
. . . . .

Issuance of common stock, net
Issuance of common stock pursuant

employee stock purchase plan . . . .

42,606

Issuance of common stock upon

conversion of debentures . . . . . . . .
Stock-based compensation . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . .

1,819,466
—
—

97,830

—

(225)

155,149
2,033,204

1
20

1

18

—
—

728
18,264

267

21,146
2,844
—

—

—
—

—

—
—
(17,610)

—

—
—

—

—
—
—

(225)

729
18,284

268

21,164
2,844
(17,610)

Balance at December 31, 2020 . . . . . .

23,694,406

$236

$273,639

$(241,935) $(1,415)

$ 30,525

See accompanying notes to consolidated financial statements.

F-6

iCAD, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended
December 31,

2020

2019

2018

(in thousands)

Cash flow from operating activities:

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash used for operating activities:

$(17,610) $(13,551) $ (9,017)

Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt discount and debt costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in operating assets and liabilities, net of acquisition:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

309
268
94
2,844
78
341
1
—
7,464

(302)
(533)
(1,390)
878
(207)
780

Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,625

377
297
62
1,169
149
—

1
—
6,671

(3,478)
(1,024)
294
836
982
108

6,444

383
325
225
1,505
170
—
(12)
12

—

2,003
536
172
(209)
494
(454)

5,150

Net cash used for operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6,985)

(7,107)

(3,867)

Cash flow used for investing activities:

Additions to patents, technology and other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used for) investing activities . . . . . . . . . . . . . . . . . . . .

Cash flow from financing activities:

Issuance of common stock for cash, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock pursuant to Employee Stock Purchase Plan . . . . . . . . .
Issuance of common stock pursuant to stock option plans . . . . . . . . . . . . . . . . . . . .
Taxes paid related to restricted stock issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal repayment of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase in cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(13)
(461)

(474)

18,285
266
729
(225)
—
—
6,957
(4,638)
(42)
775
(2,775)

19,332

11,873
15,313

(10)
(296)

(306)

9,353
—
1,400
(196)
—
(16)
—
(2,000)
—
3,000
(1,000)

10,541

3,128
12,185

(15)
(301)

(316)

—
—
204
(180)
6,970
(13)
—
—
—
—
—

6,981

2,798
9,387

Cash and equivalents, end of year

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 27,186

$ 15,313

$12,185

Supplemental disclosure of cash flow information:

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Right-of-use assets obtained in exchange for new operating lease liabilities . . . . .

Issuance of common stock upon conversion of debentures

$

$

272

38

69

$ 21,164

$

$

643

43

$

$

3,105

—

294

51

—

—

See accompanying notes to consolidated financial statements.

F-7

iCAD, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies

(a) Nature of Operations and Use of Estimates

iCAD, Inc. and subsidiaries (the “Company” or “iCAD”) is a global medical technology company providing
innovative cancer detection and therapy solutions

The Company has grown primarily through acquisitions to become a broad player in the cancer detection
and therapy market. Its solutions include advanced artificial intelligence and image analysis workflow
solutions that enable healthcare professionals to better serve patients by identifying pathologies and
pinpointing the most prevalent cancers earlier, a comprehensive range of high-performance, upgradeable
Computer-Aided Detection (“CAD”) systems and workflow solutions for digital breast tomosynthesis
(“DBT”), full-field digital mammography (“FFDM”), 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.

The Company intends to continue the extension of its image analysis and clinical decision support solutions
for DBT, FFDM, 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 believes that early detection in combination with earlier targeted
intervention will provide patients and care providers with the best tools available to achieve better clinical
outcomes resulting in a market demand that will drive top line growth.

The Company’s headquarters are located in Nashua, New Hampshire, with a manufacturing facility in New
Hampshire and an operations, research, development, manufacturing and warehousing facility in San Jose,
California.

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, major customer and geographical information.

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 revenue and expenses during the reporting period. Actual results
could differ from those estimates. It is reasonably possible that changes may occur in the near term that
would affect management’s estimates with respect to assets and liabilities.

(b) Risk and Uncertainty

On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to
contain and mitigate the spread of the COVID-19 pandemic, the United States, many countries in Europe, as
well as Canada and China, have imposed unprecedented restrictions on travel, and there have been business
closures and a substantial reduction in economic activity in countries that have had significant outbreaks of
COVID-19. As a provider of devices and services to the health care industry, the Company’s operations
have been materially affected in part due to stay-at-home and social distancing orders as well as uncertainty
in the market. Significant uncertainty remains as to the continuing impact of the COVID-19 pandemic on
the Company’s operations and on the global economy as a whole.

It is currently not possible to predict how long the pandemic will last or the time that it will take for
economic activity to return to prior levels. The COVID-19 pandemic has resulted in significant financial

F-8

market volatility and uncertainty. A continuation or worsening of the levels of market disruption and
volatility seen in the recent past will have an adverse effect on the Company’s ability to access capital, on its
business, results of operations and financial condition, and on the market price of its common stock.

The Company’s results for the year ending December 31, 2020 reflect a negative impact from the COVID-
19 pandemic, as the typical sales cycle and ordering patterns were still disrupted due to some healthcare
facilities’ additional focus on COVID-19. Depending upon the duration and severity of the pandemic, the
continuing effect on the Company’s results over the long term is uncertain.

Although the Company did not see any material impact to trade accounts receivable losses in the year ended
December 31, 2020, the Company’s exposure may increase if its customers are adversely affected by
changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated
with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or
other customer-specific factors. The Company has historically not experienced significant trade account
receivable losses, but it is possible that there could be a material adverse impact from potential adjustments
of the carrying amount of trade account receivables as hospitals’ cash flows are impacted by their response
to the COVID-19 pandemic.

(c) Principles of Consolidation

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
been eliminated in consolidation.

(d) Cash and cash equivalents

The Company defines cash and cash equivalents as all bank accounts, money market funds, deposits and
other money market 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 federally insured limits. The Company has never experienced any losses related to these balances.
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, 2020 approximated $26.7 million.

(e) Financial instruments

Financial instruments consist of cash and cash equivalents, accounts receivable, contract assets, accounts
payable, notes payable and convertible debentures. Due to their short term nature and market rates of
interest, the carrying amounts of the financial instruments, except the convertible debentures, approximated
fair value as of December 31, 2020 and 2019.

The Company has elected to record the convertible debentures at fair value at each reporting date in
accordance with the fair value option election. See Note 3( c ) for further details.

(f) Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms. Credit limits are established
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 for estimated losses from the inability of its customers to
make required payments. The Company’s senior management reviews accounts receivable on a periodic
basis to determine if any receivables may potentially be uncollectible. The Company includes any accounts
receivable balances that it determines may likely be uncollectible, along with a general reserve for estimated

F-9

probable losses based on historical experience, in its overall allowance for doubtful accounts. An 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,
2020 and 2019 is adequate.

The following table summarizes the allowance for doubtful accounts for the three years ended December 31,
2020 (in thousands):

Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions charged to costs and expenses . . . . . . . . . . . . . . . . . . .
Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 136
94
(119)

$ 177
62
(103)

$ 107
225
(155)

Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 111

$ 136

$ 177

2020

2019

2018

(g) Inventory

Inventory is valued at the lower of cost or net realizable value, with cost determined by the first-in, first-out
method. The Company regularly reviews inventory quantities on hand and records a reserve for excess and/
or obsolete inventory primarily based upon the estimated usage of its inventory as well as other factors. At
December 31, 2020 and 2019, inventories consisted of the following (in thousands), which includes an
inventory reserve of approximately $0.2 million and $0.5 million as December 31, 2020 and 2019,
respectively.

Inventory balances, net of reserves, were as follows:

Inventory balances, net of reserves, were as follows:

December 31,
2020

December 31,
2019

Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Inventory Net . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,356
76
1,712

$3,144

$1,265
39
1,307

$2,611

(h) Property and Equipment

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).

Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Estimated life
3-5 years
3-5 years
3-5 years
3-5 years

(i) Goodwill

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 events and circumstances indicate it is more likely than not that the fair value of the
reporting unit is less than the carrying value of the reporting unit.

F-10

Factors the Company considers important, which could trigger an impairment of such asset, include the
following:

•

•

•

•

•

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 market capitalization below net book value.

The Company records an impairment charge when such assessment indicates that the fair value 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
valuation models, such as comparative transactions and market multiples, to determine the fair value of
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 yield different conclusions that would result in an
impairment charge to income in the period that such change or determination was made.

The Company determines the fair value of reporting units based on the present value 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 fair
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 based on the most recent views of the long-term forecast for the reporting unit.
Accordingly, actual results can differ from those assumed in the forecasts. Discount rates are 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 businesses and in the internally developed forecasts.

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 analysis, the income approach provides a reasonable
estimate of the fair value of the Therapy reporting unit.

The Company performed the annual impairment assessments at October 1, 2020 and 2019, respectively, and
compared the fair value of each reporting unit to its carrying value as of each date. The fair value exceeded
the carrying value for the Detection reporting unit as of each date of these impairment assessments.
Goodwill for the Therapy reporting unit was fully impaired as of December 31, 2017. As such, the
Company did not record any impairment charges for the years ended December 31, 2020 or 2019. The
carrying values of the reporting units were determined based on an allocation of the Company’s assets and
liabilities through specific allocation of certain assets and liabilities, to the reporting units and an
apportionment of the remaining net assets based on the relative size of the reporting units’ revenues and
operating expenses compared to the Company as a whole. The determination of reporting units also requires
management judgment.

The Company determines the fair values for each reporting unit using a weighting of the income approach
and the market approach. For purposes of the income approach, fair value is determined based on the
present value 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

F-11

based on the Company’s most recent views of the long-term forecast for each segment. Accordingly, actual
results can differ from those assumed in the Company’s forecasts. Discount rates are derived from a capital
asset pricing model and by analyzing published rates for industries relevant to the Company’s 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 businesses and in its internally developed forecasts.

In the market approach, the Company uses a valuation technique in which values are derived based on
market prices of publicly traded companies with similar operating characteristics and industries. A market
approach allows for comparison to actual market transactions and multiples. It can be somewhat limited in
its application because the population of potential comparable publicly-traded companies can be limited due
to differing characteristics of the comparative business and the Company, as well as market data may not be
available for 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 corroborates the total fair values of the reporting units using a market capitalization
approach; however, this approach cannot be used to determine the fair value of each reporting unit value.

The blend 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 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 will assess each valuation methodology based upon the relevance and availability of the data at
the time the valuation is performed and weights the methodologies appropriately.

A rollforward of goodwill activity by reportable segment is as follows (in thousands):

Accumulated Goodwill . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment . . . . . . . . . . . . . . . . .
Fair value allocation . . . . . . . . . . . . . . . . . . . . .
Acquisition of DermEbx and Radion . . . . . . . .
Acquisition measurement period

adjustments . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of VuComp . . . . . . . . . . . . . . . . . .
Sale of MRI assets . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Prior to December 31, 2019 . . . . . . . . . . . . . . . . . . .

Consolidated
reporting unit

$ 47,937
(26,828)
(21,109)
—

Detection

Therapy

Total

$ —
—
7,663
—

$ —
—
13,446
6,154

$ 47,937
(26,828)
—
6,154

—
—
—
—

—

—
1,093
(394)
—

8,362

116
—

(19,716)

—

116
1,093
(394)
(19,716)

8,362

Balance at December 31, 2020 . . . . . . . . . . . . . . . . .

$ —

$8,362

$ —

$ 8,362

(j) Long Lived Assets

In accordance with FASB ASC Topic 360, “Property, Plant and Equipment” (“ASC 360”), the Company
assesses long-lived assets for impairment if events and circumstances indicate it is more likely than not that
the fair value of the asset group is less than the carrying value 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.

F-12

• 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 physical 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).

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.

Undiscounted cash flows exceeded the carrying value of the asset group and that long-lived assets were not
impaired.

The Company did not record any impairment charges related to long lived assets for the years ended
December 31, 2020 or 2019.

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 and
assumptions are reasonable, different assumptions could change the estimated fair values, and, therefore
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 fair value estimates and ultimately result in future impairment charges.

F-13

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 10 years. A summary of intangible assets for 2020 and 2019 is as follows (in thousands):

Weighted
average
useful life

5 years
10 years
7 years
10 years

2020

2019

Gross Carrying Amount

Patents and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 595
8,257
272
259

$ 581
8,257
272
259

Total amortizable intangible assets . . . . . . . . . . . . . . . . . . . .

9,383

9,369

Accumulated Amortization

Patents and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 529
7,571
135
259

$ 520
7,299
108
259

Total accumulated amortization . . . . . . . . . . . . . . . . . . . . . .

8,494

8,186

Total amortizable intangible assets, net . . . . . . . . . . . . . . . . .

$ 889

$1,183

Amortization expense related to intangible assets was approximately $309,000, $377,000 and $383,000 for
the years ended December 31, 2020, 2019, and 2018, respectively. Estimated remaining amortization of the
Company’s intangible assets is as follows (in thousands):

For the years ended
December 31:

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Estimated
amortization
expense

291
207
186
103
102

$889

(k) Revenue Recognition

On January 1, 2018, the Company adopted FASB ASC Topic 606, “Revenue from Contracts with
Customers” and all the related amendments (“Topic 606”), using the modified retrospective method for all
contracts not completed as of the date of adoption. For contracts that were modified before the effective
date, the Company reflected the aggregate effect of all modifications when identifying performance
obligations and allocating transaction price in accordance with practical expedient ASC 606-10-65-1-(f)-4,
which did not have a material effect on the Company’s assessment of the cumulative effect adjustment upon
adoption. The Company recognized the cumulative effect of initially applying the new standard as an
adjustment to the opening balance of retained earnings. The comparative information has not been restated
and continues to be reported under the accounting standards in effect for those periods.

The Company recorded a net increase to opening retained earnings of $0.1 million as of January 1, 2018 due
to the cumulative impact of adopting Topic 606, with the impact primarily related to the deferral of

F-14

commissions on the Company’s long-term service arrangements and warranty periods greater than one year,
which previously were expensed as incurred but, under the amendments to ASC 340-40, are now generally
capitalized and amortized over the period of contract performance or a longer period if renewals are
expected and the renewal commission is not commensurate with the initial commission.

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or
services. The amount of revenue recognized reflects the consideration to which the Company expects to be
entitled to receive in exchange for these goods or services and excludes any sales incentives or taxes
collected from customers which are subsequently remitted to government authorities. To achieve this core
principle, the Company applies the following five steps:

1)

2)

Identify the contract(s) with a customer—A contract with a customer exists when (i) the Company
enters into an enforceable contract with a customer that defines each party’s rights regarding the goods
or services to be transferred and identifies the payment terms related to those goods or services, (ii) the
contract has commercial substance and (iii) the Company determines that collection of substantially all
consideration for goods or services that are transferred is probable based on the customer’s intent and
ability to pay the promised consideration. The Company’s contracts are typically in the form of a
purchase order. For certain large customers, the Company may also enter master service agreements
which although include the terms under which the parties will enter into contracts do not require any
minimum purchases and therefore, do not represent contracts until coupled with a purchase order. The
Company applies judgment in determining the customer’s ability and intention to pay, which is based
on a variety of factors including the customer’s historical payment experience or, in the case of a new
customer, published credit and financial information pertaining to the customer.

Identify the performance obligations in the contract—Performance obligations promised in a
contract are identified based on the goods or services that will be transferred to the customer that are
both capable of being distinct, whereby the customer can benefit from the good or service either on its
own or together with other resources that are readily available from third parties or from the Company,
and are distinct in the context of the contract, whereby the transfer of the goods or services is
separately identifiable from other promises in the contract. To the extent a contract includes multiple
promised goods or services, the Company must apply judgment to determine whether promised goods
or services are capable of being distinct and distinct in the context of the contract. If these criteria are
not met the promised goods or services are accounted for as a combined performance obligation. The
Company’s contracts typically do not include options that would result in a material right. If options to
purchase additional goods or services are included in customer contracts, the Company evaluates the
option in order to determine if the Company’s arrangement include promises that may represent a
material right and needs to be accounted for as a performance obligation in the contract with the
customer. The Company did not note any significant provisions within its typical contracts that would
create a material right.

3) Determine the transaction price—The transaction price is determined based on the consideration to
which the Company will be entitled in exchange for transferring goods or services to the customer. To
the extent the transaction price includes variable consideration; the Company estimates the amount of
variable consideration that should be included in the transaction price utilizing either the expected
value method or the most likely amount method depending on the nature of the variable consideration.
Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable
that a significant future reversal of cumulative revenue under the contract will not occur.

4) Allocate the transaction price to the performance obligations in the contract—If the contract
contains a single performance obligation, the entire transaction price is allocated to the single
performance obligation. Contracts that contain multiple performance obligations require an allocation
of the transaction price to each performance obligation on a relative SSP basis unless the transaction
price is variable and meets the criteria to be allocated entirely to a performance obligation or to a
distinct good or service that forms part of a single performance obligation. The Company determines
SSP based on the price at which the performance obligation is sold separately. If the SSP is not

F-15

observable through past transactions, the Company estimates the SSP taking into account available
information such as market conditions and internally approved pricing guidelines related to the
performance obligations.

5) Recognize revenue when (or as) the Company satisfies a performance obligation—The Company
satisfies performance obligations either over time or at a point in time as discussed in further detail
below. Revenue is recognized at the time the related performance obligation is satisfied by transferring
a promised good or service to a customer.

The Company recognizes revenue from its contracts with customers primarily from the sale of products
and from the sale of services and supplies. Under Topic 606, revenue is recognized when control of the
promised goods or services is transferred to a customer, in an amount that reflects the consideration we
expect to be entitled to in exchange for those goods or services. For product revenue, control has
transferred upon shipment provided title and risk of loss have passed to the customer. Services and
supplies are considered to be transferred as the services are performed or over the term of the service or
supply agreement. The Company enters into contracts that can include various combinations of products
and services, which are generally capable of being distinct and accounted for as separate performance
obligations. The Company’s hardware is generally highly dependent on, and interrelated with, the
underlying software and the software is considered essential to the functionality of the product. In these
cases, the hardware and software license are accounted for as a single performance obligation and revenue
is recognized at the point in time when ownership is transferred to the customer. Taxes assessed by a
governmental authority that are both imposed on and concurrent with a specific revenue-producing
transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and
handling costs associated with outbound freight after control of a product has transferred to a customer
are accounted for as fulfillment costs and are included in cost of revenue. The Company continues to
provide for estimated warranty costs on original product warranties at the time of sale.

Disaggregation of Revenue

The following tables presents the Company’s revenues disaggregated by major good or service line, timing
of revenue recognition and sales channel, reconciled to its reportable segments (in thousands).

Major Goods/Service Lines
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supply and source usage agreements . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Timing of Revenue Recognition
Goods transferred at a point in time . . . . . . . . . . . . . . . . . .
Services transferred over time . . . . . . . . . . . . . . . . . . . . . . .

Sales Channels
Direct sales force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OEM partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Channel partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-16

Year ended December 31, 2020

Reportable Segments
Therapy
Detection

Total

$16,291
5,661
—
—
45

$4,535
1,333
1,804
29
—

$20,826
6,994
1,804
29
45

$21,997

$7,701

$29,698

$16,332
5,665

$4,624
3,077

$20,956
8,742

$21,997

$7,701

$29,698

$13,809
8,188
—

$3,773
—
3,928

$17,582
8,188
3,928

$21,997

$7,701

$29,698

Major Goods/Service Lines
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supply and source usage agreements . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Timing of Revenue Recognition
Goods transferred at a point in time . . . . . . . . . . . . . . . . . .
Services transferred over time . . . . . . . . . . . . . . . . . . . . . . .

Sales Channels
Direct sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OEM partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Channel partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Major Goods/Service Lines
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supply and source usage agreements . . . . . . . . . . . . . . . . .
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Timing of Revenue Recognition
Goods transferred at a point in time . . . . . . . . . . . . . . . . . .
Services transferred over time . . . . . . . . . . . . . . . . . . . . . . .

Sales Channels
Direct sales force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OEM partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Channel partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Revenue
Revenue from contracts with customers . . . . . . . . . . . . . . .
Revenue from lease components . . . . . . . . . . . . . . . . . . . . .

Year ended December 31, 2019

Reportable Segments
Therapy
Detection

Total

$16,788
5,370
—
—
161

$4,957
1,814
2,036
153
61

$21,745
7,184
2,036
153
222

$22,319

$9,021

$31,340

$16,949
5,370

$5,391
3,630

$22,340
9,000

$22,319

$9,021

$31,340

$11,968
10,351
—

$5,804
—
3,217

$17,772
10,351
3,217

$22,319

$9,021

$31,340

Year ended December 31, 2018

Reportable Segments
Therapy
Detection

Total

$10,783
5,311
—
—
229

$4,393
1,450
2,261
264
389

$15,176
6,761
2,261
264
618

$16,323

$8,757

$25,080

$10,835
5,488

$4,676
4,081

$15,511
9,569

$16,323

$8,757

$25,080

$ 8,335
7,988
—

$7,554
—
1,203

$15,889
7,988
1,203

$16,323

$8,757

$25,080

$16,323
541

$8,757
—

$25,080
541

$16,864

$8,757

$25,621

Products. Product revenue consists of sales of cancer detection products, cancer therapy systems, cancer
therapy applicators, cancer therapy disposable applicators and other accessories that are typically shipped

F-17

with a cancer therapy system. The Company transfers control and recognizes a sale when the product is
shipped from the manufacturing or warehousing facility to the customer.

Service Contracts. The Company sells service contracts in which the Company provides professional
services including product installations, maintenance, training and service repairs, and in certain cases leases
equipment, to hospitals, imaging centers, radiological practices and radiation oncologists and treatment
centers. The service contracts range from 12 months to 48 months. The Company typically receives
payment at the inception of the contract and recognizes revenue on a straight-line basis over the term of the
agreement.

Upon the adoption of ASC 842, effective January 1, 2019, the lease components of certain fixed fee service
contracts are no longer being separately accounted for under the lease guidance, and the entire contract is
being accounted for under ASC 606. Upon the adoption of ASC 606, effective January 1, 2018, and until the
adoption of ASC 842 referred to above, these lease components were accounted for as a lease in accordance
with ASC 840, “Leases” (“ASC 840”), and the remaining consideration was allocated to the other
performance obligations identified in accordance with ASC 606. The consideration that was allocated to the
lease component was recognized as lease revenue on a straight-line basis over the specified term of the
agreement. Revenue for the non-lease components, such as service contracts, was recognized on a straight-
line basis over the term of the agreements.

Supply and Source Usage Agreements. Revenue from supply and source usage agreements is recognized on
a straight-line basis over the term of the supply or source agreement.

Professional Services. Revenue from fixed fee service contracts is recognized on a straight-line basis over
the term of the agreement. Revenue from professional service contracts entered into with customers on a
time and materials basis is recognized over the term of the agreement in proportion to the costs incurred in
satisfying the obligations under the contract.

Other. Other revenue consists primarily of miscellaneous products and services. The Company transfers
control and recognizes a sale when the installation services are performed or when the Company ships the
product from the Company’s manufacturing or warehouse facility to the customer.

Significant Judgments

The Company’s contracts with customers may include promises to transfer multiple products and services to
a customer. Determining whether products and services are considered distinct performance obligations that
should be accounted for separately versus together may require significant judgment. For arrangements with
multiple performance obligations, the Company allocates revenue to each performance obligation based on
its relative standalone selling price. Judgment is required to determine the standalone selling price for each
distinct performance obligation. The Company generally determines standalone selling prices based on the
prices charged to customers and uses a range of amounts to estimate standalone selling prices when the
Company sells each of the products and services separately and need to determine whether there is a
discount that needs to be allocated based on the relative standalone selling prices of the various products and
services. The Company typically has more than one range of standalone selling prices for individual
products and services due to the stratification of those products and services by customers and
circumstances. In these instances, the Company may use information such as the type of customer and
geographic region in determining the range of standalone selling prices.

The Company may provide credits or incentives to customers, which are accounted for as variable
consideration when estimating the transaction price of the contract and amounts of revenue to recognize.
The amount of variable consideration to include in the transaction price is estimated at contract inception
using either the estimated value method or the most likely amount method based on the nature of the
variable consideration. These estimates are updated at the end of each reporting period as additional
information becomes available and revenue is recognized only to the extent that it is probable that a
significant reversal of any amounts of variable consideration included in the transaction price will not occur.
The Company provides for estimated warranty costs on original product warranties at the time of sale.

F-18

Contract Balances

Contract liabilities are a component of deferred revenue, current contract assets are a component of prepaid
and other assets and non-current contract assets are a component of other assets. The following table
provides information about receivables, current and non-current contract assets, and contract liabilities from
contracts with customers (in thousands).

Contract balances

Balance at
December 31, 2020

Balance at
December 31, 2019

Receivables, which are included in “Trade accounts

receivable” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$10,027

$9,819

Current contract assets, which are included in “Prepaid and

other assets” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-current contract assets, which are included in “other

assets” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contract liabilities, which are included in “Deferred

revenue” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

481

1,434

6,384

14

—

5,604

Timing of revenue recognition may differ from timing of invoicing to customers. The Company records a
receivable when revenue is recognized prior to receipt of cash payments and the Company has the
unconditional right to such consideration, or unearned revenue when cash payments are received or due in
advance of performance. For multi-year agreements, the Company generally invoices customers annually at
the beginning of each annual service period.

The Company records net contract assets or contract liabilities on a contract-by-contract basis. The
Company records a contract asset for unbilled revenue when the Company’s performance is in excess of
amounts billed or billable. The Company classifies the net contract asset as either a current or non-current
based on the expected timing of the Company’s right to bill under the terms of the contract. The current
contract asset balance primarily relates to the net unbilled revenue balances with two significant customers,
which the Company expects to be able to bill for within one year. The non-current contract asset balance
consists of net unbilled revenue balances with one customer which the Company expects to be able to bill
for in more than one year.

Contract liabilities, or deferred revenue from contracts with customers, is primarily composed of fees related
to long-term service arrangements, which are generally billed in advance. Deferred revenue also includes
payments for installation and training that has not yet been completed and other offerings for which the
Company has been paid in advance and earn the revenue when it transfers control of the product or service.
The balance of deferred revenue at December 31, 2020 and December 31, 2019 is as follows (in thousands):

Contract liabilities

December 31, 2020

December 31, 2019

Short term . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,117
267

$6,384

$5,248
356

$5,604

Changes in deferred revenue from contracts with customers were as follows (in thousands):

Year Ended
December 31, 2020

Year Ended
December 31, 2019

Balance at beginning of period . . . . . . . . . .
Deferral of revenue . . . . . . . . . . . . . . . . . . .
Recognition of deferred revenue . . . . . . . . .

Balance at end of period . . . . . . . . . . . . . . .

$ 5,604
11,212
(10,432)

$ 6,384

$ 5,209
11,005
(10,610)

$ 5,604

F-19

The Company expects to recognize estimated revenues related to performance obligation that are unsatisfied
(or partially satisfied) in the amounts of approximately $7.1 million in 2021, $1.2 million in 2022 and
$1.0 million in each year from 2023-2025.

Assets Recognized from the Costs to Obtain a Contract with a Customer

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it
expects the benefit of those costs to be longer than one year. The Company has determined that certain
commissions programs meet the requirements to be capitalized. As of December 31, 2020, the balance of
capitalized costs to obtain a contract was $406,000 compared to $379,000 as of December 31, 2019. The
Company has classified the capitalized costs to obtain a contract as a component of prepaid expenses and
other current assets as of December 31, 2020 and 2019, respectively.

Changes in the balance of capitalized costs to obtain a contract were as follows (in thousands):

Balance at beginning of period . . . . . . . . . . . . . . . . . . . .
Deferral of costs to obtain a contract . . . . . . . . . . . . . . . .
Recognition of costs to obtain a contract . . . . . . . . . . . . .

Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31,

2020

$ 379
157
(130)

$ 406

2019

$ 282
294
(197)

$ 379

Practical Expedients and Exemptions

The Company has elected to make the following accounting policy elections through the adoption of the
following practical expedients:

Right to Invoice

Where applicable, the Company will recognize revenue from a contract with a customer in an amount that
corresponds directly with the value to the customer of the Company’s performance completed to date and
the amount to which the entity has a right to invoice.

Sales and Other Similar Taxes

The Company will exclude sales taxes and similar taxes from the measurement of transaction price and will
ensure that it complies with the disclosure requirements of ASC 235-10-50-1 through 50-6.

Significant Financing Component

The Company will not adjust the promised amount of consideration for the effects of a significant financing
component if the Company expects, at contract inception, that the period between when the entity transfers a
promised good or service to a customer and when the customer pays for that good or service will be one
year or less.

Cost to Obtain a Contract

The Company will recognize the incremental costs of obtaining a contract as an expense when incurred if
the amortization period of the asset that the Company otherwise would have recognized is one year or less
and there are no renewal periods on which the Company does not pay commissions that are not
commensurate with those originally paid.

F-20

Promised Goods or Services that are Immaterial in the Context of a Contract

The Company has elected to assess promised goods or services as performance obligations that are deemed
to be immaterial in the context of a contract. As such, the Company will not aggregate and assess immaterial
items at the entity level. That is, when determining whether a good or service is immaterial in the context of
a contract, the assessment will be made based on the application of ASC 606 at the contract level.

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an
original expected length of one year or less and (ii) contracts for which it recognizes revenue at the amount
to which it has the right to invoice for services performed.

(k) Cost of Revenue

Cost of revenue consists of the costs of products purchased for resale, cost relating to service including costs
of service contracts to maintain equipment after the warranty period, inbound freight and duty,
manufacturing, warehousing, material movement, inspection, scrap, rework, depreciation and in-house
product warranty repairs, amortization of acquired technology and medical device tax.

(l) Warranty Costs

The Company provides for the estimated cost of standard product warranty against defects in material and
workmanship based on historical warranty trends, including the cost of product returns during the warranty
period. Warranty provisions and claims for the years ended December 31, 2020, 2019 and 2018, were as
follows (in thousands):

Beginning accrual balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17
58
(58)

$ 12
41
(36)

$ 10
19
(17)

Ending accrual balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17

$ 17

$ 12

2020

2019

2018

(m) Engineering and Product Development Costs

Engineering and product development costs relate to research and development efforts including Company
sponsored clinical trials which are expensed as incurred.

(n) Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense for the years ended
December 31, 2020, 2019 and 2018 was approximately $211,000, $1,084,000 and $811,000 respectively.

(o) Net Loss per Common Share

The Company follows FASB ASC 260-10, “Earnings per Share”, which requires the presentation of both
basic and diluted earnings per share on the face of the statements of operations. The Company’s basic net
loss per share is computed by dividing net loss by the weighted average number of shares of common stock
outstanding for the period and, if there are dilutive securities, diluted income per share is computed by
including common stock equivalents which includes shares issuable upon the exercise of stock options, net
of shares assumed to have been purchased with the proceeds, using the treasury stock method.

F-21

A summary of the Company’s calculation of net loss per share is as follows (in thousands, except per share
amounts):

2020

2019

2018

Net loss available to common shareholders . . . . . . . . . . . . . . . . . .

$(17,610)

$(13,551)

$ (9,017)

Basic shares used in the calculation of earnings per share . . . . . . .
Effect of dilutive securities:

22,140

18,378

16,685

Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
—

—
—

—
—

Diluted shares used in the calculation of earnings per share . . . . . .

22,140

18,378

16,685

Net loss per share :

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

(0.80)
(0.80)

$
$

(0.74)
(0.74)

$ (0.54)
$ (0.54)

The following table summarizes the number of shares of common stock for convertible securities, warrants
and restricted stock that were not included in the calculation of diluted net loss per share because such
shares are antidilutive:

Year Ended December 31,

2020

2019

2018

Common stock options . . . . . . . . . . . . . . . . . . . . . . .
Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible Debentures . . . . . . . . . . . . . . . . . . . . . . .

1,869,507
29,166
—

1,550,662
150,909
1,742,500

1,983,477
423,202
1,742,500

1,898,673

3,444,071

4,149,179

Restricted common stock can be issued to directors, executives or employees of the Company and are
subject to time-based vesting. These potential shares were excluded from the computation of basic loss per
share as these shares are not considered outstanding until vested.

(p) Income Taxes

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, 2020 and
2019, 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.

(q) Stock-Based Compensation

The Company maintains stock-based incentive plans, under which it provides stock incentives to employees,
directors and contractors. The Company may grant to employees, 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-22

Company may grant restricted stock to employees and directors. The underlying shares of the restricted
stock grant are not issued until the shares vest, and compensation expense is based on the stock price of the
shares at the time of grant. The Company also has an Employee Stock Purchase Plan, adopted in 2019,
which became effective as of January 1, 2020. The Company follows FASB ASC Topic 718,
“Compensation – Stock Compensation”, for all stock-based compensation. Under this application, the
Company is required to record compensation expense over the vesting period for 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 vested stock options before exercising them, the estimated volatility of its common stock
price over the expected term, the risk free rate, expected dividend yield, and the number of options that will
be forfeited prior to the completion of their vesting requirements.

The fair value of restricted stock is determined based on the stock price of the underlying option on the date
of the grant. From time to time, the Company may grant performance based restricted stock awards, based
on the achievement of certain performance targets. Compensation cost for performance based restricted
stock awards requires significant judgment regarding probability of achieving the performance objectives
and compensation cost is adjusted for the probability of achieving these objectives. As a result,
compensation cost could vary significantly during the performance measurement period.

Compensation cost for stock purchase rights under the employee stock purchase plan is measured and
recognized on the date the Company becomes obligated to issue shares of the Company’s common stock
and is based on the difference between the fair value of the Company’s common stock and the purchase
price on such date.

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) Fair Value Measurements

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurement and Disclosures”
(“ASC 820”). ASC 820 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 liability in an orderly
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 observable and the last unobservable, that may be used to measure fair value which are the
following:

• Level 1 - Quoted prices in active markets for identical assets or liabilities.

• Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are

significant to the fair value

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’s assets and liabilities that are measured at fair value on a recurring basis include the
Company’s money market accounts and convertible debentures.

F-23

The money market funds are included in cash and cash equivalents in the accompanying balance sheet are
considered a Level 1 measurement as they are valued at quoted market prices in active markets.

The convertible debentures are recorded as a separate component of the Company’s consolidated balance
sheets are considered a Level 3 measurement due to the utilization of significant unobservable inputs in their
valuation. See Note 3( c ) below for a discussion of these fair value measurements.

The following table sets forth the Company’s assets and liabilities which are measured at fair value on a
recurring basis by level within the fair value hierarchy (in thousands):

Fair Value Measurements as of December 31, 2020

Level 1

Level 2

Level 3

Total

Assets

Money market accounts . . . . . . . . . . . . . . . . . . . . . . .

$27,186 —

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,186 —

Liabilities

Convertible debentures . . . . . . . . . . . . . . . . . . . . . . . .

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

—

—

—

—

—

—

$27,186

$27,186

—

—

Fair Value Measurements as of December 31, 2019

Level 1

Level 2

Level 3

Total

Assets

Money market accounts . . . . . . . . . . . . . . . . . . . . . . .

$15,313 —

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$15,313 —

—

—

$15,313

$15,313

Liabilities

Convertible debentures . . . . . . . . . . . . . . . . . . . . . . . .

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

—

—

$13,642

$13,642

$13,642

$13,642

The following is a roll forward of the Company’s Level 3 instruments for the years ended December 31,
2020 and 2019, see Note 3 ( c ) convertible debentures below for more details:

Convertible Debentures

Balance, December 20, 2019 . . . . . . . . . . . . . . . . .
Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustments . . . . . . . . . . . . . . . . . .
Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance, December 31, 2020 . . . . . . . . . . . . . . . . .

$ 13,642
—
7,522
(21,164)

$ —

Items Measured at Fair Value on a Nonrecurring Basis

Certain assets, including long-lived assets and goodwill, are measured at fair value on a nonrecurring basis.
These assets are recognized at fair value when they are deemed to be impaired. There were no items
measured at fair value on a nonrecurring basis as of or during the years ended December 31, 2020 and 2019.

(t) Recently Issued and Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

On January 1, 2020, the Company adopted ASU 2018-13, “Fair Value Measurement (Topic 820):
Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU
2018-13”). ASU 2018-13 removes, modifies and adds certain disclosure requirements of ASC Topic 820.

F-24

ASU 2018-13 is effective for Company for the fiscal year and interim periods therein beginning January 1,
2020. The Company notes that the adoption of ASU 2018-13 did not have a material impact on its
consolidated financial statements.

On January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)” and all the related
amendments, which are codified under ASC 842. The Company has applied its transition provisions at the
beginning of the period of adoption (i.e., on the effective date), and so did not restate comparative periods.
Under this transition provision, the Company has applied the legacy guidance under ASC 840, “Leases”
(“ASC 840”), including its disclosure requirements, in the comparative periods presented. As part of the
adoption, the Company elected the package of practical expedients, which among other things, permits the
carry forward of historical lease classifications. The Company did not elect to use the practical expedient
permitting the use of hindsight in determining the lease term and in assessing impairment of right-of-use
assets. The adoption of the standard did not have a material impact on our operating results or cash flows.
See Note 5 for the disclosures required upon adoption of ASC 842.

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, “Financial
Instruments - Credit Losses (Topic 326)” (“ASU 2016-13”), which requires the measurement and
recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the
existing incurred loss impairment model with an expected loss model which requires the use of forward-
looking information to calculate credit loss estimates. These changes will result in earlier recognition of
credit losses. In November 2019, the FASB elected to defer the adoption date of ASU 2016-13 for public
business entities that meet the definition of a smaller reporting company to fiscal years beginning after
December 15, 2022. Early adoption of the guidance in ASU 2016-13 is permitted. The Company is currently
evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the
Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 is intended to simplify the accounting for
income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also
improve consistent application of and simplify US GAAP for other areas of Topic 740 by clarifying and
amending existing guidance. ASU 2019-12 is effective for the Company for the fiscal year and interim
periods therein beginning January 1, 2021. The Company will adopt ASU 2019-12 on January 1, 2021 and
will account for income taxes in accordance with ASU 2019-12 at that time. This update will not make a
material difference to the Company’s financial statements.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the
Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 was issued
because the London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety
of agreements that are used by all types of entities, and at the end of 2021, banks will no longer be required
to report information that is used to determine LIBOR. As a result, LIBOR is expected to be discontinued as
a benchmark interest rate. Other interest rates used globally could also be discontinued for similar reasons.
ASU 2020-04 provides companies with optional guidance to ease the potential accounting burden associated
with transitioning away from reference rates that are expected to be discontinued. Companies can apply the
ASU immediately. However, the guidance will only be available for a limited time (generally through
December 31, 2022). The Company is currently evaluating the impact that the adoption of ASU 2020-04
will have on its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). ASU
2020-06 was issued to simplify the accounting for convertible instruments by removing major separation
models required under current U.S. GAAP. Consequently, more convertible debt instruments will be

F-25

reported as a single liability instrument and more convertible preferred stock as a single equity instrument
with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement
conditions that are required for equity contracts to qualify for the derivative scope exception, which will
permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted earnings per share
calculation in certain areas. ASU 2020-06 is effective for the Company for the fiscal year and interim
periods therein beginning January 1, 2022. Early adoption is permitted. The Company is currently
evaluating the impact that the adoption of ASU 2020-06 will have on its consolidated financial statements.

(u) Subsequent Events

On March 2, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”)
with Guggenheim Securities, LLC, as representative of the several underwriters (the “Underwriters”), in
connection with an underwritten public offering of 1,393,738 shares of the Company’s common stock, at a
public offering price of $18.00 per share (the “Offering”). The Underwriting Agreement contains customary
representations, warranties and covenants by the Company, indemnification obligations of the Company and
the Underwriters, including for liabilities under the Securities Act, other obligations of the parties and
termination provisions. In exchange for the Underwriters’ services, the Company agreed to sell the shares to
the Underwriters at a purchase price of $16.92 per share and to reimburse the representative of the
Underwriters for up to $125,000 of its expenses in connection with the Offering. The Offering closed
March 5, 2021. The net proceeds to the Company from the Offering were approximately $23.2 million, after
deducting underwriting discounts and commissions and estimated offering expenses payable by the
Company.

On March 2, 2021, the Company terminated its at-the-market offering program with JMP Securities (See
Note 6 hereto).

(2) Sale of MRI Assets

In December 2016, the Company entered into an Asset Purchase Agreement with Invivo Corporation
(“Invivo”). 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 on January 30, 2017 less a holdback
reserve of $350,000 for a net of approximately $2.9 million. The holdback reserve of $350,000 has been
recorded as an asset in other assets and will be paid to the Company upon resolution of the litigation matter
described in Note 9(f), less amounts, if any, due and payable or reserved under the indemnification
provisions in the Asset Purchase agreement.

(3) Financing Arrangements

(a) Loan and Security Agreement – Western Alliance Bank

On March 30, 2020, the Company entered into the Loan Agreement with the Bank that provided an initial
term loan (“Term Loan”) facility of $7.0 million and a $5.0 million revolving line of credit.

The Loan Agreement was amended effective June 16, 2020. The Loan Agreement requires the Company to
either (i) meet a minimum revenue covenant, or (ii) maintain a ratio of unrestricted cash at the Bank to
aggregate indebtedness owed to the Bank of at least 1.25 to 1.00. The Company was compliant with these
covenants as of December 31, 2020.

If at any point the Company is not in compliance with certain covenants under the Loan Agreement and is
unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the
Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company
to repay such indebtedness before the scheduled due date. The Company was required, periodically in the
past, to seek modifications from its prior lender to avoid non-compliance with its earlier covenants.

F-26

Interest in arrears on the Term Loan began to be repaid on April 1, 2020 and will continue to be paid on the
first of each successive month thereafter until the principal repayment starts. Commencing on the principal
repayment date of March 1, 2022, and continuing on the first day of each month thereafter, the Company
will make equal monthly payments of principal, together with applicable interest in arrears, to the Bank. The
interest rate is set at 1% above the Prime Rate, which is defined in the Loan Agreement as the greater of
4.25% or the Prime Rate published in the Money Rates section of the Western Edition of the Wall Street
Journal. The Prime Rate as of December 31, 2020 was 3.25%.

The Company has the option to prepay all, but not less than all, of the Term Loan advanced by the Bank
under the Loan Agreement. The Company prepayment is subject to payment of (1) all outstanding principal
of the Term Loan plus accrued and unpaid interest thereon through the prepayment date, (2) the final
payment ($122,500 or 1.75% of the original loan amount), (3) a prepayment fee (3% of the principal
balance if prepaid prior to first March 30, 2021, 2% of principal if prepaid after March 30, 2021 but before
June 30, 2022, or 1% of principal if prepaid after March 30, 2022) plus (4) all other obligations that are due
and payable, including the Bank’s expenses and interest at the default rate with respect to any past due
amounts.

Obligations to the Bank under the Loan Agreement are secured by a first priority security interest in the
Company’s assets, except for certain permitted liens that have priority to the Bank’s security interest by
operation of law.

In connection with the Loan Agreement, the Company incurred approximately $141,000 of closing costs.
The closing costs have been deducted from the carrying value of the debt and will be amortized through
March 30, 2022, the maturity date of the Term Loan.

The maturity date of the revolving loan is March 30, 2022 and there was no outstanding amount as of
December 31, 2020.

December 31,
2020 (Western
Alliance Bank) *

Principal Amount of Term Loan . . . . . . . . . . . . . . . . . .
Unamortized closing costs . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Accrued Final Payment
. . . . . . . . . . . . .
Amount Drawn on Line of Credit

Carrying amount of Term Loan . . . . . . . . . . . . . . . . . . .

Less current portion of Term Loan . . . . . . . . . . . . .

Notes payable long-term portion . . . . . . . . . . . . . . . . . .

$7,000
(63)
23
—

6,960

—

$6,960

* No December 31, 2019 balance. Debt opened in 2020

(b) Loan and Security Agreement – Silicon Valley Bank

On August 7, 2017, the Company entered into a Loan and Security Agreement, which was modified several
times through November 1, 2019 (as amended, the “SVB Loan Agreement”), with Silicon Valley Bank that
provided an initial term loan facility of $6.0 million and a $4.0 million revolving line of credit.

On March 30, 2020, the Company elected to repay all outstanding obligations (including accrued interest)
and retire the SVB Loan Agreement. The Company accounted for this repayment and retirement as an
extinguishment of the SVB Loan Agreement. In addition to the outstanding principal and accrued interest,
the Company was required to pay the $510,000 final payment, a termination fee of $114,000 and other costs
totaling $10,000. The Company also wrote off unamortized original closing costs as of the extinguishment
date. The Company recorded a loss on extinguishment of approximately $341,000 related to the repayment
and retirement of the SVB Loan Agreement. The loss on extinguishment was composed of approximately

F-27

$185,000 for the unaccrued final payment, the $114,000 termination fee, and $42,000 of unamortized and
other closing costs.

Principal Amount of Term Loan . . . . . . . . . . . . . . . . . . . .
Unamortized closing costs . . . . . . . . . . . . . . . . . . . .
Accrued Final Payment . . . . . . . . . . . . . . . . . . . . . . .
Amount Drawn on Line of Credit . . . . . . . . . . . . . . .

Carrying amount of Term Loan . . . . . . . . . . . . . . . . . . . .

December 31,
2019 (Silicon
Valley Bank) *

$ 4,000
(40)
293
2,000

6,253

Less current portion of Term Loan . . . . . . . . . . . . . . . . . .

(4,250)

Notes payable long-term portion . . . . . . . . . . . . . . . . . . .

$ 2,003

* No December 31, 2020 balance. Debt closed in 2020

(c) Convertible Debentures

On December 20, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with
certain institutional and accredited investors (the “Investors”), including, but not limited to, all directors and
executive officers of the Company at the time, pursuant to which the Investors purchased unsecured
subordinated convertible debentures (the “Convertible Debentures”) with an aggregate principal amount of
approximately $7.0 million in a private placement.

On February 21, 2020 (the “Conversion Date”), the conditions permitting a forced conversion were met, and
the Company elected to exercise its forced conversion right under the terms of the Convertible Debentures.

As a result of this election, all of the outstanding Convertible Debentures were converted, at a conversion
price of $4.00 per share, into 1,742,500 shares of the Company’s common stock. In accordance with the
make-whole provisions in the Convertible Debentures, the Company also issued an additional 76,966 shares
of its common stock. The make-whole amount represented the total interest which would have accrued
through the maturity date of the Convertible Debentures, less the amounts previously paid, totaling
$697,000. The conversion prices related to the make-whole amount were dependent on whether the
Investors were related parties or unrelated third parties.

Accounting Considerations and Fair Value Measurements Related to the Convertible Debentures

The Company had previously elected to make a one-time, irrevocable election to utilize the fair value option
to account for the Convertible Debentures as a single hybrid instrument at its fair value, with changes in fair
value from period to period being recorded either in current earnings, or as an element of other
comprehensive income (loss), for the portion of the change in fair value determined to relate to the
Company’s own credit risk. The Company believed that the election of the fair value option allowed for a
more meaningful representation of the total fair value of its obligation under the Convertible Debentures and
allowed for a better understanding of how changes in the external market environment and valuation
assumptions impact such fair value.

As of the December 31, 2019 valuation and the prior measurement dates, the Company utilized a Monte
Carlo simulation model to estimate the fair value of the Convertible Debentures. The simulation model was
designed to capture the potential settlement features of the Convertible Debentures, in conjunction with
simulated changes in the Company’s stock price and the probability of certain events occurring. The
simulation utilized 100,000 trials or simulations to determine the estimated fair value.

The simulation utilized the assumptions that if the Company was able to exercise its forced conversion right
(if the requirements to do so were met), that it would do so in 100% of such scenarios. Additionally, if an

F-28

event of default occurred during the simulated trial (based on the Company’s probability of default), the
Investors would opt to redeem the Convertible Debentures in 100% of such scenarios. If neither event
occurred during a simulated trial, the simulation assumed that the Investor would hold the Convertible
Debentures until the maturity date. The value of the cash flows associated with each potential settlement
were discounted to present value in each trial based on either the risk-free rate (for an equity settlement) or
the effective discount rate (for a redemption or cash settlement).

The Company also recorded a final adjustment to the Convertible Debentures based on their fair value on
the Conversion Date, just prior to the forced conversion being completed. Given that the Company’s prior
simulation model included the assumption that the Company would elect to force conversion in 100% of
scenarios when the requirements were met, the final valuation was based on the actual results of the forced
conversion. As such, the Company based the final fair value adjustment to the Convertible Debentures just
prior to conversion on the number of shares of common stock that were issued to the Investors upon
conversion and the fair value of the Company’s common stock as of the Conversion Date.

The Company notes that the key inputs to the simulation model that were utilized to estimate the fair value
of the Convertible Debentures at each valuation date included:

Input

December 31, 2019

February 21, 2020

Company’s stock price . . . . . . . . . . . . . . . . . . . . . . .
Conversion price . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remaining term (years) . . . . . . . . . . . . . . . . . . . . . .
Equity volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk free rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 Probabilty of default event
. . . . . . . . . . . . . . . . . . . .
1 Utilization of Forced Conversion (if available) . . . .
1 Exercise of Default Redemption (if available) . . . . .
1 Effective discount rate . . . . . . . . . . . . . . . . . . . . . . .

$

7.77
4.00
1.97
49.00%
1.57%
0.45%
100.00%
100.00%
18.52%

$ 11.64
4.00
0.00
N/A
N/A
N/A
100.00%
N/A
N/A

1

Represents a Level 3 unobservable input, as defined in Note 8 - Fair Value Measurements, below.

The Company’s stock price is based on the closing stock price on the valuation date. The conversion price is
based on the contractual conversion price included in the SPA.

The remaining term was determined based on the remaining time period to maturity of the Convertible
Debentures.

The Company’s equity volatility estimate was based on the Company’s historical equity volatility, the
Company’s implied and observed volatility of option pricing, and the historical equity and observed
volatility of option pricing for a selection of comparable guideline public companies.

The risk-free rate was determined based on U.S. Treasury securities with similar terms.

The probability of the occurrence of a default event was based on Bloomberg’s one year estimate of default
risk for the Company (extrapolated over the remaining term).

The utilization of the Forced Conversion right and the default redemption right is based on management’s
best estimate of both features being exercised upon the occurrence of the related contingent events.

The effective discount rate utilized at the December 31, 2019 and February 21, 2020 valuation dates was
solved for utilizing the simulation model based on the principal value of the Convertible Debentures, as the
transaction was determined to represent an ‘arm’s length’ transaction. The effective discount was
corroborated against market yield data which implied the Company’s credit rating, and this implied credit
rating will be utilized to determine the changes in the effective discount rate at future valuation dates. The
effective discount rate utilized at the December 31, 2019 valuation date was based on yields on CCC-rated

F-29

debt instruments with terms equivalent to the remaining term of the Convertible Debentures. The credit
rating estimate was based on the implied credit rating determined at issuance and no changes were identified
by the Company that would impact this assessment.

The fair value and principal value of the Convertible Debentures as of December 31, 2019 and the
Conversion Date was as follows (in thousands):

Convertible Debentures

December 31, 2019

February 21, 2020

Fair value, in accordance with fair value option . . . . .

Principal value outstanding . . . . . . . . . . . . . . . . . . . . .

$13,642

$ 6,970

$21,164

$ 6,970

The Company recorded a loss from the change in fair value of the Convertible Debentures of approximately
$7.5 million for the period ending December 31, 2019 through the conversion date of February 21, 2020,
compared to $6.7 million in the period ending December 31, 2019, which is described in the additional fair
value disclosures related to the Convertible Debentures in Note 8.

Upon the consummation of the forced conversion, the Company issued 1,816,466 shares of common stock
with a fair value of approximately $21.2 million, which was reclassified to stockholders’ equity.

(d) Principal and Interest Expense Payments Related to Financing Arrangements

Future principal and interest payments related to the Loan Agreement are as follows (in thousands):

Fiscal Year

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount Due

1,238
2,875
2,735
1,003

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$7,851

The following amounts are included in interest expense in the Company’s consolidated statements of
operations for the years ended December 31, 2020, 2019 and 2018 (in thousands):

Cash interest expense, notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash interest expense, convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual of notes payable final payment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2020

2019

2018

$327
49
45
55
—

$476

$274
349
28
131
2

$784

$299
9
29
163
4

$504

Cash interest expense, notes payable, represents the cash interest paid monthly related to the Loan
Agreement. Cash interest expense, convertible debentures represents cash interest paid or accrued in
connection with the Convertible Debentures issued in December 2018. The amortization of debt costs
represents the closing costs incurred with the Term Loan and the SVB Loan Agreement, which have been
capitalized and expensed using the effective interest method.

F-30

(4) Accrued and Other Expenses

Accrued and other expenses consist of the following at December 31 (in thousands):

Accrued salary and related expenses . . . . . . . . . . . . . . . . . . . .
Accrued accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2020

2019

$ 3,654
2,405
598
382

$ 3,200
2,718
510
162

$ 7,039

$ 6,590

(5) Leases

Under ASC 842, the Company determines if an arrangement contains a lease at inception. A lease is a
contract, or part of a contract, that conveys the right to control the use of identified property, plant or
equipment (i.e., an identified asset) for a period of time in exchange for consideration. Leases are classified
as either operating or financing.

At lease inception, the Company recognizes a lease liability equal to the present value of the remaining lease
payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as for lease
incentives. The Company used its incremental borrowing rate to determine the present value of the lease
payments. The Company determined the incremental borrowing rates for its leases by applying its
applicable, fully collateralized borrowing rate, with adjustment as appropriate for lease term. The lease term
at the lease commencement date is determined based on the non-cancellable period for which the Company
has the right to use the underlying asset, together with any periods covered by an option to extend the lease
if the Company is reasonably certain to exercise that option. The Company considered a number of factors
when evaluating whether the options in its lease contracts were reasonably certain of exercise, such as
length of time before option exercise, expected value of the leased asset at the end of the initial lease term,
importance of the lease to overall operations, costs to negotiate a new lease, and any contractual or
economic penalties.

Right-of-use assets and obligations for short-term leases (leases with an initial term of 12 months or less)
are not recognized in the consolidated balance sheet. Lease expense for short-term leases is recognized on a
straight-line basis over the lease term. The Company does not sublease any of its leased assets to third
parties. The Company’s lease agreements do not contain any residual value guarantees or restrictive
covenants. The Company has lessor agreements that contain lease and non-lease components. As the
Company has determined that the non-lease component of these agreements is the predominant component,
the Company is accounting for the complete agreement under ASC 606 upon adoption of ASC 842 (see
discussion in Note 1(j)).

ASC 842 includes a number of reassessment and re-measurement requirements for lessees based on certain
triggering events or conditions, including whether a contract is or contains a lease, assessment of lease term
and purchase options, measurement of lease payments, assessment of lease classification and assessment of
the discount rate. The Company reviewed the reassessment and re-measurement requirements and identified
three lease modifications which are reflected in the table below showing the maturity of the Company’s
lease liabilities as of December 31, 2020. This includes an extension of operating leases for the two facilities
leased by the Company in New Hampshire and the facility lease in California. In addition, there were no
impairment indicators identified during the year ended December 31, 2020 that required an impairment test
for the Company’s right-of-use assets or other long-lived assets in accordance with ASC 360-10.

Certain of the Company’s leases include variable lease costs to reimburse the lessor for real estate tax and
insurance expenses, and certain non-lease components that transfer a distinct service to the Company, such
as common area maintenance services. The Company has elected to not separate the accounting for lease
components and non-lease components for real estate and equipment leases.

F-31

The Company has leases for office space and office equipment. The leases have remaining lease terms
ranging from less than one year to three years and three months as of December 31, 2020.

The components of lease expense for the period are as follows (in thousands):

Lease Cost

Operating lease cost - Right of Use . .
Operating lease cost - Variable

Classification

Operating expenses

Costs . . . . . . . . . . . . . . . . . . . . . . . .

Operating expenses

Finance lease costs

Amortization of leased assets . . . . .
Interest on lease liabilities . . . . . . . .

Amortization and depreciation
Interest expense

Year Ended December 31,

2020

$ 884

165

12
1

2019

$804

$173

15
2

Total

. . . . . . . . . . . . . . . . . . . . . . . . . .

$1,062

$994

Other information related to leases was as follows (in thousands):

2020

2019

Cash paid for operating cash flows from operating leases . . . . . . . . . . . . . . .
Cash paid for operating cash flows from finance leases . . . . . . . . . . . . . . . . .
Cash paid for financing cash flows from finance leases . . . . . . . . . . . . . . . . .

$909
1
13

2020

Weighted-average remaining lease term of operating leases (in years) . . . . . .
2.21
Weighted-average remaining lease term of finance leases (in years) . . . . . . . . —
Weighted-average discount rate for operating leases . . . . . . . . . . . . . . . . . . . .
Weighted-average discount rate for finance leases . . . . . . . . . . . . . . . . . . . . . . —

5.6% 5.6%
5.4%

$840
2
17

2019

3.12
1.00

Maturities of the Company’s lease liabilities as of December 31, 2020 was as follows (in thousands):

Year Ended December 31, 2020:

2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion of lease liabilities . . . . . . . . . . . . . . . . .

Operating
Leases

$ 920
899
211
5

2,035
(234)

1,801
(726)

Long-term lease liabilities . . . . . . . . . . . . . . . . . . . . . . . .

$1,075

(6) Stockholders’ Equity

(a) Financing Activity

On April 27, 2020, the Company issued 1,562,500 shares of common stock to several institutional investors
at a price of $8.00 per share in a registered direct offering. The gross proceeds of the offering were
approximately $12.5 million, and the Company received net proceeds of approximately $12.3 million. The
Company also entered into an at-the-market offering program with JMP Securities (the “ATM”) to provide
for additional potential liquidity. The Company’s ATM facility provides for the sale of common stock
having a value of up to $25.0 million. On December 17, 2020 the company sold 470,704 shares of common
stock under the ATM facility. The gross proceeds were approximately $6.6 million, and the Company

F-32

received net proceeds of approximately $6.1 million which is net of brokerage fees and offering costs to
open the ATM. As of December 31, 2020, $18.4 million in capacity remains under the facility.

(b) Stock Options

The Company has two effective stock option or stock incentive plans which are described as follows:

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, deferred stock, or other
stock-based 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.

The 2012 Plan provides that it will be administered by the Company’s Board of Directors or a committee of
two or more directors appointed by the Board of Directors. 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 advisors of the Company and its subsidiaries. However, only employees of the Company
and its subsidiaries will be eligible to receive options that are designated as incentive stock options.

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 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, 2020, there were
129,126 shares available for issuance under the 2012 Plan.

The 2016 Stock Incentive Plan (the “2016 Plan”).

The 2016 Plan was adopted by the Company’s stockholders in May 2016 and amended in November 2018.
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 amended 2016 Plan provides for a
total of 2,600,000 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 form of incentive stock options and no more than 120,000 shares of stock may be
issued pursuant to awards to non-employee 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.

F-33

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
subject to the award, determined as of the date of grant. Regarding incentive stock options, including that
the aggregate grant date fair market value 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 that are awarded subject to the
satisfaction of the terms and conditions established by the Compensation Committee. In general, awards that
do not require exercise may be made in exchange for such lawful consideration, including services, as
determined by the Compensation Committee. At December 31, 2020, there were 333,091 shares available
for issuance under the 2016 Plan.

A summary of stock option activity for all stock option plans is as follows:

Number of
Shares

Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual Term

Outstanding, December 31, 2018 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding, December 31, 2019 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .

1,983,477
392,270
(379,980)
(445,105)

1,550,662
563,502
(155,149)
(89,508)

Outstanding, December 31, 2020 . . . . . . .
Exercisable at December 31, 2018 . . . . . .

1,869,507
1,296,439

Exercisable at December 31, 2019 . . . . . .

881,461

Exercisable at December 31, 2020 . . . . . .

1,540,287

$ 4.25
$ 5.81
$ 3.39
$ 6.06

$ 4.33
$10.09
$ 4.70
$ 2.51

$ 5.91
$ 4.90

$ 4.43

$ 5.55

5.0 Years

6.0 Years

There were 462,218 shares available for future grants from all plans at December 31, 2020.

The Company’s stock-based compensation expense, including options and restricted stock by category is as
follows (amounts in thousands):

Year Ended December 31,
2019

2018

2020

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineering and product development . . . . . . . . . . .
Marketing and sales . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expense . . . . . . . . . . . . .

$

30
376
657
1,781

$

3
226
226
713

$

4
399
190
912

$2,844

$1,168

$1,505

As of December 31, 2020, there was $0.7 million of total unrecognized compensation costs related to
unvested options and restricted stock. That cost is expected to be recognized over a weighted average period
of 1.0 years.

F-34

Options granted under the stock incentive plans were valued utilizing the Black-Scholes model using the
following assumptions and had the following fair values:

Year Ended December 31,

2020

2019

2018

Average risk-free interest rate . . . . . . . .
Expected dividend yield . . . . . . . . . . . .
Expected life . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . .
Weighted average exercise price . . . . .
Weighted average fair value . . . . . . . . .

0.65%
None
3.5 years

1.88%
None
3.5 years

2.65%
None
3.5 years

50.17-66.04% 50.01% to 54.23% 50.4% to 61.6%

$10.14
$ 4.37

$5.92
$2.34

$2.96
$1.23

The Company’s 2020, 2019 and 2018 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 dividends on its common stock in the past and does not anticipate paying any dividends in the future.

Intrinsic values of options (in thousands) and the closing market price used to determine the intrinsic values
are as follows:

Intrinsic value of stock options

Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercisable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company’s stock price at December 31 . . . . . . . . . . . . . . . . .

$13,626
11,786
1,037
$ 13.20

$5,465
3,067
509
$ 7.77

$1,021
499
224
$ 3.70

Years Ended December 31,

2020

2019

2018

(c) Restricted Stock

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 did not grant any restricted stock units in 2020. The Company granted 15,990 shares with
time-based vesting during the year ended December 31, 2019. The Company granted 334,083 shares with
time-based vesting and 45,356 shares with immediate vesting during the year ended December 31, 2018.

A summary of restricted stock activity for all equity incentive plans is as follows:

Years Ended December 31,

2020

2019

2018

Beginning outstanding balance . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

150,909
—

(118,077)
(3,666)

423,202
15,990
(197,730)
(90,553)

415,147
379,439
(322,388)
(48,996)

Ending outstanding balance . . . . . . . . . . . . . . . . . . . . . .

29,166

150,909

423,202

F-35

Intrinsic values of restricted stock (in thousands) and the closing market price used to determine the intrinsic
values are as follows:

Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company’s stock price at December 31 . . . . . . . . . . . . . . . . . .

$ 385
1,559
$13.20

$1,173
1,536
$ 7.77

$1,566
1,193
$ 3.70

Years Ended December 31,

2020

2019

2018

(d) Employee Stock Purchase Program:

In December 2019, the Company’s Board of Directors adopted, and the stockholders approved the 2019
Employee Stock Purchase Plan (“ESPP”), effective January 1, 2020. The ESPP provides for the issuance of
up 950,000 shares of common stock, subject to adjustment in the event of a stock split, stock dividend or
other change in the Company’s capitalization. The ESPP may be terminated or amended by the Board of
Directors at any time. Certain amendments to the ESPP require stockholder approval.

Substantially all of the Company’s employees whose customary employment is for more than 20 hours a
week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or
value of the Company’s shares of common stock is not eligible to purchase shares under the ESPP.

Any eligible employee can enroll in the Plan as of the beginning of a respective quarterly accumulation
period. Employees who participate in the ESPP may purchase shares by authorizing payroll deductions of
up to 15% of their base compensation during an accumulation period. Unless the participating employee
withdraws from participation, accumulated payroll deductions are used to purchase shares of common stock
on the last business day of the accumulation period (the “Purchase Date”) at a price equal to 85% of the
lower of the fair market value on (i) the Purchase Date or (ii) the first day of such accumulation period.
Under applicable tax rules, no employee may purchase more than $25,000 worth of common stock, valued
at the start of the purchase period, under the ESPP in any calendar year.

The Company issued 42,606 shares under the ESPP as of December 31, 2020.

(7)

Income Taxes

The components of income tax expense for the years ended December 31, 2020, 2019 and 2018 are as
follows (in thousands):

Current provision (benefit):

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred provision:

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2020

2019

2018

$—
37

$ 37

—

$

$

1

1

$—
42

$ 42

—

$

$

1

1

$—
54

$ 54

$ (10)
(2)

$ (12)

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 38

$ 43

$ 42

F-36

A summary of the differences between the Company’s effective income tax rate and the Federal statutory
income tax rate for the years ended December 31, 2020, 2019 and 2018 is as follows:

Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal benefit
. . . . . . . . . . . . . . . . . . . .
Net state impact of deferred rate change . . . . . . . . . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax amortization on goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other permanent differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal Rate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual to tax return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase Xoft NOLs under 382 Study . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Change in FV of convertible debt
Foreign Rate Differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
True Ups - NOL Expiration/162(m) limits . . . . . . . . . . . . . . . . . . .

2020

2019

2018

21.0% 21.0% 21.0%
2.4% 1.7% 3.6%
0.6%
(0.7%)
(2.0%)
(1.1%)
0.9% (10.7%)
0.0% 0.0% 0.1%
0.0% 0.0% 0.0%
0.0% (0.5%)
(0.1%)
(6.0%) (27.6%)
(13.4%)
1.4% 2.8% 3.1%
0.0% 0.0% 0.0%
0.0% 1.3% 0.3%
0.0% 0.0% 0.0%
0.0%
(9.0%) (10.4%)
0.0% 0.2% 0.0%
0.0% 0.0%
(2.8%)

Effective income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(0.3%)

(0.3%)

(0.5%)

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
carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against
any net deferred tax asset if, based on the available evidence, it is more likely than not that the deferred tax
assets will not be realized.

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 fully reserved the net deferred tax assets, as it is more likely than not that the deferred tax
assets will not be utilized. Deferred tax assets (liabilities) are composed of the following at December 31,
2020 and 2019 (in thousands):

Inventory (Section 263A) . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivable reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation/amortization . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Developed technology . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOL carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

2020

248
60
28
1,081
75
37
459
1,449
3,859
36,078
415

$

2019

242
118
35
1,151
123
66
267
1,702
3,663
33,640
625

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right of Use Asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill tax amortization . . . . . . . . . . . . . . . . . . . . . . . . .

43,789
(43,356)
(433)
(4)

41,632
(41,025)
(607)
(3)

Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(4)

$

(3)

F-37

The increase in the net deferred tax assets and corresponding valuation allowance during the year ended
December 31, 2020 and December 31, 2019 is primarily attributable to additional accruals, net operating
losses, and research and development credits.

As of December 31, 2020, the Company has federal net operating loss carryforwards totaling approximately
$149.1 million. Federal net operating loss carryforwards totaling $122.1 million will expire at various dates
from 2021 and 2037. The remaining $27.0 million of the federal net operating losses generated since
December 31, 2017 can be carried forward indefinitely. As of December 31, 2020, the Company has
provided a valuation allowance for its net operating loss carryforwards 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 utilization of the net operating losses may result in the expiration of all or a
portion of the net operating loss carryforwards. There were no net operating losses utilized for the years
ended December 31, 2020, 2019, or 2018.

The Company currently has approximately $6.6 million in net operating losses that are subject to limitations
related to Xoft. Approximately $656,000 can be used annually through 2029. 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 $3.9 million. The credits expire in various years through 2039.
The Company has additional tax credits of $1.8 million related to Xoft which have been fully reserved for
and as a result no deferred tax asset has been recorded. These credits expire in various years through 2030.

ASC 740-10 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 and also
provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods,
disclosure, and transition.

As of December 31, 2020 and 2019, 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 zero for the years
ended December 31, 2020, 2019 and 2018. The Company files United States federal and various state
income tax returns. The Company will also file a tax return in France. Generally, the Company’s three
preceding tax years remain subject to examination by federal and state tax authorities. The Company is not
under examination by any other federal or state jurisdiction for any tax year.

The Company does not anticipate that it is reasonably possible that unrecognized tax benefits as of
December 31, 2020 will significantly change within the next 12 months.

(8) Segment Reporting, Geographical Information and Major Customers

(a) Segment Reporting

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 performance.

The Company’s CODM is the Chief Executive Officer. 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: Detection and Therapy.

The Detection segment consists of the Company’s advanced image analysis and workflow products, and the
Therapy segment consists of the Company’s radiation therapy products, and related services. The primary
factors used by the Company’s 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 of each segment. Included in segment operating income are stock compensation,
amortization of technology and depreciation expense. There are no intersegment revenues.

F-38

The Company does not track its assets by operating segment and its CODM does not use asset information
by segment to allocate resources or make operating decisions.

Segment revenues, gross profit, segment operating income or loss, and a reconciliation of segment operating
income or loss to GAAP loss before income tax is as follows (in thousands):

Year Ended December 31,

2020

2019

2018

Segment revenues:

Detection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Therapy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 21,997
7,701

$ 22,319
9,021

$16,864
8,757

Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 29,698

$ 31,340

$25,621

Segment gross profit:

Detection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Therapy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17,856
3,498

$ 18,627
5,600

$14,709
4,721

Segment gross profit

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 21,354

$ 24,227

$19,430

Segment operating income (loss):

Detection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Therapy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,719
(3,028)

$ 2,564
(1,476)

$ 3,412
(2,373)

Segment operating income (loss)

. . . . . . . . . . . . . . . . . .

$

(309)

$ 1,088

$ 1,039

General administrative . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of convertible debentures . . . . . . . . . . . .

$ (9,079)
(476)
—
(341)
97
(7,464)

$ (7,486)
(784)
—

$ (9,169)
(504)
(451)

345
(6,671)

110

Loss before income tax . . . . . . . . . . . . . . . . . . . . . . . . . .

$(17,572)

$(13,508)

$ (8,975)

Segment depreciation and amortization included in segment operating income (loss) is as follows (in
thousands):

Year Ended December 31,

2020

2019

2018

Detection depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$115
164

$103
240

$106
248

Therapy depreciation and amortization

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$124
128

$166
128

$177
129

(b) Geographic Information

The Company’s sales are made to customers, distributors 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 $6.1 million or 20% of total revenue in 2020, $3.8 million
or 12% of total revenue in 2019 and $3.2 million or 12% of total revenue in 2018.

F-39

As of December 31, 2020 and 2019, the Company had outstanding receivables of $3.4 million and
$2.1 million, respectively, from distributors and customers of its products who are located outside of the
U.S.

Region

Europe . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Percent of Export sales

2020

2019

2018

45%
13%
5%
22%
15%

57%
15%
7%
8%
13%

51%
22%
7%
0%
20%

Total . . . . . . . . . . . . . . . . . . . . . . . . .

100%

100%

100%

Total Export sales . . . . . . . . . . . . . . . . . . .

$6,081

$3,788

$3,255

Significant export sales in Europe are as follows:

Region

France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdon . . . . . . . . . . . . . . . . . . . . . . . . . . .

Percent of Export sales

2020

2019

2018

41% 34% 36%
8%
17% 12%
3%
4%
12%
1%
2%
8%
0%
2%
6%

(c) Major Customers

The Company had one major OEM customer, GE Healthcare, with revenues of approximately $5.0 million
in 2020, $7.6 million in 2019 and $6.1 million in 2018 or 17%, 24% and 24% of total revenue, respectively.
Cancer detection products are also sold through OEM partners, including GE Healthcare, Fujifilm Medical
Systems, Siemens Medical, and Vital Images. For the year ended December 31, 2020, these four OEM
partners composed approximately 35% of Detection revenues and 26% of total revenue. Detection OEM
partners in total composed approximately 37% of Detection revenues and 28% of total revenue for the year
ended December 31, 2020, 46% of Detection revenues and 33% of total revenue for the year ended
December 31, 2019 and 50% of Detection revenues and 33% of total revenue for the year ended
December 31, 2018. The Company also had one major direct customer with revenues of approximately
$2.8 million, or 9% of total revenue for year ended December 31, 2020.

OEM partners represented $4.4 million or 44% of outstanding receivables as of December 31, 2020, with
GE Healthcare accounting for $1.5 million or 34% of this amount. The four largest Therapy customers
composed $1.7 million or 17% of outstanding receivables as of December 31, 2020. The largest Detection
direct customer represents $1.1 million or 11% of outstanding receivables as of December 31, 2020. These
twenty-one customers in total represented $7.1 million or 72% of outstanding receivables as of
December 31, 2020.

(9) Commitments and Contingencies

(a) Other Commitments

The Company has non-cancelable purchase orders with key suppliers executed in the normal course of
business that total approximately $3.4 million. In connection with the Company’s employee savings plans,
the matching contribution for 2020 was approximately $0.5 million in cash. The matching contribution for
2021 is estimated to be approximately $0.5 million in cash.

F-40

(b) Employment Agreements

The Company has entered into employment agreements with certain key current and former executives. The
employment agreements provide for minimum annual salaries and performance-based 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 effect for (i) fifteen months from the date of termination, for Mr. Klein,
(ii) eighteen months from the date of termination, for Ms. Stevens, and (iii) twenty-four months from the
date of termination, for Mr. Ferry, and in each case, plus the pro rata portion of any annual bonus earned in
any employment year through the date of termination.

On November 8, 2018, Mr. Ferry retired as Chief Executive Officer of the Company and from his position
as Chairman of the Board of Directors. Mr. Ferry and the Company entered into a Separation Agreement on
that date, pursuant to which Mr. Ferry will generally receive the payments that would have been payable had
he been terminated by the Company without cause. The Company accrued $1,009,000 representing 24
months of severance and 18 months of health benefits as of November 2018 upon Mr. Ferry’s agreeing to
the Separation Agreement, which the Company began paying monthly in May 2019 and has completed all
payments as of December 31, 2020.

(c) Royalty Obligations

In connection with prior litigation, the Company received a nonexclusive, irrevocable, perpetual, worldwide
license, including the right to sublicense certain Hologic patents, and a non-compete covenant 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 future net sales on any products that practice the licensed rights. The estimated fair value of
the patent license and non-compete covenant is $100,000 and was amortized over the 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.

(d) Litigation

The Company may be a party to various legal proceedings and claims arising out of the ordinary course of
its business. Although the final results of all such matters and claims cannot be predicted with certainty, the
Company currently believes 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 the Company fail to prevail in any legal matter or should several legal matters be resolved
against us in the same reporting period, such matters could have a material adverse effect on the Company’s
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.” Legal costs are expensed as incurred.

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 on January 30, 2017 less a holdback reserve of $350,000
for a net of approximately $2.9 million.

On September 5, 2018, third-party Yeda Research and Development Company Ltd. (“Yeda”), filed a
complaint (“the Complaint”) against the Company and Invivo in the United States District Court for the
Southern District of New York, captioned Yeda Research and Development Company Ltd. v. iCAD, Inc.
and Invivo Corporation, Case No. 1:18-cv-08083-GBD, related to the Company’s sale of the VersaVue

F-41

software and DynaCAD product under the Asset Purchase Agreement. In the Complaint, Yeda asserted
claims for: (i) copyright infringement and misappropriation of trade secrets against both the Company and
Invivo; (ii) breach of contract against the Company only; and (iii) tortious interference with existing
business relationships and unjust enrichment against Invivo only. The Company and Invivo filed Motions to
Dismiss the Complaint on December 21, 2018. On January 18, 2019, Yeda filed Oppositions to the Motions
to Dismiss. The Company and Invivo submitted responses to the Opposition to the Motion to Dismiss on
February 8, 2019. The Court held oral argument on the Motions to Dismiss on March 27, 2019. On
September 5, 2019, the Court granted Invivo’s Motion to Dismiss in its entirety and granted the Company’s
Motion to Dismiss as it relates to Yeda’s breach of contract and misappropriation of trade secrets claims. On
October 22, 2019, Yeda filed an Amended Complaint against only the Company asserting claims for
(i) copyright infringement; and (ii) a replead breach of contract claim. The Company filed its Answer to
Yeda’s Amended Complaint on November 5, 2019. Yeda alleges, among other things, that the Company
infringed upon Yeda’s source code, which was originally licensed to the Company, by using it in the
products that the Company sold to Invivo and that it is entitled to damages that could include, among other
things, profits relating to the sales of these products. If the Company is found to have infringed Yeda’s
copyright or breached its agreements with Yeda, the Company could be obligated to pay to Yeda substantial
monetary damages.

F-42

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)

(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020
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 001-09341

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.)

Title of Class

Common Stock, $.01 par value

03062
(Zip Code)
Registrant’s telephone number, including area code: (603) 882-5200
Securities registered pursuant to Section 12(b) of the Act:
Trading
Symbol(s)

ICAD
Securities registered pursuant to Section 12 (g) of the Act:
None

Name of each exchange
on which registered

The NASDAQ Stock Market LLC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ‘ No È
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 È
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 È No ‘
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be
submitted 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). Yes È No ‘.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”,
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ‘
Non-accelerated filer È

‘
Accelerated filer
Smaller reporting company È
Emerging growth company ‘

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È
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, 2020 was $208,752,980. Shares of voting stock held by each officer and director and
by each person who, as of June 30, 2020, may be deemed to have beneficially owned more than 10% of the outstanding
voting stock have been excluded. This determination of affiliate status for purposes of this calculation is not necessarily a
conclusive determination of affiliate status for any other purpose.
As of April 30, 2021, the registrant had 24,983,491 shares of Common Stock outstanding.
Documents Incorporated by Reference: None.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A, or Amendment, amends the Annual Report on Form 10-K of iCAD,
Inc. for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission, or SEC,
on March 15, 2021, or the Original Filing. We are filing this Amendment to include the information required by
and not included in Part III of the Original Filing because we no longer intend to file our definitive proxy
statement within 120 days of the end of our 2020 fiscal year. In connection with the filing of this Amendment
and pursuant to the rules of the SEC, we are including with this Amendment certain new certifications by our
principal executive officer and principal financial officer. Accordingly, Item 15 of Part IV has also been amended
to reflect the filing of these new certifications.

Except as described above, no other changes have been made to the Original Filing. The Original Filing, as
amended, continues to speak as of the date of the Original Filing, and we have not updated the disclosures
contained therein to reflect any events which occurred at a subsequent date, other than as expressly indicated in
this Amendment. In this Amendment, unless the context indicates otherwise, the terms “Company”, “iCAD”,
“we”, “us”, “our”, or similar pronouns refer to iCAD, Inc. and its subsidiaries. Other defined terms used in this
Amendment but not defined herein shall have the meaning specified for such terms in the Original Filing.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The following information includes information that our directors and executive officers have given us about
their age; their positions held, principal occupation and business experience for the past five years; and other
publicly-held companies at which they serve or have served as a director during the past five years.

The specific experience, qualifications, attributes and skills listed below for each director led our Board of
Directors, or the Board, to the conclusion that such individuals should serve on the Board. This conclusion is also
based on the Board’s belief that each of our directors has a reputation for integrity, honesty and adherence to high
ethical standards, and has demonstrated business acumen, an ability to exercise sound judgment, and
commitment to iCAD and our Board.

There are no family relationships among any of the directors or executive officers of iCAD.

Name

Age

Principal Occupation or Employment

Director/Officer
Since

Michael Klein . . . . . . . . 67
Nathaniel Dalton . . . . . . 54

Dr. Rakesh Patel . . . . . . 48

Andy Sassine . . . . . . . . . 56

Dr. Susan Wood . . . . . . 58
Stacey Stevens . . . . . . . 53
R. Scott Areglado . . . . . 57
Jonathan Go . . . . . . . . . 58

Executive Chairman and Chief Executive Officer
Director and Senior Advisor of Affiliated Manager’s
Group, Inc.
Chief Executive Officer of Precision Cancer Specialists
Medical Group
Chief Financial Officer of Arcturus Therapeutics
Holdings Inc.
Chief Executive Officer of VIDA Diagnostics, Inc.
President
Chief Financial Officer
Chief Technology Officer

2018

2020

2018

2015
2018
2006
2018
2019

Mr. Michael Klein is the Company’s Executive Chairman and Chief Executive Officer. Mr. Klein has served as
the Chief Executive Officer at Inflection Point Consulting, an executive coaching and consulting firm with a
focus on medical technology, biopharma and healthcare services, since December 2014. Since 2019, Mr. Klein
has served as a member of the board of directors of Avenda Health Care, a medical technology company focused
on developing solutions to identify and treat prostate cancer, and since September 2016, he has been a professor
of practice at Santa Clara University. Mr. Klein was the Chief Executive Officer at SonaCare Medical, LLC (f/k/
a US HIFU, LLC), a global leader in minimally invasive high intensity focused ultrasound technologies, from
December 2011 to November 2014. From April 2011 to December 2011, Mr. Klein was the President of the
Civco Radiation Oncology Division within Roper Industries, a diversified industrial company that produces
engineered products for global niche markets. He was President and Chief Executive Officer of Xoft, Inc., a
medical device company, a position he held from December 2004 until the sale of Xoft to the Company in
December 2010. Prior to joining Xoft, from 2000 to 2004, Mr. Klein served as Chairman, President and Chief
Executive Officer of R2 Technology, Inc., a breast and lung cancer computer aided detection company.
Previously, Mr. Klein served in VP, Sales and Marketing Roles at Varian Medical Systems (VAR) and Becton
Dickinson (BDX). Mr. Klein received a Bachelor of Arts degree from the University at Albany, SUNY.
Mr. Klein also received his M.B.A. from the New York Institute of Technology and completed his post-graduate
Executive Education Studies at Harvard University and Babson College. We believe Mr. Klein’s qualifications to
serve on our Board include his significant experience as an executive in the healthcare industry, his
understanding of our products and markets and his previous tenure on our Board.

Mr. Nathaniel Dalton is one of the founders of the global asset management firm Affiliated Managers Group,
Inc. (NYSE: AMG), where he held various executive-level roles including President, Chief Executive Officer,
Chief Operating Officer, and General Counsel, from 1996 through February 2019, acted as a Director until 2020,

1

and has acted as Senior Advisor since February 2019. He was also the founding investor of Talari Networks, the
pioneering SD-WAN technology company, serving as a board observer for more than a decade, and is an investor
in, and advisor to, several growth companies operating at the intersection of technology and healthcare.
Mr. Dalton is a Trustee of Boston University and serves on the Investment Committee for its Endowment. He
also serves on the advisory board of the Institute for Sustainable Energy. Mr. Dalton received a J.D. from Boston
University School of Law and a B.A. from the University of Pennsylvania. We believe that Mr. Dalton’s
extensive knowledge and experience in the financial services and investment management industries, as well as
his experience as an investor in and advisor to other companies of a similar size, qualifies him to serve as a
member of our Board.

Dr. Rakesh Patel has served as medical director of Radiation Oncology and Chair of the Multi-Disciplinary
Breast Care Program at Good Samaritan Hospital since July 2013. In addition, he has served as co-founder of the
TME Breast Care Network, a high-end physician peer-to-peer knowledge-sharing, research, education and
consulting company, since January 2013. Dr. Patel has also served as Chief Executive Officer of Precision
Cancer Specialists Medical Group, an organization whose core mission is to improve quality and access to
advanced, targeted radiation therapy, since December 2016. He previously served on the board of directors of
Radion, Inc., a company that improved quality of access for patients and doctors with an innovative
e-collaboration platform, the assets of which were acquired by the Company in July 2014. Prior to that, Dr. Patel
was the founder and served on the board of directors of BrachySolutions, Inc. (acquired by Radion Inc.), a
telehealth company focused on improving quality and access to advanced brachytherapy globally via custom
e-learning modules. He holds a Bachelor of Science degree from the University of Notre Dame and an M.D. from
Indiana University School of Medicine. Dr. Patel completed his radiation oncology residency at the University of
Wisconsin-Madison. We believe Dr. Patel’s qualifications to serve on our Board include his expertise in the
medical field as well as his understanding of our products and markets.

Mr. Andy Sassine has served Arcturus Therapeutics Holdings Inc., a biotech company focusing on using mRNA
to target rare diseases, as Chief Financial Officer since January 2019 and as a member of the board of directors
from May 2018 until June 2019, and was reelected as a director in September 2019. Since March 2021,
Mr. Sassine has been a member of the board of directors and the audit and finance committee of the board of
directors of Exicure, Inc., a clinical-stage biotechnology company. Mr. Sassine served in various positions at
Fidelity Investments from 1999 to 2012, rising to the position of Portfolio Manager. Prior to joining Fidelity, he
served as a vice president in the Acquisition Finance Group at Fleet National Bank. Mr. Sassine previously
served on the boards of MYnd Analytics, Inc., Acorn Energy, Freedom Meditech, Inc., Gemphire Therapeutics,
Inc., and MD Revolution. Mr. Sassine was a member of the Henry B. Tippie College of Business, University of
Iowa Board of Advisors from 2009 to 2018 and served on the Board of Trustees at the Clarke Schools for
Hearing and Speech from 2009 to 2014. Mr. Sassine holds a Bachelor of Arts degree from the University of Iowa
and an MBA from the Wharton School at the University of Pennsylvania. We believe Mr. Sassine’s extensive
knowledge and experience as a fund manager and board member of other similarly sized companies qualifies him
to serve as a member of our Board.

Dr. Susan Wood has served as the President and Chief Executive Officer of VIDA Diagnostics, Inc., a leader in
precision imaging and AI for pulmonary medicine, since September 2009. From July 2005 to December 2008,
she held the position of Executive Vice President of Marketing and Technology for Vital Images, Inc., an
innovative software company specializing in cardiovascular applications for advanced analysis software.
Dr. Wood holds multiple patents in the field of computer-aided detection and quantitative imaging; has authored
numerous book chapters, peer-reviewed papers, abstracts, and has served as an invited speaker at numerous
conferences in the area of three-dimensional imaging of the thorax, quantitative imaging and computer-aided
detection. She holds a Bachelor of Science in Engineering from the University of Maryland, College Park and a
Master of Science in Biomedical Engineering from Duke University. Dr. Wood also holds a Ph.D. from the Johns
Hopkins Medical Institutions, School of Hygiene and Public Health. We believe Dr. Wood’s qualifications to
serve on our Board include her expertise in the medical field and her knowledge of our markets.

2

Ms. Stacey Stevens has served as the Company’s President since March 2019. From February 2016 to March
2019, Ms. Stevens served as the Company’s Executive Vice President, Chief Strategy and Commercial Officer,
and from June 2006 to February 2016, she served as the Company’s Senior Vice President of Marketing and
Strategy. Prior to joining iCAD, Ms. Stevens held a number 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 to
June 2006, 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 for all marketing and certain direct sales activities of Philips America’s Field
Operations. Prior to that, Ms. Stevens 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.

Mr. R. Scott Areglado served as the Company’s Chief Financial Officer since May 2019. From May 2011 until
December 2018, Mr. Areglado served as Company’s Vice President and Corporate Controller, and from
December 2018 to May 2019 and September to November 2016, he served as interim Chief Financial Officer.
From 2005 to 2010, Mr. Areglado served as Vice President and Controller at AMICAS, Inc., a Nasdaq-listed
image and information management solutions company serving the healthcare industry, where he led financial
statement preparation and accounting operations for the company. Mr. Areglado has more than 25 years of
experience in finance and accounting and was a licensed Certified Public Accountant from 1990 to 2007.
Mr. Areglado received an M.B.A. degree from the Franklin W. Olin Graduate School of Business at Babson
College and a Bachelor of Business Administration degree in Accounting from the University of Massachusetts,
Amherst. Mr. Areglado resigned from his position as the Company’s Chief Financial Officer on March 30, 2021
effective as of May 4, 2021.

Mr. Jonathan Go is the Company’s Chief Technology Officer. Mr. Go brings more than twenty five years of
software development experience in the medical industry to iCAD. Prior to joining iCAD, Mr. Go served as Vice
President of Engineering at Merge eMed, a provider of RIS/PACS solutions for imaging centers, specialty
practices and hospitals. At Merge eMed, Mr. Go was responsible for software development, product
management, testing, system integration and technical support for all of eMed’s products. Before joining Merge
eMed, Mr. Go was Director of Engineering at Cedara Software in Toronto. Cedara Software is focused on the
development of custom engineered software applications and development tools for medical imaging OEMs. At
Cedara, Mr. Go built the workstation program, developing multiple specialty workstations that have been
adopted by a large number of OEM partners. Mr. Go earned a Bachelor of Science in Electrical Engineering from
the University of Michigan and a Master of Science in Electrical Engineering and Biomedical Engineering from
the University of Toronto.

Delinquent Section 16(a) Reports

Section 16(a) of the Securities Exchange Act of 1934, as amended, 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, 2020, all filing requirements applicable to all of our officers, directors, and greater than 10%
beneficial stockholders were timely complied with.

3

Code of Ethics

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, on the Company’s website at
https://www.icadmed.com/assets/code-of-business-conduct-and-ethics2.pdf and without charge, upon written
request, addressed to:

iCAD, Inc.
98 Spit Brook Road, Suite 100
Nashua, NH 03062
Attention: Corporate Secretary

Audit Committee and Audit Committee Financial Expert

Our Board of Directors maintains an Audit Committee which is composed of Mr. Dalton, Dr. Wood and
Mr. Sassine, who serves as its chairman. Our Board has determined that each member of the Audit Committee
meets the definition of an “Independent Director” under the applicable listing rules of the Nasdaq Capital Market
and the rules and regulations of the SEC. The Board has also determined that Mr. Sassine qualifies as an “audit
committee financial expert” under the rules and regulations of the SEC.

Item 11. Executive Compensation.

Summary Compensation Table

The following table sets forth summary information relating to all compensation awarded to, earned by or paid to
our named executive officers, or NEOs, for all services rendered in all capacities to us during the fiscal years
noted below.

Name and Principal
Position

Year

Salary
($)

Option
Awards (1)
($)

Non-Equity
Incentive Plan
Compensation (2)
($)

All Other
Compensation
($)

Total
($)

Michael Klein (3) . .
Chief Executive

Officer . . . . . . .
Jonathan Go . . . . . .
Chief Technology
Officer . . . . . . .
Stacey Stevens . . . .
President . . . . . . .

2020

374,795

565,779

234,000

12,226

1,186,799

2019
2020

2019
2020
2019

400,000
281,096

299,077
302,647
318,500

—
12,023

45,250
14,563
44,250

95,370
110,000

135,000
150,000
163,519

—
25,243

26,769
32,180
32,800

495,370
428,362

506,096
499,227
559,069

(1) The amounts included in the “Option Awards” column represent the grant date fair value of the stock option

(2)

awards granted to the named executive officers, computed in accordance with ASC Topic 718. For a
discussion of valuation assumptions, see Note 6 of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2020
In February 2021, the Compensation Committee reviewed the performance of the Company and its officers
relative to predetermined goals established by the Compensation Committee under the 2020 Plan (described
below) and determined that such goals had been met and accordingly, the Board approved the payment of
bonuses treated as compensation for the year ended December 31, 2020. For Mr. Klein, 50% was paid in
cash and the remaining 50% paid in the form of stock options. For Ms. Stevens and Mr. Go, 75% was paid
in cash and the remaining 25% paid in the form of stock options. Such bonuses, attributable to performance
for the year ended December 31, 2020, and reflected in the Summary Compensation Table above, were
awarded as follows: Mr. Klein was awarded $234,000, with $117,000 of such amount paid in stock options
granted on February 15, 2021; Ms. Stevens was awarded $150,000, with $37,500 of such amount paid in

4

stock options granted on February 15, 2021; and Mr. Go was awarded $110,000, with $27,500 of such
amount paid in stock options granted on February 15, 2021. All options are exercisable within 6 months of
the grant date at an exercise price of $18.00 per share. The option amounts included in the “Non-Equity
Incentive Plan Compensation” column represent the grant date fair value of the stock option awards granted
to the named executive officers, computed in accordance with ASC Topic 718. For a discussion of valuation
assumptions, see Note 6 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

(3) On April 17, 2020, the Board and Mr. Klein agreed that in lieu of the cash compensation for base salary due
to Mr. Klein pursuant to his employment agreement for the period from April 13, 2020 until June 30, 2020,
Mr. Klein would be issued options to purchase up to 20,125 shares of the Company’s common stock, at a
purchase price of $8.96 per share, exercisable commencing on June 30, 2020 and expiring on June 30, 2030.

Narrative Disclosure to Summary Compensation Table

Executive Compensation Philosophy and Objectives

The Compensation Committee’s executive compensation objectives are to attract and retain highly qualified
individuals with a demonstrated record of achievement; reward past performance; provide incentives for future
performance; and align the interests of the named executive officers with the interests of the stockholders. In
order to accomplish this objective, we offer a competitive total compensation package that consists of base
salary; annual non-equity incentive compensation opportunities; long-term incentives in the form of equity
awards; and employee benefits.

The Compensation Committee believes that compensation for the named executive officers should be based on
our performance. Therefore, for current officers the Compensation Committee has developed variable
compensation packages based largely on Company financial performance. The Compensation Committee also
considers our industry and geographic location norms in determining the various elements and amounts of
compensation for our named executive officers.

Elements of Executive Compensation

The Compensation Committee establishes a total targeted cash compensation amount for each named executive
officer, which includes base salary and non-equity incentive compensation. This is intended to incentivize named
executive officers to achieve the targeted financial results for our business and to compensate them appropriately
if they successfully achieved such performance. The elements of our executive compensation program are
designed to deliver both year-to-year and long-term stockholder value increases. A portion of the executives’
compensation is at-risk, and equity-based compensation includes a mix of incentives that vest subject to time or a
combination of Company performance and time, tying the executive to both our short-term and long-term
success.

The Compensation Committee also considers each named executive officer’s current salary and prior-year
incentive compensation along with the appropriate balance between long-term and short-term incentives.

Our executive compensation program consists of the following annual elements:

Element

Base Salary

Annual Cash Bonus

Long-Term Incentive Awards

Select Benefits and Perquisites

Description

Fixed annual cash amount to attract and retain top talent

At-risk variable incentive compensation to reward for
achievement of goals set by the Board

Equity-based compensation that supports retention, incentivizes
performance and promotes stockholder alignment

Benefits such as health insurance, 401(k) and automobile
allowances to remain competitive in our industry

5

Key Compensation Governance Attributes

The following are best practices of our executive compensation program:

What We Don’t Do
×
×
×
×

No tax gross-up provisions
No guaranteed salary increases or bonuses
No excessive perquisites to NEOs
No pension plans or other post-employment
benefit plans
No severance multipliers in excess of 2x pay
No hedging or pledging of Company stock
No option repricing without stockholder approval,
or option backdating

×
×
×

What We Do
✓
✓
✓

✓

✓

✓
✓

✓

Consult an independent compensation consultant
Consulted an independent proxy solicitor in 2021
Conduct an annual risk assessment of our pay
practices
Solicit stockholder input and incorporate feedback
into decision-making process
Generally use a “double-trigger” for accelerated
equity vesting upon a change in control for current
named executive officers
Clawback policy for executive officers
Stock ownership guidelines for executive officers
and non-employee directors
Insider trading policy prohibits directors, senior
executives and other employees from trading in
Company stock during blackout periods and while
in possession of material non-public information.

How We Determine NEO Compensation

Role of the Compensation Committee. All compensation for our named executive officers is reviewed and
recommended to the Board by the Compensation Committee, which is composed only of independent directors.
The Compensation Committee is responsible for reviewing the performance and establishing the total
compensation of our named executive officers on an annual basis. The Compensation Committee discusses
compensation matters as part of regularly scheduled meetings.

Role of our Chief Executive Officer. Our Chief Executive Officer annually makes recommendations to the
Compensation Committee regarding base salary, non-equity incentive plan compensation and equity awards for
himself and the other named executive officers. Such recommendations are considered by the Compensation
Committee; however, the Compensation Committee retains full discretion and authority over the final
compensation decisions for the named executive officers, subject to approval by the Board.

Role of our Independent Compensation Consultant. The Compensation Committee has the authority to engage
independent compensation consultants. The Compensation Committee has in the past, and may in the future,
directly commission compensation studies from such consultants to provide benchmark and other data to be used
by the Compensation Committee in determining the compensation and benefits for the named executive officers.

During 2019 and 2020, the Compensation Committee engaged Pearl Meyer & Partners, or Pearl Meyer, an
independent compensation consultant, for general executive compensation support. Pearl Meyer also assisted
with benchmarking non-employee director compensation, planning for our stock pool refresh proposal, and
developing and enhancing our proxy disclosures. In 2021, the Compensation Committee also engaged Kingsdale
Shareholder Services, U.S., an independent consultant, for special advisory and proxy solicitation services.

Annual Bonus (Non-Equity Incentive Compensation)

Annually, the Compensation Committee establishes a non-equity incentive compensation plan as a tool to
incentivize the named executive officers to achieve certain Company goals for the forthcoming fiscal year. In
2020 and 2021, the Compensation Committee established a non-equity incentive compensation plan for 2020, or
the 2020 Plan, intended to incentivize the named executive officers to achieve corporate goals and targets. Under

6

the 2020 Plan, upon the Company achieving pre-determined revenue and adjusted EBITDA targets, or the
Targets, each named executive officer is entitled to receive the percentage of their target bonus amount, which is
50% based on the Targets and 50% based on personal performance targets for each named executive officer. The
2020 Plan allows bonus payments that can exceed 100% of each named executive officer’s target bonus amount
if performance targets are exceeded by pre-determined amounts and in the discretion of the Compensation
Committee and the Board.

The Compensation Committee allocated up to $262,500 for payment of bonuses in cash to the named executive
officers other than the Chief Executive Officer, and up to $117,000 in cash for the Chief Executive Officer. The
2020 Plan also provides for the payment of up to $840,000 in performance-based bonuses to employees of the
Company other than the named executive officers. Subject to certain conditions, including the Company
maintaining a cash balance above an agreed-upon level, the bonus pool for executive and non-executive
employees may be increased to $1.15 million, in the discretion of the Compensation Committee and the Board.
In addition, the Board may exercise its discretion to reduce any amounts that might be payable to one or all
officers.

In February 2021, the Compensation Committee reviewed the Company’s actual performance relative to the
Targets, determined that the Targets had been met, and recommended to the Board the payment of bonuses under
the 2020 Plan. In February 2021, Board approved the payment of bonuses as compensation for the year ended
December 31, 2020, a portion of which was paid in cash and a portion paid in the form of stock options. Such
bonuses, attributable to performance for the year ended December 31, 2020, were awarded as follows: Mr. Klein
was awarded $117,000 in cash, with stock options to purchase up to 13,982 shares of common stock granted on
February 15, 2021; Ms. Stevens was awarded $112,500 in cash, with stock options to purchase up to 4,481 shares
of common stock granted on February 15, 2021; and Mr. Go was awarded $82,500 in cash, with stock options to
purchase up to 3,286 shares of common stock granted on February 15, 2021. All options are subject to a 6 month
vesting period from the grant date and were granted at an exercise price of $18.00 per share.

In addition, in February 2021 and not treated as compensation for the year ended December 31, 2020, the
Compensation Committee granted Mr. Klein stock options to purchase up to 118,000 shares of common stock,
Ms. Stevens stock options to purchase up to 55,000 shares of common stock and Mr. Go stock options to
purchase up to 40,000 shares of common stock, vesting in three equal annual installments from the grant date at
an exercise price of $18.00 per share. An aggregate of 118,500 shares exercisable under the options granted with
the three year vesting period are subject to the stockholder approval of an amendment to the Company’s 2016
Stock Incentive Plan, as amended, or the Plan, to increase the number of shares of common stock available to
Plan participants thereunder from 2,600,000 shares to 4,700,000 shares to be voted upon at the Company’s 2021
annual meeting of stockholders, or the Plan Amendment Proposal. In April 2021, the Compensation Committee
recommended, and the Board approved, an additional award to Mr. Klein of stock options to purchase up to
80,000 shares of common stock, vesting in three equal annual installments from the grant date at an exercise
price of $17.55 per share, subject to approval of the Plan Amendment Proposal.

2020 Director Compensation Table*

Name

Nathaniel Dalton . . . . . . .
Dr. Rakesh Patel
. . . . . . .
Andy Sassine . . . . . . . . . .
Susan Wood . . . . . . . . . . .

Fees Earned or
Paid in Cash
($)

Option
Awards (1)
($)

Stock Awards
($)

Total
($)

—
—
—
—

193,551
148,408
153,908
153,033

—
—
—
—

193,551
148,408
153,908
153,033

1) The amounts included in the “Option Awards” column represents the grant date fair value of the stock option
awards to directors, computed in accordance with FASB ASC Topic 718. For a discussion of valuation

7

assumptions, see Note 6 to our Consolidated financial statements on Form 10-K for the fiscal year ended
December 31, 2020. Option awards for 2020 include awards to directors in lieu of cash compensation for 2020.
Information with respect to the compensation of Michael Klein, an employee director, is set forth above in
the Summary Compensation Table.

*

Narrative to Director Compensation Table

Compensation of directors is determined by the Board in conjunction with recommendations made by the
Compensation Committee. The Board has approved a compensation structure for non-employee directors
consisting of a cash retainer, an annual equity award and an additional cash retainer for Board members serving
on a committee. Employee directors are not compensated for their services as directors.

For fiscal 2020, annual cash compensation for non-employee directors was $35,000 and $65,000 for the
chairman of the board. Additional retainers for each non-employee director who served on one or more board
committees in 2020 were as follows:

Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . .
Nominating and Governance Committee . . . . . . . . . . . . . .
Strategy Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lead Independent Director . . . . . . . . . . . . . . . . . . . . . . . . .

Member

Chair

$9,500
$7,000
$4,500
$5,000
$ —

$19,000
$14,000
$ 9,000
$10,000
$20,000

Annual cash compensation for non-employee directors is currently the same for fiscal 2021.

Directors can elect to receive their quarterly board compensation in cash, or in the form of (i) restricted stock
based on the cash equivalent of the closing price of the Company’s common stock on the last trading day of each
quarter, or (ii) stock options, with an exercise price based on the closing price of the Company’s common stock
on the last trading day of each quarter. The number of shares subject to such stock options is determined based on
a Black-Scholes valuation.

Such restricted stock is fully vested and such stock options are fully exercisable at the time of grant. For 2020, all
directors elected to receive their compensation in the form of stock options.

Newly appointed non-employee directors receive a one-time initial award of stock options to purchase 40,000
shares of our common stock, which vest in four equal quarterly installments through the first anniversary of the
date of grant. Continuing directors receive an annual award of stock options to purchase 30,000 shares of our
common stock, which also vest in four equal quarterly installments through the first anniversary of the date of
grant.

8

Outstanding Equity Awards at December 31, 2020

The following table sets forth information regarding unexercised options and unvested stock awards outstanding
at December 31, 2020 for each of our named executive officers.

Name

Michael

Klein . . .

Stacey

Stevens . .

Jonathan

Go . . . . .

Number
of Securities Underlying
Unexercised Options (#)
Exercisable

Option Awards

Number of
Securities Underlying
Unexercised
Options (#)
Unexercisable

559,809
36,667
20,125
31,890

235
25,000
8,333
23,175

20,000
30,000
20,000
45,000
10,000
12,500
8,333
19,134

—
73,333
—
—

—
—
16,667
—

—
—
—
—
—
—
16,667
—

Stock Awards

Number of Shares
of Restricted
Stock That
Have Not
Vested
(#) (1)

Market Value
of Shares or
Units of Stock
That Have Not
Vested
($) (2)

—
—
—
—

9,166
—
—
—

—
—
—
—
—
—
—
—

—
—
—
—

120,991

—
—
—

—
—
—
—
—
—
—
—

Option
Exercise
Price ($)

Option
Expiration
Date

2.89
8.77
8.96
12.84

6.68
9.00
4.38
12.84

5.75
3.15
2.90
2.27
6.68
9.00
4.37
12.84

11/16/2028
01/13/2030
04/17/2030
05/07/2030

06/19/2024
02/05/2025
03/25/2029
05/07/2030

3/29/2021
11/10/2021
2/7/2022
9/25/2022
6/19/2024
2/5/2025
1/15/2029
05/07/2030

(1) Represents outstanding and unvested awards of time-vested restricted stock at December 31, 2020. All

unvested restricted stock awards set forth in this column vest in three equal annual installments with the first
installment vesting on the first anniversary of the date of grant.

(2) Calculated by multiplying the closing price per share of the Company’s Common Stock on December 31,

2020, $13.20, by the number of shares subject to the award.

Employment Agreements and Severance and Change in Control Agreements

A summary of the current employment agreements for the named executive officers appears below. The
employment agreements provide for minimum annual salaries and performance-based 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 effect, for Mr. Klein, 15 months, or upon a change in control, 24 months, or for other key
executives, 12 months, or upon a change in control, 18 months.

Mr. Michael Klein, our Executive Chairman and Chief Executive Officer.

On January 13, 2020, the Company entered into an employment agreement, or the Klein Agreement, with Mr.
Klein to serve as Executive Chairman and Chief Executive Officer of the Company. Pursuant to the agreement,
Mr. Klein’s compensation consists of an annual base salary of $400,000, and a target annual incentive bonus of
65% of his base salary if the Company achieves goals and objectives determined by the Compensation
Committee. In April 2021, the Compensation Committee recommended, and the Board approved, an increase of

9

Mr. Klein’s annual base salary to $483,000 and a target incentive bonus of 85% of his base salary if the
Company achieves goals and objectives determined by the Compensation Committee.

Mr. Klein is also entitled to customary benefits, including participation in employee benefit plans. Mr. Klein’s
employment agreement provides that if his employment is terminated without “cause” or if he terminates his
employment for “good reason” (as such terms are defined in Mr. Klein’s employment agreement), in each case while
he serves as Chief Executive Officer, then: (i) he will continue to receive an amount equal to his base salary for the 15
month period from the date of his termination; (ii) he will receive the pro rata portion of any incentive bonus, if any,
earned for the fiscal year of his termination; and (iii) he will receive continued health benefits for 15 months.

In the event that within six months of a “change in control,” Mr. Klein’s employment is terminated by the Company
without “cause,” then: (i) he will continue to receive an amount equal to his base salary for the period of 24 months
from the date of his termination; (ii) he will receive the pro rata portion of his incentive bonus, if any, earned for the
fiscal year of his termination; and (iii) all unvested stock options and other equity awards granted by the Company will
immediately vest and become exercisable and will remain exercisable for not less than 180 days thereafter.

On May 26, 2020, the Klein Agreement was amended. The amendments were not substantive to the terms of the
Klein Agreement, provided no change to the economics of the Klein Agreement and were made to align certain
procedural language in the termination provisions of the Klein Agreement, primarily relating to the Discretionary
Bonus (as defined therein), with those of the new employment agreements of our executives described below. In
addition, 1/3 of the 80,000 stock options granted to Mr. Klein in April 2021 will immediately vest and become
exercisable in the event of a “change in control” or termination of Mr. Klein’s employment without “cause”.

Ms. Stacey Stevens, our President.

On May 26, 2020, the Company entered into an employment agreement with Ms. Stevens that replaced and
terminated her prior agreements, including the Change of Control Bonus Agreement entered into in October
2015. Pursuant to the agreement, Ms. Stevens serves as President and her compensation consists of an annual
base salary of $323,000, a non-bonus eligible salary of $13,800 and a target annual incentive bonus of 45% of
her base salary if the Company achieves goals and objectives determined by the Compensation Committee. In
February 2021, the Compensation Committee recommended, and the Board approved an increase of Ms. Stevens
annual base salary to $360,000 and a target annual incentive bonus of 45% of her base salary if the Company
achieves goals and objectives determined by the Compensation Committee.

Ms. Stevens is also entitled to customary benefits, including participation in employee benefit plans.
Ms. Stevens’ employment agreement provides that if her employment is terminated without “cause” or if she
terminates her employment for “good reason” (as such terms are defined in Ms. Stevens employment agreement),
in each case while she serves as President, then: (i) she will continue to receive an amount equal to her base
salary for the 12 month period from the date of her termination; (ii) she will receive the pro rata portion of any
incentive bonus, if any, earned for the fiscal year of her termination; and (iii) she will receive continued health
benefits for 12 months.

In the event that within 6 months of a “change in control” Ms. Stevens’ employment is terminated by the
Company without “cause” while she serves as President, then (i) she will continue to receive an amount equal to
her base salary for the period of 18 months from the date of her termination; (ii) she will receive the pro rata
portion of any incentive bonus, if any, earned for the fiscal year of her termination, and (iii) all unvested stock
options and other equity awards granted by the Company will immediately vest and become exercisable and will
remain exercisable for not less than 180 days thereafter.

Mr. Jonathan Go, our Chief Technology Officer.

On May 26, 2020, the Company entered into an employment agreement with Jonathan Go. Pursuant to the
agreement, Mr. Go serves as Chief Technology Officer and his compensation consists of an annual base salary of

10

$300,000, a non-bonus eligible salary of $10,200, and a target annual incentive bonus of 40% of his base salary if
the Company achieves goals and objectives determined by the Compensation Committee. In February 2021, the
Compensation Committee recommended, and the Board approved an increase of Mr. Go’s annual base salary to
$318,000 and a target annual incentive bonus of 45% of his base salary if the Company achieves goals and
objectives determined by the Compensation Committee.

Mr. Go is also entitled to customary benefits, including participation in employee benefit plans. Mr. Go’s employment
agreement provides that if his employment is terminated without “cause” or if he terminates his employment for “good
reason” (as such terms are defined in Mr. Go’s employment agreement), in each case while he serves as Chief
Technology Officer, then: (i) he will continue to receive an amount equal to his base salary for the 12 month period
from the date of his termination; (ii) he will receive the pro rata portion of any incentive bonus, if any, earned for the
fiscal year of his termination; and (iii) he will receive continued health benefits for 12 months.

In the event that within 6 months of a “change in control” Mr. Go’s employment is terminated by the Company
without “cause” while he serves as Chief Technology Officer, then (i) he will continue to receive an amount
equal to his base salary for the period of 18 months from the date of his termination; (ii) he will receive the pro
rata portion of any incentive bonus, if any, earned for the fiscal year of his termination, and (iii) all unvested
stock options and other equity awards granted by the Company will immediately vest and become exercisable
and will remain exercisable for not less than 180 days thereafter.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters.

The following table sets forth certain information regarding the beneficial ownership of our common stock as of
April 20, 2021 by (i) each person who is known to us to own beneficially more than 5% of the outstanding shares
of our common stock, (ii) each of our named executive officers, (iii) each of our directors, and (iv) each of our
executive officers and directors as a group. Unless otherwise indicated below, the address of each beneficial
owner is c/o iCAD, Inc. 98 Spit Brook Road, Suite 100, Nashua, New Hampshire 03062.

Name of Beneficial Owner

Michael Klein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nathaniel Dalton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dr. Rakesh Patel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Andy Sassine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dr. Susan Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stacey Stevens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jonathan Go . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All current executive officers and directors as a

group (8 persons) (4) . . . . . . . . . . . . . . . . . . . . . . . . .
Portolan Capital Management, LLC(5) . . . . . . . . . . . . . .
BlackRock, Inc.(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Beneficially
Owned
(1)(2)(3)

674,823
236,943
206,239
1,433,234
127,538
216,866
294,736

3,291,517
1,161,199
1,452,196

Percentage
of Class

2.6%
*
*
5.7%
*
*%
1.2%

12.5%
5.1%
6.3%

(1) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days
from April 20, 2021, upon (i) the exercise of options; (ii) vesting of restricted stock; (iii) warrants or rights;
(iv) through the conversion of a security; (v) pursuant to the power to revoke a trust, discretionary account or
similar arrangement; or (vi) pursuant to the automatic termination of a trust, discretionary account or similar
arrangement. Each beneficial owner’s percentage ownership is determined by assuming that the options or
other rights to acquire beneficial ownership as described above, that are held by such person (but not those held
by any other person) and which are exercisable within 60 days from April 20, 2021, have been exercised.

11

(2) Unless otherwise noted, we believe that the persons referred to in the table have sole voting and investment

power with respect to all shares reflected as beneficially owned by them.
Includes exercisable and vested options to purchase shares of common stock as follows:

(3)

Name of Beneficial Owner

Michael Klein . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dr. Rakesh Patel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Andrew Sassine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dr. Susan Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stacey Stevens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jonathan Go . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nathaniel Dalton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exercisable
Options

648,491
144,022
118,352
124,904
65,078
173,301
59,896

(4)

Includes securities beneficially owned by R. Scott Areglado, the Company’s Chief Financial Officer,
including 64,227 exercisable options.

(5) Solely based on the Company’s review of filings made on Schedule 13G with the SEC, as of February 12,

2021, 1,161,199 shares of common stock are beneficially owned (i) directly by Portolan Capital
Management, LLC, a registered investment adviser, in its capacity as investment manager for various
clients, and (ii) indirectly by George McCabe, the Manager of Portolan Capital Management, LLC. The
address of Portolan Capital Management, LLC is 2 International Place, FL 26, Boston, MA 02110.
(6) Solely based on the Company’s review of filings made on Schedule 13G with the SEC, as of February 2, 2021,

1,452,196 shares of common stock are beneficially owned by BlackRock, Inc. (“BlackRock”), in its capacity as a
parent holding company of various subsidiaries under Rule 13d-1(b)(1)(ii)(G). In its capacity as a parent holding
company or control person, BlackRock has sole voting power with respect to 1,442,823 shares and sole
dispositive power with respect to 1,452,196 shares which are held by the following of its subsidiaries: BlackRock
Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Fund Advisors, BlackRock
Institutional Trust Company, National Association, BlackRock Financial Management, Inc., and BlackRock
Investment Management, LLC. The address of BlackRock is 55 East 52nd Street, New York, NY 10055.

Equity Compensation Plans

The following information is provided as of December 31, 2020 with respect to our equity compensation plans:

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights

Weighted-average
exercise price of
outstanding
options, warrants
and rights

Number of securities
remaining available
for issuance under
equity compensation
plans (excluding
securities reflected
in column (a))

1,898,673

$5.91

462,218

Plan Category:

Equity compensation plans
approved by security
holders . . . . . . . . . . . . . . . . .

Equity compensation plans
not approved by security
holders . . . . . . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . . .

1,898,673

0

$0.00

$5.91

0

462,218

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Review, Approval or Ratification of Transactions with Related Persons

We have adopted written policies and procedures for transactions with related persons. The charter of our Audit
Committee, or Charter, requires that the Audit Committee review and approve or disapprove the entry by us into

12

transactions, arrangements and relationships where the aggregate amount involved could reasonably be expected
to exceed $120,000 in any calendar year and in which a related person has a direct or indirect interest. A related
person is (i) any of our directors, nominees for director or executive officers, (ii) any immediate family member
of any of our directors, nominees for director or executive officers, and (iii) any person, and his or her immediate
family members, or entity, including affiliates, that was a beneficial owner of 5% or more of any of our
outstanding equity securities at the time the transaction occurred or existed.

The Charter provides that the Audit Committee shall approve only those related person transactions that are
determined to be in, or not inconsistent with, the best interests of the Company and its stockholders, taking into
account all available facts and circumstances as the Audit Committee determines in good faith to be necessary in
accordance with principles of Delaware law generally applicable to directors of a Delaware corporation. No
member of the Audit Committee may participate in any review, consideration or approval of any related person
transaction with respect to which the member or any of his or her immediate family members has an interest. In
reviewing and approving such transactions, the Audit Committee obtains, or directs management to obtain on its
behalf, all information that it believes to be relevant and important to a review of the transaction prior to its
approval. Following receipt of the necessary information, a discussion is held of the relevant factors if deemed to
be necessary by the Audit Committee prior to approval. If a discussion is not deemed to be necessary, approval
may be given by written consent of the Audit Committee. This approval authority may also be delegated to the
chairperson of the Audit Committee in certain circumstances. No related person transaction may be entered into
prior to the completion of these procedures.

Other than as set forth below, during the year ended December 31, 2020 there were no transactions with related
parties requiring approval of the Audit Committee as described above:

• Dr. Rakesh Patel is a principal of TME Consulting LLC (“TME”), a medical consulting firm. During
the year ended December 31, 2020, the Company furnished to TME an aggregate of $125,000 in
connection with various consulting services provided by TME to the Company. All TME services are
provided by physicians who are members of TME’s network, on an hourly basis, and consulting fees
are furnished to the individual physicians providing such services. As such, Dr. Patel received no direct
interest in any such fees payable by the Company to TME.

Director Independence

The Board has determined all of its members other than Mr. Klein meet the director independence requirements
under the applicable listing rules of the Nasdaq Capital Market and the rules and regulations of the SEC.

Item 14. Principal Accounting Fees and Services.

Aggregate fees for professional services rendered for the Company by BDO, its independent registered public
accounting firm, as of or for the fiscal years ended December 31, 2020 and 2019 were:

Services Rendered(1)

Fiscal Year Ended

December 31,
2020

December 31,
2019

Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit Related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$464,735
—
—
—

$482,745

—
—
—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$464,735

$482,745

(1) The aggregate fees included in Audit Fees are fees billed for the fiscal years.

13

Audit fees for the fiscal years ended December 31, 2020 and 2019 relate to professional services rendered for the
audits of our financial statements, quarterly reviews, issuance of consents, and assistance with review of
documents filed with the SEC.

The Charter provides that one of the Audit Committee’s responsibilities is pre-approval of all audit, audit related,
tax services and other services performed by our independent registered public accounting firm. Unless the
specific service has been previously pre-approved with respect to that year, the Audit Committee must approve
the permitted service before the Company’s independent registered public accounting firm is engaged to perform
it. The Audit Committee pre-approves proposed services and fee estimates for these services. The Audit
Committee chairperson or his or her designee has been designated by the Audit Committee to pre-approve any
services arising during the year that were not pre-approved by the Audit Committee. Services pre-approved by
the Audit Committee chairperson are communicated to the full Audit Committee at its next regular meeting and
the Audit Committee reviews services and fees for the fiscal year at each such meeting. Pursuant to these
procedures, the Audit Committee pre-approved all of the audit services provided by BDO to us during the fiscal
years ended December 31, 2020 and 2019.

14

Item 15. Exhibits, Financial Statement Schedules.

iii. Exhibits – the following documents are filed as exhibits to this Annual Report on Form 10-K:

PART IV

31.1

31.2

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.*

*

Filed herewith

15

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Date: April 30, 2021

Date: April 30, 2021

iCAD, Inc.

By:

By:

/s/ Michael Klein
Michael Klein
Chief Executive Officer and Executive
Chairman
(Principal Executive Officer)

/s/ R. Scott Areglado
R. Scott Areglado
Chief Financial Officer
(Principal Financial and Accounting Officer)

16

Board of Directors

Michael Klein
Chairman and Chief Executive Officer
Adjunct Professor, Leavey School of Business,
Santa Clara University

Nathaniel Dalton (1), (2), (3), (5)
Director and Senior Advisor for Affiliated Managers Group, Inc.

Rakesh Patel, MD (2), (3), (4)
Chief Executive Officer, Precision Cancer Care Specialists
Medical Group

Andy Sassine (1), (2), (3)
Chief Financial Officer, Arcturus Therapeutics

Susan Wood, Ph.D. (1), (2), (4)
Chief Executive Officer, VIDA Diagnostics

Executive Officers

Michael Klein
Chairman and Chief Executive Officer

Stacey Stevens
President

Jonathan Go
Chief Technology Officer

Charles R. Carter
Interim Chief Financial Officer                                                                          

(1) Audit Committee Member
(2) Compensation Committee Member
(3) Nominating & Corporate Governance Committee Member
(4) Strategy committee
(5) Lead Independent Director

© 2021, iCAD Inc. All rights reserved. iCAD, the PowerLook logos, ProFound AI, 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.

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
Jeremy Feffer
+1 917 749 1494
jeremy@lifesciadvisors.com

Public Relations

iCAD, Inc.
+1 603 882 5200
pr@icadmed.com

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

Dentons US LLP
New York, NY