UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from________ to ___________
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol | Name of each exchange on which registered |
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.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☑ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares outstanding of each of the issuer’s classes of Common Stock as of November 10, 2021, was .
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other Assets: | ||||||||
| Intangible assets, net | ||||||||
| Operating lease asset | ||||||||
| Other assets, net | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Notes payable | ||||||||
| Notes payable - related parties | ||||||||
| Senior secured notes - related parties, net of debt discount and debt costs of $ | ||||||||
| Operating lease liability | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Senior secured notes - related parties, net of debt discount and debt costs of $ | ||||||||
| Senior secured convertible notes - related parties; net of debt discount and debt costs of $ | ||||||||
| Senior secured convertible notes, net of debt discount and debt costs of $ | ||||||||
| Operating lease liability | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 13) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock - par value $; shares authorized; shares issued and outstanding | ||||||||
| Common stock - par value $; shares authorized; issued and outstanding | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
3
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021, AND 2020
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Network operations | ||||||||||||||||
| General and administration | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income and (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Other expense | ( | ) | ||||||||||||||
| Other income | ( | ) | ||||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding, basic, and diluted | ||||||||||||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
4
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| Additional | ||||||||||||||||||||
| Common Stock | Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Options granted as compensation | — | |||||||||||||||||||
| Warrants issued | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2020 | ( | ) | ( | ) | ||||||||||||||||
| Options granted as compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2020 | ( | ) | ( | ) | ||||||||||||||||
| Options granted as compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Options granted as compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||
| Options granted as compensation | — | |||||||||||||||||||
| Warrants issued | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||
| Options granted as compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
5
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021, AND 2020
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of deferred installation costs | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of deferred debt issuance and debt financing costs | ||||||||
| Non-cash lease expense | ||||||||
| Interest incurred and paid in kind | ||||||||
| Stock based compensation related to options granted and warrants issued | ||||||||
| Loss on disposal of intangible assets | ||||||||
| Written off deferred installation costs | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Other current assets | ( | ) | ( | ) | ||||
| Patent license | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued interest | ||||||||
| Other current liabilities | ||||||||
| Operating lease liability | ( | ) | ||||||
| Net cash provided by (used in) by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Payment for deferred installation costs | ( | ) | ( | ) | ||||
| Patent, trademark, and other intangible assets costs | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from senior secured convertible promissory notes | ||||||||
| Proceeds from payroll protection loan | ||||||||
| Proceeds from promissory notes | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Repayment of other long term liabilities | ( | ) | ||||||
| Net cash provided by (used) in financing activities | ( | ) | ||||||
| Increase (decrease) in cash | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: | ||||||||
| Capital expenditures funded by term loan | $ | $ | ||||||
| Remeasurement of operating lease | $ | $ | ||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
6
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements of CareView Communications, Inc. (“CareView”, the “Company”, “we”, “us” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of the financial information included herein in accordance with GAAP and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 8, 2021.
COVID-19 Outbreak
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 Company has considered the effects of COVID-19 in the preparation of the financial statements as of and for the period ended September 30, 2021. We have been able to continue providing services to our current customer base and have not yet experienced a slowdown in collections.
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 were retroactively effective for years ending before the date of enactment.
Revenue Recognition
We enter into contracts with customers that may provide multiple combinations of our products, software solutions, and other related services which are generally capable of being distinct and accounted for as separate performance obligations. Performance obligations that are not distinct at contract inception are combined.
Customer contract fulfillment typically involves multiple procurement promises which may include various equipment, software subscription, project-related installation and training services, and support. We allocate the transaction price to each performance obligation based on estimated relative standalone selling price. Revenue is then recognized for each performance obligation upon transferring control of the hardware, software, and services to the customer and in an amount that reflects the consideration we expect to receive and the estimated benefit the customer receives over the term of the contract.
7
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Generally, we recognize revenue under ASC Topic 606 for each of our performance obligations as follows:
| ● | Subscription services – We recognize subscription revenues monthly over the contracted license period. |
| ● | Equipment packages – We recognize equipment revenues when control of the devices has been transferred to the client (“point in time”). |
| ● | Software bundle and related services – We recognize our software subscription, installation, training, and other services on a straight-line basis over the estimated contracted license period (“over time”). |
Revenues are recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.
Disaggregation of Revenue
The following presents gross revenues disaggregated by our business models:
Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Sales-based contract revenue | ||||||||
| Equipment package (point in time) | $ | $ | ||||||
| Software bundle (over time) | ||||||||
| Total sales-based contract revenue | ||||||||
| Subscription-based lease revenue | ||||||||
| Gross revenue | $ | $ | ||||||
| Cost of goods sold (sales-based equipment only) | ||||||||
| Revenue, net | $ | $ | ||||||
Contract Liabilities
Our subscription-based contracts payment arrangements are required to be paid monthly which are recognized into revenue when received. Some customers chose to pay their subscription fee in advance. Customer payments received in advance of satisfaction of the related performance obligations are deferred as contract liabilities. These amounts are recorded as “Deferred revenue” in our condensed consolidated balance sheet and recognized into revenues over time.
Our sales-based contract payment arrangements with our customers typically include an initial equipment payment due upon signing of the contract and subsequent payments when certain performance obligations are completed. Customer payments received in advance of satisfaction of related performance obligations are deferred as contract liabilities. These amounts are recorded as “Deferred revenue” in our condensed consolidated balance sheet and recognized into revenues as either a point in time or over time.
During the nine months ended September 30, 2021,
and 2020, a total of $
8
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Transfer to revenue | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
During the nine months ended September 30, 2021,
and 2020, a total of $
Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Transfer to revenue | ( | ) | ||||||
| Balance, end of period | $ | $ | ||||||
As of September 30, 2021, the aggregate amount
of deferred revenue from subscription-based contracts and sales-based contracts allocated to performance obligations that are unsatisfied
or partially satisfied is approximately $
| Years Ending December 31, | Amount | |||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| $ | ||||
We defer and capitalize all costs associated with the installation of the CareView System into a healthcare facility until the CareView System is fully operational and accepted by the healthcare facility. Installation costs are specifically identifiable based on the amounts we are charged from third party installers or directly identifiable labor hours incurred for each installation. Upon acceptance, the associated costs are expensed on a straight-line basis over the life of the contract with the healthcare facility. These costs are included in network operations on the accompanying consolidated statements of operations. The table below details the activity in these deferred installation costs during the nine months ended September 30, 2021, and 2020, included in other assets in the accompanying consolidated balance sheet.
| Nine Months
Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Transfer to expense | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
9
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Significant Judgements When Applying Topic 606
Contracts with our customers are typically structured similarly and include various combinations of our products, software solutions, and related services. Determining whether the various contract promises are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Contract transaction price is allocated to distinct performance obligations using estimated standalone selling price. We determine standalone selling price maximizing observable inputs such as standalone sales, competitor standalone sales, or substantive renewal prices charged to customers when they exist. In instances where standalone selling price is not observable, we utilize an estimate of standalone selling price. Such estimates are derived from various methods that include cost plus margin, and historical pricing practices. Judgment may be required to determine standalone selling prices for each performance obligation and whether it depicts the amount we expect to receive in exchange for the related good or service.
Contract modifications occur when we and our customers agree to modify existing customer contracts to change the scope or price (or both) of the contract or when a customer terminates some, or all, of the existing services provided by us. When a contract modification occurs, it requires us to exercise judgment to determine if the modification should be accounted for as a separate contract, the termination of the original contract and creation of a new contract, a cumulative catch-up adjustment to the original contract, or a combination.
Contracts with our customers include a limited warranty on our products covering materials, workmanship, or design for the duration of contract. We do not offer paid additional extended or lifetime warranty packages. We determined the limited warranty in our contract is not a distinct performance obligation. We do not believe our estimates of warranty costs to be significant to our determination of revenue recognition and, therefore, did not reserve for warranty costs.
We calculate earnings per share (“EPS”) in accordance with GAAP, which requires the computation and disclosure of two EPS amounts, basic and diluted. Basic EPS is computed based on the weighted average number of common shares outstanding during the period. Diluted EPS is computed based on the weighted average number of common shares outstanding plus all potentially dilutive common shares outstanding during the period under the treasury stock method. Such potential dilutive common shares consist of stock options, warrants to purchase our Common Stock (the “Warrants”) and convertible debt. Potential common shares totaling approximately and at September 30, 2021 and 2020, respectively, have been excluded from the diluted earnings per share calculation as they are anti-dilutive due to our reported net loss.
NOTE 2 – GOING CONCERN, LIQUIDITY AND MANAGEMENT’S PLAN
Accounting standards require management to evaluate whether the Company can continue as a going concern for a period of one year after the date of the filing of this Form 10-Q (“evaluation period”). In evaluating the Company’s ability to continue as a going concern, Management considers the conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months after the Company issues its financial statements. For the period ended September 30, 2021, Management considers the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, and the Company’s conditional and unconditional obligations due before November 10, 2022.
10
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company is subject to risks like those of healthcare technology companies whereby revenues are generated based on both on a sales-based and subscription-based business model such as dependence on key individuals, uncertainty of product development, generation of revenues, positive cash flow, dependence on outside sources of capital, risks associated with research, development, and successful testing of its products, successful protection of intellectual property, ability to maintain and grow its customer base, and susceptibility to infringement on the proprietary rights of others. The attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill the Company’s growth and operating activities and generating a level of revenues adequate to support the Company’s cost structure.
The Company has experienced net losses and significant cash outflows from cash used in operating activities over the past years. As of and for the nine months ended September 30, 2021, the Company had an accumulated deficit of approximately $, loss from operations of approximately $, net cash provided by operating activities of approximately $, and an ending cash balance of approximately $.
As of September 30, 2021, the Company had cash
and a working capital deficit of approximately $
Management continues to monitor the immediate and future cash flows needs of the company in a variety of ways which include forecasted net cash flows from operations, capital expenditure control, new inventory orders, debt modifications, increases sales outreach, streamlining and controlling general and administrative costs, competitive industry pricing, sale of equities, debt conversions, new product or services offerings, and new business partnerships.
The Company’s net losses, cash outflows, and working capital deficit raise substantial doubt exists about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support the Company’s cost structure.
NOTE 3 – STOCKHOLDERS’ EQUITY
Warrants to Purchase Common Stock of the Company
We use the Black-Scholes-Merton option pricing model (“Black-Scholes Model”) to determine the fair value of Warrants (except Warrants issued to HealthCor in 2011 (the “2011 HealthCor Warrants”) as discussed in NOTE 11 and the warrants issued in connection with a private placement completed in April 2013 (“Private Placement Warrants”). The Black-Scholes Model requires the use of several assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average term of the Warrants.
The risk-free interest rate assumption is based
upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the Warrants and
is calculated by using the average daily historical stock prices through the day preceding the grant date. Estimated volatility is a measure
of the amount by which our stock price is expected to fluctuate each year during the expected life of the award. Our estimated volatility
is an average of the historical volatility of our stock prices (and that of peer entities whose stock prices were publicly available)
over a period equal to the expected life of the awards. Where appropriate we used the historical volatility of peer entities due to the
lack of sufficient historical data of our stock price during 2007-2009. On April 20, 2021, we issued
11
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A summary of our Warrants activity and related information follows:
| Number of Shares Under Warrant | Range of Warrant Price Per Share | Weighted Average Exercise Price | Weighted
Average Remaining Contractual Life | |||||||||||||
| Balance at December 31, 2020 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Expired | — | |||||||||||||||
| Canceled | — | |||||||||||||||
| Balance at September 30, 2021 | $ | $ | ||||||||||||||
Options to Purchase Common Stock of the Company
During the nine months ended September 30, 2021, Options to purchase our Common Stock (the “Option(s)”) were granted having a with a fair value of $ and exercise prices of $-$ per share. During the nine months ended September 30, 2021, Options totaling were forfeited and Options were terminated.
| Number of Shares Under Options | Weighted
Average Exercise Price | Weighted
Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
| Balance at December 31, 2020 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Forfeited/Terminated | ( | ) | ||||||||||||||
| Exercised | — | |||||||||||||||
| Balance at September 30, 2021 | $ | |||||||||||||||
| Vested and Exercisable at September 30, 2021 | $ | |||||||||||||||
Share-based compensation expense for Options charged to our operating results for the nine months ended September 30, 2021, and 2020 ($ and $, respectively) is based over the awards’ vested period. The estimate of forfeitures is to be recorded at the time of grant and revised in subsequent periods if actual forfeitures differ from the estimates. We have not included an adjustment to our stock-based compensation expense based on the nominal amount of the historical forfeiture rate. We do, however, revise our stock-based compensation expense based on actual forfeitures during each reporting period.
As of September 30, 2021, total unrecognized estimated compensation expense related to non-vested Options granted prior to that date was approximately $, which is expected to be recognized over a weighted-average period of years. No tax benefit was realized due to a continued pattern of operating losses.
12
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – OTHER CURRENT ASSETS
Other current assets consist of the following:
| September
30, 2021 | December
31, 2020 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Other current assets | ||||||||
| TOTAL OTHER CURRENT ASSETS | $ | $ | ||||||
NOTE 5 – INVENTORY
Inventory is valued at the lower of cost, determined on a first-in, first-out (FIFO), or net realizable value. Inventory items are analyzed to determine cost and net realizable value and appropriate valuation adjustments are then established.
Inventory consists of the following:
| September
30, 2021 | December
31, 2020 | |||||||
| Inventory assets (finished goods) | $ | $ | ||||||
| TOTAL INVENTORY | $ | $ | ||||||
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| September
30, 2021 | December
31, 2020 | |||||||
| Network equipment | $ | $ | ||||||
| Office equipment | ||||||||
| Vehicles | ||||||||
| Furniture | ||||||||
| Warehouse equipment | ||||||||
| Leasehold improvements | ||||||||
| TOTAL PROPERTY AND EQUIPMENT | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| TOTAL PROPERTY AND EQUIPMENT, NET | $ | $ | ||||||
Depreciation expense for the nine months ended
September 30, 2021, and 2020 was $
13
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – OTHER ASSETS
Intangible assets consist of the following:
| September 30, 2021 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Patents and trademarks | $ | $ | $ | |||||||||
| Other intangible assets | ||||||||||||
| TOTAL INTANGIBLE ASSETS | $ | $ | $ | |||||||||
| December 31, 2020 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Patents and trademarks | $ | $ | $ | |||||||||
| Other intangible assets | ||||||||||||
| TOTAL INTANGIBLE ASSETS | $ | $ | ||||||||||
Other assets consist of the following:
| September 30, 2021 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Deferred installation costs | $ | $ | $ | |||||||||
| Prepaid license fee | ||||||||||||
| Security deposit | — | |||||||||||
| TOTAL OTHER ASSETS | $ | $ | $ | |||||||||
| December 31, 2020 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Deferred installation costs | $ | $ | $ | |||||||||
| Prepaid license fee | ||||||||||||
| Security deposit | — | |||||||||||
| TOTAL OTHER ASSETS | $ | $ | $ | |||||||||
14
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
| September
30, 2021 | December
31, 2020 | |||||||
| Accrued interest | $ | $ | ||||||
| Accrued interest, related parties | ||||||||
| Allowance for system removal | ||||||||
| Accrued paid time off | ||||||||
| Deferred officer compensation(1) | ||||||||
| Deferred revenue | ||||||||
| Insurance premium financing(2) | ||||||||
| Other accrued liabilities | ||||||||
| TOTAL OTHER CURRENT LIABILITIES | $ | $ | ||||||
| (1) | ||
| (2) |
NOTE 9 – INCOME TAXES
Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We do not expect to pay any significant federal or state income tax for 2021 because of the losses recorded during the nine months ended September 30, 2021, and net operating loss carry forwards from prior years. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all the benefits of deferred tax assets will not be realized. As of September 30, 2021, we maintained a full valuation allowance for all deferred tax assets. Based on these requirements, no provision or benefit for income taxes has been recorded. There were no recorded unrecognized tax benefits at the end of the reporting period.
The effective tax rate for the nine months ended September 30, 2021, was different from the federal statutory rate due primarily to change in the valuation allowance and nondeductible interest and amortization expense.
On March 27, 2020, H.R. 748, the Coronavirus Aid,
Relief, and Economic Security Act, “the CARES Act,” was signed into legislation which includes tax provisions relevant to
businesses that will impact taxes related to 2018, 2019, and 2020. Some of the significant tax law changes are to increase the limitation
on deductible business interest expenses for 2019 and 2020, allow for the five-year carryback of net operating losses for 2018-2020, suspend
the
NOTE 10 – AGREEMENT WITH PDL BIOPHARMA, INC.
On June 26, 2015, we entered into a Credit Agreement
(as subsequently amended) with PDL BioPharma, Inc. (“PDL”), as administrative agent and lender (“the Lender”)
(the “PDL Credit Agreement”). Under the PDL Credit Agreement the Lender made available to us up to $
15
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
From October 8, 2015, through May 14, 2019, the
outstanding borrowings under the Tranche One Loan bore interest at the rate of
On January 31, 2019, February 28, 2019, March
29, 2019 and April 29, 2019, the Company and Lender entered into the Tenth, Eleventh, Twelfth, and Thirteenth Amendments to the PDL Modification
Agreement, as previously amended, respectively, pursuant to which the parties agreed to amend the PDL Modification Agreement to provide
that (A) 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, pursuant to the Thirteenth Amendment to the PDL Modification Agreement, May 15, 2019 (rather than January 31, February
28, June 30, and April 30, respectively) (with each such date permitted to be extended by the Lender in its sole discretion); (B) the
Company could satisfy its obligations under the PDL Modification Agreement, as amended, to obtain financing by obtaining (a) at least
$
On April 9, 2019, the Company, PDL Investment
entered into a Fourth Amendment to PDL Credit Agreement (the “Fourth Amendment to the PDL Credit Agreement”), wherein the
Company executed an Amended and Restated Tranche One Term Note in the principal amount of $
On May 15, 2019, the Company, the Lender, Steven
G. Johnson (our Chief Executive Officer, President, Secretary and Treasurer), individually, and Dr. James R. Higgins (a member of our
board of directors), individually (Mr. Johnson and Dr. Higgins, collectively, the “Tranche Three Lenders”) entered into a
Fifth Amendment to the PDL Credit Agreement (the “Fifth PDL Credit Agreement Amendment”), pursuant to which the parties agreed
to amend the PDL Credit Agreement to, among other things, (i) provide for a new tranche of term loan in the aggregate principal amount
of $
16
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On May 15, 2019 the Company and the Lender entered
into the Fourteenth Amendment to the PDL Modification Agreement (the “Fourteenth Amendment to the PDL Modification Agreement”),
pursuant to which, in connection with the Twelfth Amendment to the HealthCor Purchase Agreement (see NOTE 10 for further details) and
the Fifth Amendment to the PDL Credit Agreement, the parties agreed to amend the PDL Modification Agreement, as previously amended, to
provide that (A) 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 September 30, 2019 (with each such date permitted to be extended by the Lender in its sole discretion); (B)
the Borrower could satisfy its obligations under the PDL Modification Agreement, as amended, to obtain financing by obtaining (a) at least
$
On September 30, 2019, the Company, the Borrower, the Subsidiary Guarantor and the Lender entered into a Fifteenth Amendment to Modification Agreement (the “Fifteenth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and November 30, 2019 (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, June 30, 2019, June 30, 2019, and September 30, 2019 would be deferred until November 30, 2019 (the end of the extended Modification Period) and that such deferrals would be a Covered Event.
On November 29, 2019, the Company, the Borrower, the Subsidiary Guarantor and the Lender entered into a Sixteenth Amendment to Modification Agreement (the “Sixteenth 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 December 31, 2019 (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, June 30, 2019, June 30, 2019, and September 30, 2019 would be deferred until December 31, 2019 (the end of the extended Modification Period) and that such deferrals would be a Covered Event.
On December 31, 2019, the Company, the Borrower, the Subsidiary Guarantor and the Lender entered into a Seventeenth Amendment to Modification Agreement (the “Seventeenth 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 17, 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, June 30, 2019, June 30, 2019, September 30, 2019, and December 31, 2019 would be deferred until January 17, 2020 (the end of the extended Modification Period) and that such deferrals would be a Covered Event.
17
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, June 30, 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 $
The Company has evaluated the Eighteenth and Nineteenth Modification Agreement Amendments and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement was accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
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 $
Also on February 6, 2020, upon the execution of
the Sixth Credit Agreement Amendment, (i) the Borrower borrowed the Additional Tranche Three Loan and issued to the Tranche Three Lenders
term notes in the aggregate principal amount of $
18
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 17, 2020, the Company and PDL Investment Holdings, LLC, entered into a Consent and Agreement Regarding SBA Loan Agreement (the “PDL Consent Agreement”), pursuant to which the Lender (i) consented under the Credit Agreement to the Borrower’s issuing the Promissory Note and borrowing the SBA Loan and (ii) agreed that the SBA Loan would be deemed to be debt that is permitted under the Credit Agreement and Loan Documents.
On April 17, 2020, the Company and the Lender entered into a Twentieth Amendment to the PDL Modification Agreement (the “Twentieth 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 September 30, 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, June 30, 2019, June 30, 2019, September 30, 2019, December 31, 2019, June 30, 2020 and June 30, 2020 would be deferred until September 30, 2020 (the end of the extended Modification Period), and that such deferrals would be a Covered Event. The Company has evaluated the Twentieth Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement was accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
On September 30, 2020, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-First Amendment to Modification Agreement (the “Twenty- First Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and November 30, 2020 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until November 30, 2020 (the end of the extended Modification Period), and that such deferrals would be a Covered Event. The Company has evaluated the Twenty-First Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement was accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
On November 30, 2020, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Second Amendment to Modification Agreement (the “Twenty-Second Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and January 31, 2021 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until January 31, 2021 (the end of the extended Modification Period) and that such deferrals would be a Covered Event. The Company has evaluated the Twenty-Second Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement was accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
19
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On January 31, 2021, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Third Amendment to Modification Agreement (the “Twenty-Third Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and January 31, 2021 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until May 31, 2021 (the end of the extended Modification Period) and that such deferrals would be a Covered Event. The Company has evaluated the Twenty-Third Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement was accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
On May 25, 2021, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Fourth Amendment to Modification Agreement (the “Twenty-Fourth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and November 30, 2021 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, October 7, 2020, and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until November 30, 2021 (the end of the extended Modification) and that such deferrals would be a Covered Event. The Company has evaluated the Twenty-Fourth Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
Accounting Treatment
In connection with the PDL Credit Agreement, as
amended, we issued the PDL Warrant to the Lender. The fair value of the PDL Warrant at issuance was $
As of September 30, 2021, the Company and Lender
had entered into twenty-four amendments to the PDL Modification Agreement (as detailed above), resulting in restructuring of the PDL Credit
Agreement and the accounting treatment of the related costs. Under debt modification/troubled debt guidance, we determined that the first
of the eight amendments had no cash flow impact, and therefore, had no impact on accounting. Amendments nine through ten qualified for
modification accounting, while the final fourteen amendments qualified for troubled debt restructuring accounting. As appropriate, we
expensed the legal costs paid to third parties. For the nine months ended September 30, 2021, and 2020, pursuant to the terms of the PDL
Modification Agreement, as amended, $
20
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – AGREEMENT WITH HEALTHCOR
On April 21, 2011, we entered into a Note and
Warrant Purchase Agreement (as subsequently amended) with HealthCor Partners Fund, LP (“HealthCor Partners”) and HealthCor
Hybrid Offshore Master Fund, LP (“HealthCor Hybrid” and, together with HealthCor Partners, “HealthCor”) (the “HealthCor
Purchase Agreement”). Pursuant to the terms of the HealthCor Purchase Agreement, we sold and issued Senior Secured Convertible Notes
to HealthCor in the principal amount of $
On January 31, 2012, we entered the Second Amendment
to the HealthCor Purchase Agreement with HealthCor (the “Second Amendment”) amending the HealthCor Purchase Agreement and
sold Senior Secured Convertible Notes to HealthCor in the principal amounts of $
On January 16, 2014, we entered a Fourth Amendment
to the HealthCor Purchase Agreement with HealthCor (the “Fourth Amendment”) and sold Senior Secured Convertible Notes to HealthCor
in the principal amounts of $
21
On December 4, 2014, we entered into a Fifth Amendment
to the HealthCor Purchase Agreement (the “Fifth Amendment”) with HealthCor and certain additional investors (such additional
investors, the “2015 Investors” and, collectively with HealthCor, the “Investors”) and agreed to sell and issue
(i) additional notes in the initial aggregate principal amount of $
On February 23, 2018, we entered into an Eighth
Amendment to the HealthCor Purchase Agreement (the “Eighth Amendment”) with HealthCor, the 2015 Investors and certain investors
(such additional investors, the “February 2018 Investors”) and agreed to sell and issue (i) additional notes in the initial
aggregate principal amount of $
On July 10, 2018, we entered into the Ninth Amendment
to the HealthCor Purchase Agreement (the “Ninth Amendment”) with HealthCor, the 2015 Investors and the February 2018 Investors,
pursuant to which the parties agreed to amend the HealthCor Purchase Agreement, the 2011 HealthCor Notes, the 2012 HealthCor Notes, the
2014 HealthCor Notes, the Fifth Amendment Notes and the Eighth Amendment Notes, as applicable, to (i) remove the rights of the holders
of the 2011 HealthCor Notes and the 2012 HealthCor Notes to convert such notes to Common Stock after September 30, 2018; (ii) suspend
the accrual of interest on the 2011 HealthCor Notes and the 2012 HealthCor Notes for periods after September 30, 2018; (iii) provide for
the potential earlier repayment of the 2011 HealthCor Notes and the 2012 HealthCor Notes by the Company, 120 calendar days following a
written demand for payment by the holder of such notes; provided, however, that such written demand may not be given prior to the twelve-month
anniversary of the date on which the obligations of the Company under the PDL Credit Agreement are repaid in full; (iv) cancel the 2011
HealthCor Warrants; (v) provide for the seniority of the 2011 HealthCor Notes and the 2012 HealthCor Notes in right of payment over notes
subsequently issued pursuant to the Purchase Agreement, including the 2014 HealthCor Notes, the Fifth Amendment Notes and the Eighth Amendment
Notes; (vi) amend the terms of the 2014 HealthCor Notes, the Fifth Amendment Notes and the Eighth Amendment Notes to reflect the seniority
in payment of the 2011 HealthCor Notes and 2012 HealthCor Notes; and (vii) reduce the number of shares of Common Stock that the Company
must at all times have authorized and reserved for the purpose of issuance upon conversion of the notes issued pursuant to the HealthCor
Purchase Agreement (collectively, the “Notes”) and exercise of the warrants issued pursuant to the HealthCor Purchase Agreement
(collectively, the “Warrants”), from at least
22
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On July 13, 2018, we entered into the Tenth Amendment
to the HealthCor Purchase Agreement with HealthCor, the 2015 Investors, the February 2018 Investors and certain investors (all of which
are directors of the Company) (such additional investors, the “July 2018 Investors”), pursuant to which we sold and issued
convertible secured promissory notes for an aggregate of $
On May 15, 2019, we entered into the Twelfth Amendment
to HealthCor Purchase Agreement with HealthCor, the 2015 Investors, the February 2018 Investors, the July 2018 Investors, and an investor
(a member of our board of directors) (such additional investor, the “2019 Investor”), pursuant to which we sold and issued
a convertible secured promissory note for $
On February 6, 2020, we entered into the Thirteenth
Amendment to HealthCor Purchase Agreement with HealthCor, the 2015 Investors, the February 2018 Investors, the July 2018 Investors, the
2019 Investor and an investor (a member of our board of directors) (such additional investor, the “February 2020 Investor”),
pursuant to which (i) we sold and issued a convertible secured promissory note for $
On April 17, 2020, the Company and holders of at least a majority of the Common Stock underlying the outstanding notes and warrants to purchase shares of our Common Stock, on an as-converted basis, sold pursuant to the Note and Warrant Purchase Agreement dated April 21, 2011, as amended, by and among HealthCor Partners Fund, LP, HealthCor Hybrid Offshore Master Fund, LP and the other investors party thereto (the “Majority Holders”) (the “Purchase Agreement”), entered into a Consent and Agreement Regarding SBA Loan Agreement (the “NWPA Consent Agreement”), pursuant to which the Majority Holders (i) consented under the Purchase Agreement to the Borrower’s issuing the Promissory Note and borrowing the SBA Loan and (ii) agreed that the SBA Loan would be deemed to be Permitted Indebtedness under the Purchase Agreement (as defined therein).
On April 20, 2021, we agreed with the HealthCor
Parties to (i) amend the 2011 HealthCor Notes to extend the maturity date of the 2011 HealthCor Notes from
23
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Also on April 20, 2021, in connection with the HealthCor Note Extensions and the issuance of the 2021 HealthCor Warrants, we entered into a Consent and Agreement Pursuant to Note and Warrant Purchase Agreement (the “2021 NWPA Consent”) with the HealthCor Parties and certain additional Existing Investors (in their capacity as Majority Holders acting together with the HealthCor Parties), pursuant to which, among other things, (i) the Majority Holders consented to the HealthCor Note Extensions, (ii) the Majority Holders consented to the issuance of the 2021 HealthCor Warrants and (iii) the parties agreed that the holders of the 2021 HealthCor Warrants would have registration rights for the shares of Common Stock issuable upon exercise of the 2021 HealthCor Warrants under the Registration Rights Agreement dated as of April 20, 2011, as amended June 30, 2015, by and among the Company, the HealthCor Parties and the additional investors party thereto (the “Registration Rights Agreement”).
| Investor Group | Underlying Shares of Common Stock | |||
| 2014 HealthCor Notes | ||||
| 2015 Investors | ||||
| 2015 HealthCor Notes | ||||
| February 2018 Investors | ||||
| July 2018 Investors | ||||
| 2019 Investor | ||||
| February 2020 Investor | ||||
| TOTAL | ||||
Accounting Treatment
When issuing debt or equity securities convertible
into common stock at a discount to the fair value of the common stock at the date the debt or equity financing is committed, a company
is required to record a beneficial conversion feature (“BCF”) charge. We had three separate issuances of equity securities
convertible into common stock that qualify under this accounting treatment, (i) the 2011 HealthCor Notes, (ii) the 2012 HealthCor Notes
and (iii) the 2014 HealthCor Notes. Because the conversion option and the 2011 HealthCor Warrants on the 2011 HealthCor Notes were originally
classified as a liability when issued due to the down round provision and the removal of the provision requiring liability treatment,
and subsequently reclassified to equity on December 31, 2011, when the 2011 HealthCor Notes were amended, only the accrued interest capitalized
as payment in kind (“PIK”) since reclassification qualifies under this accounting treatment. We recorded an aggregate of $
24
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Warrants were issued with the Fourth, Fifth, Eighth,
Ninth, and Allonge 3 Amendment Notes and the proceeds were allocated to the instruments based on relative fair value as the warrants did
not contain any features requiring liability treatment and therefore were classified as equity. At each amendment date, the warrants were
recorded as debt discount, as a reduction of the net carrying amount of the debt. The debt discounts are amortized into interest expense
each period under the effective interest method. The value allocated to the Fourth Amendment Warrants was $
NOTE 12 – JOINT VENTURE AGREEMENT
On December 31, 2019, the Company and Rockwell
entered into a Second Amendment to the Rockwell Note (the “Second Rockwell Note Amendment”) pursuant to which Rockwell agreed
to extend the term of the Rockwell Note by one year, to
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
Effective as of March 31, 2020, the Company and
Rockwell entered into a Fourth Amendment to the Rockwell Note (the “Fourth Rockwell Note Amendment”), pursuant to which Rockwell
agreed to extend the time to make the quarterly payment that would otherwise be due on
On December 31, 2020, the Company and Rockwell
entered a Fifth Amendment to the Rockwell Note (the “Fifth Rockwell Note Amendment”), pursuant to which Rockwell agreed (i)
to extend the term of the Promissory Note by one (
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Amendment to Commercial Lease Agreement
On March 4, 2020, we entered into the Fourth Amendment
to Commercial Lease Agreement (the “Lease Extension”), wherein we extended the Lease through
25
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Payroll Protection Program
On April 10, 2020, the Company received loan proceeds
in the amount of $
In June 2020, the Payroll Protection Program Flexibility Act (“PPPFA”) was signed into law adjusting certain key terms of loans issued under the PPP. In accordance with the PPPFA, the initial deferral period may be extended from six to up to ten months and the loan maturity may be extended from two to five years. The PPPFA also provided for certain other changes, including the extent to which the loan may be forgiven.
The loan’s principal and accrued interest were forgivable to the extent that the Company initially qualified for the loan and the proceeds were used for eligible purposes, subject to certain limitations, and that the Company maintains its payroll levels over a twenty-four-week period following the loan date.
As the legal form of the Promissory Note was a
debt obligation, the Company accounted for it as debt under Accounting Standards Codification (ASC) 470, Debt and recorded a liability
of $
The Company applied for forgiveness, and on November
20, 2020, we received confirmation from our bank that the Promissory Note was forgiven by the SBA. The loan balance plus accrued interest
of $
The SBA has created an audit safe harbor for any PPP loan borrower that, together with its affiliates, received PPP loans with an original amount of less than $2 million. The safe harbor is designed to protect a small borrower from a PPP audit based on its good faith certification. However, the government may still decide to audit a PPP loan for other purposes, such as possible misuse of PPP funds. The Company has not been notified of an audit by the SBA.
26
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 -- LEASE
Under ASC Topic 842, Leases (“ASC 842”),
operating lease expense is generally recognized evenly over the term of the lease. The Company has an operating lease primarily consisting
of office space with remaining lease term of
| Operating Lease Asset | $ | |||
| Operating Lease Liability-ST | $ | |||
| Operating Lease Liability-LT | $ |
The adoption of ASC 842 did not result in an adjustment to retained earnings. The adoption of ASC 842 represents a change in accounting principle.
On September 8, 2009, we entered into a Commercial
Lease Agreement (the “Lease”) for
The Company has reassessed the discount rate at
the remeasurement date, at
Lease Position
Operating lease asset and liability for our operating lease were recorded in the condensed consolidated balance sheet as follows:
| As of September 30, 2021 | ||||
| Assets | ||||
| Operating lease asset | $ | |||
| Total lease asset | $ | |||
| Liabilities | ||||
| Current liabilities: | ||||
| Operating lease liability | $ | |||
| Long-term liabilities: | ||||
| Operating lease liability, net of current portion | ||||
| Total lease liability | $ |
27
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Undiscounted Cash Flows
Future lease payments included in the measurement of operating lease liability on the condensed consolidated balance sheet as of September 30, 2021, for the following five fiscal years and thereafter as follows:
| Quarter ended September 30, 2021 | Operating Leases | |||
| Remaining 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total minimum lease payments | ||||
| Less effects of discounting | ( | ) | ||
| Present value of future minimum lease payments | $ |
Cash Flows
The table below presents certain information related to the cash flows for the Company’s operating lease for the nine months ended September 30, 2021:
| Nine Months Ended September 30, 2021 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows for operating leases | $ | ( | ) |
28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
The following discussion and analysis provide information which our management believes to be relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read together with our financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q (the “Report”). This information should also be read in conjunction with the information contained in our Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 8, 2021, including the audited consolidated financial statements and notes included therein as of and for the nine months ended September 30, 2021. The reported results will not necessarily reflect future results of operations or financial condition.
Throughout this Quarterly Report on Form 10-Q (the “Report”), the terms “we,” “us,” “our,” “CareView,” or “Company” refers to CareView Communications, Inc., a Nevada corporation, and unless otherwise specified, includes our wholly owned subsidiaries, CareView Communications, Inc., a Texas corporation (“CareView-TX”) and CareView Operations, LLC, a Nevada limited liability company (“CareView Operations”) (collectively known as the “Company’s Subsidiaries”).
We maintain a website at www.care-view.com and our Common Stock trades on the OTCQB under the symbol “CRVW.’’
Company Overview
As a leader in turnkey patient video monitoring solutions, CareView is redefining the standard of patient safety in hospitals and healthcare facilities across the country. For over a decade, CareView has relentlessly pursued innovative ways to increase patient protection, providing next generation solutions that lower operational costs and foster a culture of safety among patient, staff, and hospital leadership. With installations of approximately 7,000 cameras and 395 nurse stations in 104 active hospitals across the United States, CareView continues to prove its innovative technology is creating a culture of patient safety and sitter costs reduction. Anchored by the CareView’s Patient Safety System®, this modular, scalable solution delivers flexible configurations to fit any facility while significantly increasing patient safety and operational savings. All configurations feature HD cameras, high-fidelity 2-way audio/video, LCD displays for the ultimate in capability, flexibility, and affordability.
SitterView® and TeleMedView allows hospital staff to use CareView’s high-quality video cameras with pan-tilt-zoom and 2-way video functionality to observe and communicate with patients remotely. With CareView, hospitals are safely monitoring more patients while providing a higher level of care by leveraging CareView’s patented technology, a portfolio that includes 40 patents. TeleMedView leverages the CareView Mobile Controller’s built-in monitor and can work with the CareView Portable Controller as well. Usage of SitterView® and TeleMedView has increased in response to a growing demand for remote patient monitoring driven by increasing demands for care and staffing shortages in the healthcare industry.
COVID-19 Outbreak
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 Company has considered the effects of COVID-19 in the preparation of the financial statements as of and for the period ended September 30, 2021. We have been able to continue providing services to our current customer base and have not yet experienced a slowdown in collections.
29
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 were retroactively effective for years ending before the date of enactment.
CareView Patient Safety System®
Our CareView Patient Safety System® provides innovative ways to increase patient protection, provides advanced solutions that lower operational costs, and helps hospitals foster a culture of safety among patients, staff, and hospital leadership. 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 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. 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.
The CareView’s Patient Safety System® includes CareView’s new SitterView®, providing a clear picture of up to 40 patients at once, allowing staff to intervene and document patient risks more quickly. SitterView® features intuitive decision support pathway, guiding staff alarm response and pan- tilt-zoom functionality, allowing staff to home in on areas of interest. The CareView Analytics Dashboard provides real-time metrics on utilization, compliance, and outcome data by day, week, month, and quarter. Outcomes are automatically compared to organizational goals to evaluate real-time ROI.
CareView’s next generation of in-room camera; the CareView Controller features an HD camera, high- fidelity 2-way audio, and an LCD display, harnessing increased performance to deliver the ultimate in capability, flexibility, and affordability for all types of hospitals. Building on top of CareView’s patented Virtual Bed Rails® and Virtual Chair Rails® predictive technology, the CareView Controller uses machine learning to differentiate between normal patient movements and behaviors of a patient at risk. This technology results in less false alarms, faster staff intervention, and a significant reduction in patient falls.
The CareView Controller is available in multiple configurations for permanent or temporary situations, the CareView Mobile, Portable, and Fixed Controller. For situations that demand that the camera come to the patient, the CareView Mobile Controller on wheels comes with an uninterrupted external power supply for situations where power may not be readily available and can operate on the facility’s wireless network. For monitoring patients within a general care unit, the CareView Portable Controller can be easily removed from mounts and moved where the workflow dictates, making this application perfect for general use. For high-risk patient rooms where behavior and self-harm may be a factor, or where a patient must be continuously monitored, the CareView Fixed Controller can be installed seamlessly in the ceiling tiles leaving no exposed wiring making it ligature resistant.
CareView’s Patient Safety System® can be easily configured to meet the individual privacy and security requirements of any hospital or nursing facility. CareView is (“HIPAA”) compliant and HITRUST certified. Additional HIPAA-compliant features allow privacy options to be enabled at any time by the patient, nurse, or physician.
30
CareView’s Patient Safety System® Products and Services Agreement with Healthcare Facilities
Currently, 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 Patient Safety System® 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 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 like 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 like 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 Patient Safety System® or for transmission errors, corruption or compromise of data carried over local or interchange telecommunication carriers. We grant each healthcare facility a limited, revocable, non- transferable, and nonexclusive license to use the software, network facilities, content, and documentation on and in the CareView Patient Safety System® to the extent, and only to the extent, necessary to access, explore and otherwise use the CareView Patient Safety System® in real time. Such non-exclusive license expires upon termination of the P&S Agreement.
We use specific terminology to better define and track the staging and billing of the individual components of the CareView Patient Safety System®. The CareView Patient Safety System® includes three components which are separately billed; the CareView Controller (previously known as RCP), the CareView SitterView® Monitor, and the CareView Application Server (each component referred to as a “unit”). The term “bed” refers to each healthcare facility bed as part of the overall potential volume that a healthcare facility represents. For example, if a healthcare facility has 200 beds, the aggregate of those beds is the overall potential volume of that healthcare facility. The term “bed” is often used interchangeably with “CareView Controller” as this component of the CareView Patient Safety System® consistently resides within each room where the “bed” is located. On average, there are six SitterView® Monitors for each 100 beds. The term “deployed” means that the units have been delivered to the healthcare facility but have not yet been installed at their respective locations within the facility. The term “installed” means that the units have been mounted and are operational. The term “billable” refers to the aggregate of all units on which we charge fees. Units become billable once they are installed and the required personnel have been trained in their use. Units are only deployed upon the execution of a P&S Agreement or P&S Pilot Agreement.
With the introduction of our updated technology, CareView has also aligned its contracting model to meet the preferred acquisition model in the hospital industry. CareView now sells its proprietary equipment to facilities in lieu of lending the equipment as was done under the previous contract model. In doing so, the facility is billed for the hardware on acceptance of the contract. After CareView’s equipment is delivered to the facility, CareView begins the process of installing and securely integrating the equipment and software. Upon completion of installation, training, and “go-live”, CareView bills the facility for the installation, training, and an annual software license fee. CareView will continue to bill the facility an annual software license fee until end of the contract. The shift in our new contracting model will have an immediate impact on the company’s operations resulting in greater cash flow within 30 of contract signing.
CareView continues its dedication to provide service and support on a 24x7x365 basis for every customer under the prior and updated revenue models.
31
CareView Connect®
Our mission is to be the leading provider of resident monitoring products and services for the long- term care industry. We took what we learned in our medical facility business and applied it to developing a product to serve the long-term care market. With CareView Connect® Quality of Life System (“CareView Connect®”), CareView has again positioned itself as a technology leader with its innovative suite of products specifically designed for all aspects of the long-term care market, including Nursing Care, Home Care, Assisted Living and Independent Living.
With this mission in mind, in the second quarter of 2018, the Company introduced a new sensor product that has application in both the assisted living center market and the home health market. CareView Connect® leverages both passive and active sensors to track the activities of daily life. CareView Connect® provides peace of mind by using data from the resident’s activity, existing conditions, and environment to notify a caregiver of potential emergencies and identify the need for dignified support. CareView Connect® consists of a small emergency assist button, two motion sensors, one sleep sensor, and one event sensor. Resident activity levels, medication administration, sleep patterns, and requests for assistance can all be monitored depending on which options are selected.
The skilled nursing home market consists of approximately 2,000,000 beds, which is double the size of the current hospital/healthcare facility bed market. The assisted living center market is even larger at approximately 3,000,000 beds. Our products flow naturally into the nursing home space as it is substantially the same setting as hospital rooms.
CareView Connect® is a platform consisting of several products and applications targeted at improving 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. The CareView Connect® 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. The CareView Connect® solution involves several passive sensors that monitor the resident.
Caregiver Platform
The caregiver platform includes a “Leave of Absence” component, which allows the facility to document when the resident is outside of their room for a duration of time. This information is incorporated with known data from the workflows and sensors to improve awareness. The Caregiver Connect mobile application provides a convenient and intuitive interface to the CareView Connect® platform. The caregiver can use the mobile app to capture important information and interface with critical workflows, such as acknowledging and documenting alert presses by the resident. CareView Connect® also provides a product focused on capturing and measuring the mental state and pain experienced by the resident. “How are you feeling today?” provides a convenient way to capture information about the mental state of the resident using emojis. Similarly, “What is your pain today?” allows the staff to categorize and document pain. Connect Resident is a tablet application intended for the resident’s direct use. This product currently supports video conferencing with a remote caregiver, becoming a communications conduit for telehealth. Connect Resident also supports “How are you feeling today?”, which allows the resident to submit this information directly.
32
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. The CareView Connect® Quality of Life Metrics focuses on several categories, including Physical Activity, Bodily Pain, General Health, Vitality, Social Interaction, Mental Health, and Sleep Quality. Leveraging this data, the facility and their staff have improved visibility into the health and well-being of their residents. By applying machine learning and predictive analytics, subtle patterns and trends that may not otherwise be visible become actionable. The facility can use this information to present a more compassionate and capable level of care, differentiating the facility from their competition. The Quality of Life Metrics information can be made available to the family and loved ones, opening a new channel of remote awareness and care. Because the information is collected automatically, the family gains awareness on issues of which their loved ones may normally be unaware. The Connect Family mobile application allows family members to monitor their loved one and receive alerts and notifications based on their preferences.
Pricing Structure and Revenue Streams
The CareView Connect® suite of products and services offers multiple pricing models. We work with each facility on pricing to offer an affordable package based on the demographics of the residents of the facility. The pricing structure with each facility is negotiated separately. Typically, we offer the CareView Connect® basic package at a price per monitored room with varying price structures based on number of sensors and number of residents in each facility.
Purchasing Agreement with Decisive Point Consulting Group, LLC
On February 2, 2021, we partnered with Decisive Point Consulting Group, a Department of Veterans Affairs Contractor Verification Enterprise (CVE) and a Verified Service-Disabled Veteran Owned Small Business (SDVOSB), to expand our reach within the VA hospitals and Community Living Centers space. Our partnership reflects our desire to collaborate with companies that share our vision of patient safety.
Group Purchasing Agreement with HealthTrust Purchasing Group, LP
Pursuant to the terms of the Company’s General Service Administration (“GSA”) Multiple Award Schedule contract (“MAS”) the MAS allows us to sell the CareView Patient Safety System® at a negotiated rate to the approximate 169 United States Department of Veterans Affairs (“VA”) facilities with over 39,000 licensed beds and the approximate 42 DOD hospitals with over 2,600 licensed beds. The updated contracting model was added to the Multiple Award Schedule contract (“MAS”) which allows us to sell the proprietary hardware and license the software on an annualized basis. The MAS is one of the most widely accepted government contract vehicles available to agency procurement officers. GSA’s application process requires potential vendors to be recognized as highly credible and well established. CareView is a sole source provider. Our products and services represent an enormous opportunity to improve the health and safety of our Nation’s veterans.
On December 14, 2016, the Company entered a Group Purchasing Agreement with HealthTrust Purchasing Group, L.P. (“HealthTrust”) (the “HealthTrust GPO Agreement”), the nation’s only committed-model Group Purchasing Organization (“GPO”) headquartered in Nashville, Tennessee. HealthTrust serves approximately 1,600 acute care facilities and members in more than 26,000 other locations, including ambulatory surgery centers, physician practices, long-term care, and alternate care sites. The agreement was effective on January 1, 2017, and all CareView Patient Safety 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.
33
On October 1, 2018, the Company added CareView Connect® to the HealthTrust GPO Agreement.
On November 1, 2020, the updated contracting model has been added to the HealthTrust GPO Agreement which allows us to sell the proprietary hardware and license the software on an annualized basis.
Results of Operations
Three months ended September 30, 2021, compared to three months ended September 30, 2020
| Three Months
Ended September 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| (000’s) | ||||||||||||
| Revenue | $ | 2,212 | $ | 1,566 | $ | 646 | ||||||
| Operating expenses | 2,071 | 2,262 | (192 | ) | ||||||||
| Operating income | 141 | (696 | ) | 838 | ||||||||
| Other, net | (2,042 | ) | (2,631 | ) | 589 | |||||||
| Net loss | $ | (1,900 | ) | $ | (3,327 | ) | $ | 1,427 | ||||
Revenue
Revenue increased approximately $646,000 for the three months ended September 30, 2021, as compared to the same period in 2020. The increase in revenue resulted from an increase in our sales-based contracts, including two large equipment package sales.
Operating Expenses
Our principal operating costs include the following items as a percentage of total operating expense.
| Three Months
Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Human resource costs, including benefits and non-cash compensation | 63 | % | 55 | % | ||||
| Professional and consulting costs | 5 | % | 10 | % | ||||
| Depreciation and amortization | 9 | % | 8 | % | ||||
| Other product deployment costs, excluding human resources and travel and entertainment costs | 2 | % | 8 | % | ||||
| Travel and entertainment expense | 5 | % | 3 | % | ||||
| Other expenses | 16 | % | 16 | % | ||||
Operating expenses decreased by a net 8.5% because of the following items:
| (000’s) | ||||
| Human resource costs, including benefits and non-cash compensation | $ | 63 | ||
| Depreciation and amortization | 6 | |||
| Other product deployment costs, excluding human resources and travel and entertainment expense | (32 | ) | ||
| Professional and consulting costs | (115 | ) | ||
| Travel and entertainment expense | (84 | ) | ||
| Other expenses | (30 | ) | ||
| $ | (192 | ) |
34
Human resource related costs (including salaries and benefits and non-cash compensation) increased approximately $63,000 due to increase in sales commissions and additional sales staff being added during the three months ended September 30, 2021, as compared to the three months ended September 30, 2020. Depreciation and amortization expense increased by approximately $6,000 primarily because of increased deferred installation costs being amortized and newly purchased deployable network equipment depreciation. Other product deployment costs decreased by approximately $32,000. Professional and consulting fees decreased approximately $115,000 due to a decrease in legal and consulting fees. Travel and entertainment expense decreased approximately $84,000 due to lower technician and sales staff travel costs. For the comparable periods, other expenses decreased approximately $30,000 due to there being no other income recorded in the current period.
Other, net
Other non-operating income and expense decreased by approximately $589,000 or 22% for the three months ended September 30, 2021, in comparison to the same period in 2020, primarily because of a decrease in interest expense offset by amortization of debt discount and other debt cost.
Net Loss
As a result of the factors above, our third quarter 2021 net loss of approximately $1,900,000 decreased approximately $1,427,000 or 43%, as compared to approximately $3,327,000 net loss for the third quarter of 2020.
Nine months ended September 30, 2021, compared to six months ended September 30, 2020
| Nine Months
Ended September 30, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| (000’s) | ||||||||||||
| Revenue | $ | 6,078 | $ | 4,957 | $ | 1,121 | ||||||
| Operating expenses | 6,440 | 6,422 | 18 | |||||||||
| Operating loss | (362 | ) | (1,465 | ) | 1,103 | |||||||
| Other, net | (7,046 | ) | (7,881 | ) | 835 | |||||||
| Net loss | $ | (7,408 | ) | $ | (9,346 | ) | $ | 1,938 | ||||
Revenue
Revenue increased approximately $1,121,000 for the nine months ended September 30, 2021, as compared to the same period in 2020. The increase in revenue is mainly a result of increase in sales of our new Gen5 equipment.
35
Operating Expenses
Our principal operating costs include the following items as a percentage of total operating expense.
| Nine Months
Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Human resource costs, including benefits and non-cash compensation | 58 | % | 54 | % | ||||
| Professional and consulting costs | 9 | % | 10 | % | ||||
| Depreciation and amortization | 8 | % | 8 | % | ||||
| Other product deployment costs, excluding human resources and travel and entertainment costs | 4 | % | 7 | % | ||||
| Travel and entertainment expense | 4 | % | 4 | % | ||||
| Other expenses | 17 | % | 17 | % | ||||
Operating expenses increased by a net .28% because of the following items:
| (000’s) | ||||
| Human resource costs, including benefits and non-cash compensation | $ | 286 | ||
| Depreciation and amortization | (1 | ) | ||
| Other product deployment costs, excluding human resources and travel and entertainment expense | (195 | ) | ||
| Professional and consulting costs | (56 | ) | ||
| Travel and entertainment expense | (29 | ) | ||
| Other expenses | 13 | |||
| $ | 18 |
Human resource related costs increased approximately $286,000 due to sales commissions paid on Gen5 product sales, and additional sales staff being added during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. Depreciation and amortization expense decreased by approximately $1,000 because of a result of an overall reduction in depreciation expense as certain deployable assets purchased have become fully depreciated in 2021. Other product deployment costs decreased approximately $195,000 due to a decrease in product deployment and related general and administrative costs. Professional and consulting fees decreased approximately $56,000 due to a decrease in legal and consulting fees. Travel and entertainment expense decreased by a net approximate $29,000 amount due to lower technician and sales staff travel costs. For the comparable periods, other expenses increased approximately $13,000 due to increased business insurance premiums and stock compensation expenses.
Other, net
Other non-operating income and expense decreased by approximately $835,000, or 11%, for the nine months ended September 30, 2021, in comparison to the same period in 2020, primarily because of a decrease in interest expense offset by amortization of debt discount and other debt cost.
Net Loss
As a result of the factors above, our nine months ended September 30, 2021, net loss of approximately $7,408,000 decreased approximately $1,938,000, or 21%, as compared to approximately $9,346,000 net loss for our nine months ended September 30, 2020.
36
Going Concern, Liquidity and Capital Resources
Accounting standards require management to evaluate whether the Company can continue as a going concern for a period of one year after the date of the filing of this Form 10-Q (“evaluation period”). In evaluating the Company’s ability to continue as a going concern, Management considers the conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months after the Company issues its financial statements. For the period ended September 30, 2021, Management considers the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, and the Company’s conditional and unconditional obligations due before November 10, 2022.
The Company is subject to risks like those of healthcare technology companies whereby revenues are generated based on both on a sales-based and subscription-based business model such as dependence on key individuals, uncertainty of product development, generation of revenues, positive cash flow, dependence on outside sources of capital, risks associated with research, development, and successful testing of its products, successful protection of intellectual property, ability to maintain and grow its customer base, and susceptibility to infringement on the proprietary rights of others. The attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill the Company’s growth and operating activities and generating a level of revenues adequate to support the Company’s cost structure.
The Company has experienced net losses and significant cash outflows from cash used in operating activities over the past years. As of and for the nine months ended September 30, 2021, the Company had an accumulated deficit of approximately $195,000,000, loss from operations of approximately $(362,000), net cash provided by operating activities of approximately $295,000, and an ending cash balance of approximately $271,000
As of September 30, 2021, the Company had cash and a working capital deficit of approximately $85,500,000 consisting primarily of notes payables and senior secured notes. Management has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the date the condensed consolidated financial statements were issued. While management will look to continue funding operations by increased sales volumes and raising additional capital from sources such as sales of its debt or equity securities or loans to meet operating cash requirements, there is no assurance that management’s plans will be successful.
Management continues to monitor the immediate and future cash flows needs of the company in a variety of ways which include forecasted net cash flows from operations, capital expenditure control, new inventory orders, debt modifications, increases sales outreach, streamlining and controlling general and administrative costs, competitive industry pricing, sale of equities, debt conversions, new product or services offerings, and new business partnerships.
The Company’s net losses, cash outflows, and working capital deficit raise substantial doubt exists about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support the Company’s cost structure.
37
Critical Accounting Estimates
Please refer to our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Commission on April 8, 2021, and incorporated herein by reference, for detailed explanation of our critical accounting estimates, which have not changed significantly during for the period ended September 30, 2021, except for the recognition of our sales-based model revenue.
Sales-based Revenue Recognition: We enter into contracts with customers that may provide multiple combinations of our products, software solutions, and other related services which are generally capable of being distinct and accounted for as separate performance obligations. Performance obligations that are not distinct at contract inception are combined. Customer contract fulfillment typically involves multiple procurement promises which may include various equipment, software subscription, project-related installation and training services, and support. We allocate the transaction price to each performance obligation based on estimated relative standalone selling price. Revenue is then recognized for each performance obligation upon transferring control of the hardware, software, and services to the customer and in an amount that reflects the consideration we expect to receive and the estimated benefit the customer receives over the term of the contract.
Generally, we recognize revenue under Topic 606 for each of our performance obligations as follows:
| · | Hardware packages – We recognize revenue related to the sale of hardware packages when control has been transferred to the customer (“point in time”) |
| · | Software bundle and related services - We recognize on a straight-line basis over the estimated contracted license period (“over time”). |
Recently Issued and Newly Adopted Accounting Pronouncements
We do not expect that the adoption of any recent accounting pronouncements will have a material impact on our accompanying condensed consolidated financial statements.
Recent Events
None.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), we carried out an evaluation, with the participation of our management, including Steve G. Johnson, our Chief Executive Officer (“CEO”) and principal executive officer, and Jason T. Thompson, our principal financial officer and chief accounting officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report.
Under the supervision and with the participation of our CEO and principal financial and chief accounting officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as previously reported. Based on that evaluation, our CEO and principal financial and chief accounting officer concluded that our disclosure controls and procedures were not effective as of September 30, 2021, due to the continuing existence of a material weakness in internal control over financial reporting described below (which we view as an integral part of our disclosure controls and procedures). Based on the performance of additional procedures designed to ensure the reliability of our financial reporting, we believe that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented, in conformity with accounting principles generally accepted in the United States (“GAAP”).
38
Material Weaknesses and Remediation Plan
A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that the Company did not maintain effective internal control over financial reporting as of the period ended September 30, 2021, due to the existence of the material weaknesses described below.
As disclosed previously in Item 9A of our Form 10-K for the year ended December 31, 2020, management determined that the Company did not maintain effective internal control over financial reporting as of December 31, 2020, due to the existence of the following material weaknesses:
| · | It was determined that the Company does not have effective controls over the identification and evaluation of the GAAP accounting for certain complex transactions in the areas of revenues, debt, and income taxes, due to a lack of technical expertise. |
| · | Due to a lack of accounting resources, it was determined that the Company had inadequate segregation of duties in place related to its financial reporting and other management oversight. Specifically, the accounting personnel had responsibility for initiating transactions in the financial statement areas of revenues, equity, payroll, debt, and financial reporting, recording transactions, and preparing financial reports. |
| · | Additionally, during the third quarter of fiscal 2021, management identified a material weakness in the segregation of duties and user access in certain information technology (“IT”) systems that support the Company’s financial reporting processes due to a lack of IT resources. |
Based on additional procedures and post-closing review, Management concluded that the condensed consolidated financial statements including in this report present fairly; In all material respects, results of operations, and cash flows for the periods presented, in conformity with accounting principles accepted in the United States.
To remediate these material weaknesses, we implemented the following measures and continue to monitor and assess the effectiveness of our internal controls as of September 30, 2021:
| ● | Identify and employ additional full-time highly qualified accounting personnel to join the corporate accounting function to enhance overall monitoring, maintain standard internal controls, and accounting oversight within the Company. |
| ● | The Company has hired a certified public accountant (“CPA”) as its Controller, a senior-level accountant CPA eligible, and staff-level accountant pursuing CPA eligibility. |
| ● | Implement enhanced documentation associated with management review controls and validation of the completeness and accuracy of financial reporting and key management financial reports. |
| ● | Provide training of standard operating procedures and internal controls to key stakeholders within the supply chain, logistics, and inventory processes. |
| ● | Enhance and automate existing internal controls to ensure proper authorization, review, and recording of financial transactions. |
| ● | On an as needed basis, identify and engage certain third-party subject matter experts to assist with the preparation and reporting of complex business and accounting transactions. |
Changes in Internal Control over Financial Reporting
Other than the identification of additional segregation of duties in ITGCs during the third quarter of fiscal 2021, there were no material changes in our internal control over financial reporting during the nine months ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
39
Limitations on Controls
Our management can provide no assurance that our disclosure controls and procedures or our internal control over financial reporting can prevent all errors and all fraud under all circumstances. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
40
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are involved in litigation which is incidental to our business. There have been no material developments to the legal proceedings. In our opinion, no litigation to which we are currently a party is likely to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
Item 1A. Risk Factors.
Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
41
Item 6. Exhibits.
| Exhibit No. | Date of Document | Name of Document |
|
November 10, 2021 |
Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14a and Rule 14d-14(a).* | |
|
November 10, 2021 |
Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a).* | |
| 32 |
November 10, 2021 |
Certifications under Section 906.* |
| 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. |
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: November 10, 2021
| 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 |
43