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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
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OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-9341
ICAD, INC.
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(Exact name of registrant as specified in its charter)
Delaware 02-0377419
--------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4 Townsend West, Suite 17, Nashua, NH 03063
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(603) 882-5200
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES X NO___.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) YES NO X .
As of the close of business on November 5, 2004 there were 34,220,851
shares outstanding of the issuer's Common Stock, $.01 par value.
ICAD, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of September 30, 2004
(unaudited) and December 31, 2003 3
Consolidated Statements of Operations for the
three and nine month periods ended September 30, 2004
and 2003 (unaudited) 4
Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 2004 and 2003 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Item 3 Quantitative and Qualitative Disclosures about Market Risk 12
Item 4 Controls and Procedures 12-13
PART II OTHER INFORMATION
Item 6 Exhibits 13
Signatures 14
2
ICAD, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- -------------
Assets (unaudited)
Current assets:
Cash and equivalents $ 2,435,385 $ 5,101,051
Trade accounts receivable, net of allowance for doubtful
accounts of $434,000 in 2004 and $105,000 in 2003 4,680,989 3,343,296
Inventory 1,001,493 2,123,642
Prepaid and other current assets 481,262 547,014
------------- -------------
Total current assets 8,599,129 11,115,003
------------- -------------
Property and equipment:
Equipment 1,959,265 1,825,147
Leasehold improvements 37,904 26,489
Furniture and fixtures 135,544 133,562
------------- -------------
2,132,713 1,985,198
Less accumulated depreciation and amortization 904,972 717,635
------------- -------------
Net property and equipment 1,227,741 1,267,563
------------- -------------
Other assets:
Patents, net of accumulated amortization 343,843 379,178
Technology intangibles, net of accumulated amortization 5,118,110 5,580,172
Tradename, Distribution agreements and other,
net of accumulated amortization 846,400 1,115,000
Goodwill 43,372,549 43,205,220
------------- -------------
Total other assets 49,680,902 50,279,570
------------- -------------
Total assets $ 59,507,772 $ 62,662,136
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,182,933 $ 3,979,488
Accrued interest 608,668 333,652
Accrued expenses 1,553,590 1,988,476
Deferred revenue 404,204 216,500
Convertible subordinated debentures 10,000 10,000
Current maturities of notes payable 1,500,000 1,233,390
------------- -------------
Total current liabilities 6,259,395 7,761,506
Loans payable to related party 3,630,000 3,630,000
Notes payable, less current maturities 2,250,000 3,375,000
------------- -------------
Total liabilities 12,139,395 14,766,506
------------- -------------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $ .01 par value: authorized
1,000,000 shares; issued and outstanding
7,435 in 2004 and 2003, with the aggregate
liquidation value of $1,257,500 in 2004 and 2003, plus
7% annual dividend 74 74
Common stock, $ .01 par value: authorized
50,000,000 shares; issued 34,253,727 in 2004
and 33,704,809 shares in 2003; outstanding
34,185,851 in 2004 and 33,636,933 shares in 2003 342,537 337,048
Additional paid-in capital 121,349,542 120,395,390
Accumulated deficit (73,373,512) (71,886,618)
Treasury stock at cost (67,876 shares) (950,264) (950,264)
------------- -------------
Total Stockholders' equity 47,368,377 47,895,630
------------- -------------
Total liabilities and stockholders' equity $ 59,507,772 $ 62,662,136
============= =============
See accompanying notes to consolidated financial statements.
3
ICAD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS NINE MONTHS
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- --------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Sales $ 5,977,048 $ 1,387,100 $ 17,040,515 $ 4,938,629
Cost of sales 1,617,788 731,607 5,108,481 2,233,775
------------ ------------ ------------ ------------
Gross margin 4,359,260 655,493 11,932,034 2,704,854
------------ ------------ ------------ ------------
Operating expenses:
Engineering and product development 1,072,636 619,762 3,869,033 1,813,560
General and administrative 1,252,077 4,870,119 3,796,245 6,370,414
Marketing and sales 1,529,995 530,485 5,302,534 1,077,189
------------ ------------ ------------ ------------
Total operating expenses 3,854,708 6,020,366 12,967,812 9,261,163
------------ ------------ ------------ ------------
Income (loss) from operations 504,552 (5,364,873) (1,035,778) (6,556,309)
Interest expense - net 138,503 30,494 451,116 47,644
------------ ------------ ------------ ------------
Net income (loss) 366,049 (5,395,367) (1,486,894) (6,603,953)
Preferred dividend 30,697 37,316 100,858 110,733
------------ ------------ ------------ ------------
Net income (loss) available to common shareholders $ 335,352 $ (5,432,683) $ (1,587,752) $ (6,714,686)
============ ============ ============ ============
Net income (loss) per share
Basic $ 0.01 $ (0.20) $ (0.05) $ (0.25)
Diluted $ 0.01 $ (0.20) $ (0.05) $ (0.25)
Weighted average number of shares used
in computing income (loss) per share
Basic 34,056,589 26,858,963 33,879,913 26,531,177
Diluted 37,992,937 26,858,963 33,879,913 26,531,177
See accompanying notes to consolidated financial statements.
4
ICAD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS NINE MONTHS
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
------------------ ------------------
Cash flows from operating activities:
Net loss $(1,486,894) $(6,603,953)
----------- -----------
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 202,770 87,038
Amortization 767,443 428,385
Loss on disposal of assets 21,110 1,443,628
Legal expense relative to issue of stock -- 23,377
Issuance of common stock for payment of legal settlement -- 750,000
Changes in operating assets and liabilities:
Accounts receivable (1,419,789) 522,901
Inventory 1,122,149 (141,053)
Other current assets 28,498 (92,593)
Accounts payable (1,796,555) 933,106
Accrued expenses (260,728) (543,980)
Deferred revenue 187,704 --
----------- -----------
Total adjustments (1,147,398) 3,410,809
----------- -----------
Net cash used for operating activities (2,634,292) (3,193,144)
----------- -----------
Cash flows from investing activities:
Additions to patents, software development and other (1,446) (100,000)
Additions to property and equipment (184,058) (139,809)
Additional acquisition costs of CADx (47,979) --
----------- -----------
Net cash used for investing activities (233,483) (239,809)
----------- -----------
Cash flows from financing activities:
Issuance of common stock for cash 1,060,499 248,516
Proceeds of convertible note payable to principal
stockholders -- 2,730,000
Payments of notes payable (858,390) (48,713)
----------- -----------
Net cash provided by financing activities 202,109 2,929,803
----------- -----------
Decrease in cash and equivalents (2,665,666) (503,150)
Cash and equivalents, beginning of period 5,101,051 1,091,029
----------- -----------
Cash and equivalents, end of period $ 2,435,385 $ 587,879
=========== ===========
Non-cash items from investing and financing activities:
Accrued dividends on convertible preferred stock $ 100,858 $ 110,733
=========== ===========
Issuance of common stock for settlement of liability $ -- $ 1,400,000
=========== ===========
See accompanying notes to consolidated financial statements.
5
ICAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2004
(1) ACCOUNTING POLICIES
In the opinion of management all adjustments and accruals (consisting only
of normal recurring adjustments), which are necessary for a fair
presentation of operating results are reflected in the accompanying
consolidated financial statements. Reference should be made to iCAD,
Inc.'s ("iCAD" or "Company") Annual Report on Form 10-K for the year ended
December 31, 2003 for a summary of significant accounting policies.
Interim period amounts are not necessarily indicative of the results of
operations for the full fiscal year.
(2) LOAN PAYABLE TO RELATED PARTY
The Company has a Revolving Loan and Security Agreement (the "Loan
Agreement") with Mr. Robert Howard, Chairman of the Board of Directors of
the Company, under which Mr. Howard has agreed to advance funds, or to
provide guarantees of advances made by third parties in an amount up to
$5,000,000. Outstanding advances are collateralized by substantially all
of the assets of the Company and bear interest at prime interest rate plus
2% with a minimum of 8%. Mr. Howard is entitled to convert outstanding
advances made by him under the Loan Agreement into shares of the Company's
common stock at any time based on the closing market price of the
Company's common stock at the lesser of the market price at the time each
advance is made or at the time of conversion. At September 30, 2004,
$3,630,000 was outstanding under the Loan Agreement and $1,370,000 was
available for future borrowings.
(3) ACQUISITION OF QUALIA COMPUTING, INC.
On December 31, 2003, the Company completed the acquisition of Qualia
Computing, Inc., a privately held company based in Beavercreek, Ohio, and
its subsidiaries, including CADx Systems, Inc. (together "CADx"), bringing
together two of the three companies approved by the US Food and Drug
Administration (FDA) to market computer aided detection of breast cancer
solutions in the United States. To complete the acquisition, iCAD issued
4,300,000 shares of its common stock, representing approximately 13% of
the outstanding shares of iCAD common stock after the merger.
Additionally, iCAD paid $1,550,000 in cash and executed a 36-month secured
promissory note in the amount of $4,500,000 to purchase Qualia shares that
were owned by two institutional investors. The purchase price of
approximately $31,000,000 has been allocated to net assets acquired based
upon an appraisal of their fair values, but the allocation is subject to
further adjustment.
6
ICAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2004
(4) STOCK-BASED COMPENSATION
The Company accounts for its stock based compensation plans in accordance
with the provisions of APB Opinion 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure". Under APB
Opinion 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of
grant, no compensation cost is recognized.
The Company estimates the fair value of each granting of options at the
grant date using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2004: no dividends paid;
expected volatility of 78.8%; risk-free interest rate of 3.03%, 3.10%,
3.72%, 3.26% and 2.89% and expected lives of 3 and 4 years. The
weighted-average assumptions used for grants in 2003 were: no dividends
paid; expected volatility of 79.4%; risk-free interest rate of 2.91%,
2.34% and 2.63% and expected life of 5 years.
Had compensation cost for the Company's option plans been determined using
the fair value method at the grant dates, the effect on the Company's net
income (loss) and net income (loss) per share for the three and nine month
periods ended September 30, 2004 and 2003 would have been as follows:
Three Months Nine Months
September 30, September 30,
------------- -------------
2004 2003 2004 2003
Net income (loss) available to
common stockholders as reported $ 335,352 $ (5,432,683) $ (1,587,752) $ (6,714,686)
Deduct: Total stock-based
employee compensation
determined under fair value
method for all awards, net
of related tax effects (146,360) (34,084) (331,133) ( 196,487)
Pro forma net income (loss)
available to common stockholders $ 188,992 $ (5,466,767) $ (1,918,885) $ (6,911,173)
Basic and diluted loss per share
As reported $ .01 $ (.20) $ (.05) $ (.25)
------------- ------------- ------------- -------------
Pro forma basic $ .01 $ (.20) $ (.06) $ (.26)
------------- ------------- ------------- -------------
Pro forma diluted $ .00 $ (.20) $ (.06) $ (.26)
------------- ------------- ------------- -------------
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: Certain information included in this Item 2 and elsewhere in this Form
10-Q 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, 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, competitive factors, the effects of a decline in the economy in
markets served by the Company and other risks detailed in the Company's other
filings with the Securities and Exchange Commission. The words "believe",
"demonstrate", "intend", "expect", "estimate", "anticipate", "likely", "seek",
"should" and similar expressions identify forward-looking statements. Readers
are cautioned not to place undue reliance on those forward-looking statements,
which speak only as of the date the statement was made.
RESULTS OF OPERATIONS
OVERVIEW
iCAD develops, engineers, manufactures and markets computer aided detection
(CAD) products for the early detection of breast cancer and other health-care
related applications. Early detection of breast cancer can save lives and often
permits less costly, less invasive and less disfiguring cancer treatment options
than when the cancer is detected at a later stage.
On December 31, 2003, iCAD merged with and acquired CADx. This merger brought
together two of the three companies with approval from the FDA to market
computer aided systems for the earlier detection of breast cancer. This
acquisition gives iCAD, what it believes to be, the broadest line of CAD systems
for detection of breast cancer, including the leading CAD solution for the
growing digital mammography market. In addition, the acquisition expanded the
Company's distribution channels, which contributed to immediate growth in sales,
and expanded the Company's new product development group, which the Company
believes will accelerate its entry into additional markets.
Following the acquisition of CADx, iCAD consolidated and positioned its current
products, and reorganized and greatly expanded its sales channels. Over the
balance of 2004, the Company's objective is to build on its achievements in the
first nine months of 2004 by aggressively marketing and promoting its new,
lower-cost Second Look 200(TM) solutions for the early detection of breast
cancer, and its ClickCAD(TM) fee-per-procedure programs that seek to make CAD
technology affordable and accessible to smaller volume mammography clinics and
all women at risk of breast cancer.
As a result of the Company's acquisition of CADx, the Company entered the first
quarter of 2004 with the overhead of two companies, and expense and cost
structure are reflected in first quarter losses. The Company reduced operating
expenses from $5.3 million in the first quarter of 2004 to approximately $3.8
million in each of the second and third quarters of 2004, in part through a
reduction in personnel from 110 at the beginning of the first quarter of 2004 to
approximately 70 at the beginning of the second quarter of 2004. The Company's
headquarters are located in southern New Hampshire, with contract manufacturing
facilities in New Hampshire and Connecticut.
8
iCAD is the only independent, integrated digitizer hardware and CAD software
company offering computer aided detection solutions for the detection of breast
cancer and other health-care related applications. As such, the Company is able
to reduce costs at each step in the CAD product design, production and assembly
process. The Company believes that its vertical integration of CAD and hardware
development results in better integration of software and film digitizer
components, lower production costs and reduced administrative overhead. These
factors have allowed iCAD to enhance its CAD product line, while reducing the
costs of the Company's CAD products to many customers and allowing more women to
realize the benefits inherent in the early detection of breast cancer.
The Company's CAD systems include proprietary software technology together with
standard computer and display equipment. CAD systems for the film-based
mammography market also include a radiographic film digitizer manufactured by
the Company. iCAD also manufactures medical film digitizers for a variety of
medical imaging and other applications. The Company believes that iCAD's
experience in providing film digitizers and software for medical picture
archiving and communications and telemedicine applications contributes to the
successful integration of the Company's CAD products into networked and digital
mammography environments.
QUARTER ENDED SEPTEMBER 30, 2004 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2003
AND NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2003
Sales. Sales of the Company's CAD and medical imaging products for the three and
nine month periods ended September 30, 2004 increased to $5,977,048 and
$17,040,515, respectively, compared with sales of CAD and medical imaging
products for the three and nine month periods ended September 30, 2003 of
$1,387,100 and $4,938,629. The sales increase during 2004 was due in large part
to contributions from acquired CADx products and sales channels, which are not
included in 2003 results. During the first nine months of 2004 iCAD concentrated
its distribution development efforts on SourceOne Healthcare, Inc. (CADx'
national distributor prior to iCAD's acquisition of CADx), and on selected
complementary independent resellers.
iCAD has identified the following factors as potentially contributing to
increased sales in future periods: (1) sales of early cancer detection products
for film-based mammography by and through additional resellers; (2) sales of
additional products, especially the Company's lower price Second Look 200 CAD
breast cancer detection system; (3) contribution from a fee per service program,
which the Company calls ClickCAD(TM), which the Company expects to begin
actively promoting in the fourth quarter of 2004, and (4) sales of cancer
detection products for digital mammography by and through additional OEM
channels previously announced by the Company.
9
Gross Margins. Gross margin increased in the three and nine month periods ended
September 30, 2004 to 73% and 70%, respectively, compared to 47% and 55% in the
comparable periods in 2003. The increase in gross margin is due primarily to
increases in sales of higher margin products for digital mammography. Although
there can be no assurance of its future gross margin rate, the Company expects
that continued sales of its higher margin CAD products and increasing production
economies and economies of scale resulting from the merger with CADx will
support gross margins at comparable levels to those experienced during the three
and nine month periods of 2004. The Company further believes that increasing
sales of products for digital mammography can contribute to increasing gross
margins over time because these products are primarily software in nature and
therefore, have lower cost than certain of the Company's prior products which
had higher cost hardware components.
Engineering and Product Development. Engineering and product development costs
for the three and nine month periods ended September 30, 2004 increased from
$619,762 and $1,813,560, respectively, in 2003 to $1,072,636 and $3,869,033 in
2004. The increase in engineering and product development costs results
primarily from the Company's addition, as a result of its acquisition of CADx,
of a software technology development group to support its CAD products and new
product development. The Company also redirected a portion of its research and
engineering resources to accelerate the delivery of new iCAD products, such as
applying iCAD's core CAD and clinical decision support technologies to
additional medical applications. Additionally, during the first quarter of 2004
the Company took action following its merger with CADx to reduce its workforce
and close its office and software development group located in Tampa, Florida.
In connection with these measures, the Company incurred approximately $280,000
in non-recurring engineering severance benefits and office closure expenses.
Over the remainder of 2004, the Company expects engineering and product
development costs to decline as a percentage of sales, as sales are expected to
increase at a greater rate than product development costs.
General and Administrative. General and administrative expenses in the three and
nine month periods ended September 30, 2004 decreased from $4,870,119 and
$6,370,414, respectively, in 2003 to $1,252,077 and 3,796,245 in 2004. The
decrease results primarily from one-time charges and non-recurring expenses
recorded in 2003. During the third quarter of 2003 the Company recorded a
one-time write off in the amount of $1,443,628 attributable to its distribution
agreement with Instrumentarium Imaging, Inc., ("Instrumentarium"), which it
assumed as part of the Company's acquisition of Intelligent Systems Software,
Inc. in June 2002. This write-off came after assessing the performance of
Instrumentarium and in light of the Company's implementation of alternative
distribution channels, thereby eliminating the distribution agreement as a
depreciating asset. Additionally, during the third quarter of 2003, the Company
accounted for over $2,702,000 in non-recurring expenses related to the
settlement of R2 Technology patent infringement litigation and legal expenses.
Excluding the 2003 write offs and non-recurring expenses, general and
administrative expenses increased in 2004 due to increases in salaries,
administrative costs and approximately $767,000 in amortization of intangible
assets, resulting from the Company's acquisition of CADx. Additional increases
in general and administrative expenses in the first quarter of 2004, reflects
approximately $50,000 in non-recurring severance benefits and other expenses
associated with reductions of staff made possible by the combination of CADx and
iCAD and a write-off of fixed assets relating to the closure of the iCAD office
in Tampa, Florida. The Company anticipates that general and administrative costs
will increase for the remainder of 2004, due to the increase in consulting cost
associated with the Company's compliance with Section 404 of the Sarbanes-Oxley
Act of 2002. The Company expects that overall general and administrative
expenses will decline as a percentage of sales, as sales are expected to
increase at a greater rate than general and administrative expenses.
10
Marketing and Sales Expenses. Marketing and sales expenses for the three and
nine month periods ended September 30, 2004 increased from $530,485 and
$1,077,189, respectively, in 2003 to $1,529,995 and $5,302,534 in 2004. The
increase in marketing and sales expenses results primarily from the Company's
addition, as a result of its acquisition of CADx, of sales, marketing and
service organizations to support its CAD products and distribution channels. The
Company took action following the merger to reduce its workforce, close its
office in San Rafael, California, and eliminate duplication in marketing and
other activities. The Company incurred approximately $200,000 in non-recurring
marketing and sales severance benefits and office closure expenses in the first
quarter of 2004. During the fourth quarter of 2004 the Company will incur
increased marketing and advertising expenses associated with trade show
participation and increased advertising of new and existing products. In
general, the Company expects marketing and sales expenses to decline as a
percentage of sales, as sales increase and as an increasing portion of its sales
represent products for digital mammography and for detection of lung and colon
cancer, are made through OEM channels. Such OEM sales do not require the level
of marketing, sales and support expenditures associated with sale of film based
mammography products through resellers and distributors.
Interest Expense. Net interest expense for the three and nine month periods
ended September 30, 2004 increased from $30,494 and $47,644, respectively, in
2003 to $138,503 and $451,116 in 2004. This increase is due primarily to the
addition, as a result of iCAD's acquisition of CADx, of a 36-month secured
promissory note in the amount of $4,500,000 to purchase CADx shares that were
owned by two institutional investors.
Net Income (Loss). As a result of the foregoing, the Company recorded net income
of $366,049 or $0.01 per share for the three month period ended September 30,
2004 on sales of $5,977,048 compared to a net loss of ($5,395,367) or ($0.20)
per share from the same period in 2003 on sales of $1,387,100. The net loss for
the nine months ended September 30, 2004 was ($1,486,894) or ($0.05) per share
on sales of $17,040,515 compared with a net loss of ($6,603,953) or ($0.25) per
share on sales of $4,938,629 for the nine months ended September 30, 2003. The
acquisition of CADx was accounted for as a purchase on December 31, 2003, and
accordingly, the operations of CADx are not included in the consolidated
financial statements for the three and nine month periods of 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to generate cash adequate to meet its requirements depends
primarily on operating cash flow and the availability of a $5,000,000 credit
line under the Loan Agreement with its Chairman, Mr. Robert Howard, of which
$1,370,000 was available at September 30, 2004. The Company's current operating
and financial projections and plans indicate that current liquidity and capital
resources are adequate to support current operations. If sales or cash
collections are reduced from current expectations, or if expenses and cash
requirements are increased, the Company may require additional financing.
Historically, the Company has secured additional cash through additional
extensions of credit by its Chairman.
11
At September 30, 2004 the Company had current assets of $8,599,129, current
liabilities of $6,259,395 and working capital of $2,339,734. The ratio of
current assets to current liabilities was 1.4:1
Net cash used for operating activities for the nine months ended September 30,
2004 was $2,634,292 compared to $3,193,144 for the same period in 2003. The cash
was used primarily to fund the net loss of $1,486,894 and changes in accounts
receivable, inventory and accounts payable. The net cash used in investing
activities for the nine months ended September 30, 2004 was $233,483 compared to
$236,809 for the same period in 2003. The cash used in investing activities
included the addition of $184,058 for tooling, computer equipment, and leasehold
improvements. Net cash provided by financing activities in the nine months ended
September 30, 2004 was $202,109 compared to $2,929,803 for the same period in
2003. The cash provided by financing activities in 2004 was due to the net
proceed of approximately $425,000 from the sale of 90,000 shares of the
Company's common stock for $5.00 per share upon the exercise of certain
investment rights that were granted to institutional investors in November 2003
in connection with the Company's private placement described below.
Additionally, approximately $635,000 was due to the issuance of common stock
relating to exercise of stock options, offset by $858,000 in payments of notes
payable.
In the fourth quarter of 2003, the Company sold 1,260,000 shares of its common
stock for $5.00 per share in a private placement to institutional investors. The
Company also issued to such investors' additional investment rights to purchase
up to an additional 315,000 shares of its common stock at $5.00 per share. The
net proceeds to the Company for the 1,260,000 shares sold were approximately
$5,919,000. A total of 90,000 shares of the Company's common stock were issued
in connection with the exercise of certain additional investment rights in the
first quarter of 2004. The remaining investment rights expired unexercised. The
net proceeds to the Company for the 90,000 shares sold were approximately
$425,000. Ladenburg Thalmann & Co. Inc. served as placement agent for these
transactions for which it received compensation in the amount of approximately
$404,000 and a five year warrant to purchase 67,200 shares of the Company's
common stock at $5.00 per share.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. 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 disclosure
controls and procedures as of the end of the period covered by this report.
Based on this evaluation, the principal executive officer and principal
financial officer concluded that the Company's disclosure controls and
procedures are effective in reaching a reasonable level of assurance that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time period specified in the Securities and
Exchange Commission's rules and forms.
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The principal executive officer and principal financial officer also conducted
an evaluation of internal control over financial reporting ("Internal Control")
to determine whether any changes in Internal Control occurred during the quarter
ended September 30, 2004 that have materially affected or which are reasonably
likely to materially affect Internal Control. Based on that evaluation, there
have been no such changes during the quarter ended September 30, 2004.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit No. Description
----------- -----------
10.1 Form of Option Agreement under the Company's 2001 Stock
Option Plan
10.2 Form of Option Agreement under the Company's 2002 Stock
Option Plan
10.3 Form of Option Agreement under the Company's 2004 Stock
Incentive Plan
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
iCAD, Inc.
------------
(Registrant)
Date: November 15, 2004 By: /s/ W. Scott Parr
--------------------------- -----------------------------------
W. Scott Parr
President, Chief Executive Officer,
Director
Date: November 15, 2004 By: /s/ Annette L. Heroux
--------------------------- -----------------------------------
Annette L. Heroux
Vice President of Finance,
Chief Financial Officer
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