10-K 1 crvw-10k_123119.htm ANNUAL REPORT crvw-10k_123119.htm

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the fiscal year ended: December 31, 2019

 

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)

 

Registrant’s telephone number, including area code:  (972) 943-6050

 

Securities registered pursuant to Section 12(b) of the Exchange Act:  None

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ☐  No  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  ☐  No  ☒

 

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth 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 31(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ☐  No ☒

 

The aggregate market value of the common stock held by non-affiliates of the registrant as June 30, 2019 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $1,600,000.  For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant.

 

As of March 30, 2020, the registrant had 139,380,748 outstanding shares of common stock, $0.001 par value, which is its only class of common stock.

 

 

 

 

Table of Contents

       
ITEM 1. BUSINESS   3
       
ITEM 1A. RISK FACTORS    14
       
ITEM 1B. UNRESOLVED STAFF COMMENTS    14
       
ITEM 2. PROPERTIES    14
       
ITEM 3. LEGAL PROCEEDINGS    14
       
ITEM 4. MINE SAFETY DISCLOSURES    14
       
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES    14
       
ITEM 6. SELECTED FINANCIAL DATA    15
       
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    16
       
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    23
       
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA    23
       
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE    23
       
ITEM 9A. CONTROLS AND PROCEDURES    23
       
ITEM 9B. OTHER INFORMATION    24
       
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE    24
       
ITEM 11. EXECUTIVE COMPENSATION    34
       
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS    37
       
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   38
       
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES   39
       
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   40
       
ITEM 16. FORM 10K SUMMARY   43

   

2  

 

Statement Regarding Forward-Looking Information

 

This Annual Report on Form 10-K contains forward-looking statements.  For example, statements regarding our financial position, business strategy, product development, and other plans and objectives for future operations, and assumptions and predictions about future product demand, research and development, marketing, expenses and revenue are all forward-looking statements.  These statements may be found in the items of this Annual Report entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in this Annual Report generally.  These statements are generally accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,” “potential(ly),” “plan,” “may,” “will,” “continue,” “forecast,” “predict,” “could,” “would,” “should,” “expect,” or the negative of such terms or other comparable terminology.

 

INTRODUCTORY COMMENT

 

Throughout this Annual Report, the terms “we,” “us,” “our,” “CareView,” or the “Company” refers to CareView Communications, Inc., a Nevada corporation, originally formed in California on July 8, 1997 under the name Purpose, Inc., changing our name to Ecogate, Inc. in April 1999, and CareView Communications, Inc. in October 2007.  Unless  otherwise specified, these terms also include our wholly owned subsidiaries, CareView Communications, Inc., a Texas corporation (“CareView-TX”) and CareView Operations, LLC, a Nevada limited liability company (“CareView Operations”).

 

PART I

 

ITEM 1.             BUSINESS.

 

Our mission is to be the leading provider of products and on-demand application services for the healthcare industry, specializing in bedside video monitoring, software tools to improve hospital communications and operations, and patient education and entertainment packages. Our proprietary, high-speed data network system is the next generation of patient care monitoring that allows real-time bedside and point-of-care video monitoring designed to improve patient safety and overall hospital costs. The entertainment packages and patient education enhance the patient’s quality of stay. Reported results from CareView-driven facilities prove that our products reduce falls, reduce the cost of sitter fees, increase patient satisfaction and reduce bed turnaround time to increase patient flow. For patients, we have a convenient in-room, entertainment package that includes high-speed Internet, access to first-run on-demand movies and visual connectivity to family and friends from anywhere in the world. For the hospital, we offer tools to provide superior patient care, peace of mind and customer service satisfaction.

 

CareView System

 

Our CareView System® suite of video monitoring, guest services and related applications connect patients, families and healthcare providers. Through the use of telecommunications technology and the Internet, our evolving products and on-demand services greatly increase the access to quality medical care and education for patients/consumers and healthcare professionals. We understand the importance of providing high quality patient care in a safe environment and believe in partnering with hospitals to improve the quality of patient care and safety by providing a system that monitors continuously. We are committed to providing an affordable video monitoring tool to improve the practice of nursing, create a better work environment and make the patient’s hospital stay more informative and satisfying. Our suite of products and services can simplify and streamline the task of preventing and managing patients’ falls, enhance patient safety, improve quality of care and reduce costs associated with bringing information technology directly to patients, families and healthcare providers. Our products and services can be used in all types of hospitals, nursing homes, adult living centers and selected outpatient care facilities domestically and internationally.

 

CareView’s secure video monitoring system connects the patient room to a touchscreen monitor at the nursing station or a mobile handheld device, allowing the nursing staff to maintain a level of visual contact with each patient. This configuration enhances the use of the nurse call system, reduces unnecessary steps to and from patient rooms, and facilitates a host of modules for patient safety and workflow improvements. The CareView System suite can be easily configured to meet the individual privacy and security requirements of any hospital or nursing facility. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA’) compliant, patient approved video record can be included as part of the patient’s medical record and serves as additional documentation of bedside care, procedures performed, patient and hospital ancillary activities, safety or care incidents, support to necessitate additional clinical services, and, if necessary, as evidence. Additional HIPAA-compliance features allow privacy options to be enabled at any time by the patient, nurse or physician.

 

3  

 

In addition to patient safety and security, we also provide a suite of services to increase patient satisfaction scores and enhance the overall image of the hospital including first-run on-demand movies, Internet access via the patient’s television, and video visits with family and friends from most places throughout the world. Through continued investment in patient care technology, our products and services help hospitals and assisted living facilities build a safe, high quality healthcare delivery system that best serves the patient, while striving for the highest level of satisfaction and comfort.

 

CareView System Products and Services Agreement with Healthcare Facilities

 

We offer our products and services through a subscription-based model with 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’s products and services deployed to a healthcare facility and maintain and service all equipment installed by us. Terms of each P&S Agreement require the healthcare facility to pay us a monthly subscription fee based on the number of selected, installed and activated services. None of the services provided through the Primary Package or GuestView module 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 facilities that are a part of these healthcare companies enter into individual facility level agreements that are substantially similar to our P&S Agreements.

 

Master Agreements and P&S Agreements are currently negotiated for a period of five years with a minimum of two or three years; however, older P&S Agreements were negotiated for a five-year period with a provision for automatic renewal. P&S Agreements specific to pilot programs (“P&S Pilot Agreements”) contain pricing terms substantially similar to P&S Agreements, are generally three or six-months in length and can be extended on a month-to-month basis as required. 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 non-exclusive license to use the software, network facilities, content and documentation on and in the CareView System suite to the extent, and only to the extent, necessary to access, explore and otherwise use the CareView System suite in real time. Such non-exclusive license expires upon termination of the P&S Agreement.

 

We use specific terminology in an effort to better define and track the staging and billing of the individual components of the CareView System suite. The CareView System suite includes three components which are separately billed; the Room Control Platform (the “RCP”), the Nurse Station, and mobile devices (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 “Room Control Platform” or “RCP” as this component of the CareView System consistently resides within each room where the “bed” is located. On average, there are six Nurse Stations 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.

4  

 

 

Our Products and Services

 

We offer a variety of products and services designed to meet individual hospital needs to enhance quality patient care and safety.  Our services are offered with no capital expenditure by the hospital and do not require extensive integration with the facility’s management information system.  For healthcare facilities looking for an effective, affordable and innovative way to improve performance throughout the facility, our products are the answer.  CareView-driven facilities have shown documented success in reducing patient falls and sitter costs, improving overall patient satisfaction, streamlining and documenting patient education at the bedside, and improving patient flow and overcrowding.  These successes protect the facilities’ reimbursement from loss due to “never events” and poor patient satisfaction.

 

The CareView System offers the following service packages:

 

PRIMARY PACKAGE

 

1. 

NurseView®. The NurseView module allows authorized users to view monitored rooms from the nurse’s station.  All privacy and access options are determined and configured by the hospital.

2. 

Virtual Bed Rails®.  The Virtual Bed Rails fall prevention module allows the hospital to activate a safety feature that will notify the nursing station or the caregiver’s mobile device when a patient breaches a defined area in the patient room.

3.

Virtual Chair Rails®. The Virtual Chair Rails fall prevention module allows the hospital to activate a safety feature that will notify the nursing station or the caregiver’s mobile device when a patient breaches a defined area in the patient room.

4.

Sitter Management Program.  The CareView Sitter Management Program allows authorized users to monitor an unlimited number of patient rooms from one nursing station or mobile device.

 

ADDITIONAL CAREVIEW PRODUCTS

 

1.

BedView®. The BedView module allows authorized users to monitor the status and availability of facility beds remotely.

2.

Patient Education.  We provide a delivery mechanism for patient education materials.

3.

Nurse Alerts and Reminders. The CareView System monitoring system can be configured to provide nursing alerts and reminders.

4.

CareView Mobile®™.  This communications device and mobile monitoring system allows all CareView modules to be utilized with handheld mobile devices.  CareView Mobile can be used to deliver voice communication between mobile devices, patient rooms, and the hospital’s phone infrastructure.

5.

CareView Mobile App.  The CareView Mobile App (the “App”) can be used by the customer on an Apple or Android mobile device used in connection with the CareView System.  The App will display video feeds from NurseView as well as give caregivers the ability to receive and resolve Virtual Bed Rail and Virtual Chair Rail alarms.

6.

NICUView®.  The NICUView module provides a live, continual feed from the Neo-Natal Intensive Care Unit (“NICU”) to allow parents who have been discharged from the hospital, or friends and family, to view the newborn and obtain clinical information from home.

 

Pricing Structure and Revenue Streams

 

The CareView System suite is provided and installed in healthcare facilities at no charge to the facility after which we generate revenue from subscriptions to its services.  We work with each hospital on pricing to offer an affordable package based on the demographics of the hospital’s patients.  The pricing structure with each hospital is negotiated separately and may vary depending on the hospital’s desire to include premium services at no charge to the patient.  Typically, we offer the Primary Package at a price per bed with varying price structures based on number of beds in each facility.  All our revenue generated during the years ended December 31, 2019 and 2018 was derived from the sale of the Primary Package, Additional CareView Products and related services to hospitals.

5  

 

 

Products in Development

 

1.

Next Generation Hardware.  We are in the final stages of development for the next generation Room Control Platform.  This platform will provide improved performance and reliability in a smaller, portable form factor.  We expect the next generation hardware will be in production in the first quarter of 2020.

2.

Next Generation Hardware Alternative Form Factors.  We are in the final stages of research and development on alternative form factors of the next generation hardware, offering solutions for mobile and fixed controllers.  We expect the alternative form factors will be in production in second quarter of 2020.

3.

Next Generation NurseView.  We are finalizing development on the next generation version of NurseView.  This update is a complete overhaul, focused on improved performance, reliability and patient safety.  We expect the next generation NurseView to be available in first quarter of 2020.

4.

Analytic Dashboard.  We are finalizing effort around a real-time dashboard report.  This dashboard helps the hospital understand system utilization and ROI based on per-facility benchmarks.  We expect the reporting dashboard to be available in first quarter of 2020.

5.

Improving Detection Algorithms.  We are continuing to develop, and hone new techniques and algorithms geared towards improving system functionality in the Virtual Rails product.  Advances include techniques based on machine learning and statistical probability.

 

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 ConnectTM 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 that will have 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. 

 

6  

 

Our Products and Services

 

CareView Connect is a platform consisting of several products and applications targeted at improving level of care and efficiency. CareView is building 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 document information around that alert. This allows for workflows and reports around the alerts, i.e. how long before the alert was handled, 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 timely and is verifiable. In addition, the caregiver usually is carrying out a litany of daily activities directed at each facility resident.

 

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 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 tele-health. Connect Resident also supports “How are you feeling today?”, which allows the resident to submit this information directly.

 

Quality of Life Metrics

 

CareView is developing 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.

 

CareView is working to integrate additional sensors into the platform, including a ballistocardiogram (BCG) sensor, which allows for improved monitoring and metrics around sleep quality, such as heart and respiration rate. Additional sensors include medical devices, such as scales, pulse oximeters, blood glucose meters, and blood pressure monitors.

 

7  

 

 

Pricing Structure and Revenue Streams

 

The CareView Connect suite of products and services offers multiple pricing models with upfront costs to the customer. These upfront costs transfer ownership of the product to the facility. 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.

 

During 2019, the Company was only able to enter into two pilot contracts, one of which was converted into a fully executed contract in the amount of $1,464 in August 2019, the other remains a pilot contract.  Due to the lack of recent marketability of the Connect product and our additional focus on CareView system sales in the fourth quarter of 2019, we have written off CareView Connect product on hand as of December 31, 2019, in the amount of approximately $1,131,000. This loss was included in general and administrative expenses in the statement of operations. The Company is still pursuing opportunities for its CareView Connect product.

 

Products in Development

 

1.

Next Generation Sleep Sensor.  We are in the early stages of developing a second generation of sleep sensor.   This sensor improves on the accuracy and information available compared with the first generation of sleep sensor. We expect this sensor to be available in the fourth quarter of 2020.

2.

Next Generation Gateway.  We are in the final steps of development for the next generation Gateway.  This platform will provide integrated audio capabilities.  We expect the Next Generation Gateway to be in production in the second quarter of 2020.

 

Group Purchasing Agreement with HealthTrust Purchasing Group, LP

 

On December 14, 2016, the Company entered into 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 executed an amendment to its HealthTrust GPO Agreement to add CareView Connect to the GPO Agreement.  Thereafter, the Company will be able to begin to market and sell CareView Connect to the approximately 300 LTC facilities who are members of the HealthTrust GPO.

 

Summary of Product and Service Usage

 

The following table shows the number of healthcare facilities where our products and services are currently installed including the number of installed BEUs (Bed Equivalent Units) and billable BEUs as of February 28, 2020.  The table also shows the number of pilot programs in place and hospital proposals pending approval, estimated bed count if the pilot programs and pending proposals result in executed contracts, and the estimated total number of licensed beds available under the pilot programs and hospital proposals.  There are no assurances that the pilot programs will be extended, or the pending proposals will be approved to ultimately result in the number of estimated beds.  Further, there are no assurances that we will have access to the total number of licensed beds in each healthcare facility.

 

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Installed
Hospitals

Installed
BEUS

Billable
BEUs

Total
Staffed Beds
in
Contracted/
Pilot
Hospitals

Potential
Units
Available
Under
Current
Contract/
Pilot
Contracts (*)

Units in
Negotiation
Prior to
Contract/
Pilot

124

9,805

9,715

178,752

61,609

33,079

 

 

(*) This number represents management’s best estimate of the number of units available to us in hospitals that are currently under contract.  We assume that in any given acute care facility, our products and services are appropriate for deployment in approximately 70% of the total staffed beds.  If we have specific information from a current contracted or pilot hospital that the number of potential units in that hospital is either higher or lower than 70%, specific number has been used in the aggregate estimate.

 

Availability of Suppliers

 

We are not dependent on, nor do we expect to become dependent on, any one or a limited number of suppliers.  We purchase parts and components to assemble our equipment and products.  We do not manufacture or fabricate our own products or systems but rely on sub-suppliers and third-party vendors to procure and/or fabricate components based on our designs, engineering and specifications.  Along with our employee installers, we enter into subcontracts for field installation of our products which we supervise.  We manage all technical, physical and commercial aspects of the performance of our contracts with sub-suppliers and third-party vendors.  To date, we have experienced no difficulties in obtaining fabricated components, materials and parts or in identifying qualified subcontractors for installation work.

 

Sales, Marketing and Customer Service

 

We do not consider our business to be seasonal, however the availability of hospital staff is typically less available in December which impacts our ability to sell/install our CareView System.  We generate sales leads through a variety of means including direct one-to-one marketing, email and web campaigns, customer and industry referrals, strategic partnerships, and trade shows and events.  Our sales team consists of highly trained professionals with many years of experience in the healthcare market.

 

Our initial focus has been to pursue large for-profit hospital management companies that own multiple facilities and large not-for-profit integrated delivery networks in major metropolitan areas.  Our sales staff approaches decision makers for hospitals, integrated delivery networks, and major owners and operators of hospitals to demonstrate the CareView product line.  In 2013, we expanded our sales process to include an inside sales team and have expanded our capabilities of providing web-based demonstrations and presentations.  In addition, we have begun to rely more heavily on arranging reference calls and site visits between our current customers and our prospects.  These efforts have provided a higher volume of qualified sales leads and have resulted in more substantive conversations with a larger number of prospects.

 

We ensure high levels of customer service through our account representatives and through our technical support processes.  We attempt to position our account representatives geographically close to our customer hospitals to allow them to make regular visits to proactively train staff and address any issues.  We offer 24/7 monitoring and phone support through our technical support team which allows us to quickly identify and resolve any technical issues.  From time to time we are called upon to service the installed hardware at customer facilities.  To facilitate expedient service, our account representatives typically maintain a small supply of room control platforms (“RCPs”) should they need repair or replacement.  Historically, our RCPs and Nursing Station units have required little, if any, servicing.  We believe that we handle requests quickly and efficiently, and that overall, our customers are satisfied with our level of service.

 

9  

 

Intellectual Property

 

Our success depends, in part, on our ability to obtain patents, maintain trade secret protection and operate without infringing the proprietary rights of others.  Our intellectual property portfolio is one of the means by which we attempt to protect our competitive position.  We rely primarily on a combination of know-how, trade secrets, patents, trademarks and contractual restrictions to protect our products and to maintain our competitive position.  We are constantly seeking ways to protect our intellectual property through registrations in relevant jurisdictions.

 

We have received patents from the U.S. Patent and Trademark Office and have numerous patents pending.  We intend to file additional patent applications when appropriate; however, we may not file any such applications or, if filed, the patents may not be issued.  We also have numerous registered trademarks.

 

We intend to aggressively prosecute, enforce and defend our patents, trademarks and proprietary technology.  The loss, by expiration or otherwise, of any one of our patents may have a material effect on our business.  Defense and enforcement of our intellectual property rights can be expensive and time consuming, even if the outcome is favorable to us.  It is possible that the patents issued to or licensed to us will be successfully challenged, that a court may find that we are infringing on validly issued patents of third parties, or that we may have to alter or discontinue the development of our products or pay licensing fees to take into account patent rights of third parties.

 

Agreement with Rockwell Holdings I, LLC

 

On November 16, 2009, we entered into a Master Investment Agreement (the “Rockwell Agreement”) with Rockwell Holdings I, LLC, a Wisconsin limited liability (“Rockwell”).  Under the terms of the Rockwell Agreement, we used funds from Rockwell to fully implement the CareView System™ in Hillcrest Medical Center in Tulsa, Oklahoma (“Hillcrest”) and Saline Memorial Hospital in Benton, Arkansas (“Saline”) (the “Project Hospital(s)”).  CareView-Hillcrest, LLC and CareView-Saline, LLC were created as the operating entities for the Project Hospitals under the Rockwell Agreement (the “Project LLC(s) ”).

 

On January 31, 2017, under the terms of the Rockwell Agreement, wherein we have the option to purchase Rockwell’s interest in the Project LLCs, we exercised that right by entering into a Settlement and LLC Interest Purchase Agreement with Rockwell (the “Settlement Agreement).  Pursuant to the terms of the Settlement Agreement, we paid Rockwell the aggregate amount of $1,213,786 by the issuance of a promissory note to Rockwell for $1,113,786 (the “Rockwell Note”) and a cash payment of $100,000.  Pursuant to the terms of the Rockwell Note, we will make quarterly principal payments of $100,000, with each payment being made on the last day of each calendar quarter beginning with the first payment date of March 31, 2017 and continuing on the last business day of each subsequent calendar quarter through September 30, 2019.  The final payment due on December 31, 2019 was to be a balloon payment of $13,786 representing the remaining principal balance plus all accrued and unpaid interest.  As previously reported in our Current Report on Form 8-K filed with the SEC on February 5, 2018, on February 2, 2018 the Company entered into an amendment (the “Rockwell Note Amendment”) to the Company’s Promissory Note to Rockwell Holdings I, LLC (“Rockwell”) dated as of January 31, 2017 (the “Rockwell Note”), pursuant to which Rockwell agreed to defer $50,000 of each $100,000 quarterly payment due under the Rockwell Note from January 1, 2018 through the termination of the Modification Period, April 30, 2020.  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.  Effective as of 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 December 31, 2019 from January 31, 2020 to February 10, 2020.  The final balloon payment of $171,562 representing the remaining principal plus all accrued and unpaid interest is due on December 31, 2020.  We were not in default of any conditions under the Settlement Agreement and the Rockwell Note as amended as of December 31, 2019.

 

10  

 

 

As additional consideration to Rockwell for entering into the Rockwell Agreement, we granted Rockwell Warrants to purchase 1,151,206 shares of our Common Stock on the date of the Rockwell Agreement, and, using the Black-Scholes Model, valued the Warrants at $1,124,728 (the “Project Warrant”), which amount was fully amortized at December 31, 2015.  Pursuant to the terms of the Settlement Agreement, the expiration date of the Project Warrant was extended from November 16, 2017 to November 16, 2022.  All other provisions of the Project Warrant remained unchanged.  At the time of the extension, the Project Warrant were revalued resulting in a $11,512 increase in fair value, which was recorded as non-cash costs included in general and administration expense in the accompanying consolidated financial statements for the year ended December 31, 2017.  Effective February 2, 2018, pursuant to the terms of the PDL Modification Agreement, we entered into an amendment to the Project Warrant wherein the Project Warrant’s exercise price was changed from $0.52 to $0.05, resulting in a $13,814 increase in fair value, this transaction was recorded as non-cash costs included in general and administration expense in the consolidated financial statements for the year ended December 31, 2018.

 

Installation and Technical Support

 

Along with our employee installers and technical support staff, we provide installation and technical support for our customers through third-party providers located across the United States that we contract on a per-job basis.

 

Competition

 

We offer products in four distinct categories: clinical video monitoring and fall prevention, patient education and entertainment, patient flow, and mobile communications.  We have competitors in each of these product areas; however, we believe that we offer the only integrated suite of products that combines all of these areas into one cost-effective platform.  Some of our competitors may be larger, may have greater financial resources, and may have a longer history than us.  We compete with them based on price, engineering and technological expertise, knowledge, and the quality of our products, systems and services.  Additionally, we believe that the successful performance of our installed products and systems is a key factor in retaining current business and gaining new business as customers typically prefer to make significant purchases from a company with a solid performance history.

 

Clinical Video Monitoring and Fall Prevention: Cisco Systems, Inc., Avasure (a division of AvaSure Holdings, Inc.), Royal Philips Electronics and Cerner Corporation all provide clinical video monitoring tools.  Cisco offers Virtual Patient Observation, a video monitoring tool aimed at reducing sitter costs and preventing patient falls.  AvaSure offers a similar application using cameras mounted on a rolling camera stand, aimed at preventing patient falls.  Philips offers the eICU product, which primarily targets a high-definition monitoring of patients in intensive-care applications and also provides telephonic consults.  Cerner offers the Cerner Patient Observer product, which uses depth sensors aimed at preventing patient falls.

 

Alternative fall prevention mechanisms include physical sensors manufactured by Stanley and Posey, and beds which include fall alarms manufactured by Stryker and Hill-Rom.  Customers may consider these physical fall prevention mechanisms to be alternatives to a video-based fall prevention system such as the one we offer.

 

Patient Education and Entertainment: There are many vendors who offer patient entertainment products, and most of them also provide a portal for accessing patient educational content either authored by themselves or by third parties.  Our major competitors include The GetWellNetwork (privately held by Welsh, Carson, Anderson and Stowe), Skylight Healthcare Systems, and Sonifi Solutions, Inc., all of which offer interactive patient communications systems.

 

11  

 

 

Patient Flow: These systems may be called patient flow, census, bed tracking, patient tracking, or “bed board” applications.  Our major competitors include companies that offer focused solutions such as TeleTracking Technologies, Inc., Aionex, Inc., and BedWatch, Inc.  Additionally, some Electronic Medical Record vendors offer similar products which may compete with our patient flow product.

 

Mobile Communications: Some competitors offer mobile communications on smart phones or voice-activated pendants which operate over the hospitals Wi-Fi system, including Vocera, Inc., and Voalte, Inc.  Other competitors offer special-purpose phones that operate on the cellular network or other wireless technology and provide notifications to caregivers within the hospital.

 

In addition to favorable economics and enhanced patient care, safety and satisfaction, we also compete on the basis of quality of services provided.  Our management believes that our GuestView patient services suite will provide revenue protection for our contracted hospitals under the Value Based Purchasing initiative which is part of the Patient Protection and Affordable Care Act,  prompting hospitals to focus on Patient Satisfaction and Hospital Consumer Assessment of Healthcare Providers and Systems to (i) prompt each healthcare facility to promote patients’ use of NetView,  and PatientView, and (ii) encourage the hospital to expand its use of pre-procedure and condition videos, welcome videos,  and other ancillary services.

 

We believe we also compete based on the success of our products and services which provide our customers with:

 

●      significant and tangible cost savings,

●      reductions in patient falls and pressure ulcers,

●      improved documentation, quality and timeliness of patient care,

●      enhanced safety and security for patients and facilities,

●      support for new technologies,

●      business growth,

●      return on investment, and

●      enhanced patient satisfaction.

 

We are currently unable to predict what competitive impact any regulatory development and advances in technology will have on our future business and results of operations.  We believe our success depends upon our ability to maintain and enhance the performance, content and reliability of our products in response to the evolving demands of the industry and any competitive products that may emerge.  We cannot give assurances that we will be able to do so successfully or that any enhancements or new products that we introduce will gain acceptance in the marketplace.  If we are not successful or if our products are not accepted, we could lose potential customers to our competitors.

 

Major Customers

 

During 2019 one customer comprised $1,538,193 or 25% of our revenue, while no other customer comprised more than 10%.  During 2018 one customer comprised $1,532,823 or 25% of our revenue, while no other customer comprised more than 10%.

 

Backlog

 

Our estimated backlog is driven by signed Master and Product & Service Agreements (P&S Agreement(s)).  Each Master and P&S Agreement establishes the rates that we will charge for the use of our products and services as well as an approximate number of billable units that will be installed.  Our RCPs, Nursing Stations and mobile devices are billed on a per unit basis.  Most Master and P&S Agreements are for five years but include options to cancel after a minimum of two or three years.  Backlog, which covers the non-cancellable period, as of December 31, 2019 is approximately $6,638,000, of which approximately $4,678,000 is expected to be billed during 2020.  Most of the current backlog will have future value as the Master and P&S Agreements continue beyond the minimum two or three years and the Master and P&S Agreements move toward expiration and potential renewal.  The amount of the non-cancellable backlog to be billed beyond December 31, 2020 is approximately $1,960,000.

 

12  

 

 

Governmental Approval

 

Neither our Company nor our products are subject to government approval beyond required Federal Communication Commission (“FCC”) certifications.  Certain medical devices and applications may be subject to Section 510(k) of the Food, Drug, and Cosmetics Act, which regulates the ability of medical device manufacturers to market their devices.  CareView has reviewed the requirements for registration, and at the current time, we do not believe that our suite of applications is subject to 510(k) regulation.  Although the parameters of our CareView System products and services complies with HIPAA as far as use by health care providers, CareView itself, as the manufacturer and installer of the units, is not subject to HIPAA regulations.  We do not know of any other privacy laws that affect our business as we are not in control of nor do we keep patient medical records in our possession.  We are unaware of any probable government regulations that may affect our business in the future.  We have received Underwriters Laboratories (“UL”) and FCC approval on our products.  Additionally, the Center for Medicare and Medicaid Services does not pay or reimburse any party for use of our products and services.

 

Environmental Laws

 

Our Company and our products are not affected by any federal, state, or local environmental laws; therefore, we have reserved no funds for compliance purposes.

 

Employees

 

As of March 30, 2020, we employed 54 persons on a full-time basis, two of whom are executive officers.  None of our employees are covered by collective bargaining agreements and we have never experienced a major work stoppage, strike or dispute.  We consider our relationship with our employees to be outstanding.

 

Reports to Security Holders

 

We are subject to the requirements of Section 13(a) under the Exchange Act which requires us to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and we are required to comply with all other obligations of the Exchange Act applicable to issuers filing registration statements pursuant to Section 12(g) of the Exchange Act.  You may read and copy any materials we file with the Securities and Exchange Commission (the “SEC”) at the SEC’s Public Reference Room at 100 F Street NE, Washington, DC 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information filed electronically with the SEC at http://www/sec.gov.

 

You may obtain a copy, free of charge, of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with the SEC.  You may obtain these reports by making a request in writing addressed to  Steven G. Johnson, Chief Executive Officer,  CareView Communications, Inc., 405 State Highway 121, Suite B-240, Lewisville, TX  75067 or by downloading these reports and further information about our company on our website at http://www.care-view.com.

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We have adopted a Code of Business Conduct and Ethics for all of our officers and directors and a Code of Ethics for Financial Executives.  These codes are available for download on our website or may be obtained free of charge by making a request in writing to Steven G. Johnson, as indicated hereinabove.

 

Domain Names

 

The Company’s maintains a website at www.care-view.com.

 

ITEM 1A. RISK FACTORS.

 

We are a smaller reporting company, and as such, are not required to provide information pursuant to this item.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

N/A.

 

ITEM 2. PROPERTIES.

 

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 December 8, 2014, we entered into a Lease Extension Agreement (the “Lease Extension”), wherein we extended the Lease through June 30, 2020.  The Lease Extension contains a renewal provision under which we may renew the Lease for an additional five-year period under the same terms and conditions.  Monthly base rent per the Lease and the Lease Extension through the end of term, June 30, 2020, is $15,968.  Future minimum payments through the end of term are $95,810. We believe that these premises are adequate and sufficient for our current needs.

 

On March 4, 2020, we entered into the fourth amendment to the commercial lease agreement extending the terms.  See Note 14 in accompanying consolidated financial statements. 

 

ITEM 3. LEGAL PROCEEDINGS.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURE.

 

N/A.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

Our Common Stock is traded on the OTCQB as provide by OTC Market Group, Inc. (“OTCQB”) under the symbol “CRVW.”

 

14  

 

 

Holders

 

Records of our stock transfer agent indicate that as of March 30, 2020 we had approximately 91 record holders of our Common Stock.  The number of registered shareholders excludes any estimate by us of the number of beneficial owners of shares of our Common Stock held in “street name.”  We estimate that there are approximately 860 beneficial shareholders who hold their shares in street name.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

As of December 31, 2019, the following table shows the number of securities to be issued upon exercise of outstanding stock options under equity compensation plans approved by our shareholders, which plans do not provide for the issuance of warrants or other rights.

 

Plan Category

 

Number of
Securities to be
issued upon
exercise of
outstanding
options
(a)

 

 

Weighted-
average
exercise price
of outstanding
options
(b)

 

 

Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a)
(c)

 

Equity compensation plan approved by security holders: 2007 Plan

 

 

 

 

 

 

 

 

 

Equity compensation plan approved by security holders:  2009 Plan

 

 

4,979,426

 

 

$

0.60

 

 

 

 

Equity compensation plan not approved by security holders:  2015 Plan

 

 

3,986,000

 

 

$

0.28

 

 

 

 

Equity compensation plan not approved by security holders:  2016 Plan

 

 

11,559,367

 

 

$

0.09

 

 

 

7,737,966

 

Total

 

 

20,524,793

 

 

$

0.25

 

 

 

7,737,966

 

 

Recent Sales of Unregistered Securities

 

None.

 

Cancellation and Expiration of Options

 

During the year ended December 31, 2019, options to purchase an aggregate of 69,167 shares of our Common Stock were cancelled due to resignation and termination of employees.  In addition, during the same time period, options to purchase an aggregate of 1,106,334 shares of our Common Stock expired.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

We are a smaller reporting company as defined in Item 10(f)(l) of Regulation S-K and are not required to provide information under this item.

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ITEM 7.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

You should read the following discussion and analysis in conjunction with the information set forth under our consolidated financial statements and the notes to those financial statements included elsewhere in this Annual Report.  This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties.  Our actual results may differ materially from those contained in or implied by any forward-looking statements.

 

Liquidity and Capital Resources

 

Our cash position at December 31, 2019 was approximately $269,741.

 

Accounting standards require management to evaluate our ability to continue as a going concern for a period of one year subsequent to the date of the filing of this Form 10-K (“evaluation period”). As such, we have evaluated if cash and cash equivalents on hand and cash generated through operating activities would be sufficient to sustain projected operating activities through March 30, 2021. We anticipate that our current resources, along with cash generated from operations, will not be sufficient to meet our cash requirements throughout the evaluation period, including funding anticipated losses and scheduled debt maturities. We expect to seek additional funds from a combination of dilutive and/or nondilutive financings in the future. Because such transactions have not been finalized, receipt of additional funding is not considered probable under current accounting standards. If we do not generate sufficient cash flows from operations and obtain sufficient funds when needed, we expect that we would scale back our operating plan by deferring or limiting some, or all, of our capital spending, reducing our spending on travel, and/or eliminating planned headcount additions, as well as other cost reductions to be determined. Because such contingency plans have not been finalized (the specifics would depend on the situation at the time), such actions also are not considered probable for purposes of current accounting standards. As we continue to incur losses, our transition to profitability is dependent upon achieving a level of revenues adequate to support its cost structure. We may never achieve profitability, and unless and until doing so, we intend to fund future operations through additional dilutive or non-dilutive financings. There can be no assurances, however, that additional funding will be available on terms acceptable to us, if at all.

 

In December 2019, a novel strain of coronavirus (COVID-19) was identified in Wuhan, China, and has subsequently spread to other regions of the world, and has resulted in increased travel restrictions, business disruptions and emergency quarantine measures across the world including the United States. The extent to which COVID-19 will negatively impact our business results is highly uncertain and cannot be accurately predicted. Management believes that the COVID-19 outbreak and the measures taken to control it may have a large negative impact on economic activities across the world and the United States. As such, these uncertainties may impede our ability to conduct our daily operations and could materially and adversely affect our business, financial condition and results of operations in the foreseeable future.

 

Because, under current accounting standards, neither future cash generated from operating activities, nor management’s contingency plans to mitigate the risk and extend cash resources through the evaluation period, are considered probable, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern through March 30, 2021.  The financial information contained in these financial statements have been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and these financial statements do not include any adjustments that may result from the outcome of this uncertainty.

 

As of December 31, 2019, our working capital deficit was approximately $23,244,000, our accumulated deficit was approximately $176,127,000, and our stockholders’ deficit was approximately $84,244,000.  Operating loss was approximately $3,300,000 and $3,651,000 for the years ended December 31, 2019 and 2018, respectively.  Our net loss was approximately $14,140,000 and $16,078,000 for the years ended December 31, 2019 and 2018, respectively.

 

The following is a summary of cash flow activity for the years ended December 31, 2019 and 2018.

 

    2019     2018  
      (000’s)  
Net cash flows used in operating activities   $ (1,437 )   $ (4,841 )
Net cash flows used in investing activities     (344 )     (624 )
Net cash provided by financing activities     100       2,850  
Decrease in cash     (1,681 )     (2,615 )
Cash, cash equivalents and restricted cash at beginning of period     1,951       4,566  
Cash, cash equivalents and restricted cash at end of period   $ 270     $ 1,951  

 

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Net decrease in cash during the year ended December 31, 2019 was approximately $1,681,000.  The principal use of cash in operating activities for the year ended December 31, 2019 was to fund our current expenses primarily related to research and development activities and administrative changes, adjusted for non-cash items. The change in cash flows used in operating activities between 2018 and 2019 of approximately $3,404,000 is primarily a result of changes in the components of working capital. The change in cash flows used in investing activities between 2018 and 2019 of approximately $280,000 is primarily a result of the reduction of purchases and installation of CareView Systems and costs associated with patents and trademarks.  The change in cash flows provided by financing activities between 2018 and 2019 of approximately $2,750,000 is a result of funding provided by certain officers and directors ($3,050,000 in 2018 versus $250,000 in 2019) partially offset by payments made to Rockwell Holdings I, LLC ($200,000 in 2018 versus 150,000 in 2019) ( see Agreement with Rockwell Holdings I, LLC above and NOTE 13 in the accompanying consolidated financial statements for further details).

 

Results of Operations

 

Year ended December 31, 2019 compared to year ended December 31, 2018

 

    Year Ended December 31,        
    2019     2018     Change  
    (000’s)        
Revenue, net   $ 6,294     $ 6,096     $ 198  
Operating expenses:                        
Network operations     3,033       3,405       (372 )
General and administration     4,189       3,234       955
Sales and marketing     251       394       (143 )
Research and development     1,400       1,429       (29 )
Depreciation and amortization     721       1,285       (564 )
Operating expenses     9,594       9,747       (153 )
Operating loss   $ (3,300 )   $ (3,651 )   $ (351

 

Revenue, net

 

Revenue increased approximately $198,000 for the year ended December 31, 2019 as compared to the same period in 2018. Hospitals with billable BEUs remained at 100 on December 31, 2019 from 100 on December 31, 2018.  The increase in revenue is a result of new hospital billing as well as organic growth within our existing customer base. Of the 100 hospitals with billable BEUs on December 31, 2019, one hospital group accounted for 25% of the total. Billable BEUs for all hospitals totaled 9,499 on December 31, 2019 as compared to 8,231 on December 31, 2018.

 

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Operating Expenses

 

Our principal operating costs include the following items as a percentage of total expense.

 

    Year Ended
December 31,
 
    2019     2018  
Human resource costs, including benefits     46 %     50 %
Depreciation and amortization expense     8 %     13 %
Travel and entertainment     6 %     6 %
Other expenses     23 %     8 %
Other product deployment costs, excluding human resources and travel and entertainment expense     6 %     6 %
Professional fees and consulting expenses     7 %     9 %
Non-cash expense related to option grants     2 %     3 %
Research and development costs     1 %     3 %
Other sales and marketing costs, excluding human resources costs, travel and entertainment expense, and consulting expenses     1 %     2 %

 

Operating expenses decreased by approximately $153,000 (2%) as a result of the following items:

 

      (000’s)
Increase:        
Other expenses   $ 1,486  
Travel and entertainment     43  
Decrease:        
Depreciation and amortization     (564 )
Human resource costs, including benefits     (468 )
Professional and consulting costs     (206 )
R&D costs     (202 )
Other sales and marketing costs, excluding human resources costs, travel and entertainment expense, and consulting expenses     (91 )
Other product deployment costs, excluding human resources and travel and entertainment expense     (84 )
Non-cash expense related to option grants     (67 )
    $ (153 )

 

Other expenses increased approximately $1,486,000, primarily a result of an increase of $1,131,000 due to the abandonment of assets write off of Careview Connect, an increase in rent, utilities and maintenance of approximately $47,000, increase in sales and property tax costs approximately $111,000, increase in other expenses approximately $126,000 during the year ended December 31, 2019 compared to the same period in 2018.  Travel and entertainment expense increased approximately $43,000 as a result of a higher product installations during the year ended December 31, 2019 compared to the same period in 2018. Depreciation and amortization expense decrease by approximately $564,000, primarily as a result of a reduction in depreciation expense as certain deployable assets purchased have become fully depreciated in 2019. While we had 54 employees at December 31, 2019 as compared to 54 for the comparable date for the prior year, on average we employed 54 employees over the course of current period as compared to 61 for the comparable prior year period. Professional and consulting fees decreased approximately $206,000, primarily as a result of decreased legal and consulting fees. Research and development non-personnel and travel costs decreased approximately $202,000 due to less consulting expense related to Careview Connect.  Other sales and marketing costs decreased approximately $91,000 primarily as a result of decreases in trade show costs.  Other product development costs decreased approximately $84,000 primarily as a result of decreases in product deployment and installation costs and related non-capital equipment costs.  Non-cash compensation decreased approximately $67,000 due to no additional option grants during 2019.  

 

  18

Critical Accounting Estimates and New Accounting Pronouncements

 

Critical Accounting Estimates

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements.  Management considers an accounting estimate to be critical if:

 

if requires assumptions to be made that were uncertain at the time the estimate was made, and

 

changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.

 

We base our estimates and judgments on our experience, our current knowledge, our beliefs of what could occur in the future, our observation of trends in the industry, information provided by our customers and information available from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  We have identified the following accounting policies and estimates as those that we believe are most critical to our financial condition and results of operations and that require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties: share-based compensation expense, income taxes, complex derivative financial instruments and impairment of long-lived assets.

 

Share-Based Compensation ExpenseWe calculate share-based compensation expense for option awards and certain warrant issuances (“Share-based Award(s)”) based on the estimated grant/issue date fair value using the Black-Scholes-Merton option pricing model (“Black-Sholes Model”) and recognize the expense on a straight-line basis over the vesting period, net of estimated forfeitures.  We have not included an estimate for forfeitures due to our limited history and we revise based on actual forfeitures each period.  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 vesting period of the Share-based Award in determining the fair value of Share-based Awards.  Although we believe our assumptions used to calculate share-based compensation expense are reasonable, these assumptions can involve complex judgments about future events, which are open to interpretation and inherent uncertainty.  In addition, significant changes to our assumptions could significantly impact the amount of expense recorded in a given period.

 

Income Taxes.  As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate.  Our provision for income taxes is determined using the asset and liability approach to account for income taxes.  A current liability is recorded for the estimated taxes payable for the current year.  Deferred tax assets and liabilities are recorded for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using the enacted tax rates in effect for the year in which the timing differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of changes in tax rates or tax laws are recognized in the provision for income taxes in the period that includes the enactment date.  Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount more-likely-than-not to be realized.  Changes in valuation allowances will flow through the statement of operations unless related to deferred tax assets that expire unutilized or are modified through translation, in which case both the deferred tax asset and related valuation allowance are similarly adjusted.  Where a valuation allowance was established through purchase accounting for acquired deferred tax assets, any future change will be credited or charged to income tax expense.  See NOTE 5 in the accompanying Notes to Consolidated Financial Statements for discussion related to Tax Reform.

 

  19

The determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws.  In the ordinary course of our business, there are transactions and calculations for which the ultimate tax determination is uncertain.  In spite of our belief that we have appropriate support for all the positions taken on our tax returns, we acknowledge that certain positions may be successfully challenged by the taxing authorities.  We determine the tax benefits more likely than not to be recognized with respect to uncertain tax positions.  Although we believe our recorded tax assets and liabilities are reasonable, tax laws and regulations are subject to interpretation and inherent uncertainty; therefore, our assessments can involve both a series of complex judgments about future events and rely on estimates and assumptions.  Although we believe these estimates and assumptions are reasonable, the final determination could be materially different than that which is reflected in our provision for income taxes and recorded tax assets and liabilities.

 

Complex Derivative Financial Instruments.  From time to time we sell common stock and we issue convertible debt, both with common stock purchase warrants, which may include terms requiring conversion price or exercise price adjustments based on subsequent issuance of securities at prices lower than those in the agreements of such securities.  In these situations, the instruments may be accounted for as liabilities and recorded at fair value each reporting period.  Due to the complexity of the agreement, we use an outside expert to assist in providing the mark to market fair valuation of the liabilities over the reporting periods in which the original agreement was in effect.  It was determined that a Binomial Lattice option pricing model using a Monte Carlo simulation would provide the most accuracy given all the potential variables encompassing a future dilutive event.  This model incorporated transaction assumptions such as our stock price, contractual terms, maturity, risk free rates, as well as estimates about future financings, volatility, and holder behavior.  Although we believe our estimates and assumptions used to calculate the fair valuation liabilities and related expense were reasonable, these assumptions involved complex judgments about future events, which are open to interpretation and inherent uncertainty.  In addition, significant changes to our assumptions could significantly impact the amount of expense recorded in a given period.

 

Impairment of Long-Lived AssetsCarrying values of property and equipment and finite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable.  If impairment indicators are present, we determine whether an impairment loss should be recognized by testing the applicable asset or asset group’s carrying value for recoverability.  This assessment requires the exercise of judgment in assessing the future use of and projected value to be derived from the eventual disposal of the assets to be held and used.  Assessments also consider changes in asset utilization, including the temporary idling of capacity and the expected timing for placing this capacity back into production.  If the carrying value of the assets is not recoverable, then a loss is recorded for the difference between the assets’ fair value and respective carrying value.  The fair value of the assets is determined using an “income approach” based upon a forecast of all the expected discounted future net cash flows associated with the subject assets.  Some of the more significant estimates and assumptions include market size and growth, market share, projected selling prices, manufacturing cost and discount rate.  Our estimates are based upon historical experience, commercial relationships, market conditions and available external information about future trends.

 

Recently Issued Accounting Pronouncements

 

In August 2018, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update ASU 2018-13,   Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement that eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The FASB developed the amendments to Accounting Standards Codification (“ASC”) 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. The new guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. We are currently evaluating the effect of this guidance on our disclosures.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment.  The Company does not currently hold or plan to invest in available-for-sale securities and has not historically experienced collection issues or bad debts with trade receivables. Accordingly, the Company does not expect this to have a significant impact on its consolidated financial statements and related disclosures at this time.  The Company will adopt this guidance on its effective date for smaller reporting companies, January 1, 2023.

 

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Recently Adopted Accounting Pronouncements

 

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The amendments in ASU 2018-07 expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this pronouncement had no impact on our accompanying condensed consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires lessees to record most leases on their balance sheets while recognizing expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. In July 2018, the FASB amended the new leases standard and issued ASU 2018-11, Leases, (Topic 842): Targeted Improvements to give entities another option for transition and to provide lessors with a practical expedient. We adopted ASU 2016-02 on January 1, 2019 utilizing the alternative transition method allowed for under ASU 2018-11. Comparative financial information was not adjusted and will continue to be reported under ASC 840. We also elected the transition relief package of practical expedients and as a result we did not assess (1) whether existing or expired contracts contain leases, (2) lease classification for any existing or expired leases, and (3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less. We elected not to separate lease components from non-lease components for our specified asset classes. Additionally, the adoption of the new standard resulted in increased disclosure requirements in our quarterly and annual filings.

 

Recent Events Since December 31, 2019

 

On January 17, 2020, the Company, the Borrower, the Subsidiary Guarantor and the Lender entered into an Eighteenth Amendment to Modification Agreement (the “Eighteenth 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 28, 2020 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s interest payments that would otherwise be due to Lender on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, and December 31, 2019 would be deferred until January 28, 2020 (the end of the extended Modification Period) and that such deferrals would be a Covered Event.

 

On January 28, 2020, the Company, the Borrower, the Subsidiary Guarantor and the Lender entered into a Nineteenth Amendment to Modification Agreement (the “Nineteenth 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 (i) April 30, 2020 (provided that Borrower obtains at least $600,000 in cash proceeds from the issuance of Capital Stock (other than Disqualified Capital Stock) or Debt subordinated to the Tranche One Loan (as defined in the Credit Agreement) pursuant to the terms of the Intercreditor Agreement (as defined in the Credit Agreement) on or prior to February 11, 2020) or (ii) February 11, 2020 (if Borrower has not obtained such cash proceeds by such date) (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s interest payments that would otherwise be due to Lender on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, and March 31, 2020 would be deferred until the end of the extended Modification Period (but with respect to the March 31, 2020 interest payment, such payment would be deferred only in the event that the end of the extended Modification Period is April 30, 2020 rather than February 11, 2020; otherwise the Borrower will make the interest payment due under the Credit Agreement on March 31, 2020), and that such deferrals would be a Covered Event. The Company received $600,000 pursuant to the amendments dated February 6, 2020, as detailed below.

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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 December 31, 2019 from January 31, 2020 to February 10, 2020.

 

On February 6, 2020, the Company, the Borrower, the Lender (in its capacity as administrative agent and lender) and the Tranche Three Lenders entered into a Sixth Amendment to Credit Agreement (the “Sixth Credit Agreement Amendment”), pursuant to which the parties agreed to amend the Credit Agreement to, among other things, (i) provide for additional funding under the Tranche Three Loan, in the aggregate principal amount of $500,000, from the Tranche Three Lenders (the “Additional Tranche Three Loan”), with a maturity date of October 7, 2020 (the fifth anniversary of the funding date of the Tranche One Loan (as defined in the Credit Agreement)), with outstanding borrowings bearing interest at the rate of 15.5% per annum, payable quarterly in arrears (subject to the terms of the Modification Agreement, as amended), and with payment of the Additional Tranche Three Loan and any other Obligations (as defined in the Credit Agreement) incurred in connection with the Additional Tranche Three Loan subordinated and subject in right and time of payment to the Payment in Full (as defined in the Credit Agreement) of the Tranche One Loan and any other Obligations incurred in connection with the Tranche One Loan, to the extent and in the manner set forth in the Credit Agreement; and (ii) provide for the issuance of the Thirteenth Amendment Supplemental Closing Note. 

 

Also on February 6, 2020, upon the execution of the Sixth Credit Agreement Amendment, (i) the Borrower (CareView Communications, Inc., a Texas corporation and a wholly owned subsidiary of the Company) borrowed the Additional Tranche Three Loan and issued to the Tranche Three Lenders term notes in the aggregate principal amount of $500,000, payable in accordance with the terms of the Credit Agreement (the “Additional Tranche Three Term Notes”), $250,000 from Mr. Johnson and $250,000 from Dr. Higgins, and (ii) the Company issued a warrant for the purchase of 1,000,000 shares of Common Stock, with an exercise price per share equal to $0.01 (subject to adjustment as described therein) and expiration date of February 6, 2030 (the “Additional Tranche Three Loan Warrant”), to Dr. Higgins in connection with his Additional Tranche Three Loan.  Mr. Johnson declined to be issued an Additional Tranche Three Loan Warrant.  Mr. Johnson is our Chief Executive Officer, President, Secretary and Treasurer and is one of our directors.  Dr. Higgins is one of our directors.

 

On February 6, 2020, we entered into a Thirteenth Amendment to Note and Warrant Purchase Agreement (the “Thirteenth Amendment”) with the Existing Investor listed in Annex I to the Thirteenth Amendment (the “Thirteenth Amendment Investor”) and with the HealthCor Parties and certain additional Existing Investors (solely in their capacity as Majority Holders (acting together with the Thirteenth Amendment Investor) approving the Thirteenth Amendment and not as investors), pursuant to which (i) we sold and issued, for $100,000 in cash, to the Thirteenth Amendment Investor on such date an additional note in the initial principal amount of $100,000, with a conversion price per share equal to $0.01 (subject to adjustment as described therein) and a maturity date of February 5, 2030 (the “Thirteenth Amendment Supplemental Closing Note”); and (ii) the Majority Holders consented to the issuance of the Additional Tranche Three Loan Warrant in connection with the Additional Tranche Three Loan (each as defined below). The Thirteenth Amendment Investor is one of our directors.

 

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The Purchase Agreement and Thirteenth Amendment provide that we grant to the Thirteenth Amendment Investor a security interest in our assets as collateral for payment of the Thirteenth Amendment Supplemental Closing Note, evidenced by the Amended and Restated Security Agreement and by the Amended and Restated IP Security Agreement.

 

The Purchase Agreement and the Thirteenth Amendment also provide that we grant registration rights to the Thirteenth Amendment Investor for the Common Stock into which the Thirteenth Amendment Supplemental Closing Note may be converted as provided for by the Registration Rights Agreement.

 

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 Lease Extension contains a renewal provision under which we may renew the Lease for an additional five-year period under the same terms and conditions.  We believe that these premises are adequate and sufficient for our current needs.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “Act”) was enacted. The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the Coronavirus outbreak, which among other things contains numerous income tax provisions. Some of these tax provisions are expected to be effective retroactively for years ending before the date of enactment.  The Company is currently evaluating the implications of the Act and its impact on the financial statements and related disclosures has not yet been determined.

 

 

Off-Balance Sheet Arrangements

 

As of December 31, 2019, we had no material off-balance sheet arrangements.

 

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company as defined in Item 10(f)(l) of Regulation S-K and are not required to provide information under this item.

 

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Financial statements begin on page F-1 following this Report.

 

ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

Not Applicable.

 

ITEM 9A.       CONTROLS AND PROCEDURES.

 

Evaluation of 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.

As of December 31, 2019, management carried out an evaluation, under the supervision and with the participation of our chief executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures.  Based upon the evaluation, our chief executive officer and principal financial officer concluded that, as of December 31, 2019, due to the existence of the material weaknesses in the Company’s internal control over financial reporting described below, the Company’s disclosure controls and procedures were not effective.

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Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, is a process designed by, or under the supervision of, the chief executive officer and chief financial officer, or persons performing similar functions, and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Our management, under the supervision and with the participation of our chief executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework.  Based on the control deficiencies identified during this evaluation and set forth below, our senior management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2019 due to the existence of the material weaknesses in internal control over financial reporting as described below.

Material Weakness

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 period ended December 31, 2019 due to the existence of the following material weaknesses identified by management:

due to our limited accounting staff, our accounting manager was responsible for initiating transactions, had custody of assets, recorded transactions and prepared financial reports. Therefore, it was determined that the Company had inadequate segregation of duties in place related to its financial reporting and other management oversight procedures due to the lack of accounting resources; and

 

 the lack of technical expertise related to identifying and applying US GAAP rules specifically related to evaluation of asset obsolescence, recording of revenues, and debt.

 

Management’s Remediation Plan

Management intends to remediate the material weakness in the following manner:

 identify and employ full time additional senior level accounting personnel to join the corporate accounting function in order to enhance overall monitoring and accounting oversight within the Company; and

 

engage third-party subject matter experts to aid in identifying and applying US GAAP rules related to complex financial transactions as well as to enhance the financial reporting function.

 

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(e) of the Exchange Act during the three months ended December 31, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

ITEM 9B.         OTHER INFORMATION.

 

None.      

 

PART III

 

ITEM 10.        DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

 

Directors, Executive Officers, Promoter and Control Persons

 

The following table sets forth information on our executive officers and directors as of the filing of this Report.  All executive officers serve at the discretion of the Board of Directors.  The term of office of each of our directors expire at our next Annual Meeting of Shareholders or until their successors are duly elected and qualified.  We do not have any promoters or control persons.

 

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Name

 

Age

 

Position

Date Elected
Director

Date Appointed
Officer

Steven G. Johnson

60

Chief Executive Officer, President, Secretary, Treasurer, Director

April 11, 2006

April 11, 2006

Jason T. Thompson

45

Director, Principal Financial Officer, Chief Accounting Officer

January 1, 2014

January 24, 2018

Sandra K. McRee

64

Chief Operating Officer

N/A

November 1, 2013

L. Allen Wheeler

87

Chairman of the Board

January 26, 2006

N/A

Jeffrey C. Lightcap

61

Director

April 21, 2011

N/A

David R. White

72

Director

January 1, 2014

N/A

Steven B Epstein

76

Director

April 1, 2014

N/A

Dr. James R. Higgins

70

Director

April 1, 2014

N/A

 

Mr. Lightcap was elected to serve on our Board of Directors pursuant to the terms of the HealthCor Note Purchase Agreement executed on April 21, 2011.  Other than Mr. Lightcap, there are no arrangements or understandings between our directors and executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there are no arrangements, plans or understandings as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors.  There are also no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs.

 

In December 2017, our Chief Financial Officer, Treasurer and Secretary resigned.  Until such time as those positions are filled, Steven Johnson, our Chief Executive Officer and President, will also serve as our Secretary and Treasurer.  In addition, Jason T. Thompson, our Chairman of the Audit Committee, will serve as our Principal Financial Officer and Chief Accounting Officer as those positions relate to our annual and quarterly filings with the SEC.

 

Identification of Certain Significant Employees

 

Kyle Johnson, our Director of Engineering, and Matthew E. Jackson, General Counsel, are considered significant employees.  An overview of their business experience follows in Business Experience found within this Item 10.

 

Family Relationships

 

There are no family relationships between our officers and members of our Board of Directors.

 

Business Experience of Directors, Executive Officers and Significant Employees

 

The business experience of each of our directors, executive officers and significant employee follows:

 

Steve G. Johnson – Chief Executive Officer, President, Secretary, Treasurer, Director

 

Steven G. Johnson currently serves as Chief Executive Officer (effective January 1, 2014), President, Secretary, Treasurer and Director.  Mr. Johnson also served as Chief Operating Officer until November 1, 2013.  In December 2003, he filed for patent protection as the inventor of a Non-Intrusive Data Transmission Network for Use in an Enterprise Facility and Method for Implementing in the United States, which invention was subsequently assigned to CareView and was issued a patent number by the USPTO.  The technology underlying this patent is the basis of the CareView System suite.  Mr. Johnson is also one of the inventors on three issued patents for a Non-intrusive data transmission network for use in an enterprise facility and method for implementing in the U.S., a System and Method for Documenting Patient Procedures in the U.S., and a System and Method for Using a Video Monitoring System to Prevent and Manage Decubitus Ulcers in Patients in the U.S., and five additional pending patent applications for a System and Method for Predicting Falls in the U.S., a continuation patent for System and Method for Using a Video Monitoring System to Prevent and Manage Decubitus Ulcers, an Electronic Patient Sitter Management System and Method for Implementing in the U.S.,  a Noise Correcting Patient Fall Risk State System and Method for Predicting Patient Falls in the U.S., and a System and method for monitoring a fall state of a patient and minimizing false alarms in the U.S., all technology currently being deployed or in further development by CareView.  Mr. Johnson has over 20 years of experience in the cable and wireless industry.

 

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Before joining CareView in 2006, he served as Chief Executive Officer of Cadco Systems, a manufacturer of CATV and telecommunications equipment from 1997.  From February 1991 to February 1996, he served as CEO, President and Director of American Wireless Systems, which he restructured and sold to Heartland Wireless Communications.  Mr. Johnson also served as founder and President of Hanover Systems, a manufacturer of telecommunications equipment.  Mr. Johnson has been actively involved with the wireless cable industry since 1984 and has served on the board of directors of the Wireless Cable Association and its FCC regulatory committee.  Mr. Johnson developed various electronic telecommunications equipment for the wireless cable industry including microwave downconverters, wireless cable set top converters, antennas, and transmitters.  Mr. Johnson’s accumulated knowledge in the field of technology, coupled with his development of patentable technology, makes him an invaluable member of our management team.  Mr. Johnson earned his BA in Economics and Business Administration from Simpson College and currently serves as a Trustee on the Simpson College Board of Trustees.  Mr. Johnson is the father of Kyle Johnson, our Director of Engineering.

 

Jason T. Thompson – Director, Principal Financial Officer, Chief Accounting Officer

 

Jason T. Thompson was elected as a Director of CareView effective as of January 1, 2014.  In addition, he currently serves as our Principal Financial Officer and Chief Accounting Officer while we seek a qualified candidate to fill those positions.  Mr. Thompson is a partner and a member of the transactional group of Michael Best & Friedrich LLP where he focuses on mergers and acquisitions and general corporate matters, having joined Michael Best in September 2006.  Mr. Thompson assists his clients with negotiating and structuring many types of transactions and agreements, including those related to corporate reorganizations, buyout transactions and venture capital investment transactions.  In addition, he is President of Thompson Family Holdings, LLC, which invests in, and consults for, a number of healthcare companies, having joined Thompson Holdings in 2010.  From 1999 to 2004, Mr. Thompson served as Vice President of Development and Planning for Bulk Petroleum Corporation, where he oversaw sales, operations, client maintenance, scheduling accounting and workforce management for its construction projects.  Prior to joining Bulk Petroleum, Mr. Thompson was a senior auditor with Arthur Andersen.  He is a certified public accountant.  Mr. Thompson received a BBA in Accounting from the University of Wisconsin – Madison in 1996 and in 2006, received his JD from the University of Wisconsin, where he was a member of the Wisconsin Law Review.  His business, accounting and legal experience makes him well-qualified to serve as one of the Company’s directors.

 

Sandra K. McRee – Chief Operating Officer

 

Sandra K. McRee joined CareView as Chief Operating Officer effective November 1, 2013.  Ms. McRee also currently serves as President of McRee Consulting.  Ms. McRee most recently served as the Vice Chair of the Board of Directors of IASIS Healthcare Corporation (“IASIS”) from April 2010 until October 2011.  Previously, she served as Chief Operating Officer of IASIS from May 2001 until October 2010, and President from May 2004 to April 2010.  At IASIS, she was responsible for overseeing all aspects of IASIS’s hospital operations and was responsible for overseeing clinical systems; developing an appropriate mix of quality services, physician relationships, effective staffing and supply utilization; and managing capital investments related to operations.  From April 1999 through May 2001, Ms. McRee was Regional Vice President for Province Healthcare Corporation where she oversaw five facilities in Florida, Louisiana and Mississippi.  Ms. McRee has more than 35 years of healthcare management experience.  Ms. McRee has spent her entire professional career in the healthcare industry.  She currently serves on the Board of Directors of Denver School of Nursing.  Ms. McRee previously served on the Boards of EDCare, a national emergency room management company owned by Gemini Investors from August 2005 to July 2008, Mid-Western University from July 2000 to August 2004 and All About Women.  Ms. McRee is a member of Women Business Leaders of the U.S. HealthCare Industry Foundation, a nonprofit organization that was established in 2001 to address the unique needs of women serving in a senior executive capacity in the U.S. healthcare industry and was a member of the Executive Leadership Team of Go Red for Women.

 

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L. Allen Wheeler – Chairman of the Board

 

Mr. Wheeler has served as a Director of CareView since January 2006 and on January 1, 2014 became our Chairman of the Board.  Mr. Wheeler has been a private investor for over 50 years with interests in nursing homes, banks, cable television, radio stations, real estate and ranching.  Currently, Mr. Wheeler owns and operates three Abstract and Title companies in Bryan County, Oklahoma.  Mr. Wheeler served on the Board of Directors of Texoma Medical Center from 1994 to 2005 and acted as Chairman of the Board from 2002 to 2005.  Mr. Wheeler served as President of the Durant Industrial Authority for numerous years.  Mr. Wheeler’s knowledge of the healthcare industry (as it relates to nursing homes), his technical knowledge of the broadcast television industry, and his expertise relative to investments and equity placements, qualifies him as a significant member of our board of directors.  Mr. Wheeler earned his B.A. from Southeastern Oklahoma State University.  Mr. Wheeler was elected Alumni of the Year of Southeastern Oklahoma State University in 2001.

 

Jeffrey D. Lightcap – Director

 

Mr. Lightcap was elected as a Director of CareView on April 21, 2011. Since October 2006, Mr. Lightcap has served as a Senior Managing Director at HealthCor Partners Management, LP, a growth equity investor focused on late stage venture and early commercial stage healthcare companies in the diagnostic, therapeutic and med tech, sectors. From 1997 to mid-2006, Mr. Lightcap served as a Senior Managing Director at JLL Partners, a leading middle-market private equity firm. Prior to JLL Partners, from 1993 to 1997, Mr. Lightcap served as a Managing Director at Merrill Lynch & Co., Inc. Prior to joining Merrill Lynch, Mr. Lightcap was a Senior Vice President in the mergers and acquisitions group at Kidder, Peabody & Co. and briefly at Salomon Brothers. Mr. Lightcap received a B.E. in Mechanical Engineering from the State University of New York at Stony Brook in 1981 and in 1985 received an MBA from the University of Chicago. Mr. Lightcap currently also serves as a director of the following companies: Heartflow Inc., a medical technology company redefining the way heart disease is diagnosed and treated; KellBenx, Inc., a prenatal diagnostic technology company; and RTI Surgical, Inc. (Nasdaq: RTIX), a spinal implant company. Mr. Lightcap’s experience with fundraising in the private equity market and his leadership skills exhibited throughout his career make him well-qualified to serve as one of the Company’s directors.

 

David R. White – Director

 

David R. White was elected as a director on January 1, 2014.  From December 1, 2000 to November 1, 2010, Mr. White served as the Chief Executive Officer of IASIS Healthcare Corporation and he served as the Chief Executive Officer of IASIS Healthcare LLC from December 1, 2000 to October 2010.  Mr. White served as the President of IASIS Healthcare Corporation from May 22, 2001 to May 2004 and also served as the President of IASIS Healthcare LLC from May 22, 2001 to May 2004.  He served as the President and Chief Executive Officer of LifeTrust, from November 1998 to November 2000.  From June 1994 to September 1998, Mr. White served as President of the Atlantic Group at Columbia/HCA, where he was responsible for 45 hospitals located in nine states.  He has also served as Regional Vice President of Republic Health Corporation.  Previously, Mr. White served as an Executive Vice President and Chief Operating Officer at Community Health Systems, Inc.  He was Executive Chairman of Anthelio Healthcare Solutions Inc. from June 2012 to September 2016 and was its Independent Director from July 28, 2011 to September 2016.  He has been Chairman of the Board at IASIS Healthcare Corporation since October 1999.  He has been a Member of Strategic Advisory Board of Satori World Medical, Inc. since 2011.  He was a Director of REACH Health, Inc. from August 30, 2011 to June 2015.  He also serves as a director to CareView Communications, Inc. (OTCQB: CRVW), a healthcare technology company.  He served as Non-Executive Director at Parkway Holdings Limited from July 15, 2005 to March 8, 2007.  Mr. White earned a B.S. in Business Administration from the University of Tennessee in Knoxville, TN in 1970, and an MS in Healthcare Administration from Trinity University in San Antonio, TX in 1973.  Mr. White’s lifetime career and knowledge in the healthcare industry makes him well-qualified to serve as a director of the Company.

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Steven B Epstein - Director

 

Steven B. Epstein was elected as a Director of CareView effective as of April 1, 2014.  Mr. Epstein is the founder of Epstein Becker & Green, P.C., a leading law firm in health care law with over 250 lawyers in 11 cities, where he serves as a senior health adviser.  Mr. Epstein is a pioneer in the legal specialty known as health care law and provides a wide range of health care organizations and providers with strategic legal guidance responding to the legal challenges and opportunities of the rapidly changing American health care system.  Mr. Epstein was instrumental in the acceptance of managed care as the prominent form of health care delivery and has been referred to as the “father of the healthcare [legal] industry”, as stated in Chambers USA.  Mr. Epstein received his Bachelor of Arts from Tufts University in 1965, where he was awarded the Tufts University Distinguished Alumni Award and served as a member of the Board of Trustees from 1999-2009.  He received his Juris Doctor from Columbia Law School in 1968.  He is the recipient of Columbia University’s Distinguished Alumni Award and Columbia Law School’s Medal for Excellence, Columbia Law School’s most prestigious award and served as chairman of the Columbia Law School Board of Visitors from 2002-2015.  Mr. Epstein has previously served as a director of the following companies among others: Accumen, Inc., a private lab services company; National Compliance Solutions, Inc.; a private drug and background search company; OrthoSensor, Inc.; a private orthopedic medical device company; ResCare, Inc. a private disability care company and Solis Women’s Health, a private mammography company; and currently serves as a director of Restorix Health, a private wound care company; Syft, a clinical supply chain software company.  Mr. Epstein’s lifetime legal career and knowledge in the healthcare industry makes him well-qualified to serve as a director of the Company.

 

Dr. James R. Higgins - Director

 

Dr. James R. Higgins was elected as a director of CareView effective as of April 1, 2014.  Dr. Higgins is a cardiologist practicing in Tulsa, Oklahoma.  In addition to being boarded in cardiology he has sub-specialty boards in nuclear cardiology, electrophysiology, invasive cardiology, cardiac CT angiography, echocardiography, carotid and peripheral sonography, pacemakers and defibrillators.  He graduated summa cum laude with a BS degree in electrical engineering from South Dakota State University and sum cum laude with a MD degree from the University of Rochester School of Medicine and Dentistry.  He was an extern at the Massachusetts General Hospital in Boston, and intern, resident, and chief resident at Barnes Hospital, Washington University, in St. Louis Missouri.  His cardiology fellowship was obtained at the University of California, San Francisco, Moffitt and Long Hospital.  He was then the Director of research and invasive cardiology at Wilford Hall Medical Center, United States Air Force, San Antonio, Texas.  In addition to his busy cardiology practice, Dr. Higgins has started and owns a real estate company, an electronic medical billing company, an oil pipeline supply company, and has a large cattle ranch operation in Oklahoma.  He has published more than 300 peer review articles and has multiple patents on medical devices, mainly related to pacemakers and internal defibrillators.  Dr. Higgin’s vast experience in the healthcare industry makes him well-qualified to serve as a director of the Company

 

Kyle Johnson - Director of Engineering

 

Kyle Johnson has served as our Director of Engineering since August 2006 and is responsible for the design and development of our Room Control Platform and deployment of systems to hospitals.  From June 2004 to August 2006, he served as Senior Product Manager of Cadco Systems, a company that specializes in broadband electronic design and manufacturing.  As Senior Project Manager, Mr. Johnson managed the design and development of several products including the development of the technology used in the CareView System suite.  Mr. Johnson is also one of the inventors on an issued patent for a System and Method for Using a Video Monitoring System to Prevent and Manage Decubitus Ulcers in Patients in the U.S. and an issued patent for a System and Method for Predicting Falls in the U.S. (the technology underlying CareView’s Virtual Bed Rails).  From February 2000 to June 2004, Mr. Johnson served as General Manager and Chief Engineer for 391 Communications, a company that is a service provider to cable and wireless cable companies.  Mr. Johnson has been involved in several large-scale deployments of CATV, MMDS, and DBS satellite systems, as well as designing and building numerous CATV/MMDS head-ends for major domestic and foreign CATV/MMDS providers.  Mr. Johnson is the son of Steven Johnson, our Chief Executive Officer and President.

 

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Matthew E. Jackson – General Counsel

 

Mr. Jackson joined CareView in 2012.  Mr. Jackson is responsible for all company legal matters including drafting and negotiating contracts, litigation, risk management, labor and employment, corporate securities and corporate governance.  Mr. Jackson is admitted to practice law in both Texas and California.

 

Other Directorships

 

Other than as indicated within this section at Business Experience, none of our directors hold or have been nominated to hold a directorship in any company with a class of securities registered pursuant to Section 12 of the Exchange Act (the “Act”) or subject to the requirements of Section 15(d) of the Securities Act of 1933, or any company registered as an investment company under the Investment Company Act of 1940.

 

Committees of the Board

 

Audit Committee

 

The Audit Committee reviews and discusses the audited consolidated financial statements with management, discusses with our independent registered public accounting firm matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard 1301: Communications with Audit Committees, and makes recommendations to the Board of Directors regarding the inclusion of our audited financial statements in this Annual Report on Form 10-K.

 

Our Audit Committee’s primary function is to provide advice with respect to our financial matters and to assist our Board of Directors in fulfilling its oversight responsibilities regarding finance, accounting, and legal compliance.  The Audit Committee’s primary duties and responsibilities are to: (i) serve as an independent and objective party to monitor our financial reporting process and internal control system, (ii) review and appraise the audit efforts of our independent registered accounting firm,  (iii) evaluate our quarterly financial performance as well as its compliance with laws and regulations, (iv) oversee management’s  establishment and enforcement of financial policies and business practices, and (v) provide an open avenue of communication among the independent accountants, management and our Board of Directors.

 

For the year ended December 31, 2019, and as of the filing date of this Report, our Audit Committee consisted of three members of our Board of Directors, namely Jason Thompson as Chair, Allen Wheeler and Jeffrey Lightcap.  Messrs. Thompson and Lightcap are deemed to be financial experts.  Although our Board of Directors believes the members of our Audit Committee will exercise their judgment independently, no member is totally free of relationships that, in the opinion of the Board of Directors, might interfere with their exercise of independent judgment as a committee member.  The Audit Committee’s Chair and members are to be designated annually by a majority vote of the Board of Directors.  Any member may be removed at any time, with or without cause, and vacancies may be filled by a majority vote of the Board of Directors.

 

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Compensation Committee

 

Our Compensation Committee’s function is to provide assistance to our Board of Directors in fulfilling their responsibility to our shareholders, potential shareholders, and the investment community relating to developing policies and making specific recommendations to the Board of Directors with respect to the direct and indirect compensation of our executive officers.  The goal of such policies is to ensure that an appropriate relationship exists between executive pay and the creation of shareholder value, while at the same time motivating and retaining key employees.  Our Compensation Committee’s primary duties and responsibilities are to: (i) review and approve our Company’s goals relevant to the compensation of our Chief Executive Officer, evaluate the Chief Executive Officer’s performance with respect to those goals, and set the Chief Executive Officer’s compensation based on that evaluation; (ii) assess the contributions of individual executives and recommend to our Board of Directors levels of salary and incentive compensation payable to them; (iii) compare compensation levels with those of other leading companies in the industry; (iv) grant stock incentives to key employees and administer our stock incentive plans; (v) monitor compliance with legal prohibition on loans to directors and executive officers; and (vi) recommend to our Board of Directors compensation packages for new corporate officers and termination packages for corporate officers as requested.

 

For the year ended December 31, 2019, and as of the filing date of this Report, our Compensation Committee consisted of three members of ours Board of Directors, namely Allen Wheeler as Chair, Jeffrey Lightcap and David White.  Although our Board of Directors believes the members of our Compensation Committee will exercise their judgment independently, no member is totally free of relationships that, in the opinion of our Board of Directors, might interfere with their exercise of independent judgment as a committee member.  Our Compensation Committee’s Chair and members are to be designated annually by a majority vote of our Board.  Any member may be removed at any time, with or without cause, and vacancies may be filled by a majority vote of our Board.

 

Nominating Committee

 

We do not currently have a Nominating Committee; therefore, our Board, as a whole, identifies director nominees by reviewing the desired experience, mix of skills and other qualities to assure appropriate Board composition, taking into consideration our current Board members and the specific needs of our Company and our Board.  Among the qualifications to be considered in the selection of candidates, our Board considers the following attributes and criteria of candidates: experience, knowledge, skills, expertise, diversity, personal and professional integrity, character, business judgment and independence.  Our Board recognizes that nominees for the Board should reflect a reasonable diversity of backgrounds and perspectives, including those backgrounds and perspectives with respect to business experience, professional expertise, age, gender and ethnic background.  Nominations for the election of directors may be made by any member of the Board.

 

Our Board will also evaluate whether the nominee’s skills are complementary to the existing Board members’ skills; our Board’s needs for operational, management, financial, technological or other expertise; and whether the individual has sufficient time to devote to the interests of our Company.  The prospective Board member cannot be a board member or officer at a competing company nor have relationships with a competing company and must be clear of any investigation or violations that would be perceived as affecting the duties and performance of a director.

 

Our Board identifies nominees by first evaluating the current members of our Board willing to continue in service.  Current members of our Board with skills and experience that are relevant to the business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective.  If any member of our Board does not wish to continue in service, or if our Board decides not to nominate a member for re-election, our Board identifies the desired skills and experience of a new nominee and discusses with our Board suggestions as to individuals that meet the criteria.

 

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Our Board is comprised of accomplished professionals who represent diverse and key areas of expertise including national business, operations, manufacturing, government, finance and investing, management, entrepreneurship, higher education and science, research and technology.  We believe our directors’ wide range of professional experiences and backgrounds; education and skills has proven invaluable to our Company and we intend to continue leveraging this strength.

 

Board Involvement in Risk Oversight

 

Our Board of Directors is responsible for oversight of our risk assessment and management process.  We believe risk can arise in every decision and action taken by us, whether strategic or operational.  Our comprehensive approach is reflected in the reporting processes by which our management provides timely information to our Board of Directors to support its role in oversight, approval and decision-making.

 

Our Board of Directors closely monitors the information it receives from management and provides oversight and guidance to our management team concerning the assessment and management of risk.  Our Board of Directors approves our high-level goals, strategies and policies to set the tone and direction for appropriate risk taking within the business.

 

Our Board of Directors serving on the Compensation Committee have basic responsibility for oversight of management’s compensation risk assessment, and that committee reports to the Board on its review.  Our Board of Directors also delegated tasks related to risk process oversight to our Audit Committee, which reports the results of its review process to our Board of Directors.  The Audit Committee’s process includes a review, at least annually, of our internal audit process, including the organizational structure, as well as the scope and methodology of the internal audit process.  The Board, as a whole, functions as the nominating committee to oversee risks related to our corporate governance, including director performance, director succession, director education and governance documents.

 

Code of Business Conduct and Ethics

 

Our Board of Directors adopted a Code of Business Conduct and Ethics applicable to all of our directors and executive officers.  This code is intended to focus the members of our Board of Directors and each executive officer on areas of ethical risk, provide guidance to directors and executive officers to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help foster a culture of honesty and accountability.  All members of our Board of Directors and all executive officers are required to sign this code on an annual basis.

 

Code of Ethics for Financial Executives

 

Our Board of Directors adopted a Code of Ethics applicable to all financial executives and any other senior officer with financial oversight responsibilities.  This code governs the professional and ethical conduct of our financial executives, and directs that they: (i) act with honesty and integrity; (ii) provide information that is accurate, complete, objective, relevant, and timely; (iii) comply with federal, state, and local rules and regulations; (iv) act in good faith with due care, competence and diligence; and (v) respect the confidentiality of information acquired in the course of their work and not use the information acquired for personal gain.  All of our financial executives are required to sign this code on an annual basis.

 

Insider Trading Policy

 

Our Board of Directors adopted an Insider Trading Policy applicable to all directors and officers.  Insider trading generally refers to the buying or selling of a security in breach of a fiduciary duty or other relationship of trust and confidence while in possession of material, non-public information about the security.  Insider trading violations may also include ’tipping’ such information, securities trading by the person ’tipped,’ and securities trading by those who misappropriate such information.  The scope of insider trading violations can be wide reaching.  As such, our Insider Trading Policy outlines the definitions of insider trading, the penalties and sanctions determined, and what constitutes material, non-public information.  Illegal insider trading is against our policy as such trading can cause significant harm to our reputation for integrity and ethical conduct.  Individuals who fail to comply with the requirements of the policy are subject to disciplinary action including dismissal for cause.  All members of our Board of Directors and all executive officers are required to ratify the terms of this policy on an annual basis.

 

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Whistleblower Policy

 

Our Board of Directors adopted a Whistleblower Policy to establish and maintain a complaint program to facilitate (i) the receipt, retention and treatment of complaints received by us regarding our accounting, internal accounting controls, auditing matters or violations of the Code of Conduct and (ii) the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.  Any person with a concern relating to the Accounting Policies or compliance with our Code of Conduct should submit their concern in writing to the Chair of our Audit Committee.  Complaints may be made without fear of dismissal, disciplinary action or retaliation of any kind.  We will not discharge, discipline, demote, suspend, threaten or in any manner discriminate against any officer or employee in the terms and conditions of employment based on any lawful actions with respect to (i) good faith reporting of concerns or complaints regarding Accounting Policies, or otherwise specified in Section 806 of the U.S. Sarbanes-Oxley Act of 2002, (ii) compliance with our Code of Conduct or (iii) providing assistance to the Audit Committee, management or any other person or group, including any governmental, regulatory or law enforcement body, investigating a concern.

 

Related Party Transactions Policy

 

Our Board of Directors adopted a Related Party Transactions Policy as we recognize that transactions involving related parties present a heightened risk of conflicts of interest and/or improper valuation (or the perception thereof).  Therefore, our Board determined that our Audit Committee shall review, approve and, if necessary, recommend to the Board for its approval all related party transactions and any material amendments to such related party transactions.  Our Board may determine that a particular related party transaction or a material amendment thereto shall instead be reviewed and approved by a majority of directors disinterested in the related party transaction.  No director shall participate in any approval of a related party transaction for which the director is a related party, except that the director shall provide all material information concerning the related party transaction to the committee.  Our President is responsible for providing to the Audit Committee, on a quarterly basis, a summary of all payments made by or to us in connection with duly approved related party transactions during the preceding fiscal quarter.  The President is responsible for reviewing and approving all payments made by or to us in connection with duly approved related party transactions and shall certify to the Audit Committee that any payments made by or to us in connection with such related party transactions have been made in accordance with the policy.  All related party transactions shall be disclosed in our applicable filings as required by the Securities Act of 1933 and the Securities Exchange Act of 1934 and related rules and regulations.

 

Committee Charters, Corporate Governance Guidelines, and Codes of Ethics

 

Our Board of Directors adopted charters for the Audit and Compensation Committees describing the authority and responsibilities delegated to each committee.  We post on our website the charters of our Audit and Compensation Committees, our Code of Conduct and Ethics, our Code of Ethics for Financial Executive, and any amendments or waivers thereto applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions; and any other corporate governance materials contemplated by SEC regulations.  These documents are also available in print to any stockholder requesting a copy in writing from our Secretary at our executive offices set forth in this Report.

 

32

 

Board Meetings and Committees; Annual Meeting Attendance

 

We held 5 meetings of the Board of Directors during the year ended December 31, 2019 and conducted other business through unanimous written actions.

 

Indemnification

 

Section 145 of the Nevada Corporation Law provides in relevant parts as follows:

 

(1)  A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or on a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

 

(2)  A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine on application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

 

(3)  To the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in (1) or (2) of this subsection, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

 

(4)  The indemnification provided by this section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

 

The foregoing discussion of indemnification merely summarizes certain aspects of indemnification provisions and is limited by reference to the above discussed sections of the Nevada Corporation Law.

 

33

 

Our Articles of Incorporation and Bylaws provide that we may indemnify to the full extent of its power to do so, all directors, officers, employees, and/or agents.  Insofar as indemnification by us for liabilities arising under the Securities Act that may be permitted to our officers and directors pursuant to the foregoing provisions or otherwise, we are aware that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

Summary Compensation Table

 

The table below shows certain compensation information for services rendered in all capacities for the last two fiscal years ended December 31, 2019 and 2018.  The information includes the dollar value of base salaries, bonus awards, the number of non-qualified stock options (“Options”) granted and certain other compensation, if any, whether paid or deferred.

 

Name and
Principal Position
  Year     Salary
($)
    Bonus
($)
    Stock Awards
($)
    Option Awards ($)     Non-Equity Incentive Plan Compen-sation
($)
    Nonquali-fied Deferred Compen-sation Earnings ($)     All Other Compen-sation
($)
    Total
($)
 

Steven G. Johnson (1)

(President, CEO, Sec., Treas.)

    2019     $ 250,147                                   $ 14,537     $ 264,684  
    2018     $ 250,147                                   $ 14,189     $ 264,336  
                                                                       

Sandra K McRee (2)

(COO)

    2019     $ 210,146                                   $ 5,537     $ 215,683  
    2018     $ 210,147                                   $ 5,189     $ 215,336  
                                                                       

Jason T. Thompson (3)

(Principal Financial Officer)

    2019                                                  
    2018                                                  
                                                                       

 

 

(1)

For 2019: All Other Compensation includes $9,000 for car allowance and $5,537 for health insurance premiums paid on Mr. Johnson’s behalf.  For 2018: All Other Compensation includes $9,000 for car allowance and $5,189 for health insurance premiums paid on Mr. Johnson’s behalf.

(2)

For 2019: All Other Compensation is for health insurance premiums paid on Ms. McRee’s behalf.  For 2018: All Other Compensation is for health insurance premiums paid on Ms. McRee’s behalf.

(3)

Mr. Thompson was named Principal Financial Officer and Chief Accounting Officer effective January 1, 2018, upon the resignation of our former CFO.

 

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Outstanding Equity Awards at Fiscal Year End

 

The table below shows outstanding equity awards for our executive officers as of the fiscal year ended December 31, 2019, which equity awards consists solely of ten-year, non-qualified stock options (the “Options”).  No executive officers have exercised any of their Options.

 

  Option Awards   Stock Awards  
Name and Office   Number of Securities Underlying Unexercised Options 
(#) Exercisable
   

Number of Securities Underlying Unexercised Options

(#) Unexercis-able

   

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options 

(#)

   

Option Exercise Price   

($) 

    Option Expiry Date     Number of Shares or Units of Stock That Have Not Vested (#)    

Market Value of Shares or Units of Stock That Have Not Vested 

($) 

   

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested 

(#)

    Equity Incentive Plan Awards Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)  
Steve G. Johnson
(Pres., CEO, Sec., Treas.)
 

50,000 (1)

 

              $ 0.52     01/05/20                        
  50,000 (2)               $ 0.52     03/25/20                        
  2,000,000 (3)               $ 0.10     12/27/26                        
  444,444 (4)     222,223 (4)           $ 0.11     11/30/27                        
Sandra K McRee
(COO)
  2,000,000 (5)               $ 0.51     11/01/23                        
  1,000,000 6)               $ 0.53     02/25/25                        
  2,000,000 (3)               $ 0.10     12/27/26                        
1,333,334 (7)     666,666 (7)           $ 0.10     12/04/27                        
Jason T. Thompson (Principal Financial Officer)    150,000(8)               $ 0.50     01/02/24                        
  235,295 (9)               $ 0.17     08/31/26                        
  444,444 (10)     222,223 (10)           $ 0.06     11/30/27                        
                                                               

  

 
(1) All underlying shares vested on January 6, 2010.
(2) All underlying shares vested on December 31, 2010.

(3)

All underlying shares vested on December 7, 2019.

(4)

An aggregate of 222,222 underlying shares vested on each of November 30, 2018 and 2019 and 222,223 underlying shares vest on November 30, 2020.  This Option were awarded for services as a member of the Board of Directors .and is included in the Directors Compensation table below.

(5)

All underlying shares vested on November 1, 2016.

(6)

All underlying shares vested on February 25, 2018.

(7)

An aggregate of 666,667 underlying shares vested on each of December 4, 2018 and 2019 and 666,666 vest on December 4, 2020.

(8)

All underlying shares vested on January 2, 2017.  This Option were awarded for services as a member of the Board of Directors and is included in the Directors Compensation table below.

(9)

All underlying shares vested on August 31, 2019. This Option were awarded for services as a member of the Board of Directors and is included in the Directors Compensation table below.

(10)

An aggregate of 222,222 underlying shares vested on each of November 30, 2018 and 2019 and 222,223 underlying shares vest on November 30, 2020.  This Option were awarded for services as a member of the Board of Directors and is included in the Directors Compensation table below.

 

Employment Agreements with Executive Officers

 

We have no employment agreements with our executive officers.

 

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Director Compensation

 

Our Directors Compensation Policy state that a cash retainer to outside directors shall be paid quarterly in advance as of the first day of each fiscal quarter.  Cash retainers shall commence effective as of January 1, 2017, or at such later date as the Company is in a position to pay cash retainers.  No cash retainers were paid in 2019 and 2018 per the terms of the Directors Compensation Policy as the Company was not in a financial position to pay such cash retainers.

 

Our directors have also been granted non-qualified stock options from time to time as detailed in the table below.  No options were granted to directors in 2019 or 2018.

 

The table below shows outstanding equity awards for our directors who are not executive officers, which equity awards consists solely of ten-year, non-qualified stock options.  No options have been exercised.

 

Name   Fees Earned or Paid in Cash     Stock Awards
($)
    Option
Awards
($)(1)
    Non-Equity Incentive Plan Compensation
($)
    Nonqualified
Deferred
Compensation
Earnings
($)
    All Other
Compensation
  ($)
    Total
($)
 
L. Allen Wheeler (2)                   $ 52,650                             $ 52,650  
                    $ 49,650                             $ 49,650  
                    $ 50,700                             $ 50,700  
                    $ 24,000                             $ 24,000  
                $ 24,000                       $ 24,000  
Steven B. Epstein (3)                   $ 221,500                             $ 221,500  
                    $ 16,900                             $ 16,900  
                    $ 24,000                             $ 24,000  
                $ 24,000                       $ 24,000  
Dr. James R. Higgins (4)                   $ 66,450                             $ 66,450  
                    $ 24,000                             $ 24,000  
                $ 24,000                       $ 24,000  
                                                       
Jeffery C. Lightcap                                          
Jason T. Thompson (5)                   $ 39,000                             $ 39,000  
                    $ 24,000                             $ 24,000  
                $ 24,000                       $ 24,000  
David R. White (6)                   $ 130,000                             $ 130,000  
                    $ 24,000                             $ 24,000  
                $ 24,000                       $ 24,000  

 

 

(1)

The valuation methodology used to determine the fair value of the options granted during the year was the Black-Scholes Model.  The Black-Scholes-Merton 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 expected life of the options.  For more detail, see NOTE 4 of the Notes to Consolidated Financial Statements attached hereto.

(2)

An aggregate of 75,000 underlying shares vested on each of January 6, 2010 and December 31, 2010.  An aggregate 50,000 underlying shares vested on each of February 25, 2016, 2017 and 2018.  An aggregate of 78,432 underlying shares vested on each of August 31, 2017 and, 2018 and 78,431 underlying shares vested on August 31, 2019.  An aggregate of 222,222 underlying shares vested on each of November 30, 2018 and 2019 and 222,223 underlying shares vest on November 30, 2020.

(3)

An aggregate of 166,667 underlying shares vested on each of April 1, 2015 and 2016, and 166,666 underlying shares vested on April 1, 2017.  An aggregate 16,667 underlying shares vested on each of February 25, 2016 and 2017, and 16,666 underlying shares vested on February 25, 2018.  An aggregate of 78,432 underlying shares vested on each of August 31, 2017 and, 2018 and 78,431 underlying shares vested on August 31, 2019.  An aggregate of 222,222 underlying shares vested on each of November 30, 2018 and 2019 and 222,223 underlying shares vest on November 30, 2020.

(4)

An aggregate of 50,000 underlying shares vested on each of April 1, 2015, 2016 and 2017.  An aggregate of 78,432 underlying shares vested on each of August 31, 2017 and, 2018 and 78,431 underlying shares vested on August 31, 2019.  An aggregate of 222,222 underlying shares vested on each of November 30, 2018 and 2019 and 222,223 underlying shares vest on November 30, 2020.

 

36

 

(5)

An aggregate of 50,000 underlying shares vested on each of January 2, 2015, 2016 and 2017.  An aggregate of 78,432 underlying shares vested on each of August 31, 2017 and 2018 and 78,431 underlying shares vested on August 31, 2019.  An aggregate of 222,222 underlying shares vested on November 30, 2018 and 2019 and 222,223 underlying shares vest on November 30, 2020.

(6)

An aggregate of 166,667 underlying shares vested on each of April 1, 2015 and 2016 and 166,666 underlying shares vested on April 1, 2017.  An aggregate of 78,432 underlying shares vested on each of August 31, 2017 and 2018 and 78,431 underlying shares vested on August 31, 2019.  An aggregate of 222,222 underlying shares vested on each of November 30, 2018 and 2019 and 222,223 underlying shares vest on November 30, 2020.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

Beneficial Security Ownership Table

 

As of the date of this filing, the following table sets forth certain information with respect to the beneficial ownership of our Common Stock by (i) each shareholder known by us to be the beneficial owner of more than five percent (5%) of our Common Stock, (ii) by each of our current directors and executive officers as identified herein, and (iii) all of our directors and executive officers as a group.  Each person has sole voting and investment power with respect to the shares of Common Stock, except as otherwise indicated.  Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.  Shares of Common Stock and non-qualified stock options (“Options”), common stock purchase warrants (“Warrants”), and convertible securities that are currently exercisable or convertible into shares of our Common Stock within sixty (60) days of the date of this document, are deemed to be outstanding and to be beneficially owned by the person holding the Options, Warrants, or convertible securities for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.  Unless otherwise noted, the address for all officers and directors listed below is 405 State Highway 121, Suite B-240, Lewisville, Texas 75067.

 

 

 

Title of Class

 

 

 

Name and Address of Officer and Directors

 

Amount and Nature of Beneficial Ownership (1)

 

Percent

of

Class

   

Common Stock

  Steve G. Johnson (Chief Executive Officer, President, Secretary, Treasurer, Director)  

49,097,514 (2)

    28.43 %  
Common Stock   Jason T. Thompson (Director and Chief Accounting Officer, Principal Financial Officer)  

4,393,271 (3)

    3.07 %  
Common Stock   L. Allen Wheeler (Chairman of the Board  

27,023,897 (4)

    17.98 %  
Common Stock   Sandra K. McRee (Chief Operating Officer)  

10,541,801 (5)

    7.07 %  
Common Stock   Jeffrey C. Lightcap (Director)  

52,798,066 (6)

    27.47 %  
Common Stock   David R. White (Director)  

1,449,739 (7)

    1.03 %  
Common Stock   Steven B. Epstein (Director)  

7,914,078 (8)

    5.44 %  
Common Stock   Dr. James R. Higgins (Director)  

33,567,665 (9)

    20.77 %  
Common Stock   All Officers & Directors as a Group (8 persons)  

186,786,031 (10)

    66.85 %  

 

 

(1)

Unless otherwise noted , we believe that all shares are beneficially owned and that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock owned by them.  Applicable percentage of ownership is based on 139,380,748 shares of Common Stock currently outstanding, as adjusted for each shareholder.

(2)

This amount includes (i) 208,977 shares directly owned by Johnson, (ii) 2,544,444 shares due to Johnson upon exercise of vested Options, (iii) 550,001 shares due to Johnson upon exercise of vested warrants, (iv) 30,232,476 shares that may be acquired upon conversion of convertible debt (including interest paid in kind through March 31, 2020), and (v) 15,561,616 shares beneficially owned by SJ Capital, LLC, a company controlled by Johnson.  The percentage of class for Johnson is based on 172,707,669 shares which would be outstanding if all of Johnson’s vested Options and Warrants were exercised and convertible debt was converted.

(3)

This amount includes (i) 737,500 shares directly owned by Thompson, (ii) 829,739 shares due to Thompson upon exercise of vested Options, (iii) 55,769 shares due to Thompson upon exercise of vested warrants, and (iv) 2,770,263 shares that may be acquired upon conversion of convertible debt (including interest paid in kind through March 31, 2020).  The percentage of class for Thompson is based on 143,036,519 shares which would be outstanding if all of Thompson’s vested Options and Warrants were exercised and convertible debt was converted.

 

37

 

 

(4)

This amount includes (i) 1,856,345 shares directly owned by Wheeler, (ii) 979,739 shares due to Wheeler upon exercise of Options, (iii) 382,692 shares due to Wheeler upon exercise of vested warrants (iv) 9,571,085 shares that may be acquired upon conversion of convertible debt (including interest paid in kind through March 31, 2020), (v) 14,201,820 shares beneficially owned by Dozer Man, LLC, an entity controlled by Wheeler, and (vi) 32,216 shares beneficially owned by Global FG, LLC, an entity of which Wheeler owns 50%.  The percentage of class for Wheeler is based on 150,314,264 shares which would be outstanding if all of Wheeler’s vested Options and Warrants were exercised and convertible debt was converted.

(5)

This amount includes (i) 750,000 shares directly owned by McRee, (ii) 6,333,334 shares due to McRee upon exercise of vested Options, (iii) 148,076 shares due to McRee upon exercise of vested warrants, and (iv) 3,310,391 shares that may be acquired upon conversion of convertible debt (including interest paid in kind through March 31, 2020).  The percentage of class for McRee is based on 149,172,549 shares which would be outstanding if all of McRee’s vested Options and Warrants were exercised and convertible debt was converted.

(6)

HealthCor Management, LP, HealthCor Associates, LLC, HealthCor Hybrid Offshore Master Fund, LP, HealthCor Hybrid Offshore GP, LLC, HealthCor Group, LLC, HealthCor Partners Management, L.P., HealthCor Partners Management GP, LLC, HealthCor Partners Fund, LP, HealthCor Partners, LP HealthCor Partners GP, LLC, and Jeffrey C. Lightcap (collectively, the Reporting Persons), beneficially own an aggregate of 52,798,066 shares, representing (i) 46,689,413 shares that may be acquired upon conversion of convertible debt (including interest paid in kind through March 31, 2020) and (ii) 6,108,653 shares that may be acquired upon exercise of Warrants.  The amounts detailed above include (i) 493,269 shares due to Lightcap upon exercise of vested Warrants and (ii) 17,028,142 shares that may be acquired upon conversion of convertible debt (including interest paid in kind through March 31, 2020).  The percentage of class for Reporting Persons and Lightcap as an individual is based on 192,178,814 shares which would be outstanding if the Reporting Persons notes and convertible debt held by Lightcap were converted and all Warrants held by the Reporting Persons and Lightcap were exercised.

(7)

This amount includes (i) 270,000 shares directly owned by White (ii) 1,179,739 shares due to White upon exercise of vested Options.  The percentage of class for White is based on 140,560,487 shares which would be outstanding if all of White’s vested Options were exercised.

(8)

This amount includes (i) 1,780,000 shares directly owned by Epstein, (ii) 1,229,739 shares due to Epstein upon exercise of vested Options, (iii) 178,846 shares due to Epstein upon exercise of vested warrants, and (iv) 4,725,493 shares that may be acquired upon conversion of convertible debt (including interest paid in kind through March 31, 2020).  The percentage of class for Epstein is based on 145,514,826 shares which would be outstanding if all of Epstein’s vested Options and Warrants were exercised and convertible debt was converted.

(9)

This amount includes (i) 4,731,445 shares directly owned by Higgins, (ii) 1,361,538 shares jointly owned by Higgins and his wife, (iii) 5,270,484 shares held in trust by Higgins’ wife, (iv) 829,739 shares due to Higgins upon exercise of vested Options, (v) 682,692 shares due to Higgins upon exercise of vested warrants, and (vi) 19,691,767 shares that may be acquired upon conversion of convertible debt (including interest paid in kind through March 31, 2020).  The percentage of class for Higgins is based on 161,584,946 shares which would be outstanding if all of Higgins’ vested Options and Warrants were exercised and convertible debt was converted.

(10)

This amount includes all shares directly and beneficially owned by all officers and directors and all shares to be issued directly and beneficially upon exercise of vested shares under Options and Warrants and upon conversion of convertible securities.  The percentage of class for all officers and directors is based on 279,404,838 shares which would be outstanding if all the aforementioned Options, Warrants and convertible securities were exercised or converted.

 

Under Rule 144 promulgated under the Securities Act, our officers, directors and beneficial shareholders may sell up to one percent (1%) of the total outstanding shares (or an amount of shares equal to the average weekly reported volume of trading during the four calendar weeks preceding the sale) every three months provided that (1) current public information is available about our Company, (2) the shares have been fully paid for at least one year, (3) the shares are sold in a broker’s transaction or through a market-maker, and (4) the seller files a Form 144 with the SEC if seller is an affiliate.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

During the year ended December 31, 2019, we acknowledge that none of our officers or directors failed to file on a timely basis certain ownership forms required by Section 16(a) of the Exchange Act.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Exclusive of the participation of certain funding activity in February and July 2018 and May 2019 (for more detail, see NOTE 11 of the Notes to Consolidated Financial Statements attached hereto), none of our directors, officers or principal shareholders, nor any associate or affiliate of the foregoing, has any interest, direct or indirect, in any transaction or in any proposed transaction, which materially affected us during the year ended December 31, 2019.

 

38

 

Related Party Transactions Policy

 

As indicated hereinabove, our Board of Directors adopted a Related Party Transactions Policy and all related party transactions have been disclosed in our applicable filings as required by the Securities Act of 1933 and the Securities Exchange Act of 1934 and related rules and regulations.

 

Director Independence

 

Although our Board of Directors believes that our directors will exercise their judgment independently, no director is totally free of relationships that, in the opinion of the Board of Directors, might interfere with their exercise of independent judgment as a director.

 

Promoters and Certain Control Persons

 

None.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Audit Fees.  The aggregate amount expected to be billed for professional services rendered by BDO USA, LLP (“BDO”) for the 2019 quarterly reviews and the annual audit for the year ended December 31, 2019 is $280,000.  BDO billed us $280,000 for professional services rendered for the annual audit for the year ended December 31, 2018 and for quarterly review of our financial statements for 2018, and other services that are normally provided by an accountant in connection with statutory and regulatory filings or engagements for the fiscal year.

 

Tax Fees.  The aggregate amount expected to be billed for tax return preparation for the year ended December 31, 2019 rendered by BDO is $36,000.  BDO billed us $39,936 for tax return preparation for the year ended December 31, 2018.

 

All Other Fees.  We incurred no other fees for the years ended December 31, 2019 and 2018.

 

The Audit Committee of our Board of Directors adopted a policy requiring that it pre-approve all fees paid to our independent registered public accounting firm, regardless of the type of service.  All non-audit services were reviewed with the Audit Committee, which concluded that the provision of such services by BDO USA, LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.

 

39

 
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

Exhibit No.

Date of Document

Name of Document

3.08

11/06/07

Notice of Conversion filed in State of Nevada (to convert CareView Communications, Inc. from a California corporation to a Nevada corporation) (1)

3.09

11/06/07

Articles of Incorporation for CareView Communications, Inc. filed in State of Nevada (1)

3.10

06/26/19

Certificate of Amendment to Articles of Incorporation of CareView Communications, Inc. (incorporated herein by reference to Exhibit 3.01 to the Company’s Current Report on Form 8-K filed on June 27, 2019 (File No. 000-54090))

3.11

n/a

Bylaws of CareView Communications, Inc., a Nevada corporation (1)

3.12

04/11/19

Amendments to the Bylaws of CareView Communications, Inc., a Nevada corporation (incorporated herein by reference to the Company’s Current Report on Form 8-K filed on May 20, 2019 (File No. 000-54090))

10.01

02/02/18

Modification Agreement by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 2, 2018 (File No. 000-54090))

10.02

02/02/18

Second Amended and Restated Warrant to Purchase Common Stock of the Company, issued to PDL Investment Holdings, LLC (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 2, 2018 (File No. 000-54090))

10.03

02/02/18

Amended and Restated Registration Rights Agreement by and between the Company and PDL Investment Holdings, LCC (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 2, 2018 (File No. 000-54090))

10.04

02/02/18

Consent and Amendment to Note and Warrant Purchase Agreement and Subordination and Intercreditor Agreement by and among the Company, CareView Communications, Inc., a Texas corporation, PDL Investment Holdings, LLC and the note investors signatory to the Note and Warrant Purchase Agreement, as amended (incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 2, 2018 (File No. 000-54090))

10.05

02/02/18

Consent to Credit Agreement by and among the Company, CareView Communications, Inc., a Texas corporation, and PDL Investment Holdings, LLC (incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on February 2, 2018 (File No. 000-54090))

10.06

02/02/18

Amendment to Promissory Note to Rockwell Holdings I, LLC ( incorporated herein by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on February 2, 2018 (File No. 000-54090))

10.07

02/02/18

Amendment to Common Stock Purchase Warrant issued to Rockwell Holdings I, LLC ( incorporated herein by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on February 2, 2018 (File No. 000-54090))

10.08

02/23/18

Eighth Amendment to Note and Warrant Purchase Agreement, among the Company HealthCor Partners Fund LP, HealthCor Hybrid Offshore Master Fund, LP and the investors party thereto (incorporated herein by reference to Exhibit 10.34 to the Company’s Current Report on Form 8-K filed on February 26, 2018 (File No. 000-54090))

10.09

02/23/18

Form of Eighth Amendment Supplemental Closing Note (incorporated herein by reference to Exhibit 10.35 to the Company’s Current Report on Form 8-K filed on February 26, 2018 (File No. 000-54090))

10.10

02/23/18

Form of Eighth Amendment Supplemental Warrant (incorporated herein by reference to Exhibit 10.36 to the Company’s Current Report on Form 8-K filed on February 26, 2018 (File No. 000-54090))

10.11

02/23/18

Second Amendment to Credit Agreement, by and among the Company, CareView Communications, Inc., and PDL Investment Holding, LLC (incorporated herein by reference to Exhibit 10.37 to the Company’s Current Report on Form 8-K filed on February 26, 2018 (File No. 000-54090))

 

40  

 

 

10.12

05/31/18

Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC ( incorporated herein by reference to Exhibit 10.05 to the Company’s Current Report on Form 8-K filed on June 4, 2018 (File No. 000-54090))

10.14

06/14/18

Second Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC ( incorporated herein by reference to Exhibit 10.06 to the Company’s Current Report on Form 8-K filed on June 15, 2018 (File No. 000-54090))

10.15

06/28/18

Third Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC ( incorporated herein by reference to Exhibit 10.08 to the Company’s Current Report on Form 8-K filed on July 5, 2018 (File No. 000-54090))

10.16

07/10/18

Ninth Amendment to Note and Warrant Purchase Agreement, among the Company HealthCor Partners Fund LP, HealthCor Hybrid Offshore Master Fund, LP and the investors party thereto (incorporated herein by reference to Exhibit 10.43 to the Company’s Current Report on Form 8-K filed on July 11, 2018 (File No. 000-54090))

10.17

07/13/18

Tenth Amendment to Note and Warrant Purchase Agreement, among the Company HealthCor Partners Fund LP, HealthCor Hybrid Offshore Master Fund, LP and the investors party thereto (incorporated herein by reference to Exhibit 10.53 to the Company’s Current Report on Form 8-K filed on July 16, 2018 (File No. 000-54090))

10.18

07/13/18

Form of Tenth Amendment Supplemental Closing Note (incorporated herein by reference to Exhibit 10.54 to the Company’s Current Report on Form 8-K filed on July 16, 2018 (File No. 000-54090))

10.19

07/13/18

Third Amendment to Credit Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, and PDL Investment Holdings, LLC ( incorporated herein by reference to Exhibit 10.55 to the Company’s Current Report on Form 8-K filed on July 16, 2018 (File No. 000-54090))

10.20

08/31/18

Fourth Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC ( incorporated herein by reference to Exhibit 10.09 to the Company’s Current Report on Form 8-K filed on September 5, 2018 (File No. 000-54090))

10.21

09/28/18

Fifth Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC ( incorporated herein by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on October 4, 2018 (File No. 000-54090))

10.22

11/12/18

Sixth Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC ( incorporated herein by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed on November 16, 2018 (File No. 000-54090))

10.23

11/19/18

Seventh Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC ( incorporated herein by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed on November 21, 2018 (File No. 000-54090))

10.24

12/03/18

Eighth Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC ( incorporated herein by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K filed on December 6, 2018 (File No. 000-54090))

10.25

12/17/18

Ninth Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC (incorporated herein by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K filed on December 21, 2018 (File No. 000-54090))

 

41  

 

 

10.26

01/31/19

Tenth Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC (incorporated herein by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K filed on February 5, 2019 (File No. 000-54090))

10.27

02/28/19

Eleventh Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC (incorporated herein by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K filed on March 4, 2019 (File No. 000-54090))

10.28

03/27/19

Eleventh Amendment to Note and Warrant Purchase Agreement, among the Company HealthCor Partners Fund LP, HealthCor Hybrid Offshore Master Fund, LP and the investors party thereto (incorporated herein by reference to the Company’s Current Report on Form 8-K filed on March 29, 2019 (File No. 000-54090))

10.29

03/29/19

Twelfth Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investment Holdings, LLC (incorporated herein by reference to the Company’s Annual Report on Form 10-K filed on March 29, 2019 (File No. 000-54090))

10.30

04/09/19 Fourth Amendment to Credit Agreement (incorporated herein by reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K filed on April 15, 2019 (File No. 000-54090))

10.31

04/09/19 Amended and Restated Tranche One Term Note (incorporated herein by reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K filed on April 15, 2019 (File No. 000-54090))

10.32

04/29/19 Thirteenth Amendment to Modification Agreement (incorporated herein by reference to Exhibit 10.20 to the Company’s Current Report on Form 8-K filed on May 1, 2019 (File No. 000-54090))

10.33

05/15/19 Fourteenth Amendment to Modification Agreement (incorporated herein by reference to Exhibit 10.32 to the Company’s Current Report on Form 8-K filed on May 20, 2019 (File No. 000-54090))

10.34

05/15/19 Twelfth Amendment to Note and Warrant Purchase Agreement (incorporated herein by reference to Exhibit 10.33 to the Company’s Current Report on Form 8-K filed on May 20, 2019 (File No. 000-54090))

10.35

05/15/19 Form of Twelfth Amendment Supplemental Closing Note (incorporated herein by reference to Exhibit 10.34 to the Company’s Current Report on Form 8-K filed on May 20, 2019 (File No. 000-54090))

10.36

05/15/19 Fifth Amendment to Credit Agreement (incorporated herein by reference to Exhibit 10.35 to the Company’s Current Report on Form 8-K filed on May 20, 2019 (File No. 000-54090))

10.37

05/15/19 Form of Tranche Three Term Note (incorporated herein by reference to Exhibit 10.36 to the Company’s Current Report on Form 8-K filed on May 20, 2019 (File No. 000-54090))

10.38

05/15/19 Form of Tranche Three Loan Warrant (incorporated herein by reference to Exhibit 10.37 to the Company’s Current Report on Form 8-K filed on May 20, 2019 (File No. 000-54090))

10.39

09/30/19

Fifteenth Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investments, LLC (incorporated herein by reference to Exhibit 10.22 to the Company’s Current Report on Form 8-K filed on October 4, 2019 (File No. 000-54090))

10.40

11/29/19

Sixteenth Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investments, LLC (incorporated herein by reference to Exhibit 10.23 to the Company’s Current Report on Form 8-K filed on December 5, 2019 (File No. 000-54090))

10.41

12/31/19

Seventeenth Amendment to Modification Agreement, by and among the Company, CareView Communications, Inc., a Texas corporation, CareView Operations, L.L.C., a Texas limited liability company, and PDL Investments, LLC (incorporated herein by reference to Exhibit 10.22 to the Company’s Current Report on Form 8-K filed on January 7, 2020 (File No. 000-54090))

10.42

12/31/19

Second Amendment to Promissory Note to Rockwell Holdings I, LLC (incorporated herein by reference to Exhibit 10.27 to the Company’s Current Report on Form 8-K filed on January 7, 2020 (File No. 000-54090))
21.00 03/31/20 Subsidiaries of the Registrant*

31.1

03/30/20

Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14a and Rule 14d-14(a). *

 

42  

 

 

31.2

03/30/20

Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a). *

32.1

03/30/20

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. *

32.2

03/3020

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. *

101.INS

n/a

XBRL Instance Document*

101.SCH

n/a

XBRL Taxonomy Extension Schema Document*

101.CAL

n/a

XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF

n/a

XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB

n/a

XBRL Taxonomy Extension Label Linkbase Document*

101.PRE

n/a

XBRL Taxonomy Extension Presentation Linkbase Document*

 

 

*     Filed herewith.

 

ITEM 16. FORM 10-K SUMMARY.

 

None

 

43  

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 2020

 

 

CAREVIEW COMMUNICATIONS, INC.

 

 

 

 

By:

/s/ Steven G. Johnson

 

 

Steven G. Johnson

 

 

Chief Executive Officer

 

 

Principal Executive Officer

     

 

 

 

 

By:

/s/ Jason T. Thompson

 

 

Jason T. Thompson

 

 

Principal Financial Officer

 

 

Chief Accounting Officer

 

44  

 

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven G. Johnson and Jason T. Thompson and each of them, his attorney-in-fact with power of substitution for him in any and all capacities, to sign any amendments, supplements or other documents relating to this Annual Report on Form 10-K he deems necessary or appropriate, and to file the same, with exhibits thereto, and other documents in connection therewith, with the SEC, hereby ratifying and confirming all that such attorney-in-fact or their substitute may do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Steven G. Johnson   Chief Executive Officer, President, Secretary,
Steven G. Johnson   Treasurer, Director   March 30, 2020
         
/s/ Jason T. Thompson   Director, Principal Financial Officer, Chief Accounting    
Jason T. Thompson   Officer   March 30, 2020
         
/s/ Sandra K. McRee        
Sandra K. McRee   Chief Operating Officer   March 30, 2020
         
/s/ L. Allen Wheeler        
L. Allen Wheeler   Chairman of the Board   March 30, 2020
         
/s/ Jeffrey C. Lightcap        
Jeffrey C. Lightcap   Director   March 30, 2020
         
/s/ David R. White        
David R. White   Director   March 30, 2020
         
/s/ Steven B. Epstein        
Steven B. Epstein   Director   March 30, 2020
         
/s/ Dr. James R. Higgins        
Dr. James R. Higgins   Director   March 30, 2020

 

45  

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets as of December 31, 2019 and 2018 F-2
   
Consolidated Statements of Operations for the years ended December 31, 2019 and 2018 F-3
   
Consolidated Statements of Changes in Equity for the years ended December 31, 2019 and 2018 F-4
   
Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018 F-5
   
Notes to Consolidated Financial Statements F-6

 

 

 

 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

CareView Communications, Inc.

Lewisville, TX

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CareView Communications, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has accumulated losses since inception that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/BDO USA, LLP

We have served as the Company's auditor since 2010.

Dallas, Texas

3/30/2020

 

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

 

BDO is the brand name for the BDO network and for each of the BDO Member Firms.

 F-1 
 

 

 

CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

    December 31,  
    2019     2018  
ASSETS
Current Assets:                
Cash and cash equivalents   $ 269,741     $ 1,200,725  
Accounts receivable, net of allowance for doubtful accounts of  $0 and $7,588, respectively     1,666,338       1,276,992  
Other current assets     220,464       1,408,426  
Total current assets     2,156,543       3,886,143  
                 
Property and equipment, net     1,978,020       2,486,666  
                 
Other Assets:                
Restricted cash           750,000  
Intangible assets, net     830,682       746,140  
Operating lease asset     85,942        
Other assets, net     240,700       310,592  
Total other assets     1,157,324       1,806,732  
Total assets   $ 5,291,887     $ 8,179,541  
                 
 LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:                
Accounts payable   $ 439,851     $ 509,298  
Notes payable, current portion,  net of debt costs of $0 and $0, respectively     20,563,786       15,513,786  
Operating lease liability     91,363        
Other current liabilities     4,505,505       1,416,240  
      25,600,505       17,439,324  
                 
Long-term Liabilities:                
Senior secured notes, net of debt discount and debt costs of $5,774,915 and $9,717,161, respectively     50,835,220       46,892,974  
Senior secured convertible notes, net of debt discount and debt costs of $4,320,038 and $4,714,453, respectively     20,599,475       17,481,632  
Notes payable, net of debt costs of $0 and $815,062           4,184,938  
Total long-term liabilities     71,434,695       68,559,544  
Total liabilities     97,035,200       85,998,868  
                 
Commitments and Contingencies (NOTE 10)                
                 
Stockholders' Deficit:                
Preferred stock - par value $0.001; 20,000,000 shares authorized; no shares issued and outstanding            
Common stock - par value $0.001; 500,000,000 shares authorized at  December 31, 2019 and 300,000,000 shares authorized at December 31, 2018; 139,380,748 shares issued and outstanding     139,381       139,381  
Additional paid in capital     84,244,343       84,027,883  
Accumulated deficit     (176,127,037 )     (161,986,591 )
Total stockholders' deficit     (91,743,313 )     (77,819,327 )
Total liabilities and stockholders' deficit   $ 5,291,887     $ 8,179,541  

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F- 2  

 

 

CAREVIEW COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Year Ended December 31,  
    2019     2018  
Revenues, net   $ 6,294,122     $ 6,096,153  
                 
Operating expenses:                
Network operations     3,033,130       3,405,198  
General and administration     4,189,409       3,234,009  
Sales and marketing     250,596       394,548  
Research and development     1,400,325       1,429,022  
Depreciation and amortization     720,567       1,284,616  
Total operating expense     9,594,027       9,747,393  
                 
Operating loss     (3,299,905 )     (3,651,240 )
                 
Other income and (expense)                
Interest expense     (10,851,162 )     (12,452,113 )
Interest income     761       3,072  
Other income     9,860       22,431  
Total other income (expense)     (10,840,541 )     (12,426,610 )
                 
Loss before taxes     (14,140,446 )     (16,077,850 )
                 
Provision for income taxes            
                 
Net loss   $ (14,140,446 )   $ (16,077,850 )
                 
Net loss per share   $ (0.10 )   $ (0.12 )
                 
Weighted average number of common  shares outstanding, basic and diluted     139,380,748       139,380,748  

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F- 3  

 

 

CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

                Additional              
    Common Stock     Paid in     Accumulated        
    Shares     Amount     Capital     Deficit     Total  
Balance, December 31, 2017     139,380,748     $ 139,381     $ 83,617,896     $ (145,908,741 )   $ (62,151,464 )
Options granted as compensation                 262,953             262,953  
Beneficial conversion features for senior secured  convertible notes                 133,220             133,220  
Revaluation of Rockwell Holdings I, LLC warrant                 13,814             13,814  
Net loss                       (16,077,850 )     (16,077,850 )
                                         
Balance, December 31, 2018     139,380,748       139,381       84,027,883       (161,986,591 )     (77,819,327 )
                                         
Options granted as compensation                 195,657             195,657  
Beneficial conversion features for senior secured  convertible notes                 6,392             6,392  
Issuance of warrants to purchase common stock                 14,411             14,411  
Net loss                       (14,140,446 )     (14,140,446 )
Balance, December 31, 2019     139,380,748     $ 139,381     $ 84,244,343     $ (176,127,037 )   $ (91,743,313 )

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F- 4  

 

 

CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Year Ended December 31,  
    2019     2018  
             
CASH FLOWS FROM OPERATING ACTIVITES                
Net loss   $ (14,140,446 )   $ (16,077,850 )
Adjustments to reconcile net loss to net cash flows used in  operating activities:                
Depreciation     666,387       1,234,582  
Amortization of debt discount and debt costs     4,357,463       3,863,329  
Amortization of deferred installation costs     91,694       142,458  
Amortization of deferred debt issuance and debt financing costs     815,061       545,001  
Amortization of intangible assets     54,180       50,034  
Allowance for bad debt expense     (7,588 )     7,588  
Interest incurred and paid in kind     2,673,428       5,197,408  
Stock based compensation related to options granted     195,657       262,953  
Stock based costs related to warrants issued           13,814  
Loss on disposal of assets     249       32,592  
Write off of deferred installation costs     9,277        
Changes in operating assets and liabilities:                
Accounts receivable     (381,757 )     (73,612 )
Other current assets     1,187,962       (822,804 )
Other assets     167,409       16,394  
Accounts payable     (69,447 )     143,998  
Other current liabilities     2,943,669       666,184  
Other long-term liabilities           (43,583 )
Net cash flows used in operating activities     (1,436,802 )     (4,841,514 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of property and equipment     (157,988 )     (432,299 )
Payment for deferred installation costs     (47,472 )     (61,596 )
Patent, trademark and other intangible asset costs     (138,722 )     (130,258 )
Net cash flows used in investing activities     (344,182 )     (624,153 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from senior secured convertible promissory notes     50,000       3,050,000  
Proceeds from promissory notes     200,000        
Repayment of notes payable     (150,000 )     (200,000 )
Net cash flows provided by financing activities     100,000       2,850,000  
                 
Decrease in cash     (1,680,984 )     (2,615,667 )
Cash, cash equivalents and restricted cash, beginning of period     1,950,725       4,566,392  
Cash, cash equivalents and restricted cash, end of period   $ 269,741     $ 1,950,725  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                
                 
Cash paid for interest   $ 150,000     $ 2,029,450  
Cash paid for income taxes   $     $  
                 
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:                
                 
Beneficial conversion features for senior secured convertible notes   $ 6,392     $ 133,220  

 

The accompanying footnotes are an integral part of these consolidated financial statements.

 

F- 5  

 

 

 

CAREVIEW COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

CareView Communications, Inc., a Nevada corporation ( “CareView”, the “Company”, “we”, “us” or “our”), was originally formed in California on July 8, 1997 under the name Purpose, Inc., changing our name to Ecogate, Inc. in April 1999, and CareView Communications, Inc. in October 2007.  We began our current operation in 2003 as a healthcare information technology company with a patented patient monitoring and entertainment system.

 

Our business consists of a single segment of products and services all of which are sold and provided within the United States.

 

Description of Business

 

Our mission is to be the leading provider of products and on-demand application services for the healthcare industry, specializing in bedside video monitoring, software tools to improve hospital communications and operations, and patient education and entertainment packages.  Our proprietary, high-speed data network system is the next generation of patient care monitoring that allows real-time bedside and point-of-care video monitoring designed to improve patient safety and overall hospital costs.  The entertainment packages and patient education enhance the patient’s quality of stay.  Reported results from CareView-driven facilities prove that our products reduce falls, reduce the cost of sitter fees, increase patient satisfaction and reduce bed turnaround time to increase patient flow.  For patients, we have a convenient in-room, entertainment package that includes high-speed Internet, access to first-run on-demand movies and visual connectivity to family and friends from anywhere in the world.  For the hospital, we offer tools to provide superior patient care, peace of mind and customer service satisfaction.

 

CareView System

 

Our CareView System® suite of video monitoring, guest services and related applications connect patients, families and healthcare providers. Through the use of telecommunications technology and the Internet, our evolving products and on-demand services greatly increase the access to quality medical care and education for patients/consumers and healthcare professionals. We understand the importance of providing high quality patient care in a safe environment and believe in partnering with hospitals to improve the quality of patient care and safety by providing a system that monitors continuously. We are committed to providing an affordable video monitoring tool to improve the practice of nursing, create a better work environment and make the patient’s hospital stay more informative and satisfying. Our suite of products and services can simplify and streamline the task of preventing and managing patients’ falls, enhance patient safety, improve quality of care and reduce costs associated with bringing information technology directly to patients, families and healthcare providers. Our products and services can be used in all types of hospitals, nursing homes, adult living centers and selected outpatient care facilities domestically and internationally.

 

CareView’s secure video monitoring system connects the patient room to a touchscreen monitor at the nursing station or a mobile handheld device, allowing the nursing staff to maintain a level of visual contact with each patient. This configuration enhances the use of the nurse call system, reduces unnecessary steps to and from patient rooms, and facilitates a host of modules for patient safety and workflow improvements. The CareView System suite can be easily configured to meet the individual privacy and security requirements of any hospital or nursing facility. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA’) compliant patient approved video record can be included as part of the patient’s medical record and serves as additional documentation of bedside care, procedures performed, patient and hospital ancillary activities, safety or care incidents, support to necessitate additional clinical services, and, if necessary, as evidence. Additional HIPAA compliance features allow privacy options to be enabled at any time by the patient, nurse or physician.

 

F- 6

 

CAREVIEW COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

In addition to patient safety and security, we also provide a suite of services to increase patient satisfaction scores and enhance the overall image of the hospital including first-run on-demand movies, Internet access via the patient’s television, and video visits with family and friends from most places throughout the world.  Through continued investment in patient care technology, our products and services help hospitals and assisted living facilities build a safe, high quality healthcare delivery system that best serves the patient, while striving for the highest level of satisfaction and comfort.

 

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 ConnectTM 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 that will have 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. 

 

During 2019, the Company was only able to enter into two pilot contracts, one of which was converted into a fully executed contract in the amount of $1,464 in August 2019, the other remains a pilot contract.  Due to the lack of recent marketability of the Connect product and our additional focus on CareView system sales in the fourth quarter of 2019, we have written off CareView Connect product on hand as of December 31, 2019, in the amount of approximately $1,131,000. This loss was included in general and administrative expenses in the statement of operations. The Company is still pursuing opportunities for its CareView Connect product.

 

Principles of Consolidation