icad20230331

icad20230331_10q.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-09341

iCAD, Inc.

(Exact name of registrant as specified in its charter)

Delaware	02-0377419
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

98 Spit Brook Road, Suite 100, Nashua, NH	03062
(Address of principal executive offices)	(Zip Code)

(603) 882-5200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

symbol(s)

Name of each exchange

on which registered

Common Stock, $0.01 par value

ICAD

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging growth company or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒.

As of the close of business on May 10, 2023, there were 25,446,407 shares outstanding of the registrant’s Common Stock, $0.01 par value.

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iCAD, Inc.

INDEX

		Page
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022	1

	Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2023 and 2022	2

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended March 31, 2023 and 2022	3

	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2023 and 2022	4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3	Quantitative and Qualitative Disclosures about Market Risk	22

Item 4	Controls and Procedures	23

PART II	OTHER INFORMATION	24

Item 1A	Risk Factors	24

Item 6	Exhibits	25

	Signatures	26

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iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except for share data)

(Unaudited)

	*March 31,*			*December 31,*
	*2023*			*2022*
Assets
Current assets:
Cash and cash equivalents	$	19,663		$	21,313
Trade accounts receivable, net of allowance for credit losses of $922 as of both March 31, 2023 and December 31, 2022		7,381			8,898
Inventory, net		4,866			5,389
Prepaid expenses and other current assets		2,292			2,641
Total current assets		34,202			38,241
Property and equipment, net of accumulated depreciation of $2,151 and $2,135 as of March 31, 2023 and December 31, 2022, respectively		1,153			1,074
Operating lease assets		3,200			3,361
Other assets		55			69
Intangible assets, net of accumulated amortization of $8,980 and $8,932 as of March 31, 2023 and December 31, 2022, respectively		436			482
Goodwill		8,362			8,362
Deferred tax assets		111			116
Total assets	$	47,519		$	51,705
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	1,888		$	1,973
Accrued and other expenses		4,213			4,681
Lease payable—current portion		569			582
Deferred revenue—current portion		6,211			6,216
Total current liabilities		12,881			13,452
Lease payable, net of current		2,639			2,803
Deferred revenue, net of current		283			542
Deferred tax		6			6
Total liabilities		15,809			16,803

Commitments and Contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.01 par value: authorized 1,000,000 shares; none issued.		—			—
Common stock, $0.01 par value: authorized 60,000,000 shares; issued 25,446,407 as of both March 31, 2023 and December 31, 2022.
Outstanding 25,260,576 as of both March 31, 2023 and December 31, 2022.		254			254
Additional paid-in capital		303,485			302,899
Accumulated deficit		(270,614	)		(266,836	)
Treasury stock at cost, 185,831 shares as of both March 31, 2023 and December 31, 2022		(1,415	)		(1,415	)
Total stockholders’ equity		31,710			34,902
Total liabilities and stockholders’ equity	$	47,519		$	51,705

See accompanying notes to condensed consolidated financial statements.

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iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except for per share data)

(Unaudited)

	*Three Months Ended*
	*March 31,*
	*2023*			*2022*
Revenue:
Products	$	2,744		$	4,560
Service and supplies		3,034			2,963
Total revenue		5,778			7,523
Cost of revenue:
Products		586			1,087
Service and supplies		993			1,049
Amortization and depreciation		69			75
Total cost of revenue		1,648			2,211
Gross profit		4,130			5,312
Operating expenses:
Engineering and product development		2,281			2,275
Marketing and sales		2,857			3,565
General and administrative		2,862			2,931
Amortization and depreciation		55			63
Total operating expenses		8,055			8,834
Loss from operations		(3,925	)		(3,522	)
Other income/ (expense):
Interest expense		—			(9	)
Interest income		150			—
Other income (expense), net		2			(13	)
Other income (expense), net		152			(22	)
Loss before provision for income taxes		(3,773	)		(3,544	)
Provision for tax expense		(5	)		(1	)
Net loss and comprehensive loss	$	(3,778	)	$	(3,545	)
Net loss per share:
Basic and diluted	$	(0.15	)	$	(0.14	)
Weighted average number of shares used in computing loss per share:
Basic and diluted		25,261			25,160

See accompanying notes to condensed consolidated financial statements.

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iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except shares)

(Unaudited)

	*For the three months ended March 31, 2023*
	*Common Stock*				*Additional*
	*Number of*				*Paid-in*		*Accumulated*			*Treasury*			*Stockholders’*
	*Shares Issued*		*Par Value*		*Capital*		*Deficit*			*Stock*			*Equity*
Balance at December 31, 2022		25,446,407	$	254	$	302,899	$	(266,836	)	$	(1,415	)	$	34,902
Stock-based compensation		—		—		586		—			—			586
Net loss		—		—		—		(3,778	)		—			(3,778	)
Balance at March 31, 2023		25,446,407	$	254	$	303,485	$	(270,614	)	$	(1,415	)	$	31,710

	*For the three months ended March 31, 2022*
	*Common Stock*				*Additional*
	*Number of*				*Paid-in*		*Accumulated*			*Treasury*			*Stockholders’*
	*Shares Issued*		*Par Value*		*Capital*		*Deficit*			*Stock*			*Equity*
Balance at December 31, 2021		25,326,086	$	253	$	300,859	$	(253,180	)	$	(1,415	)	$	46,517
Issuance of common stock related to vesting of restricted stock		875		1		—		—			—			—
Issuance of common stock pursuant to stock option plans		22,833		1		66		—			—			66
Issuance of common stock pursuant Employee Stock Purchase Plans		9,381		—		60		—			—			60
Stock-based compensation		—		—		655		—			—			655
Net loss		—		—		—		(3,545	)		—			(3,545	)
Balance at March 31, 2022		25,359,175	$	253	$	301,640	$	(256,725	)	$	(1,415	)	$	43,753

See accompanying notes to condensed consolidated financial statements.

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iCAD, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	*For the Three Months ended*
	*March 31,*
	*2023*			*2022*
Cash flow from operating activities:
Net loss	$	(3,778	)	$	(3,545	)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization		46			53
Depreciation		78			86
Non-cash lease expense		161			200
Bad debt provision		—			305
Stock-based compensation		586			655
Deferred tax		5			1
Changes in operating assets and liabilities:
Accounts receivable		1,517			(1,723	)
Inventory		523			(565	)
Prepaid and other assets		363			653
Accounts payable		(120	)		(84	)
Accrued and other expenses		(468	)		(514	)
Lease liabilities		(177	)		(214	)
Deferred revenue		(264	)		243
Total adjustments		2,250			(904	)
Net cash used for operating activities		(1,528	)		(4,449	)
Cash flow from investing activities:
Additions to patents, technology and other		—			(10	)
Additions to property and equipment		(122	)		(151	)
Net cash used for investing activities		(122	)		(161	)
Cash flow from financing activities:
Proceeds from option exercises pursuant to stock option plans		—			66
Proceeds from issuance of common stock pursuant to Employee Stock Purchase Plans		—			60
Net cash provided by financing activities		—			126
(Decrease) increase in cash and cash equivalents		(1,650	)		(4,484	)
Cash and cash equivalents, beginning of period		21,313			34,282
Cash and cash equivalents, end of period	$	19,663		$	29,798
Supplemental disclosure of cash flow information:
Interest paid	$	—		$	9

See accompanying notes to condensed consolidated financial statements.

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iCAD, INC. AND SUBSIDIARIES

(In thousands, except for share and per share data or as noted)

Notes to Condensed Consolidated Financial Statements:

Note 1 – Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of iCAD, Inc. and its subsidiaries (together “iCAD” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which 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. In the opinion of the Company’s management, these unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company at March 31, 2023, the results of operations of the Company for the three months ended March 31, 2023 and 2022, cash flows of the Company for the three months ended March 31, 2023 and 2022, and stockholders’ equity for the Company for the three months ended March 31, 2023 and 2022.

Although the Company believes that the disclosures made in these interim financial statements are adequate to make the information presented not misleading, certain information normally included in the footnotes prepared in accordance with US GAAP has been omitted as permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accompanying interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 31, 2023. The results for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for fiscal year ending December 31, 2023, or any interim or any future period.

Principles of Consolidation and Business Segments

The condensed consolidated financial statements include the accounts of iCAD, Inc. and its wholly owned subsidiaries: Xoft, Inc., Xoft Solutions, LLC, iCAD France, LLC and iCAD Italy, LLC. All material inter-company transactions and balances have been eliminated in consolidation.

The Company reports the results of two segments: Cancer Detection (“Detection”) and Cancer Therapy (“Therapy”). The Detection segment consists of advanced image analysis and workflow products for the detection of cancer. The Therapy segment consists of radiation therapy (“Xoft”, “Axxent”) products for the treatment of certain cancers.

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 March 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. Sustained conflict and disruption in the region has continued through March 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 three months ended March 31, 2023, approximately 15% of the Company's revenue was derived from customers located outside the United States.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)” (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. In November 2019, the FASB elected to defer the adoption date of ASU 2016-13 for public business entities that meet the definition of a smaller reporting company to fiscal years beginning after December 15, 2022. Early adoption of the guidance in ASU 2016-13 is permitted. The Company adopted ASU 2016-13 effective January 1, 2023. Adoption caused the Company to modify its approach to estimating its allowance for potentially uncollectable accounts receivable. Specifically, the Company began applying 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. Adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements.

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Recently Issued Accounting Standards (Not Yet Adopted)

There are no recently issued accounting pronouncements that have not yet been adopted as of March 31, 2023 that are expected to have a material impact on the Company's financial statements.

Note 2 – Fair Value Measurements

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurement and Disclosures” (“ASC 820”), which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company applies the fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, which are the following:

•

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

•

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

•

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value

The assigned level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Money market funds included in cash and cash equivalents in the accompanying consolidated balance sheet are considered a Level 1 measurement as they are valued at quoted market prices in active markets.

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

Fair Value Measurements as of March 31, 2023

	*Level 1*		*Level 2*		*Level 3*		*Total*
Assets
Money market accounts	$	14,949	$	—	$	—	$	14,949
Total Assets	$	14,949	$	—	$	—	$	14,949

Fair Value Measurements as of December 31, 2022

	*Level 1*		*Level 2*		*Level 3*		*Total*
Assets
Money market accounts	$	15,067	$	—	$	—	$	15,067
Total Assets	$	15,067	$	—	$	—	$	15,067

There were no Level 2 or 3 instruments measured at fair value as of March 31, 2023 or December 31, 2022.

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Note 3 - Revenue

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration which the Company expects to be entitled to receive in exchange for these goods or services and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities.

Disaggregation of Revenue

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

	*Three months ended March 31, 2023*
	*Reportable Segments*
	*Detection*		*Therapy*		*Total*
Major Goods/Service Lines
Products	$	2,460	$	284	$	2,744
Service contracts		1,874		372		2,246
Supply and source usage agreements		—		493		493
Disposable applicators		—		225		225
Other		—		70		70
	$	4,334	$	1,444	$	5,778
Timing of Revenue Recognition
Goods transferred at a point in time	$	2,028	$	608	$	2,636
Services transferred over time		2,306		836		3,142
	$	4,334	$	1,444	$	5,778
Sales Channels
Direct sales force	$	2,778	$	1,056	$	3,834
OEM partners		1,556		—		1,556
Channel partners		—		388		388
	$	4,334	$	1,444	$	5,778

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	*Three months ended March 31, 2022*
	*Reportable Segments*
	*Detection*		*Therapy*		*Total*
Major Goods/Service Lines
Products	$	3,864	$	696	$	4,560
Service contracts		1,657		386		2,043
Supply and source usage agreements		—		413		413
Disposable applicators		—		415		415
Other		—		92		92
	$	5,521	$	2,002	$	7,523
Timing of Revenue Recognition
Goods transferred at a point in time	$	3,881	$	1,264	$	5,145
Services transferred over time		1,640		738		2,378
	$	5,521	$	2,002	$	7,523
Sales Channels
Direct sales force	$	2,895	$	815	$	3,710
OEM partners		2,626		—		2,626
Channel partners		—		1,187		1,187
	$	5,521	$	2,002	$	7,523

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Products. Product revenue consists of sales of cancer detection systems and perpetual licenses and cancer therapy systems and cancer therapy applicators. The Company transfers control and recognizes a sale when the product is shipped from the manufacturing or warehousing facility to the customer.

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

Sources and Source Usage Agreements. Revenue from sources is recognized upon transfer of control to the customer. Revenue from source usage agreements is recognized on a straight-line basis over the term of the source agreement.

Disposable applicators. Revenue for the sale of disposable applicators is recognized upon the transfer of control to the customer.

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

Contract Balances

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

Contract balances

	*Balance at*		*Balance at*
	*March 31, 2023*		*December 31, 2022*
Receivables, which are included in ‘Trade accounts receivable’	$	7,381	$	8,898
Current contract assets, which are included in “Prepaid and other assets”	$	638	$	759
Non-current contract assets, which are included in “other assets”	$	—	$	15
Contract liabilities, which are included in “Deferred revenue”	$	6,494	$	6,758

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

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

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

	*Three Months*
	*Ended March 31,*
	*2023*
Balance at beginning of period	$	6,758
Deferral of revenue		5,514
Recognition of deferred revenue		(5,778	)
Balance at end of period	$	6,494

The Company expects to recognize estimated revenues related to performance obligation that are unsatisfied (or partially satisfied) in the amounts of approximately $3.4 million in 2023, $1.3 million in 2024, $1.0 million in 2025 and $0.8 million in 2026.

Note 4 – Net Loss per Common Share

The Company’s basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period.

A summary of the Company’s calculation of net loss per share is as follows (in 000s, except for Net loss per share):

	*Three Months Ended*
	*March 31,*
	*2023*			*2022*
Net loss	$	(3,778	)	$	(3,545	)
Shares used in the calculation of basic and diluted net loss per share		25,261			25,160
Net loss per share - basic and diluted	$	(0.15	)	$	(0.14	)

The shares of the Company’s common stock issuable upon the exercise of stock options and vesting of restricted stock that were excluded from the calculation of diluted net loss per share because their effect would have been antidilutive are as follows:

	*March 31,*
	*2023*		*2022*
Stock options		2,946,470		2,894,449
Total		2,946,470		2,894,449

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Note 5 – Inventories

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. Inventory consisted of the following and includes an inventory reserve of $0.3 million at both March 31, 2023 and December 31, 2022.

	*March 31, 2023*			*December 31, 2022*
Raw materials	$	3,113		$	2,658
Work in process		213			101
Finished Goods		1,802			2,892
Inventory Gross		5,128			5,651
Inventory Reserve		(262	)		(262	)
Inventory Net	$	4,866		$	5,389

Note 6 – Goodwill

The Company tests goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of the reporting unit is less than its carrying value. Factors the Company considers important, which could trigger an impairment of such asset, include the following:

• significant underperformance relative to historical or projected future operating results;

• significant changes in the manner or use of the assets or the strategy for the Company’s overall business;

• significant negative industry or economic trends;

• significant decline in the Company’s stock price for a sustained period; and

• a decline in the Company’s market capitalization below net book value.

The Company considered indicators of impairment, and there were no triggering events identified, no indication of impairment of the Company’s goodwill and no impairment charges recorded during the three months ended March 31, 2023 or 2022.

Note 7 – Long-lived Assets

The Company assesses long-lived assets for impairment if events and circumstances indicate it is more likely than not that the fair value of the asset group is less than its carrying value.

There is no set interval or frequency for recoverability evaluation. Rather, the determination of when, if at all, an asset (or asset group) is evaluated for recoverability is based on “events and circumstances.” The following factors are examples of events or changes in circumstances that indicate the carrying amount of an asset (or asset group) may not be recoverable and thus is to be evaluated for recoverability.

• A significant decrease in the market price of a long-lived asset (or asset group);

• A significant adverse change in the extent or manner in which a long-lived asset (or asset group) is being used or in its physical condition;

• A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (or asset group), including an adverse action or assessment by a regulator;

• An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (or asset group); and

• A current operating period, or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (or asset group).

The Company determined there were no such triggering events in the period ended March 31, 2023.

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Note 8 – Lease Commitments

In accordance with ASC Topic 842, "Leases" ("ASC 842"), the Company determines if an arrangement contains a lease at inception. A lease is an operating or financing contract, or part of a contract, that conveys the right to control the use of an identified tangible asset for a period of time in exchange for consideration.

At lease inception, the Company recognizes a lease liability equal to the present value of the remaining lease payments, and a right of use asset equal to the lease liability, subject to certain adjustments, such as for lease incentives. In determining the present value of the lease payments, the Company calculates an incremental borrowing rate, which is determined by estimating the Company’s applicable, fully collateralized borrowing rate, with adjustment as appropriate for lease term. The lease term at the lease commencement date is determined based on the non-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an extension option if the Company is reasonably certain to exercise that option.

Assumptions made by the Company at the commencement date of each lease are re-evaluated upon occurrence of certain events, including a lease modification. A lease modification results in a separate contract when the modification grants the lessee an additional right of use not included in the original lease and when lease payments increase commensurate with the standalone price for the additional right of use. When a lease modification results in a separate contract, it is accounted for in the same manner as a new lease.

Right-of-use assets and obligations for leases with an initial term of 12 months or less are considered short term and are a) not recognized in the consolidated balance sheet and b) recognized as an expense on a straight-line basis over the lease term. The Company does not sublease any of its leased assets to third parties and the Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company has lessor agreements that contain lease and non-lease components, but the Company is accounting for the complete agreement under ASC 606 after determining that the non-lease component is the predominant component of these agreements.

ASC 842 includes a number of reassessment and remeasurement requirements for lessees based on certain triggering events or conditions. There were no impairment indicators identified during the three months ended March 31, 2023 that would require impairment testing of the Company’s right-of-use assets.

Certain of the Company’s leases include variable lease costs to reimburse the lessor for real estate tax and insurance expenses, and certain non-lease components that transfer a distinct service to the Company, such as common area maintenance services. The Company has elected to separate the accounting for lease components and non-lease components for real estate and equipment leases.

Components of Leases:

The Company has leases for office space and office equipment. The leases expire at various dates through 2028.

		*Three Months Ended*
Lease Cost	*Classification*	*March 31, 2023*
Operating lease cost - Right of Use Asset	Operating expenses	$	216

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Other information related to leases was as follows:

	*Three Months*
	*Ended March 31, 2023*
Cash paid from operating cash flows for operating leases	$	232

	*As of March 31,*
	*2023*
Weighted-average remaining lease term of operating leases (years)		3.6
Weighted-average discount rate for operating leases		7.0	%

Maturity of the Company’s lease liabilities as of March 31, 2023 was as follows:

2023	$	549
2024		846
2025		848
2026		749
2027		685
2028		172
Total lease payments		3,849
Less: effects of discounting		(641	)
Total lease liabilities		3,208
Less: current portion of lease liabilities		569
Long-term lease liabilities	$	2,639

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Note 9– Stockholders Equity

Stock-Based Compensation

The Company granted options to purchase 541,142 shares of the Company’s stock during the three months ended March 31, 2023. The full amount of options were granted in the first three months of 2023.

The Company’s stock-based compensation expense, including options and restricted stock by category is as follows:

	*Three Months Ended*
	*March 31,*
	*2023*		*2022*
Cost of revenue	$	1	$	—
Engineering and product development		73		68
Marketing and sales		131		199
General and administrative		381		388
	$	586	$	655

During the three months ended March 31, 2023, the Company recorded incremental stock-based compensation of approximately $0.23 million as a result of modifications of certain stock option awards. The modifications related to extending the contractual life of certain stock options by five years for four grantees whose awards were scheduled to expire during 2023. In addition, the amount of time to exercise vested stock options upon termination for one grantee was extended from 60 days to 24 months.

As of March 31, 2023, there was approximately $1.6 million of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted average period of 2.09 years.

Options granted under the Company’s stock incentive plans were valued utilizing the Black-Scholes model using the following assumptions and had the following fair values:

	*Three Months Ended*
	*March 31,*
	*2023*			*2022*
Average risk-free interest rate		4.19	%		1.46	%
Expected dividend yield	None			None
Expected life (in years)		3.0			3.5
Expected volatility		72.69% - 77.53%			66.3% - 69.5%
Weighted average exercise price	$	2.16		$	5.22
Weighted average fair value	$	1.14		$	2.56

The Company’s 2023 and 2022 average expected volatility and average expected life is based on the average of the Company’s historical information. The risk-free rate is based on the rate of U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of option grants. The Company has paid no dividends on its common stock in the past and does not anticipate paying any dividends in the future.

The Company did not grant any shares of restricted stock during the three-months ended March 31, 2023 or 2022. The Company’s restricted stock awards typically vest in either one year or three equal annual installments with the first installment vesting one year from the grant date. The grant date fair value for restricted stock awards is based on the quoted market value of Company stock on the grant date.

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A summary of stock option activity for all stock option plans for the period ended March 31, 2023 is as follows:

	Number of			Weighted Average		Intrinsic
	Options			Exercise Price		Value
Outstanding as of December 31, 2022		2,610,992		$	7.54	$	—
Granted		541,142		$	2.16	$	—
Exercised		—		$	—	$	—
Cancelled		(204,331	)	$	9.27	$	—
Outstanding as of March 31, 2023		2,947,803		$	9.44	$	—
Options Exercisable as of December 31, 2022		1,619,855		$	6.47	$	—
Options Exercisable as of March 31, 2023		1,985,026		$	7.44	$	—

The Company issued 0 and 22,833 shares of common stock upon the exercise of outstanding stock options in the three months ended March 31, 2023 and 2022, respectively. The Company received cash proceeds from stock option exercises of approximately $66,000 during the three months ended March 31, 2022.

Employee Stock Purchase Plan

In December 2019, the Company’s Board of Directors adopted, and the stockholders approved the 2019 Employee Stock Purchase Plan (“ESPP”), effective January 1, 2020. The ESPP provides for the issuance of up 950,000 shares of common stock, subject to adjustment in the event of a stock split, stock dividend or other change in the Company’s capitalization. The ESPP may be terminated or amended by the Board of Directors at any time. Certain amendments to the ESPP require stockholder approval. In October 2022, the Company suspended the ESPP such that the accumulation period from October 1, 2022 through December 31, 2022 and beyond will not occur.

Substantially all of the Company’s employees whose customary employment is for more than 20 hours a week are eligible to participate in the ESPP. Any employee who owns 5% or more of the voting power or value of the Company’s shares of common stock is not eligible to purchase shares under the ESPP.

Prior to the Company's suspension of the Plan, any eligible employee could enroll as of the beginning of a respective quarterly accumulation period. Employees who participated in the ESPP were able to purchase shares by authorizing payroll deductions of up to 15% of their base compensation during an accumulation period. Unless the participating employee withdrew from participation, accumulated payroll deductions were used to purchase shares of common stock on the last business day of the accumulation period (the “Purchase Date”) at a price equal to 85% of the lower of the fair market value on (i) the Purchase Date or (ii) the first day of such accumulation period. Under applicable tax rules, no employee was able to purchase more than $25,000 worth of common stock, valued at the start of the purchase period, under the ESPP in any calendar year.

The Company issued 9,381 shares under the ESPP in the three-month period ended March 31, 2022. The Company recorded approximately $10,000 of stock-based compensation expense pursuant to ESPP for the three-month period ended March 31, 2022.

Note 10– Income Taxes

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which the Company operates and the development of tax planning strategies during the year. As such, there can be significant volatility in interim tax provisions.

Income tax expense was approximately $5,000 and $1,000 for the three months ended March 31, 2023 and 2022, respectively. The effective tax rates for the three months ended March 31, 2023 and 2022 were less than 1% in each period. The difference between the Company’s effective tax rates in 2023 and 2022 compared to the U.S. statutory tax rate of 21% is primarily due changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets. The Company has valuation allowances against substantially all of its net operating loss carryforwards and tax credit carryforwards.

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Note 11 – Segment Reporting

Operating segments are the components of the Company’s business for which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s CODM is the chief executive officer. The Company’s operating segments are generally organized by the type of product or service offered and by geography. Each reportable segment generates revenue from the sale of medical equipment and related services and/or sale of supplies. The Company has determined there are two segments: Detection and Therapy.

The Detection segment consists of the Company’s advanced image analysis and workflow products, and the Therapy segment consists of the Company’s radiation therapy products, and related services. The primary factors used by the Company’s CODM to allocate resources are based on revenues, gross profit, operating income or loss, and earnings or loss before interest, taxes, depreciation, amortization, and other specific and non-recurring items of each segment. Included in segment operating income are stock compensation, amortization of technology and depreciation expense. There are no intersegment revenues.

The Company does not track its assets by operating segment and the CODM does not use asset information by segment to allocate resources or make operating decisions. Segment revenues, gross profit, segment operating income or loss, and a reconciliation of segment operating income or loss to GAAP loss before income tax is as follows:

	*Three Months Ended*
	*March 31,*
	*2023*			*2022*
Segment revenues:
Detection	$	4,334		$	5,521
Therapy		1,444			2,002
Total revenue	$	5,778		$	7,523
Segment gross profit:
Detection	$	3,544		$	4,661
Therapy		586			651
Segment gross profit	$	4,130		$	5,312
Segment operating income (loss):
Detection	$	(124	)	$	622
Therapy		(883	)		(1,209	)
Segment operating income (loss):	$	(1,007	)	$	(587	)
General, administrative, depreciation and amortization expense	$	(2,918	)	$	(2,935	)
Interest expense		—			(9	)
Interest income		150			—
Other expense		2			(13	)
Loss before income tax	$	(3,773	)	$	(3,544	)

Note 12 – Commitments and Contingencies

Other Commitments

The Company is obligated to pay approximately $4.2 million for firm purchase obligations to suppliers for future product and service deliverables and $0.2 million for minimum royalty obligations.

Litigation

The Company may be a party to various legal proceedings and claims arising out of the ordinary course of its business. Although the final results of all such matters and claims cannot be predicted with certainty, the Company currently believes that there are no current proceedings or claims pending against it the ultimate resolution of which would have a material adverse effect on its financial condition or results of operations. However, should the Company fail to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, such matters could have a material adverse effect on the Company’s operating results and cash flows for that particular period. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, “Contingencies.” Legal costs are expensed as incurred.

Note 13 – Restructuring

On March 20, 2023, the Company committed to a restructuring plan intended to support its long term strategic goals and reduce operating expenses by further aligning its cost structure to focus on areas the Company believes are more likely to generate the best long-term results, in light of current industry and macroeconomic environments (the “RIF”). The Company reduced its workforce by approximately 28%, decreasing its headcount by approximately 23 employees, predominantly from the Company’s detection business unit. Xoft, Inc., a wholly-owned subsidiary of the Company, furloughed 12 of its employees, or approximately 50% of its workforce.

During the three months ended March 31, 2023, the Company incurred pre-tax charges to its statements of operations of $0.08 million related to cash severance and benefits. The Company expects to incur additional charges of $0.1 million during the remainder of the 2023 and no additional charges beyond that time. All of the incurred and estimated future charges are one-time, cash expenses. Estimated amounts are subject to change until finalized and the Company may incur additional costs during the remainder of 2023.

The Company's accrual for restructuring charges for the three months ended March 31, 2023 was follows (in thousands):

Balance of as January 31, 2023	$	—
Charges		76
Cash payments		—
Balance as of March 31, 2023	$	76

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Note 14 – Subsequent Events

The Company has evaluated events and transactions subsequent to the balance sheet date to the date of the filing and is not aware of any events or transactions that occurred subsequent to the balance sheet date that would require recognition or disclosure in the consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2022. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. As a result of many factors, including those factors set forth in the section titled “Risk Factors,” our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors.” Please also refer to the section titled “Special Note Regarding Forward Looking Statements.”

Special Note Regarding Forward Looking Statements

Certain information included in this Item 2 and elsewhere in this Form 10-Q that are not historical facts contain statements that may be deemed “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements involve or may 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 following: the continuing impact of the COVID-19 pandemic, the continuing impact of military and political conflict in Eastern Europe, 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 potential future debt obligations, competitive factors, the effects of a decline in the economy or markets served by the Company, and other risks detailed in this report and in the Company’s other filings with the United States Securities and Exchange Commission (the “SEC”). The words “believe”, “plan”, “intend”, “expect”, “estimate”, “anticipate”, “likely”, “seek”, “should”, “would”, “could” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date the statement was made. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date of such statements.

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

Results of Operations

Overview

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

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

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

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

COVID-19 Impact

On March 12, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of 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, we believe our operations have been materially affected in all periods presented. While the worst of the disruptions seem to have subsided as of March 31, 2023, and the pandemic emergency has been deemed to be over, we continue dealing with the impact of slowness in the overall economic recovery. Our expected results for the year ended December 31, 2023, including any interim or future periods, could reflect a continuing negative impact from continuing negative economic conditions.

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We believe that our current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand of $19.7 million at March 31, 2023 and anticipated revenue and cash collections as well as cost savings actions taken.

Eastern European Conflict Impact

In late February 2022, Russian military forces launched significant military action against Ukraine. Sustained conflict and disruption in the region has continued through March 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 we derive 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 us 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 three months ended March 31, 2023, approximately 15% of the Company's revenue was derived from customers located outside the United States.

Critical Accounting Estimates

Our discussion and analysis of financial condition, results of operations, and cash flows are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to revenue recognition, allowances for credit losses on accounts receivable, inventory valuation and obsolescence, intangible assets, goodwill, income taxes, contingencies, and litigation. Additionally, we use assumptions and estimates in calculations to determine stock-based compensation, and evaluation of litigation. We base estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Due to the COVID-19 pandemic and its lingering impact, global armed conflicts and related political uncertainty, as well as dramatic inflation, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Other than as described herein, there have been no additional material changes to our critical accounting policies as discussed in our 2022 Annual Report on Form 10-K (the “2022 10-K”). For a comprehensive list of our critical accounting policies, reference should be made to the 2022 10-K.

Three months ended March 31, 2023 compared to three months ended March 31, 2022 (in thousands, except share data or as noted)

Revenue

Three months ended March 31, 2023 and 2022:

	Three months ended March 31
	2023		2022		$ Change			% Change
Detection revenue
Product revenue	$	2,460	$	3,864	$	(1,404	)		(36.3	)%
Service and supplies revenue		1,874		1,657		217			13.1	%
Subtotal		4,334		5,521		(1,187	)		(21.5	)%
Therapy revenue
Product revenue		284		696		(412	)		(59.2	)%
Service and supplies revenue		1,160		1,306		(146	)		(11.2	)%
Subtotal		1,444		2,002		(558	)		(27.9	)%
Total revenue	$	5,778	$	7,523	$	(1,745	)		(23.2	)%

Total revenue decreased by approximately $1.7 million or (23.2%), from $7.5 million for the three months ended March 31, 2022 to $5.8 million for the three months ended March 31, 2023. The decrease is due primarily to our shift to a subscription model as well as continued weakness in recovery to pre-pandemic levels prior to Covid-19. During the first three months of 2023, we have seen an increased customer demand for subscription licenses, which currently remains a small portion of the Company’s total license revenue. We believe this trend could accelerate, and have begun to shift our marketing efforts to a subscription model. An increase in subscription revenue would negatively impact revenue in the short term, because revenue from subscription licenses are recognized over time, as opposed to being recognized upon delivery for perpetual licenses.

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Detection product revenue decreased by approximately $1.4 million, or (36.3%), from $3.9 million for the three months ended March 31, 2022 to $2.5 million for the three months ended March 31, 2023. The overall decrease is due primarily to the impact of our transition to a subscription model and ongoing challenges faced in the economic recovery due to the COVID 19 pandemic.

Detection service and supplies revenue, which is primarily sold to direct customers, increased by approximately $0.2 million, or 13.1%, from $1.7 million for the three months ended March 31, 2022 to $1.9 million in the three months ended March 31, 2023. The increase is due primarily to the timing of delivery on service and supply agreements.

Therapy product revenue decreased by approximately $0.4 million, or (59.2)%, from $0.7 million for the three months ended March 31, 2022 to $0.3 million for the three months ended March 31, 2023. Therapy product revenue is related to the sale of our Axxent systems and can vary significantly from quarter to quarter due to changes in the number of units sold and the average selling price.

Therapy service and supplies revenue decreased by approximately $0.1 million, or (11.2)%, from $1.3 million for the three months ended March 31, 2022 to $1.2 million for the three months ended March 31, 2023. We saw lower service and supplies revenues due to lower balloon sales in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

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Cost of Revenue and Gross Profit:

Three months ended March 31, 2023 and 2022:

Cost of Revenue and Gross Profit:	Three months ended March 31
	2023		2022		$ Change			% Change
Products	$	586	$	1,087	$	(501	)		(46.1	)%
Service and supplies		993		1,049		(56	)		(5.3	)%
Amortization and depreciation		69		75		(6	)		(8.0	)%
Total cost of revenue	$	1,648	$	2,211	$	(563	)		(25.5	)%

	Three months ended March 31
	2023		2022		$ Change			% Change
Detection gross profit	$	3,544	$	4,661	$	(1,117	)		(24.0	)%
Therapy gross profit		586		651		(65	)		(10.0	)%
Gross profit	$	4,130	$	5,312	$	(1,182	)		(22.3	)%

Gross profit for the three months ended March 31, 2023 was approximately $4.1 million, or 71.4% of revenue, as compared to $5.3 million, or 70.1% of revenue, for the three months ended March 31, 2022. Detection gross profit percentage increased from 84.2% for the three months ended March 31, 2022 to 85.0% for the three months ended March 31, 2023. Therapy gross profit percentage decreased from 49.3% for the three months ended March 31, 2022 to 33.5% for the three months ended March 31, 2023. Detection gross profit represented 86.0% of total Company gross profit for the three months ended March 31, 2022 compared to 87.7% for the three months ended March 31, 2023.

Cost of products decreased by approximately $0.5 million, or (46.1%), from $1.1 million for the three months ended March 31, 2022 to $0.6 million for the three months ended March 31, 2023. Cost of product revenue as a percentage of product revenue was approximately 21.4% for the three months ended March 31, 2022 as compared to 30.1% for the three months ended March 31, 2023. The product mix in the three-month period ended March 31, 2023 compared to the same period in 2022 included more products with a higher relative cost of sales.

Cost of service and supplies decreased by approximately $0.06 million, or (5.3%) from $1.1 million for the three months ended March 31, 2022 to $1.0 million for the three months ended March 31, 2023. Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 32.7% for the three months ended March 31, 2022 as compared to 22.6% for the three months ended March 31, 2023. The cost of service and supplies as a percentage of revenue decreased primarily as a result of the relative mix of service and supplies in the comparable periods.

Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was approximately $0.1 million for the three months ended March 31, 2023 and 2022.

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Operating Expenses:

Three months ended March 31, 2023 and 2022:

	Three Months Ended March 31,
	2023		2022		$ Change			% Change
Operating expenses:
Engineering and product development	$	2,281	$	2,275	$	6			0.3	%
Marketing and sales		2,857		3,565		(708	)		(19.9	)%
General and administrative		2,862		2,931		(69	)		(2.4	)%
Amortization and depreciation		55		63		(8	)		(12.7	)%
Total operating expenses	$	8,055	$	8,834	$	(779	)		(8.8	)%

SEC Form 10-Q filed by iCAD Inc.