ICAD Inc (ICAD) 2006 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the First Quarter 2006 Financial Results Conference Call. My name is Antoine and I will be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Mr. Kevin McGrath of Cameron Associates. Please proceed sir.

Thanks and good morning everyone, before I turn the call over to Scott Parr, CEO of iCAD, I need to inform you that certain statements made during this conference call constitute 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 uncertainty of patent protection, the impact of supply and manufacturing constraints or difficulties, product market acceptance, possible technological obsolescence, increased competition, customer concentration and other risk detailed in the company's filings with the Securities & Exchange Commission.

The words believe, demonstrate, intend, expect, estimate, anticipate, likely and similar expressions identify forward-looking statements. Listeners are cautioned not to place undue reliance on those forward-looking statements which speak only as of the date this statement was made. The company is under no obligation to provide any updates to any information contained in this conference call.

I will now turn the call over to Scott Parr, CEO of iCAD.

Thank you Kevin. And ladies and gentlemen, good morning. After respectable sales and record unit shipments in the fourth quarter of 2005 our sales in the first quarter of 2006 were down as a result of several factors. First, sales of computer aided detection for digital mammography reflected fluctuations in sales by our principal OEM partners in this market.

Second analogue sales were down significantly, primarily in our view, as a consequence of merger discussions with our principal competitor which were underway during the fourth and first quarters.

The possibility of such a merger required that the company defer hiring to fill key management positions in sales and marketing and created significant distraction and significant anxiety for our field sales force. Since the February decision by iCAD's Board to terminate such merger discussions we have made substantial progress in correcting these problems.

First quarter expenses were increased by continuing costs of the company's patent infringement arbitration with our principal competitor and by legal, accounting and other expenses associated with merger discussions and due diligence. With the conclusion of our successful defense against infringement claims and a renewed commitment to succeeding independently in our market, these expenses are gratefully behind us.

Over the last several weeks a series of events leave iCAD well positioned in our markets. First, we were victorious in our defense against claims of patent infringement brought against us more than a year ago by our principal competitor. Arbitrators rejected each and every claim of infringement made against us.

Secondly, we have announced the appointment of Ken Ferry as President, Chief Executive Officer and the Director of iCAD. Ken, who begins May 15, has extensive experience in all the disciplines that we consider critically important for iCAD to realize its full potential as an innovative medical imaging company with tremendous growth opportunities.

Ken was most recently Senior Vice President and General Manager for the Global Patient Monitoring business of Phillips Medical Systems, the market leader in this $2.5 billion industry. He understands and has the management skills necessary to optimize iCAD's sales, marketing and distribution capabilities in a manner that is consistent with the global applications of our technology.

Ken has a demonstrated track record of increasing large business performance when market share and efficient cost structures are essential. He has extensive experience in new high-growth markets where disruptive technology like ours, combined with innovative go-to-market strategies, are key to success. We believe he is a perfect fit for iCAD. With Ken's assumptions of responsibilities in a few weeks I will move to a non-executive position as Vice Chairman of iCAD's Board of Directors, a role in which I will support Ken's transition and in particular the handoff of strategic business relationships.

We also welcome Jeff Barnes as our new Senior Vice President of Sales. Jeff fills an acute hole in our management team. From November 2002 until April of 2006 Jeff was responsible for Sales and Service Operations at Phillips' market-leading defibrillation field organization. In that role he was responsible for an increase in sales of more than 60%.

Ken and Jeff join iCAD at a point of enormous opportunity for the company, crystallized we believe, by the announcement last week that Hologic, one of our OEM customers has entered into an agreement to purchase R2 Technology, our principal competitor. This transaction is of course subject to a variety of conditions, but a closing is planned and expected within months. It is reasonable for us to assume that iCAD's business with Hologic, representing about $1.5 million or 8% of sales in 2005, and about $700,000 or 16% of sales in the first quarter of 2006, will quickly and largely move to R2.

Overall, we believe this transition will be beneficial to iCAD for the following reasons. Most obviously, we believe that companies which compete with or will come to compete with Hologic in the digital mammography area will be enormously reluctant to rely on a Hologic subsidiary acquired in part to gain access to more new customers for their key CAD technology. Notwithstanding, a well timed announcement this morning that R2 has entered into a distribution agreement with GE Healthcare, our conversations with our partners, validates our view that they will be reluctant to invest in or rely on R2.

We are and will be working closely with current and perspective OEM partners in the area of full-field digital mammography and computed radiography or CR as it is sometimes called, to provide the better support and tools in their competition with Hologic including not just our second look digital CAD systems and total look solutions for comparative reading of film based prior mammography studies, but solutions that will come to enhance information available at the digital mammography view station and technologies to assist in the development and use of three dimensional tomosynthesis mammography imaging systems. The stated and observable priorities of both Hologic and R2 are focused on digital technologies, products and markets.

iCAD with key advantages in solutions for film based mammography providers, the vast majority of the CAD market, plans to take advantage of any real or perceived abdication by our competitor in this critical portion of the market. We are committed to overall financial performance improvements as a result of increasing sales. We believe we have the products the distribution channels and the right management and operational team going forward to achieve our goals. I would now like to introduce our new President and CEO Ken Ferry. Ken?

Thanks, Scott and good morning everyone. I'm very excited to be here with you today and I very much look forward to starting in this exciting new challenge on May 15th. I certainly believe with a life-long career in healthcare that we are at a very, very exciting time in healthcare. The demand, whether it be through demographics, aging population, baby boomers, the informed consumer, combined with rapid changes in technology make this a terrific space to be in. So, I'm very, very excited to be joining iCAD. I feel that we can address an overwhelming challenge in healthcare which is to turn the overwhelming amount of data into much, much more useful actionable information for clinicians. In doing so, we begin with the patient safety contribution, certainly do no harm. We contribute from a detection standpoint to accurate diagnoses and really help caregivers increase productivity while the economics as well will be favorable from a return on investment in adding competitive advantage to healthcare systems on a global basis. So, thanks Scott.

Thank you, Ken. We really look forward to your leadership at iCAD. As a shareholder, I'm particularly excited about the contribution that I expect you will make.

Now, ladies and gentlemen I will take questions on iCAD's performance and business. Our lawyers have asked that we restrict questions to Ken to those relating to his background and his decision to join iCAD until he becomes an employee and more formally our president and CEO. Thanks in advance for cooperating in this format. Now I would be delighted to entertain questions.

[OPERATOR INSTRUCTIONS]. Your first question comes from the line of Stephen Dunn with Dawson James. Please proceed, sir.

Good morning, Scott [inaudible - cross talk] --

Good morning, Steve.

And Ken and Jeff welcome onboard and congratulations on iCAD's slowly acquiring Phillips Medical one person at a time. I'd like -- just some housekeeping questions on the Q1 results. Can you break out what your legal costs were related to the patent defense and I believe you also had previously estimated about 450,000 due to the R2 merger discussions.

Overall, Steve, our legal expenses in the first quarter were about $560,000. Of those roughly $300,000 were merger related -- forgive me, were related to the litigation and arbitration. About $160,000 were merger related and some additional expenses were related to support for development work, which was undertaken on a contingency basis in case there was an adverse arbitration result. We did a great deal of patent review and filed a number of new patent applications relating to some new approaches to the user interface which we felt would be appropriate in the event of an adverse arbitration ruling.

Okay. Now, going forward a little bit, now we took the plusses and the minuses of the Hologic acquisition of R2 for $220 million in stock. You'd mentioned it's about $700,000 worth of business to Hologic in Q1 that obviously will go away. The benefits now -- I guess if you could outline a little bit more in detail of the benefits both from the, how the landscape will change the OEM digital business as well as the analog business. And I noticed the agreement that R2 had with GE this morning was just for the international markets. So I wonder if you could also talk about that.

Yes, I think that what we're seeing is a rather clear division into competitive camps of the world of digital mammography. And by digital mammography, I would expand it from full-field digital, the kinds of digital solutions we see today in the U.S. to computed radiography, which is a part of digital mammography internationally and we believe will receive FDA approval shortly to become a part of the market in the United States. Clearly, we have a direct ownership relationship between Hologic, which has been an enormously successful competitor in the digital mammography market and R2 technology, which as been one of two primary computer aided detection providers.

I think the rest of the competitive universe has a pretty good reason to align with iCAD, and we are active in reaching out to all of our current and perspective OEM partners in this area, articulating some of the benefits of a better relationship and a relationship in which the world other than Hologic and R2 has the benefit of CAD technologies without the risk of having to open your prospects and accounts to a competitor, without the risk of partisan relationships in one of your suppliers and without the continuing concerns about what will be provided or withdrawn just when you're dependent on it or relying on it.

The response as you might expect has been very favorable to our initial conversations. In fact sometimes we've been beaten to the punch, where the calls came into us before we went outbound. I will take this as a moment to note a calendar change. iCAD was scheduled to present at the American Electronics Association show on May 8th in Monterrey. And it is clear as a result of the request by our OEM customers to sit with them during that week to better define our strategy going forward for joint competition with R2 and Hologic that we are going to have postpone our participation in the AEA show in favor of visits to our European OEMs.

Okay --

And on the field base side, Steve -- forgive me really begin with the digital because that's the part that's most in focus with the acquisition of R2 by Hologic, but all of the communications that we have seen regarding the reasons for Hologic's purchase of R2 have clearly stated the view that the digital market is the future for all mammography practices. And that the film based and the analog businesses are minor or modest or subordinate or less important in some way. That is clearly not our view.

We believe that the vast majority numerically of the smaller mammography practices and clinics will continue to have film based or hybrid film and digital systems. And that providing them solutions which will continue to improve and keep pace with the development of CAD technology is both a critical requirement and an enormous opportunity. The field sales response to the acquisition of R2 by Hologic and the response that we are beginning to see from potential buyers in the film based market supports our view that there is distrust as to the real commitment of R2 to film based practices. And that's an advantage that we believe we can capitalize on and exploit in that market.

All right, I guess just a last follow-up on that point. In Q1 you talked about the impact of the sales force on the discussions that were ongoing with R2. Did we see a decline in any sales reps resigning or any actual headcount changes?

The real impact we see as we look at our pipeline and we can observe and try to respond to the distraction and the anxiety created by the view that was communicated during the merger discussions that the iCAD sales force would be substantially reduced or let go in favor of a continuing R2 sales force, is shown in the lack of progress of accounts through the pipeline. From the January to the February period. In fact as really as early as December, we start to see a kind of stagnation of accounts which aren't moving from the lead to the quotation to the proposal to the presentation to the approval stage. That is a consequence of the sales people believing that they were going to lose their jobs that occurs at a very short period of time and is enormously damaging.

The sales impact will spill over into Q2 or do you think it will be self correcting?

I believe it is self correcting. And in fact I think that the energizing of the sales force as a result of the decision of the board to move forward was communicated quickly and effectively and began to have a very clear impact on the movement of the pipeline and in prospects from identification and lead to sales. But in the first quarter there was a material fall off in business with film based customers. Which of course is where our sales people have the most direct role and while we see the dynamic changing and acted on it as quickly as we could it will -- it did have an effect in the first quarter.

I'll jump back into the queue and welcome aboard, Ken.

Thank you.

Your next question comes from the line of Jeb Terry with Aberdeen Investments. Please proceed, sir.

Good morning, gentlemen.

Good morning, Jeb.

Scott, in the past you've been good enough to break out some of your revenues by product line. Can you give us some color on that?

Sure, in the first quarter we had approximately 45% of our sales or just under $2 million were digital sales. About 40% or just about $1.7 million were film based and about 15% or just about $650,000 related to service and supplies and increasing residual and continuing business line for us. We can provide a bit better breakdown in terms of products in the Q, but I think overall that gives a picture of the quarter. The fall-off was in the analog, film based line and the largest reason for that was the fact that sales people thought they were going to be losing their jobs.

Right. By the way, congratulations on great gross margin in spite of all that. So any comment regarding progress in Click CAD program?

Yes, in -- first of all I think our progress in Click CAD has been poor. In the first quarter of 2006, 28 total units of which 22 were [renewed] buys and keys. We as you know have worked to establish a direct sales effort in the Click CAD fee per procedure area. We've had somewhat more luck with fee per period or other approaches to a non-capital buy. But the Click CAD program is one that I'm sure will receive renewed examination from Ken and from Jeff. Continues to be an area where we have a view that it can be a major contributor, but it is an area where we have underperformed.

Can you comment regarding the addition of the Health Trust GPO and where all the GPOs might play in kind of your future marketing scheme?

Yes, that's a very important question. I think that the GPOs are a critical part of the film based CAD opportunity. And as you have been able to observe over the last two quarters, iCAD has succeeded in remedying a deficit in our relationship with GPOs and national buying organizations that existed into the early part of 2005. At that time, we took a look at where we felt R2 was succeeding in the film based market and the largest sector for sales was the exclusive GPO relationship that they had with a number of the key buying groups. With the multiple new buying group agreements that iCAD has entered into -- in to -- the last six months, that is becoming a material source of film based sales. And I think that that will continue. Digital sales have tended to be made through relationships between the OEMs and those same buying groups film based sales we make through the relationship that iCAD has with the increasing number of national accounts that have subscribed with us.

I see. Thanks, I'll drop back into the queue.

Thank you.

Your next question comes from the line of [Joe Ruddy] with [Saxony Securities]. Please proceed, sir.

Scott, how are you?

Good morning, Joe. How are you?

Very good, I got a couple of quick ones for you. First off, I believe I already know the answer, the $1 million private sale by Bob Howard I assume was to either a family member or a charitable donation?

Yes, Bob made that sale to his son, Dr. Lawrence Howard.

Okay, perfect so that clears up some of the talk on the sale. I was on the Hologic conference call the other day and sometimes it's not what you say, it's how you say it. And basically the numbers break out that R2 did about $45 million last year in revenue, 15% of that Hologic had said came directly from Hologic. That leaves about $38 million left out there. Take away any direct business R2 was able to account for themselves, it's still $30 million plus of business from partners and OEM channels and distributors that's available out there.

And my question to Hologic was what their feelings are as far as them being able to retain that business. They stated basically that their feelings were that they were going to try to retain that business and go after that business, but again, it's not what you say, it's kind of how you say it. In the tone, they did not sound so confident of such. Can you give us any more insight to maybe what you guys have seen come through the pipeline just in the last couple weeks? And what you anticipate coming through even prior to the deal closing in a couple of months?

Well, I think the reactions of Hologic's competitors, and in particular the urgency with which they are seeking to sit down with iCAD and collaborate on appropriate responses, would argue that it will be very difficult for R2 to hold business from Hologic's competitors. And I think that's really a kind of common sense answer. We don't want to deal with and become dependent on the subsidiary of somebody with whom we compete every day. That's a fairly simple view and I'd be astonished if it wasn't shared in the headquarters of our key OEMs.

So we think of this as opportunity to expand on those relationships and -- largely by being better suppliers, suppliers that don't choose to compete with our own channel partners, earning more business from each of them.

Okay. One thing which you did touch on, but I just want to readdress. Hologic does focus very much on digital, which, with the acquisition of R2, that should open up the doors to basically all of R2's analog business to be somewhat up for grabs if Hologic still keeps their focus on digital.

I would agree with that and I think that the opportunity for iCAD is in part that the variety of statements that have been made by R2 and by Hologic would certainly give pause to the film based buyer concerned about the long term commitment to development and enhancement and maintenance of computer-aided detection solutions for analog or film based work flows. And certainly our salespeople are taught to be able to highlight the areas of advantage that we offer including a very clear commitment to all of those benefits. And a good ability to help the prospect, the film based buyer, understand how important they are.

We believe in this business, and part of the reason we believe in it is that we have the unique advantage of having our own digitizer technology, so we can afford to believe in it. And in many cases where people, where R2 has indicated a lack of commitment to the market, I think it needs to be looked at with some caution as to whether that means the market is not there and there's no value in that market, or whether it means there's no ability to compete with iCAD in that market because other companies lack that core digitizer advantage and asset.

Okay. Can you, just to shift gears here, can you give us a percentage of what March sales were in relation to the total for the quarter since you guys ended the talks in late February? So we could see what the --

I don't have that monthly breakdown in front of me Joe. I'm sorry.

Okay. The announcement yesterday with HealthTrust. R2 signed a similar agreement with them about a month or so ago, maybe a little bit longer. Was this announcement with HealthTrust in response to their agreement to be bought by Hologic, or was this something that was ongoing and was going to happen regardless?

I take it you mean was our announcement --

Yes, was your --

Our announcement was very much a matter of an ongoing program. And I think it really illustrates the fact that for HealthTrust that was a renewal of what had previously been a relationship in which R2 had exclusive abilities to sell. And what we did was open it up. And our experience with these groups, Amerinet is an excellent example, is that as we have begun to work with them and to communicate honestly with them about the number of leads that are attributable to the GPO relationship, about the sales that we're making, that there has come to be a real preference on the part of the buying organizations themselves in linking iCAD's sales team with the constituent hospitals or clinics, because there's more benefit for the GPO in the way that we do business.

We're doing quite well in relationships where we really don't even look for exclusivity, in part because exclusivity almost inevitably requires that we give up some additional margin points. Rather, our program has been to get dual source relationships and then preempt the relationship through good service, good products and good value. And that's working.

Okay. Can you give us more in detail, possibly, because I know the question was kind of asked already, the impact that this whole deal will have on the R2 sales force and how quick, if it's, maybe you guys have already started seeing it happen where if you both are bidding for the same order that they're not even around any more to be, the sales force isn't even there to be trying to close the deal.

That's a very perceptive question. And I go back to part of our call earlier. iCAD was badly hurt when our sales force became anxious about iCAD being acquired by R2 and their jobs being forfeit. Today, only months later, we're in the position where R2's sales force likely has similar anxieties. There's a great deal of redundancy between the way that Hologic takes its products to market and the way that R2 does. There's been comment in the Hologic conference call about some of the complementarity of those channels, and I think it's inevitable that there is concern on the part of good salespeople when their company is being bought.

Now, for iCAD, we think of that as a potential opportunity. There are some great people at R2, not just in the sales area, but in other areas -- areas of development, areas of research, areas of science. And if there are opportunities to make available positions at iCAD as we upgrade and topgrade the team that we think will become dominant in this area, we'd be delighted to talk to them.

Okay. Last, just two quick questions. One, do we have any numbers on what the month of April looks like, the first month of the quarter for the second quarter?

Nice try, Joe.

Previously, in prior quarters you have sometimes given guidance where if the first - if the first month, I believe it was the third quarter you said - or the fourth quarter, during the third quarter conference call, that you guys have had the best first month of any quarter in the company's history.

Yes, I appreciate that. But we're not going to provide interim comment, and as I'm sure you understand, given the change in management, we're not going to talk about projection.

Okay. Well, since you just said change in management, are we going to have a special call soon after the 15th of May with Ken?

I would anticipate that the next call would be the quarterly conference call following the June close. But as with other operational judgments and decisions, that will be Ken's call to make.

Okay. Alright, thanks very much, Scott. Welcome aboard, Ken.

Good questions, Joe.

Your next question comes from the line of [Dominique Balzano] with Saxony Securities. Please proceed.

All my questions were asked. Thank you very much.

Thank you.

You next question comes from the line of Stephen Dunn with Dawson James. Please proceed.

Hi, just one quick question. Can you give us an update on the colonic polyp software?

Yes. We are well pleased with the development progress in the creation of the product to be able to develop colonic - detect colonic polyps and assist in the detection of colonic cancer. We are pending discussion with the FDA regarding the appropriate regulatory approach to take to be able to bring that product to market. That -- those meetings require significant advance time between the request and the meeting. That's a meeting that we anticipate we will be having in the very near future.

The results of the discussion with the FDA will tell us whether this is a product that we can bring forward under a 5-10K, relatively expedited regulatory process, or whether it will require a PMA. Overall, this is an area in which I see great progress having been made. I think it's an important market opportunity for us and it's one of those quiet areas in which I think iCAD has been accomplishing a great deal, which we'll see as a benefit to the company in some future periods.

And do you still feel the lung nodule market is not as well developed for you?

Correct. We do not have an aggressive or assertive program underway with respect to detection of lung nodules.

Alright, thank you very much.

Your next question comes from the line of Larry Ceisler with First Southeastern Securities. Please proceed, sir.

Hey, Scott, it's Larry.

Hi Larry, how are you this morning?

I'm great, Sir, thank you. Just a real, sort of a follow up to Joe's questions with regard to that potential $30 million out there as a result of the merger with R2 and Hologic, what is our current headcount on our sales force, and what might we do with regard to beefing up, having some more boots on the ground?

That's a good question, and actually, that kind of concludes a question that was asked earlier where I didn't - I dropped that ball. Today, we have 17 domestic - and that is correct in [Amerinet's CFO] - we have 18 current field salespeople. One of those people will be leaving very shortly as a result of a desire to relocate from the territory in which he's currently based. And in answer to the previous question, there have been no reductions in that sales force through resignation. This will be the first person to withdraw for, really, personal and logistical reasons. We have one other person who may also have a geographic issue.

But the sales force has been relatively consistent and especially with the re-energizing of that force during the period after February, after mid-February, productive in terms of identifying leads and moving them through the channel. We have consistently felt that it was important to add to that sales force, as a caller indicated earlier. It's at least possible that the transaction between Hologic and R2 will help us in that regard and will make available some people we may want to and be privileged to work with. But the deficit has been the deficit in sales management, not in sales on the street. We were frozen in our ability to bring on a person of the caliber of [Jeff Barnes], and we are, I think, benefited now by having put the arbitration and the risk of the arbitration behind us and being able to bring in the key people -- Ken, Jeff, others that we anticipate who are able to mobilize and increase the efficiency and the productivity not just of the existing sales force but of other members of that force that they may choose to add. I think it's an exciting and a good time, and I believe that is a view shared by our sales force.

Any feel for how high we might want to go in the future in terms of numbers of people?

I think I'm going to leave that question to Ken and suggest that he be given a bit of time to study the situation before answering it.

Thank you very much, Scott.

You're welcome.

Your next question comes from the line of [Jared Mann] with Narragansett. Please proceed.

This is actually [Franz Tudor], Narragansett. Just a quick question on, actually twofold. One on the pricing strategy, because I know that you guys had cut prices before and now with the R2 being acquired by Hologics there's probably going to be some pricing stability in the market. Is there room to increase prices? And second, if, as we look at some of the ordering patterns in customers, they've been ordering multiple digital units - if we look at the Hologics announcement today with the Mayo clinic, something in the order of 50 units of something like that - where's the opportunity to leverage both the sales force and the pricing as we see customers purchasing in that manner?

First question, Franz, I would expect - and recognize, as I'm sure you do, that these are judgments that will be made by Ken and by Jeff as they have the opportunity to analyze the situation - but I would expect that the ability to continue to offer value that is accessible to clinics which may have limited resources, and a base level product, is still a sensible approach to take. But that being able to provide enhancements, options and accessories or higher functionality versions of those products provides the opportunity to increase the total cost and the total revenue that we might receive from customers as they build up from the basic model of CAD to a model which increasingly meets their specific requirements and gives value in doing so. So, certainly the potential exists that there will be stability, and I might add, even during the first quarter we saw far less price cutting and price competition than in some previous quarters, but that the real opportunity for us is to continue to develop things that can add to the value and therefore to the return associated with each of our sales.

On the digital side, we do see a significant number of accounts where there are multiple sales associated with a single transaction. Those are high priority accounts for us and they are for our OEM partners, and I believe that the sorting out of the market into competitive camps will help us in exploiting more of those when they are generated through the channels of the OEMs that affiliate with iCAD.

Okay. And then, lastly, on the CR front, since we as of yet don't have an approval in the U.S., where do you see CR fitting in as an opportunity when you look at the market adoption of CR versus digital? And then I guess looking out in the future into tomo if that could be potentially a rate limiting factor to the CR adoption since you would not be able to upgrade a CR to a tomo system. Is CR a bigger market for you guys, or do you see that a just sort of a fringe opportunity? How do you view that?

Well, let's look at it internationally. In the U.S. the first CR systems are pending FDA approval. So this market doesn't clearly reflect the way CR and digital relate to film in markets in which all three have been available for some period of time. But in Europe and in Asian markets, in South American markets, CR is a bigger market than digital mammography. And it is a bigger market because it offers many of the benefits of digital viewing, many of the benefits that were highlighted in the September Siemens study that talked about digital mammography being better for women with dense breasts, better for younger women. A lot of that is a reflection of the ability to use a digital viewer or display and manipulate the image to look in different parts of the -- what's called the grayscale.

So if we see patterns that are established in international markets replicated in the United States subsequent to approval for CR, this is going to be a big opportunity for us. And those CR players are, I believe, going to be as concerned about the competitive implication of acquiring computer-aided detection technology from a major player in digital mammography as are GE and Siemens today. So we are very bullish on CR, and believe that that can be a major contributor to the company's performance in future periods. The timing in that, largely related to when the FDA lets the first of those companies begin to market in the United States, and our understanding is that that is anticipated in the comparatively near term.

Okay. Thank you.

Your next question comes from the line of Jeb Terry with Aberdeen Investment. Please proceed.

Yes, Scott. Well, CR is one of the questions I had as well, and can you provide some scale of what that opportunity might be? I mean, could it be as big as digital mammography or a strong competitive offering? But if you could provide any sense of scale as to what that might represent either globally or -- as well as domestically? And then within, in follow on to that would be if you could comment on the developments in China.

I'm just going to take a couple of notes, Jeb, because I dropped part of the question before. First of all, I think the scale of CR does have the potential to be as large or larger than the scale for full field digital mammography in the domestic market if we see the number of CR installations becoming proportionate to the number of CR installations in internationally. Now there may be some differences in terms of market expectations or demand, but I do believe that that has the potential to be a comparable scale, possibly a greater scale.

I want to take a step back, though, because we've been using terms, computer radiography, there was a term tomosynthesis that was used before, where there may be some benefit in a bit of explanation. When we talk about full field digital mammography, in a lot of ways we're talking about a big digital camera. There's an electronic sensor, the image is taken directly onto that sensor and it is then imaged onto a screen or saved as an electronic file. In full field digital, an emerging trend is towards what's called tomosynthesis, in which there are multiple images taken of the breast and those images are then recompiled to create a 3-D image as opposed to a 2-D image. And as one of the previous callers noted, this ability to recompile into a virtual 3-D image, which is likely to assist in the diagnostic applications of digital mammographies, this is looked at as one of the ways in which the full field digital manufacturers can distinguish themselves from the emerging computer radiography manufacturers.

As we drop down, computed radiography, rather than using a big digital camera, uses the actual film that mammography practices are currently developing. It doesn't require the mammography practice to replace the camera, what's called a gantry. It doesn't require the clinic to change its workflow. But that camera takes a picture on a reusable electronic plate, which fits into the same slot that used to take film. The image is captured and that picture, that cassette, is carried over to something that looks like a big toaster. It's dropped in, it drops down, the image is read digitally. And from that point forward, the workflow is digital rather than film based.

So the advantages for clinics tend to be lower acquisition costs. They don't have to replace all of their existing x-ray equipment, mammography equipment. They don't have to change the way they're working. And that has proven to be an advantage for people in other markets. The consequence of CR coming into the market and offering many of the benefits of digital mammography we can perceive as efforts by the full field digital manufacturers to add value and add features and functions that will allow them to continue to be perceived as the premium choice.

Jeb, your question about China. We just returned from China. The systems that were sold at the end of the fourth quarter are now being installed. And that market is a market where we expect there will be a very significant contribution to iCAD over time. I think we will see a period in which these initial units are digested and are shown to and demonstrated to other hospitals and clinics within the 1 million women breast screening project that is underway. And that orders will follow on a gradual basis over coming quarters and coming years.

There's a real commitment to breast care in China. The people that we saw two weeks ago remain very committed to the use of computer-aided detection in connection with film based mammography. And we're talking to them about the potential to also make computer-aided detection a part of the CR, computed radiography components of the Chinese program. So a place where I think we're seeing business develop in the manner in which it often does in Asian markets, in a gradual manner which has the potential for significant business over time.

Are there any 300s or TotalLooks going into that market?

Yes. Yes to both.

And --

And I might add, Jeb, that the TotalLooks are going into that market through our full field digital OEMs, who are beginning to sell iCAD's digital and iCAD's comparative reading products into the Chinese market. The TotalLooks are not going in through the Chinese Anti-Cancer Association. The Chinese Anti-Cancer Association is the primary source of 300 sales and 200 sales.

Okay. And one last thing. In your efforts to defend and come up with alternatives relative to the patent arbitration and your product development efforts there, did you come up with some new product ideas that you hadn't thought of before that might become part of the product line in the future?

Yes. And I'll leave it at that if I may.

Okay. Great. Thanks very much. Congratulations. Welcome aboard, Ken.

Thanks.

Your next question comes from the line of Joe Ruddy with Saxony Securities. Please proceed.

Hey, Scott. I have a couple of follow ups. As far as you had noted that you anticipate a drop off of Hologic business, is that something that you guys are seeing already or you don't expect to see until after the deal closes, which they anticipate I think two or three months?

Here's what I expect, Joe. And this is really, it's under Hologic's control to a great extent. Or better put, it's under the customer's control. We have a backlog of Hologic orders, and we've been informed that they will not be affected by this. There are current sales efforts that are going on while the merger process is approved by regulatory -- while I presume due diligence is completed. And during that period I don't think we'll see the kind of light switch turning on or off sales, where customers in the pipeline have expressed a desire for the iCAD product. I would anticipate that the Hologic salesperson will respond to that. And we'll certainly encourage that. But by the time the merger is completed, I think that the chairman of Hologic quite rightly, has indicated they will be better off selling their own product than someone else's. So probably not a cliff, but one we would be well served to anticipate and recognize, represents the change in channel structure and potential improvement in competitive environment that this merger compels.

So the major change, if we can put it into quarters here, will probably be in the third quarter versus the second quarter.

Yes. I think that there are balancing changes because we see benefits and we see disadvantages. And the way in which those align will really tell us whether there will be an impact, how much it'll be and when it will occur. And rather than try to speculate on that at this point, I think that we can only lay out what the model looks like.

Okay. Since you mentioned that there is a backlog of Hologic orders, and you tell us if there was -- if and what was the total backlog for the first quarter.

Total backlog for the first quarter was just about $0.5 million.

Okay. Were there any units delivered under the Chinese agreement in the first quarter?

No. With the deliveries that were made in the fourth quarter, there's no anticipation of deliveries in the first quarter or in the second quarter, to be fair. There's digestion that's going on and that's appropriate.

Okay. In reference to the announcement with Amerinet back in the fourth quarter, can you tell us what their contribution was in the first quarter?

Their contribution was significant. And I apologize, I do not have the specific number. If we're on the call long enough, we will be able to get that. [off mike] But this is an account where we've really, I think, done a good job. We've communicated well with them, we have been able to coordinate the sales efforts. Their customers like the way that Amerinet and iCAD come to them together and it's been one of the most successful GPO relationships we've had. I apologize for not having the specific number, we'll try to pull that before we're done here.

No problem. This is a question I meant to ask on the last call. I had noticed that on iCAD's website that for 2006 you guys have about 15 to 20 conferences and -- financial conferences as well as sales conferences that you guys are attending this year alone versus there was only about four or five that were -- that I had seen last year in total on the company's website. Now maybe there was a couple of additional ones that just did not hit the site, but is this a true substantial increase and is that part of the whole new marketing plan of the company?

It is an increase, Joe, and it reflects our efforts to better bring to customers' attention that set of questions we've talked about in the past. Why iCAD? And why now? And the lead flow, the pipeline which is a good reflection of whether that's working, has been positively impacted by the efforts that we've made to get right into the laps of customers through more and more regional, more intimate trade shows. As well, I might add, as more international trade shows.

Yes, I noticed, that was going to be my follow up as well.

In another two weeks I think we're in Copenhagen for a show and we've been doing shows in Asia and in other parts of Europe. And those are really great because they support the emerging efforts of our digital OEMs in promoting our products to their customers. That's a very synergistic, very cooperative relationship.

Okay. I know, on the next question, I know you're not going to answer any specifics, but I just wanted more or less the company's standpoint as far as an opinion, which should be pretty obvious. Since this announcement with Hologic and R2, I'm sure iCAD feels that they're in a very unique position for a suitor to come in at some point in the future, being that we're going to be in this market, basically the last player available. Is that an accurate statement?

It is a statement Joe. It's not an appropriate one for me to comment on.

As far as the company standpoint, though. I'm not asking if you're in talks with anybody or whatever else might be going on, just as far as looking out two or three years from now.

I think you've accurately stated the landscape as it exists today.

Okay, alright, that's all I have. So if we can just, get, before the call ends, that number on the impact that Amerinet had in the first quarter.

Okay.

I appreciate it. Thanks, Scott.

Your last question comes from the line of Brooke Moore with Evergreen Associates. Please proceed.

Good morning, gentlemen.

Good morning, Brooke.

How are you?

Very well.

Some of my questions were already asked and answered, but one of my main questions - and probably I don't know if you can comment on it or not, but - after this, after the arbitration, and you successfully came away with dismissed without merit, being that that was the second time that R2 had come after you, how does it stand now for the future? Are they -- how was it left legally?

The issues that were brought before the arbitration panel were resolved finally and conclusively. The key patents - some key continuations in part -- so those are done. I have to say there is technically always the opportunity to appeal. But the grounds for appeal are so narrow and so very difficult, I think it's fair to say that that's not a realistic possibility here. So we're comfortable that this is the conclusion of this patent infringement action.

Well, regardless, I mean, that notwithstanding, my concern is that they not come back again. And I wondered if there was any protection for you regarding that.

No. We have no control over that anymore than they have control over whether we should seek to assert any claims against them or any other party. We are hopeful that people will understand that this is a market in which we are better served by competing responsibly and ethically than by looking to the courts to deal with market share issues, but we have no control over that.

Okay. Then, if I could, regarding your cash position, could you comment on that, please?

As of the end of the third quarter, our cash position was about $3.2, just over $3.2 million. End of first quarter, I'm sorry. About $9.4 million in total current assets. And of course, as you know, we do have a line of credit available in the amount of approximately $5 million which supplements the cash position to the extent necessary.

Okay. And do you - I know that you're not making projections regarding sales and earnings and so forth, but, candidly, do you feel that that's, you're confident with this, the line of credit and your current assets?

I think we really have to retain the position that we're not making projections. But the question is are we confident in the availability of the line of credit? Are we confident in that as availability?

That's enough? That that's going to be enough, right. Can you comment on that, or no?

I think it'd be inappropriate to make projections, Brooke.

Okay. Alright. Well, very good. Good conference call. Thank you very much.

Thank you very much.

Sir, there are no questions at this time.

Allow me to close, then. On behalf of iCAD and myself, thank you very much for your interest and consideration of the company and your time this morning. Goodbye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.