ICAD, INC.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: Certain information included in this Item 2 and elsewhere in this Form
10-Q
that are not historical facts contain forward looking statements that involve a
number of known and unknown risks, uncertainties and other factors that could
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievement
expressed or implied by such forward looking statements. These risks and
uncertainties include, but are not limited to following: the impact of the
COVID-19
pandemic on our business and the macro economy; uncertainty of future sales and
expense levels, protection of patents and other proprietary rights, the impact
of supply and manufacturing constraints or difficulties, regulatory changes and
requirements applicable to our products, product market acceptance, possible
technological obsolescence of products, increased competition, integration of
the acquired businesses, the impact of litigation and/or government regulation,
changes in Medicare reimbursement policies, competitive factors,
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the effects of a decline in the economy in markets served by the Company and
other risks detailed in the Company's other filings with the Securities and
Exchange Commission . The words "believe", "plan", "intend", "expect",
"estimate", "anticipate", "likely", "seek", "should", "would", "could" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on those forward-looking statements, which speak
only as of the date the statement was made.
Results of Operations
Overview
iCAD, Inc. is a global medical technology company providing innovative cancer
detection and therapy solutions. The Company reports in two segments: Detection
and Therapy.
In the Detection segment, the Company's solutions include (i) advanced image
analysis and workflow solutions that enable healthcare professionals to better
serve patients by identifying pathologies and pinpointing the most prevalent
cancers earlier, and (ii) a comprehensive range of high-performance, Artificial
Intelligence and Computer-Aided Detection (CAD) systems and workflow solutions
for 2D and 3D mammography, Magnetic Resonance Imaging (MRI) and Computed
Tomography (CT).
In the Therapy segment, the Company offers an isotope-free cancer treatment
platform technology the Xoft Electronic Brachytherapy System ("Xoft System").
The Xoft System can be used for the treatment of early- stage breast cancer,
endometrial cancer, cervical cancer and skin cancer. We believe the Xoft System
platform indications represent strategic opportunities in the United States and
international markets to offer differentiated treatment alternatives. In
addition, the Xoft System generates additional recurring revenue for the sale of
consumables and related accessories which will continue to drive growth in this
segment.
The Company's headquarters are located in Nashua, New Hampshire , with a
manufacturing facility in New Hampshire and an operations, research,
development, manufacturing and warehousing facility in San Jose, California .
COVID-19
Impact
On March 12, 2020 , the World Health Organization declared
COVID-19
to be a pandemic. In an effort to contain and mitigate the spread of
COVID-19,
many countries, including the United States , Canada and China , have imposed
unprecedented restrictions on travel, and there have been business closures and
a substantial reduction in economic activity in countries that have had
significant outbreaks of
COVID-19.
As a provider of devices and services to the health care industry, our
operations have been materially affected. Significant uncertainty remains as to
the potential impact of the
COVID-19
pandemic on our continuing operations and on the global economy as a whole. It
is currently not possible to predict how long the pandemic will last or the time
that it will take for economic activity to return to prior levels. The
COVID-19
pandemic has resulted in significant financial market volatility and
uncertainty. A continuation or worsening of the levels of market disruption and
volatility
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seen in the recent past could have an adverse effect on our ability to access
capital, on our business, results of operations and financial condition, and on
the market price of our common stock. Our results for the quarter ending
June 30, 2020 reflect a negative impact from the
COVID-19
pandemic as the typical sales cycle and ordering patterns were still disrupted
due to healthcare facilities' additional focus on
COVID-19.
Although we do not provide guidance to investors relating to our results of
operations, our results for the quarter ending September 30, 2020 , and possibly
future quarters could reflect a negative impact from the
COVID-19
pandemic for similar reasons. With this impact happening so late in the
three-month period ended March 31, 2020 , the Company was unable to make
significant changes to costs for that period. However, the Company took steps
during the three-month period ended June 30, 2020 to reduce operating expenses,
including cutting
non-essential
travel, implementing employee furloughs and terminations, reducing employee
salaries by 10%, and cancelling most
in-person
trade shows. Depending upon the duration and severity of the pandemic, the
continuing effect on our results over the long term is uncertain. We will
continue to evaluate the nature and extent of the impact of
COVID-19
on our business and cost structure.
During the first quarter of fiscal 2020 the Company also entered into an equity
distribution agreement with JMP Securities to provide for an
at-
the-market
offering program to provide additional potential liquidity through the sale of
common stock having a value of up to $25.0 million . The Company did not make any
sales under this equity distribution agreement in the period ended June 30,
2020 . The Company believes that its current liquidity and capital resources are
sufficient to sustain operations through at least the next 12 months, primarily
due to cash on hand of $24.2 million and anticipated revenue and cash
collections.
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Critical Accounting Policies
The Company's discussion and analysis of its financial condition, results of
operations, and cash flows are based on the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America .
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, the Company evaluates these estimates, including those related to
revenue recognition, allowance for doubtful accounts, inventory valuation and
obsolescence, intangible assets, goodwill, income taxes, contingencies and
litigation. Additionally, the Company uses assumptions and estimates in
calculations to determine stock-based compensation, the fair value of
convertible notes, and evaluation of litigation. The Company bases its estimates
on historical experience and on various other assumptions that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Due to the
COVID-19
pandemic, there has been uncertainty and disruption in the global economy and
financial markets. The Company is not aware of any specific event or
circumstance that would require an update to its estimates or judgments or a
revision of the carrying value of its assets or liabilities as of August 7,
2020 , the date of issuance of this Quarterly Report on Form
10-Q.
These estimates may change, as new events occur and additional information is
obtained. Actual results could differ materially from these estimates under
different assumptions or conditions.
Other than as described herein, there have been no additional material changes
to our critical accounting policies as discussed in our 2019 Annual Report on
Form
10-K
(the "2019
10-K").
For a comprehensive list of the Company's critical accounting policies,
reference should be made to the 2019
10-K.
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Three and six months ended June 30, 2020 compared to three and six months ended
June 30, 2019 .
Revenue: (in thousands)
Three months ended June 30, 2020 and 2019:
Three months ended June 30,
2020 2019 $ Change % Change
Detection revenue
Product revenue $ 2,702 $ 3,808 $ (1,106 ) (29.0 )%
Service revenue 1,415 1,401 14 1.0 %
Subtotal 4,117 5,209 (1,092 ) (21.0 )%
Therapy revenue
Product revenue 186 545 (359 ) (65.9 )%
Service revenue 1,264 1,575 (311 ) (19.7 )%
Subtotal 1,450 2,120 (670 ) (31.6 )%
Total revenue $ 5,567 $ 7,329 $ (1,762 ) (24.0 )%
Total revenue decreased by approximately $1.8 million , or 24.0%, from
$7.3 million for the three months ended June 30, 2019 to $5.6 million for the
three months ended June 30, 2020 . The decrease is due to a decrease in Therapy
revenue of approximately $0.7 million and a decrease in Detection revenue of
$1.1 million . The Company believes that Detection product revenue and Therapy
segment revenue were adversely affected in the second quarter of 2020 by the
COVID-19
pandemic, as the typical sales cycle and ordering patterns were disrupted due to
healthcare facilities' additional focus on
COVID-19.
The Company is not able to predict how the
COVID-19
pandemic will affect future revenue and order volume.
Detection product revenue decreased by approximately $1.1 million , or 29.0%,
from $3.8 million for the three months ended June 30, 2019 to $2.7 million for
the three months ended June 30, 2020 . The decrease was due primarily to
decreases in (i) direct customer revenue of $0.2 million . and (ii) OEM customer
revenue of $0.9 million , in each case relating primarily to revenue from 3D
imaging and density assessment products.
Detection service and supplies revenue remained at approximately $1.4 million in
each of the three months ended June 30, 2019 and 2020. The Company did not see a
significant impact of the
COVID-19
pandemic on Detection service and supplies revenue in the second quarter of 2020
but is not able to predict how the
COVID-19
pandemic will affect future Detection service and supplies revenue.
Therapy product revenue decreased by approximately $0.4million , or 65.9%, from
$0.6 million for the three months ended June 30, 2019 to $0.2 million for the
three months ended
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June 30, 2020 . Therapy product revenue is related to the sale of our Axxent
systems and can vary significantly from quarter to quarter due to changes in the
number of units sold, and the average selling price.
Therapy service and supply revenue decreased by approximately $0.3 million , or
19.7%, from $1.6 million for the three months ended June 30, 2019 to
$1.3 million for the three months ended June 30, 2020 . The Company believes that
Therapy service and supply revenue was adversely affected by the
COVID-19
pandemic, due to
stay-at-home
and social distancing orders as well as the uncertainty in the market. The
Company is not able to predict how the
COVID-19
pandemic will affect future Therapy service and supply revenue.
Six months ended June 30, 2020 and 2019:
Six months ended June 30,
2020 2019 $ Change % Change
Detection revenue
Product revenue $ 5,802 $ 6,598 $ (796 ) (12.1 )%
Service revenue 2,791 2,779 12 0.4 %
Subtotal 8,593 9,377 (784 ) (8.4 )%
Therapy revenue
Product revenue 881 1,577 (696 ) (44.1 )%
Service revenue 2,644 3,148 (504 ) (16.0 )%
Subtotal 3,525 4,725 (1,200 ) (25.4 )%
Total revenue $ 12,118 $ 14,102 $ (1,984 ) (14.1 )%
Total revenue decreased by approximately $2.0 million , or 14.1%, from
$14.1 million for the six months ended June 30, 2019 to $12.1 million for the
six months ended June 30, 2020 . The decrease is due to a decrease in Therapy
revenue of approximately $1.2 million and a decrease in Detection revenue of
approximately $0.8 million . The Company believes that Detection product revenue
and order volume, and both Therapy product and Therapy service and supply
revenue were adversely affected in the second quarter of 2020 by the
COVID-19
pandemic, as the typical sales cycle and ordering patterns were disrupted due to
healthcare facilities' additional focus on
COVID-19.
The Company is not able to predict how the
COVID-19
pandemic will affect future revenue and order volume.
Detection product revenue decreased by approximately $0.8 million , or 12.3%,
from $6.6 million for the six months ended June 30, 2019 to $5.8 million for the
six months ended June 30, 2020 . The decrease was due primarily to a decrease in
OEM revenue of $0.8 million , relating primarily to revenue from 3D imaging and
density assessment products.
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Detection service and supplies revenue remained at approximately $2.8 million in
each of the six months ended June 30, 2019 and 2020. The Company did not see a
significant impact of the
COVID-19
pandemic on Detection service and supplies revenue for the six months ended
June 30, 2020 but is not able to predict how the
COVID-19
pandemic will affect future Detection service and supplies revenue.
Therapy product revenue decreased by approximately $0.7 million , or 44.1%, from
$1.6 million for the six months ended June 30, 2019 to $0.9 million for the six
months ended June 30, 2020 . Therapy product revenue is related to the sale of
our Axxent systems and can vary significantly from quarter to quarter due to
changes in the number of units sold, and the average selling price.
Therapy service and supply revenue decreased by approximately $0.5 million , or
16%, from $3.1 million for the six months ended June 30, 2019 to $2.6 million
for the six months ended June 30, 2020 .
Cost of Revenue and Gross Profit: (in thousands)
Three months ended June 30, 2020 and 2019:
Three months ended June 30,
2020 2019 $ Change % Change
Products $ 537 $ 645 $ (108 ) (16.7 )%
Service and supplies 575 858 (283 ) (33.0 )%
Amortization and depreciation 98 100 (2 ) (2.0 )%
Total cost of revenue $ 1,210 $ 1,603 $ (393 ) (24.5 )%
Gross profit $ 4,357 $ 5,726 $ (1,369 ) (23.9 )%
Three months ended June 30,
2020 2019 $ Change % Change
Detection gross profit $ 3,533 $ 4,356 $ (823 ) (18.9 %)
Therapy gross profit 824 1,370 (546 ) (39.9 %)
Gross profit $ 4,357 $ 5,726 $ (1,369 ) (23.9 )%
Gross profit for the three months ended June 30, 2020 was approximately
$4.4 million , or 78.3% of revenue, as compared to $5.7 million , or 78.1% of
revenue, for the three months period ended June 30, 2019 . The
COVID-19
pandemic adversely affected revenues from Detection products and the Therapy
segment in the three months ended June 30, 2020 , and as a result, lower gross
profit in both segments. However, the Company took steps during the three-month
period ended June 30, 2020 to reduce operating expenses, including cutting
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non-essential
travel, implementing employee furloughs and terminations and reducing employee
salaries by 10%. These measures enabled an increase in gross profit in the three
months ended June 30, 2020 compared to the prior year period.
Cost of products decreased by approximately $0.1 million , or 16.7%, from
$0.6 million for the three months ended June 30, 2019 to $0.5 million for the
three months ended June 30, 2020 . Cost of product revenue as a percentage of
product revenue was approximately 14.8% for the three months ended June 30, 2019
as compared to 18.6% for the three months ended June 30, 2020 . The decrease in
cost of products is due primarily to decreased personnel costs. The increase as
a percentage of revenue is primarily due to the timing of cost-cutting measures
in response to
COVID-19
and increased server and hardware costs.
Cost of service and supplies decreased by approximately $0.3 million , or 33%,
from $0.9 million for the three months ended June 30, 2019 to $0.6 million for
the three months ended June 30, 2020 . Cost of service and supplies revenue as a
percentage of service and supplies revenue was approximately 28.8% for the three
months ended June 30, 2019 as compared to 21.5% for the three months ended
June 30, 2020 . The decrease in service and supplies costs is due primarily to
decrease in personnel costs.
Amortization and depreciation, which relates primarily to acquired intangible
assets and depreciation of machinery and equipment, was approximately
$0.1 million for each of the three months ended June 30, 2020 and 2019.
Six months ended June 30, 2020 and 2019:
Six months ended June 30,
2020 2019 $ Change % Change
Products $ 1,554 $ 1,325 $ 229 17.3 %
Service and supplies 1,502 1,575 (73 ) (4.6 )%
Amortization and depreciation 195 194 1 0.5 %
Total cost of revenue $ 3,251 $ 3,094 $ 157 5.1 %
Gross profit $ 8,867 $ 11,008 $ (2,141 ) (19.4 )%
Six months ended June 30,
2020 2019 $ Change % Change
Detection gross profit $ 7,000 $ 7,823 $ (823 ) (10.5 %)
Therapy gross profit 1,867 3,185 (1,318 ) (41.4 %)
Gross profit 8,867 11,008 (2,141 ) (19.4 %)
42-------------------------------------------------------------------------------- Table of Contents Gross profit for the six months endedJune 30, 2020 was approximately$8.9 million , or 73.2% of revenue, as compared to$11.0 million , or 78.1% of revenue, for the six months period endedJune 30, 2019 . The COVID-19 pandemic adversely affected revenues from Detection products and the Therapy segment in the six months endedJune 30, 2020 , and as a result, gross profit in both segments. However, the Company took steps during the three-month period endedJune 30, 2020 to reduce operating expenses, including cutting non-essential travel, implementing employee furloughs and terminations and reducing employee salaries by 10%. Cost of products increased by approximately$0.2 million , or 17.3%, from$1.3 million for the six months endedJune 30, 2019 to$1.5 million for the six months endedJune 30, 2020 . Cost of product revenue as a percentage of product revenue was approximately 16.2% for the six months endedJune 30, 2019 as compared to 23.3% for the six months endedJune 30, 2020 . The increase in cost of products is due primarily to increased personnel costs in the three months ended periodMarch 31, 2020 prior to the COVID-19 cost cutting measures, as well as increased server and hardware costs. Cost of service and supplies decreased by approximately$0.1 million , or 4.6%, from$1.6 million for the six months endedJune 30, 2019 to$1.5 million for the six months endedJune 30, 2020 . Cost of service and supplies revenue as a percentage of service and supplies revenue was approximately 26.6% for the six months endedJune 30, 2019 as compared to 27.6% for the six months endedJune 30, 2020 . The decrease in service and supplies costs is due primarily to decreased personnel costs in cost of sales. Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, was approximately$0.2 million for each of the six months endedJune 30, 2020 and 2019. Operating Expenses: (in thousands) The Company's investments in its business and the resulting operating expenses continued to grow throughout 2019. The Company expected sales orders, shipments, and overall revenue to continue to grow in 2020, which would have necessitated similar levels of operating expenses in 2020. Although the COVID-19 pandemic impacted revenue throughout the six months endedJune 30, 2020 , the Company began to implement significant reductions to operating expenses inApril 2020 . Steps taken to reduce operating expenses included cutting non-essential travel, implementing employee furloughs and terminations, reducing employee salaries by 10%, and cancelling most in-person trade shows. The Company will continue to monitor the timing of when these measures may be reversed based on the impact that COVID-19 has on the Company's revenues. 43 -------------------------------------------------------------------------------- Table of Contents Three months endedJune 30, 2020 and 2019: Three months ended June 30, 2020 2019 Change Change % Operating expenses: Engineering and product development$ 1,878 $ 2,139 $ (261 ) (12.2 )% Marketing and sales 2,631 3,120 (489 ) (15.7 )% General and administrative 2,110 1,858 252 13.6 % Amortization and depreciation 49 67 (18 ) (26.9 )% Total operating expenses$ 6,668 $ 7,184 $ (516 ) (7.2 )% Operating expenses decreased by approximately$0.5 million , or 7.2%, from$7.2 million in the three months endedJune 30, 2019 to$6.7 million in the three months endedJune 30, 2020 . The Company took steps during the three-month period endedJune 30, 2020 to reduce operating expenses, including cutting non-essential travel, implementing employee furloughs and terminations, reducing employee salaries by 10%, and cancelling most in-person trade shows. The Company will continue to monitor the timing of when any of these measures can be reversed based on the impact that COVID-19 has on the Company's revenues. The decrease in operating expenses was also due to the$0.3 million Employee Retention Credit that the Company recorded pursuant to the CARES Act. Engineering and Product Development . Engineering and product development costs decreased by approximately$0.3 million , or 12.2%, from$2.1 million for the three months endedJune 30, 2019 to$1.9 million for the three months endedJune 30, 2020 . Detection engineering and product development costs decreased by$0.1 million from$1.5 million for the three months endedJune 30, 2019 to$1.4 million for the three months endedJune 30, 2020 . Therapy engineering and product development costs decreased$0.1 million , from$0.6 million in the three months endedJune 30, 2019 to$0.5 million for the three months endedJune 30, 2020 . The decreases were due primarily to decreased personnel costs. Marketing and Sales . Marketing and sales expenses decreased by approximately$0.5 million , or 15.7%, from$3.1 million in the three months endedJune 30, 2019 to$2.6 million in the three months endedJune 30, 2020 . Detection marketing and sales expense decreased by$0.2 million , from$2.1 million in the three months endedJune 30, 2019 to$1.9 million in the three months endedJune 30, 2020 . This included a credit of$0.1 million Employee Retention Credit pursuant to the CARES Act. Therapy marketing and sales expense decreased by$0.3 million , from$1.0 million in the three months endedJune 30, 2019 to$0.7 million in the three months endedJune 30, 2020 . The decrease in both Detection and Therapy marketing and sales expense is due primarily to (i) decreased personnel costs and commissions as a result of the Company's COVID-19 related cost-cutting efforts, and (ii) the Employee Retention Credit. General and Administrative . General and administrative expenses increased by approximately$0.2 million , or 13.6%, from$1.9 million in the three months endedJune 30, 2019 to$2.1 million for the three months endedJune 30, 2020 . The increase is due primarily to increases in stock compensation expense and legal costs offset by a decrease in personnel costs. 44 -------------------------------------------------------------------------------- Table of Contents Amortization and Depreciation. Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, decreased by approximately$18,000 , or 26.9% from$67,000 for the three months endedJune 30, 2019 to$49,000 for the three months endedJune 30, 2020 . Six months endedJune 30, 2020 and 2019: Six months ended June 30, 2020 2019 Change Change % Operating expenses: Engineering and product development$ 4,089 $ 4,266 $ (177 ) (4.1 )% Marketing and sales 6,239 5,693 546 9.6 % General and administrative 4,642 3,404 1,238 36.4 % Amortization and depreciation 101 137 (36 ) (26.3 )% Total operating expenses$ 15,071 $ 13,500 $ 1,571 11.6 % Operating expenses increased by approximately$1.6 million , or 11.6%, from$13.5 million in the six months endedJune 30, 2019 to$15.1 million in the six months endedJune 30, 2020 . Although the Company implemented cost-cutting measures related to COVID-19 and was able to achieve a reduction in operating expenses during the three months endedJune 30, 2020 , there were still no such measures related to COVID-19 in the three months endedMarch 31, 2020 , resulting in an overall increase in operating expenses for the six months endedJune 30, 2020 . The increase in operating expenses was also offset by the$0.3 million Employee Retention Credit that the Company recorded in the quarter endedJune 30, 2020 pursuant to the CARES Act. Engineering and Product Development . Engineering and product development costs decreased by approximately$0.2 million , or 4.1%, from$4.3 million for the six months endedJune 30, 2019 to$4.1 million for the six months endedJune 30, 2020 . Detection engineering and product development costs decreased by$0.2 million , from$3.0 million for the six months endedJune 30, 2019 to$2.8 million for the six months endedJune 30, 2020 , due primarily to decreased personnel costs. Therapy engineering and product development costs remained at approximately$1.3 million in the six-months endedJune 30, 2019 and 2020. Marketing and Sales . Marketing and sales expenses increased by approximately$0.5 million , or 9.6%, from$5.7 million in the six months endedJune 30, 2019 to$6.2 million in the six months endedJune 30, 2020 . Detection marketing and sales expense increased by$0.5 million , from$3.8 million in the six months endedJune 30, 2019 to$4.3 million in the six months endedJune 30, 2020 . Therapy marketing and sales expense remained flat at$1.9 million in the six months endedJune 30, 2019 and 2020. 45 -------------------------------------------------------------------------------- Table of Contents The increase in Detection marketing and sales expense is due primarily to increased personnel costs and commissions, which were incurred prior to implementation of cost-cutting measures prompted by the COVID-19 pandemic. The increase was also offset by the Employee Retention Credit of$0.1 million in Marketing and sales between the Detection and Therapy segments. General and Administrative . General and administrative expenses increased by approximately$1.2 million , or 36.4%, from$3.4 million in the six months endedJune 30, 2019 to$4.6 million for the six months endedJune 30, 2020 . The increase is due primarily to increases in stock compensation expense and legal costs, and was offset by cost-cutting measures prompted by the COVID-19 pandemic. Amortization and Depreciation. Amortization and depreciation, which relates primarily to acquired intangible assets and depreciation of machinery and equipment, decreased by approximately$36,000 , or 26.3% from$137,000 for the six months endedJune 30, 2019 to$101,000 for the three months endedJune 30, 2020 . Other Income and Expense: (in thousands) Three months endedJune 30, 2020 and 2019: Three months ended June 30, 2020 2019 Change Change % Interest expense$ (115 ) $ (202 ) $ 87 (43.1 )% Other income 33 64 (31 ) (48.4 )% Loss on fair value of debentures - (1,915 ) 1,915 (100.0 )%$ (82 ) $ (2,053 ) $ 1,971 (96.0 )% Tax benefit (expense) (5 ) (19 ) 14 (73.7 )% Interest expense . Interest expense decreased by approximately$0.1 million , or 43.1%, from$0.2 million for the three months endedJune 30, 2019 to$0.1 million for the three months endedJune 30, 2020 . The decrease is due primarily to the interest on the Company's loans withSilicon Valley Bank ("SVB") andWestern Alliance Bank (the "Bank"). Other income . Other income decreased by approximately$31,000 , or 48.4%, from$64,000 for the three months endedJune 30, 2019 to$33,000 for the three months endedJune 30, 2020 . The decrease resulted primarily from lower cash balances in interest-generating accounts and investments. Loss on fair value of debentures . The Company recorded a loss of approximately$1.9 million in the three months endedJune 30, 2019 , which reflected an increase in the fair value of the unsecured subordinated convertible debentures issued inDecember 2018 (the 46 -------------------------------------------------------------------------------- Table of Contents "Convertible Debentures") from$9.5 million atMarch 31, 2019 to$11.4 million atJune 30, 2019 . Upon the consummation of the forced conversion, the Company issued 1,816,466 shares of common stock with a fair value of approximately$21.2 million , which was reclassified to stockholders' equity during the three-month endingMarch 31, 2020 . As a result of the forced conversion there was no fair value adjustment for the three months endedJune 30, 2020 . Tax expense . Tax expense decreased by approximately$14,000 , or 73.7%, from$19,000 for the three months endedJune 30, 2019 to$5,000 for the three months endedJune 30, 2020 . Tax expense is due primarily to state non-income and franchise-based taxes. Six months endedJune 30, 2020 and 2019: Six months ended June 30, 2020 2019 Change Change % Interest expense$ (245 ) $ (411 ) $ 166 (40.4 )% Other income 75 123 (48 ) (39.0 )% Loss on fair value of debentures (7,464 ) (4,440 ) (3,024 ) 68.1 %$ (7,634 ) $ (4,728 ) $ (2,906 ) 61.5 % Tax expense$ (31 ) $ (27 ) $ (4 ) 14.8 % Interest expense . Interest expense decreased by approximately$0.2 million , or 40.4%, from$0.4 million for the six months endedJune 30, 2019 to$0.2 million for the six months endedJune 30, 2020 . The decrease is due primarily to the interest on the Company's loans with SVB and the Bank. Other income . Other income decreased by approximately$48,000 , or 39%, from$123,000 for the six months endedJune 30, 2019 to$75,000 for the six months endedJune 30, 2020 . The decrease resulted primarily from lower cash balances in interest-generating accounts and investments. Loss on fair value of debentures . The Company recorded a loss of approximately$7.5 million in the six months endedJune 30, 2020 , which reflected an increase in the fair value of the Convertible Debentures from$13.7 million atDecember 31, 2019 to$21.2 million as ofFebruary 21, 2020 . The Company recorded a loss of approximately$1.9 million in the six months endedJune 30, 2019 , which reflected an increase in the fair value of Convertible Debentures from$9.5 million atMarch 31, 2019 to$11.4 million atJune 30, 2019 . Upon the consummation of the forced conversion, the Company issued 1,816,466 shares of common stock with a fair value of approximately$21.2 million , which was reclassified to stockholders' equity. As a result of the forced conversion, there was no fair value adjustment for the three months endedJune 30, 2020 . The Convertible Debenture balance as ofJune 30, 2020 was$0 . Loss on extinguishment of debt : The Company recorded a loss on extinguishment of approximately$341,000 related to the repayment and retirement of the loan with SVB. The loss on extinguishment was composed of approximately$185,000 for the unaccrued final payment, the$114,000 termination fee,$42,000 for the unamortized and other closing costs. There were no such costs in 2019. 47 -------------------------------------------------------------------------------- Table of Contents Tax expense . Tax expense increased by approximately$4,000 , or 14.8%, from$27,000 for the six months endedJune 30, 2019 to$31,000 for the six months endedJune 30, 2020 . Tax expense is due primarily to state non-income and franchise-based taxes. Liquidity and Capital Resources The Company's cash on hand includes proceeds from the Loan and Security Agreement entered into with the Bank onMarch 31, 2020 . The Company and the Bank amended the Loan and Security Agreement onJune 22, 2020 (as amended, the "Loan Agreement"). The Loan Agreement includes certain financial covenants tied to minimum revenue and the ratio of the Company's unrestricted cash at the Bank to its indebtedness under the Loan Agreement. The COVID-19 pandemic has resulted in significant financial market volatility and uncertainty. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on the Company's ability to maintain compliance with the covenants under the Loan Agreement. If at any point the Company is not in compliance with certain covenants and is unable to obtain an amendment or waiver, such noncompliance may result in an event of default under the Loan Agreement, which could permit acceleration of the outstanding indebtedness and require the Company to repay such indebtedness before the scheduled due date. Even if an event of default were to occur under the Loan Agreement, the Company believes that its current liquidity and capital resources are sufficient to sustain operations through at least the next 12 months, primarily due to cash on hand of$24.2 million and anticipated revenue and cash collections. The Company has also entered into an at-the-market offering program withJMP Securities (the "ATM") to provide for additional potential liquidity. The Company's ATM facility provides for the sale of common stock having a value of up to$25.0 million . As ofJune 30, 2020 , no sales had been made pursuant to the ATM facility and$25.0 million in capacity remains under the facility. OnApril 27, 2020 , the Company issued 1,562,500 shares of common stock to several institutional investors at a price of$8.00 per share in a registered direct offering. The gross proceeds of the offering were approximately$12.5 million , and the Company received net proceeds of approximately$12.3 million . Our projected cash needs include planned capital expenditures, loan interest payments, lease commitments, and other long-term obligations. The Company's ability to generate cash adequate to meet its future capital requirements will depend primarily on operating cash flow. If sales or cash collections are reduced from current expectations, or if expenses and cash requirements are increased, the Company may require additional financing, although there are no guarantees that the Company will be able to obtain the financing if necessary. 48 -------------------------------------------------------------------------------- Table of Contents As ofJune 30, 2020 , the Company has 22,874,441 shares of common stock issued and outstanding, and 432,021 shares reserved for future issuance, out of 30,000,000 authorized shares of common stock. Given this relatively limited number of shares available for issuance in a capital markets transaction, the Company may not be able to raise significant financing through a capital markets transaction and accordingly, the Company will seek approval from its stockholders to amend its Certificate of Incorporation to increase its authorized shares of common stock at a later date and subject to the filing with theSEC of a proxy statement and solicitation of stockholder approval. The Company will incur additional costs and expenses in seeking approval for such amendment and as a result of the failure to obtain valid approval of a related amendment at its earlier stockholder meeting. The Company will continue to closely monitor its liquidity and the capital and credit markets. As ofJune 30, 2020 , the Company had current assets of$35.7 million including$24.2 million of cash and cash equivalents. Current liabilities are$12.8 million and working capital is$22.9 million . The ratio of current assets to current liabilities is 2.79:1. For the six-months ended June 30, 2020 2019 (in thousands)
Net cash used for operating activities
(2,404 ) Net cash used for investing activities (186 ) (143 ) Net cash provided by financing activities 12,671
9,929
Decrease in cash and equivalents $ 8,912 $
7,382
Net cash used for operating activities for the six-month period endedJune 30, 2020 was$3.6 million , compared to net cash used for operating activities of$2.4 million for the six-month period endedJune 30, 2019 . The net cash used for operating activities for the six-month period endedJune 30, 2020 resulted primarily from our net loss as adjusted for non-cash items, and was reduced by working capital changes resulting from decreases in accounts receivable offset by increases in inventory and decreases in in accounts payable and accrued expenses. We expect that net cash used for or provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, the timing of when we recognize revenue, collections of accounts and the timing of other payments. Net cash used for investing activities for the six-month period endedJune 30, 2020 was$186,000 , compared to$143,000 for the six-month period endedJune 30, 2019 . The net cash used for investing activities for the six-month period endedJune 30, 2020 is primarily for purchases of property and equipment. Net cash provided by financing activities for the six-month period endedJune 30, 2020 was$12.7 million , compared to$9.9 million for the six-month period endedJune 30, 2019 . Net cash provided by financing activities for the six-month period endedJune 30, 2020 is primarily from the$12.3 million in net proceeds from the issuance of common stock and$7.0 million from the Loan Agreement with the Bank, offset by$4.6 million in repayment 49 -------------------------------------------------------------------------------- Table of Contents of the term loan with SVB and$2.0 million in repayment of the revolving loan with SVB. Cash provided by financing activities for the six months endedJune 30, 2019 is due primarily to cash from the issuance of common stock. InJune 2019 , the Company completed an underwritten public offering of approximately$1.9 million shares of common stock. The Company received net proceeds of approximately$9.4 million after deducting underwriting and other offering expenses. Contractual Obligations The Company had the following commitments as ofJune 30, 2020 : Less than 1 1-3 3-5 Total year years years 5+ years Operating Lease Obligations$ 2,496,532 $ 922,858 $ 1,564,314 $ 9,360 $ - Finance Lease Obligations 4,683 4,683 - - - Settlement Obligations 463,262 463,262 - - - Notes Payable 8,039,336 372,604 5,312,740 2,353,992 - Other Commitments 4,456,329 4,456,329 - - -
Total Contractual Obligations
Operating and Capital Lease Obligations are the minimum payments due under these
obligations.
Settlement Obligations represent the remaining payments under the settlement
agreement with Hologic, Inc.
Notes Payable - principal and interest represents the payments due under the
term loan from the Bank.
Other Commitments represent firm purchase obligations to suppliers for future
product and service deliverables.
Recent Accounting Pronouncements
See Note 13 to the Condensed Consolidated Financial Statements.
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