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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
 
02-0377419
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
98 Spit Brook Road, Suite 100, Nashua, NH
 
03062
(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)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.01 par value
 
ICAD
 
The Nasdaq Stock Market LLC
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  ☒    NO  ☐.
Indicate by check mark whether the registrant has submitted electronically 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 such files).    YES  ☒    NO  ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, an emerging growth company or a smaller reporting 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
 
  
Accelerated filer
 
       
Non-accelerated
filer
 
  
Smaller reporting company
 
       
 
 
 
  
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 Exchange Act)    YES  ☐    NO  ☒.
As of the close of business on November 1, 2020, there were
 
22,993,102
shares outstanding of the registrant’s Common Stock, $0.01 par value.
 
 
 

Table of Contents
iCAD, Inc.
INDEX
 
 
 
 
  
Page
 
PART I
 
FINANCIAL INFORMATION
  
     
     
Item 1
 
  
     
     
 
 
  
 
3
 
     
 
 
  
 
4
 
     
 
 
  
 
5
 
     
 
 
  
 
6-7
 
     
 
 
  
 
8-35
 
     
Item 2
 
  
 
35-51
 
     
Item 3
 
  
 
52
 
     
Item 4
 
  
 
52
 
     
PART II
 
OTHER INFORMATION
  
     
     
Item 1
 
  
 
53
 
     
Item 1A
 
  
 
54
 
     
Item 6
 
  
 
56
 
     
 
 
  
 
57
 
 
2

Table of Contents
iCAD, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands except for share data)
 
    
September 30,
   
December 31,
 
Assets
  
2020
   
2019
 
Current assets:
    
Cash and cash equivalents
   $ 22,633     $ 15,313  
Trade accounts receivable, net of allowance for doubtful accounts of $216 in 2020 and $136 in 2019
     8,376       9,819  
Inventory, net
     3,146       2,611  
Prepaid expenses and other current assets
     1,662       1,453  
  
 
 
   
 
 
 
Total current assets
     35,817       29,196  
  
 
 
   
 
 
 
Property and equipment, net of accumulated depreciation of $6,716 in 2020 and $6,510 in 2019
     620       551  
Operating lease assets
     1,945       2,406  
Other assets
     101       50  
Intangible assets, net of accumulated amortization of $8,418 in 2020 and $8,186 in 2019
     962       1,183  
Goodwill
     8,362       8,362  
  
 
 
   
 
 
 
Total assets
   $ 47,807     $ 41,748  
  
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
            
Current liabilities:
    
Accounts payable
   $ 2,084     $ 1,990  
Accrued and other expenses
     4,679       6,590  
Notes payable - current portion
     994       4,250  
Lease payable - current portion
     822       758  
Deferred revenue
     5,644       5,248  
  
 
 
   
 
 
 
Total current liabilities
     14,223       18,836  
  
 
 
   
 
 
 
Lease payable, long-term portion
     1,287       1,837  
Notes payable, long-term portion
     6,729       2,003  
Convertible debentures payable to
non-related
parties, at fair value
     —         12,409  
Convertible debentures payable to related parties, at fair value
     —         1,233  
Deferred revenue, long-term portion
     219       356  
Deferred tax
     4       3  
  
 
 
   
 
 
 
Total liabilities
     22,462       36,677  
  
 
 
   
 
 
 
Commitments and Contingencies (Note 7)
   
Stockholders’ equity:
    
Preferred stock, $0.01 par value: authorized 1,000,000 shares; none issued.
     —         —    
Common stock, $
0.01
par value: authorized 30,000,000 shares; issued 23,155,482 as of
September
30, 2020
 
and 19,546,151 as of December 31, 2019. Outstanding 22,969,651 as of September 30, 2020 and 19,360,320
 
as of December 31, 2019.
     231       195  
Additional
paid-in
capital
     266,861       230,615  
Accumulated deficit
     (240,332     (224,324
Treasury stock at cost, 185,831 shares in 2020 and 2019
     (1,415     (1,415
  
 
 
   
 
 
 
Total stockholders’ equity
     25,345       5,071  
  
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 47,807     $ 41,748  
  
 
 
   
 
 
 
See accompanying notes to condensed consolidated financial statements.
 
3

Table of Contents
iCAD, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands except for per share data)
 
    
Three Months Ended 
September
 30,
   
Nine Months Ended September 30,
 
    
2020
   
2019
   
2020
   
2019
 
Revenue:
        
Products
   $ 4,538     $ 5,156     $ 11,220     $ 13,331  
Service and supplies
     2,591       2,701       8,027       8,628  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total revenue
     7,129       7,857       19,247       21,959  
Cost of revenue:
        
Products
     1,345       809       2,899       2,134  
Service and supplies
     667       891       2,169       2,466  
Amortization and depreciation
     92       103       287       297  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total cost of revenue
     2,104       1,803       5,355       4,897  
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
     5,025       6,054       13,892       17,062  
  
 
 
   
 
 
   
 
 
   
 
 
 
Operating expenses:
        
Engineering and product development
     1,849       2,485       5,938       6,751  
Marketing and sales
     2,979       3,588       9,218       9,281  
General and administrative
     1,834       1,872       6,476       5,276  
Amortization and depreciation
     52       69       153       206  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     6,714       8,014       21,785       21,514  
  
 
 
   
 
 
   
 
 
   
 
 
 
Loss from operations
     (1,689     (1,960     (7,893     (4,452
Interest expense
     (115     (193     (360     (604
Other income
     10       103       85       226  
Loss on extinguishment of debt
     —         —         (341     —    
Loss on fair value of convertible debentures
     —         (900     (7,464     (5,340
  
 
 
   
 
 
   
 
 
   
 
 
 
Other expense, net
     (105     (990     (8,080     (5,718
Loss before income tax expense
     (1,794     (2,950     (15,973     (10,170
  
 
 
   
 
 
   
 
 
   
 
 
 
Tax expense
     (3     (6     (34     (33
  
 
 
   
 
 
   
 
 
   
 
 
 
Net loss and comprehensive loss
   $ (1,797   $ (2,956   $ (16,007   $ (10,203
  
 
 
   
 
 
   
 
 
   
 
 
 
Net loss per share:
        
Basic
   $ (0.08   $ (0.15   $ (0.73   $ (0.57
  
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
   $ (0.08   $ (0.15   $ (0.73   $ (0.57
  
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average number of shares used in computing loss per share:
        
Basic
     23,173       19,284       21,827       18,049  
  
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
     23,173       19,284       21,827       18,049  
  
 
 
   
 
 
   
 
 
   
 
 
 
See accompanying notes to
 
condensed
consolidated
financial statements.
 
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Table of Contents
iCAD, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
  
For the Nine Months ended
September 30,
 
 
 
 
 
 
  
2020
 
 
2019
 
 
  
(in thousands)
 
Cash flow from operating activities:
    
Net loss
   $ (16,007   $ (10,203
Adjustments to reconcile net loss to net cash used for operating activities:
    
Amortization
 of Intangible Assets
     234       283  
Depreciation
     206       220  
Bad debt provision
     80       62  
Stock-based compensation
     2,542       856  
Amortization of debt discount and debt costs
     65       109  
Loss on extinguishment of debt
     341       —    
Deferred tax expense
     1       —    
Change in fair value of convertible debentures
     7,464       5,340  
Changes in operating assets and liabilities:
    
Accounts receivable
     1,151       (1,672
Inventory
     (535     (800
Prepaid and other current assets
     69       165  
Accounts payable
     96       101  
Accrued expenses
     (2,322     837  
Deferred revenue
     532       (70
  
 
 
   
 
 
 
Total adjustments
     9,924       5,431  
  
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
Net cash used for operating activities
     (6,083     (4,772
  
 
 
   
 
 
 
Cash flow from investing activities:
    
Additions to patents, technology and other
     (11     (8
Additions to property and equipment
     (275     (211
  
 
 
   
 
 
 
Net cash used for investing activities
     (286     (219
  
 
 
   
 
 
 
Cash flow from financing activities:
    
Issuance of common stock pursuant
to 
stock option plans
     415       1,396  
Issuance of common stock pursuant
to 
Employee Stock Purchase Plan
     209       —    
Taxes paid related to restricted stock issuance
     (225     (106
Principal payments of capital lease obligations
     —         (10
Principal repayment of debt financing
     (4,638     (1,400
Proceeds from Line of Credit
     775       1,000  
Repayment
to
Line 
of 
Credit
     (2,000     —    
Proceeds from debt financing
     6,957       —    
Debt issuance costs
     22       —    
Proceeds from issuance of common stock, net
     12,174       9,353  
  
 
 
   
 
 
 
Net cash provided by financing activities
     13,689       10,233  
  
 
 
   
 
 
 
Increase
in cash and equivalents
     7,320       5,242  
Cash and cash equivalents, beginning of period
     15,313       12,185  
  
 
 
   
 
 
 
Cash and cash equivalents, end of period
   $ 22,633     $ 17,427  
  
 
 
   
 
 
 
Supplemental disclosure of cash flow information:
    
Interest paid
   $ 127     $ 404  
  
 
 
   
 
 
 
Taxes paid
   $ 34     $ 33  
  
 
 
   
 
 
 
Issuance of stock upon conversion of debentures
     21,164       —    
  
 
 
   
 
 
 
Right-of-use
assets obtained in exchange for new operating lease liabilities
   $ 69     $ 2,641  
  
 
 
   
 
 
 
See accompanying notes to condensed consolidated financial statements.
 
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Table of Contents
Consolidated Statements of Stockholders’ Equity Year to Date
(In thousands except shares)
 
    
Common Stock
    
Additional

Paid-in

Capital
   
Accumulated

Deficit
   
Treasury

Stock
   
Stockholders’

Equity
 
    
Number of

Shares Issued
    
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
     97,830        —          (225         (225
Issuance of common stock pursuant to stock option plans
     94,678        1        416       —         —         417  
Stock Issuance Net
     1,562,500        16        12,158       —         —         12,174  
Issuance of common stock pursuant Employee Stock Purchase Plan
     34,857           209           209  
Issuance of stock upon conversion of Debentures
     1,819,466        18        21,146       —         —         21,164  
Stock-based compensation
     —       
—  
 
     2,542           2,542  
Net loss
     —       
—  
 
  
—  
 
    (16,007  
—  
 
    (16,007
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2020
     23,155,482      $ 231      $ 266,861     $ (240,332   $ (1,415   $ 25,345  
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Consolidated Statements of Stockholders’ Equity Quarter to Date
(In thousands except shares)
 
    
Common Stock
    
Additional

Paid-in

Capital
   
Accumulated

Deficit
   
Treasury

Stock
   
Stockholders’

Equity
 
    
Number of

Shares Issued
    
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2020
     23,060,272     
$
231     
$
266,211    
$
(238,535  
$
(1,415   $ 26,492  
Issuance of common stock relative to vesting of restricted stock
     29,106        —          (94     —         —         (94
Issuance of common stock pursuant to stock option plans
     49,712        —          185       —         —         185  
Stock Issuance Net
  
—  
 
     —        —       —         —         —    
Issuance of common stock pursuant Employee Stock Purchase Plan
     16,392      —        94     —     —       94  
Issuance of stock upon conversion of Debentures
     —          —          —         —         —         —    
Stock-based compensation
     —       
—  
 
     465    
—  
 
 
—  
 
    465  
Net loss
     —          —          —         (1,797     —         (1,797
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2020
     23,155,482      $ 231      $ 266,861     $ (240,332   $ (1,415   $ 25,345  
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
 
6

Table of Contents
iCAD, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity Year to Date
(In thousands except shares)
 
    
Common Stock
    
Additional

Paid-in

Capital
   
Accumulated

Deficit
   
Treasury

Stock
   
Stockholders’

Equity
 
    
Number of

Shares Issued
    
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 shares forfeited for tax obligations
     122,993        1        (106     —         —         (106
Issuance of common stock pursuant to stock option plans
     428,980        4        1,392       —         —         1,396  
Stock Issuance net of issuance costs
     1,881,818        19        9,334           9,353  
Stock-based compensation
     —          —          856       —         —         856  
Net loss
     —          —          —         (10,203     —         (10,203
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2019
     19,500,301      $ 195      $ 230,390     $ (220,977   $ (1,415   $ 8,192  
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Consolidated Statements of Stockholders’ Equity Quarter to Date
(In thousands except shares)
 
    
Common Stock
    
Additional

Paid-in

Capital
   
Accumulated

Deficit
   
Treasury

Stock
   
Stockholders’

Equity
 
    
Number of

Shares Issued
    
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2019
     19,447,763      $ 194      $ 230,141     $ (218,021   $ (1,415   $ 10,899  
Issuance of common stock relative to vesting of restricted stock shares forfeited for tax obligations
     51,871        1        (91     —         —         (91
Issuance of common stock pursuant to stock option plans
     667        —          —         —         —         —    
Stock-based compensation
           340           340  
Net loss
     —          —          —         (2,956  
—  
 
    (2,956
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at September 30, 2019
     19,500,301      $ 195      $ 230,390     $ (220,977   $ (1,415   $ 8,192  
 
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Table of Contents
Notes to Condensed Consolidated Financial Statements:
Note 1 – Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of iCAD, Inc. and subsidiaries (“iCAD” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). In the opinion of management, these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company at September 30, 2020, the results of operations of the Company for the three and nine-month periods ended September 30, 2020 and 2019, cash flows of the Company for the nine-month periods ended September 30, 2020 and 2019 and stockholders’ equity for the Company for the three and nine-month periods ended September 30, 2020 and 2019.
Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information normally included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10
-
K for the fiscal year ended December 31, 2019 filed with the SEC on March 11, 2020. The results for the three and nine-month periods ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020, or any future period.
Segments
The Company reports the results of two segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). The Detection segment consists of advanced image analysis and workflow products. The Therapy segment consists of radiation therapy (“Axxent”) products.
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.
 
8

Table of Contents
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 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 impact of the
COVID-19
pandemic is also relevant to the covenants contained in the Company’s loan and security agreement
, as amended (the “Loan Agreement”),
with Western Alliance Bank (the “Bank”), as described in Note 4(
a). The Loan Agreement
requires the Company to satisfy
a
minimum revenue covenant or maintain a ratio of (x) unrestricted cash at the Bank to (y) the aggregate total of indebtedness owed to the Bank, equal to or greater than
1.25
to
1.00
.
If at any point the Company is not in compliance with at least one of these and certain other 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 result in acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date. However, the Company believes that even if an event of default were to occur, the Company’s current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand of
$
22.6
 million and anticipated revenue and cash collections.
 
However, the resurgence of the
COVID-19
pandemic could affect our liquidity.
The Company’s results for the quarter ending September 30, 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 the Company does not provide guidance to investors relating to its future results of operations, its results for the quarter ending December 31, 2020, and possibly 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 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 quarter ended September 30, 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.
Recently Adopted Accounting Pronouncements
There are no significant recently adopted accounting pronouncements. For a full list of the Company’s response to all relevant recent accounting pronouncements, please refer to Note 13 below.
 
9

Table of Contents
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration 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.
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).
 
    
Three months ended September 30, 2020
 
 
 
 
Reportable Segments
 
 
 
 
    
Detection
    
Therapy
    
Total
 
Major Goods/Service Lines
        
Products
   $ 3,889      $ 1,038      $ 4,927  
Service contracts
     1,400        347        1,747  
Supply and source usage agreements
     —          444        444  
Professional services
     —          9        9  
Other
     2        —          2  
  
 
 
    
 
 
    
 
 
 
   $ 5,291      $ 1,838      $ 7,129  
  
 
 
    
 
 
    
 
 
 
Timing of Revenue Recognition
        
Goods transferred at a point in time
   $ 3,889      $ 1,051      $ 4,940  
Services transferred over time
     1,402        787        2,189  
  
 
 
    
 
 
    
 
 
 
   $ 5,291      $ 1,838      $ 7,129  
  
 
 
    
 
 
    
 
 
 
Sales Channels
        
Direct sales force
   $ 2,904      $ 857      $ 3,761  
OEM partners
     2,387        —          2,387  
Channel partners
     —          981        981  
  
 
 
    
 
 
    
 
 
 
   $ 5,291      $ 1,838      $ 7,129  
  
 
 
    
 
 
    
 
 
 
 
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Table of Contents
    
Nine months ended September 30, 2020
 
    
Reportable Segments
        
    
Detection
    
Therapy
    
Total
 
Major Goods/Service Lines
        
Products
   $ 9,690      $ 2,959      $ 12,649  
Service contracts
     4,151        1,079        5,230  
Supply and source usage agreements
     —          1,305        1,305  
Professional services
     —          20        20  
Other
     43        —          43  
  
 
 
    
 
 
    
 
 
 
   $ 13,884      $ 5,363      $ 19,247  
  
 
 
    
 
 
    
 
 
 
Timing of Revenue Recognition
        
Goods transferred at a point in time
   $ 9,731      $ 3,039      $ 12,770  
Services transferred over time
     4,153        2,324        6,477  
  
 
 
    
 
 
    
 
 
 
   $ 13,884      $ 5,363      $ 19,247  
  
 
 
    
 
 
    
 
 
 
Sales Channels
        
Direct sales force
   $ 7,785      $ 3,131      $ 10,916  
OEM partners
     6,099        —          6,099  
Channel partners
     —          2,232        2,232  
  
 
 
    
 
 
    
 
 
 
   $ 13,884      $ 5,363      $ 19,247  
  
 
 
    
 
 
    
 
 
 
 
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Table of Contents
    
Three months ended September 30, 2019
 
    
Reportable Segments
        
    
Detection
    
Therapy
    
Total
 
Major Goods/Service Lines
 
     
Products
   $ 4,749      $ 841      $ 5,590  
Service contracts
     1,336        446        1,782  
Supply and source usage agreements
     —          465        465  
Professional services
     —          18        18  
Other
     2        —          2  
  
 
 
    
 
 
    
 
 
 
   $ 6,087      $ 1,770      $ 7,857  
  
 
 
    
 
 
    
 
 
 
Timing of Revenue Recognition
 
     
Goods transferred at a point in time
   $ 4,749      $ 892      $ 5,641  
Services transferred over time
     1,338        878        2,216  
  
 
 
    
 
 
    
 
 
 
   $ 6,087      $ 1,770      $ 7,857  
  
 
 
    
 
 
    
 
 
 
Sales Channels
 
     
Direct sales force
   $ 3,467      $ 1,280      $ 4,747  
OEM partners
     2,620        —          2,620  
Channel partners
     —          490        490  
  
 
 
    
 
 
    
 
 
 
   $ 6,087      $ 1,770      $ 7,857  
  
 
 
    
 
 
    
 
 
 
 
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Nine months ended September 30, 2019
 
    
Reportable Segments
        
    
Detection
    
Therapy
    
Total
 
Major Goods/Service Lines
        
Products
   $ 11,347      $ 3,410      $ 14,757  
Service contracts
     4,012        1,437        5,449  
Supply and source usage agreements
     —          1,528        1,528  
Professional services
     —          59        59  
Other
     105        61        166  
  
 
 
    
 
 
    
 
 
 
   $ 15,464      $ 6,495      $ 21,959  
  
 
 
    
 
 
    
 
 
 
Timing of Revenue Recognition
        
Goods transferred at a point in time
   $ 11,347      $ 3,668      $ 15,015  
Services transferred over time
     4,117        2,827        6,944  
  
 
 
    
 
 
    
 
 
 
   $ 15,464      $ 6,495      $ 21,959  
  
 
 
    
 
 
    
 
 
 
Sales Channels
        
Direct sales force
   $ 8,441      $ 4,793      $ 13,234  
OEM partners
     7,023        —          7,023  
Channel partners
     —          1,702        1,702  
  
 
 
    
 
 
    
 
 
 
   $ 15,464      $ 6,495      $ 21,959  
    
 
 
    
 
 
    
 
 
 
Products.
Product revenue consists of sales of cancer detection products, cancer therapy systems, cancer therapy applicators (including disposable applicators) and other accessories that are typically shipped 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 it provides professional services
,
including product installations, maintenance, training, and service repairs, and in certain cases leases equipment, to hospitals, imaging centers, radiology practices, radiation oncologists and treatment centers. These
 contracts
represent separate performance obligations to the Company. The Company allocates revenue to each performance obligation based on the Standalone Selling Price (“SSP”). Revenue for lease and
non-lease
components, or the entire arrangement when accounted for under ASC 606,
“Revenue from Contracts with Customers” (“ASC 606”),
is recognized on a straight-line basis over the term of the agreement. 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.
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 usage agreement.
 
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These agreements represent a separate performance obligation to the Company. The Company allocates revenue to each performance obligation based on the SSP.
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 product is shipped from the manufacturing or warehousing facility to the customer
or the installation services are performed
.
Contract Balances
Contract liabilities are a component of deferred revenue, and contract assets are a component of prepaid and other current assets. The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers (in thousands).
 
Contract balances
        
    
Balance at

September 30, 2020
 
Receivables, which are included in “Trade accounts receivable”
   $ 8,376  
Contract assets, which are included in “Prepaid and other current assets”
     7  
Contract liabilities, which are included in “Deferred revenue”
     5,863  
Timing of revenue recognition may differ from timing of invoicing
of
customers. The Company records a receivable when revenue is recognized prior to receipt of cash payment 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’s accounts receivable from contracts with customers, net of allowance for doubtful accounts, was $8.4 million and $9.8 million as of September 30, 2020 and December 31, 2019, respectively.
The Company will record a contract asset for unbilled revenue when the Company’s performance is in excess of amounts billed or billable. The Company has classified the contract asset balance as a component of prepaid expenses and other current assets as of September 30, 2020 and December 31, 2019. The contract asset balance was $7,000 as of September 30, 2020 and $14,000 as of December 31, 2019.
Deferred revenue from contracts with customers, which is included in deferred revenue in the consolidated balance sheet, is primarily composed of fees related to 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 we have been paid in advance and earn the revenue when we transfer control of the product or service.
 
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The balance of deferred revenue at September 30, 2020 and December 31, 2019 is as follows (in thousands):
 
Contract liabilities
  
September 30, 2020
    
December 31, 2019
 
Short term
   $ 5,644      $ 5,248  
Long term
     219        356  
  
 
 
    
 
 
 
Total
   $ 5,863      $ 5,604  
 
 
 
 
 
 
 
 
 
Changes in deferred revenue from contracts with customers were as follows (in thousands):
 
    
Nine Months
 
Ended
September 30,
 
2020
 
Balance at beginning of period
   $ 5,604  
Deferral of revenue
     8,092  
Recognition of deferred revenue
     (7,833
  
 
 
 
Balance at end of period
   $ 5,863  
  
 
 
 
We expect to recognize approximately $3.2 million of the deferred
amount
in 2020, $2.5 million in 2021, and $0.2 million thereafter.
Note 2 – Net Loss per Common Share
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.
 
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Table of Contents
A summary of the Company’s calculation of net loss per share is as follows (in thousands except per share amounts):
 
    
Three Months Ended
    
Nine Months Ended
 
    
September 30,
    
September 30,
 
 
  
2020
 
  
2019
 
  
2020
 
  
2019
 
Net loss
  
$
(1,797
  
$
(2,956
  
$
(16,007
  
$
(10,203
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Shares used in the calculation of basic and diluted net loss per share
  
 
23,173
 
  
 
19,284
 
  
 
21,827
 
  
 
18,049
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Diluted shares used in the calculation of net loss per share
  
 
23,173
 
  
 
19,284
 
  
 
21,827
 
  
 
18,049
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Net loss per share - basic and dilute
d
  
$
(0.08
  
$
(0.15
  
$
(0.73
  
$
(0.57
  
 
 
    
 
 
    
 
 
    
 
 
 
The shares of the Company’s common stock issuable upo
n
 the exercise of convertible securities, stock options and vesting of restricted stock that were excluded from the calculation of dilute
d
 net loss per share because their effect would have been antidilutive are as follows:
 
    
As of September 30,
 
    
2020
    
2019
 
Stock options
     1,971,704        1,509,292  
Restricted stock
     29,166        191,909  
Convertible Debentures
     —          1,742,500  
  
 
 
    
 
 
 
Total
     2,000,870        3,443,701  
  
 
 
    
 
 
 
Note 3 – 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.
Inventory
 
consisted of the following (in thousands) and
includes
 
an inventory reserve of approximately $0.2 million and $0.5 million as of September 30, 2020 and December 31, 2019, respectively.
 
    
As of September 30,
2020
    
As of December 31,
2019
 
Raw materials
   $ 1,422      $ 1,572  
Work in process
     324        39  
Finished Goods
     1,629        1,469  
  
 
 
    
 
 
 
Inventory Gross
     3,375        3,080  
Inventory Reserve
     (229      (469
  
 
 
    
 
 
 
Inventory Net
   $ 3,146      $ 2,611  
  
 
 
    
 
 
 
 
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Note 4 – 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 September 30, 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.
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 September 1, 2021 (or March 1, 2022 if the Company achieves a specified revenue target for any trailing
six-month
period prior to December 31, 2020) 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 September 30, 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.
 
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The Company drew $
775,000
against its revolving line of credit as of September 30, 2020. The interest rate on such borrowings is three quarters-percent
(0.75%) above the Prime Rate
as defined above or
4.0
%. The Company paid back this borrowing on October 5, 2020.
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.
(b) Loan and Security Agreement – Silicon Valley Bank
On August 7, 2017, the Company entered into a Loan and Security Agreement, which has since been 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 $185,000 for the unaccrued final payment, $114,000 termination fee, and $42,000
of
unamortized and other closing costs.
(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,
 
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Table of Contents
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 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 stoc
k
 that were issued to the Investors upon conversion and the fair value of the Company’s common stock as of the Conversion Date.
 
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Table of Contents
The Company notes that the key inputs to the valuation models that were utilized to estimate the fair value of the Convertible Debentures included:
 
     Input
  
December 31, 2019
   
February 21, 2020
 
Company’s stock price
   $ 7.77     $ 11.64  
Conversion price
     4.00       4.00  
Remaining term (years)
     1.97       0.00  
Equity volatility
     49.00     N/A  
Risk free rate
     1.57     N/A  
1  
Probabilty of default event
     0.45     N/A  
1  
Utilization of Forced Conversion (if available)
     100.00     100.00
1  
Exercise of Default Redemption (if available)
     100.00     N/A  
1  
Effective discount rate
     18.52     N/A  
 
1  
Represents a Level 3 unobservable input, as defined in Note 8 - Fair Value Measurements, below.
  
 
The Company’s stock price was based on the closing stock price on the valuation date. The conversion price was 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, or remaining term under the expectation of the Company’s election of its forced conversion right.
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 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
1-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 was 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 valuation date was based on yields on
CCC-rated
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.
 
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Table of Contents
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
   $ 13,642      $ 21,164  
Principal value outstanding
   $ 6,970      $ 6,970  
The Company recorded a loss from the change in fair value of the Convertible Debentures of approximately $7.5 million for period through the
C
onversion
D
ate 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 Payments Related to Financing Arrangements
Future principal, interest payments, and final payment related to the Loan Agreement are as follows (in thousands):
 
 
 
 
Fiscal Year
 
 
  
Amount Due
 
2020
   $ 94  
2021
     1,238  
2022
     2,875  
2023
     2,735  
2024
     1,003  
  
 
 
 
Total
   $ 7,945  
  
 
 
 
The following amounts are included in interest expense in
the Company’
s
 
consolidated
statement of operations for the three and nine months ended September 30, 2020 and 2019 (in thousands):
 
    
Three Months Ended
    
Nine Months Ended
 
    
September 30,
    
September 30,
 
    
2020
    
2019
    
2020
    
2019
 
Cash interest expense
   $ 94      $ 65      $ 232      $ 222  
Interest on convertible debentures
               87        49        261  
Accrual of notes payable final payment
     8        34        47        98  
Amortization of debt costs
     13        7        32        21  
Interest expense capital lease
                                   2  
  
 
 
    
 
 
    
 
 
    
 
 
 
Total interest expense
   $ 115      $ 193      $ 360      $ 604  
  
 
 
    
 
 
    
 
 
    
 
 
 
 
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Table of Contents
Note 5 – Le
ase Commitments
Under ASC 842, “Leases” (“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 leases or financing leases. 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 uses its incremental borrowing rate to determine the present value of the lease payments. The Company determines the incremental borrowing rates for its leases by applying its applicable, fully collateralized borrowing rate, with adjustment as appropriate for the 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 considers a number of factors when evaluating whether the options in its lease contracts are 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 accounted for the complete agreement under ASC 606 upon adoption of ASC 842.
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 two lease modifications which are reflected in the table below showing the maturity of the Company’s lease liabilities as of September 30, 2020. This includes an extension of an operating lease for the facility leased by the Company in San Jose, California as well as some equipment. In addition, there were no impairment indicators identified during the quarter ended September 30, 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 “Property Plant and Equipment” (“ASC 360”).
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 its accounting of lease components and
non-lease
components for real estate and equipment leases.
 
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Table of Contents
Components of Le
a
ses:
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
t
hree
 months as of September 30, 2020.
The components of lease expense for the period are as follows (in thousands):
 
Lease Cost
  
Classification
  
Three Months Ended
September 30, 2020
    
Year Ended
December 31, 2019
 
Operating lease cost
   Operating expenses    $ 217  
 
$
804
 
Finance lease costs
     
Amortization of leased assets
  
Amortization and depreciation
     4  
 
 
15
 
Interest on lease liabilities
   Interest expense          
 
 
2
 
         
 
 
    
 
 
 
Total
      $ 221  
 
$
821
 
         
 
 
    
 
 
 
Other information related to le
a
ses was as
follows
(in thousands)
 
     
Three Months Ended
September 30, 2020
 
Cash paid from operating cash flows for operating leases
   $ 229  
Cash paid from operating cash flows for finance leases
         
Cash paid from financing cash flows for finance leases
     4  
   
     
As of 
September
 30, 2020
 
Weighted-average remaining lease term of operating leases (in years)
     2.45  
Weighted-average remaining lease term of finance leases (in years)
     —    
Weighted-average discount rate for operating leases
     5.6
Weighted-average discount rate for finance leases
         
 
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Table of Contents
Maturity of the Company’s lease liabilities as of September 30, 2020 was as follows (in thousands):
 
As of September 30, 2020:
  
Operating
Leases
    
Finance
Leases
    
Total
 
2020
   $ 228        —          228  
2021
     920        —          920  
2022
     899        —          899  
2023
     211        —          211  
2024
     5        —          5  
  
 
 
    
 
 
    
 
 
 
Total lease payments
     2,263        —          2,263  
Less: imputed interest
     (154      —          (154
  
 
 
    
 
 
    
 
 
 
Total lease liabilities
     2,109        —          2,109  
Less: current portion of lease liabilities
     (822      —          (822
  
 
 
    
 
 
    
 
 
 
Long-term lease liabilities
   $ 1,287      $ —        $
 
1,287  
  
 
 
    
 
 
    
 
 
 
Note 6 – Stock-Based Compensation
The Company granted options to purchase 17,029 and 540,886 shares of the Company’s stock during the three and nine months ended September 30, 2020, respectively. Options granted under the Company’s stock incentive plans were valued utilizing the Black-Scholes model using the following assumptions and had the following fair values:
 
    
  Three Months Ended  
  
  Nine Months Ended  
    
September 30,
  
September 30,
    
       
 
    
 
  2020  
 
   
 
        
  
        
 
    
 
 20
19
  
 
   
 
        
  
          
 
   2020  
 
           
  
     
 
 
 
       20
19
 
 
  
 
          
Average risk-free interest
rate
   0.15%    1.60%    0.79%    1.99%
Expected dividend yield
   None    None    None    None
Expected life
   3.5 years    3.5 years    3.5 years    3.5 years
Expected volatility
   66.0% to 66.0%    51.04% to 51.37%    50.2 to 65.7%    51.04% to 54.23%
Weighted average exercise price
   $8.84    $6.78    $10.08    $5.69
Weighted average fair value
   $4.11    $2.63    $4.34    $2.26
The Company’s stock-based compensation expense, including options and restricted stock by category is as follows (in thousands):
 
    
Three Months Ended
    
Nine Months Ended
 
    
September 30,
    
September 30,
 
    
        
 
     2020   
 
          
    
     
 
     
 
 
   20
19
 
 
 
 
  
 
          
    
        
 
   2020            
    
 
 
 
 
 
    
 
 
 
 
    2019
 
 
 
 
 
 
 
 
 
      
 
Cost of revenue
   $ 3      $ 1      $ 28      $ 2  
Engineering and product development
     64        62        406        182  
Marketing and sales
     61        62        608        178  
General and administrative
     337        215        1,500        494  
  
 
 
    
 
 
    
 
 
    
 
 
 
   $ 465      $ 340      $ 2,542      $ 856  
  
 
 
    
 
 
    
 
 
    
 
 
 
 
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As of September 30, 2020, unrecognized compensation cost (in thousands) related to unvested options and unvested restricted stock and the weighted average term of such equity instruments is as follows:
 
Remaining expense
   $ 1,060  
Weighted average term
     1.0  
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 the grant
date.
The Company granted 0 and 14,000 shares of restricted stock during the nine-month periods ended September 30, 2020 and 2019, respectively.
The Company’s aggregate intrinsic value for stock options and restricted stock outstanding is as follows (in thousands):
 
    
As of
 
    
September 30,
 
Aggregate intrinsic value
  
2020
    
2019
 
Stock options
   $ 6,679      $ 4,154  
Restricted stock
     257        1,315  
The Company issued 49,712 and 94,678 shares of common stock upon the exercise of
outstanding
stock options in the three and nine-month periods ended September 30, 2020, respectively. The Company received cash proceeds of approximately $185,000 and $417,000 in the three and nine-month periods ended September 30, 2020, respectively. The intrinsic value of restricted shares that vested in the nine months ended September 30, 2020 was $0.6 million. 38,160 restricted shares vested in the three months ended September 30, 2020 while another 3,666 were cancelled.
Employee Stock Purchase Plan
In December 2019, the 2019 Empl
o
ye
e
 Stock Purchase Plan (“ESPP”) was adopted by the Company’s Board of Directors (the “Board”) and approved by stockholders, effective January 1, 2020.
The ESPP provides for the issuance of up to 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 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 participate in the ESPP.
 
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Any eligible employee can enroll in the ESPP 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 16,392 and 34,857 shares under the ESPP in the three and nine-month periods ended September 30, 2020, respectively. The Company recorded approximately $19,000 and $84,000 of stock-based compensation expense pursuant to ESPP for the three and nine-month periods ended September 30, 2020, respectively. The third accumulation period under the ESPP commenced on July 1, 2020 and
ended
on September 30,
 
2020, and the related shares purcha
s
ed by the participants were issued in October 2020. As of September 30, 2020, the Company recorded a liability of $
58,000
related to employee withholdings in connection with the ESPP accumulation period ended September 30, 2020, which was included as a component of accrued expenses and other current liabilities.
Note 7 – Commitments and Contingencies
Foreign Tax Claim
In July 2007, a dissolved former Canadian subsidiary of the Company, CADx Medical Systems Inc. (“CADx Medical”), received a tax
re-assessment
of approximately $6,800,000 from the Canada Revenue Agency (“CRA”) resulting from the CRA’s audit of CADx Medical’s Canadian federal tax return for the year ended December 31, 2002. In February 2010, the CRA reviewed the matter and reduced the tax
re-assessment
to approximately $703,000, excluding interest and penalties.
The CRA had the right to pursue the matter until July 2020 and did not do so, and accordingly no accrual has been recorded for this matter as of September 30, 2020.
Other Commitments
The Company is obligated to pay approximately $4.2 million for firm purchase obligations to suppliers for future product and service deliverables.
Litigation
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
pr
o
ceeds
of approximately $
2.9
 million.
 
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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.
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 a 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.
 
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Note 8 - Fair Value Measurements
Fair value is defined 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 must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting 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 financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and 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, which were measured at fair value in accordance with the fair value option election) approximated fair value as of February 21, 2020 and December 31, 2019.
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.
The money market accounts are included in cash and cash equivalents in the accompanying consolidated balance sheet and are considered a Level 1 measurement as they are valued at quoted market prices in active markets.
The Convertible Debentures were recorded as a separate component of the Company’s consolidated balance sheet and are considered a Level 3 measurement due to the utilization of significant unobservable inputs in their valuation. See Note 4(b) 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).
 
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Fair Value Measurements (in thousands) as of December 31, 2019
 
    
Level 1
    
Level 2
    
Level 3
    
Total
 
Assets
           
Money market accounts
   $ 15,313      $
      
—  
     $ —        $ 15,313  
  
 
 
    
 
 
    
 
 
    
 
 
 
Total Assets
   $ 15,313      $ —        $ —        $ 15,313  
  
 
 
    
 
 
    
 
 
    
 
 
 
Liabilities
           
Convertible debentures
   $ —        $ —        $ 13,642      $ 13,642  
  
 
 
    
 
 
    
 
 
    
 
 
 
Total Liabilities
   $ —        $ —        $ 13,642      $ 13,642  
  
 
 
    
 
 
    
 
 
    
 
 
 
 
Fair Value Measurements as of September 30, 2020
    
Level 1
    
Level 2
    
Level 3
    
Total
 
Assets
           
Money market accounts
   $ 22,633      $
      
—  
     $
      
—  
     $ 22,633  
  
 
 
    
 
 
    
 
 
    
 
 
 
Total Assets
   $ 22,633      $ —        $ —        $ 22,633  
  
 
 
    
 
 
    
 
 
    
 
 
 
The following sets forth a reconciliation of the changes in the fair value of the Convertible Debentures that were converted to equity during the nine months ended September 30, 2020 (in thousands):
 
    
Convertible Debentures
 
Balance, December 31, 2019
   $ 13,642  
Fair value adjustments
     7,522  
Conversion
     (21,164
  
 
 
 
Balance as of September 30, 2020
   $ —    
  
 
 
 
Note 9 - Income Taxes
The Coronavirus Aid, Relief, and Economic
 
Security
Act was enacted on March 27, 2020 and did not have a material impact on the Company’s provision for income taxes for the three and nine months ended September 30, 2020.
The Company recorded an income tax provision of $3,000 and $34,000 for the three and nine months ended September 30, 2020, respectively, and $6,000 and $33,000 for the three and
 nine months ended September 30, 2019, respectively. The Company had no material unrecognized tax benefits and a deferred tax liability of approximately $4,000 related to tax amortizable goodwill.
No other adjustments were required under ASC 740, “Income Taxes.” The Company does not expect that its unrecognized tax benefits will materially increase within the next 12 months. The Company did not recognize any interest or penalties related to uncertain tax positions at September 30, 2020.
 
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The Company files United States federal income tax returns and income tax returns in various states and local jurisdictions. The Company’s three preceding tax years remain subject to examination by federal and state tax authorities. In addition, because the Company has net operating loss carry-forwards, the Internal Revenue Service and state jurisdictions are permitted to audit earlier years and propose adjustments up to the amount of net operating loss generated in those years. The Company is not currently under examination by any federal or state jurisdiction for any tax years.
Note 10 - Goodwill
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 its carrying value.
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 considered the goodwill impairment factors due to the uncertainty around the continuing impact of the
COVID-19
pandemic on the Company’s operations and on the global economy as a whole. Under this consideration the Company performed scenario testing as of March 31, 2020 updating the projections to the most recent impairment analysis performed as of October 1, 2019. The Company compared the scenario test again against current forecasts as of September 30, 2020 and concluded that it did not have a triggering event or impairment indicators in the quarter ended September 30, 2020.
The Company would record an impairment charge when such assessment indicates that the fair value of a reporting unit is 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.
 
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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 based on its 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 of its reporting units and in the Company’s 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 in similar 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 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 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. 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.
The Company has two operating segments, Detection and Therapy, as further discussed in Note 12 below.
 
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Table of Contents
A rollforward of goodwill activity by reportable segment is as follows (in thousands):
 
 
  
Consolidated
reporting unit
 
  
Detection
 
  
Therapy
 
  
Total
 
Accumulated Goodwill
  
$
 
47,937      $ —        $ —       
$
47,937  
Accumulated impairment
  
 
(26,828
  
 
—  
 
  
 
—  
 
  
 
(26,828
Fair value allocation
     (21,109      7,663        13,446        —    
Acquisition of DermEbx and Radion
     —          —          6,154        6,154  
Acquisition measurement period adjustments
     —          —          116        116  
Acquisition of VuComp
     —          1,093        —          1,093  
Sale of MRI assets
     —          (394         (394
Impairment
     —          —          (19,716      (19,716
  
 
 
    
 
 
    
 
 
    
 
 
 
Prior to December 31, 2019
            8,362        —          8,362  
  
 
 
    
 
 
    
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2020
   $      $ 8,362      $ —        $ 8,362  
  
 
 
    
 
 
    
 
 
    
 
 
 
 
Note 11 – Long-lived assets
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 its carrying value.
There is no set interval or frequency for recoverability evaluation. Rather, the determination of when, if at all, an asset (or asset group) is evaluated for recoverability is based on “events and circumstances.” The following factors are examples of events or changes in circumstances that indicate the carrying amount of an asset (or 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 (or asset group);
 
 
 
A significant adverse change in the extent or manner in which a long-lived asset (or 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 (or 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 (or asset group); and
 
 
 
A current operating period, 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 (or asset group).
The Company determined there were no such triggering events in the quarter ended September 30, 2020.
If the carrying amount of an asset or asset group (in use or under development) is evaluated and found not to be fully recoverable (e.g., the carrying amount exceeds the estimated gross, undiscounted cash flows from use and disposition), then an
 
impairment
loss must
 
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be recognized. The impairment loss is measured as the excess of the carrying amount over the fair value of the asset (or asset group). The Company determined the “Asset Group” of the Company to be the assets of the Therapy segment and the Detection segment, which the Company considers to be the lowest level for which the identifiable cash flows were largely independent of the cash flows of other assets and liabilities.
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 that its 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.
Note 12 – Segment Reporting
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, “Axxent,” and related services. The primary factors used by the Company’s CODM to allocate resources are based on revenues, gross profit, operating income, 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.
The Company does not track assets by operating segment and the Company’s 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 US GAAP loss before income tax is as follows (in thousands):
 
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     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2020      2019      2020      2019  
Segment revenues:
           
         
Detection
   $ 5,291      $ 6,087      $ 13,885      $ 15,464  
Therapy
     1,838        1,770        5,362        6,495  
  
 
 
    
 
 
    
 
 
    
 
 
 
Total Revenue
   $ 7,129      $ 7,857      $ 19,247      $ 21,959  
  
 
 
    
 
 
    
 
 
    
 
 
 
         
Segment gross profit:
           
         
Detection
   $ 4,227      $ 5,051      $ 11,227      $ 12,874  
Therapy
     798        1,003        2,665      $ 4,188  
  
 
 
    
 
 
    
 
 
    
 
 
 
Segment gross profit
   $ 5,025      $ 6,054      $ 13,892      $ 17,062  
  
 
 
    
 
 
    
 
 
    
 
 
 
         
Segment operating income (loss):
           
         
Detection
   $ 866      $ 943      $ 721      $ 1,918  
Therapy
     (711      (1,022      (2,149    $ (1,065
  
 
 
    
 
 
    
 
 
    
 
 
 
Segment operating income (loss)
   $ 155      $ (79    $ (1,428    $ 853  
  
 
 
    
 
 
    
 
 
    
 
 
 
         
General, administrative, depreciation and amortization expense
   $ (1,844    $ (1,881    $ (6,465    $ (5,305
Interest expense
     (115      (193      (360      (604
Other income
     10        103        85        226  
Loss on extinguishment of debt
     —          —          (341      —    
Fair value of convertible debentures
     —          (900      (7,464      (5,340
  
 
 
    
 
 
    
 
 
    
 
 
 
Loss before income tax
   $ (1,794    $ (2,950    $ (15,973    $ (10,170
  
 
 
    
 
 
    
 
 
    
 
 
 
Note 13 - Recent Accounting Pronouncements
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. 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.
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
 
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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.
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.
 
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 following: the impact of the
COVID-19
pandemic on our business and the global economy; uncertainty of future sales and expense levels, protection of patents and other proprietary rights, the impact of supply and manufacturing constraints or difficulties, regulatory changes and requirements applicable to our products, product market acceptance, possible technological obsolescence of products, increased competition, integration of acquired businesses, the impact of litigation and/or government regulation, changes in Medicare reimbursement policies,
 
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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”, “plan”, “intend”, “expect”, “estimate”, “anticipate”, “likely”, “seek”, “should”, “would”, “could” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date the statement was made. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date of such statements.
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 Electronic Brachytherapy System (“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, glioblastoma, and skin cancer. We believe the Xoft System platform indications represent strategic opportunities in the United States and international markets to offer differentiated treatment alternatives. In addition, the Xoft System generates additional recurring revenue from the sale of consumables and related accessories which the Company expects will continue to drive growth in this segment.
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.
COVID-19
Impact
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. 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
 
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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 quarter ending September 30, 2020 reflect a negative impact from the
COVID-19
pandemic, as the typical sales cycle and ordering patterns were 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 the quarter ending December 31, 2020, and possibly future quarters, could reflect a continuing negative impact from the
COVID-19
pandemic for similar reasons. The Company continued to follow steps taken during the second quarter to reduce operating expenses during the three-month period ended September 30, 2020, including cutting
non-essential
travel, implementing employee furloughs and terminations, reducing employee salaries by 10%, and cancelling most
in-person
trade shows. Depending upon the duration and severity of the pandemic, the continuing effect on our results over the long term is uncertain. We will continue to evaluate the nature and extent of the impact of
COVID-19
on our business and cost structure.
During the first quarter of fiscal 2020 the Company entered into an equity distribution agreement with JMP Securities to provide for an
at-
the-market
offering program to provide additional potential liquidity through the sale of common stock having a value of up to $25.0 million. The Company did not make any sales under this equity distribution agreement in the three months ended September 30, 2020. 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 $22.6 million and anticipated revenue and cash collections. However, the resurgence of the
COVID-19
pandemic could affect our liquidity.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. The Company received an Employee Retention Credit of $0.3 million associated with the CARES Act. The Company does not currently expect any material impact on its financial statements from other provisions under the CARES Act.
 
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Critical Accounting Policies
The Company’s discussion and analysis of its financial condition, results of operations, and cash flows are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues 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 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.
Due to the
COVID-19
pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form
10-Q.
These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Other than as described herein, there have been no additional material changes to our critical accounting policies as discussed in our 2019 Annual Report on Form
10-K
(the “2019
10-K”).
For a comprehensive list of the Company’s critical accounting policies, reference should be made to the 2019
10-K.
 
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Three and nine months ended September 30, 2020 compared to three and nine months ended September 30, 2019.
Revenue: (in thousands)
Three months ended September 30, 2020 and 2019:
 
 
  
Three months ended September 30,
 
 
  
2020
 
  
2019
 
  
Change
 
  
% Change
 
Detection revenue
  
     
  
     
  
     
  
     
Product revenue
  
$
 3,889
 
  
$
 4,749
 
  
$
(860
  
 
(18.1
)% 
Service revenue
  
 
1,402
 
  
 
1,338
 
  
 
64
 
  
 
4.8
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Subtotal
  
 
5,291
 
  
 
6,087
 
  
 
(796
  
 
(13.1
)% 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Therapy revenue
  
     
  
     
  
     
  
     
Product revenue
  
 
649
 
  
 
407
 
  
 
242
 
  
 
59.5
Service revenue
  
 
1,189
 
  
 
1,363
 
  
 
(174
  
 
(12.8
)% 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Subtotal
  
 
1,838
 
  
 
1,770
 
  
 
68
 
  
 
3.8
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
         
Total revenue
  
$
7,129
 
  
$
7,857
 
  
$
(728
  
 
(9.3
)% 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Total revenue decreased by approximately $0.7 million, or 9.3%, from $7.9 million for the three months ended September 30, 2019 to $7.1 million for the three months ended September 30, 2020. The decrease is due to a decrease in Detection revenue of approximately $0.8 million offset by an increase in Therapy revenue of $0.1 million. The Company believes that Detection product revenue was adversely affected in the third quarter of 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 Company is not able to predict how the
COVID-19
pandemic will affect future revenue and order volume.
Detection product revenue decreased by approximately $0.9 million, or 18.1%, from $4.8 million for the three months ended September 30, 2019 to $3.9 million for the three months ended September 30, 2020. The decrease is due primarily to decreases in (i) direct customer revenue of $0.5 million. and (ii) OEM customer revenue of $0.4 million, in each case relating primarily to revenue from 3D imaging and density assessment products.
Detection service and supplies revenue increased by $0.1 million, from $1.3 million in the three months ended September 30, 2019 to $1.4 million in the three months ended September 30, 2020. The increase is 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 and supplies revenue in the third quarter of 2020 but is not able to predict how the COVID-19 pandemic will affect future Detection service and supplies revenue.
 
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Therapy product revenue increased by approximately $0.2 million, or 59.5%, from $0.4 million for the three months ended September 30, 2019 to $0.6 million for the three months ended September 30, 2020. Therapy product revenue is related to the sale of our Axxent systems and can vary significantly from quarter to quarter due to changes in the number of units sold, and the average selling price.
Therapy service and supplies revenue decreased by approximately $0.2 million, or 12.8%, from $1.4 million for the three months ended September 30, 2019 to $1.2 million for the three months ended September 30, 2020. The Company believes that Therapy service and supplies revenue, specifically the use of balloons for procedures, 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. The Company is not able to predict how the
COVID-19
pandemic will affect future Therapy service and supplies revenue.
Nine months ended September 30, 2020 and 2019:
 
    
Nine months ended September 30,
 
    
2020
    
2019
    
Change
    
% Change
 
Detection revenue
           
Product revenue
   $ 9,691      $  11,347      $ (1,656      (14.6 )% 
Service revenue
     4,194        4,117        77        1.9
  
 
 
    
 
 
    
 
 
    
 
 
 
Subtotal
     13,885        15,464        (1,579      (10.2 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Therapy revenue
           
Product revenue
     1,529        1,984        (455      (22.9 )% 
Service revenue
     3,833        4,511        (678      (15.0 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Subtotal
     5,362        6,495        (1,133      (17.4 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total revenue
   $  19,247      $ 21,959      $ (2,712      (12.4 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total revenue decreased by approximately $2.7 million, or 12.4%, from $22.0 million for the nine months ended September 30, 2019 to $19.3 million for the nine months ended September 30, 2020. The decrease is due to a decrease in Therapy revenue of approximately $1.1 million and a decrease in Detection revenue of approximately $1.6 million. The Company believes that Detection product revenue and order volume, and both Therapy product and Therapy service and supplies revenue were adversely affected in the nine months ended September 30, 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.
This was particularly evident in the second quarter but also impacted the third quarter of 2020. The Company is not able to predict how the
COVID-19
pandemic will affect future revenue and order volume.
 
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Detection product revenue decreased by approximately $1.7 million, or 14.6%, from $11.4 million for the nine months ended September 30, 2019 to $9.7 million for the nine months ended September 30, 2020. The decrease is due primarily to decreases in (i) direct customer revenue of $1.0 million. and (ii) OEM customer revenue of $0.7 million, in each case relating primarily to revenue from 3D imaging and density assessment products.
Detection service and supplies revenue increased by approximately $0.1 million, or 1.9%, from $4.1 million for the nine months ended September 30, 2019 to $4.2 million for the nine months ended September 30, 2020. The increase is 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 and supplies revenue for the nine months ended September 30, 2020 but is not able to predict how the
COVID-19
pandemic will affect future Detection service and supplies revenue.
Therapy product revenue decreased by approximately $0.5 million, or 22.9%, from $2.0 million for the nine months ended September 30, 2019 to $1.5 million for the nine months ended September 30, 2020. Although Therapy product revenue increased in the three months ended September 30, 2019, Therapy product revenue for the nine months ended September 30, 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 Axxent systems and can vary significantly from quarter to quarter due to changes in the number of units sold, and the average selling price.
Therapy service and supplies revenue decreased by approximately $0.7 million, or 15%, from $4.5 million for the nine months ended September 30, 2019 to $3.8 million for the nine months ended September 30, 2020. The Company believes that Therapy service and supplies revenue 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. The Company is not able to predict how the
COVID-19
pandemic will affect future Therapy service and supplies revenue.
Cost of Revenue and Gross Profit: (in thousands)
Three months ended September 30, 2020 and 2019:
 
    
Three months ended September 30,
 
    
2020
    
2019
    
Change
    
% Change
 
Products
   $  1,345      $ 809      $ 536        66.3
Service and supplies
     667        891        (224      (25.1 )% 
Amortization and depreciation
     92        103        (11      (10.7 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total cost of revenue
   $ 2,104      $  1,803      $ 301        16.7
  
 
 
    
 
 
    
 
 
    
 
 
 
Gross profit
   $ 5,025      $ 6,054      $ (1,029      (17.0 )% 
 
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Three months ended September 30,
 
    
2020
    
2019
    
Change
    
% Change
 
Detection gross profit
   $  4,227      $  5,051      $ (824      (16.3 %) 
Therapy gross profit
     798        1,003        (205      (20.4 %) 
  
 
 
    
 
 
    
 
 
    
 
 
 
Gross profit
   $ 5,025      $ 6,054      $ (1,029      (17.0 %) 
  
 
 
    
 
 
    
 
 
    
 
 
 
Gross profit for the three months ended September 30, 2020 was approximately $5.0 million, or 70.5% of revenue, as compared to $6.0 million, or 77.1% of revenue, for the three months ended September 30, 2019. The
COVID-19
pandemic adversely affected revenues from Detection products and the Therapy segment in the three months ended September 30, 2020, and as a result, lower gross profit in both segments. This was particularly evident in the second quarter but also impacted the third quarter of 2020. However, the Company continued to follow steps taken during the second quarter to reduce operating expenses during the three months ended September 30, 2020, including cutting
non-essential
travel, implementing employee furloughs and terminations and reducing employee salaries by 10%. These measures offset some of the impact on gross profit caused by the lower than expected revenue numbers.
Cost of products increased by approximately $0.5 million, or 66.3%, from $0.8 million for the three months ended September 30, 2019 to $1.3 million for the three months ended September 30, 2020. Cost of product revenue as a percentage of product revenue was approximately 15.7% for the three months ended September 30, 2019 as compared to 29.6% for the three months ended September 30, 2020. The increase in cost of products is primarily due to a hardware upgrade sale for the Detection business with a lower than standard average selling price and the mix of sales on the Therapy business with lower margins on sales outside of the United States.
Cost of service and supplies decreased by approximately $0.2 million, or 25.1%, from $0.9 million for the three months ended September 30, 2019 to $0.7 million for the three months ended September 30, 2020. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 34.4% for the three months ended September 30, 2019 as compared to 25.7% for the three months ended September 30, 2020. The decrease in service and supplies costs is due primarily to a decrease in personnel costs.
Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was approximately $0.1 million for each of the three months ended September 30, 2020 and 2019.
 
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Nine months ended September 30, 2020 and 2019:
 
    
Nine months ended September 30,
 
    
2020
    
2019
    
Change
    
% Change
 
Products
   $ 2,899      $ 2,134      $ 765        35.8
Service and supplies
     2,169        2,466        (297      (12.0 )% 
Amortization and depreciation
     287        297        (10      (3.4 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Total cost of revenue
   $ 5,355      $ 4,897      $ 458        9.4
  
 
 
    
 
 
    
 
 
    
 
 
 
Gross profit
   $  13,892      $  17,062      $ (3,170      (18.6 )% 
 
    
Nine months ended September 30,
 
    
2020
    
2019
    
Change
    
% Change
 
Detection gross profit
   $  11,227      $  12,874      $ (1,647      (12.8 %) 
Therapy gross profit
     2,665        4,188        (1,523      (36.4 %) 
  
 
 
    
 
 
    
 
 
    
 
 
 
Gross profit
   $ 13,892      $ 17,062      $ (3,170      (18.6 %) 
  
 
 
    
 
 
    
 
 
    
 
 
 
Gross profit for the nine months ended September 30, 2020 was approximately $13.9 million, or 72.2% of revenue, as compared to $17.1 million, or 77.7% of revenue, for the nine months ended September 30, 2019. The
COVID-19
pandemic adversely affected revenues from Detection products and the Therapy segment in the nine months ended September 30, 2020, and as a result, gross profit in both segments. This was particularly evident in the second quarter but also impacted the third quarter of 2020. However, the Company continued to follow steps taken during the second quarter 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 the impact of
COVID-19.
Cost of products increased by approximately $0.8 million, or 35.8%, from $2.1 million for the nine months ended September 30, 2019 to $2.9 million for the nine months ended September 30, 2020. Cost of product revenue as a percentage of product revenue was approximately 16.0% for the nine months ended September 30, 2019 as compared to 25.8% for the nine months ended September 30, 2020. The increase in cost of products is due primarily to increased personnel costs in the three months ended period March 31, 2020 prior to the
COVID-19
cost cutting measures, a hardware upgrade sale in the three months ended September 30, 2020 for the Detection business with a lower than standard average selling price and the mix of sales in the Therapy business with lower margins on sales outside of the United States.
Cost of service and supplies decreased by approximately $0.3 million, or 12.0%, from $2.5 million for the nine months ended September 30, 2019 to $2.2 million for the nine months ended September 30, 2020. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 28.6% for the nine months ended September 30, 2019 as compared to 27.0% for the nine months ended September 30, 2020. The decrease in service and supplies costs is due primarily to decreased personnel costs in cost of sales.
 
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Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was approximately $0.3 million for each of the nine months ended September 30, 2020 and 2019.
Operating Expenses: (in thousands)
The Company’s investments in its business and the resulting operating expenses continued to grow throughout 2019. The Company had similar revenue expectations for 2020 due to the expectation of continued levels of sales orders, shipments, and overall revenue, which would have necessitated similar levels of operating expenses in 2020. Although the
COVID-19
pandemic impacted revenue throughout the nine months ended September 30, 2020, the Company began to implement significant reductions to operating expenses in April 2020. Steps taken thereafter to reduce operating expenses included cutting
non-essential
travel, implementing employee furloughs and terminations, reducing employee salaries by 10%, and cancelling most
in-person
trade shows. The Company will continue to monitor and manage the cost structure based on the impact that
COVID-19
has on the Company’s revenues.
Three months ended September 30, 2020 and 2019:
 
    
Three months ended September 30,
 
Operating expenses:
  
2020
    
2019
    
Change
   
Change %
 
Engineering and product development
   $  1,849      $  2,485      $ (636     (25.6 )% 
Marketing and sales
     2,979        3,588        (609     (17.0 )% 
General and administrative
     1,834        1,872        (38     (2.0 )% 
Amortization and depreciation
     52        69        (17     (24.6 )% 
  
 
 
    
 
 
    
 
 
   
 
 
 
Total operating expenses
   $ 6,714      $ 8,014      $ (1,300     (16.2 )% 
  
 
 
    
 
 
    
 
 
   
 
 
 
Operating expenses decreased by approximately $1.3 million, or 16.2%, from $8.0 million in the three months ended September 30, 2019 to $6.7 million in the three months ended September 30, 2020. The Company took steps during the second quarter 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.
Engineering and Product Development
. Engineering and product development costs decreased by approximately $0.6 million, or 25.6%, from $2.5 million for the three months ended September 30, 2019 to $1.9 million for the three months ended September 30, 2020. Detection engineering and product development costs decreased by $0.5 million, from $1.8 million for the three months ended September 30, 2019 to $1.3 million for the three months ended September 30, 2020. Therapy engineering and product development costs decreased $0.1 million, from $0.7 million in the three months ended September 30, 2019 to $0.6 million for the three months ended September 30, 2020. The decreases were due primarily to decreased personnel costs as a result of the Company’s
COVID-19
related cost-cutting efforts.
 
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Marketing and Sales
. Marketing and sales expenses decreased by approximately $0.6 million, or 17.0%, from $3.6 million in the three months ended September 30, 2019 to $3.0 million in the three months ended September 30, 2020. Detection marketing and sales expense decreased by $0.2 million, from $2.3 million in the three months ended September 30, 2019 to $2.1 million in the three months ended September 30, 2020. Therapy marketing and sales expense decreased by $0.4 million, from $1.3 million in the three months ended September 30, 2019 to $0.9 million in the three months ended September 30, 2020. The decrease in both Detection and Therapy marketing and sales expense is due primarily to decreased personnel costs, commissions, travel, and reduced trade show costs as a result of the Company’s COVID-19 related cost-cutting efforts.
General and Administrative
. General and administrative expenses decreased by approximately $0.1 million, or 3.0%, from $1.9 million in the three months ended September 30, 2019 to $1.8 million for the three months ended September 30, 2020. The decrease is due primarily to a decrease in and personnel costs as a result of the Company’s
COVID-19
related cost-cutting efforts.
Amortization and Depreciation.
Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, decreased by approximately $17,000, or 24.6% from $69,000 for the three months ended September 30, 2019 to $52,000 for the three months ended September 30, 2020.
Nine months ended September 30, 2020 and 2019:
 
    
Nine months ended September 30,
 
Operating expenses:
  
2020
    
2019
    
Change
   
Change %
 
Engineering and product development
   $ 5,938      $ 6,751      $ (813     (12.0 )% 
Marketing and sales
     9,218        9,281        (63     (0.7 )% 
General and administrative
     6,476        5,276        1,200       22.7
Amortization and depreciation
     153        206        (53     (25.7 )% 
  
 
 
    
 
 
    
 
 
   
 
 
 
Total operating expenses
   $  21,785      $  21,514      $ 271       1.3
  
 
 
    
 
 
    
 
 
   
 
 
 
Operating expenses increased by approximately $0.3 million, or 1.3%, from $21.5 million in the nine months ended September 30, 2019 to $21.8 million in the nine months ended September 30, 2020. Although the Company implemented cost-cutting measures related to
COVID-19
and was able to achieve a reduction in operating expenses in the three months ended September 30, 2020, there were still no such measures related to
COVID-19
in the three months ended March 31, 2020, resulting in an overall increase in operating expenses for the nine months ended September 30, 2020. The increase in operating expenses was also offset by the $0.3 million Employee Retention Credit that the Company recorded in the second quarter of 2020, pursuant to the CARES Act.
 
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Engineering and Product Development
. Engineering and product development costs decreased by approximately $0.8 million, or 12.0%, from $6.7 million for the nine months ended September 30, 2019 to $5.9 million for the nine months ended September 30, 2020. Detection engineering and product development costs decreased by $0.8 million, from $4.8 million for the nine months ended September 30, 2019 to $4.0 million for the nine months ended September 30, 2020, due primarily to decreased personnel costs. Therapy engineering and product development costs remained at approximately $1.9 million in the nine months ended September 30, 2019 and 2020. The decreases were due primarily to decreased personnel costs as a result of the Company’s
COVID-19
related cost-cutting efforts.
Marketing and Sales
. Marketing and sales expenses decreased by approximately $0.1 million, or 0.7%, from $9.3 million in the nine months ended September 30, 2019 to $6.2 million in the nine months ended September 30, 2020. Detection marketing and sales expense increased by $0.4 million, from $6.1 million in the nine months ended September 30, 2019 to $6.5 million in the nine months ended September 30, 2020. Therapy marketing and sales expense decreased by $0.3 million, from $3.2 million in the nine months ended September 30, 2019 to $2.9 million in the nine months ended September 30, 2020.
The increase in Detection marketing and sales expense is due primarily to increased personnel costs, which were incurred prior to implementation of cost-cutting measures prompted by the
COVID-19
pandemic. This increase was especially prevalent in the first three months of the year when the Company invested in additional commercial resources to help drive sales of the new Detection products prior to the
COVID-19
pandemic. The decrease in Therapy marketing and sales expense is primarily due to a decrease in costs related to trade shows and personnel. The decrease in total marketing and sales expense also included the Employee Retention Credit of $0.1 million in Marketing and sales between the Detection and Therapy segments.
General and Administrative
. General and administrative expenses increased by approximately $1.2 million, or 22.4%, from $5.3 million in the nine months ended September 30, 2019 to $6.5 million for the nine months ended September 30, 2020. The increase is due primarily to increases in stock compensation expense and legal costs and was offset by cost-cutting measures prompted by the
COVID-19
pandemic.
Amortization and Depreciation.
Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, decreased by approximately $53,000, or 25.7% from $206,000 for the nine months ended September 30, 2019 to $153,000 for the nine months ended September 30, 2020.
 
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Other Income and Expense: (in thousands)
Three months ended September 30, 2020 and 2019:
 
    
Three months ended September 30,
 
    
2020
    
2019
    
Change
    
Change %
 
Interest expense
   $ (115    $ (193    $ 78        (40.4 )% 
Other income
     10        103        (93      (90.3 )% 
Loss on fair value of debentures
     —          (900      900        (100.0 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
   $ (105    $ (990    $  885        (89.4 )% 
  
 
 
    
 
 
    
 
 
    
 
 
 
Tax benefit (expense)
   $ (3    $ (6    $ 3        (50.0 )% 
Interest expense
. Interest expense decreased by approximately $0.1 million, or 40.4%, from $0.2 million for the three months ended September 30, 2019 to $0.1 million for the three months ended September 30, 2020. The decrease is due primarily to the interest on the Company’s loans with Silicon Valley Bank (“SVB”) and Western Alliance Bank (the “Bank”).
Other income
. Other income decreased by approximately $93,000, or 90.3%, from $103,000 for the three months ended September 30, 2019 to $10,000 for the three months ended September 30, 2020. The decrease resulted primarily from lower cash balances in interest-generating accounts and investments as well as lower interest rates during the
COVID-19
pandemic.
Loss on fair value of debentures
. The Company recorded a loss of approximately $0.9 million in the three months ended September 30, 2019, which reflected an increase in the fair value of the unsecured subordinated convertible debentures issued in December 2018 (the “Convertible Debentures”) from $11.4 million at March 31, 2019 to $12.3 million at September 30, 2019. 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 during the three-month ending March 31, 2020. As a result of the forced conversion there was no fair value adjustment for the three months ended September 30, 2020.
Tax expense
. Tax expense decreased by approximately $3,000, or 50.0%, from $6,000 for the three months ended September 30, 2019 to $3,000 for the three months ended September 30, 2020. Tax expense is due primarily to state
non-income
and franchise-based taxes.
 
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Nine months ended September 30, 2020 and 2019:
 
    
Nine months ended September 30,
 
    
2020
    
2019
    
Change
    
Change %
 
Interest expense
   $ (360    $ (604    $ 244        (40.4 )% 
Other income
     85        226        (141      (62.4 )% 
Loss on extinguishment of debt
     (341      —          (341      0.0
Loss on fair value of debentures
     (7,464      (5,340      (2,124      39.8
  
 
 
    
 
 
    
 
 
    
 
 
 
   $ (8,080    $ (5,718    $ (2,362      41.3
  
 
 
    
 
 
    
 
 
    
 
 
 
Tax benefit (expense)
   $ (34    $ (33    $ (1      3.0
Interest expense
. Interest expense decreased by approximately $0.2 million, or 40.4%, from $0.6 million for the nine months ended September 30, 2019 to $0.4 million for the nine months ended September 30, 2020. The decrease is due primarily to the interest on the Company’s loans with SVB and the Bank.
Other income
. Other income decreased by approximately $141,000, or 62.4%, from $226,000 for the nine months ended September 30, 2019 to $85,000 for the nine months ended September 30, 2020. The decrease resulted primarily from lower cash balances in interest-generating accounts and investments as well as lower interest rates during the
COVID-19
pandemic.
Loss on fair value of debentures
. The Company recorded a loss of approximately $7.5 million in the nine months ended September 30, 2020, which reflected an increase in the fair value of the Convertible Debentures from $13.7 million at December 31, 2019 to $21.2 million as of February 21, 2020. The Company recorded a loss of approximately $5.3 million in the nine months ended September 30, 2019, which reflected an increase in the fair value of Convertible Debentures from $7.0 million at December 31, 2018 to $12.3 million at September 30, 2019. 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.
Loss on extinguishment of debt
: The Company recorded a loss on extinguishment of approximately $341,000 related to the repayment and retirement of the loan with SVB. The loss on extinguishment was composed of approximately $185,000 for the unaccrued final payment, the $114,000 termination fee, and $42,000 for the unamortized and other closing costs. There were no such costs in 2019.
Tax expense
. Tax expense increased by approximately $1,000, or 3.0%, from $33,000 for the nine months ended September 30, 2019 to $34,000 for the nine months ended September 30, 2020. Tax expense is due primarily to state
non-income
and franchise-based taxes.
 
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Liquidity and Capital Resources
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 $22.6 million and anticipated revenue and cash collections. However, the resurgence of the
COVID-19
pandemic could affect our liquidity. 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. As of September 30, 2020, no sales had been made pursuant to the ATM facility and $25.0 million in capacity remains under the facility.
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.
Our projected cash needs include planned capital expenditures, loan interest payments, lease commitments, and other long-term obligations. 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 necessary financing at all or on terms favorable or acceptable to it.
As of September 30, 2020, the Company had 22,969,651 shares of common stock issued and outstanding, 1,971,704 shares reserved for future issuance upon the exercise of options granted, and 950,000 shares reserved for issuance under the ESPP, out of 30,000,000 authorized shares of
 
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common stock. Given this relatively limited number of shares available for issuance in a capital markets transaction, the Company may not be able to raise significant financing through a capital markets transaction and accordingly, the Company will seek approval from its stockholders to amend its Certificate of Incorporation to increase its authorized shares of common stock at a later date and subject to the filing with the SEC of a proxy statement and solicitation of stockholder approval. The Company will incur additional costs and expenses in seeking approval for such amendment and as a result of the failure to obtain valid approval of a related amendment at its earlier stockholder meeting. The Company will continue to closely monitor its liquidity and the capital and credit markets. 
As of September 30, 2020, the Company had current assets of $35.8 million including $22.6 million of cash and cash equivalents. Current liabilities are $14.2 million and working capital is $21.6 million. The ratio of current assets to current liabilities is 2.52:1.
 
    
For the nine-months ended September 30,
 
    
2020
    
2019
 
     (in thousands)  
Net cash used for operating activities
   $ (6,083    $ (4,772
Net cash used for investing activities
     (286      (219
Net cash provided by financing activities
     13,689        10,233  
  
 
 
    
 
 
 
Increase in cash and equivalents
   $ 7,320      $ 5,242  
  
 
 
    
 
 
 
Net cash used for operating activities for the nine months ended September 30, 2020 was $6.1 million, compared to $4.8 million for the nine months ended September 30, 2019. The net cash used for operating activities for the nine months ended September 30, 2020 resulted primarily from our net loss as adjusted for
non-cash
items, and was offset by working capital changes resulting from decreases in accounts receivable and an increase in deferred revenue, offset by increases in inventory and decreases in accrued expenses. We expect that net cash used for or provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, the timing of when we recognize revenue, collections of accounts receivable and the timing of other payments.
Net cash used for investing activities for the nine months ended September 30, 2020 was $286,000, compared to $219,000 for the nine months ended September 30, 2019. The net cash used for investing activities for the nine months ended September 30, 2020 and 2019 is primarily for purchases of property and equipment.
Net cash provided by financing activities for the nine months ended September 30, 2020 was $13.7 million, compared to $10.2 million for the nine months ended September 30, 2019. Net cash provided by financing activities for the nine months ended September 30, 2020 is primarily from the $12.3 million in net proceeds from the issuance of common stock in the April 2020 registered direct offering, $7.0 million from the Loan Agreement with the Bank and $775,000 from the revolving line of credit with the Bank, offset by $4.6 million in repayment of the term loan with SVB and $2.0 million in repayment of the revolving loan with SVB. Cash provided by financing activities for the nine months ended September 30, 2019 is due primarily to cash from the issuance of common stock. In June 2019, the Company completed an underwritten public offering of approximately 1.9 million shares of common stock. The Company received net proceeds of approximately $9.4 million after deducting underwriting and other offering expenses.
 
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Contractual Obligations
The Company had the following commitments as of September 30, 2020:
 
Contractual Obligations
  
Payments due by period
 
    
Total
    
Less than
1 year
    
1-3 years
    
3-5 years
    
5+ years
 
Operating Lease Obligations
   $ 2,262      $ 918      $ 1,337      $ 7      $ —    
Capital Lease Obligations
     1        1        —          —          —    
Settlement Obligations
     463        463        —          —          —    
Notes Payable - principal and interest
     7,946        590        5,682        1,674        —    
Other Commitments
     4,179        4,179        —          —       
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total Contractual Obligations
  
$
14,851
 
  
$
6,151
 
  
$
7,019
 
  
$
1,681
 
  
$
—  
 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Operating Lease and Capital Lease Obligations are the minimum payments due under these obligations.
Settlement Obligations represent the remaining payments under a settlement agreement with Hologic, Inc which are reflected in accounts payable and accrued liabilities.
Notes Payable – principal and interest represents the payments due under the term loan from the Bank.
Other Commitments represent firm purchase obligations to suppliers for future product and service deliverables.
Recent Accounting Pronouncements
See Note 13 to the Condensed Consolidated Financial Statements.
 
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Item 3.
Quantitative and Qualitative Disclosures about Market Risk
The Company believes that it is not subject to material foreign currency exchange rate fluctuations, as substantially all of its sales and expenses are denominated in the U.S. dollar. The Company does not hold derivative securities and has not entered into contracts embedded with derivative instruments, such as foreign currency and interest rate swaps, options, forwards, futures, collars or warrants, either to hedge existing risks or for speculative purposes. The Company is subject to a 19% fluctuation in interest expense on for every 1% change in interest rate on its floating rate Term Loan with the Bank.
 
Item
 
4.
Controls and Procedures
The Company’s management, with the participation of 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, as of September 30, 2020, 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 Securities Exchange Act of 1934 (the “Exchange Act”)) were effective at a reasonable level of assurance.
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 controls and procedures.
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))
and have determined there are no changes in its internal controls over financial reporting during the quarter ended September 30, 2020 that have materially affected or which are reasonably likely to materially affect internal control over financial reporting.
 
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PART II OTHER INFORMATION
 
Item 1.
Legal Proceedings
Please refer to the detailed discussion regarding litigation set forth in Note 7 of the Notes to Condensed Consolidated Financial Statements in this Form
10-Q.
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 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 forgoing, the Company may be party to various legal matters that are in the process of litigation or settled in the ordinary course of business. Although the final results of all such matters and claims cannot be predicted with certainty, we believe that the ultimate resolution of all such matters and claims will not have a material adverse effect on our financial condition. However, such matters could have a material adverse effect on our operating results and cash flows for a particular period.
 
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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. In addition to the risk factor below, factors that have affected our Company are described in Part I, Item 1A of our Annual Report on Form
10-K
for the year ended December 31, 2019 as filed with the SEC on March 11, 2020 and are incorporated by reference herein.
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. 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 quarter ending September 30, 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 the quarter ending December 31, 2020, and possibly 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 with Western Alliance Bank. If at any point the Company is not in compliance with such covenant and is unable to obtain an amendment or waiver from Western Alliance 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.
 
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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.
 
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Item 6.
Exhibits
 
Exhibit No.
 
Description
31.1 *   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 **   Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 **   Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 *   The following materials formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, (iv) Condensed Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and September 30, 2019 and (v) Notes to Consolidated Financial Statements.
104 *   Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101).
 
*
Filed herewith
 
**
Furnished herewith
 
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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 6, 2020
    By:   /s/ Michael Klein
    Name:   Michael Klein
    Title:  
Chief Executive Officer
(Principal Executive Officer)
 
Date
: November 6, 2020
    By:   /s/ R. Scott Areglado
    Name:   R. Scott Areglado
    Title:  
Chief Financial Officer
(Principal Financial Officer)
 
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