iCAD (ICAD) Risk Analysis

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

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

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

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

In the United States, the Company's CAD systems are medical devices subject to extensive regulation by the FDA under the FDCA. The FDA's regulation of the Company's products includes its manufacturing operations, product labeling, adverse event reporting, and the FDA's general prohibition against promoting products for unapproved or "off-label" uses. The Company's failure to fully comply with applicable regulations could result in the issuance of warning letters, non-approvals, suspensions of existing approvals, civil penalties and criminal fines, product seizures and recalls, operating restrictions, injunctions, and criminal prosecution. Moreover, unanticipated changes in existing regulatory requirements or adoption of new requirements could increase the Company's operating and compliance burdens and adversely affect its business, financial condition and results of operations. Sales of the Company's products in certain countries outside of the United States are also subject to extensive regulatory approvals. Obtaining and maintaining foreign regulatory approvals is an expensive and time-consuming process. The Company cannot be certain that it will be able to obtain the necessary regulatory approvals timely or at all in any foreign country in which the Company plans to market its CAD products, and if the Company fails to receive such approvals, its ability to generate revenue may be significantly diminished.

The Company is unable to predict what legislation or regulation relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on the Company's business. Any cost containment measures or other health care system reforms that are adopted could have a material and adverse effect on the Company's ability to commercialize its existing and future products successfully. The Company cannot predict whether any existing or enacted legislation will be repealed, replaced, or modified or how such repeal, replacement or modification may be timed or structured. As a result, the Company cannot quantify or predict the effect of such repeal, replacement, or modification might have on its business and results of operations. However, any changes that lower reimbursement for the Company's products or reduce medical procedure volumes could adversely affect its business and results of operations.

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

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

The Company's success in growing revenue and market share from subscription-based offerings will depend, to a large extent, on the willingness of the Company's customers and the markets we serve to accept this model for commercializing applications that they view as critical to the success of their businesses. Many companies have invested substantial effort and financial resources to integrate traditional enterprise software and IT staffing into their businesses and may be reluctant or unwilling to switch to a recurring fee model for our software applications or to migrate these applications to cloud-based services. Conversely, the rate of adoption of this model may occur faster than the Company forecasted resulting in a short term impact to revenue due to recognizing subscription-based licenses ratably as well as an impact to cash as cash is also collected ratably vs all up front with perpetual models. Other factors that may affect market acceptance of our products and cloud-based applications include: - the security capabilities, reliability and availability of cloud-based services;- customer concerns with entrusting a third party to store and manage their data, especially confidential or sensitive data;- our ability to invest the time and resources required to offer our software under this model;- our ability to maintain high levels of customer satisfaction, including with respect to maintaining uptime and system availability standards consistent with market expectations;- our ability to implement upgrades and other changes to our software without disrupting our service;- the level of customization or configuration we offer; and - the price, performance and availability of competing products and services. The market for these services may not develop at the rate we expect, meaning adoption occurs more slowly or more quickly than forecasted, either of which would harm the Company's business. The Company's business model continues to evolve and it may not be able to compete effectively, generate significant revenues or maintain profitability for our subscription-based offerings. The Company has and will continue to incur expenses associated with the infrastructures and marketing of subscription offerings in advance of its ability to recognize the revenues associated with these offerings. Demand for subscription, cloud-based services may unfavorably impact demand for certain other products and services. With a continued shift away from the sale of perpetual software licenses to providing access to software through subscription agreements the Company may, in the near term, experience a deferral of revenues and to a lesser extent cash received from customers.

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

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