iCAD (ICAD) 10-K2023 FY Annual report

Special Note Regarding Forward Looking Statements

Certain information included in this Annual Report on Form 10-K and the documents incorporated by reference herein, that are not historical facts, contain “forward looking statements” within the meaning of the federal securities laws made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements involve a number of known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to, the ability to achieve business and strategic objectives, the risks of uncertainty of patent protection, the impact of supply and manufacturing constraints or difficulties, uncertainty of future sales levels, protection of patents and other proprietary rights, the impact of supply and manufacturing constraints or difficulties, product market acceptance, possible technological obsolescence of products, increased competition, litigation and/or government regulation, changes in Medicare reimbursement policies, risks relating to our existing and future debt obligations, competitive factors, the effects of a decline in the economy or markets served by the Company, cyber-attacks, acts of terrorism, acts of war, severe weather, a solar event, an electromagnetic event, a natural disaster, the age and condition of information technology assets, human error, or other factors could disrupt the Company’s operations and cause the Company to incur unanticipated losses and expense, and other risks detailed in this report and in the Company’s other filings with the United States Securities and Exchange Commission (the “SEC”). The words “believe”, “demonstrate”, “intend”, “expect”, “estimate”, “anticipate”, “likely”, “seek”, “would”, “could”, “may”, “consider”, “confident” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

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

PART I

General

Introduction   

iCAD, Inc. is a global leader in AI-powered cancer detection whose laser focus is to create a world where cancer can’t hide. Cancer can grow and spread the longer it survives hidden and undetected. Remaining undetected, cancer poses one of the greatest threats to life. With iCAD’s clinically validated, regulatory cleared industry-leading ProFound Breast Health Suite, cancer has no easy way to hide. The Company’s ProFound Breast Health Suite enables medical providers and professionals to accurately and reliably identify where cancer may be hiding and because iCAD is able to find it earlier, it is more easily eliminated. The ProFound Breast Health Suite offers solutions for breast cancer detection, density assessment, one- or two-year breast cancer risk evaluation, and cardiovascular risk related to elevated levels of breast arterial calcifications.  

Powered by the latest innovations in artificial intelligence ("AI"), and built on one the largest, most diverse US-based and global data sets, the ProFound Suite uniquely offers 360-degree solutions for cancer detection, density assessment, and personalized risk evaluation, all based on a 2D or 3D mammogram’s collection of images. The ProFound Detection solution scores cases and suspicious lesions, helping radiologists identify and focus on areas of most concern and highest suspicion of cancer. The ProFound Density Assessment standardizes and simplifies breast density reporting, algorithmically examining a woman’s breast anatomy from the mammogram image. The ProFound Risk solution provides a near-term probability for developing breast cancer in the next one or two years, making it more actionable and relevant than generalized lifetime risk scores. The ProFound Heart Health solution identifies the presence and quantity of breast arterial calcification which is proven to correlate with calcifications elsewhere in the body, raising concern for cardiovascular or heart health concerns.  

The ProFound Breast Health Suite is cleared by the US Food & Drug Administration (the "FDA") and has received CE mark and Health Canada licensing. Used by thousands of providers serving millions of patients, ProFound is available in over 50 countries. iCAD estimates that ProFound has been used for more than 40 million mammograms worldwide in the last five years alone. With over 25 years of experience in AI cancer detection, iCAD has secured 45 patents, completed over 50 clinical studies, and trains its algorithms on one of the largest most diverse data sets, pulling data regularly from over 100 global locations.  iCAD’s deep experience and un-matched set of capabilities differentiates iCAD from its competition and positions it as an industry leader with an AI solution that continually gets better as the Company continually refines its algorithm models using its extensive data set and research partners.  

iCAD is increasing its leading position as the premiere breast AI solution by transitioning into a platform-based SaaS/DaaS (Software as a Service/Data as a Service) organization. This strategy will make our solutions more affordable and easier for leading medical providers to adopt.  At the same time the company will benefit from a growing and more predictable revenue stream. iCAD is executing this strategy in three phases: Phase 1) Realigning our Base, Phase 2) Strengthening our Foundation and Phase 3) Investing in Growth Initiatives. 

In 2023, the Company made good progress executing Phases 1 and 2, including: 

The Company’s next phase of transformation, Phase 3, will begin in 2024 and includes launching initiatives that strengthen and deepen business with existing accounts and growing through expanding its direct and indirect sales channels including expanding iCAD’s geographic footprint. 

On October 23, 2023, the Company sold its Xoft business line. Prior to completion of the sale, the Company had reported the results of two segments: Cancer Detection ("Detection") and Cancer Therapy ("Xoft" or “Therapy”). Upon completion of the Xoft sale, the Company is in a stronger financial position with a dedicated focus on a single operating segment. 

The Company’s headquarters are located in Nashua, New Hampshire. iCAD France LLC is a wholly owned subsidiary of iCAD, Inc., and is consolidated for reporting purposes.   

AI in Mammography  

When diagnosing breast cancer, early detection matters. Identified in stage 1, cancer is more likely to respond to treatment and can result in greater survival rates. In fact, according to the American Cancer Society, the relative 5-year survival rate from breast cancer is 99% when detected early.  

However, the incidence of breast cancer is growing. According to the World Health Organization, breast cancer is the most common cancer worldwide, recently surpassing lung cancer, with 2.26 million new cases diagnosed worldwide in 2020. One in eight women will get breast cancer in her lifetime, and every 14 seconds, a woman is diagnosed with breast cancer world-wide. Compounding the situation, 59% of women in the US miss their recommended screening mammograms, and for those who regularly screen for breast cancer, 20-40% of cancers are missed in mammogram screenings with up to 50% missed in women with dense breast tissue. Traditional risk assessment models have relied on family history of the disease as a leading risk factor when in fact, and most surprising, 89% of women diagnosed with breast cancer have no direct family history of the disease and 90-95% are not related to inherited gene mutation (American Cancer Society).  

Radiology Needs 

As breast cancer detection is becoming increasingly complex, AI can help radiologists spot cancer faster, with greater accuracy and save more lives. With the continuing migration from 2D (FFDM) reading systems to 3D (DBT or “Tomo”) systems, radiologists are spending twice the amount of time reading hundreds more images per 3D case compared to the four images captured with 2D (two images per breast). This geometric increase in the number of images to read leads to stress – 50% of radiologists are overworked – and burnout is reported to be 49% (Medscape Radiologist Lifestyle, Happiness & Burnout Report 2022). Simultaneously, false-positives and unnecessary recalls for suspected cancers have continued at similar rates while hard-to-detect interval cancers are being missed or diagnoses are delayed.  

Patient Needs  

The rise in workload for radiologists is felt by the patient too. Anxiously waiting weeks for results, or receiving unnecessary recalls and biopsies leads to undue stress and anxiety, not to mention distrust of the healthcare system. On average, only 10% of women recalled back from a routine screening mammogram for a diagnostic workup are ultimately found to have cancer, resulting in the patient being confused and frustrated with the process.  

Additionally, a significant economic burden is placed upon patients and payors that extend throughout multiple years when a breast cancer diagnosis is at a later, more advanced stage. In addition to the associated clinical benefits, reducing the proportion of the population with later-stage cancer diagnoses, finding and treating breast cancer earlier may limit the need for more intensive and expensive treatments, which can increase patient’s health-related quality of life, have a significant impact in managing healthcare costs among cancer patients, and reduce caregiver and societal burden. iCAD calculates if diagnoses were shifted one stage earlier for 20% of the 280,000 women in the US diagnosed with breast cancer each year, a savings of approximately $3.7 billion across 2-years of patient treatment and healthcare costs. iCAD’s  positively find or predict more cancers up to 2-3 years earlier by circling and scoring suspicious lesions for radiologists. 

iCAD Addresses Both Provider and Patient Needs 

Our AI-powered mammograms are setting a new standard of care in cancer detection, density assessment, and short-term risk evaluation. With iCAD’s ProFound Breast Health Suite, radiologists’ reading times may be cut in half with improved accuracy and specificity in finding suspicious cancerous lesions. Radiologists benefit from standard, objective, inclusive results measured by an algorithm built upon many millions of images. And, patients benefit from receiving timely personalized results, fact-based assessment of their breast density and short-term risk assessments that inform their screening plans.   

As noted above, iCAD’s mission is to create a world where cancer can’t hide, because when cancer wins, we all lose. For the health of women everywhere, and the benefit of their communities, iCAD’s AI-powered, image-based solutions help detect cancer faster, earlier and with greater accuracy as well as evaluate breast cancer and cardiovascular risk from a single mammogram.  

The Market and Opportunity 

The ProFound Breast Health Suite is cleared by the FDA and has received CE mark and Health Canada licensing. Used by thousands of providers serving millions of patients, ProFound is available in over 50 countries.  

According to the December 2023 report, approximately 40.5 million annual mammograms are conducted in the US across 8,834 certified facilities, as measured by the FDA Mammography Quality Standards Act (“MQSA”). Yet, only 37% of facilities are using a CAD or advanced AI mammography solution, according to Research & Markets United States Mammography and Breast Imaging Market Outlook Report 2022-2025, leaving room for growth. Of the 3,268 facilities using AI, iCAD has an active customer base of 1,488, or approximately 46% of the AI market, and approximately 17% of the total US market. In the last five years alone, iCAD estimates reading more than 40 million mammograms worldwide.  

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

Since having released its first FDA cleared product in 2002, iCAD has remained committed to innovation in artificial intelligence by continuously improving and releasing the highest performing and most widely available solutions in breast care with FDA clearances, CE marks, and Health Canada licenses. Data is the key to training robust machine learning and AI.  In this regard iCAD is well positioned to continually improve our models as we train our algorithms on one of the largest, most diverse data sets, pulling data regularly from over 100 global locations resulting in an AI solution that continually gets better as the Company continually refines its algorithm models using its extensive data set and research partners. 

The latest versions of iCAD ProFound Breast Health Suite solutions are under review with the FDA, including version 4.0 of our ProFound Detection solution, built on the newest deep-learning neural network AI for breast cancer, density and risk. Per regulatory test data, iCAD has observed Detection v4.0 will deliver significant improvements in specificity, sensitivity, and the highest AUC (area under the curve) for Specificity and Sensitivity for breast cancer detection at 92.5%. Along with a new heart health solution measuring the level of calcification in breast arteries identifying cardiovascular concerns, and new cloud deployment options, iCAD’s overall value and ease of implementation continue to improve.   

Our Strategy  

As noted elsewhere, iCAD is increasing its leading position as the premiere breast AI solution by transitioning into a platform-based SaaS/DaaS organization by implementing a three phased transformation:  Phase 1) Realigning the Base, Phase 2) Strengthening the Foundation and Phase 3) Investing in Growth Initiatives. 

Phase 1: Realigning the Base  

Management actions taken in early 2023 allowed the Company to end the year in a strong cash position, with $21.7 million on-hand as of December 31, 2023.  In addition, the Company made progress in its transition to a subscription-based recurring revenue business model.  The Company hired several key members to the management team and also recruited new board members.  Lastly, the Company announced several new collaborations with esteemed partners

Phase 2: Strengthening iCAD’s Foundation  

A new, strengthened leadership team accelerated the transformation further. First, was the transition of the corporate brand from one that was product focused to one that is patient centric, “Creating a World where Cancer Can’t Hide,” which was successfully introduced at the annual, global Radiological Society of North America meeting in November 2023.  

Second, the Company secured a new and extended partnership with Google Health by signing a 20-year partnership to expand 2D AI solutions to encompass an application of AI as the independent, second reader. In addition, the Company completed an integration with GE Health’s MyBreastAI suite by embedding iCAD solutions within GE mammography machines.  

And third, the divestiture of Xoft provides iCAD more cash and focus to apply to the foundational Cancer Detection business segment.  

Phase 3: Investing in Growth Initiatives  

iCAD is actively focused on revenue growth and market expansion initiatives using a three-phased, overlapping approach. Phase one, expanding existing accounts; phase two, growing channels, both direct and indirect; and phase three entering new markets. The first phase, expanding existing accounts, will take advantage of iCAD’s sizable install base, including reengaging customers who've lapsed on annual maintenance service agreements, are behind and upgrading to new versions, including the transition to cloud, winning back lost or deeply lapsed customers and accelerating deployment across large national accounts. Large enterprise customers like Solis, Radiology Partners, SimonMed, Ascension and Cleveland Clinic, who collectively serve about 15% of the US mammography screening market, offer great potential for iCAD as many are in the early stages of rolling out iCAD’s solutions and continue to expand into more sites and markets each month. The focus of this phase is to accelerate deployment across national and regional accounts as well as re-engage 1,000 of iCAD’s 4,000 customers who've lapsed on their maintenance agreements or who are operating on older software versions.

The second phase is growing channels, direct and indirect, in both the US and globally through direct sales and establishing new distribution partnerships.  

Globally, more than 31,000 mammography systems serve approximately 250 million women in the age range recommended for annual mammograms. Expanding to the 63% of the market that is not using AI, plus additional wins in the segment using AI but not ProFound, results in significant opportunity for new business. iCAD has added sales leadership, sales representatives, and sales operations team members, and plans to add distribution partners to focus on new and expanded business given the large addressable market opportunity.  

Phase three is focused on entering new markets with new solutions, most likely in fiscal year 2025. One example is the commercialization of the Heart Health solution, which was previously referred to as Breast Arterial Calcification.  In the fourth quarter of 2022, iCAD announced a development and commercial collaboration agreement with Solis. This collaboration is focused on using mammography to define cardiovascular risk, a new application that could identify millions of women at risk for heart disease using data obtained from their mammogram. With heart disease being the number one killer among women in the US, this collaboration not only offers the potential to address a significant unmet need in patient care, but also to penetrate a sizable new market.  This product is currently available for investigational use as we complete the FDA approval process. 

ProFound Breast Health AI Suite  

Backed by science, clinical evidence and proven patient outcomes, iCAD’s ProFound Breast Health Suite of cancer detection, density assessment and risk evaluation solutions, provides an unmatched approach to accurately detecting more cancers earlier, providing certainty and peace of mind to providers and patients. The Company’s mission is to see that these solutions be deployed universally as part of a standard of care for breast health in order to achieve its vision of a world where cancer can't hide.  

ProFound Breast Cancer Detection  

ProFound Detection exposes cancer’s hiding place. It’s clinically proven to improve breast cancer detection and radiologist performance. 

The current version, ProFound Detection V3.0, is built with the latest in deep-learning, 3rd generation artificial intelligence, and delivers unparalleled accuracy and efficiency for 2D and 3D mammography screening with up to 2X enhanced clinical performance compared to other AI platforms as accessed in January of 2023 and compared to FDA 510K submissions K182373 (iCAD), K201019 (Hologic) and K193229 (ScreenPoint).   

A key competitive differentiator is the fact that iCAD’s algorithms are trained on over 6 million images including one of the largest 3D image datasets gathered from over 100 sites from around the globe. Competitively, iCAD's algorithm training data includes the highest amount of sourcing from the US, providing diverse data that is ethnically, racially, and age representative of the US population. The ProFound AI algorithm rapidly and accurately analyzes each individual image or slice to identify potentially malignant lesions. Analyzing for masses, distortion, calcifications, and asymmetry, it localizes, segments and classifies lesions giving them a score and a case score for the overall exam.  

Offering clinical confidence, operational superiority, and proven patient outcomes, iCAD’s ProFound Detection positively finds or predicts more cancers up to 2-3 years earlier by circling and scoring suspicious lesions for radiologists. With faster image processing vs. other AI solutions, radiologist cancer detection performance AUC rates improve by 6-7% compared to non-AI readers, reading times reduce by 53%, and reduced false positives improves patient satisfaction.  

ProFound Detection is FDA cleared, CE marked, and Health Canada licensed. The next generation of ProFound Detection, V4.0, is under review with the FDA.   

ProFound Breast Density Assessment  

ProFound Density provides an objective and consistent breast density assessment, helping clinics align to the new FDA-MQSA notification requirement to patients, which take effect in September 2024.   

Breast density is one of the strongest and most prevalent breast cancer risk factors. As breast density increases, the risk of developing and missing breast cancer increases. 50% of women over the age of 40 in the US have dense breasts, and, according to Susan G. Komen, women with very dense breasts are 4-5 times more likely to get breast cancer.  

AI helps to remove the challenge of a subjective visual assessment by radiologists, as radiology-reviewed density metrics may swing wildly, between 6% to 85%, with clinicians even disagreeing with their own measurements from year to year. Inconsistency in density assessments can lead to additional unnecessary imaging, increase patient and facility costs, and patient anxiety.    

Using mammographic images, iCAD’s ProFound Density analyzes a woman’s breast anatomy, measuring the adipose and fibroglandular tissue dispersion and texture, and categorizes her breast density within the appropriate BI-RADS® 5th edition density category. iCAD’s ProFound Density solutions gives clinicians an integrated workflow for identifying and reporting breast density, allowing for personalized patient planning with supplemental screening and customized schedules when needed.  

ProFound Density is FDA cleared, CE marked, and Health Canada licensed. The newest ProFound Density, V4.0, is under review by the FDA.   

ProFound Breast Cancer Risk  

iCAD’s ProFound Risk is the first image-based, one-to-two-year risk assessment tool – based on reading a 2D or 3D mammogram. ProFound Risk uses a new model for predicting breast cancer during an annual mammogram screening that has been found to be 2.4X more accurate compared to traditional life-time models based on family and medical history. By evaluating several data points in a patient’s scanned image, it calculates a more accurate short-term Risk Score for developing cancer in the near term one or two years. This capability for shorter-term insight for when cancer may appear opens the door for real change in standards of care. Rather than adjusting a patient’s life-long screening plan based on lifetime models informed only from family history, genetic information and density scores, ProFound Risk can narrowly point to when that risk is present; making adjustments to a patient’s screening plans when appropriate. Saving the health care system and patients time, costs, and worry.   

As the field of mammography moves from age-based screening recommendations to more personalized risk-adaptive screening guidelines, iCAD is on the leading-edge of this exciting new realm that will enable clinicians to easily adapt to evolving screening practices and personalize patient care. 

ProFound Risk is CE marked, Health Canada licensed, and available for investigational use only in the US; ProFound Risk is under review by the FDA.   

ProFound Heart Health Risk  

Breast cancer and heart disease are the two leading causes of death among women. Clinical results have found calcifications in arterial vessels within the breast are proven to correlate with calcifications elsewhere in the body, which raises concern for cardiovascular or heart health issues.  

iCAD’s ProFound Heart Health solution measures the presence and extent of breast arterial calcifications from the same mammogram used to identify breast cancer, breast density and breast cancer risk. From one mammogram, clinicians assess the patient’s risk of heart disease and recommend further surveillance or review by other care teams. 

Breast arterial calcification assessment is pending regulatory licensing and available for investigational use only. iCAD’s Heart Health solution is under review by the FDA.   

Expansion of Partnerships to Improve Access to Care, Streamline Workflow, and Foster Scientific Innovation 

Recognized as a leader in breast AI-powered solutions, iCAD partners with industry leaders across platforms, technology, academic research, integration, and advocacy organizations to iterate and improve upon iCAD software and make solutions more accessible to customers. Interoperable with more than 50 PACS solutions worldwide, with 22 global distributors and growing, iCAD’s market share is on the rise.    

In 2023, iCAD continued its work with Duke University, Indiana University, University of Pennsylvania and Karolinska Institute on artificial intelligence advancements and clinical testing. Additionally, iCAD expanded its partnership with Google Health to enhance the Company’s technology and expand access to millions of women and providers worldwide. iCAD’s new 20-year research and development agreement includes co-development, testing, and integration of Google’s AI technology with the ProFound Breast Health Suite for 2D mammography for worldwide commercialization to potentially ease radiologist workload and reduce healthcare disparities for women. The conventional double-read workflow used by most countries, where mammograms are assessed by two separate radiologists, has become increasingly challenging as there is a global radiologist workforce shortage. Leveraging AI as a viable alternative to current double reading by introducing iCAD as secondary independent reader can help radiology departments run more efficiently.  

To make iCAD solutions more available to customers, iCAD expanded into new platform and channel partners, technology partners, and health system partners. In 2023, iCAD was the only breast cancer AI detection solution integrated into GE’s new MyBreastAI Suite – an all-in-one platform made up of three workflow algorithms from iCAD’s ProFound Breast Health Suite. GE has released MyBreast AI Suite first in the US and plans to release globally in 2024, simplifying the sales and implementation process for GE, and enabling AI use by customers across the globe. Additionally, iCAD developed several new partnerships and integrations with several AI distributors and marketplace aggregators to implement ProFound AI via cloud options, such as Ferrum, Change Healthcare, Blackford, and have several others currently under negotiation to further expand iCAD’s footprint.   

Looking forward, iCAD is dedicated to serving those in need by establishing free, equitable access to AI-read mammograms. To start, iCAD plans to bring ProFound Detection to Ghana and Guyana in partnership with RAD-AID, a nonprofit entity that works in over 30 countries to improve and optimize access to medical imaging and radiology in low-resource regions of the world. Together, iCAD and RAD-AID plan to improve diagnosis of breast cancer where breast cancer mortality rates are highest.   

Flexibility in Software Licensing and Deployment Options  

iCAD has historically offered its solution as perpetually licensed software, primarily pre-installed on and sold with an iCAD configured, off-the-shelf computer, capable of optimally running the software.  

In 2022, iCAD began offering its full suite of breast AI solutions in a variety of more flexible options. First, iCAD uncoupled the purchase of iCAD software from the purchase of hardware, allowing customers to source their own computer hardware or use existing IT infrastructures. Second, iCAD launched several new software licensing models designed to leverage both capital and operating expense budgets for customers. In addition to offering perpetual licenses, the Company introduced a new SaaS subscription pricing model that allows customers to purchase a term-based subscription based on the number of imaging gantries or annual mammography exam volume.  

To make iCAD’s software more flexible, the Company’s software has been developed to run as a self-contained software package, making it executable within a variety of infrastructure environments, including iCAD-configured computers or servers, virtualized environments, and integrations into partner cloud-based hosting environments. In 2024, iCAD plans to introduce more options including an iCAD cloud environment and additional hosting options through strategic partnerships. 

How iCAD Markets and to Whom 

Our aim is to create a world where cancer can’t hide from AI-powered cancer detection and risk assessment solutions by reaching as many women as possible across the globe. In the last five years alone, iCAD estimates that more than 40 million mammograms were read worldwide, of which nearly 30% were tomosynthesis. That patient reach is buoyed by the Company’s long-standing leadership position in breast cancer detection and the 1,500 facilities actively using iCAD solutions today. Nearly half of all US mammography sites reading with AI use iCAD’s solutions. 

In North America, iCAD sells its ProFound AI mammography solutions through a direct regional sales force which grew by 50% in 2023, and the Company’s many channel partners including OEMs, Radiology Picture Archiving and Communication System (PACS) vendors, AI Platform vendors and distributors. The Company’s OEM partners include GE Healthcare, focused on the manufacture and distribution of diagnostic imaging equipment, Fujifilm Medical Systems, a subsidiary of Fuji focused on the manufacture and distribution of X-rays and other imaging equipment, and Siemens Medical Systems. In Europe and the Middle East, the Company sells its AI mammography products through a direct sales force and 22 reseller relationships with regional distributors. 

iCAD continues to build-out PACS partnerships with companies including Change Healthcare Inc. (“Change Healthcare”), a leading independent healthcare technology company focused on insights, innovation and accelerating the transformation of the US healthcare system, and Sectra AB (“Sectra”), an international medical imaging IT solutions and cybersecurity company.  

Additionally, the Company has expanded on partnerships with additional AI Platform solution vendors. iCAD has AI Platform vendor distribution agreements with Ferrum Health, who partners with global leaders of AI applications to provide a robust catalog of AI applications on a single, secure platform serving clinical service lines across healthcare enterprises; and Blackford, a wholly owned subsidiary of Bayer AG – a platform built for integration with existing systems while simplifying integrations and the management of multiple disparate AI applications and algorithms. 

In March 2022, iCAD became one of the first healthcare companies to validate its AI cancer detection solution with the NVIDIA software suite, enabling thousands of healthcare organizations worldwide to virtualize AI workloads within hospital data centers using VMware vSphere and industry-standard servers. 

In October of 2022, iCAD and Solis Mammography (Solis) announced a collaboration to develop and commercialize AI to evaluate cardiovascular disease based on breast arterial calcifications. Multiple studies have shown a correlation between the amount of breast arterial calcifications, which are visibly detectable on mammograms, to cardiovascular risk. iCAD and Solis are working together to use AI to quantify the amount of breast arterial calcification in mammograms, correlated to the risk of disease, and define meaningful clinical pathways for high-risk women. 

In November of 2022, iCAD announced a strategic development and commercialization agreement with Google Health to integrate Google’s AI into iCAD’s breast imaging portfolio, and then extended this to a 20-year agreement in 2023. iCAD intends to use Google’s 2D AI in its commercial product offerings, especially outside the US, where 2D mammography is primarily used for screening. The Company expects to release its first product leveraging the Google AI technology in the next 1-2 years. Additionally, the Company announced plans to leverage the Google Health Cloud to launch its own cloud platform for the delivery of its breast AI offerings. The Company has already received its first order from Radiology Partners, allowing hundreds of thousands of women to be screened at Radiology Partners’ owned outpatient imaging center sites with iCAD’s ProFound Breast AI Suite.  

These partnerships greatly expand visibility and access to the Company’s Breast AI suite – including ProFound AI Detection, ProFound AI Risk and PowerLook Density Assessment - for more hospitals and imaging centers across North America. 

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

The Competition  

The Company operates in a highly competitive and rapidly changing market with specific detection, density, or risk competitive products available from nationally and internationally recognized companies. Many competitors have significantly greater financial, technical, and human resources than iCAD and are well-established in the healthcare market. In addition to the existing technologies or products that compete with the Company’s products, some companies may develop technologies or products that may render the Company’s products obsolete or noncompetitive. Moreover, competitors may achieve patent protection, regulatory approval, or product commercialization before iCAD does, which would limit the Company’s ability to compete with them. iCAD believes that efficacy, safety profile, feature differentiation, cost, and reimbursement are the primary competitive factors that will affect the success of the Company’s products. 

ProFound Breast AI Suite 

The Company currently faces direct competition in its cancer detection and breast density assessment businesses from Hologic, Inc. (Marlborough, MA), Volpara Solutions Limited (Rochester, NY), ScreenPoint Medical (Nijmegen, Netherlands), Densitas Inc. (Halifax, Nova Scotia, Canada), Therapixel (Paris, France), and Lunit (Seoul, South Korea). The Company believes many factors, including breadth of innovative and clinically differentiated product offerings, ongoing development of clinical support, strong relationships with its strategic partners, and ability to provide the Company’s solutions across several platforms and payment structures will provide it with a competitive advantage in breast AI. 

Future offerings in breast cancer risk and heart health face competition as others are developing similar solutions, and in the case of heart health, CureMetrix received FDA clearance for cmAngio®, a similar solution for detecting breast arterial calcification.  

Manufacturing and Professional Services

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

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

Government Regulation

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

Manufacturing and Sales

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

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

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

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

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

Healthcare Laws

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

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

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

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

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

Anti-Kickback Laws

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

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

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

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

In addition to the federal AKS, many states have their own anti-kickback laws. Often, these laws closely follow the language of the federal law, although they do not always have the same scope, exceptions, safe harbors or sanctions. In some states, these anti-kickback laws apply not only to payment made by a government health care program but also with respect to other payers, including commercial insurance companies.

If iCAD is found to have violated the Anti-Kickback Statute or a similar state statute, it may be subject to civil and criminal penalties, including exclusion from the Medicare or Medicaid programs, or may be required to enter into settlement agreements with the government to avoid such sanctions. Typically, such settlement agreements require substantial payments to the government in exchange for the government to release its claims and may also require the Company to enter into a Corporate Integrity Agreement.

Physician Self-Referral Laws

iCAD is subject to federal and state laws and regulations that limit the circumstances under which physicians who have a financial relationship with entities that furnish certain specified healthcare services may refer to such entities for the provision of such services, including clinical laboratory services, radiology and other imaging services and certain other diagnostic services. These laws and regulations also prohibit such entities from billing for services provided in violation of the laws and regulations.

This federal ban on physician self-referrals, commonly known as the “Stark Law,” prohibits, subject to certain exceptions, physician referrals of Medicare and Medicaid patients to an entity providing certain “designated health services” if the physician or an immediate family member of the physician has any financial relationship with the entity. The Stark Law also prohibits the entity receiving the referral from billing for any good or service furnished pursuant to an unlawful referral. It further obligates any person collecting any amounts in connection with an unlawful referral to refund these amounts. A person who engages in a scheme to circumvent the Stark Law’s referral prohibition may be fined up to $170,000 for each such arrangement or scheme. The penalties for violating the Stark Law also include civil monetary penalties of up to $26,000 per service, and could result in denial of payment, disgorgements of reimbursement received under a non-compliant agreement, and possible exclusion from Medicare, Medicaid or other federal healthcare programs.

In addition to the Stark Law, many states have their own self-referral laws. Often, these laws closely follow the language of the federal law, although they do not always have the same scope, exceptions, safe harbors or sanctions. In some states these self-referral laws apply not only to payment made by a government health care program but also payments made by other payers, including commercial insurance companies. In addition, some state laws require physicians to disclose any financial interest they may have with a healthcare provider to their patients when referring patients to that provider, even if the referral itself is not prohibited.

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

Violation of these laws and regulations may result in the prohibition of payment for services rendered, significant fines and penalties, and exclusion from Medicare, Medicaid and other federal and state healthcare programs, any of which could have a material adverse effect on iCAD’s business, financial condition and results of operations. In addition, expansion of the Company’s operations to new jurisdictions, new interpretations of laws in iCAD’s existing jurisdictions, or new physician self-referral laws could require structural and organizational modifications of the Company’s relationships with physicians to comply with those jurisdictions’ laws. Such structural and organizational modifications could result in lower profitability and failure to achieve iCAD’s growth objectives.

If iCAD fails to comply with federal and state physician self-referral laws and regulations as they are currently interpreted or may be interpreted in the future, or if other legislative restrictions are issued, the Company could incur a significant loss of revenue and be subject to significant monetary penalties, or exclusion from participation in federal healthcare programs which could have a material adverse effect on iCAD’s business, financial condition and results of operations.

False Claims Laws

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

Those found in violation of the FCA can be subject to fines and penalties of three times the damages sustained by the government, plus mandatory civil penalties of $11,803 to $23,607 per false claim or statement. The qui tam or “whistleblower” provisions of the FCA allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In recent years, the number of suits brought by private individuals has increased dramatically, causing greater numbers of healthcare companies, including medical device manufacturers, to defend false claim actions, pay damages and penalties or be excluded from Medicare, Medicaid or other federal or state healthcare programs.

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

Increased Regulatory Scrutiny of Relationships with Healthcare Providers

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

Artificial Intelligence

Domestic and global rules and regulations regarding AI are in their infancy. However, given the recent interest in AI and machine learning from global stakeholders, new laws, guidance, rules and regulations may take any number of forms, now or in the years to come.

At the federal level, the president of the United States recently issued an Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, which charges multiple agencies, including The National Institute of Standards and Technology, with producing guidelines in connection with the development and use of AI.

In the European Union, there is now political agreement on the EU Artificial Intelligence Act (“EU AI Act”), which establishes a comprehensive, risk-based governance framework for AI in the EU market. The EU AI Act is expected to enter into force in 2024, and the majority of the substantive requirements will apply two years later (beginning 2026). The EU AI Act will apply to companies that develop, use and/or provide AI in the European Union and includes requirements around transparency, conformity assessments and monitoring, risk assessments, human oversight, security, accuracy, general purpose AI and foundation models, and proposes fines for breach of up to 7% of worldwide annual turnover (revenue). Additionally, in September of 2022, the European Commission proposed two Directives seeking to establish a harmonized civil liability regime for AI in the European Union, in order to facilitate civil claims in respect of harm caused by AI and to include AI-enabled products within the scope of the European Union’s existing strict liability regime. Once fully applicable, the EU AI Act will have a material impact on the way AI is regulated in the European Union, and together with developing guidance and/or decisions in this area, may affect our use of AI and our ability to provide, improve, or commercialize our services, and could require additional compliance measures and changes to our operations and processes.

For more information, see “Item 1A. Risks Related to Regulation of the Company’s Industry – The Company is subject to complex and evolving U.S. and foreign laws and regulations regarding AI, machine learning, and automated decision making.”

U.S. Coverage and Reimbursement

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

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

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

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

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

Reimbursement in Other Jurisdictions

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

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

Intellectual Property

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

The Company has certain patents to its ongoing programs that expire between 2024 and 2040. These patents help the Company maintain a proprietary position in its markets. The Company does not believe that the patents expiring in 2024 are material to its business. Additionally, the Company has a number of patent applications pending domestically, some of which have been also filed internationally, and the Company plans to file additional domestic and foreign patent applications when it believes such protection will benefit the Company. These patents and patent applications relate to current and future uses of iCAD’s cancer detection technologies and products, including cancer detection solutions for tomosynthesis, CAD for CT colonography and lung and CAD for MRI breast and prostate. The Company has also secured a non-exclusive patent license from the National Institute of Health which relates broadly to CAD in colonography.

Sources and Availability of Materials

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

Engineering and Product Development

iCAD’s products have been developed by its own research and development staff or were developed by the companies iCAD acquired. Research and development expenses are primarily attributable to personnel, consulting, subcontract, licensing and data collection expenses relating to the Company’s new product development and clinical testing. iCAD believes its products are competitive and that none of the current versions of the Company’s products are approaching obsolescence. iCAD has invested and expects to continue to invest in new research and development and enhancements of the Company’s current products to maintain iCAD’s competitive position. For the years ended December 31, 2023 and 2022, we incurred $5.2 million and $5.5 million, of research and development expense, respectively. 

Human Capital Resources

As of December 31, 2023, the Company had 69 employees, 67 of whom are full time employees, with 24 involved in sales and marketing, 16 in research and development, 12 in service, manufacturing, quality assurance, technical support and operations functions, and 15 in administrative functions. None of the Company’s employees are represented by a labor organization. The Company considers its relations with employees to be good. 

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

Foreign Regulations

International sales of the Company’s products are subject to foreign government regulation, the requirements of which vary substantially from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ. Obtaining and maintaining foreign regulatory approvals is an expensive and time-consuming process. We cannot be certain that we will be able to obtain the necessary regulatory approvals timely or at all in any foreign country in which we plan to market our products. If we fail to receive and maintain such approvals, our ability to generate revenue may be significantly diminished.

Available Information

The Company files annual, quarterly and current reports, proxy or stockholder information statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements, and certain other information that we may file electronically with the SEC (http://www.sec.gov). We also make available for download free of charge through our website our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after we have filed it electronically with, or furnished it to, the SEC. We maintain our corporate website at http://www.icadmed.com. Our website and the information contained therein or connected thereto are not incorporated into this Annual Report on Form 10-K.

The Company operates in a changing environment that involves numerous known and unknown risks and uncertainties that could materially adversely affect its operations. 

The following is a summary of certain important factors that have affected, and/or in the future could affect, the Company’s operations and that may make an investment in iCAD speculative or risky. You should carefully consider the fuller risk factor disclosure set forth in this Annual Report on Form 10-K, in addition to the other information herein, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s financial statements and related notes.

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

The rate at which the Company is shifting to a software as a service (SaaS) model is uncertain.

The Company’s success in growing revenue and market share from subscription-based offerings will depend, to a large extent, on the willingness of the Company’s customers and the markets we serve to accept this model for commercializing applications that they view as critical to the success of their businesses. Many companies have invested substantial effort and financial resources to integrate traditional enterprise software and IT staffing into their businesses and may be reluctant or unwilling to switch to a recurring fee model for our software applications or to migrate these applications to cloud-based services. Conversely, the rate of adoption of this model may occur faster than the Company forecasted resulting in a short term impact to revenue due to recognizing subscription-based licenses ratably as well as an impact to cash as cash is also collected ratably vs all up front with perpetual models. Other factors that may affect market acceptance of our products and cloud-based applications include:

The market for these services may not develop at the rate we expect, meaning adoption occurs more slowly or more quickly than forecasted, either of which would harm the Company's business. The Company's business model continues to evolve and it may not be able to compete effectively, generate significant revenues or maintain profitability for our subscription-based offerings. The Company has and will continue to incur expenses associated with the infrastructures and marketing of subscription offerings in advance of its ability to recognize the revenues associated with these offerings. Demand for subscription, cloud-based services may unfavorably impact demand for certain other products and services. With a continued shift away from the sale of perpetual software licenses to providing access to software through subscription agreements the Company may, in the near term, experience a deferral of revenues and to a lesser extent cash received from customers.

The Company has incurred significant losses from inception through 2023 and there can be no assurance that it will be able to achieve and sustain future profitability.

The Company has incurred significant losses since inception. The Company incurred a net loss of approximately $4.9 million in 2023 and has an accumulated deficit of approximately $272 million at December 31, 2023. The Company may not be able to achieve profitability. Substantially all of our operating losses have resulted from costs incurred in connection with research and development efforts, including clinical studies, and from general and administrative costs associated with our operations. We also continue to incur additional costs associated with operating as a public company. As a result, we expect to continue to incur substantial and increasing operating losses for the foreseeable future.

The Company’s quarterly and annual operating and financial results and its gross margins are likely to fluctuate significantly in future periods.

The Company’s quarterly and annual operating and financial results are difficult to predict and may fluctuate significantly from period to period. The Company’s revenue and results of operations may fluctuate as a result of a variety of factors that are outside of the Company’s control including, but not limited to, general economic conditions, the timing of orders from the Company’s OEM partners, its OEM partners’ ability to manufacture and ship their digital mammography systems, its timely receipt by the FDA for the clearance or approval to market Company products, its ability to timely engage other OEM partners for the sale of Company products, the timing of product enhancements and new product introductions by Company or its competitors, the pricing of Company products, changes in customers’ budgets, changes to the economic strength of the Company’s customers, economic changes in the markets served by the Company’s customers, competitive conditions and the possible deferral of revenue under the Company’s revenue recognition policies.

The Company may need to raise additional capital to fund its products, including manufacturing, sales and marketing activities, expand its investments in research and development, and commercialize new products and services.

As of December 31, 2023, the Company had cash and cash equivalents and investments in money market funds totaling $21.7 million. The Company expects its cash and cash equivalents and investments in money market funds will be able to fund its operations for at least the next twelve months. However, this does not reflect the possibility that the Company may not be able to access a portion of our existing cash and cash equivalents and investments in marketable securities due to market conditions. For example, on March 10, 2023, the Federal Deposit Insurance Corporation, or the FDIC, took control and was appointed receiver of Silicon Valley Bank. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, the Company's ability to access its cash and cash equivalents and investments in money market funds may be threatened and could have a material adverse effect on its business and financial condition.  

The Company may require additional capital to develop and commercialize its products and to develop new products. In addition, the Company's operating plans may change as a result of many factors that may currently be unknown, and the Company may need to seek additional funds sooner than planned.

The Company cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable, if at all. The terms of any future financing may adversely affect the holdings or the rights of the Company's stockholders and the issuance of additional securities, whether equity or debt, by the Company, or the possibility of such issuance, may cause the market price of the Company's common stock to decline. The incurrence of indebtedness could result in increased fixed payment obligations, and the Company may be required to agree to certain restrictive covenants, such as limitations on its ability to incur additional debt, limitations on its ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact its ability to conduct business. The Company could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we may be required to relinquish rights to some of our technologies or products or otherwise agree to terms that are unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects. In addition, raising additional capital through the issuance of equity or debt securities would cause dilution to holders of the Company's equity securities and/or increased fixed payment obligations, and may affect the rights of then-existing holders of its equity securities. Furthermore, these securities may have rights senior to those of its common stock and could contain covenants that would restrict its operations and potentially impair its competitiveness, such as limitations on its ability to incur additional debt, limitations on its ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact its ability to conduct our business. Any of these events could significantly harm the Company's business, financial condition and prospects. Even if the Company believes that it has sufficient funds for our current or future operating plans, the Company may seek additional capital if market conditions are favorable or if it has specific strategic considerations.

Risks Related to the Company and its Business

We have been informed by the FDA that our ProFound AI® Risk product is appropriate for classification through the De Novo pathway and have paused U.S. sales of the product until we obtain FDA regulatory clearance.

We have been informed by the FDA through a 513(g) request for classification that, ProFound AI® Risk may be suitable for classification under section 513(f)(2) of the FDCA Act, also referred to as De Novo classification.  Under the FDA Clinical Decision Support (CDS) Software Draft Guidance in effect in 2019 when the product was released, we believed that ProFound AI® Risk met the definition of a clinical decision support software and at that time, based on the FDA’s then guidance, the FDA did not intend to enforce compliance with the applicable requirements of the FD&C Act, including, but not limited to, premarket clearance and premarket approval requirements.  In September of 2022, the FDA issued their final CDS guidance  which had several changes from the 2019 Draft Guidance that impacted iCAD’s original decision.  In May of 2023 iCAD sent the FDA a request for pre-submission meeting and in November of 2023 iCAD sent the FDA a 513(g) Request for Information submission regarding the requirements applicable to the product under the FDCA in order to determine the applicable regulatory pathway. In February of 2024, the Company received a response from the FDA indicating that ProFound AI Risk may be suitable for classification through the De Novo pathway. We have begun preparing our De Novo submission and expect to file the submission with the FDA later this year.

While there have been no adverse safety issues reported in the U.S. by our customers which have deployed ProFound AI Risk, we have paused sales of ProFound AI® Risk in the U.S. and will inform customers of our need to provide the FDA with additional information under their revised guidance. However, we do not currently intend to recall any licenses previously sold and granted as there is no risk of patient injury. 

Sales of ProFound AI® Risk have not been significant to our aggregate sales and we have only made sales to a limited number of customers. Note that ProFound AI® Risk is, however, approved for use in countries outside of the U.S. including Canada and the European Union, and we have received no reports of safety issues from any users.  We are presently determining the optimal regulatory strategy designed to satisfy applicable FDA requirements.  The changes in FDA guidance applicable to ProFound AI® Risk do not affect sales of our other products which include our primary product ProFound AI® Detection as well as ProFound AI® Density.

We may not be able to complete all activities necessary to comply with FDA De Novo Request (21 CFR 860.220[DB4] [JG5] ) under the FD&C Act on a timely basis or without expending significant resources. We are unable to control the timing of FDA action and we may be required to provide additional information within certain timeframes. We also may be required to gather and prepare additional clinical data that are relevant to support reasonable assurance of the safety and effectiveness of the device or non-clinical data including bench performance testing.  If the FDA determines that we have not satisfied its requirements, any failure of ours to address such requirements or provide requested documentation could disrupt our business operations related to the ProFound AI® Risk product and the timing of our commercialization efforts  and could have a material adverse effect on our financial condition and operating results.  In addition, the FDA could take action against us for the period of time from the change in FDA guidance applicable to ProFound AI® Risk to the present time, in connection with our decision not to recall the licenses previously sold and granted and could require us to recall the product in the future. We may also be at risk from claims made by our customers who have commenced sales of ProFound AI® Risk to their customers.

The markets for the Company’s products and newly introduced enhancements to the Company’s existing products may not develop as expected, the Company continues to face barriers to broad market acceptance.

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

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

If the Company is unable to successfully commercialize and create a significant market for the Company’s newly developed products and treatments and newly introduced enhancements to the Company’s existing products and treatments, the Company’s business and prospects could be harmed.

The Company may be exposed to significant product liability for which the Company may not have sufficient insurance coverage or be able to procure sufficient insurance coverage.

The Company’s product and general liability insurance coverage may be inadequate with respect to potential claims and adequate insurance coverage may not be available in sufficient amounts or at a reasonable cost in the future. If available at all, product liability insurance for the medical device industry generally is expensive. Future product liability claims could be costly to defend and/or costly to resolve and could harm the Company’s reputation and business.

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

Sales and market acceptance of the Company’s medical products and the treatments facilitated by Company products in the United States and other countries is dependent upon the coverage decisions and reimbursement policies established by government healthcare programs and private health insurers. Market acceptance of the Company’s products and treatments has and will continue to depend upon the Company’s customers’ ability to obtain coverage for, and appropriate reimbursement from third-party payers for, these products and treatments. In the United States, The Centers for Medicare and Medicaid Services (“CMS”) establishes coverage and reimbursement policies for healthcare providers treating Medicare and Medicaid beneficiaries. Under current CMS policies, varying reimbursement levels have been established for the Company’s products and treatments. In the absence of a national coverage determination, coverage policies for Medicare patients may vary by regional Medicare Administrative Contractors. Reimbursement rates for treatments vary based on the geographic price index, the site of service, and other factors. Coverage and reimbursement policies and rates applicable to patients with private insurance are dependent upon individual private payer decisions which may not follow the policies and rates established by CMS. The use of Company products and treatments outside the United States is similarly affected by coverage and reimbursement policies adopted by foreign governments and, to a lesser extent, private insurance carriers.  Management cannot provide assurance that government or private third-party payers will continue to reimburse the Company’s products or services, nor can management provide assurance that the payment rates will be adequate. If providers and physicians are unable to obtain adequate reimbursement for the Company’s products or services, this could have a material adverse effect on the Company’s business and operations. In addition, in the event that the current methodology for calculating payment for these products or services changes, this could have a material adverse effect on the Company’s business and business operations.

Management cannot guarantee that providers and physicians will be able to obtain adequate reimbursement for the Company’s products or services.

The Company’s use of AI, machine learning, and automated decision making, including through the ProFound Breast Health Suite, gives rise to legal, business, and operational risks. Legal, regulatory, social and ethical issues relating to the use of AI and machine learning technologies in our offerings and business may result in reputational harm and liability.

The rapid evolution of AI and machine learning will require the application of resources to develop, test, and maintain the Company’s offerings, including but not limited to the ProFound Breast Health Suite, to help ensure that AI and machine learning are implemented responsibly in order to minimize unintended or harmful consequences. Uncertainty around new and emerging AI applications may require additional investment in the development of proprietary datasets, machine learning models, and systems to test for accuracy, bias, and other variables, which are often complex, may be costly, and could impact the Company’s profit margin as we expand the use of AI technologies in our offerings. There are significant risks involved in developing, maintaining, and deploying these technologies and there can be no assurance that the usage of such technologies will always enhance the Company’s products or services or be beneficial to our business, including our efficiency or profitability. In particular, AI or automated decision making technologies may be incorrectly designed or implemented; may be trained or reliant on incomplete, inadequate, inaccurate, biased, or otherwise poor quality data or on data to which the developer does not have sufficient rights; and/or may be adversely impacted by unforeseen defects, technical challenges, cyber security threats, or material performance issues.

The Company’s ability to continue to develop or use such technologies may be dependent on access to technology offered by vendors and specific third-party software and infrastructure, such as processing hardware or third-party AI models, and the Company cannot control the quality of vendor offerings or the availability or pricing of such third-party software and infrastructure, especially in a highly competitive environment. The Company faces competition from other companies in its industry who use similar machine learning technologies to us. Failure to offer or deploy new AI technologies as effectively as the Company’s competitors could adversely affect our business.

In addition, market acceptance and consumer perceptions of AI and machine learning technologies are uncertain. AI technologies, including generative AI, may create content or information that appears correct but is factually inaccurate or flawed. This may expose the Company to brand or reputational harm, competitive harm, consumer complaints, legal liability, and other adverse consequences, any of which could materially adversely affect the Company’s business, results of operations, and financial condition. The use of AI technologies presents emerging ethical and social issues, and if the Company enables or offers solutions that draw scrutiny or controversy due to their perceived or actual impact on the Company’s customers or on society as a whole, it may experience brand or reputational harm, competitive harm, consumer complaints, legal liability, and other adverse consequences, any of which could materially adversely affect the Company’s business, results of operations, and financial condition.

The Company’s business is dependent upon future market growth of full field digital mammography systems, digital computer aided detection products, and tomosynthesis as well as advanced image analysis. This growth may not occur or may occur too slowly to benefit us.

The Company’s future business is substantially dependent on the continued growth in full field digital mammography systems, digital computer aided detection products and tomosynthesis as well as advanced image analysis and workflow solutions. The market for these products may not continue to develop or may develop at a slower rate than the Company anticipates due to a variety of factors, including, general economic conditions, delays in hospital spending for capital equipment, the significant costs associated with the procurement of full field digital mammography systems and CAD products and the reliance on third party insurance reimbursement. If the market for the products and technologies upon which the Company’s products are dependent does not grow or grows too slowly, this could have a material adverse effect on the Company’s business.

A limited number of customers and distribution partners account for a significant portion of the Company’s total revenue. The loss of a principal customer could seriously hurt the Company’s business.

A limited number of major customers have in the past and may continue in the future to account for a significant portion of the Company’s revenue. The Company’s principal sales distribution channel for its digital products is through its OEM partners. In 2023, the Company’s OEM partners accounted for 32% of its total revenue, with one major partner, GE Healthcare, accounting for 22% of the Company’s revenue. In addition, in 2023,  one direct customer, accounted for 8% of the Company’s total revenue. Other than GE Healthcare, no individual customer or partner accounted for greater than 10% of the Company's total revenue for the year ended December 31, 2023.  The loss of the Company’s relationships with principal customers or a decline in sales to principal customers could materially adversely affect its business and operating results.

Revenue from the Company’s new subscription license model may be difficult to predict.

The Company is devoting resources to the transition to a new software license model to complement its traditional perpetual licensing models. This model allows the Company to license its software through subscription licenses, generally for a three-year term, and that potentially may not be renewed. The Company has limited operating history with subscription licensing models and may not be able to accurately predict initial subscription enrollment or future renewal or cancellation rates. Subscription renewal rates may decline or fluctuate as a result of a number of factors, including but not limited to customer satisfaction or dissatisfaction with Company products, the price of Company products, the prices of similar competitive products, or customer budget sensitivity. If any of the Company’s assumptions about revenue from the subscription licensing model are incorrect, the Company’s actual results may vary materially from those anticipated, estimated, or projected.

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

Under current accounting, management must assess, at least annually and potentially more frequently, whether the value of the Company’s goodwill of $8.4 million at December 31, 2023 and its other intangible assets have been impaired. Any reduction or impairment of the value of goodwill or other intangible assets will result in a charge against earnings which could materially adversely affect the Company’s reported results of operations in future periods.

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

As a global company, the Company is subject to a variety of taxes in numerous countries, states and other jurisdictions. In preparing the Company’s financial statements, the Company records the amount of tax payable in each of the countries, states and other jurisdictions in which the Company operates. The Company’s future effective tax rate, however, may be lower or higher than prior years due to numerous factors, including a change in the Company’s geographic earnings mix, changes in the measurement of the Company’s deferred taxes, and recently enacted and future tax law changes in jurisdictions in which the Company operates. The Company is also subject to ongoing tax audits in various jurisdictions, and tax authorities may disagree with certain positions the Company has taken and assess additional taxes. Any of these factors could cause the Company to experience an effective tax rate significantly different from previous periods or the Company’s current expectations, which could adversely affect the Company’s business, results of operations and cash flows.

The Company’s ability to use its net operating loss carryovers and certain other tax attributes may be limited.

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

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

The markets for many of the Company’s products are subject to changing technology.

The Company’s business depends on its ability to adapt to evolving technologies and industry standards and introduce new technology solutions and services accordingly. If the Company cannot adapt to changing technologies, its technology solutions and services may become obsolete, and its business may suffer. Because the healthcare information technology market is constantly evolving, the Company’s existing technology may become obsolete and fail to meet the requirements of current and potential customers. The Company’s success will depend, in part, on its ability to continue to enhance its existing technology solutions and services, develop new technology that addresses the increasingly sophisticated and varied needs of its customers, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. The development of the Company’s proprietary technology entails significant technical and business risks. The Company may not be successful in developing, using, marketing, selling, or maintaining new technologies effectively or adapting its proprietary technology to evolving customer requirements or emerging industry standards, and, as a result, the Company’s business and reputation could suffer. The Company may not be able to introduce new technology solutions on schedule, or at all, or such solutions may not achieve market acceptance. Moreover, competitors may develop competitive products that could adversely affect the Company’s results of operations. The Company’s failure to introduce new products or to introduce these products on schedule could have an adverse effect on its business, financial condition and results of operations.

The Company distributes its products in highly competitive markets and its sales may suffer as a result. 

The Company operates in highly competitive and rapidly changing markets that contain competitive products available from nationally and internationally recognized companies. Many of these competitors have significantly greater financial, technical and human resources than the Company and are well established. In addition, some companies have developed or may develop technologies or products that could compete with the products the Company manufactures and distributes or that would render the Company’s products obsolete or noncompetitive. New business models, products and diagnostic tools are introduced on an ongoing basis and our present or future products could be rendered obsolete or uneconomical by internal or external technological advances, as we continue to innovate to address physician and patient needs, or by our existing competitors and new market entrants. Our existing competitors and new market entrants may respond more quickly to or integrate new or emerging technologies such as artificial intelligence and machine learning, undertake more extensive marketing campaigns, have greater access to clinical information to support ongoing product position in the market, have greater financial, marketing and other resources or be more successful in attracting potential customers, employees and strategic partners. There can be no assurance that any products now in development, or that we may seek to develop in the future, will achieve technological feasibility, obtain regulatory approval or gain market acceptance. If we are unable to develop and launch new products, our ability to maintain or expand our market position in the markets in which we participate may be negatively impacted. The Company’s competitors may achieve patent protection, regulatory approval, or product commercialization that would limit the Company’s ability to compete with them. These and other competitive pressures could have a material adverse effect the Company’s business.

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

The Company relies on third parties who provide access to data centers. The Company’s information technologies and systems are vulnerable to damage or interruption from various causes, including (i) acts of God and other natural disasters, war and acts of terrorism and (ii) power losses, computer systems failures, internet and telecommunications or data network failures, operator error, losses of and corruption of data and similar events. The Company conducts business continuity planning and works with its third-party providers to protect against fires, floods, other natural disasters and general business interruptions to mitigate the adverse effects of a disruption, relocation or change in operating environment at the data centers the Company utilizes. In addition, the occurrence of any of these events could result in interruptions, delays or cessations in service to the Company’s customers. Any of these events could impair or prohibit the Company’s ability to provide its services, reduce the attractiveness of its services to current or potential customers and adversely impact its financial condition and results of operations.

In addition, despite the implementation of security measures, the Company’s infrastructure, data centers, or systems that it interfaces with, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks or other attacks by third-parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security. Any of these can cause system failure, including network, software or hardware failure, which can result in service disruptions. As a result, the Company may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches.

Instability in geographies where the Company has operations and personnel or where the Company derives revenue could have a material adverse effect on the Company’s business, customers, operations and financial results.

Economic, civil, military and political uncertainty may arise or increase in regions where the Company operates or derives revenue. Further, countries from which the Company derives revenue may experience military action and/or civil and political unrest. For the fiscal year ended 2023, approximately 13% of the Company’s revenue was derived from customers outside of the U.S., primarily within Europe. In late February 2022, Russian military forces launched significant military action against Ukraine. Sustained conflict and disruption in the region is likely. In early October 2023, an armed conflict between Hamas-led Palestinian militant groups and Israeli military forces broke out with a Hamas attack on southern Israel, to which Israeli military forces retaliated. Sustained conflict and disruption in these regions is likely.  The aggregate impact to Eastern Europe and Europe as a whole, and throughout the Middle East, as well as actions taken by other countries, including new and stricter sanctions by the United States, Canada, the United Kingdom, the European Union, and other countries and organizations against officials, individuals, regions, and industries in Russia, Belarus and Ukraine, and each country’s potential response to such sanctions, tensions and military actions, is not knowable at this time, and could have a material adverse effect on the Company, its business and operations. Any such material adverse effect from the conflict and enhanced sanctions activity may disrupt the Company’s sales to customers in the region. Prolonged unfavorable economic conditions or uncertainty may have an adverse effect on the Company’s sales and profitability.

If the Company’s products fail to perform properly due to errors or similar problems, the Company’s business could suffer.

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

Furthermore, the Company’s customers might use its software together with products from other companies or those that they have developed internally. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when the Company’s software does not cause these problems, the existence of these errors might cause the Company to incur significant costs, divert the attention of its technical personnel from the Company’s solution development efforts or impact its reputation and cause significant customer relations problems.

Unfavorable results of legal proceedings could materially adversely affect the Company’s financial results.

From time to time, the Company is a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of business or otherwise. Legal proceedings are often lengthy, taking place over a period of years with interim motions or judgments subject to multiple levels of review (such as appeals or rehearings) before the outcome is final. Litigation is subject to significant uncertainty and may be expensive, time- consuming, and disruptive to operations. For these and other reasons, the Company may choose to settle legal proceedings and claims, regardless of their actual merit.

A legal proceeding finally resolved against the Company, could result in significant compensatory damages, and in certain circumstances, punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief. If the Company’s existing insurance does not cover the amount or types of damages awarded, or if other resolutions or actions taken as a result of the legal proceeding were to restrain the Company’s ability to market one or more of the Company’s material products or services, the Company’s consolidated financial position, results of operations or cash flows could be materially adversely affected. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to the Company’s reputation, which could adversely impact the Company’s business.

If the Company is subject to claims that its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties, the Company could incur substantial expenses.

The Company employ individuals who were previously employed at other medical device and technology companies. The Company may be subject to claims that the Company or its employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of employees’ former employers or other third parties. The Company may also be subject to claims that former employers or other parties have an ownership interest in patents or intellectual property. Litigation may be necessary to defend against these claims. The Company may not be successful in defending these claims, and if the Company is successful, litigation could result in substantial cost and be a distraction to its management and other employees.

Healthcare industry consolidation could impose pressure on the Company’s prices, reduce potential customer base and reduce demands for the Company’s systems.

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

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

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

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

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

The Company’s future prospects depend on its ability to retain current key employees and attract additional qualified personnel.

The Company’s success depends in large part on the continued service of its executive officers and other key employees. The Company may not be able to retain the services of its executive officers and other key employees. The loss of executive officers or other key personnel could have a material adverse effect on the Company. During the year ended December 31, 2023, the Company underwent changes in management, including changes to the Company’s Chief Executive Officer, Chief Financial Officer and Chair of the Board.

In addition, in order to support its continued growth, the Company will be required to effectively recruit, develop and retain additional qualified personnel. If the Company is unable to attract and retain additional necessary personnel, it could delay or hinder its plans for growth. Competition for such personnel is intense, and there can be no assurance that the Company will be able to successfully attract, assimilate or retain sufficiently qualified personnel. The failure to retain and attract necessary personnel could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company’s international operations expose it to various risks, any number of which could harm the Company’s business.

The Company’s revenue from sales outside of the United States represented approximately 13% of the Company’s revenue for 2023. The Company is subject to the risks inherent in conducting business across national boundaries, any one of which could adversely impact its business. In addition to currency fluctuations, these risks include, among other things: economic downturns; changes in or interpretations of local law, governmental policy or regulation; changes in healthcare practice patterns; restrictions on the transfer of funds into or out of the country; varying tax systems; and government protectionism. One or more of the foregoing factors could impair the Company’s current or future operations and, as a result, harm the Company’s overall business.

The requirements of being a publicly traded company may strain the Company's resources and divert management’s attention. 

As a publicly traded company, the Company has incurred, and will continue to incur, significant legal, accounting and other expenses that the Company did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Shareholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which the Company operates its  business in ways the Company cannot currently anticipate. The Company’s management and other personnel devote, and will continue to devote, a substantial amount of time to these compliance initiatives. Failure to comply with these requirements could subject the Company to enforcement actions by the SEC, divert management’s attention, damage our reputation, and adversely affect the Company’s business, results of operations, or financial condition.

The Company may be unable to comply with the applicable continued listing requirements of Nasdaq.

The Company’s common stock is currently listed on Nasdaq. In order to maintain this listing, the Company must satisfy minimum financial and other continued listing requirements and standards, including a minimum closing bid price requirement for our common stock of $1.00 per share. There can be no assurance that the Company we will be able to comply with the applicable listing standards. For example, if the Company were to fail to meet the minimum bid price requirement for 30 consecutive business days, the Company could become subject to delisting.

Risks Related to Intellectual Property

The Company relies on intellectual property and proprietary rights to maintain its competitive position and may not be able to protect these rights.

The Company relies heavily on proprietary technology that it protects primarily through licensing arrangements, patents, trade secrets, proprietary know-how and non-disclosure agreements. There can be no assurance that any pending or future patent applications will be granted or that any current or future patents, regardless of whether the Company is an owner or a licensee of the patent, will not be challenged, rendered unenforceable, invalidated, or circumvented or that the rights will provide a competitive advantage to the Company. There can also be no assurance that the Company’s trade secrets or non-disclosure agreements will provide meaningful protection of Company proprietary information. Further, the Company cannot assure that others will not independently develop similar technologies or duplicate any technology developed by the Company or that its technology will not infringe upon patents or other rights owned by others. Unauthorized third parties may infringe the Company’s intellectual property rights or copy or reverse engineer portions of the Company’s technology. In addition, because patent applications in the United States are not generally publicly disclosed until eighteen months after the application is filed, applications may have been filed by third parties that relate to the Company’s technology. Moreover, there is a risk that foreign intellectual property laws will not protect the Company’s intellectual property rights to the same extent as intellectual property laws in the United States. The rights provided by a patent are finite in time. The Company has certain patents that expire between 2024 and 2040. In the absence of significant patent protection, the Company may be vulnerable to competitors who attempt to copy the Company’s products, processes or technology.

In addition, in the future, the Company may be required to assert infringement claims against third parties, and there can be no assurance that one or more parties will not assert infringement claims against the Company. Any resulting litigation or proceeding could result in significant expense to the Company and divert the efforts of its management personnel, whether or not such litigation or proceeding is determined in the Company’s favor. In addition, if any of the Company’s intellectual property and proprietary rights are deemed to violate the proprietary rights of others, the Company may be prevented from using those intellectual property or proprietary rights, which could prevent it from being able to sell its products. Litigation could also result in a judgment or monetary damages being levied against the Company.

If the Company fails to obtain licenses to necessary intellectual property or does not comply with its obligations in license agreements, the Company could lose important rights.

The Company may need to obtain licenses from owners of intellectual property to advance its research and products or allow commercialization of its products, and the Company has done so from time to time. If the Company does not obtain any of these licenses at a reasonable cost and on reasonable terms, the Company would be unable to further develop and commercialize one or more of its products, which could harm the Company’s business.

Risks Related to Regulation of the Company’s Industry

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

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

Many healthcare laws are complex, and their application to specific services and relationships may not be clear. The laws often have related rules and regulations that are subject to interpretation and may not provide definitive guidance as to their application to the Company’s operations, including its arrangements with physicians and professional corporations. Further, healthcare laws differ from jurisdiction to jurisdiction and it is difficult to ensure the Company’s business complies with evolving laws in all jurisdictions.

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

In the event regulatory action were to limit or prohibit the Company from carrying on its business as it presently conducts it or from expanding its operations into certain jurisdictions, the Company may need to make structural, operational and organizational modifications to the Company or to its contractual arrangements with physicians and professional corporations. The Company’s operating costs could increase significantly as a result. The Company could also lose contracts, or its revenues could decrease under existing contracts. Any restructuring would also negatively impact the Company’s operations because its management’s time and attention would be diverted from running its business in the ordinary course.

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

Once the Company’s products are sold, the Company must comply with various U.S. federal and state healthcare fraud and abuse laws, rules and regulations pertaining false claims, kickbacks and physician self-referral. Violations of the fraud and abuse laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from participation in federal and state healthcare programs, including Medicare, Medicaid, Veterans Administration health programs, workers’ compensation programs and TRICARE. Compliance with these laws could restrict the Company’s sales and marketing practices, and any challenge to the Company’s practices could disrupt its operations and lead to substantial defense costs and a diversion of management’s time and attention, even if the Company successfully defends its practices. If the Company is unable to successfully defend its practices, in addition to incurring significant expense in defending itself, the Company could be subject to a significant settlement, monetary penalties, and costs related to implementation of changes to its practices, which could have a material adverse effect on its business.

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

The Company is unable to predict what legislation or regulation relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on the Company’s business. Any cost containment measures or other health care system reforms that are adopted could have a material and adverse effect on the Company’s ability to commercialize its existing and future products successfully. The Company cannot predict whether any existing or enacted legislation will be repealed, replaced, or modified or how such repeal, replacement or modification may be timed or structured.

As a result, the Company cannot quantify or predict the effect of such repeal, replacement, or modification might have on its business and results of operations. However, any changes that lower reimbursement for the Company’s products or reduce medical procedure volumes could adversely affect its business and results of operations.

The Company’s products and manufacturing facilities are subject to extensive regulation with potentially significant costs for compliance.

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

The Company’s failure to fully comply with applicable regulations could result in the issuance of warning letters, non-approvals, suspensions of existing approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions, and criminal prosecution. Moreover, unanticipated changes in existing regulatory requirements or adoption of new requirements could increase the Company’s operating and compliance burdens and adversely affect its business, financial condition and results of operations.

Sales of the Company’s products in certain countries outside of the United States are also subject to extensive regulatory approvals. Obtaining and maintaining foreign regulatory approvals is an expensive and time-consuming process. The Company cannot be certain that it will be able to obtain the necessary regulatory approvals timely or at all in any foreign country in which the Company plans to market its CAD products, and if the Company fails to receive such approvals, its ability to generate revenue may be significantly diminished.

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

The Company has received the required premarket approvals from FDA or the equivalent foreign authority in the relevant jurisdictions in which its currently offers its products. Before the Company is able to commercialize any new product or promote a new indicated use of an existing product, it must obtain the required regulatory approvals. The process for satisfying these regulatory requirements is lengthy and costly and will require the Company to comply with complex standards for research and development, clinical trials, testing, manufacturing, quality control, labeling, and promotion of products. Additionally, even if the Company receives regulatory approval for a new product or indicated use in one jurisdiction, its products may be subject to separate regulatory approval in each country or jurisdiction in which the Company plans to market its products. The Company cannot be certain that it will be able to obtain the necessary regulatory approvals timely or at all in any country or jurisdiction. Successfully obtaining regulatory approval in one jurisdiction does not guarantee approval in another; however, a delay or failure to obtain regulatory approval in one jurisdiction may negatively affect the regulatory process in another. If the Company is unable to obtain regulatory approval for other products or indicated uses, its ability to generate sufficient revenue to continue its business may be significantly impacted.

The Company’s products may be recalled even after it has received FDA or other governmental approval or clearance.

If the safety or efficacy of any of the Company’s products is called into question, the Company may initiate or the FDA and similar governmental authorities in other countries may press the Company to implement or even require a product recall, even if the Company’s product received approval or clearance by the FDA or a similar governmental body. Such a recall would divert the focus of the Company’s management and its financial resources and could materially and adversely affect the Company’s reputation with customers and its financial condition and results of operations.

Strategic transactions, acquisitions or joint ventures could disrupt our business, cause dilution to our stockholders and otherwise harm our business and results of operations, and the Company may not receive the intended benefits of any such activities.

We may engage in strategic transactions, acquire other businesses, products or technologies as well as pursue strategic alliances, joint ventures, technology licenses or investments in complementary businesses. Any of these transactions could be material to our financial condition and operating results and expose us to many risks, including: 

In addition, the anticipated benefit of any transaction may not materialize. For example, in October 2023, the Company transferred substantially all of the assets and liabilities primarily related to the Company’s Xoft business lines for total consideration of approximately $5.76 million dollars, in part, to allow the Company to capitalize and focus on the Company’s Profound AI and related products and proposed products. Future transactions, including acquisitions or dispositions, could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition. We cannot predict the number, timing or size of future joint ventures, acquisitions, or other transactions, if any, or the effect that any such transactions might have on our operating results.

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

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

The Company’s customers are covered entities, and the Company is a business associate of its customers under HIPAA as a result of the Company’s contractual obligations to perform certain functions on behalf of and provide certain services to those customers. In the ordinary course of business, the Company collects and stores sensitive data, including personally identifiable information received from its customers. The secure processing, maintenance and transmission of this information is critical to the Company’s operations. Despite its security measures and business controls, the Company’s information technology and infrastructure may be vulnerable to attacks by hackers, breached due to employee error, malfeasance or other disruptions or subject to the inadvertent or intentional unauthorized release of information. Any such occurrence could compromise the Company’s networks and the information stored thereon could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information by the Company or its subcontractors could (i) result in legal claims or proceedings, liability under laws that protect the privacy of personal information and regulatory penalties, (ii) disrupt the Company’s operations and the services it provides to its customers and (iii) damage the Company’s reputation, any of which could adversely affect the Company’s profitability, revenue and competitive position.

Federal and state consumer laws are being applied increasingly by the Federal Trade Commission and state attorneys general to regulate the collection, use and disclosure of personal or patient health information, through web sites or otherwise, and to regulate the presentation of web site content. Numerous other federal and state laws protect the confidentiality, privacy, availability, integrity and security of personally identifiable information. These laws in many cases are more restrictive than, and not preempted by, HIPAA and may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for the Company and its customers and potentially exposing the Company to additional expense, adverse publicity and liability. The Company may not remain in compliance with the diverse privacy requirements in each of the jurisdictions in which it does business.

HIPAA and federal and state laws and regulations may require users of personally identifiable information to implement specified security measures. Evolving laws and regulations in this area could require the Company to incur significant additional costs to re-design its products in a timely manner to reflect these legal requirements, which could have an adverse impact on its results of operations.

New personally identifiable information standards, whether implemented pursuant to HIPAA, congressional action or otherwise, could have a significant effect on the manner in which the Company must handle healthcare related data, and the cost of complying with standards could be significant. If the Company does not properly comply with existing or new laws and regulations related to patient health information, it could be subject to criminal or civil sanctions.

The Company is subject to complex and evolving U.S. and foreign laws and regulations regarding AI, machine learning, and automated decision making.

The Company’s business increasingly relies on machine learning, AI, and automated decision making. However, in recent years the use of personal data to train, or otherwise in connection with machine learning, AI and automated decision making, has come under increased regulatory scrutiny, and governments and regulators in the United States, European Union, and other places have announced the need for greater regulation regarding the use of machine learning and AI generally. New laws, guidance, and decisions in this area may limit the Company’s ability to use machine learning and AI, or require the Company to make changes to its platform or operations that may decrease our operational efficiency, result in an increase to operating costs and/or hinder our ability to improve our services. For example, certain global privacy laws regulate the use of automated decision making and may require that the existence of automated decision making be disclosed to the data subject with a meaningful explanation of the logic used in such decision making in certain circumstances, and that safeguards must be implemented to safeguard individual rights, including the right to obtain human intervention and to contest any decision. Other global privacy laws allow individuals the right to opt out of certain automated processing of personal data and create other requirements that impact automated decision-making. At the federal level, the president of the United States recently issued an Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, which charges multiple agencies, including The National Institute of Standards and Technology, with producing guidelines in connection with the development and use of AI. In the European Union, there is now political agreement on the EU AI Act, which establishes a comprehensive, risk-based governance framework for AI in the EU market. The EU AI Act is expected to enter into force in 2024, and the majority of the substantive requirements will apply two years later (beginning 2026). The EU AI Act will apply to companies that develop, use and/or provide AI in the European Union and includes requirements around transparency, conformity assessments and monitoring, risk assessments, human oversight, security, accuracy, general purpose AI and foundation models, and proposes fines for breach of up to 7% of worldwide annual turnover (revenue). Additionally, in September of 2022, the European Commission proposed two Directives seeking to establish a harmonized civil liability regime for AI in the European Union, in order to facilitate civil claims in respect of harm caused by AI and to include AI-enabled products within the scope of the European Union’s existing strict liability regime. Once fully applicable, the EU AI Act will have a material impact on the way AI is regulated in the European Union, and together with developing guidance and/or decisions in this area, may affect our use of AI and our ability to provide, improve, or commercialize our services, and could require additional compliance measures and changes to our operations and processes. Moreover, the intellectual property ownership and license rights, including copyright, surrounding AI technologies has not been fully addressed by courts or laws or regulations, and the use or adoption of AI technologies into our offerings may result in exposure to claims of copyright infringement or other intellectual property misappropriation. As the legal and regulatory framework for AI and automated decision making evolves, we may not always be able to anticipate how to respond to these laws or regulations, and compliance may adversely impact our operations and involve significant expenditure and resources. Any failure by us to comply may result in significant liability, potential increases in civil claims against us, negative publicity, an erosion of trust, and/or increased regulation and could materially adversely affect our business, results of operations, and financial condition.

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

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

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

Risks Related to the Company’s Common Stock

A substantial number of shares of the Company’s common stock are eligible for future sale, and the sale of shares of common stock into the market, or the perception that such sales may occur, may depress the Company’s stock price.

Sales of substantial additional shares of the Company’s common stock in the public market, or the perception that these sales may occur, may significantly lower the market price of the Company’s common stock. The Company is unable to estimate the amount, timing or nature of future sales of shares of its common stock. The Company has previously issued a substantial number of shares of common stock, which are eligible for resale under Rule 144 of the Securities Act of 1933, as amended (the “Securities Act”), and may become freely tradable. The Company has also registered shares that are issuable upon the exercise of options and warrants. If holders of options, or warrants choose to exercise or convert their securities and sell shares of common stock issued upon such exercise or conversion in the public market or if holders of currently restricted common stock choose to sell such shares of common stock in the public market under Rule 144 or otherwise, or attempt to publicly sell such shares all at once or in a short time period, the prevailing market price for the Company’s common stock may decline.

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

The Company’s Certificate of Incorporation authorizes the Board of Directors (the "Board") to issue up to 1,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Company’s Board, without further action by stockholders, and may include, among other things, voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions. Although there are currently no shares of preferred stock outstanding, future holders of preferred stock may have rights superior to the Company’s common stock and such rights could also be used to restrict the Company’s ability to merge with or sell its assets to a third party.

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

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

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

The publicly traded shares of the Company’s common stock have experienced, and may experience in the future, significant price and volume fluctuations. This market volatility could reduce the market price of the Company’s common stock without regard to its operating performance. In addition, the trading price of the Company’s common stock could change significantly in response to actual or anticipated variations in its quarterly operating results, announcements by the Company or its competitors, factors affecting the medical imaging industry generally, changes in national or regional economic conditions, changes in securities analysts’ estimates for the Company or its competitors’ or industry’s future performance or general market conditions, making it more difficult for shares of the Company’s common stock to be sold at a favorable price or at all. The market price of the Company’s common stock could also be reduced by general market price declines or market volatility in the future or future declines or volatility in the prices of stocks for companies in the Company’s industry.

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

The Company has previously issued options that are exercisable or convertible into a significant number of shares of its common stock. Should existing holders of options exercise their options for shares of the Company’s common stock, it may cause significant dilution of equity interests of existing holders of the Company’s common stock and reduce the market price of shares of the Company’s common stock.

On August 11, 2023, the Company entered into an at-the-market issuance sales agreement (the “Sales Agreement”) with Craig-Hallum Capital Group LLC whereby the Company, at its discretion, may issue and sell up to $25 million of shares of the Company's common stock, from time to time, by any method deemed to be an “at-the-market” offering, as defined in Rule 415 of the Securities Act, or any method specified in the Sales Agreement.  During the year ended December 31, 2023, the Company sold 1,057,814 shares of its common stock at a weighted average price of $2.18 per share resulting in cash proceeds of $2.0 million, net of issuance costs, pursuant to the Sales Agreement.  Subsequent to December 31, 2023, the Company has not sold additional shares of its common stock.  To the extent we raise additional capital by issuing equity securities (including but not limited to securities issued in connection with the Sales Agreement), our shareholders may experience substantial dilution.

General Risk Factors

Security breaches and other disruptions could compromise the Company’s information and expose the Company to liability, which would cause its business and reputation to suffer and could subject it to substantial liabilities.

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

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

See “Item IC. Cybersecurity” for more information.

Changes in interpretation or application of Accounting Principles Generally Accepted in the United States of America (“GAAP”) may adversely affect the Company’s operating results.

Management prepares the Company’s consolidated financial statements to conform to GAAP. These principles are subject to interpretation by the Financial Accounting Standards Board (“FASB”), American Institute of Certified Public Accountants, the SEC and various other regulatory or accounting bodies. A change in interpretations of, or management’s application of, these principles can have a significant effect on the Company’s reported results and may even affect the Company’s reporting of transactions completed before a change is announced. In addition, when the Company is required to adopt new accounting standards, the Company’s methods of accounting for certain items may change, which could cause the Company’s results of operations to fluctuate from period to period and make it more difficult to compare the Company’s financial results to prior periods.

As the Company’s operations evolve over time, the Company may introduce new products or new technologies that require it to apply different accounting principles, including ones regarding revenue recognition, than the Company has applied in past periods. The application of different types of accounting principles and related potential changes may make it more difficult to compare the Company’s financial results from quarter to quarter, and the trading price of the Company’s common stock could suffer or become more volatile as a result.

The Company cannot be certain of the future effectiveness of its internal controls over financial reporting or the impact of the same on its operations or the market price for the Company’s common stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), the Company is required to include in its Annual Report on Form 10-K its assessment of the effectiveness of the Company’s internal controls over financial reporting. The Company has dedicated a significant amount of time and resources to ensure compliance with this legislation for the year ended December 31, 2023 and will continue to do so for future fiscal periods. Although the Company believes that it currently has adequate internal control procedures in place, it cannot be certain that its internal controls over financial reporting will continue to be effective. If the Company cannot adequately maintain the effectiveness of its internal controls over financial reporting, it might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect the Company’s financial results and the market price of its common stock.

Changes in credit markets or to the Company’s credit rating could impact its ability to obtain financing for business operations or result in increased borrowing costs and interest expense.

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

Not applicable.

Risk management and strategy

The Company recognizes the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of data.

Managing Material Risks & Integrated Overall Risk Management

The Company has strategically integrated cybersecurity risk management into our broader risk management framework to promote a company-wide culture of cybersecurity risk management. This integration ensures that cybersecurity considerations are an integral part of our decision-making processes at every level. Our management team works closely with our IT department to continuously evaluate and address cybersecurity risks in alignment with our business objectives and operational needs.

Engage Third-parties on Risk Management

Recognizing the complexity and evolving nature of cybersecurity threats, we engage with a range of external experts, including cybersecurity consultants, to evaluate and test our risk management systems. These partnerships enable us to leverage specialized knowledge and insights, and ensure our cybersecurity strategies and processes remain at the forefront of industry best practices. Our collaborations with these third-parties include threat assessments and security enhancement consultations.

Oversee Third-party Risk

Because we are aware of the risks associated with third-party service providers, we implement stringent processes to oversee and manage these risks. We conduct thorough security assessments of all third-party providers before engagement and maintain ongoing monitoring to ensure compliance with our cybersecurity standards. The monitoring includes ongoing assessments by our security analysts. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third-parties.

Risks from Cybersecurity Threats

We have not encountered cybersecurity challenges that have materially impaired our operations or financial standing.

Governance

The Board is acutely aware of the critical nature of managing risks associated with cybersecurity threats. The Board has established robust oversight mechanisms to ensure effective governance in managing risks associated with cybersecurity threats because we recognize the significance of these threats to our operational integrity and stakeholder confidence.

Board of Directors Oversight

The Audit Committee of the Board (the "Audit Committee") is central to the Board’s oversight of cybersecurity risks and bears the primary responsibility for this domain. The Audit Committee is composed of board members with diverse expertise including, risk management, technology, and finance, equipping them to oversee cybersecurity risks effectively.

Management’s Role Managing Risk

The Chief Product Officer (the "CPrO"), the Chief Technology Officer (the "CTO"), the Chief  Operations Officer (the "COO"), and the Chief People Officer (the "CPO") form the Risk Management team (the "RMT"). The RMT and the Chief Executive Officer (“CEO”) play a pivotal role in informing the Audit Committee on cybersecurity risks. They provide comprehensive briefings to the Audit Committee on a regular basis, with a minimum frequency of once per year. These briefings encompass a broad range of topics, including:

In addition to our scheduled meetings, the Audit Committee, RMT, and CEO maintain an ongoing dialogue regarding emerging or potential cybersecurity risks. Together, they receive updates on any significant developments in the cybersecurity domain, ensuring the Board’s oversight is proactive and responsive. The Audit Committee actively participates in strategic decisions related to cybersecurity, offering guidance and approval for major initiatives. This involvement ensures that cybersecurity considerations are integrated into the broader strategic objectives of the Company. The Audit Committee conducts an annual review of the company’s cybersecurity posture and the effectiveness of its risk management strategies. This review helps in identifying areas for improvement and ensuring the alignment of cybersecurity efforts with the overall risk management framework.

Risk Management Personnel

Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with the RMT. With deep experience in technology, operations, security, compliance and risk management, the RMT brings a wealth of expertise in enterprise cybersecurity and are instrumental in developing and executing our cybersecurity strategies. The RMT oversees our governance programs, tests our compliance with standards, remediates known risks, and leads our employee training program.

Monitor Cybersecurity Incidents

The RMT is continually informed about the latest developments in cybersecurity, including potential threats and innovative risk management techniques. This ongoing knowledge acquisition is crucial for the effective prevention, detection, mitigation, and remediation of cybersecurity incidents. The RMT implements and oversees processes for the regular monitoring of our information systems. This includes the deployment of advanced security measures and regular system audits to identify potential vulnerabilities. In the event of a cybersecurity incident, the RMT is equipped with a well-defined incident response plan. This plan includes immediate actions to mitigate the impact and long-term strategies for remediation and prevention of future incidents.

Reporting to Board of Directors

The RMT regularly informs the CFO and CEO of all aspects related to cybersecurity risks and incidents. This ensures that the highest levels of management are kept abreast of the cybersecurity posture and potential risks facing the Company Furthermore, significant cybersecurity matters, and strategic risk management decisions are escalated to the Board, ensuring that they have comprehensive oversight and can provide guidance on critical cybersecurity issues.

See “Item 1A. General Risk Factors – Security breaches and other disruptions could compromise the Company’s information and expose the Company to liability, which would cause its business and reputation to suffer and could subject it to substantial liabilities.” for more information.

The Company’s executive offices are leased pursuant to a lease originally entered into in December 2006. The lease covers approximately 11,000 square feet of office space located at 98 Spit Brook Road, Suite 100 in Nashua, New Hampshire. In November of 2022, the lease was extended through May 31, 2026 with monthly base rent payments of $16,983.  Additionally, the Company is required to pay its proportionate share of the building and real estate tax expenses and obtain insurance for the facility.

The Company also leases warehouse space in Nashua, New Hampshire.  In January 2024, in anticipation of the March 2024 end date of the lease for the Company’s then-current warehouse facility, the Company entered into a 36-month lease for a new warehouse facility, also located in Nashua, New Hampshire. The new facility is approximately 3,000 square feet, with annual rent payments totaling approximately $46,000 for the entire term.

In addition to the foregoing leases relating to its principal properties, the Company also has a lease for office space in Lyon, France.

If the Company is required to seek additional or replacement facilities, it believes there are adequate facilities available at commercially reasonable rates.

From time to time, we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. Although the results of litigation and claims are inherently unpredictable and uncertain, we are not currently a party to any material legal proceedings.

Not applicable.

PART II

Market for our Common Stock

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

Holders of Common Stock

As of March 22, 2024, there were 80 holders of record of the Company’s common stock.  We believe that there are a substantially greater number of beneficial owners of our common stock.

Dividends

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

Securities Authorized for Issuance Under Equity Compensation Plans

Information with respect to the Company’s equity compensation plans in effect at December 31, 2023 will be included in the definitive Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for the Company’s 2024 Annual Meeting of Stockholders (the “2024 Proxy Statement”) and is incorporated herein by reference.

Issuer’s Purchases of Equity Securities

For the majority of restricted stock units granted to employees under the applicable stock incentive plan, the number of shares issued on the date that the restricted stock units vest is net of the minimum statutory tax withholding requirements that we pay in cash to the appropriate tax authorities on behalf of our employees. The Company did not have any repurchases of securities in the year ended December 31, 2023.

Recent Sales of Unregistered Securities

None.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the Company’s consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K.

Results of Operations

Overview

iCAD, Inc. is a global leader in AI-powered cancer detection on a mission to create a world where cancer can’t hide. Cancer wins when it hides. Remaining undetected, cancer poses one of the greatest threats to life. The Company’s ProFound Breast Health Suite enables medical providers and professionals to accurately and reliably identify where cancer may be hiding and when it might make its move.  The ProFound Breast Health Suite offers solutions for breast cancer detection, density assessment, one or two years breast cancer risk evaluation, and cardiovascular risk related to elevated levels of breast arterial calcifications.  Prior to the third quarter of 2023, the Company had two reporting segments: Detection and Therapy.  The Company completed the sale of its Xoft (Therapy) business line on October 23, 2023.  Accordingly, the Company has only one reporting segment, Detection. The applicable assets and liabilities of the Xoft business have been classified as held for sale in the Consolidated Balance Sheet as of December 31, 2022, and the results of its operations for all periods presented are reflected as discontinued operations in the Consolidated Statements of Income. Unless otherwise indicated, all disclosures and amounts relate to the Company’s continuing operations. 

Powered by the latest innovations in artificial intelligence (AI), and built on one of the largest, most diverse US-based and global data sets, the ProFound Suite uniquely offers 360-degree solutions for cancer detection, density assessment, and personalized risk evaluation, all based on a 2D or 3D mammogram’s collection of images.  The ProFound Detection solution scores cases and suspicious lesions, helping radiologists identify and focus on areas of most concern and highest suspicion of cancer.  The ProFound Density Assessment standardizes and simplifies breast density reporting, algorithmically examining a woman’s breast anatomy from the mammogram image.  The ProFound Risk solution provides a near-term probability for developing breast cancer in the next one or two years, making it more actionable and relevant than generalized lifetime risk scores.  The ProFound Heart Health solution identifies the presence and quantity of breast arterial calcification which is proven to correlate with calcifications elsewhere in the body, raising concern for cardiovascular or heart health concerns.

The ProFound Breast Health Suite is cleared by the US Food & Drug Administration (FDA) and has received CE mark and Health Canada licensing.  Used by thousands of providers serving millions of patients, ProFound is available in over 50 countries. iCAD estimates that ProFound has been used for more than 40 million mammograms worldwide in the last five years.

The Company’s headquarters are located in Nashua, New Hampshire.  In addition, the Company has a separate manufacturing and warehousing facility, also located in Nashua, New Hampshire.  Lastly, the Company has office space in Lyon, France. 

Discussion of Operating Results:

Year Ended December 31, 2023 compared to Year Ended December 31, 2022

Revenue. Revenue for the year ended December 31, 2023 was $17.3 million compared with revenue of $19.8 million for the year ended December 31, 2022, a decrease of $2.5 million, or 12.5%.

The table below presents the components of revenue for 2023 and 2022 (in thousands):

Product revenue decreased by $2.7 million and Services revenue increased by $0.2 million.  The decrease is due primarily to reduced demand, a reduction in sales force which began in late 2022, our shift to a subscription model and continued weakness in recovery to pre-pandemic levels prior to Covid-19.  During 2023, we have seen an increased customer demand for subscription licenses, which currently remains a small portion of our total license revenue. We believe this trend could accelerate, and we have begun to shift our marketing efforts to better promote a subscription model.

Cost of revenue and gross profit for 2023 and 2022 were as follows (in thousands):

Cost of Revenue. Total cost of revenue decreased by $0.5 million, or 15.1%, from $3.0 million for the year ended December 31, 2022 to $2.5 million for the year ended December 31, 2023.  Cost of revenue for Products decreased $0.3, or 16.3%, from $1.7 million for the year ended December 31, 2022 to $1.4 million for the year ended December 31, 2023.  Cost of revenue for Services decreased $0.2 million, or 12.9%, from $1.2 million for the year ended December 31, 2022 to $1.1 million for the year ended December 31, 2023.  The total decrease in Cost of revenue is consistent with the decrease in total Revenue.

Gross Profit. Gross profit was $14.8 million for the year ended December 31, 2023 compared to $16.8 million for the year ended December 31, 2022, a decrease of $2.0 million, or 12.1%. Gross profit as a percentage of  revenue increased to 85.4% in the year ended December 31, 2023 from 84.9% in the year ended December 31, 2022.  The increase was due primarily to the mix of products sold across the periods.  

Operating Expenses:

Operating expenses for 2023 and 2022 were as follows (in thousands):

Operating expenses were $22.5 million for the year ended December 31, 2023, compared to $27.0 million for the year ended December 31, 2022, a decrease of $4.5 million or 16.8%.  The decrease is due primarily to several cost savings initiatives that occurred in Q4 of 2022 and Q1 of 2023.  

Engineering and Product Development. Engineering and product development costs for the year ended December 31, 2023 decreased by $0.3 million, or 6.0%, from $5.5 million in 2022 to $5.2 million in 2023. The decrease was due primarily to timing as certain projects in 2023 met the criteria for capitalization.

Marketing and Sales. Marketing and sales expense for the year ended December 31, 2023 decreased by $3.1 million, or 28.3%, from $10.8 million in 2022 to $7.7 million in 2023. The decrease was due primarily to headcount reductions and additional cost savings initiatives that occurred in late 2022 and early 2023 as well as lower commission expense in 2023.

General and Administrative. General and administrative expenses for the year ended December 31, 2023 decreased by $1.2 million, or 11.3%, from $10.5 million in 2022 to $9.4 million in 2023. The decrease was due primarily to higher personnel costs as the Company utilized higher cost third-parties in place of permanent roles throughout 2022. 

Amortization and Depreciation. Amortization and depreciation expenses for the year ended December 31, 2023 increased by less than $0.1 million, or 14.7%, from $0.22 million in  2022 to $0.25 million in 2023.  The increase is due primarily to the deployment of a new enterprise resource planning ("ERP") system in early 2023.

Other Income, Tax and Expense (in thousands):

Interest Expense. The Company recorded less than $0.01 million of interest expense in each of the years ended December 31, 2023 and December 31, 2022.

Interest income. Interest income of $0.7 million and $0.2 million for the years ended December 31, 2023 and 2022, respectively, reflects income earned from the Company's money market accounts.  The increase year over year results from higher market interest rates over the period.

Tax expense. The Company recorded tax expense of less than $0.01 million and a tax benefit of $0.1 million for the year ended December 31, 2023 and 2022, respectively.  The amount of tax expense or benefit varies based on geographic mix of earnings and losses.  

Income (loss) from discontinued operations: This reflects the net income of our former Xoft (Therapy) business, which was sold in October 2023.  Upon the closing of the sale, the Company recorded a gain of approximately $2.6 million, which offset the operational losses incurred since the beginning of the year ended December 31, 2023 through the date of the sale in October 2023.  See Note 2, for more information.

Liquidity and Capital Resources

The Company believes that its cash and cash equivalents balance of $21.7 million as of December 31, 2023 and projected cash balances are sufficient to sustain operations through at least the next 12 months following the filing of this Form 10-K.   The Company's cash balance increased by approximately $0.4 million year-over-year due primarily to the sale of the Company's former Xoft (Therapy) business line in October 2023.  In addition, the Company launched an At-the-Market ("ATM") equity program with Craig-Hallum Capital Group LLC to sell shares of the Company's common stock.  See Note 2 and Note 13 respectively, for more information.  Lastly, the Company took actions in early 2023 to cut costs and conserve cash.  The Company’s ability to generate cash adequate to meet its future capital requirements will depend primarily on operating cash flow. If sales or cash collections are reduced from current expectations, or if expenses and cash requirements are increased, the Company may require additional financing, although there are no guarantees that the Company will be able to obtain the financing if necessary. The Company will continue to closely monitor its liquidity and the capital and credit markets.

The Company had net working capital of $24.3 million at December 31, 2023. The ratio of current assets to current liabilities at December 31, 2023 and 2022 was 4.40 and 2.28, respectively.

Net cash used for operating activities for the year ended December 31, 2023 was $5.0 million, compared to $12.8 million for 2022.  This improvement of approximately 61% year over year is due primarily to cost savings initiatives commenced during the first quarter of 2023.

Net cash provided by investing activities for the year ended December 31, 2023 was $3.3 million compared to cash used of approximately $0.5 million for the year ended December 31, 2022.  The sales of the former Xoft (Therapy) business in October 2023 provided $4.5 million of cash, net of transaction expenses, in 2023 which was partially offset by cash used for investments, primarily a new ERP system.

Net cash provided by financing activities for the year ended December 31, 2023 was $2.0 million and consisted primarily of cash proceeds related to the ATM sales of common stock.  Net cash provided by financing activities for the year ended December 31, 2022 was $0.4 million related primarily to cash received for employee equity plan activities.  

The CARES Act allowed employers to defer the deposit and payment of employers share of Social Security payroll taxes that would otherwise have been owed from the date of enactment of the legislation. The legislation requires that the deferred taxes be paid over the two-year period, with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. During 2022, the Company remitted $0.1 million which represented the second half of the amount due. As of December 31, 2022, the Company has repaid all amounts previously deferred.

Lease Obligations:

Operating Leases:

See Item 2 of this Annual Report on Form 10-K.

Settlement Obligations:

As a result of the acquisition of Xoft, the Company recorded a royalty obligation pursuant to a settlement agreement entered into between Xoft and Hologic, in August 2007. Xoft received a nonexclusive, irrevocable, perpetual, worldwide license, including the right to sublicense certain Hologic patents, and a non-compete covenant as well as an agreement not to seek further damages with respect to the alleged patent violations. In return, the Company had a remaining obligation to pay a minimum annual royalty payment of $250,000 payable through 2016. In addition to the minimum annual royalty payments, the litigation settlement agreement with Hologic also provided for payment of royalties based upon a specified percentage of future net sales on any products that practice the licensed rights. The estimated fair value of the patent license and non-compete covenant is $100,000 and was amortized over the estimated useful life of approximately four years. As of December 31, 2023, the remaining liability for minimum royalty obligations totaling $0.4 million is recorded within accrued expenses and accounts payable.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes.  The Company considers an accounting estimate to be critical to the financial statements if the estimate is complex in nature, requires judgment, and if different estimates were used, the results could have a material impact on the consolidated financial statements. On an ongoing basis, the Company evaluates its estimates and the application of its policies. The Company bases its estimates on historical experience, current conditions and on various other assumptions that are believed to be reasonable under the circumstances.  The Company believes the following critical accounting estimates are the most significant to understanding the consolidated financial statements.

Revenue Recognition

The Company recognizes revenue under the provisions of ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 explains that to achieve the core principle, an entity should take the following actions:

Step 1: Identify the contract with the customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price.

Step 5: Recognize revenue when or as the entity satisfies a performance obligation.

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

Allowance for Expected Credit Losses

The allowance for expected credit losses represents management’s estimate for potential uncollectible accounts receivable. This estimate is developed from management’s ongoing credit evaluation of Company customers and a detailed review of its outstanding accounts receivable balances.

Inventory

Inventory consists of finished products, work-in-process, and raw materials. The Company values its inventory at the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead and is determined using the first-in, first-out (FIFO) method. On a quarterly basis, management reviews inventory quantities on hand and analyzes the provision for excess and obsolete inventory based primarily on product expiration dating and estimated sales forecast, which is based on sales history and anticipated future demand.

Goodwill

Goodwill represents the amount of consideration paid in connection with business acquisitions in excess of the fair value of assets acquired and liabilities assumed. The Company performs an annual impairment test each year on October 1 using both qualitative and quantitative methods and assumptions. The quantitative test utilizes a combination of both the market and income approach. The most significant estimates in the income approach relate to management’s assumptions to calculate a present value of estimated future cash flows.

Stock Based Compensation

The Company uses the Black-Scholes option pricing model to value stock options which requires extensive use of accounting judgment and financial estimates, including estimates of the expected term participants will retain their vested stock options before exercising them, the estimated volatility of its common stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requirements.

Other Commitments

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

Effect of New Accounting Pronouncements

See note 3 in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

We do not believe we are subject to material foreign currency exchange rate fluctuations, as most of our sales and expenses are domestic and therefore are denominated in the U.S. dollar. For international sales, the majority of those customers pay in the U.S. dollar. We do not hold derivative securities and have not entered into contracts embedded with derivative instruments, such as foreign currency and interest rate swaps, options, forwards, futures, collars, and warrants, either to hedge existing risks or for speculative purposes.

See Financial Statements attached hereto.

Not applicable.

(a) Evaluation of Disclosure Controls and Procedures.

The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this Annual Report on Form10-K. Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) were effective as of December 31, 2023.

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

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

The Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, is responsible for the preparation and integrity of the Company’s Consolidated Financial Statements, establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) for the Company and all related information appearing in this Annual Report on Form 10-K.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013). Based on its assessment, our Chief Executive Officer and our Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2023.

(c) Changes in Internal Control Over Financial Reporting.

The Company’s principal executive officer and principal financial officer conducted an evaluation of the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) to determine whether any changes in internal control over financial reporting occurred during the fourth quarter of the year ended December 31, 2023, that have materially affected, or which are reasonably likely to materially affect internal control over financial reporting. Based on that evaluation there has been no such change during such period.

Not applicable.

Not applicable.

PART III

The information required by this Item 10 of Form 10-K will be included in the Company's 2024 Proxy Statement and is incorporated herein by reference.

The information required by this Item 11 of Form 10-K will be included in the Company’s 2024 Proxy Statement and is incorporated herein by reference.

The information required by this Item 12 of Form 10-K will be included in the Company’s 2024 Proxy Statement and is incorporated herein by reference.

The information required by this Item 13 of Form 10-K will be included in the Company’s 2024 Proxy Statement and is incorporated herein by reference.

The information required by this Item 14 of Form 10-K will be included in the Company’s 2024 Proxy Statement and is incorporated herein by reference.

PART IV

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

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

iCAD, INC.

Date: March 29, 2024

The undersigned officers and directors of iCAD, Inc., hereby severally constitute and appoint Dana Brown and Eric Lonnqvist, and each of them individually, with full power of substitution and resubstitution, as their true and lawful attorneys and agents, to do any and all acts and things in their name and behalf in their

capacities as directors and officers and to execute any and all instruments for them and in their names in the capacities indicated below, which said attorneys and agents, may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations

and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for them or any of them in their names in the capacities indicated below, any and all amendments hereto, and they do hereby ratify

and confirm all that said attorneys and agents, or either of them, may lawfully do or cause to be done by virtue hereof.

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

iCAD, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

iCAD, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

See accompanying notes to consolidated financial statements.

iCAD, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(in thousands except shares)

See accompanying notes to consolidated financial statements.

iCAD, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

See accompanying notes to consolidated financial statements.

iCAD, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1 – Organization and Business 

Unless otherwise noted, all amounts presented in these Notes to the Consolidated Financial Statements are in thousands of dollars.  iCAD, Inc. and subsidiaries (the “Company” or “iCAD”) is a global medical technology company providing innovative cancer detection solutions.

As discussed in Note 2, the Company completed the sale of its Xoft business line in October 2023.  Accordingly, the Company now operates in one segment: Cancer Detection (“Detection”). The Detection segment solutions include advanced artificial intelligence and image analysis workflow solutions that enable healthcare professionals to better serve patients by identifying pathologies and pinpointing the most prevalent cancers earlier, a comprehensive range of high-performance, upgradeable computer-aided detection systems and workflow solutions for digital breast tomosynthesis, full-field digital mammography, magnetic resonance imaging and computed tomography.  The Company’s commercial products are cleared with the United States Food and Drug Administration and various global regulatory agencies. The Company sells its products throughout the world through its direct sales organization as well as through various OEM partners, distributors, technology platform partners, and resellers. See Note 15 of these consolidated financial statements for segment, major customer and geographical information.

The Company maintains its headquarters and a separate manufacturing facility in Nashua, New Hampshire and an office in Lyon, France.

Note 2 – Discontinued Operations

On October 22, 2023, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”), by and among (i) the Company, Xoft Solutions, LLC, a Delaware limited liability company, and Xoft, Inc., a Delaware corporation, each a wholly owned subsidiary of the Company (collectively with the Company, the “Sellers” and each, a “Seller”), and (ii) Elekta Inc., a Georgia corporation, and Nucletron Operations B.V., a company organized under the laws of the Netherlands (together, “Buyers” and each a “Buyer”), pursuant to which the Company agreed to transfer to the Buyers substantially all of the assets and liabilities primarily related to the Company’s Xoft business lines (the “Business”), including with respect to employees, contracts, intellectual property and inventory, for total cash consideration of approximately $5.76 million dollars from the Buyers to the Company, and the assumption by Buyers of all liabilities relating to the Business (the “Transaction”). This payment is guaranteed by Elekta AB, a company organized under the laws of Sweden, the ultimate parent company of the Buyers.  In accordance with the Purchase Agreement, the Company received a cash payment of approximately $5 million in November 2023 with the remaining $0.7 million held in escrow for a period of 15 months following October 22, 2023.  The escrow balance is reflected in the caption Other assets in the long-term section of the Company's Consolidated Balance Sheet as of December 31, 2023.

The closing of the Transaction occurred simultaneously with the execution of the Purchase Agreement.

In connection with the Transaction, the parties entered into a transition services agreement pursuant to which the Company will provide certain migration and transition services to facilitate an orderly transition of the operation of the Business to the Buyers during the 5-month period following consummation of the Transaction, extendable at the option of the parties.

The Purchase Agreement contains certain representations, warranties, covenants and indemnification provisions, including for breaches of covenants and for losses resulting from the Company’s liabilities specifically excluded from the Transaction.

The Business, which had previously been presented as a separate reporting segment, meets the criteria for being reported as a discontinued operation and has been segregated from continuing operations. The following table summarizes the results from discontinued operations (in thousands):

The following table summarizes the assets and liabilities held for sale in the Company's Consolidated Balance Sheets (in thousands):

Total operating expenses presented in the table above exclude amounts that had previously been allocated to the Business for certain shared marketing expenses.  The previously allocated amounts were less than $0.1 million and $0.6 million for the years ended December 31, 2023 and 2022, respectively.  The previously allocated expenses are included in the Marketing and sales line for all periods presented in the Condensed Consolidated Statements of Operations.

The Business is included in the Company's Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022.  The Business generated less than $0.1 million of cash during the year ended December 31, 2023, primarily for operating activities.  Estimated cash used by the Business during the year ended December 31, 2022 was approximately $3.6 million, primarily for operating activities. 

Note 3 – Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. It is reasonably possible that changes may occur in the near term that would affect management’s estimates with respect to assets and liabilities.

Principles of Consolidation 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, iCAD France, LLC.  As described in Note 2, the Company completed the sale of the Xoft business line in October 2023.  Accordingly, the applicable assets and liabilities of the Xoft business have been classified as held for sales in the Consolidated Balance Sheet for periods prior to the date of sale, and the results of its operations for all periods presented are reflected as discontinued operations in the Consolidated Statements of Operations.  Unless otherwise indicated, all disclosures and amounts in the Notes to the Consolidated Financial Statements relate to the Company's continuing operations.   All material inter-company transactions and balances have been eliminated in consolidation.

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 COVID-19, the United States and most countries of the world imposed some level of unprecedented restrictions such as travel bans and business closures which caused substantial reductions in economic activity. As a provider of devices and services to the health care industry, the Company believes its operations have been materially affected in all periods presented. While the worst of the disruptions appear to have subsided as of December 31, 2023, the Company continues to be impacted by slowness in the overall economic recovery. The Company’s expected results for future periods could reflect a continuing negative impact from the COVID-19 pandemic for similar or additional reasons.

In late February 2022, Russian military forces launched significant military action against Ukraine. In early October 2023, an armed conflict between Hamas-led Palestinian militant groups and Israeli military forces broke out with a Hamas attack on southern Israel, to which Israeli military forces retaliated. 

Sustained conflict and disruption in these regions has continued through December 31, 2023 and beyond. Economic, civil, military and political uncertainty may arise or increase in regions where the Company operates or derives revenue. Further, countries from which the Company derives revenue may experience military action and/or civil and political unrest; may be subject to government export controls, economic sanctions, embargoes, or trade restrictions; and experience currency, inflation, and interest rate uncertainties. While the impact to the Company has been limited to date, it is not possible to predict the potential outcome should the conflict expand and/or additional sanctions be imposed. For the fiscal year ended 2023, approximately 10% of the Company’s total revenue was derived from customers located in Europe.

Cash and cash equivalents

The Company defines cash and cash equivalents as all bank accounts, money market funds, deposits and other money market instruments with original maturities of 90 days or less and which are unrestricted as to timing or method of withdrawal. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits of $250,000 per depositor.  The money market investment account as described in Note 5 is not exposed to the federally insured limit as it is not a deposit account.  As of December 31, 2023, the Company held cash at financial institutions in excess of the federally insured limit. Historically, the Company has not experienced any losses related to these balances.  

Financial instruments

Financial instruments consist of cash and cash equivalents, trade accounts receivable, contract assets, accounts payable, accrued and other expenses and notes payable. Due to their short-term nature and market rates of interest, the carrying amounts of the financial instruments approximated fair value as of December 31, 2023 and 2022.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable are customer obligations due under normal trade terms. Credit limits are initially established through a process of reviewing the financial history and stability of each customer and the Company performs continuing credit evaluations of its customers’ financial condition and generally does not require collateral. Included in accounts receivable at December 31, 2023 are unbilled receivables of approximately $0.9 million which are scheduled to be invoiced primarily in 2024.  Unbilled receivables of approximately $0.2 million were included in accounts receivable as of December 31, 2022.  The unbilled receivables result primarily from the Company's sale of term licenses, which often provide for annual billing over a term of one to three years, where revenue is recognized upon delivery of a license with non-cancellable terms.    

As described in Note 4, the Company adopted new accounting guidance effective January 1, 2023 that impacted its approach to calculating expected losses on its Accounts receivable balances.  The Company maintains an allowance for expected credit losses associated with its Accounts receivable balance.  The Company uses an expected credit loss model that uses historical loss rates of its accounts receivable for the previous twelve months as well as expectations about the future where the Company has been able to develop forecasts to support its estimates.  Using the outputs of the model, the Company’s policy is to maintain allowances for potential losses.  An amount is written off against the allowance for credit losses after all attempts to collect the receivable have failed. Based on the information available, the Company believes the allowance for credit losses as of December 31, 2023 and 2022 is adequate.