UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
☑ |
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly
period ended June 30, 2023
or
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the
transition period from________ to ___________
Commission File No. 000-54090
CAREVIEW
COMMUNICATIONS, INC.
(Exact name of registrant as specified
in its charter)
Nevada |
95-4659068 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
405 State Highway 121, Suite B-240,
Lewisville, TX 75067
(Address of principal executive offices)
(972) 943-6050
(Registrant’s telephone number)
N/A
(Former name, former address and former
fiscal year, if changed since last report)
Securities registered pursuant
to Section 12(b) of the Act: None
Title
of each class |
|
Trading
Symbol |
|
Name
of each exchange on which registered |
Common Stock, $0.001
par value per share |
|
CRVW |
|
OTC Markets |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑
No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑
No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
Non-accelerated filer |
☑ |
Smaller reporting company |
☑ |
|
|
Emerging growth company |
☐ |
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☑
The number
of shares outstanding of each of the issuer’s classes of Common Stock as of July 31, 2023 was 583,880,748.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June
30, |
|
|
|
|
|
|
2023 |
|
|
December
31, |
|
|
|
(unaudited) |
|
|
2022 |
|
ASSETS |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
707,345 |
|
|
$ |
520,166 |
|
Accounts receivable |
|
|
2,009,756 |
|
|
|
948,328 |
|
Inventory |
|
|
147,673 |
|
|
|
301,446 |
|
Other current assets |
|
|
446,621 |
|
|
|
71,020 |
|
Total current assets |
|
|
3,311,395 |
|
|
|
1,840,960 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
449,883 |
|
|
|
642,559 |
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
749,409 |
|
|
|
820,106 |
|
Operating lease asset |
|
|
366,471 |
|
|
|
434,330 |
|
Other assets, net |
|
|
198,690 |
|
|
|
209,649 |
|
Total assets |
|
$ |
5,075,848 |
|
|
$ |
3,947,604 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
575,509 |
|
|
$ |
650,796 |
|
Notes payable |
|
|
20,258,333 |
|
|
|
20,000,000 |
|
Notes payable - related parties |
|
|
700,000 |
|
|
|
700,000 |
|
Convertible notes payable, related parties |
|
|
— |
|
|
|
42,394,168 |
|
Convertible notes payable, non-related parties |
|
|
— |
|
|
|
1,805,832 |
|
Operating lease liability |
|
|
182,401 |
|
|
|
175,520 |
|
Other current liabilities (Note 8) |
|
|
16,852,552 |
|
|
|
14,553,277 |
|
Total current liabilities |
|
|
38,568,795 |
|
|
|
80,279,593 |
|
|
|
|
|
|
|
|
|
|
Long-term Liabilities: |
|
|
|
|
|
|
|
|
Operating lease liability, less current portion |
|
|
226,026 |
|
|
|
305,259 |
|
Other liability |
|
|
16,319 |
|
|
|
23,481 |
|
Total long-term liabilities |
|
|
242,345 |
|
|
|
328,740 |
|
Total liabilities |
|
|
38,811,140 |
|
|
|
80,608,333 |
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit: |
|
|
|
|
|
|
|
|
Common stock - par value $0.001; 800,000,000 and 500,000,000 shares authorized, respectively;
583,880,748 and 141,880,748 issued and outstanding, respectively |
|
|
583,881 |
|
|
|
141,881 |
|
Additional paid in capital |
|
|
171,005,111 |
|
|
|
127,130,055 |
|
Accumulated deficit |
|
|
(205,324,284 |
) |
|
|
(203,932,665 |
) |
Total stockholders' deficit |
|
|
(33,735,292 |
) |
|
|
(76,660,729 |
) |
Total liabilities and stockholders' deficit |
|
$ |
5,075,848 |
|
|
$ |
3,947,604 |
|
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
CAREVIEW COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited)
| |
| | |
| | |
| | |
| |
| |
Three Months Ended | | |
Six Months Ended | |
| |
June 30, 2023 | | |
June 30, 2022 | | |
June 30, 2023 | | |
June 30, 2022 | |
Revenues | |
| | |
| | |
| | |
| |
Subscription-based lease | |
$ | 1,113,887 | | |
$ | 1,329,883 | | |
$ | 2,320,984 | | |
$ | 2,634,866 | |
Sales-based equipment package | |
| 1,837,088 | | |
| — | | |
| 1,996,785 | | |
| 807,323 | |
Sales-based software bundle | |
| 759,134 | | |
| 366,853 | | |
| 1,174,599 | | |
| 573,576 | |
Total revenue | |
| 3,710,109 | | |
| 1,696,736 | | |
| 5,492,368 | | |
| 4,015,765 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Cost of equipment | |
| 224,997 | | |
| — | | |
| 256,929 | | |
| 117,597 | |
Network operations | |
| 763,487 | | |
| 609,507 | | |
| 1,468,530 | | |
| 1,346,983 | |
General and administration | |
| 1,051,953 | | |
| 876,991 | | |
| 1,749,720 | | |
| 1,816,240 | |
Sales and marketing | |
| 230,814 | | |
| 141,752 | | |
| 399,233 | | |
| 330,968 | |
Research and development | |
| 515,374 | | |
| 450,292 | | |
| 1,034,006 | | |
| 947,544 | |
Depreciation and amortization | |
| 103,797 | | |
| 151,490 | | |
| 280,628 | | |
| 312,953 | |
Total operating expense | |
| 2,890,422 | | |
| 2,230,032 | | |
| 5,189,046 | | |
| 4,872,285 | |
| |
| | | |
| | | |
| | | |
| | |
Operating income (loss) | |
| 819,687 | | |
| (533,296 | ) | |
| 303,322 | | |
| (856,520 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income and (expense) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (865,627 | ) | |
| (1,968,667 | ) | |
| (1,696,961 | ) | |
| (3,990,451 | ) |
Interest income | |
| 1,133 | | |
| 54 | | |
| 2,020 | | |
| 54 | |
Total other expense | |
| (864,494 | ) | |
| (1,968,613 | ) | |
| (1,694,941 | ) | |
| (3,990,397 | ) |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Provision for income taxes | |
| — | | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (44,807 | ) | |
$ | (2,501,909 | ) | |
$ | (1,391,619 | ) | |
$ | (4,846,917 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share | |
$ | (0.00 | ) | |
$ | (0.02 | ) | |
$ | (0.00 | ) | |
$ | (0.03 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares
outstanding,
basic, and diluted | |
| 463,880,748 | | |
| 139,380,748 | | |
| 304,336,304 | | |
| 139,380,748 | |
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited)
| |
| | |
| | |
Additional | | |
| | |
| |
| |
Common Stock | | |
Paid in | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
Balance, January 1, 2022 | |
| 139,380,748 | | |
$ | 139,381 | | |
$ | 85,052,367 | | |
$ | (197,890,046 | ) | |
$ | (112,698,298 | ) |
Issuance of warrants to purchase common stock | |
| — | | |
| — | | |
| 240,000 | | |
| — | | |
| 240,000 | |
Stock based compensation | |
| — | | |
| — | | |
| 55,847 | | |
| — | | |
| 55,847 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (2,345,008 | ) | |
| (2,345,008 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, March 31, 2022 | |
| 139,380,748 | | |
$ | 139,381 | | |
$ | 85,348,214 | | |
$ | (200,235,054 | ) | |
$ | (114,747,459 | ) |
Stock based compensation | |
| — | | |
| — | | |
| 58,363 | | |
| — | | |
| 58,363 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (2,501,909 | ) | |
| (2,501,909 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2022 | |
| 139,380,748 | | |
$ | 139,381 | | |
$ | 85,406,577 | | |
$ | (202,736,963 | ) | |
$ | (117,191,005 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, January 1, 2023 | |
| 141,880,748 | | |
$ | 141,881 | | |
$ | 127,130,055 | | |
$ | (203,932,665 | ) | |
$ | (76,660,729 | ) |
Stock based compensation | |
| — | | |
| — | | |
| 62,260 | | |
| — | | |
| 62,260 | |
Debt to equity conversion at $0.10 | |
| 262,000,000 | | |
| 262,000 | | |
| 25,938,000 | | |
| — | | |
| 26,200,000 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (1,346,812 | ) | |
| (1,346,812 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, March 31, 2023 | |
| 403,880,748 | | |
$ | 403,881 | | |
$ | 153,130,315 | | |
$ | (205,279,477 | ) | |
$ | (51,745,281 | ) |
Stock based compensation | |
| — | | |
| — | | |
| 54,796 | | |
| — | | |
| 54,796 | |
Debt to equity conversion at $0.10 | |
| 180,000,000 | | |
| 180,000 | | |
| 17,820,000 | | |
| — | | |
| 18,000,000 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (44,807 | ) | |
| (44,807 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, June 30, 2023 | |
| 583,880,748 | | |
$ | 583,881 | | |
$ | 171,005,111 | | |
$ | (205,324,284 | ) | |
$ | (33,735,292 | ) |
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited)
| |
| | |
| |
| |
Six Months Ended | |
| |
June 30, 2023 | | |
June 30, 2022 | |
CASH FLOWS FROM OPERATING ACTIVITES | |
| | | |
| | |
Net loss | |
$ | (1,391,619 | ) | |
$ | (4,846,917 | ) |
Adjustments to reconcile net loss to net cash
flows used in operating activities: | |
| | | |
| | |
Depreciation | |
| 194,619 | | |
| 264,106 | |
Amortization of intangible assets | |
| 70,697 | | |
| 27,622 | |
Amortization of debt discount | |
| — | | |
| 495,837 | |
Amortization of deferred installation costs | |
| 15,312 | | |
| 21,225 | |
Amortization of deferred debt issuance and debt financing costs | |
| — | | |
| — | |
Non-cash lease expense | |
| 67,859 | | |
| 58,092 | |
Interest incurred and paid in kind | |
| 258,333 | | |
| 1,622,052 | |
Stock based compensation related to options granted and warrants issued | |
| 117,056 | | |
| 354,210 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (1,061,428 | ) | |
| 180,249 | |
Inventory | |
| 153,773 | | |
| (111,326 | ) |
Other current assets | |
| (375,601 | ) | |
| 140,310 | |
Patent license | |
| (4,354 | ) | |
| 8,197 | |
Accounts payable | |
| (75,286 | ) | |
| 154,298 | |
Accrued interest | |
| 1,345,917 | | |
| 1,490,131 | |
Other current liabilities | |
| 881,006 | | |
| 62,706 | |
Net cash flows provided by (used in) operating activities | |
| 196,284 | | |
| (79,208 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchase of equipment | |
| (1,943 | ) | |
| — | |
Patent, trademark, and other intangible asset costs | |
| — | | |
| (56,110 | ) |
Net cash flows used in investing activities | |
| (1,943 | ) | |
| (56,110 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Repayment of notes payable | |
| — | | |
| (13,786 | ) |
Repayment of vehicle loan | |
| (7,162 | ) | |
| (7,044 | ) |
Net cash flows used in financing activities | |
| (7,162 | ) | |
| (20,830 | ) |
| |
| | | |
| | |
Increase (decrease) in cash | |
| 187,179 | | |
| (156,148 | ) |
Cash and cash equivalents, beginning of period | |
| 520,166 | | |
| 659,228 | |
Cash and cash equivalents and restricted cash, end of period | |
$ | 707,345 | | |
$ | 503,080 | |
| |
| | | |
| | |
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITES | |
| | | |
| | |
Replacement Notes conversion to equity at $0.10 per share | |
$ | 44,200,000 | | |
| — | |
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Interim
Financial Statements
The accompanying
unaudited interim condensed consolidated financial statements of CareView Communications, Inc. (“CareView”, the “Company”,
“we”, “us” or “our”) have been prepared in accordance with generally accepted accounting principles
in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the
opinion of management, such financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary
for the fair statement of the financial information included herein in accordance with GAAP and the rules and regulations of the
Securities and Exchange Commission (the “SEC”). The balance sheet at December 31, 2022 has been derived from the audited
consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for
complete financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could
differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full
year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed
with the SEC on May 26, 2023.
Revenue Recognition
We recognize
revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”). For our subscription
service contracts, we have employed the practical expedient discussed in ASC 606-10-55-18 related to invoicing as we have the
right to consideration from our customers in the amount that corresponds directly with the value to the customer of our performance
completed to date and therefore, we recognize revenue upon invoicing as further discussed below.
In accordance
with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized
reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The provisions
of ASC 606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods or services
to customers in amounts reflecting the payment to which we expect to be entitled in exchange for those goods or services. ASC
606 requires us to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations
in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the
contract; and (5) recognize revenue when, or as, we satisfy the performance obligation. For those customers for which we are required
to collect sales taxes, we record such sales taxes on a net basis which has no effect on the amount of revenue or expenses recognized
as the sales taxes are a flow through to the taxing authority.
We enter
into contracts with customers that may provide multiple combinations of our products, software solutions, and other related services,
which are generally capable of being distinct and accounted for as separate performance obligations. Performance obligations that
are not distinct at contract inception are combined.
Customer
contract fulfillment typically involves multiple procurement promises, which may include various equipment, software subscription,
project-related installation and training services, and support. We allocate the transaction price to each performance obligation
based on estimated relative standalone selling price. Revenue is then recognized for each performance obligation upon transferring
control of the hardware, software, and services to the customer and in an amount that reflects the consideration we expect to
receive and the estimated benefit the customer receives over the term of the contract.
Generally,
we recognize revenue under each of our performance obligations as follows:
|
● |
Subscription services – We recognize
subscription revenues monthly over the contracted license period. |
|
● |
Equipment packages – We recognize equipment
revenues when control of the devices has been transferred to the client (“point in time”). |
|
● |
Software bundle and related services related
to sales-based contracts – We recognize our software subscription, installation, training, and other services on a straight-line
basis over the estimated contracted license period (“over time”). |
Disaggregation
of Revenue
The following
presents net revenues disaggregated by our business models:
|
|
Six Months Ended
June 30, |
|
|
|
2023 |
|
|
2022 |
|
Sales-based contract revenue |
|
|
|
|
|
|
|
|
Equipment package, net (point in time) |
|
$ |
1,996,785 |
|
|
$ |
807,323 |
|
Software bundle (over time) |
|
|
1,174,599 |
|
|
|
573,576 |
|
Total sales-based contract revenue |
|
|
3,171,384 |
|
|
|
1,380,899 |
|
|
|
|
|
|
|
|
|
|
Subscription-based lease revenue |
|
|
2,320,984 |
|
|
|
2,634,866 |
|
Net revenue |
|
$ |
5,492,368 |
|
|
$ |
4,015,765 |
|
Contract Liabilities
Our subscription-based
contracts payment arrangements are required to be paid monthly which are recognized into revenue when received. Some customers
choose to pay their subscription fee in advance. Customer payments received in advance of satisfaction of the related performance
obligations are deferred as contract liabilities. These amounts are recorded as “deferred revenue” in our condensed
consolidated balance sheets and recognized into revenues over time.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Our sales-based
contract payment arrangements with our customers typically include an initial equipment payment due upon signing of the contract
and subsequent payments when certain performance obligations are completed. Customer payments received in advance of satisfaction
of related performance obligations are deferred as contract liabilities. These amounts are recorded as “deferred revenue”
in our condensed consolidated balance sheets and recognized into revenues as either a point in time or over time.
During the
six months ended June 30, 2023 and 2022, a total of $16,094 and $156,784, respectively, of subscription-based deferred contract
liability was recognized as revenue. The table below details the subscription-based contract liability activity during the six
months ended June 30, 2023 and 2022, included in the Other current liabilities.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, |
|
|
|
2023 |
|
|
2022 |
|
Balance, beginning of period |
|
$ |
21,145 |
|
|
$ |
231,140 |
|
Additions |
|
|
— |
|
|
|
— |
|
Transfer to revenue |
|
|
(16,094 |
) |
|
|
(156,784 |
) |
Balance, end of period |
|
$ |
5,051 |
|
|
$ |
74,356 |
|
During the
six months ended June 30, 2023 and 2022, a total of $822,974 and $1,274,726, respectively, of sales-based deferred contract liability
was recognized as revenue. The table below details the sales-based contract liability activity during the six months ended June
30, 2023 and 2022, included in the Other current liabilities.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, |
|
|
|
2023 |
|
|
2022 |
|
Balance, beginning of period |
|
$ |
869,485 |
|
|
$ |
752,526 |
|
Additions |
|
|
1,319,224 |
|
|
|
1,655,760 |
|
Transfer to revenue |
|
|
(822,974 |
) |
|
|
(1,274,726 |
) |
Balance, end of period |
|
$ |
1,365,735 |
|
|
$ |
1,133,560 |
|
As of June
30, 2023, the aggregate amount of deferred revenue from subscription-based contracts and sales-based contracts allocated to performance
obligations that are unsatisfied or partially satisfied is approximately $1,370,786 and will be recognized into revenue over time
as follows:
Years Ending December 31, |
|
|
Amount |
|
2023 |
|
|
$ |
830,967 |
|
2024 |
|
|
|
501,410 |
|
Thereafter |
|
|
|
38,409 |
|
|
|
|
$ |
1,370,786 |
|
We defer
and capitalize all costs associated with the installation of the CareView System into a healthcare facility until the CareView
System is fully operational and accepted by the healthcare facility. Installation costs are specifically identifiable based on
the amounts we are charged from third party installers or directly identifiable labor hours incurred for each installation. Upon
acceptance, the associated costs are expensed on a straight-line basis over the life of the contract with the healthcare facility.
These costs are included in network operations on the accompanying consolidated statements of operations.
The table below details the activity
in these deferred installation costs during the periods ended June 30, 2023 and 2022, included in other assets in the accompanying
unaudited consolidated balance sheet.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, |
|
|
|
2023 |
|
|
2022 |
|
Balance, beginning of period |
|
$ |
33,461 |
|
|
$ |
68,901 |
|
Additions |
|
|
— |
|
|
|
— |
|
Transfer to expense |
|
|
(15,312 |
) |
|
|
(21,225 |
) |
Balance, end of period |
|
$ |
18,149 |
|
|
$ |
47,676 |
|
Significant Judgements When
Applying Topic 606
Contracts
with our customers are typically structured similarly and include various combinations of our products, software solutions, and
related services. Determining whether the various contract promises are considered distinct performance obligations that should
be accounted for separately versus together may require significant judgment.
Contract
transaction price is allocated to distinct performance obligations using estimated standalone selling price. We determine standalone
selling price maximizing observable inputs such as standalone sales, competitor standalone sales, or substantive renewal prices
charged to customers when they exist. In instances where standalone selling price is not observable, we utilize an estimate of
standalone selling price. Such estimates are derived from various methods that include cost plus margin, and historical pricing
practices. Judgment may be required to determine standalone selling prices for each performance obligation and whether it depicts
the amount we expect to receive in exchange for the related good or service.
Contract
modifications occur when we and our customers agree to modify existing customer contracts to change the scope or price (or both)
of the contract or when a customer terminates some, or all, of the existing services provided by us. When a contract modification
occurs, it requires us to exercise judgment to determine if the modification should be accounted for as a separate contract, the
termination of the original contract and creation of a new contract, a cumulative catch-up adjustment to the original contract,
or a combination.
Contracts
with our customers include a limited warranty on our products covering materials, workmanship, or design for the duration of the
contract. We do not offer paid additional extended or lifetime warranty packages. We determined the limited warranty in our contract
is not a distinct performance obligation. We do not believe our estimates of warranty costs to be significant to our determination
of revenue recognition, and therefore, did not reserve for warranty costs.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Leases
The Company
has an operating lease primarily consisting of office space with a remaining lease term of 26 months. At the lease commencement
date, an operating lease liability and related operating lease asset are recognized. The operating lease liabilities are calculated
using the present value of lease payments. The discount rate used is either the rate implicit in the lease, when known, or our
estimated incremental borrowing rate. Operating lease assets are valued based on the initial operating lease liabilities plus
any prepaid rent and direct costs from executing the leases.
Earnings
(Loss) Per Share
We calculate
earnings per share (“EPS”) in accordance with GAAP, which requires the computation and disclosure of two EPS amounts,
basic and diluted. Basic EPS is computed based on the weighted average number of common shares outstanding during the period.
Diluted EPS is computed based on the weighted average number of common shares outstanding plus all potentially dilutive common
shares outstanding during the period under the treasury stock method. Such potential dilutive common shares consist of stock options,
warrants to purchase our Common Stock (the “Warrants”) and convertible debt. Potential common shares totaling 46,711,922
and 183,586,301 on June 30, 2023 and 2022, respectively, have been excluded from the diluted earnings per share calculation as
they are anti-dilutive due to our reported net loss. The 47,021,922 potential common shares consist of 41,327,477 stock options
and 5,694,445 warrants.
Recently Issued and Newly Adopted Accounting Pronouncements
ASU 2016-13
ASU 2016-13
requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical
experience, current conditions, and reasonable and supportable forecasts. This guidance:
|
1. |
Eliminates the probable initial recognition threshold in current
GAAP and, instead, reflects an organization’s current estimate of all expected credit losses over the contractual term
of its financial assets. |
|
2. |
Broadens the information that an entity can consider when measuring
credit losses to include forward-looking information. |
|
3. |
Increases usefulness of the financial statements by requiring
timely inclusion of forecasted information in forming expectations of credit losses. |
|
4. |
Increases comparability of purchased financial assets with credit
deterioration (PCD assets) with other purchased assets that do not have credit deterioration as well as originated assets
because credit losses that are expected will be recorded through an allowance for credit losses for all assets. |
|
5. |
Increases users’ understanding of underwriting standards
and credit quality trends by requiring additional information about credit quality indicators by year of origination (vintage). |
|
6. |
For available-for-sale debt securities, aligns the income statement
recognition of credit losses with the reporting period in which changes occur by recording credit losses (and subsequent changes
in credit losses) through an allowance rather than a write down. |
The guidance
affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance
receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. We as
a smaller reporting company as defined by the SEC have adopted ASU 2016-13 effective for January 1, 2023. As of June 30, 2023,
ASU 2016-13 does not have any material effect on the Company.
ASU 2020-06
ASU 2020-06
simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in
ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features
and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20
applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host
contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in
ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock
and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments
are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted
for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in
ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per
share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement
for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. We as a smaller reporting company
as defined by the SEC will adopt ASU 2020-06 effective for fiscal year 2024.
ASU 2022-03
ASU 2022-03
clarifies that a “contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting
entity holding the equity security” and is not included in the equity security’s unit of account. Accordingly, an
entity should not consider the contractual sale restriction when measuring the equity security’s fair value (i.e., the entity
should not apply a discount related to the contractual sale restriction, as stated in ASC 820-10-35-36B as amended by the ASU).
In addition, the ASU prohibits an entity from recognizing a contractual sale restriction as a separate unit of account. Under
the existing guidance in ASC 820-10-35-6B, “although a reporting entity must be able to access the market, the reporting
entity does not need to be able to sell the particular asset or transfer the particular liability on the measurement date to be
able to measure fair value on the basis of the price in that market.” ASU 2022-03 clarifies that an entity should apply
this existing guidance when measuring the fair value of equity securities that are subject to contractual sale restrictions (i.e.,
a contractual sale restriction on the reporting entity that prevents the sale of an equity security in the market does not prevent
the entity from measuring the fair value of the equity security on the basis of the price in that principal market). ASU 2022-03
for the Company will be effective for fiscal year 2024.
NOTE 2 – GOING CONCERN,
LIQUIDITY AND MANAGEMENT’S PLAN
Accounting
standards require management to evaluate our ability to continue as a going concern for a period of one year after the date of
the filing of this Form 10-Q (“evaluation period”). In evaluating the Company’s ability to continue as a going
concern, management considers the conditions and events that raise substantial doubt about the Company’s ability to continue
as a going concern for a period of twelve months after the Company issues its financial statements. For the six months ended June
30, 2023, management considers the Company’s current financial condition and liquidity sources, including current funds
available, forecasted future cash flows, and the Company’s conditional and unconditional obligations due within 12 months
of the date these financial statements are issued.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company
is subject to risks like those of healthcare technology companies whereby revenues are generated based on both sales-based and
subscription-based models, which assume dependence on key individuals, uncertainty of product development, generation of revenues,
positive cash flow, dependence on outside sources of capital, risks associated with research, development, and successful testing
of its products, successful protection of intellectual property, ability to maintain and grow its customer base, and susceptibility
to infringement on the proprietary rights of others. The attainment of profitable operations is dependent on future events, including
obtaining adequate financing to fulfill the Company’s growth and operating activities and generating a level of revenues
adequate to support the Company’s cost structure.
As of June
30, 2023, the Company had a working capital deficit of $35,257,400. Management has evaluated the significance of the conditions
described above in relation to the Company’s ability to meet its obligations and concluded that, without additional funding,
the Company will not have sufficient funds to meet its obligations within one year from the date the consolidated financial statements
were issued. While management will look to continue funding operations by increased sales volumes and raising additional capital
from sources such as sales of its debt or equity securities or loans to meet operating cash requirements, there is no assurance
that management’s plans will be successful.
On March
30, 2023, noteholders owning Replacement Notes in an aggregate of $26,200,000, entered into a Replacement Note Conversion Agreement,
wherein the Replacement Notes were converted into shares of the Company’s common stock at a conversion price of $0.10 per
share, resulting in the issuance of an aggregate of 262,000,000 shares (the “Conversion Shares”). The Conversion Shares
bear a lockup legend that expires December 31, 2023.
Upon this
conversion, and as of March 31, 2023, the Company’s officers and board of directors held the majority of the Company’s
outstanding voting stock. With controlling interest of the majority of outstanding shares, the Company’s majority shareholders
voted to amend its articles of incorporation to increase the authorized shares available for issuance from 500,000,000 to 800,000,000,
with an effective date of May 22, 2023.
On May 24,
2023, noteholder owning Replacement Notes in the aggregate of $18,000,000, presented Conversion Notices, per the terms of the
Replacement Notes, to the Company to convert the Replacement Notes into 180,000,000 shares of the Company’s common stock
at a conversion price of $0.10 per share. The shares bear a lock-up legend that expires December 31, 2023.
Management
continues to monitor the immediate and future cash flows needs of the company in a variety of ways which include forecasted net
cash flows from operations, capital expenditure control, new inventory orders, debt modifications, increases in sales outreach,
streamlining and controlling general and administrative costs, competitive industry pricing, sale of equities, debt conversions,
new product or services offerings, and new business partnerships.
The Company’s
net losses, cash outflows, and working capital deficit raise substantial doubt about the Company’s ability to continue as
a going concern. The accompanying consolidated financial statements have been prepared assuming that the Company will continue
as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities
in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level
of positive cash flows adequate to support the Company’s cost structure.
NOTE 3 – STOCKHOLDERS’
EQUITY
Warrants to Purchase Common
Stock of the Company
We use the
Black-Scholes-Merton option pricing model (“Black-Scholes Model”) to determine the fair value of Warrants. The Black-Scholes
Model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest
rate, and the weighted average term of the Warrant.
The risk-free
interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate
for the term of the Warrants and is calculated by using the average daily historical stock prices through the day preceding the
grant date. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during
the expected life of the award. Our estimated volatility is an average of the historical volatility of our stock prices (and that
of peer entities whose stock prices were publicly available) over a period equal to the expected life of the awards.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A summary
of our Warrants activity and related information follows:
|
|
Number of
Shares Under
Warrant |
|
|
Range of
Warrant Price
Per Share |
|
|
Weighted
Average
Exercise
Price |
|
|
Weighted
Average
Remaining
Contractual
Life |
|
Balance at December 31, 2022 |
|
|
5,694,445 |
|
|
|
$0.01-$0.03 |
|
|
$ |
0.024 |
|
|
|
3.5 |
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Canceled |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at June 30, 2023 |
|
|
5,694,445 |
|
|
|
$0.01-$0.03 |
|
|
$ |
0.024 |
|
|
|
3.1 |
|
Options to Purchase Common
Stock of the Company
During the
six months ended June 30, 2023, 545,000 options to purchase our Common Stock were granted having a fair value of $29,700 and exercise
price of $0.06 per share. During the six months ended June 30, 2023, no options expired or were terminated.
A summary
of our stock option activity and related information follows:
|
|
Number of
Shares Under
Options |
|
|
Weighted
Average
Exercise
Price |
|
|
Weighted
Average
Remaining
Contractual
Life |
|
|
Aggregate
Intrinsic
Value |
|
Balance at December 31, 2022 |
|
|
40,817,477 |
|
|
$ |
0.12 |
|
|
|
5.8 |
|
|
$ |
526,425 |
|
Granted |
|
|
545,000 |
|
|
|
0.06 |
|
|
|
9.7 |
|
|
|
3,000 |
|
Forfeited/Expired |
|
|
(35,000 |
) |
|
|
(0.06 |
) |
|
|
— |
|
|
|
— |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at June 30, 2023 |
|
|
41,327,477 |
|
|
$ |
0.12 |
|
|
|
5.5 |
|
|
$ |
529,425 |
|
Vested and Exercisable at June 30, 2023 |
|
|
33,115,144 |
|
|
$ |
0.13 |
|
|
|
4.8 |
|
|
$ |
523,425 |
|
At June
30, 2023, total unrecognized estimated compensation expense related to non-vested Options granted prior to that date was approximately
$89,355, which is expected to be recognized over a weighted-average period of 1.7 years. No tax benefit was realized due to a
continued pattern of operating losses.
NOTE
4 – OTHER CURRENT ASSETS
Other current
assets consist of the following:
| |
June 30, 2023 | | |
December 31,
2022 | |
Prepaid insurance | |
$ | 425,138 | | |
$ | 36,639 | |
Other prepaid expenses | |
| 21,483 | | |
| 34,381 | |
TOTAL OTHER CURRENT ASSETS | |
$ | 446,621 | | |
$ | 71,020 | |
NOTE 5 – INVENTORY
Inventory
is valued at the lower of cost, determined on a first-in, first-out (FIFO), or net realizable value. Inventory items are analyzed
to determine cost and net realizable value and appropriate valuation adjustments are then established.
Inventory
consists of the following:
|
|
June 30,
2023 |
|
|
December 31,
2022 |
|
Inventory
assets (finished goods) |
|
$ |
147,673 |
|
|
$ |
301,446 |
|
TOTAL INVENTORY |
|
$ |
147,673 |
|
|
$ |
301,446 |
|
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – PROPERTY
AND EQUIPMENT
Property
and equipment consist of the following:
|
|
June 30,
2023 |
|
|
December 31,
2022 |
|
Network equipment |
|
$ |
12,620,258 |
|
|
$ |
12,620,258 |
|
Office equipment |
|
|
236,372 |
|
|
|
234,430 |
|
Vehicles |
|
|
232,411 |
|
|
|
232,411 |
|
Test equipment |
|
|
230,365 |
|
|
|
230,365 |
|
Furniture |
|
|
92,846 |
|
|
|
92,846 |
|
Warehouse equipment |
|
|
9,523 |
|
|
|
9,523 |
|
Leasehold improvements |
|
|
5,121 |
|
|
|
5,121 |
|
|
|
|
13,426,896 |
|
|
|
13,424,954 |
|
Less: accumulated depreciation |
|
|
(12,977,013 |
) |
|
|
(12,782,395 |
) |
TOTAL PROPERTY AND EQUIPMENT, NET |
|
$ |
449,883 |
|
|
$ |
642,559 |
|
Depreciation
expense for the six months ended June 30, 2023 and 2022 was $194,618 and $264,106, respectively.
NOTE 7 – INTANGIBLE
AND OTHER ASSETS, NET
Intangible
assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2023 |
|
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Net |
|
Patents and trademarks |
|
$ |
1,213,850 |
|
|
$ |
471,524 |
|
|
$ |
742,326 |
|
Other intangible assets |
|
|
20,237 |
|
|
|
13,154 |
|
|
|
7,083 |
|
TOTAL INTANGIBLE ASSETS |
|
$ |
1,234,087 |
|
|
$ |
484,678 |
|
|
$ |
749,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2022 |
|
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Net |
|
Patents and trademarks |
|
$ |
1,213,850 |
|
|
$ |
395,715 |
|
|
$ |
818,135 |
|
Other intangible assets |
|
|
85,896 |
|
|
|
83,925 |
|
|
|
1,971 |
|
TOTAL INTANGIBLE ASSETS |
|
$ |
1,299,746 |
|
|
$ |
479,640 |
|
|
$ |
820,106 |
|
Other assets
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2023 |
|
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Net |
|
Deferred installation costs |
|
$ |
1,352,041 |
|
|
$ |
1,333,893 |
|
|
$ |
18,148 |
|
Deferred sales commission |
|
|
243,687 |
|
|
|
165,280 |
|
|
|
78,407 |
|
Prepaid license fee |
|
|
249,999 |
|
|
|
193,988 |
|
|
|
56,011 |
|
Security deposit |
|
|
46,124 |
|
|
|
— |
|
|
|
46,124 |
|
TOTAL OTHER ASSETS |
|
$ |
1,891,851 |
|
|
$ |
1,693,161 |
|
|
$ |
198,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2022 |
|
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Net |
|
Deferred installation costs |
|
$ |
1,352,041 |
|
|
$ |
1,318,580 |
|
|
$ |
33,461 |
|
Deferred sales commissions |
|
|
163,973 |
|
|
|
98,116 |
|
|
|
65,857 |
|
Prepaid license fee |
|
|
249,999 |
|
|
|
185,792 |
|
|
|
64,207 |
|
Security deposit |
|
|
46,124 |
|
|
|
— |
|
|
|
46,124 |
|
TOTAL OTHER ASSETS |
|
$ |
1,812,137 |
|
|
$ |
1,602,488 |
|
|
$ |
209,649 |
|
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – OTHER CURRENT
LIABILITIES
Other current
liabilities consist of the following:
|
|
|
June
30,
2023 |
|
|
|
December 31,
2022 |
|
Accrued interest |
|
$ |
14,225,278 |
|
|
$ |
12,933,611 |
|
Accrued interest, related parties |
|
|
391,278 |
|
|
|
337,027 |
|
Allowance for system removal |
|
|
54,802 |
|
|
|
54,802 |
|
Accrued paid time off |
|
|
131,612 |
|
|
|
154,776 |
|
Deferred officer compensation(1) |
|
|
139,041 |
|
|
|
139,041 |
|
Deferred revenue |
|
|
1,370,786 |
|
|
|
890,631 |
|
Other accrued liabilities |
|
|
539,755 |
|
|
|
43,389 |
|
TOTAL OTHER CURRENT LIABILITIES |
|
$ |
16,852,552 |
|
|
$ |
14,553,277 |
|
NOTE 9 – INCOME TAXES
Deferred
income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected
to reverse. We do not expect to pay any significant federal or state income tax for 2023 because of the losses recorded during
the six months ended June 30, 2023 and net operating loss carry forwards from prior years. In assessing the realizability of deferred
tax asset, including the net operating loss carryforwards (NOLs), the Company assesses the available positive and negative evidence
to estimate if sufficient future taxable income will be generated to utilize its existing deferred assets. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during the period when those temporary differences
become deductible. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more
likely than not” that some component or all the benefits of deferred tax assets will not be realized. As of June 30, 2023,
we maintained a full valuation allowance for all deferred tax assets. Based on these requirements, no provision or benefit for
income taxes has been recorded. There were no recorded unrecognized tax benefits at the end of the reporting period.
The Tax
Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017. Among its numerous changes to the Internal
Revenue Code, the Act reduces U.S. corporate rates from 35% to 21%. Additionally, the Act limits the use of net operating loss
carry backs, however any future net operating losses will instead be carried forward indefinitely. Net operating losses generated
from January 1, 2018 are limited to offset 80% of current income, with the remainder of the net operating loss continuing to carry
forward indefinitely. Net operating losses incurred before January 1, 2018 are not subject to the 80% limitations and will begin
to expire in 2029. Based on an initial assessment of the Act, the Company believes that the most significant impact on the Company’s
unaudited condensed consolidated financial statements will be limitations in tax deductions on interest expense. Under the Act,
interest deductions disallowed from current income will carryforward indefinitely. The Act did not impact management’s valuation
allowance position.
The effective
tax rate for the six months ended June 30, 2023 was different from the federal statutory rate due primarily to change in the valuation
allowance and nondeductible interest and amortization expense.
NOTE
10 – AGREEMENT WITH PDL BIOPHARMA, INC.
On June
26, 2015, we entered into a Credit Agreement (as subsequently amended) with PDL BioPharma, Inc. (“PDL”), as administrative
agent and lender (“the Lender”) (the “PDL Credit Agreement”). On May 15, 2019, pursuant to the terms of
the Fifth Amendment to the PDL Credit Agreement (see below for additional details), the interest increased to 15.5% per annum,
payable quarterly.
On January
31, 2021, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Third
Amendment to Modification Agreement (the “Twenty-Third Modification Agreement Amendment”), pursuant to which the parties
agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole
discretion, to terminate the Modification Period would be July 31, 2018 and January 31, 2021 (with each such date permitted to
be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be
due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March
31, 2020, June 30, 2020, September 30, 2020, and October 7, 2020 and (ii) payments for principal and for any other Obligations
then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement
on October 7, 2020, would each be deferred until May 31, 2021 (the end of the extended Modification Period) and that such deferrals
would be a Covered Event. The Company has evaluated the Twenty-Third Modification Agreement Amendment and as the effective borrowing
rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to
have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled
debt restructuring by debtors (TDR) under ASC 470-60.
On May 25,
2021, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Fourth
Amendment to Modification Agreement (the “Twenty-Fourth Modification Agreement Amendment”), pursuant to which the
parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s
sole discretion, to terminate the Modification Period would be July 31, 2018 and November 30, 2021 (with each such date permitted
to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise
be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019,
March 31, 2020, June 30, 2020, September 30, 2020, October 7, 2020, and (ii) payments for principal and for any other Obligations
then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement
on October 7, 2020, would each be deferred until November 30, 2021 (the end of the extended Modification) and that such deferrals
would be a Covered Event. The Company has evaluated the Twenty-Fourth Modification Agreement Amendment and as the effective borrowing
rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to
have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled
debt restructuring by debtors (TDR) under ASC 470-60.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On November
29, 2021, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Fifth
Amendment to Modification Agreement (the “Twenty-Fifth Modification Agreement Amendment”), pursuant to which the parties
agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole
discretion, to terminate the Modification Period would be July 31, 2018 and June 30, 2022 (with each such date permitted to be
extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due
under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31,
2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then
outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October
7, 2020, would each be deferred until June 30, 2022 (the end of the extended Modification) and that such deferrals would be a
covered event. The Company has evaluated the Twenty-Fifth Modification Agreement Amendment and as the effective borrowing rate
under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have
been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt
restructuring by debtors (TDR) under ASC 470-60.
On June
23, 2022, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Sixth
Amendment to Modification Agreement (the “Twenty-Sixth Modification Agreement Amendment”), pursuant to which the parties
agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole
discretion, to terminate the Modification Period would be July 31, 2018 and June 30, 2022 (with each such date permitted to be
extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due
under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31,
2020, June 30, 2020, September 30, 2020, October 7, 2020 and June 30, 2022 and (ii) payments for principal and for any other Obligations
then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement
on June 30, 2022, would each be deferred until December 31, 2022 (the end of the extended Modification) and that such deferrals
would be a covered event. The Company has evaluated the Twenty-Sixth Modification Agreement Amendment and as the effective borrowing
rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to
have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled
debt restructuring by debtors (TDR) under ASC 470-60.
On December
30, 2022, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Seventh
Amendment to Modification Agreement (the “Twenty-Seventh Modification Agreement Amendment”), pursuant to which the
parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s
sole discretion, to terminate the Modification Period would be July 31, 2018 and February 28, 2023 (with each such date permitted
to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise
be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019,
March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations
then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement
on October 7, 2020, would each be deferred until February 28, 2023 (the end of the extended Modification Period) and that such
deferrals would be a covered event. The Company has evaluated the Twenty-seventh Modification Agreement Amendment and as the effective
borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is
deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as
a troubled debt restructuring by debtors (TDR) under ASC 470-60.
On February
28, 2023, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Eighth
Amendment to Modification Agreement (the “Twenty-Eighth Modification Agreement Amendment”), pursuant to which the
parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s
sole discretion, to terminate the Modification Period would be July 31, 2018 and March 31, 2023 (with each such date permitted
to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise
be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019,
March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations
then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement
on October 7, 2020, would each be deferred until March 30, 2023 (the end of the extended Modification Period).
On March
31, 2023, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Ninth
Amendment to Modification Agreement (the “Twenty-Ninth Modification Agreement Amendment”), pursuant to which the parties
agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole
discretion, to terminate the Modification Period would be July 31, 2018 and April 30, 2023 (with each such date permitted to be
extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due
under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31,
2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then
outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October
7, 2020, would each be deferred until April 30, 2023 (the end of the extended Modification Period). Under debt modification/troubled
debt guidance, we determined that the first of the eight amendments had no cash flow impact, and therefore, had no impact on accounting.
Amendments nine through ten qualified for modification accounting, while the final nineteen amendments qualified for troubled
debt restructuring accounting. As appropriate, we expensed the legal costs paid to third parties. For the three months ended March
31, 2023 and 2022, pursuant to the terms of the PDL Modification Agreement, as amended, $802,125 and $775,000, respectively, was
recorded as interest expense on the accompanying unaudited condensed consolidated financial statements.
On April
29, 2023, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Thirtieth
Amendment to Modification Agreement (the “Thirtieth Modification Agreement Amendment”), pursuant to which the parties
agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole
discretion, to terminate the Modification Period would be July 31, 2018 and May 31, 2023 (with each such date permitted to be
extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due
under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31,
2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then
outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October
7, 2020, would each be deferred until May 31, 2023 (the end of the extended Modification Period).
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On May 31,
2023 (the “Effective Date”), the Company, the Borrower, the Lender, Steven G. Johnson, President and Chief Executive
Officer of the Company, and Dr. James R. Higgins, a director of the Company, entered into a Seventh Amendment to Credit Agreement
(the “Seventh Credit Agreement Amendment”), pursuant to which the parties agreed to amend the Credit Agreement to,
among other things, (i) provide that, after the Effective Date, all accrued but unpaid interest (including interest accrued but
unpaid prior to the Effective Date and excluding interest payable on the Maturity Date, in connection with any prepayment, or
in the event of an Event of Default, which interest will be payable in cash) accruing on Tranche One Loans and Tranche Three Loans
will be paid-in-kind on each Interest Payment Date by being added to the aggregate principal balance of the respective loans in
arrears on each Interest Payment Date; (ii) require certain mandatory prepayments of the loans by the Company, including (A) quarterly
prepayments in the amount, if any, that the Company’s Excess Cash Flow exceeds $600,000, (B) monthly transfers to the Inventory
Reserve Account in the amount, if any, the Company’s cash exceeds $1,200,000, (C) prepayment in the amount, if any, the
Company’s Inventory Reserve Account exceeds $600,000, and (D) prepayment in the amount, if any, of 100% of the gross proceeds
of any indebtedness incurred by the Company (other than permitted indebtedness); and (iii) extend the Maturity Date to December
31, 2024.
Accounting Treatment
In connection
with the PDL Credit Agreement, as amended, we issued the PDL Warrant to the Lender. As of June 30, 2023, the Amended PDL Warrant
has not been exercised.
Pursuant to the PDL Seventh Credit Agreement Amendment, calculations will be made for the “interest paid-in-kind” and
quarterly “prepayment(s)” effective for the month ended June 30, 2023. The Company concluded that the Company is encountering
financial hardship and that a concession was not granted. As the Lender has not granted a concession, the guidance contained in ASC 470-50
Modification and Extinguishment was applied. Given the present value of the cash flows under the Seventh Credit Agreement Amendment differed
by less than 10% from the present value of the remaining cash flows under the terms of the prior debt agreement, the debt was determined
to be not substantially different which resulted in modification accounting. The Company did not have any debt issuance costs, only legal
expenses.
NOTE
11 – AGREEMENT WITH HEALTHCOR
On April
20, 2021, we agreed with the HealthCor Parties to (i) amend the 2011 HealthCor Notes to extend the maturity date of the 2011 HealthCor
Notes from April 20, 2021 to April 20, 2022 by entering into Allonge No. 3 to the 2011 HealthCor Notes (the “Third 2011
Note Allonges”) and (ii) amend the 2012 HealthCor Notes to extend the maturity date of the 2012 HealthCor Notes from January
30, 2022 to April 20, 2022 by entering into Allonge No. 3 to the 2012 HealthCor Notes (the “Third 2012 Note Allonges”)
(such amendments to the 2011 HealthCor Notes and 2012 HealthCor Notes together, the “HealthCor Note Extensions”).
In connection with the HealthCor Note Extensions, we issued warrants to purchase an aggregate of 2,000,000 shares of our Common
Stock at an exercise price per share equal to $0.23 per share (subject to adjustment as described therein) and with an expiration
date of April 20, 2031, to the HealthCor Parties (collectively the “2021 HealthCor Warrants”). As a concession has
been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
Also on
April 20, 2021, in connection with the HealthCor Note Extensions and the issuance of the 2021 HealthCor Warrants, we entered into
a Consent and Agreement Pursuant to Note and Warrant Purchase Agreement (the “2021 NWPA Consent”) with the HealthCor
Parties and certain additional Existing Investors (in their capacity as Majority Holders acting together with the HealthCor Parties),
pursuant to which, among other things, (i) the Majority Holders consented to the HealthCor Note Extensions, (ii) the Majority
Holders consented to the issuance of the 2021 HealthCor Warrants and (iii) the parties agreed that the holders of the 2021 HealthCor
Warrants would have registration rights for the shares of Common Stock issuable upon exercise of the 2021 HealthCor Warrants under
the Registration Rights Agreement dated as of April 20, 2011, as amended June 30, 2015, by and among the Company, the HealthCor
Parties and the additional investors party thereto (the “Registration Rights Agreement”).
On March
08, 2022, we agreed with the HealthCor Parties to (i) amend the 2011 HealthCor Notes to extend the maturity date of the 2011 HealthCor
Notes from April 20, 2022 to April 20, 2023 by entering into Allonge No. 4 to the 2011 HealthCor Notes (the “Third 2011
Note Allonges”) and (ii) amend the 2012 HealthCor Notes to extend the maturity date of the 2012 HealthCor Notes from April
20, 2022 to April 20, 2023 by entering into Allonge No. 4 to the 2012 HealthCor Notes (the “Fourth 2012 Note Allonges”)
(such amendments to the 2011 HealthCor Notes and 2012 HealthCor Notes together, the “HealthCor Note Extensions”).
In connection with the HealthCor Note Extensions, we issued warrants to purchase an aggregate of 3,000,000 shares of our Common
Stock at an exercise price per share equal to $0.09 per share (subject to adjustment as described therein) and with an expiration
date of March 08, 2032, to the HealthCor Parties (collectively the “2021 HealthCor Warrants”). The warrants were valued
at $240,000 and are amortized over the life of the debt. The conclusion was that this was a debt modification and this was accounted
for as such.
Also on
March 08, 2022, in connection with the HealthCor Note Extensions and the issuance of the 2021 HealthCor Warrants, we entered into
a Consent and Agreement Pursuant to Note and Warrant Purchase Agreement (the “2022 NWPA Consent”) with the HealthCor
Parties and certain additional Existing Investors (in their capacity as Majority Holders acting together with the HealthCor Parties),
pursuant to which, among other things, (i) the Majority Holders consented to the HealthCor Note Extensions, (ii) the Majority
Holders consented to the issuance of the 2021 HealthCor Warrants and (iii) the parties agreed that the holders of the 2021 HealthCor
Warrants would have registration rights for the shares of Common Stock issuable upon exercise of the 2021 HealthCor Warrants under
the Registration Rights Agreement dated as of April 20, 2011, as amended June 30, 2015, by and among the Company, the HealthCor
Parties and the additional investors party thereto (the “Registration Rights Agreement”).
On July
1, 2022, we entered into amendments to the 2014 HealthCor Notes, 2015 Supplemental Notes, Eighth Amendment Supplemental Closing
Notes, Tenth Amendment Supplemental Closing Notes, Twelfth Amendment Supplemental Closing Note and Thirteenth Amendment Supplemental
Closing Note (collectively, the “2022 Allonges”) to suspend the accrual of interest on the 2014 HealthCor Notes as
to 100% of the outstanding principal amount under such notes, 2015 Supplemental Notes as to 100% of the outstanding principal
amount under such notes, Eighth Amendment Supplemental Closing Notes as to 100% of the outstanding principal amount under such
notes, Tenth Amendment Supplemental Closing Notes as to 100% of the outstanding principal amount under such notes, Twelfth Amendment
Supplemental Closing Note as to 100% of the outstanding principal amount under such note, and Thirteenth Amendment Supplemental
Closing Note as to 100% of the outstanding principal amount under such note, for all periods beginning on and after January 1,
2022. This was determined to be a Troubled Debt Restructure and is accounted for accordingly.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Also on
December 30, 2022, the Existing Investors agreed to the cancellation by the Company and the forfeiting of their respective rights
in and to the 2011 Warrants, 2014 Supplemental Warrants, Fifth Amendment Supplemental Warrants, Sixth Amendment Supplemental Warrants,
Eighth Amendment Supplemental Warrants, 2021 Warrants and 2022 Warrants (collectively, the “Warrants”); and the Existing
Investors have agreed to waive any and all interest that has accrued, but remains unpaid on the Existing Notes held by the Existing
Investors; in exchange for releasing its second senior secured position they hold in connection with the 2011 Notes and 2012 Notes.
The Existing Investors have agreed to waive any and all interest that has accrued, but remains unpaid on the Existing Notes held
by the Existing Investors with the 2014 Notes along with the 2015 Notes, 2018 Notes, 2019 Note and 2020 Note. In exchange for
releasing its second senior secured position they hold in connection with the 2011 Notes and 2012 Notes, the HealthCor Parties
will receive an additional $5,000,000 in value in the Replacement Notes. In this troubled debt restructuring, all the conversion
rates were changed to $0.10. The gain from this troubled debt restructuring was $1,489,357.
On March
30, 2023, HealthCor noteholders owning an aggregate of $36,000,000 Replacement Notes, entered into a Replacement Note Conversion
Agreement, wherein half, fifty percent, of the HealthCor Replacement Notes were converted into shares of the Company’s common
stock at a conversion price of $0.10 per share, resulting in the issuance of an aggregate of 180,000,000 shares. The other related
and non-related parties Replacement Notes of $8,200,000 were likewise converted into shares of the Company’s common stock
at a conversion price of $0.10 per share, resulting in the issuance of a combined total aggregate of 262,000,000 shares (the “Conversion
Shares”). The shares bear a lockup legend that expires December 31, 2023.
On May 24,
2023, HealthCor noteholders owning an aggregate of $18,000,000 Replacement Notes, presented Conversion Notices, pursuant to the
terms of the Replacement Note, for the conversion of the Replacement Notes into 180,000,000 shares of the Company’s common
stock at a conversion price of $0.10 per share. The shares bear a lockup legend that expires December 31, 2023.
Accounting
Treatment
When issuing
debt or equity securities convertible into common stock at a discount to the fair value of the common stock at the date the debt
or equity financing is committed, a company is required to record a beneficial conversion feature (“BCF”) charge.
We had three separate issuances of equity securities convertible into common stock that qualify under this accounting treatment,
(i) the 2011 HealthCor Notes, (ii) the 2012 HealthCor Notes and (iii) the 2014 HealthCor Notes. Because the conversion option
and the 2011 HealthCor Warrants on the 2011 HealthCor Notes were originally classified as a liability when issued due to the down
round provision and the removal of the provision requiring liability treatment, and subsequently reclassified to equity on December
31, 2011 when the 2011 HealthCor Notes were amended, only the accrued interest capitalized as payment in kind (‘‘PIK’’)
since reclassification qualifies under this accounting treatment. We recorded an aggregate of $0 and $1,406,760 in interest for
the six months ended June 30, 2023 and 2022, respectively, related to these transactions. For the six months ended June 30, 2023
and 2022, we recorded $0 and $860,728, respectively, of PIK related to the notes included in the HealthCor Purchase Agreement.
Under the accounting standards, we determined that the restructuring of the HealthCor notes, pursuant to the terms of the Ninth
Amendment, resulted in a troubled debt restructuring.
Warrants
were issued with the Fourth, Fifth, Eighth, Ninth, and Allonge 3 Amendment Notes and the proceeds were allocated to the instruments
based on relative fair value as the warrants did not contain any features requiring liability treatment and therefore were classified
as equity. At each amendment date, the warrants were recorded as debt discount, as a reduction of the net carrying amount of the
debt. The debt discounts are amortized into interest expense each period under the effective interest method. The value allocated
to the Ninth Amendment Warrants was $378,000. The value allocated to the Allonge 3 Amendment Warrants was $420,000.
Warrants
were issued with Allonge 4 Amendment Notes and the proceeds were allocated to the instruments based on relative fair value as
the warrants did not contain any features requiring liability treatment and therefore were classified as equity. At each amendment
date, the warrants were recorded as debt discount, as a reduction of the net carrying amount of the debt. The debt discounts are
amortized into interest expense each period under the effective interest method. The value allocated to the Allonge 4 Amendment
Warrants was $240,000.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – JOINT VENTURE
AGREEMENT
On December
31, 2019, the Company and Rockwell entered into a Second Amendment to the Rockwell Note (the “Second Rockwell Note Amendment”)
pursuant to which Rockwell agreed to extend the term of the Rockwell Note by one year, to December 31, 2020, and agreed to extend
the time to make the quarterly payment that would otherwise be due on December 31, 2019 to January 31, 2020. We have evaluated
the Second Amendment to the Rockwell Note under ASC 470 and determined that the amendment should be treated as a debt modification.
On January
31, 2020, the Company and Rockwell entered into a Third Amendment to the Rockwell Note (the “Third Rockwell Note Amendment”),
pursuant to which Rockwell agreed to extend the time to make the quarterly payment that would otherwise be due on January 31,
2020 (per the Second Rockwell Note Amendment) to February 10, 2020. We have evaluated the Third Amendment to the Rockwell Note
under ASC 470 and determined that the amendment should be treated as a debt modification.
Effective
as of March 31, 2020, the Company and Rockwell entered into a Fourth Amendment to the Rockwell Note (the “Fourth Rockwell
Note Amendment”), pursuant to which Rockwell agreed to extend the time to make the quarterly payment that would otherwise
be due on March 31, 2020 to April 16, 2020. We have evaluated the Fourth Amendment to the Rockwell Note under ASC 470 and determined
that the amendment should be treated as a debt modification.
On December
31, 2020, the Company and Rockwell entered a Fifth Amendment to the Rockwell Note (the “Fifth Rockwell Note Amendment”),
pursuant to which Rockwell agreed (i) to extend the term of the Promissory Note by one (1) year and continue the quarterly principal
payments through September 30, 2021 with the final balloon payment due on December 31, 2021 and (ii) that the quarterly principal
payment that would otherwise be due on December 31, 2020 will not be required to be made until the final balloon payment due date.
We have evaluated the Fourth Amendment to the Rockwell Note under ASC 470 and determined that the amendment should be treated
as a debt modification.
On November
30, 2021, the Company and Rockwell entered into a Sixth Amendment to the Rockwell Note (the “Sixth Rockwell Note Amendment”),
pursuant to which Rockwell agreed to extend the term of the Rockwell Note by three months, to March 31, 2022, and agreed that
the quarterly principal payment that would otherwise be due on December 31, 2021 will not be required to be made until March 31,
2022.
As of March
31, 2022, the Rockwell Note was paid off.
NOTE 13 – LEASE
Under ASC Topic 842, Leases (“ASC
842”), operating lease expense is generally recognized evenly over the term of the lease. The Company has an operating lease
primarily consisting of office space with remaining lease term of 38 months (Lease through August 31, 2025).
On September 8, 2009, we entered
into a Commercial Lease Agreement (the “Lease”) for 10,578 square feet of office and warehouse space expiring
on June 30, 2015. On March 4, 2020, we entered into the Fourth Amendment to Commercial Lease Agreement (the “Lease
Extension”), wherein we extended the Lease through August 31, 2025.
The Company has further concluded
that the Lease Extension has no effects on the classification of the Lease. Rent expense for the six months ended June 30, 2023
and 2022 was $147,894 and $154,202, respectively.
Undiscounted Cash Flows
Future lease payments included
in the measurement of operating lease liability on the condensed consolidated balance sheet as of June 30, 2023, for the following
five fiscal years and thereafter as follows:
Quarter endingJune 30, 2023 |
|
Operating
Leases |
|
Remaining 2023 |
|
$ |
108,901 |
|
2024 |
|
|
221,070 |
|
2025 |
|
|
150,679 |
|
Total minimum lease payments |
|
|
480,650 |
|
Less effects of discounting |
|
|
(72,223 |
) |
Present value of future minimum lease
payments |
|
$ |
408,427 |
|
NOTE 14 – SUBSEQUENT
EVENTS
The Company
has evaluated subsequent events through August 14, 2023, the date of filing of this Form 10-Q.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
General
The
following discussion and analysis provide information which our management believes to be relevant to an assessment and understanding
of our results of operations and financial condition. This discussion should be read together with our financial statements and
the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q (the “Report”). This
information should also be read in conjunction with the information contained in our Form 10-K filed with the Securities and Exchange
Commission (the “SEC”) filed on August 14, 2023. The reported results will not necessarily reflect future results
of operations or financial condition.
Throughout
this Quarterly Report on Form 10-Q (the “Report”), the terms “we,” “us,” “our,”
“CareView,” or “Company” refers to CareView Communications, Inc., a Nevada corporation, and unless otherwise
specified, includes our wholly owned subsidiaries, CareView Communications, Inc., a Texas corporation (“CareView-TX”)
and CareView Operations, LLC, a Nevada limited liability company (“CareView Operations”) (collectively known as the
“Company’s Subsidiaries”).
We
maintain a website at www.care-view.com and our Common Stock trades on the OTCQB under the symbol “CRVW.’’
Company Overview and Recent
Developments
For
over a decade, CareView has been dedicated to supporting hospital care teams with its innovative virtual care solutions. The Company
has established successful partnerships with over 200 hospitals nationwide, implementing effective inpatient virtual care strategies
that greatly enhance patient safety and overcome critical staffing challenges. The CareView platform, fueled by industry-leading
predictive technology and supported by its purpose-built hardware, specifically addresses the unique requirements of virtual nursing
and virtual sitting use cases. The CareView team works closely with their hospital partners to understand their evolving needs
and deliver tailored virtual care strategies that align with their objectives. By providing healthcare professionals with the
tools they need to deliver exceptional care, CareView contributes to improved patient outcomes and a more sustainable healthcare
ecosystem.
Software:
The CareView Platform
The
CareView platform comprises two essential components: the Patient Safety System® and the Patient Care System. These systems
work in harmony to deliver unparalleled patient safety and exceptional virtual nursing care. The Patient Safety System is purposefully
designed to optimize virtual sitting outcomes. Leveraging our patented predictive technology, including Virtual Bed Rails®
and Virtual Chair Rails®, it ensures continuous monitoring of 25-35 patients from a centralized location. By utilizing these
innovative tools, we enhance patient safety while reducing sitter costs across the nation. The Patient Care System revolutionizes
virtual nursing by harnessing our clinically-designed technology. By reallocating professional nursing and administrative tasks
to virtual Registered Nurses (vRNs), it alleviates the bedside workload and enables virtual engagement with patients and their
families. This transformational approach allows for personalized care and improved patient experiences.
The
CareView platform seamlessly integrates with CareView's in-room cameras, 3rd party technology integrations, and clinical workflows,
empowering hospitals to implement their virtual care strategies effortlessly. The CareView platform includes a real-time analytics
dashboard and a range of reporting tools, providing valuable insights and data to optimize patient care delivery. CareView also
understands the importance of system management and maintenance. The CareView team is dedicated to providing exceptional support,
monitoring, and maintenance services for the platform and hardware, ensuring optimal performance and peace of mind for our valued
partners.
CareView
prioritizes the privacy and security of our customers' confidential data and information systems. The Company has implemented
comprehensive measures to provide robust protection, as evidenced by their privacy and information security assessment certifications.
Since 2017, CareView has been HITRUST certified, an internationally recognized standard that ensures the implementation of adequate
and proportionate security controls. This certification validates their commitment to safeguarding customers' information and
intellectual property assets. With HITRUST certification, customers can trust that CareView adheres to stringent information security
policies. To handle sensitive information securely, CareView leverages a FIPS 140-2 validated cryptographic module certificate
#3998. This certificate demonstrates compliance with the Federal Information Processing Standard (FIPS) 140-2 Level 1, providing
a high level of confidence in their encryption practices. Importantly, this validation is achieved without the need for additional
hardware, ensuring a streamlined and efficient security infrastructure. CareView is fully compliant with the Health Insurance
Portability and Accountability Act (HIPAA). Their commitment to HIPAA standards ensures that sensitive information is safeguarded
at all times. With CareView's additional HIPAA-compliant features, customers have the power to control their privacy settings.
A patient, nurse, or physician, can enable privacy options whenever needed.
In
October 2022, CareView received Innovative Technology Designation after the Innovative Technology Exchange in Dallas, Texas. Every
year, healthcare experts serving on the member-led councils of Vizient, Inc., (“Vizient”), the nation’s largest
healthcare performance improvement company, review select products and technologies for their potential to enhance clinical care,
patient safety, healthcare worker safety or to improve business operations of healthcare organizations. Vizient’s diverse
membership and customer base includes academic medical centers, pediatric facilities, community hospitals, integrated health delivery
networks, and non-acute health care providers, and represents more than $130 billion in annual purchase volume. Technology designations
are awarded to previously contracted products to signal to healthcare providers the impact of these innovations on patient care
and business models of healthcare organizations.
Hardware:
In-room Cameras
CareView
takes pride in their meticulously designed and engineered hardware that seamlessly integrates with the CareView platform, elevating
the virtual care experience for their esteemed hospital partners and their patients. To cater to various patient care scenarios,
CareView offers a range of in-room cameras, each carefully crafted to handle different care situations while ensuring optimal
monitoring capabilities. All of the CareView cameras are equipped with low-light/night vision cameras, pan tilt zoom and high-fidelity
2-way audio for effective communication. For virtual sitting use cases, the CareView cameras use machine learning to differentiate
between normal patient movements and behaviors of a patient at risk. This technology results in less false alarms, faster staff
intervention, and a significant reduction in patient falls.
The
CareView cameras are available in multiple configurations for permanent or temporary situations; the Mobile, Portable, and Fixed
Controller. For virtual care situations that demand that the camera come to the patient, the Mobile Controller on wheels comes
with an uninterrupted external power supply for situations where power may not be readily available and can operate on the facility’s
wireless network. For monitoring patients within a general care unit, the Portable Controller can be easily removed from mounts
and moved where the workflow dictates, making this application perfect for general use. For high-risk patient rooms where behavior
and self-harm may be a factor, or where a patient must be continuously monitored, the Fixed Controller can be installed seamlessly
in the ceiling tiles leaving no exposed wiring making it ligature resistant.
CareView
System Products and Services Agreement with Healthcare Facilities
CareView’s
subscription-based model is offered to healthcare facilities through a Products and Services Agreement (the “P&S Agreement(s)”).
During the term of the P&S Agreement, we provide continuous monitoring of the CareView System products and services deployed
to a healthcare facility and maintain and service all equipment installed by us. Under the subscription-based model, terms of
each P&S Agreement require the healthcare facility to pay us a monthly fee based on the number of selected, installed, and
activated services. None of the services provided through the Primary Package are paid or reimbursed by any third-party provider
including insurance companies, Medicare, or Medicaid. We also enter into corporate-wide agreements with healthcare companies (the
“Master Agreement(s)”), wherein the healthcare companies enter into individual facility level agreements that are
substantially like our P&S Agreements.
Master
Agreements and P&S Agreements are currently negotiated for a period of three years with a provision for automatic renewal.
P&S Agreements specific to pilot programs (“P&S Pilot Agreements”) contain pricing terms substantially like
P&S Agreements, are generally three or six-months in length and can be extended on a month-to-month basis as required. Regarding
the subscription-based model, we own all rights, title, and interest in and to the equipment we install at each location and agree
to maintain and repair it; although, we may charge for repairs or replacements due to damage or misuse. We are not responsible
for maintaining data arising from use of the CareView System or for transmission errors, corruption or compromise of data carried
over local or interchange telecommunication carriers. We grant each healthcare facility a limited, revocable, non-transferable,
and nonexclusive license to use the software, network facilities, content, and documentation on and in the CareView System to
the extent, and only to the extent, necessary to access, explore and otherwise use the CareView System in real time. Such non-exclusive
license expires upon termination of the P&S Agreement.
We
use specific terminology to better define and track the staging and billing of the individual components of the CareView System.
The CareView System includes three components which are separately billed; the CareView Controller (previously known as RCP),
the CareView SitterView Monitor, and the CareView Application Server (each component referred to as a “unit”). The
term “bed” refers to each healthcare facility bed as part of the overall potential volume that a healthcare facility
represents. For example, if a healthcare facility has 200 beds, the aggregate of those beds is the overall potential volume of
that healthcare facility. The term “bed” is often used interchangeably with “CareView Controller” as this
component of the CareView System consistently resides within each room where the “bed” is located. On average, there
are six SitterView Monitors for each 100 beds. The term “deployed” means that the units have been delivered to the
healthcare facility but have not yet been installed at their respective locations within the facility. The term “installed”
means that the units have been mounted and are operational. The term “billable” refers to the aggregate of all units
on which we charge fees. Units become billable once they are installed and the required personnel have been trained in their use.
Units are only deployed upon the execution of a P&S Agreement or P&S Pilot Agreement.
CareView
System Sales-Based Model
CareView’s
sales-based model commenced with the introduction of our updated technology. CareView has also aligned its contracting model to
meet the preferred acquisition model in the hospital industry. CareView now sells its proprietary equipment to facilities in lieu
of lending the equipment as defined under the subscription-based model. In doing so, the facility is billed for the hardware on
acceptance of the contract. After CareView’s equipment is delivered to the facility, CareView begins the process of installing
and securely integrating the equipment and software. Upon completion of installation, training, and “go-live”; referring
to all systems in full operation, CareView bills the facility for the installation, training, and an annual software license fee.
CareView will continue to bill the facility an annual software license fee until the end of the contract. The shift to the sales-based
model has an immediate impact on our operations resulting in greater cash flow within 30 days of contract signing.
CareView
continues its dedication to provide service and support on a 24x7x365 basis for every customer under every contract.
CareView
Connect
Our
mission is to be the leading provider of resident monitoring products and services for the long-term care industry. We took what
we learned in our medical facility business and applied it to developing a product to serve the long-term care market. With CareView
Connect Quality of Life® System (“CareView Connect”), CareView has again positioned itself as a technology leader
with its innovative suite of products specifically designed for all aspects of the long-term care market, including Nursing Care,
Home Care, Assisted Living and Independent Living.
With
this mission in mind, in the second quarter of 2018, the Company introduced a new sensor product with application in both the
assisted living center market and the home health market. CareView Connect leverages both passive and active sensors to track
the activities of daily life. CareView Connect provides peace of mind by using data from the resident’s activity, existing
conditions, and environment to notify a caregiver of potential emergencies and identify the need for dignified support. CareView
Connect consists of a small emergency assist button, two motion sensors, one sleep sensor, and one event sensor. Resident activity
levels, medication administration, sleep patterns, and requests for assistance can all be monitored depending on which options
are selected.
The
skilled nursing home market consists of approximately 2,000,000 beds, which is double the size of the current hospital/healthcare
facility bed market. The assisted living center market is even larger at approximately 3,000,000 beds. Our products flow naturally
into the nursing home space as it is substantially the same setting as hospital rooms.
CareView
Connect is a platform consisting of several products and applications targeted at improving the level of care and efficiency.
CareView built a cohesive and tightly integrated solution that solves several problems that long-term care facilities face. We
offer an array of wearable and stationary buttons that allow a resident to summon help either for an emergency or assistance,
which can be anything from toileting help to assistance putting on their shoes. We offer a mobile app capable of delivering an
alert to the caregiver and allows them to document information around that alert, how long before the alert was handled and, what
was the cause of the alert, and if it was not acknowledged in a timely manner then the alert is escalated to another individual
or group. This ensures that every alert is responded to in a timely manner and is verifiable.
Alert
Management and Monitoring System
CareView
Connect provides a suite of hardware and software that facilitate a data-driven solution for alert management and monitoring.
CareView Connect’s solution provides additional context, including location of the resident, which improves response time
by the staff. The alert system includes a documentation platform that allows the facility’s staff to classify the reason
for alerts and provides metrics around response time. CareView Connect’s solution involves several passive sensors that
monitor the resident.
Caregiver
Platform
The
caregiver platform includes a “Leave of Absence” component, which allows the facility to document when the resident
is outside of their room for a duration of time. This information is incorporated with known data from the workflows and sensors
to improve awareness. The Caregiver Connect mobile application provides a convenient and intuitive interface to the CareView Connect
platform. The caregiver can use the mobile app to capture important information and interface with critical workflows, such as
acknowledging and documenting alert presses by the resident. CareView Connect also provides a product focused on capturing and
measuring the mental state and pain experienced by the resident. “How are you feeling today?” provides a convenient
way to capture information about the mental state of the resident using emojis. Similarly, “What is your pain today?”
allows the staff to categorize and document pain. Connect Resident is a tablet application intended for the resident’s direct
use. This product currently supports video conferencing with a remote caregiver, becoming a communications conduit for telehealth.
Connect Resident also supports “How are you feeling today?”, which allows the resident to submit this information
directly.
Quality
of Life Metrics
CareView
developed its own algorithm for measuring quality of life based on “best of breed” research and leveraging the data
collected by the platform. CareView Connect’s Quality of Life Metrics focuses on several categories, including Physical
Activity, Bodily Pain, General Health, Vitality, Social Interaction, Mental Health, and Sleep Quality. Leveraging this data, the
facility and their staff have improved visibility into the health and well-being of their residents. By applying machine learning
and predictive analytics, subtle patterns and trends that may not otherwise be visible become actionable. The facility can use
this information to present a more compassionate and capable level of care, differentiating the facility from their competition.
The Quality-of-Life Metrics information can be made available to the family and loved ones, opening a new channel of remote awareness
and care. Because the information is collected automatically, the family gains awareness on issues of which their loved ones may
normally be unaware. The Connect Family mobile application allows family members to monitor their loved one and receive alerts
and notifications based on their preferences.
Pricing Structure and Revenue
Streams
The
CareView Connect suite of products and services offers multiple pricing models. We work with each facility on pricing to offer
an affordable package based on the demographics of the residents of the facility. The pricing structure with each facility is
negotiated separately. Typically, we offer the CareView Connect basic package at a price per monitored room with varying price
structures based on number of sensors and number of residents in each facility.
Purchasing
Agreement with Decisive Point Consulting Group, LLC
On
February 2, 2021, we partnered with Decisive Point Consulting Group, a Department of Veterans Affairs Contractor Verification
Enterprise (CVE) and a Verified Service-Disabled Veteran Owned Small Business (SDVOSB), to expand our reach within the VA hospitals
and Community Living Centers space. Our partnership reflects our desire to collaborate with companies that share our vision of
patient safety. We continue to use this partnership to contract with VA hospitals and their Community Living Centers (“CLC”).
Indefinite
Delivery Indefinite Quality (IDIQ) Contract
On
September 10, 2021, the Company entered an Indefinite Delivery Indefinite Quality (IDIQ) contract for Telecare Services with Shore
Systems and Solutions, LLC (S3). The award provides S3 with a path to providing the CareView System to veterans and their families
receiving care at the 1,293 Veterans Health Administration (“VHA”) facilities across the United States and Territories.
General
Service Administration Multiple Award Schedule
Pursuant
to the terms of the Company’s General Service Administration (“GSA”) Multiple Award Schedule contract (“MAS”),
the MAS allows us to sell the CareView System at a negotiated rate to the approximate 169 United States Department of Veterans
Affairs (“VA”) facilities with over 39,000 licensed beds and the approximate 42 DOD hospitals with over 2,600 licensed
beds. The sales-based model was added to the MAS, which allows us to sell the proprietary hardware and license the software on
an annualized basis. The MAS is one of the most widely accepted government contract vehicles available to agency procurement officers.
GSA’s application process requires potential vendors to be recognized as highly credible and well established. CareView
is the sole source provider. Our products and services represent an enormous opportunity to improve the health and safety of our
Nation’s veterans.
Group
Purchasing Agreement with HealthTrust Purchasing Group, LP
On
December 14, 2016, the Company entered a Group Purchasing Agreement with HealthTrust Purchasing Group, L.P. (“HealthTrust”)
(the “HealthTrust GPO Agreement”), the Nation’s only committed-model Group Purchasing Organization (“GPO”)
headquartered in Nashville, Tennessee. HealthTrust serves approximately 1,600 acute care facilities and members in more than 26,000
other locations, including ambulatory surgery centers, physician practices, long-term care, and alternate care sites. The agreement
was effective on January 1, 2017 and all CareView System components and modules are available for purchase by HealthTrust’s
exclusive membership. HealthTrust members may order CareView’s products and services included in the agreement directly
from CareView.
On
October 1, 2018, the Company added CareView Connect to the HealthTrust GPO Agreement.
On
November 1, 2020, the sales-based contract model was added to the HealthTrust GPO Agreement which allows us to sell the proprietary
hardware and license the software on an annualized basis. On December 1, 2021, the HealthTrust GPO Agreement was renewed for another
3-year term. We continue to work with HealthTrust and their members to expand contracts.
Group Purchasing
Agreement with Premier, Inc.
On
June 8, 2022 the Company entered a Group Purchasing Agreement with Premier, Inc. (“Premier”), headquartered in Charlotte,
N.C. Premier is a leading healthcare improvement company, uniting an alliance of more than 4,400 U.S. hospitals and health systems
and approximately 225,000 other providers and organizations to transform healthcare. The agreement was effective on June 15, 2022
and all Gen 5 CareView System components and modules are available for purchase by Premier’s exclusive membership. Premier
members may order CareView’s products and services included in the agreement directly from CareView. We are continuing to
work with Premier on new contracts.
Group Purchasing
Agreement with Vizient
On
February 15, 2023 the Company entered a Group Purchasing Agreement with Vizient, headquartered in Irving, TX. Vizient, the nation’s
largest health care performance improvement company, has a diverse membership and customer base, including academic medical centers,
pediatric facilities, community hospitals, integrated health delivery networks, and non-acute health care providers, and represents
more than $130 billion in annual purchasing volume. The multi-year agreement allows Vizient members the opportunity to benefit
from pre-negotiated pricing for CareView products. The agreement was effective on February 15, 2023 and all Gen 5 CareView System
components and modules are available for purchase by Vizients’s exclusive membership. Vizient members may order CareView’s
products and services included in the agreement directly from CareView. We are continuing to work with Vizient on new contracts.
Summary
of Product and Service Usage
Our
contracts typically include multiple combinations of our products, software solutions, and related services with multiple payment
options. Customers can continue to lease our equipment under our subscription model or can purchase our equipment upfront under
our sales-based contract model with an auto-renewal at the end of each contract period. The new sales-based contract offers our
customers the flexibility of capitalizing on their investment, which in turn, replenishes our cash reserves. For the years ended
December 31, 2022, and 2021, the Company executed sales-based contracts in approximate aggregated amounts of $4,309,000 and $5,600,000.
Results of Operations
Three months ended June 30,
2023, compared to three months ended June 30, 2022
|
|
Three
months ended
June
30, |
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
|
|
(000
’s) |
|
|
Revenue |
|
$ |
3,710 |
|
|
$ |
1,697 |
|
|
$ |
2,013 |
|
|
Operating expenses |
|
|
2,890 |
|
|
|
2,230 |
|
|
|
660 |
|
|
Operating income |
|
|
820 |
|
|
|
(533 |
) |
|
|
1,353 |
|
|
Other, net |
|
|
(864 |
) |
|
|
(1,969 |
) |
|
|
(1,105 |
) |
|
Net loss |
|
$ |
(44 |
) |
|
$ |
(2,502 |
) |
|
$ |
(2,458 |
) |
|
Revenue
Revenue
increased approximately $2,013,000 for the three months ended June 30, 2023, as compared to the same period in 2022. The
increase was attributable to recognizing hardware order fulfillment of two major new customers.
Operating Expenses
Our
principal operating costs include the following items as a percentage of total operating expense.
| |
Three Months Ended June 30, | |
| |
2023 | | |
2022 | |
Human resource costs, including benefits and non-cash compensation | |
| 51 | % | |
| 57 | % |
Professional and consulting costs | |
| 9 | % | |
| 12 | % |
Depreciation and amortization | |
| 3 | % | |
| 7 | % |
Other product deployment costs, excluding human resources and travel and entertainment costs | |
| 10 | % | |
| 1 | % |
Travel and entertainment expense | |
| 3 | % | |
| 0 | % |
Other expenses | |
| 24 | % | |
| 23 | % |
Operating
expenses increased by a net 29.6% because of the following items:
| |
| (000’s) | |
Human resource costs, including benefits and non-cash compensation | |
$ | 193 | |
Depreciation and amortization | |
| (47 | ) |
Other product deployment costs, excluding human resources and travel and entertainment expense | |
| 269 | |
Professional and consulting costs | |
| (20 | ) |
Travel and entertainment expense | |
| 155 | |
Other expenses | |
| 110 | |
| |
$ | 660 | |
Human
resource related costs (including salaries and benefits and non-cash compensation) increased approximately $193,000 due to higher
payroll costs of professional staff, commissions and PTO paid out during the three months ended June 30, 2023 as compared to the
three months ended June 30, 2022. Product deployment costs increased approximately $269,000 due to increase in cost of sales of
hardware and associated installation, training and go-live. Travel and entertainment costs increased approximately $155,000 due
to 2022 second quarter year to date correction of $150,340 credit card charges incorrectly booked to corporate transportation
costs. For the comparable periods, other expenses increased approximately $110,000, primarily as a result of public entity costs,
advertising and marketing, and warehouse supplies.
Other,
net
Other
non-operating income and expense decreased by approximately $1,105,000, or 56%, for the three months ended June 30, 2023 in comparison
to the same period in 2022, primarily because of the cancellation of all Non-PDL, related and non-related parties’ interest
expense and warrants in consideration for the debt to equity conversion.
Net Loss
As
a result of the factors above, our second quarter 2023 net loss of approximately $45,000 decreased approximately $2,457,000, or
98%, as compared to approximately $2,502,000 net loss for the second quarter of 2022.
Six months ended June 30,
2023, compared to six months ended June 30, 2022
| |
Six months ended June 30, | | |
| |
| |
2023 | | |
2022 | | |
Change | |
| |
(000’s) | |
Revenue | |
$ | 5,492 | | |
$ | 4,016 | | |
$ | 1,476 | |
Operating expenses | |
| 5,189 | | |
| 4, 872 | | |
| 317 | |
Operating income | |
| 303 | | |
| (856 | ) | |
| 1,159 | |
Other, net | |
| (1,694 | ) | |
| (3,990 | ) | |
| (2,296 | ) |
Net loss | |
$ | (1,391 | ) | |
$ | (4,846 | ) | |
$ | (3,455 | ) |
Revenue
Revenue
increased approximately $1,476,000 for the six months ended June 30, 2023, as compared to the same period in 2022. The increase
was attributable to recognizing hardware order fulfillment of two major new customers.
Other,
net decreased approximately $2,295,000 for the six months ended June 30, 2023, as compared to the same period in 2022. The decrease
was attributable to the cancellation of all non-PDL, related and non-related parties’ interest expense and warrants in consideration
for the debt to equity conversion.
Operating
Expenses
Our
principal operating costs include the following items as a percentage of total operating expense.
| |
Six Months Ended June 30, | |
| |
2023 | | |
2022 | |
Human resource costs, including benefits and non-cash compensation | |
| 55 | % | |
| 55 | % |
Professional and consulting costs | |
| 10 | % | |
| 11 | % |
Depreciation and amortization | |
| 5 | % | |
| 6 | % |
Other product deployment costs, excluding human resources and travel and
entertainment costs | |
| 7 | % | |
| 5 | % |
Travel and entertainment expense | |
| 3 | % | |
| 3 | % |
Other expenses | |
| 20 | % | |
| 20 | % |
Operating
expenses increased by a net 6.5% of approximately $317,000. The increase was attributable to other product deployment costs of
hardware sales and associated installation, training and go-live as well as Human resource cost of sales commissions being higher
than the comparable period.
Net Loss
Year-To-date
2023 net loss of approximately $1,392,000 decreased approximately $3,455,000 or 71%, as compared to approximately $4,847,000 net
loss for the comparable six months of 2022.
Liquidity and Capital Resources
Accounting
standards require management to evaluate whether the Company can continue as a going concern for a period of one year after the
date of the filing of this Form 10-Q (“evaluation period”). In evaluating the Company’s ability to continue
as a going concern, management considers the conditions and events that raise substantial doubt about the Company’s ability
to continue as a going concern for a period of twelve months after the Company issues its financial statements. For the period
ended June 30, 2023, management considers the Company’s current financial condition and liquidity sources, including current
funds available, forecasted future cash flows, and the Company’s conditional and unconditional obligations due before August
14, 2024.
The
Company is subject to risks like those of healthcare technology companies whereby revenues are generated based on both on a sales-based
and subscription-based business model such as dependence on key individuals, uncertainty of product development, generation of
revenues, positive cash flow, dependence on outside sources of capital, risks associated with research, development, and successful
testing of its products, successful protection of intellectual property, ability to maintain and grow its customer base, and susceptibility
to infringement on the proprietary rights of others. The attainment of profitable operations is dependent on future events, including
obtaining adequate financing to fulfill the Company’s growth and operating activities and generating a level of revenues
adequate to support the Company’s cost structure.
The
Company has experienced net losses and significant cash outflows from cash used in operating activities over the past years. As
of and for the three months ended June 30, 2023, the Company had an accumulated deficit of $205,324,284, income from operations
of $819,687, net cash provided by operating activities of $1,585,116, and an ending cash balance of $707,345.
As
of June 30, 2023, the Company had a working capital deficit of $35,257,400 consisting primarily of PDL notes payables including
accrued interest. Management has evaluated the significance of the conditions described above in relation to the Company’s
ability to meet its obligations and concluded that, without additional funding, the Company will not have sufficient funds to
meet its obligations within one year from the date the condensed consolidated financial statements were issued. While management
will look to continue funding operations by increased sales volumes and raising additional capital from sources such as sales
of its debt or equity securities or loans to meet operating cash requirements, there is no assurance that management’s plans
will be successful.
On
March 8, 2022, we agreed with the HealthCor Parties to (i) amend the 2011 HealthCor Notes to extend the maturity date of the 2011
HealthCor Notes from April 20, 2022 to April 20, 2023 by entering into Allonge No. 4 to the 2011 HealthCor Notes (the “Third
2011 Note Allonges”) and (ii) amend the 2012 HealthCor Notes to extend the maturity date of the 2012 HealthCor Notes from
April 20, 2022 to April 20, 2023 by entering into Allonge No. 4 to the 2012 HealthCor Notes (the “Fourth 2012 Note Allonges”)
(such amendments to the 2011 HealthCor Notes and 2012 HealthCor Notes together, the “HealthCor Note Extensions”).
In connection with the HealthCor Note Extensions, we issued the HealthCor parties warrants to purchase an aggregate of 3,000,000
shares of our Common Stock at an exercise price per share equal to $0.09 per share (subject to adjustment as described therein)
and with an expiration date of March 08, 2032 (collectively the “2021 HealthCor Warrants”).
On
December 30, 2022, the Company entered into a consent and agreement to cancel and exchange existing notes and issue replacement
notes and cancel warrants (the “Cancellation Agreement”) with certain holders (the “Investors”) of senior
secured convertible promissory notes (“Notes”) and warrants (“Warrants”) to purchase the Company’s
common stock, that were issued pursuant to the Note and Warrant Purchase Agreement, dated as of April 21, 2011 (as amended, modified,
or supplemented from time to time) (the “Purchase Agreement”). The Cancellation Agreement provided for the cancellation
of all outstanding Notes and Warrants issued pursuant to the Purchase Agreement in exchange for the issuance of replacement senior
secured convertible promissory notes (the “Replacement Notes”) with an aggregate principal amount of $44,200,000.
The maturity date of the Replacement Notes was December 31, 2023. No interest accrues on the Replacement Notes. As of June 30,
2023, all replacement note were converted into shares of the Company’s common stock at $0.10 per share.
On
March 30, 2023, investors holding an aggregate of $26,200,000 of Replacement Notes exercised their right to convert the debt into
shares of the Company’s common stock at $0.10 per share (the “First Tranche”). Upon conversion, the Company
issued the investors in the First Tranche an aggregate of 262,000,000 shares. The First Tranche only converted 50% of the HealthCor
Replacement Notes. Due to the insufficient number of the Company’s available authorized shares of common stock, a shareholder
vote to authorize an increase in the Company’s authorized shares of common stock to 800,000,000 was approved on May 26,
2023.
Effective
May 22, 2023, the Company’s increased its authorized shares of common stock from 500,000,000 shares to 800,000,000 shares.
On
May 24, 2023, noteholders owning an aggregate of $18,000,000 Replacement Notes, provided the Company with a Conversion Notice,
pursuant to the terms of the Replacement Notes, to convert the Replacement Notes into shares of the Company’s common stock
at a conversion price of $0.10 per share, resulting in the issuance of an aggregate of 180,000,000 shares.
Management
continues to monitor the immediate and future cash flow needs of the Company in a variety of ways which include forecasted net
cash flows from operations, capital expenditure control, new inventory orders, debt modifications, increases sales outreach, streamlining
and controlling general and administrative costs, competitive industry pricing, sale of equities, debt conversions, new product
or services offerings, and new business partnerships.
The
Company’s net losses, cash outflows, and working capital deficit raise substantial doubt about the Company’s ability
to continue as a going concern through August 13, 2024. The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the
Company’s assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining
profitable operations is dependent upon achieving a level of positive cash flows adequate to support the Company’s cost
structure.
Critical Accounting Estimates
Please
refer to our Annual Report on Form 10-K/A for the year ended December 31, 2022 filed with the Commission on May 26, 2023 and incorporated
herein by reference, for detailed explanation of our critical accounting estimates, which have not changed significantly during
the three and six months ended June 30, 2023.
Recently Issued and Newly
Adopted Accounting Pronouncements
We
do not expect that the adoption of any recent accounting pronouncements will have a material impact on our accompanying condensed
consolidated financial statements.
Recent
Events
None.
Item 3. Quantitative and Qualitative
Disclosures about Market Risk
None.
Item 4. Controls and Procedures
Disclosure
Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed
in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive
officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls
and Procedures
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), we carried out an evaluation, with the
participation of our management, including Steve G. Johnson, our Chief Executive Officer (“CEO”) and principal executive
officer, and Jason T. Thompson, our principal financial officer and chief accounting officer, of the effectiveness of our disclosure
controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report.
Under
the supervision and with the participation of our CEO and principal financial and chief accounting officer, our management evaluated
the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023. Based on that evaluation,
our CEO and principal financial and chief accounting officer concluded that our disclosure controls and procedures were not effective
as of June 30, 2023 due to the continuing existence of a material weakness in internal control over financial reporting described
below (which we view as an integral part of our disclosure controls and procedures). Based on the performance of additional procedures
designed to ensure the reliability of our financial reporting, we believe that the condensed consolidated financial statements
included in this Report fairly present, in all material respects, our financial position, results of operations and cash flows
as of the dates, and for the periods, presented, in conformity with accounting principles generally accepted in the United States
(“GAAP”).
Material
Weakness and Remediation Plan
A
material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that
there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will
not be prevented or detected on a timely basis. Management has determined that the Company did not maintain effective internal
control over financial reporting as of the quarter ended June 30, 2023 due to the existence of the material weaknesses described
below.
Management
determined that the Company did not maintain effective internal control over financial reporting as of June 30, 2023, due to the
existence of the following material weaknesses:
|
● |
It was
determined that the Company does not have effective controls over the identification and evaluation of the GAAP accounting
for certain complex transactions in the areas of revenues, debt, and income taxes, due to a lack of technical expertise. |
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● |
Due to
a lack of accounting resources, it was determined that the Company had inadequate segregation of duties in place related to
its financial reporting and other management oversight. Specifically, the accounting personnel had responsibility for initiating
transactions in the financial statement areas of revenues, equity, payroll, debt, and financial reporting, recording transactions,
and preparing financial reports. |
Based on additional procedures
and post-closing review, Management concluded that the consolidated financial statements including this report present fairly,
in all material respects, results of operations, and cash flows for the periods presented, in conformity with accounting principles
accepted in the United States.
We began
to take steps to address our material weaknesses, through our remediation plan. We implemented the following measures:
|
● |
Identify
and employ additional full-time highly qualified accounting personnel to join the corporate accounting function to enhance
overall monitoring, maintain standard internal controls, and accounting oversight within the Company. |
|
● |
The Company
hired a certified public accountant (“CPA”) as its Controller and a Senior Accountant while contracting with the
former Senior Accountant. |
|
● |
Implement
enhanced documentation associated with management review controls and validation of the completeness and accuracy of financial
reporting and key management financial reports. |
|
● |
Provide
training of standard operating procedures and internal controls to key stakeholders within the supply chain, logistics, and
inventory processes. |
|
● |
Enhance
and automate existing internal control to ensure proper authorization, review, and recording of financial transactions. |
|
● |
On an
as-needed basis, identify and engage certain third-party subject matter experts to assist with the preparation and reporting
of complex business and accounting transactions. |
Changes in Internal
Control Over Financial Reporting
Other
than as described above, there were no changes in our internal control over financial reporting identified in management’s
evaluations pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended June 30, 2023 that materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
Our
management can provide no assurance that our disclosure controls and procedures or our internal control over financial reporting
can prevent all errors and all fraud under all circumstances. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to
their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have been or will be detected. The design of any system
of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because
of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
Item
1. Legal Proceedings.
None.
Item
1A. Risk Factors.
Our
Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required
to provide the information required under this Item.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds.
On
May 24, 2023, noteholders owning an aggregate of $18,000,000 Replacement Notes, provided the Company with a Conversion Notice,
pursuant to the terms of the Replacement Notes, to convert the Replacement Notes into shares of the Company’s common stock
at a conversion price of $0.10 per share, resulting in the issuance of an aggregate of 180,000,000 shares.
The
shares were offered and sold to accredited investors in a transaction not involving a public offering, pursuant to Section 4(a)(2)
of the Securities Act and Rule 506 of Regulation D promulgated thereunder. The investors represented their intentions to acquire
the securities for investment only and not with a view to sale in connection with any distribution thereof, and appropriate legends
were placed upon the shares issued in the transaction. The offer and sale of the securities were made without any general solicitation
or advertising.
Item
3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not
applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
DATE: August 14, 2023
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CAREVIEW COMMUNICATIONS,
INC. |
|
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|
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By: |
/s/
Steven G. Johnson |
|
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Steven G. Johnson |
|
|
Chief Executive Officer |
|
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Principal Executive
Officer |
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|
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By: |
/s/
Jason T. Thompson |
|
|
Jason T. Thompson |
|
|
Principal Financial
Officer |
|
|
Chief Accounting
Officer |