ICAD Inc (ICAD) 2004 Q2 法說會逐字稿

Thank you very much.

And ladies and gentlemen, my apologies for the delay.

As you can tell, there have been some difficulties in the phone mechanics.

In our second quarter since the acquisition of CADx Systems and the quality of computing, iCAD reports profitable operations at a level of sales more than four times higher than in the second quarter of 2003, and at gross profit margins in excess of 70%.

Today, we believe that iCAD is the leading of provider of computer-aided detection solutions for early detection and diagnosis of cancer.

We offer the broadest range of computer-aided detection products, features, and price points available and do so through the strongest distribution channels in the industry.

Our sales and our product pipelines are very strong, and we are just getting started.

In the second quarter, sales reflected an increasingly balanced distribution model, approximately one-third of our revenues and a somewhat greater percentage of units sold were computer-aided detection systems for use in the growing digital mammography market.

We are unquestionably the current leader in computer-aided detection for digital mammography.

This is a position we are working to improve through announced and pending development and sales relationships with an increasing number of digital mammography systems manufacturers.

Sales of x-ray film based computer-aided detection systems, accounting for about two-thirds of our revenues, were almost equally distributed between sales through Source One Healthcare, our national distributor, and sales through our network of geographically distributed independent resellers.

In the second quarter, we shipped some 117 CAD systems, excluding multiple work station licenses for digital mammography.

At the end of the quarter, we had a robust pipeline of orders and purchase commitments in dealer and reseller hands, which have yet to reach iCAD.

These create a strong start in the third quarter.

And we are just getting started.

Computer-aided detection of breast cancer has proven its worth in almost 2,000 mammography centers across the country, assisting in early detection of breast cancer, reducing oversights and associated malpractice liability, increasingly demanded by patients, and reimbursed under most insurance programs.

CAD can pay for itself quickly in larger clinics.

For an estimated 6,000 clinics with caseloads of 20 or fewer patients per day, however, an estimated two-thirds of the U.S. market, CAD has just been too expensive.

A 2003 survey performed for us by Frost & Sullivan indicates that breast care centers that fall into the lower caseload segment of the market believe in the benefits of CAD, but cannot the high capital outlay that CAD has traditionally required.

We believe this represents the largest potential market for computer-aided detected solutions.

Our new Second Look 200 solution for early detection of breast cancer designed from scratch to provide a solution to some two-thirds of breast clinics unable to afford previously available products is now in the market and making waves.

The Second Look 200 system is designed for patient volumes of 5 to 20 cases per day.

It offers the same cancer detection software as more expensive and complex products.

It is compact, easy to use, and affordable and offers a payback on investments to small clinics in as little as 6 months.

Our introductory program for the Second Look 200 offers purchase, lease and ClickCAD fee-per-procedure options.

During this introductory promotion, a clinic may purchase the Second Look 200 for $49,950, may lease the system for approximately $995 per month, or may take advantage of our ClickCAD fee-per-procedure program.

The ClickCAD program allows the clinics to offer the benefits of CAD to its patients with an initial outlay as low as $5,500, no capital investment and no long-term financial obligation.

In our internal planning and budgeting, we set a goal of 50 units for Second Look 200 sales in the third quarter.

Most of that objective has already been achieved.

Today including sales, orders, firm reseller pipelines, and including initial reseller orders for demonstration units, we can account for 35 Second Look 200 systems, with more orders anticipated on almost a daily basis.

Our initial emphasis in the quarter has been on Second Look 200 sales as it should be.

We have also made a handful of ClickCAD placements to date.

With the emphasis on ClickCAD increasing, we've cut dramatically at the end of the third quarter into the fourth quarter and following.

One analyst following iCAD has characterized our Second Look 200 product as a "classically disruptive solution".

He notes this disruptive solution will provide lower performance in terms of traditional attributes, but will exhibit improved performance in terms of simplicity and of convenience.

They would target non-consumers, meaning consumers who previously lacked the money or the skills to buy or to use the product.

They will also be profitable at price, point, and volumes that are below the break-even point or tolerant point of their primary competitors.

As examples of disruptive companies, he includes Wal-Mart and Dell Computer.

We like that analysis a whole lot.

As a result of our merger on New Year's Eve, we entered the first quarter of 2004 with the overhead of two companies, an expense and cost structure reflected in first quarter losses.

We have corrected that problem.

Operating expenses reduced from $5.3m in Q1 to under $3.8m in Q2.

We expect that operating expenses will decline further in the third quarter.

While reducing expenditures, we accelerated product development and release.

Our new Second Look 500 M product is the first multi-modality computer-aided detection solution, bringing results from mammography and MRI breast examinations to the physicians on the same work station and the same viewing screen.

Our work in application of CAD for detection of lung cancer has accelerated, and we have announced our first cooperative development and distribution agreement for lung cancer detection products.

This is with TeraRecon, an industry leader in visualization of computed [chomographic] studies.

Our Second Look 200 product, literally a new category of computer-aided detection solution is released and selling.

We delivered in the second quarter.

We delivered in the second quarter.

Sales increased substantially from year to year.

More importantly, they increased from quarter to quarter.

We expect that sales will continue to increase.

Our CFO is rightly proud of our balance sheet and cash management results in the second quarter.

We entered the second quarter with $8.6m in current assets, including $3.9m in cash.

We ended the quarter with $8.4m, including $3m in cash.

At the same time, we have reduced current liabilities by almost $400,000, and overall liabilities by almost $800,000.

Looking forward, we expect sales will continue to grow with new products, especially our Second Look 200 and with increasingly effective distribution.

As a result of our vertical integration and carefully managed manufacturing costs, we believe we can continue to demonstrate industry-leading margins while making our product increasingly affordable to smaller breast clinics and increasingly accessible to all women at risk.

Operating expenses should decline further in the third quarter as a result of additional cost reductions we have already completed.

Having crossed that enormously critical line between loss and profit, we do not expect to look back.

In the second quarter, iCAD delivered.

And we are just getting started.

I invite your questions.

Thank you very much sir.

Ladies and gentlemen, if you wish to ask a question, please key star 1 on your touchtone telephones.

If your question has been answered, or you wish to withdraw your question, please key star 2.

The question-and-answer session will begin momentarily.

Please begin the session by keying star 1, and we will wait one moment to compile the roster.

Thank you.

And your first question comes from Ray Myers.

Please proceed sir.

Great, thank you.

Good job Scott.

Congratulations on reaching the important milestone of break-even profitability in the quarter.

Thank you Ray.

My first question is in regards to your comment that you expect further operating expense reduction in the third quarter.

And then later you mentioned that much of that was due to completed initiatives.

Can you give us a sense of how much additional operating expense reduction we should expect in the second half due to those completed initiatives?

And how much further reduction you might get from further initiatives, such as the transition of the manufacturing facilities.

The operating expenses related primarily to completion of the hardware component of our Second Look 200 product line.

As a result of that, we were able to make a modest reduction in headcounts, and the costs that are associated with final stages of hardware release are concluded.

The questions that relate the changing location of manufacturing will be reflected in reduced cost of goods, and will contribute to our ability to maintain what I think of as exceptional margins.

Great, so your visibility is pretty high to the exchanges because most of the exchanges have been already completed.

Correct.

Great.

And then I also wanted to ask you about the ClickCAD recurring revenue model.

Yes.

I think you mentioned that most of the 35 unites already sold, they're sales, they're not in the ClickCAD model.

All of the 35 units that are sales or sales pipeline are units that are for revenue rather than for ClickCAD placement.

Okay.

In addition to those, we have a small handful of units which are now in place and being used on a fee-per-procedure basis.

Our initial rollout through our reseller partner has focused, as you would expect, on sales.

We are now starting to see in process the interest in the inquiries that related to fee-per-procedure placement.

We should see significant contributions to that placement level by the end of the quarter and into the fourth quarter.

Well, that sounds great.

Congratulations again, and I really look forward to further progress.

Thank you.

Thank you very much sir.

Ladies and gentlemen you next question comes from Joe Rudy at Saxony Securities.

How you doing Scott?

Good Joe.

How are you this morning?

I'm doing very good.

I've got a few questions for you.

Sure.

I'm very curious to see the progress for the three months that Cameron has been with you and what you opinion is of the job that they've done with trying to promote more institutional ownership of their company.

As you know from our previous conversations, I see that from a stock standpoint.

The biggest potential with iCAD with only 4-1/2% institutional ownership, you have a long way to go on that side.

I have a question also with the TeraRecon announcement.

Yes.

It said in the press release that there was going to be some collaboration on going to the FDA for approval.

I was looking more for monetarily is there a sharing of the expenses, or is it just putting efforts together and iCAD is picking up the bill?

In addition, any word on teaming up with anybody for colon cancer?

And as well as third quarter, are we expected to be in line with the three analysts that are out there with their estimates?

I'm going to try to take those one at a time.

No problem.

Okay, but all good questions.

Cameron and Associates is the firm that we retained to help with investor relations, and in particular to try to make iCAD more familiar to institutional buyers.

As of the end of the quarter, we had about 5% of the outstanding shares in institutional hands.

According to reports available to us, three new institutional positions were initiated during the second quarter.

Ten institutions increased their positions; three decreased their positions; and one sold out.

There has been a fairly substantial increase in attention, and I think that posting the results that we were able to show for the second quarter can only assist and Cameron in presenting that message effectively.

Your second question was with respect to TeraRecon.

The collaboration on being able to present lung cancer products to the FDA involves expenditure on the part of both companies.

One of the most important benefits of the collaboration is the assistance in identifying cancer cases that can be used both to train and develop our products and to demonstrate the effectiveness of those products to the FDA.

Physically, that's a very expensive part of an FDA submittal process.

The involvement with TeraRecon makes that not a trivial process, but a much, much less expensive process.

So the overall costs associated with our being able to present applications to the FDA will be modest.

The costs involved in bringing the breast CAD product to the FDA for approval were multiple millions of dollars.

The cost that we anticipate for the chest and lung cancer detection products will be a small fraction of that.

Your question about colon cancer is whether we have identified partners.

The answer is we have identified multiple potential partners.

That product has not yet reached what we consider to be a go stage within our own product planning and development process, which is to say that in our longer range development of work, we are evaluating computer-aided detection for colon cancer, along with other potential applications of our technology to define and select those that offer the best business opportunity, and the greatest opportunity to contribute to improve healthcare.

All of the pilot programs that we look at will not make commitments to full-field development and product delivery.

Until we reach that point with colon cancer, we're not going to select a partner to whom we might otherwise be obligated.

In terms of Q3 expectations Joe, as you know we are reluctant in the extreme to comment on or to endorse particular projections that may have been made.

I think what is more appropriate is for us to draw attention to the trend line, to look at the course of revenue development and increase.

Look at the course of expense reduction and decrease.

To note that they cross in the second quarter, and they're both growing with some significant momentum, especially in the sense of sales, in the correct direction.

Okay, just going back then over the lung cancer.

Are we still anticipating or expecting approval by year's end?

The lung cancer initiative involves what might be thought of as a suite of products that are separate software modules that are used for different parts of lung cancer detection tracking and assessment.

And we are aggressively looking at being able to bring at least the first of those to the FDA during the fourth quarter.

Okay.

And usually the process -- which I know the answer already but just so everybody who is listening can hear -- usually the process through the FDA being that this is not a drug but this is a device is a lot shorter.

And approval can be granted much quicker than if this was a drug.

Well, I would add to that the fact that the initial product, and really this is partly why we define the product's modules the way we have, would fall under a less extensive review category, called the 5/10K category.

Right.

Which gives us the ability to begin putting product into the market more quickly.

Right.

I would also say the FDA has been very, very responsive and supportive, given the efforts that we and other industries have been involved in over the last quarters, and that's a big help to all of us.

Yeah, okay very good.

Thanks very much Scott.

Good job and hopefully we continue.

Thank you.

Thank you very much sir.

Ladies and gentlemen you next question comes from George Whiteside of SWS Financial Services.

Please proceed.

Scott I too am extremely pleased that you broke the profitability barrier, and we look forward to all sorts of good things in the future.

Thank you George.

Also you had commented on the state of the balance sheet, and I was very pleased to see that you were able to achieve significant additional sales, and yet you did not, I mean you controlled the level of trade accounts very well.

And then noticed that your inventory had dropped dramatically.

How was it possible to drop that inventory, or is it a matter of basically your contract manufacturer carries the inventory in terms of hardware?

Will I think the real key is that the end of December balance sheet reflected the combined companies, and that there was an awful lot of room for improvement.

As we took advantage of improved controls, a process which began during the first quarter, as you would expect we see some increasing results of that now with our report as of June 30.

We are operating, I think and I give tremendous credit to our financial team in this respect, we're operating in a very prudent and a very effective way in terms of cash utilization, inventory management, receivables management, and payables management.

Well, the results certainly speak for themselves in that regard.

That's excellent.

My last question involves cash flow.

I did not see a source and applications of funds.

The source and applications of funds will be, or course, included with our 10Q.

In very general terms, the differences between the P&L and the source and applications of funds would relate to expenses that are derived from the merger accounting as a result of our combinations with ISSI and with CADx.

So there is a multiple hundred thousand dollar per year non-cash expense that's related to the amortization of certain intangible assets, and that's really the biggest difference between the P&L and the cash side for us.

So at this point you're generating more cash than you are consuming.

Yes.

Excellent.

Thank you very much, and keep up the good work.

Thank you sir.

Thank you very much sir.

Ladies and gentlemen your next question comes from Bob Wasserman of Dawson James.

Please proceed.

Hi Scott.

Hi Bob.

Hey, I wonder if you could comment a little on the competitive environment, both in terms of CAD software and the larger digital mammography market.

I know you've signed some partnerships, and your competition as well this year.

I wonder if you could just give us a little color on the landscape.

I'm going to flip that if I may and begin with digital mammography.

And beginning with the point that people are probably aware of that we have a strong and very beneficial relationship with General Electric in providing computer-aided detection for their digital mammography systems.

We also have a relationship with Fisher Imaging Corporation, and under both of those, we are currently delivering product.

We have announced a relationship with Siemens Medical in Germany.

Siemens does not yet have a product in the market, and our development required for a computer-aided detection solution has not yet been completed.

But today our business is very driven by GE, which is something that we want to be able to maintain.

They are the leader in the market for digital mammography systems, with substantial increase in participation by Hologic, and certainly they're anticipating the impact of a launch by Siemens in the foreseeable future.

So that market is a strong market, it is a growing market.

Overall we foresee that most of the larger case volume mammography clinics are likely to move from film-based to digital workload over the course of the next several years.

In current terms, it appears to us that the market for digital mammography is increasing at the rate of 20 to 30 units per month.

And I think that number is going to increase.

So that's a growing business.

It's a business with a couple of key players, and we're very pleased with our relationships there.

In terms of competition for computer-aided detection, it would be fair to say that it is today a confusing market.

Six months ago, the market leader, a company that has been first to market with a computer-aided detection solution, was certainly deemed to be the brand leader and the obvious choice for consumers, if you will was in a very strong position.

Today, my belief is that those positions have been reversed.

We see far less competition on an account-by-account basis.

What we do see has tended to be, if not desperate then certainly somewhat fragmented, and we are aware that there have been some fairly material changes in management associated with the operation of that competitor.

We take them very seriously.

It's an exceptionally good product, a good team but at this point we appear to be outperforming them in all key respects.

I would add over the course of the remainder of the year, we anticipate that we will see some additional entrants into this market, and they are potential competitors that we take pretty seriously.

And in many ways the introduction of our Second Look 200 product has been designed to pre-empt one of the two key markets in which we want to grow, that being the market for smaller scale clinics.

The other key market in which we want to grow is the market for CAD for digital mammography, and there it's largely based on our distribution relationships and on satisfying and protecting those.

Okay, thanks a lot Scott.

You're welcome.

Thank you very much sir.

Ladies and gentlemen your next question comes from Scott Warner.

Please proceed.

Congratulations.

Hi Scott.

Hey, before I get to the questions I had, the last gentleman's question having to do with digital mammography, did I hear you say that I guess it was the industry-wide sales per month were 20 to 30?

Did you say something like that?

Correct.

Now, does that mean a CAD aspect, a part of that sale would be 20 to 30 a month?

That is pretty close to that Scott.

All units do not go out with CAD, but certainly the largest percentage of them do.

Okay good.

Okay, now I'll get into what interests me, and I hope many other people.

This has to do with the Second Look model having to do with the ClickCAD, ClickKey.

First question if I understand it, we have some total 300 or so sales reps out there.

Is that correct totally?

That's correct.

Now, how many of them are dedicated exclusively to selling the 200 and/or leasing the ClickCAD, ClickKey, if there is such a thing, a dedicated group?

It's actually a very good question.

And the answer is that the telemarketing and the outbound marketing components of the Source One distribution group and a certain of our independent resellers have begun to focus on the 200 product, and will increase and refocus on the 200 with the ClickCAD fee-per-procedure program being used to place it.

And the reason they do that is it's just an easier sale.

So as you work up the food chain in terms of reseller representation at customer account, there is typically an account manager backed up by a specialist in women's healthcare.

The account managers frequently, if not usually need the assistance of the women's healthcare specialist to be able to close the more sophisticated product sales.

But the initial indication is they can close the 200 and the ClickCAD sale on their own.

So it becomes a much more immediate sales opportunity where for the first time, we're actually seeing purchase orders within a week of introduction of a product.

And that's pretty much unheard of in a medical device.

How many people would you think are pretty much devoting 90% or more of their effort to the 200?

Probably 40 to 45.

Okay.

And these are rough numbers.

Sure, I'm just trying to get a handle on that.

But let me answer with another group that was primarily identifying sales opportunities and pushing them up the channel now able to handle the sales opportunity directly.

And at a rough guess, that must be another 100.

I see, okay.

All right, how long would you say, how many weeks, it's been two or three I believe, have these persons been trained, equipped, whatever it is to go out and actually sell the 200 of the ClickCAD?

Most of the training was done in the second and third weeks of July, so in most cases, they've had less than two weeks of opportunity.

I see, okay.

So it's ten days to two weeks.

All right, now you already told us that you had in-hand or orders for the sales or leases.

I assume, you didn't mention leases.

When you say a sale, does that include a lease?

It does because a lease from our standpoint is a sale for the lease company.

Yeah, okay.

Then you had about you mentioned 35.

Is that correct?

Correct.

Now, that includes some orders that are yet to be counted as shipments in the second quarter.

That's correct.

Okay.

Third quarter.

I meant, yeah to be counted in the third quarter.

Correct.

All right.

Can you give us any idea, I know you don't like to talk about ahead, but what can you tell us about the, I know they're going to start doing more ClickCAD more ClickKey stuff but how many, can you give us a rough idea of the momentum now that everybody is fully trained, these 40 or 45 people, plus the other 100.

Can you give us any idea of what kind of numbers that would be either placed as a sale or as a ClickCAD?

The target we had in the third quarter was 50 units sold, and I'm pretty comfortable with the fact that we will exceed that number.

Okay.

The number that we had for ClickCAD was substantially less than that, and I think we need another couple of weeks as we move the sale focus from immediate sales to sales supported by ClickCAD to be able to answer your other question responsibly.

Okay.

Would the, when I noticed at the Annual Meeting your folks were talking what was news to me the extra $1,500 I think it had to do with ClickCAD, the first ClickKey instead of costing $4,000 was going to cost $5,500.

Have I got that right?

Yes sir.

Excuse me?

Yes you do.

All right, now is this, have you been confirmed in the marketplace that figure is adjustable by the small accounts?

We have not seen any resistance to it, but it's too early to be able to say with complete assurance that it's the right number.

Okay.

When we commissioned Frost and Sullivan to analyze this market for us and to help us with some of our planning and pricing decisions, they came back with a suggested [inaudible] procedure that was substantially in excess of the amount we were planning on charging.

And their analysis of market elasticity suggested that we would be better served if we had a [inaudible] procedure of $11 or $12 instead of one of $6.50 or $7.

What we've done is to blend, in some respects, the Frost and Sullivan recommendation to create the first sale at a higher cost per case, which permits us to pay an immediate commission to the reseller.

In other words, the difference between ongoing sales at $8 a case and initial at $11 a case all goes to the selling party.

And that creates the right incentive to move ClickCAD placements through a reasonably motivated distribution channel.

Over the longer term, the cost per case declined and in both cases it's substantially below anything that has ever been offered by a competitor and below the average $18 or $19 national Medicaid average for reimbursement for the procedure.

All right, well you've brought up something that I will now ask.

In reference to the fee to the sales organizations, do you lower that to much lower say in the second or third year from beyond, not just the second one of the ClickKeys but when you get into the fourth or fifth, is the take-home pay for the salesman much reduced since he's done most of the work earlier?

Or is this going to accumulating for him maybe as long as he's in the sales organization?

We have not implemented a more complex program at this point.

Okay, thank you Scott.

Thank you.

Thank you very much sir.

Ladies and gentlemen your next question comes from Jay Brosnehan of WestPark Capital.

Please proceed.

Hi nice quarter.

Thank you.

With respect to your gross margins going forward, how will these be with the increase of the Second Look 200 sales?

I guess what I'm asking is how would those gross margins compare with those of your Legacy products?

The Second Look 200 products have better margin than our Legacy products.

In general, our margins are improved by higher percentages of sales for digital mammography, and we anticipate they will be improved with the increased sales of the 200 product.

And how do you see those going forward?

I notice you gross margin is up about 10% over Q1.

Do you see that continuing or do you see it leveling off in Q3?

I'd be very happy with it leveling off.

Okay, thank you very much.

Thank you very much sir.

Ladies and gentlemen, your next question comes from Larry Ceisler of First Southeastern Securities.

Please proceed.

Kudos Scott.

Nice job, we appreciate it very much.

Thank you.

Just a couple of kind of housekeeping type questions.

Six thousand clinics still out there, and with roughly 145 folks doing the majority of selling, how do you cover that landscape and over what period of time do you feel, I this is sort of a best guess kind of thing, but what kind of timeframe are we looking at this so-called standard of care that we hear the radiologists now talking about for CAD and image checking to take hold?

Let me take those separately.

First, I think that we're in touch with most clinics already, especially given the tremendous reach of Source One and of our independent resellers.

There are not many untouched breast clinics that are unaware today either of CAD or of iCAD.

The challenge has been to improve our, well first of all to get the 200 product out, and then to present it with marketing materials that state very, very clearly why do you want to do computer-aided detection?

Why do you want to buy your solution from iCAD?

And critically, why do you want to do it now rather than wait?

I think those tools are now in place and the repeated delivery of those messages to potential buyers who by and large are interested and have felt precluded from market by price is the way that we get market share growing and doing so relatively significantly.

That's a process in which we have a clear commitment of our resellers, and where the initial response indicates that we're on the right track.

How about one follow-up question?

Lead time, these folks actually get these orders to fill them?

If you're asking about manufacturing lead times, in general it would be 30 days or less.

Wow.

Nice job Scott.

Thank you.

thank you.

Thank you very much sir.

Ladies and gentlemen, your next question comes from Larry Southam from Detweiler Mitchell.

Please proceed.

Congratulations, and it sounds like more exciting things coming.

Thank you sir.

A couple of minor things here.

As ClickCAD kicks in here, obviously with a lower front-end cost does that eat into cash flow at this point?

That's a very good question, and especially in light of our balance sheet.

However pleased we are with the performance, there's still, the reserves in the cash balances are modest.

Our ClickCAD program is really based on an initial purchase of pre-payment of procedures that covers our out-of-pocket manufacturing and sales costs, plus a little bit.

So that program to the extent that it rolls out as we described, [inaudible] cash requirement that would ordinarily be associated with the major deployment of a new product.

But we're actually kind of proud of the model, and we're encouraged by the initial feedback.

It's certainly a fabulous model.

Hard to believe it can really work.

But I'll follow it closely and expect it to work

Let me add one thing if I may.

Because I think that skepticism is both healthy and reasonable.

And there's a really important difference that allows us to make it work, and that is that we build them ourselves as an integrated manufacturer.

Notwithstanding the fact that we use some contract companies to help us, we've designed this to be extraordinarily easy and inexpensive to make.

And we don't have to worry about transfer or manufacturer margins in the initial outlay with respect to cost of goods.

This puts us into a very advantaged position that makes possible a cash management approach that I think would ordinarily not be easy to pull off.

Okay and that kind of ties into my second question.

I was, because we had indicated we were vertically integrated and self-manufactured intrigued to see the contracts with the [inaudible]?

Yes.

Can you just provide some light on what they're doing, how that works, what products they're working on?

I can certainly see the benefit in moving some things out of the shop.

Well, we look at outsourcing as a really healthy way to improve the Company's performance and health, and have done so really for at this point five to six years with a variety of contract manufacturers who build two-hour designs with our specified parts and most of the time with our specified suppliers.

Scan Optics is now responsible for our Second Look 200 and for the underlying fulcrum digitizer.

Both products will have variations and those will also be manufactured at Scan Optics.

Scan Optics is also more recently designated to handle the manufacture of several of our Legacy products, including the former CADx product that had been manufactured by a firm in Colorado.

We have as well as firm in New Hampshire that manufactures another of our digitizer lines and has done so extraordinarily effectively for the last five years.

So those are long-term relationships with all but the Colorado company.

The Colorado company we're terminating and we're moving that to Scan Optics.

Okay and are these basically build-to-order or are they specified?

I'll take one more step.

One of the benefits of design is that we've been able to specify with a limited number of custom or long-lead components, and that means that our time to order and our production schedule can be very flexible and very responsive.

The companies that we work with build to a general plan providing some buffer and some flexibility for acceleration or for deferral of deliveries.

Okay.

Thank you.

Thank you.

Thank you very much sir.

And your last question comes from Michael Griswald of [inaudible] and Company.

Please proceed.

Scott congratulations on a great quarter.

Thank you very much.

I have one quick question that I'm sure I missed and it's probably stupid.

But the second quarter did not contain any revenues for the Second Look, is that correct?

There may have been $100,000 in there.

$100,000.

We had done some initial placements at the end of the first quarter in part because we wanted people to be beating the systems out before we released them more generally.

So there was a very small contribution, but our rollout was the second week of July.

Okay.

And if I may one story that I was very pleased about.

We also put the Second Look 200 into a number of existing customer sites in the first quarter, customers who had our larger systems and much more expensive systems, including a very good clinic in Ohio, which had our Second Look 500 and was kind enough to really beat up the Second Look 200 and help us improve it.

When we went to remove the Second Look 200, they asked us to leave it and take the other system instead because they loved the little one so much.

That's a really nice thing to hear.

And if we look at one another in staff meetings and production meetings when customers fall in love with a product, you can't ask for much more than that.

Right, I just that kind of leads into my second question, which would be in your world, in the best of all possible worlds, would your sales of your more expensive systems continue and continue to grow, or do you see this Second Look as eventually replacing all of those expensive systems?

The Second Look 200 will not replace the more expensive systems. in part because it's designed for a very specific focus.

But over time, we certainly expect that the technology and the platform that has been developed for the Second Look can come to provide increasingly price sensitive and good performance solutions for the customers who today are purchasing the higher-line product.

The higher-line products are going to be increasingly specialized and there is value in that specialization.

The ability to migrate technology and cost of manufacturing benefits from the low caseload market segment upwards is one of the things that we're very excited about achieving over the next couple of quarters.

Final question.

Could you talk a little bit about some of the algorithms at contrast-enhanced MRI studies as sort of a computerized check versus what you are doing, whether you see that as a competing technology or how that fits in?

Good question.

Yesterday Merge-eFilm announced that they're going to start selling a software product that analyzes contrast-enhanced MRIs, and in my mind that's something that's different enough from what you're doing.

But I wanted to know what your thoughts were.

It is indeed different.

A tremendous opening for me to promote our Second Look 500M product.

We worked with a competitor to merge a company that had established itself as a leader in the MRI enhancement market, and we now have in the market, again an early third quarter release, a product which in one work station and on one screen allows the physician to operate both mammography CAD and MRI enhancement algorithms and applications.

So the physician is able to look at the CAD results that we present on a mammographic image, revert to the MRI enhancement study, which shows the progress of a marking agent over time through the breast, and by looking back and forth can begin to understand the relationship between our marking and the MRI results.

Now, that's actually a very timely product.

Some of you may have seen this morning on the television news where there was discussion of MRI as a more effective tool for breast cancer detection than simple mammography.

And it's a very good piece, and what it indicated is MRI is a substantially more expensive, it costs about ten times as much as the mammography, more intrusive, there are injection marking agents, and more uncomfortable procedure, which is extraordinarily valuable for patients with no risk.

Or for patients where mammography has already identified a suspect area, and there is a desire to do further exploration, biopsy or a preventative mastectomy.

These are technologies that really work very, very well together.

We are the first company to offer a tool that really unifies their presentation to the physician, and we expect to enhance that infusion of information high CAD technologies and products.

That's great.

I think that's all I have for you Scott.

Thank you.

Good question.

Thank you.

Thank you very much sir.

And I'm very sorry, but we do have one more quick question follow up from Joe Rudy at Saxony Securities.

Please proceed.

Scott, I've just got one last question and one comment.

I've been on the last three calls, and I think the last call and this call, this one especially we've seen a I don't know how many people are on the call, but based upon the number of questions being asked by different people, there's been definitely an increase in awareness of iCAD from people out there.

My next question, which is basically that after all this good news and going forward, I assume that Cameron and yourself are out there aggressively trying to set up appointments to do road shows to put the company in front of institutions in the coming weeks.

Joe I was looking at my calendar this morning, and my wife isn't talking to me any more.

Yes indeed, we are looking forward to both individual opportunities to present the company to current and prospective institutional investors.

And we will be out at the AEA Classic in Monterey, which if memory serves is early October.

But we will be posting it on our website with an accurate date.

That's a great opportunity to meet a lot of very qualified investors.

Okay, perfect.

Good job Scott.

I'll speak to you soon.

Thank you.

Take care.

Thank you very much sir.

And that concludes the question-and-answer session.

I would like to turn the call back over to Mr. Parr for some closing remarks.

Please proceed.

Well as people no doubt understand, we're real pleased at the results in the second quarter.

I believe that iCAD and the group responsible for the company have delivered a first step towards the long-term success that we've all seen for so long, and now look forward to beginning to achieve.

I needed as a matter of prudence, given the fact that we seemed to have had some confusion at the beginning, to offer a Safe Harbor Statement with respect to this conference call.

And I apologize, but if you'll permit me, this call has contained statements which should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors include but are not limited to the risks of uncertainties the impact of supply and manufacturing constraints, difficulties in product and market acceptance, possible technological obsolescence, increased competition, customer concentration and other risks detailed in iCAD's other filings with the Securities and Exchange Commission.

Again with apologies for ending on that necessary note, I do very much appreciate the time and attention people have paid, and the excellent questions you have presented.

Good bye.

Thank you very much ladies and gentlemen for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a good day.