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 13, 2023 was .
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | ||||||||
| 2023 | December 31, | |||||||
| (Unaudited) | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and restricted cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Operating lease asset | ||||||||
| Other assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Notes payable | ||||||||
| Notes payable - related parties | ||||||||
| Convertible notes payable, related parties | ||||||||
| Convertible notes payable, non-related parties | ||||||||
| Operating lease liability, current | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Operating lease liability | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders' Deficit: | ||||||||
| Common stock - par value ; and shares authorized, respectively; and issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
3
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2023, and 2022
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Revenues | ||||||||||||||||
| Subscription-based lease | $ | $ | $ | $ | ||||||||||||
| Sales-based equipment package | ||||||||||||||||
| Sales-based software bundle | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of equipment | ||||||||||||||||
| 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 | ||||||||||||||||
| Total other 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 condensed consolidated financial statements.
4
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
| Additional | ||||||||||||||||||||
| Common Stock | Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Issuance of warrants to purchase common stock | — | |||||||||||||||||||
| Options granted as compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock based compensation | — | |||||||||||||||||||
| Related party forgiveness of interest | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock based compensation | — | |||||||||||||||||||
| Debt to equity conversion at | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock based compensation | — | |||||||||||||||||||
| Debt to equity conversion at | ||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Stock based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
5
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (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 | ||||||||
| 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) operating Activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Patent, trademark, and other intangible assets costs | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayment of notes payable | ( | ) | ||||||
| Repayment of vehicle loan | ( | ) | ( | ) | ||||
| Net cash used in financing Activities | ( | ) | ( | ) | ||||
| Increase (decrease) in cash | ( | ) | ||||||
| Cash and restricted cash, beginning of period | ||||||||
| Cash and restricted cash, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITES: | ||||||||
| Capital expenditures funded by term loan | $ | $ | ||||||
| Replacement Notes conversion to equity at per share | $ | $ | ||||||
The accompanying footnotes are an integral part of these condensed consolidated financial statements.
6
CAREVIEW COMMUNICATIONS,
INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Interim Financial Statements
The accompanying unaudited interim condensed consolidated financial statements of CareView Communications, Inc. (“CareView”, the “Company”, “we”, “us” or “our”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of the financial information included herein in accordance with GAAP and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on May 26, 2023.
Revenue Recognition
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”). For our subscription service contracts, we have employed the practical expedient discussed in ASC 606-10-55-18 related to invoicing as we have the right to consideration from our customers in the amount that corresponds directly with the value to the customer of our performance completed to date and therefore, we recognize revenue upon invoicing as further discussed below.
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, we satisfy the performance obligation. For those customers for which we are required to collect sales taxes, we record such sales taxes on a net basis which has no effect on the amount of revenue or expenses recognized as the sales taxes are a flow through to the taxing authority.
We enter into contracts with customers that may provide multiple combinations of our products, software solutions, and other related services, which are generally capable of being distinct and accounted for as separate performance obligations. Performance obligations that are not distinct at contract inception are combined.
Customer contract fulfillment typically involves multiple procurement promises, which may include various equipment, software subscription, project-related installation and training services, and support. We allocate the transaction price to each performance obligation based on estimated relative standalone selling price. Revenue is then recognized for each performance obligation upon transferring control of the hardware, software, and services to the customer and in an amount that reflects the consideration we expect to receive and the estimated benefit the customer receives over the term of the contract.
Generally, we recognize revenue under each of our performance obligations as follows:
| ● | Subscription services – We recognize subscription revenues monthly over the contracted license period. |
| ● | Equipment packages – We recognize equipment revenues when control of the devices has been transferred to the client (“point in time”). |
| ● | Software bundle and related services related to sales-based contracts – We recognize our software subscription, installation, training, and other services on a straight-line basis over the estimated contracted license period (“over time”). |
Disaggregation of Revenue
The following presents net revenues disaggregated by our business models:
| Nine
Months Ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| Sales-based contract revenue | ||||||||
| Equipment package, net (point in time) | $ | $ | ||||||
| Software bundle (over time) | ||||||||
| Total sales-based contract revenue | ||||||||
| Subscription-based lease revenue | ||||||||
| Net revenue | $ | $ | ||||||
Contract Liabilities
Our subscription-based contracts payment arrangements are required to be paid monthly which are recognized into revenue when received. Some customers choose to pay their subscription fee in advance. Customer payments received in advance of satisfaction of the related performance obligations are deferred as contract liabilities. These amounts are recorded as “deferred revenue” in our condensed consolidated balance sheets and recognized into revenues over time.
Our sales-based contract payment arrangements with our customers typically include an initial equipment payment due upon signing of the contract and subsequent payments when certain performance obligations are completed. Customer payments received in advance of satisfaction of related performance obligations are deferred as contract liabilities. These amounts are recorded as “deferred revenue” in our condensed consolidated balance sheets and recognized into revenues as either a point in time or over time.
7
During
the nine months ended September 30, 2023 and 2022, a total of $
| Nine
Months Ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Transfer to revenue | ( |
( |
) | |||||
| Balance, end of period | $ | $ | ||||||
During
the nine months ended September 30, 2023 and 2022, a total of $
| Nine
Months Ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Transfer to revenue | ( |
( |
) | |||||
| Balance, end of period | $ | $ | ||||||
As
of September 30, 2023, the aggregate amount of deferred revenue from subscription-based contracts and sales-based contracts allocated
to performance obligations that are unsatisfied or partially satisfied is approximately $
| Years Ending December 31, | Amount | ||||
| 2023 | $ | ||||
| 2024 | |||||
| Thereafter | |||||
| $ | |||||
We defer and capitalize all costs associated with the installation of the CareView System into a healthcare facility until the CareView System is fully operational and accepted by the healthcare facility. Installation costs are specifically identifiable based on the amounts we are charged from third party installers or directly identifiable labor hours incurred for each installation. Upon acceptance, the associated costs are expensed on a straight-line basis over the life of the contract with the healthcare facility. These costs are included in network operations on the accompanying consolidated statements of operations.
The table below details the activity in these deferred installation costs during the periods ended September 30, 2023 and 2022, included in other assets in the accompanying unaudited consolidated balance sheet.
| Nine
Months Ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Transfer to expense | ( |
( |
) | |||||
| Balance, end of period | $ | $ | ||||||
Significant Judgements When Applying Topic 606
Contracts with our customers are typically structured similarly and include various combinations of our products, software solutions, and related services. Determining whether the various contract promises are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.
Contract transaction price is allocated to distinct performance obligations using estimated standalone selling price. We determine standalone selling price maximizing observable inputs such as standalone sales, competitor standalone sales, or substantive renewal prices charged to customers when they exist. In instances where standalone selling price is not observable, we utilize an estimate of standalone selling price. Such estimates are derived from various methods that include cost plus margin, and historical pricing practices. Judgment may be required to determine standalone selling prices for each performance obligation and whether it depicts the amount we expect to receive in exchange for the related good or service.
Contract modifications occur when we and our customers agree to modify existing customer contracts to change the scope or price (or both) of the contract or when a customer terminates some, or all, of the existing services provided by us. When a contract modification occurs, it requires us to exercise judgment to determine if the modification should be accounted for as a separate contract, the termination of the original contract and creation of a new contract, a cumulative catch-up adjustment to the original contract, or a combination.
Contracts with our customers include a limited warranty on our products covering materials, workmanship, or design for the duration of the contract. We do not offer paid additional extended or lifetime warranty packages. We determined the limited warranty in our contract is not a distinct performance obligation. We do not believe our estimates of warranty costs to be significant to our determination of revenue recognition, and therefore, did not reserve for warranty costs.
8
Leases
The
Company has an operating lease primarily consisting of office space with a remaining lease term of
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 and on September 30, 2023 and 2022, respectively, have been excluded from the diluted earnings per share calculation as they are anti-dilutive due to our reported net loss. The potential common shares consist of stock options and warrants.
ASU 2016-13
ASU 2016-13 requires organizations to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance:
| 1. | Eliminates the probable initial recognition threshold in current GAAP and, instead, reflects an organization’s current estimate of all expected credit losses over the contractual term of its financial assets. |
| 2. | Broadens the information that an entity can consider when measuring credit losses to include forward-looking information. |
| 3. | Increases usefulness of the financial statements by requiring timely inclusion of forecasted information in forming expectations of credit losses. |
| 4. | Increases comparability of purchased financial assets with credit deterioration (PCD assets) with other purchased assets that do not have credit deterioration as well as originated assets because credit losses that are expected will be recorded through an allowance for credit losses for all assets. |
| 5. | Increases users’ understanding of underwriting standards and credit quality trends by requiring additional information about credit quality indicators by year of origination (vintage). |
| 6. | For available-for-sale debt securities, aligns the income statement recognition of credit losses with the reporting period in which changes occur by recording credit losses (and subsequent changes in credit losses) through an allowance rather than a write down. |
The guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. We, as a smaller reporting company as defined by the SEC, have adopted ASU 2016-13 effective for January 1, 2023. As of September 30, 2023, ASU 2016-13 does not have any material effect on the Company.
ASU 2020-06
ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. We, as a smaller reporting company as defined by the SEC, will adopt ASU 2020-06 effective for fiscal year 2024.
ASU 2022-03
ASU 2022-03 clarifies that a “contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security” and is not included in the equity security’s unit of account. Accordingly, an entity should not consider the contractual sale restriction when measuring the equity security’s fair value (i.e., the entity should not apply a discount related to the contractual sale restriction, as stated in ASC 820-10-35-36B as amended by the ASU). In addition, the ASU prohibits an entity from recognizing a contractual sale restriction as a separate unit of account. Under the existing guidance in ASC 820-10-35-6B, “although a reporting entity must be able to access the market, the reporting entity does not need to be able to sell the particular asset or transfer the particular liability on the measurement date to be able to measure fair value on the basis of the price in that market.” ASU 2022-03 clarifies that an entity should apply this existing guidance when measuring the fair value of equity securities that are subject to contractual sale restrictions (i.e., a contractual sale restriction on the reporting entity that prevents the sale of an equity security in the market does not prevent the entity from measuring the fair value of the equity security on the basis of the price in that principal market). ASU 2022-03 for the Company will be effective for fiscal year 2024.
9
NOTE 2 – GOING CONCERN, LIQUIDITY AND MANAGEMENT’S PLAN
Accounting standards require management to evaluate our ability to continue as a going concern for a period of one year after the date of the filing of this Form 10-Q (“evaluation period”). In evaluating the Company’s ability to continue as a going concern, management considers the conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months after the Company issues its financial statements. For the nine months ended September 30, 2023, management considers the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, and the Company’s conditional and unconditional obligations due within 12 months of the date these financial statements are issued.
The Company is subject to risks like those of healthcare technology companies whereby revenues are generated based on both sales-based and subscription-based models, which assume dependence on key individuals, uncertainty of product development, generation of revenues, positive cash flow, dependence on outside sources of capital, risks associated with research, development, and successful testing of its products, successful protection of intellectual property, ability to maintain and grow its customer base, and susceptibility to infringement on the proprietary rights of others. The attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill the Company’s growth and operating activities and generating a level of revenues adequate to support the Company’s cost structure.
As
of September 30, 2023, the Company had a working capital deficit of $
On
March 30, 2023, noteholders owning Replacement Notes in an aggregate of $
Upon this conversion, and as of March 31, 2023, the Company’s officers and board of directors held the majority of the Company’s outstanding voting stock. With controlling interest of the majority of outstanding shares, the Company’s majority shareholders voted to amend its articles of incorporation to increase the authorized shares available for issuance from to , with an effective date of May 22, 2023.
On
May 24, 2023, noteholder owning Replacement Notes in the aggregate of $
Management continues to monitor the immediate and future cash flows needs of the company in a variety of ways which include forecasted net cash flows from operations, capital expenditure control, new inventory orders, debt modifications, increases in sales outreach, streamlining and controlling general and administrative costs, competitive industry pricing, sale of equities, debt conversions, new product or services offerings, and new business partnerships.
The Company’s net losses, cash outflows, and working capital deficit raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support the Company’s cost structure.
NOTE 3 – STOCKHOLDERS’ EQUITY
Warrants to Purchase Common Stock of the Company
We use the Black-Scholes-Merton option pricing model (“Black-Scholes Model”) to determine the fair value of Warrants. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average term of the Warrant.
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the Warrants and is calculated by using the average daily historical stock prices through the day preceding the grant date. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the expected life of the award. Our estimated volatility is an average of the historical volatility of our stock prices (and that of peer entities whose stock prices were publicly available) over a period equal to the expected life of the awards.
A summary of our Warrants activity and related information follows:
| Number
of Shares Under Warrant |
Range
of Warrant Price Per Share |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Life |
|||||||||||||
| Balance at December 31, 2022 | $-$ | $ | ||||||||||||||
| Granted | — | — | — | — | ||||||||||||
| Expired | — | — | — | — | ||||||||||||
| Canceled | — | — | — | — | ||||||||||||
| Balance at September 30, 2023 | $-$ | $ | ||||||||||||||
10
Options to Purchase Common Stock of the Company
During the nine months ended September 30, 2023, options to purchase our Common Stock were granted having a fair value of and exercise price of per share. The valuation methodology used to determine the fair value of the stock options issued was the Black-Scholes Model. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average expected term of the options. During the nine months ended September 30, 2023, options expired or were terminated.
| Number
of Shares Under Options |
Weighted
Average Exercise Price |
Weighted Average Remaining Contractual Life |
Aggregate Intrinsic Value |
|||||||||||||
| Balance at December 31, 2022 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Forfeited/Expired | ( |
) | ( |
) | — | — | ||||||||||
| Exercised | — | — | — | — | ||||||||||||
| Balance at September 30, 2023 | $ | $ | ||||||||||||||
| Vested and Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
At September 30, 2023, 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.
NOTE 4 – OTHER CURRENT ASSETS
Other current assets consist of the following:
| September
30, 2023 |
December 31, 2022 | |||||||
| Prepaid insurance | $ | |
$ | |||||
| Other prepaid expenses | ||||||||
| 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, 2023 |
December
31, 2022 |
|||||||
| Inventory assets | $ | $ | ||||||
| TOTAL INVENTORY | $ | $ | ||||||
NOTE 6 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| September
30, 2023 |
December
31, 2022 |
|||||||
| Network equipment | $ | $ | ||||||
| Office equipment | ||||||||
| Vehicles | ||||||||
| Test equipment | ||||||||
| Furniture | ||||||||
| Warehouse equipment | ||||||||
| Leasehold improvements | ||||||||
| Less: accumulated depreciation | ( |
( |
) | |||||
| TOTAL PROPERTY AND EQUIPMENT, NET | $ | $ | ||||||
Depreciation
expense for the nine months ended September 30, 2023 and 2022 was $
NOTE 7 – INTANGIBLE AND OTHER ASSETS, NET
Intangible assets consist of the following:
| September 30, 2023 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Patents and trademarks | $ | $ | $ | |||||||||
| Other intangible assets | ||||||||||||
| TOTAL INTANGIBLE ASSETS | $ | $ | $ | |||||||||
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| December 31, 2022 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Patents and trademarks | $ | $ | $ | |||||||||
| Other intangible assets | ||||||||||||
| TOTAL INTANGIBLE ASSETS | $ | $ | $ | |||||||||
Other assets consist of the following:
| September 30, 2023 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Deferred installation costs | $ | $ | $ | |||||||||
| Deferred sales commission | ||||||||||||
| Prepaid license fee | ||||||||||||
| Security deposit | ||||||||||||
| TOTAL OTHER ASSETS | $ | $ | $ | |||||||||
| December 31, 2022 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Deferred installation costs | $ | $ | $ | |||||||||
| Deferred sales commissions | ||||||||||||
| Prepaid license fee | ||||||||||||
| Security deposit | ||||||||||||
| TOTAL OTHER ASSETS | $ | $ | $ | |||||||||
NOTE 8 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
September 30, 2023 |
December 31, 2022 |
|||||||
| Accrued interest | $ | $ | ||||||
| Accrued interest, related parties | ||||||||
| Allowance for system removal | ||||||||
| Accrued paid time off | ||||||||
| Deferred officer compensation(1) | ||||||||
| Deferred revenue | ||||||||
| Other accrued liabilities | ||||||||
| TOTAL OTHER CURRENT LIABILITIES | $ | $ | ||||||
| (1) |
NOTE 9 – INCOME TAXES
Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We do not expect to pay any significant federal or state income tax for 2023 because of the losses recorded during the nine months ended September 30, 2023 and net operating loss carry forwards from prior years. In assessing the realizability of deferred tax asset, including the net operating loss carryforwards (NOLs), the Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize its existing deferred assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period when those temporary differences become deductible. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all the benefits of deferred tax assets will not be realized. As of September 30, 2023, we maintained a full valuation allowance for all deferred tax assets. Based on these requirements, no provision or benefit for income taxes has been recorded. There were no recorded unrecognized tax benefits at the end of the reporting period.
The
Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017. Among its numerous changes to the Internal Revenue
Code, the Act reduces U.S. corporate rates from
The effective tax rate for the nine months ended September 30, 2023 was different from the federal statutory rate due primarily to change in the valuation allowance and nondeductible interest and amortization expense.
12
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 $
On June 23, 2022, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Sixth Amendment to Modification Agreement (the “Twenty-Sixth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and June 30, 2022 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, October 7, 2020 and June 30, 2022 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on June 30, 2022, would each be deferred until December 31, 2022 (the end of the extended Modification) and that such deferrals would be a covered event. The Company has evaluated the Twenty-Sixth Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
On December 30, 2022, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Seventh Amendment to Modification Agreement (the “Twenty-Seventh Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and February 28, 2023 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until February 28, 2023 (the end of the extended Modification Period) and that such deferrals would be a covered event. The Company has evaluated the Twenty-seventh Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
On February 28, 2023, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Eighth Amendment to Modification Agreement (the “Twenty-Eighth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and March 31, 2023 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until March 30, 2023 (the end of the extended Modification Period).
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On
March 31, 2023, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Ninth
Amendment to Modification Agreement (the “Twenty-Ninth Modification Agreement Amendment”), pursuant to which the parties
agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion,
to terminate the Modification Period would be July 31, 2018 and April 30, 2023 (with each such date permitted to be extended by the Lender
in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on
December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30,
2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and
the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until April
30, 2023 (the end of the extended Modification Period). Under debt modification/troubled debt guidance, we determined that the first
of the eight amendments had no cash flow impact, and therefore, had no impact on accounting. Amendments nine through ten qualified for
modification accounting, while the final nineteen amendments qualified for troubled debt restructuring accounting. As appropriate, we
expensed the legal costs paid to third parties. For the three months ended March 31, 2023 and 2022, pursuant to the terms of the PDL
Modification Agreement, as amended, $
On April 29, 2023, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Thirtieth Amendment to Modification Agreement (the “Thirtieth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and May 31, 2023 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until May 31, 2023 (the end of the extended Modification Period).
On
May 31, 2023 (the “Effective Date”), the Company, the Borrower, the Lender, Steven G. Johnson, President and Chief Executive
Officer of the Company, and Dr. James R. Higgins, a director of the Company, entered into a Seventh Amendment to Credit Agreement (the
“Seventh Credit Agreement Amendment”), pursuant to which the parties agreed to amend the Credit Agreement to, among other
things, (i) provide that, after the Effective Date, all accrued but unpaid interest (including interest accrued but unpaid prior to the
Effective Date and excluding interest payable on the Maturity Date, in connection with any prepayment, or in the event of an Event of
Default, which interest will be payable in cash) accruing on Tranche One Loans and Tranche Three Loans will be paid-in-kind on each Interest
Payment Date by being added to the aggregate principal balance of the respective loans in arrears on each Interest Payment Date; (ii)
require certain mandatory prepayments of the loans by the Company, including (A) quarterly prepayments in the amount, if any, that the
Company’s Excess Cash Flow exceeds $
On September 30, 2023 (the “Effective Date”), the Company, the Borrower, the Lender, Steven G. Johnson, President and Chief Executive Officer of the Company, and Dr. James R. Higgins, a director of the Company, entered into an Eighth Amendment to Credit Agreement (the “Eighth Credit Agreement Amendment”), pursuant to which the parties agreed to amend the Credit Agreement to modify certain texts originating within the Seventh Credit Agreement. Stricken texts include “all accrued but unpaid interest (including interest accrued but unpaid prior to the Effective Date and excluding interest payable on the Maturity Date, in connection with any prepayment, or in the event of an Event of Default, which interest will be payable in cash) accruing on Tranche One Loans and Tranche Three Loans will be paid-in-kind on each Interest Payment Date by being added to the aggregate principal balance of the respective loans in arrears on each Interest Payment Date.” Additional texts include Release of Claims, which “in consideration of the Lender’s and Agent’s agreements contained in this Amendment, each of Holdings, the Borrower and the Subsidiary Guarantor hereby releases and discharges the Lender and the Agent and their affiliates, subsidiaries, successors, assigns, directors, officers, employees, agents, consultants and attorneys (each, a “Released Person”) of and from any and all other claims, suits, actions, investigations, proceedings or demands, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law of any kind or character, known or unknown, which Holdings, the Borrower or the Subsidiary Guarantor ever had or now has against the Agent, any Lender or any other Released Person which relates, directly or indirectly, to any acts or omissions of the Agent, any Lender or any other Released Person relating to the Credit Agreement or any other Loan Document on or prior to the date hereof.”
Accounting Treatment
In connection with the PDL Credit Agreement, as amended, we issued the PDL Warrant to the Lender. As of September 30, 2023, the Amended PDL Warrant has not been exercised.
Due to the PDL Eighth Credit Agreement Amendment, the calculations for the “interest paid-in-kind” and quarterly “prepayment(s)” were removed effective with the quarter ending on September 30, 2023. The Company concluded that the Company is encountering financial hardship and that a concession was not granted. As the Lender has not granted a concession, the guidance contained in ASC 470-50 Modification and Extinguishment was applied. Given the present value of the cash flows under the Eighth Credit Agreement Amendment differed by less than 10% from the present value of the remaining cash flows under the terms of the prior debt agreement, the debt was determined to be not substantially different which resulted in modification accounting. The Company did not have any debt issuance costs, only legal expenses.
14
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
March 08, 2022, we agreed with the HealthCor Parties to (i) amend the 2011 HealthCor Notes to extend the maturity date of the 2011 HealthCor
Notes from
Also on March 08, 2022, in connection with the HealthCor Note Extensions and the issuance of the 2021 HealthCor Warrants, we entered into a Consent and Agreement Pursuant to Note and Warrant Purchase Agreement (the “2022 NWPA Consent”) with the HealthCor Parties and certain additional Existing Investors (in their capacity as Majority Holders acting together with the HealthCor Parties), pursuant to which, among other things, (i) the Majority Holders consented to the HealthCor Note Extensions, (ii) the Majority Holders consented to the issuance of the 2021 HealthCor Warrants and (iii) the parties agreed that the holders of the 2021 HealthCor Warrants would have registration rights for the shares of Common Stock issuable upon exercise of the 2021 HealthCor Warrants under the Registration Rights Agreement dated as of April 20, 2011, as amended June 30, 2015, by and among the Company, the HealthCor Parties and the additional investors party thereto (the “Registration Rights Agreement”).
On
July 1, 2022, we entered into amendments to the 2014 HealthCor Notes, 2015 Supplemental Notes, Eighth Amendment Supplemental Closing
Notes, Tenth Amendment Supplemental Closing Notes, Twelfth Amendment Supplemental Closing Note and Thirteenth Amendment Supplemental
Closing Note (collectively, the “2022 Allonges”) to suspend the accrual of interest on the 2014 HealthCor Notes as to
Also
on December 30, 2022, the Existing Investors agreed to the cancellation by the Company and the forfeiting of their respective rights
in and to the 2011 Warrants, 2014 Supplemental Warrants, Fifth Amendment Supplemental Warrants, Sixth Amendment Supplemental Warrants,
Eighth Amendment Supplemental Warrants, 2021 Warrants and 2022 Warrants (collectively, the “Warrants”); and the Existing
Investors have agreed to waive any and all interest that has accrued, but remains unpaid on the Existing Notes held by the Existing Investors;
in exchange for releasing its second senior secured position they hold in connection with the 2011 Notes and 2012 Notes. The Existing
Investors have agreed to waive any and all interest that has accrued, but remains unpaid on the Existing Notes held by the Existing Investors
with the 2014 Notes along with the 2015 Notes, 2018 Notes, 2019 Note and 2020 Note. In exchange for releasing its second senior secured
position they hold in connection with the 2011 Notes and 2012 Notes, the HealthCor Parties will receive an additional $
On
March 30, 2023, HealthCor noteholders owning an aggregate of $
On
May 24, 2023, HealthCor noteholders owning an aggregate of $
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 $
15
Warrants
were issued with the Fourth, Fifth, Eighth, Ninth, and Allonge 3 Amendment Notes and the proceeds were allocated to the instruments based
on relative fair value as the warrants did not contain any features requiring liability treatment and therefore were classified as equity.
At each amendment date, the warrants were recorded as debt discount, as a reduction of the net carrying amount of the debt. The debt
discounts are amortized into interest expense each period under the effective interest method. The value allocated to the Ninth Amendment
Warrants was $
Warrants
were issued with Allonge 4 Amendment Notes and the proceeds were allocated to the instruments based on relative fair value as the warrants
did not contain any features requiring liability treatment and therefore were classified as equity. At each amendment date, the warrants
were recorded as debt discount, as a reduction of the net carrying amount of the debt. The debt discounts are amortized into interest
expense each period under the effective interest method. The value allocated to the Allonge 4 Amendment Warrants was $
NOTE 12 – JOINT VENTURE AGREEMENT
On
December 31, 2019, the Company and Rockwell entered into a Second Amendment to the Rockwell Note (the “Second Rockwell Note Amendment”)
pursuant to which Rockwell agreed to extend the term of the Rockwell Note by one year, to December 31, 2020, and agreed to extend the
time to make the quarterly payment that would otherwise be due on
As of March 31, 2022, the Rockwell Note was paid off.
NOTE 13 – LEASE
Under
ASC Topic 842, Leases (“ASC 842”), operating lease expense is generally recognized evenly over the term of the lease. The
Company has an operating lease primarily consisting of office space with a remaining lease term of
On
September 8, 2009, we entered into a Commercial Lease Agreement (the “Lease”) for
The
Company has further concluded that the Lease Extension has no effects on the classification of the Lease. Rent expense for the nine months
ended September 30, 2023, and 2022 was $
Undiscounted Cash Flows
Future lease payments included in the measurement of operating lease liability on the condensed consolidated balance sheet as of September 30, 2023, for the following five fiscal years and thereafter as follows:
| Quarter
ending September 30, 2023 |
Operating Leases |
|||
| Remaining 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Total minimum lease payments | ||||
| Less effects of discounting | ( |
|||
| Present value of future minimum lease payments | $ | |||
NOTE 14 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through November 13, 2023.
16
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/A filed with the Securities and Exchange Commission (the “SEC”) filed on May 30, 2023. The reported results will not necessarily reflect future results of operations or financial condition.
Throughout this Quarterly Report on Form 10-Q (the “Report”), the terms “we,” “us,” “our,” “CareView,” or “Company” refers to CareView Communications, Inc., a Nevada corporation, and unless otherwise specified, includes our wholly owned subsidiaries, CareView Communications, Inc., a Texas corporation (“CareView-TX”) and CareView Operations, LLC, a Nevada limited liability company (“CareView Operations”) (collectively known as the “Company’s Subsidiaries”).
We maintain a website at www.care-view.com and our Common Stock trades on the OTCQB under the symbol “CRVW.’’
17
Company Overview and Recent Developments
For over a decade, CareView has been dedicated to supporting hospital care teams with its innovative virtual care solutions. The Company has established successful partnerships with over 200 hospitals nationwide, implementing effective inpatient virtual care strategies that greatly enhance patient safety and overcome critical staffing challenges. The CareView platform, fueled by industry-leading predictive technology and supported by its purpose-built hardware, specifically addresses the unique requirements of virtual nursing and virtual sitting use cases. The CareView team works closely with their hospital partners to understand their evolving needs and deliver tailored virtual care strategies that align with their objectives. By providing healthcare professionals with the tools they need to deliver exceptional care, CareView contributes to improved patient outcomes and a more sustainable healthcare ecosystem.
Software: The CareView Platform
The CareView platform comprises two essential components: the Patient Safety System® and the Patient Care System. These systems work in harmony to deliver unparalleled patient safety and exceptional virtual nursing care. The Patient Safety System is purposefully designed to optimize virtual sitting outcomes. Leveraging our patented predictive technology, including Virtual Bed Rails® and Virtual Chair Rails®, it ensures continuous monitoring of 25-35 patients from a centralized location. By utilizing these innovative tools, we enhance patient safety while reducing sitter costs across the nation. The Patient Care System revolutionizes virtual nursing by harnessing our clinically-designed technology. By reallocating professional nursing and administrative tasks to virtual Registered Nurses (vRNs), it alleviates the bedside workload and enables virtual engagement with patients and their families. This transformational approach allows for personalized care and improved patient experiences.
The CareView platform seamlessly integrates with CareView's in-room cameras, third party technology integrations, and clinical workflows, empowering hospitals to implement their virtual care strategies effortlessly. The CareView platform includes a real-time analytics dashboard and a range of reporting tools, providing valuable insights and data to optimize patient care delivery. CareView also understands the importance of system management and maintenance. The CareView team is dedicated to providing exceptional support, monitoring, and maintenance services for the platform and hardware, ensuring optimal performance and peace of mind for our valued partners.
CareView prioritizes the privacy and security of our customers' confidential data and information systems. The Company has implemented comprehensive measures to provide robust protection, as evidenced by their privacy and information security assessment certifications. Since 2017, CareView has been HITRUST certified, an internationally recognized standard that ensures the implementation of adequate and proportionate security controls. This certification validates their commitment to safeguarding customers' information and intellectual property assets. With HITRUST certification, customers can trust that CareView adheres to stringent information security policies. To handle sensitive information securely, CareView leverages a FIPS 140-2 validated cryptographic module certificate #3998. This certificate demonstrates compliance with the Federal Information Processing Standard (FIPS) 140-2 Level 1, providing a high level of confidence in their encryption practices. Importantly, this validation is achieved without the need for additional hardware, ensuring a streamlined and efficient security infrastructure. CareView is fully compliant with the Health Insurance Portability and Accountability Act (HIPAA). Their commitment to HIPAA standards ensures that sensitive information is safeguarded at all times. With CareView's additional HIPAA-compliant features, customers have the power to control their privacy settings. A patient, nurse, or physician, can enable privacy options whenever needed.
In October 2022, CareView received Innovative Technology Designation after the Innovative Technology Exchange in Dallas, Texas. Every year, healthcare experts serving on the member-led councils of Vizient, Inc., (“Vizient”), the nation’s largest healthcare performance improvement company, review select products and technologies for their potential to enhance clinical care, patient safety, healthcare worker safety or to improve business operations of healthcare organizations. Vizient’s diverse membership and customer base includes academic medical centers, pediatric facilities, community hospitals, integrated health delivery networks, and non-acute health care providers, and represents more than $130 billion in annual purchase volume. Technology designations are awarded to previously contracted products to signal to healthcare providers the impact of these innovations on patient care and business models of healthcare organizations.
Hardware: In-room Cameras
CareView takes pride in their meticulously designed and engineered hardware that seamlessly integrates with the CareView platform, elevating the virtual care experience for their esteemed hospital partners and their patients. To cater to various patient care scenarios, CareView offers a range of in-room cameras, each carefully crafted to handle different care situations while ensuring optimal monitoring capabilities. All of the CareView cameras are equipped with low-light/night vision cameras, pan tilt zoom and high-fidelity 2-way audio for effective communication. For virtual sitting use cases, the CareView cameras use machine learning to differentiate between normal patient movements and behaviors of a patient at risk. This technology results in less false alarms, faster staff intervention, and a significant reduction in patient falls.
The CareView cameras are available in multiple configurations for permanent or temporary situations; the Mobile, Portable, and Fixed Controller. For virtual care situations that demand that the camera come to the patient, the Mobile Controller on wheels comes with an uninterrupted external power supply for situations where power may not be readily available and can operate on the facility’s wireless network. For monitoring patients within a general care unit, the Portable Controller can be easily removed from mounts and moved where the workflow dictates, making this application perfect for general use. For high-risk patient rooms where behavior and self-harm may be a factor, or where a patient must be continuously monitored, the Fixed Controller can be installed seamlessly in the ceiling tiles leaving no exposed wiring making it ligature resistant.
CareView System Products and Services Agreement with Healthcare Facilities
CareView’s subscription-based model is offered to healthcare facilities through a Products and Services Agreement (the “P&S Agreement(s)”). During the term of the P&S Agreement, we provide continuous monitoring of the CareView System products and services deployed to a healthcare facility and maintain and service all equipment installed by us. Under the subscription-based model, terms of each P&S Agreement require the healthcare facility to pay us a monthly fee based on the number of selected, installed, and activated services. None of the services provided through the Primary Package are paid or reimbursed by any third-party provider including insurance companies, Medicare, or Medicaid. We also enter into corporate-wide agreements with healthcare companies (the “Master Agreement(s)”), wherein the healthcare companies enter into individual facility level agreements that are substantially like our P&S Agreements.
18
Master Agreements and P&S Agreements are currently negotiated for a period of three years with a provision for automatic renewal. P&S Agreements specific to pilot programs (“P&S Pilot Agreements”) contain pricing terms substantially like P&S Agreements, are generally three or six-months in length and can be extended on a month-to-month basis as required. Regarding the subscription-based model, we own all rights, title, and interest in and to the equipment we install at each location and agree to maintain and repair it; although, we may charge for repairs or replacements due to damage or misuse. We are not responsible for maintaining data arising from use of the CareView System or for transmission errors, corruption or compromise of data carried over local or interchange telecommunication carriers. We grant each healthcare facility a limited, revocable, non-transferable, and nonexclusive license to use the software, network facilities, content, and documentation on and in the CareView System to the extent, and only to the extent, necessary to access, explore and otherwise use the CareView System in real time. Such non-exclusive license expires upon termination of the P&S Agreement.
We use specific terminology to better define and track the staging and billing of the individual components of the CareView System. The CareView System includes three components which are separately billed; the CareView Controller (previously known as RCP), the CareView SitterView Monitor, and the CareView Application Server (each component referred to as a “unit”). The term “bed” refers to each healthcare facility bed as part of the overall potential volume that a healthcare facility represents. For example, if a healthcare facility has 200 beds, the aggregate of those beds is the overall potential volume of that healthcare facility. The term “bed” is often used interchangeably with “CareView Controller” as this component of the CareView System consistently resides within each room where the “bed” is located. On average, there are six SitterView Monitors for each 100 beds. The term “deployed” means that the units have been delivered to the healthcare facility but have not yet been installed at their respective locations within the facility. The term “installed” means that the units have been mounted and are operational. The term “billable” refers to the aggregate of all units on which we charge fees. Units become billable once they are installed and the required personnel have been trained in their use. Units are only deployed upon the execution of a P&S Agreement or P&S Pilot Agreement.
CareView System Sales-Based Model
CareView’s sales-based model commenced with the introduction of our updated technology. CareView has also aligned its contracting model to meet the preferred acquisition model in the hospital industry. CareView now sells its proprietary equipment to facilities in lieu of lending the equipment as defined under the subscription-based model. In doing so, the facility is billed for the hardware on acceptance of the contract. After CareView’s equipment is delivered to the facility, CareView begins the process of installing and securely integrating the equipment and software. Upon completion of installation, training, and “go-live”; referring to all systems in full operation, CareView bills the facility for the installation, training, and an annual software license fee. CareView will continue to bill the facility an annual software license fee until the end of the contract. The shift to the sales-based model has an immediate impact on our operations resulting in greater cash flow within 30 days of contract signing.
CareView continues its dedication to provide service and support on a 24x7x365 basis for every customer under every contract.
CareView Connect
Our mission is to be the leading provider of resident monitoring products and services for the long-term care industry. We took what we learned in our medical facility business and applied it to developing a product to serve the long-term care market. With CareView Connect Quality of Life® System (“CareView Connect”), CareView has again positioned itself as a technology leader with its innovative suite of products specifically designed for all aspects of the long-term care market, including Nursing Care, Home Care, Assisted Living and Independent Living.
With this mission in mind, in the second quarter of 2018, the Company introduced a new sensor product with application in both the assisted living center market and the home health market. CareView Connect leverages both passive and active sensors to track the activities of daily life. CareView Connect provides peace of mind by using data from the resident’s activity, existing conditions, and environment to notify a caregiver of potential emergencies and identify the need for dignified support. CareView Connect consists of a small emergency assist button, two motion sensors, one sleep sensor, and one event sensor. Resident activity levels, medication administration, sleep patterns, and requests for assistance can all be monitored depending on which options are selected.
The skilled nursing home market consists of approximately 2,000,000 beds, which is double the size of the current hospital/healthcare facility bed market. The assisted living center market is even larger at approximately 3,000,000 beds. Our products flow naturally into the nursing home space as it is substantially the same setting as hospital rooms.
CareView Connect is a platform consisting of several products and applications targeted at improving the level of care and efficiency. CareView built a cohesive and tightly integrated solution that solves several problems that long-term care facilities face. We offer an array of wearable and stationary buttons that allow a resident to summon help either for an emergency or assistance, which can be anything from toileting help to assistance putting on their shoes. We offer a mobile app capable of delivering an alert to the caregiver and allows them to document information around that alert, how long before the alert was handled and, what was the cause of the alert, and if it was not acknowledged in a timely manner then the alert is escalated to another individual or group. This ensures that every alert is responded to in a timely manner and is verifiable.
Alert Management and Monitoring System
CareView Connect provides a suite of hardware and software that facilitate a data-driven solution for alert management and monitoring. CareView Connect’s solution provides additional context, including location of the resident, which improves response time by the staff. The alert system includes a documentation platform that allows the facility’s staff to classify the reason for alerts and provides metrics around response time. CareView Connect’s solution involves several passive sensors that monitor the resident.
Caregiver Platform
The caregiver platform includes a “Leave of Absence” component, which allows the facility to document when the resident is outside of their room for a duration of time. This information is incorporated with known data from the workflows and sensors to improve awareness. The Caregiver Connect mobile application provides a convenient and intuitive interface to the CareView Connect platform. The caregiver can use the mobile app to capture important information and interface with critical workflows, such as acknowledging and documenting alert presses by the resident. CareView Connect also provides a product focused on capturing and measuring the mental state and pain experienced by the resident. “How are you feeling today?” provides a convenient way to capture information about the mental state of the resident using emojis. Similarly, “What is your pain today?” allows the staff to categorize and document pain. Connect Resident is a tablet application intended for the resident’s direct use. This product currently supports video conferencing with a remote caregiver, becoming a communications conduit for telehealth. Connect Resident also supports “How are you feeling today?”, which allows the resident to submit this information directly.
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Quality of Life Metrics
CareView developed its own algorithm for measuring quality of life based on “best of breed” research and leveraging the data collected by the platform. CareView Connect’s Quality of Life Metrics focuses on several categories, including Physical Activity, Bodily Pain, General Health, Vitality, Social Interaction, Mental Health, and Sleep Quality. Leveraging this data, the facility and their staff have improved visibility into the health and well-being of their residents. By applying machine learning and predictive analytics, subtle patterns and trends that may not otherwise be visible become actionable. The facility can use this information to present a more compassionate and capable level of care, differentiating the facility from their competition. The Quality-of-Life Metrics information can be made available to the family and loved ones, opening a new channel of remote awareness and care. Because the information is collected automatically, the family gains awareness on issues of which their loved ones may normally be unaware. The Connect Family mobile application allows family members to monitor their loved one and receive alerts and notifications based on their preferences.
Pricing Structure and Revenue Streams
The CareView Connect suite of products and services offers multiple pricing models. We work with each facility on pricing to offer an affordable package based on the demographics of the residents of the facility. The pricing structure with each facility is negotiated separately. Typically, we offer the CareView Connect basic package at a price per monitored room with varying price structures based on number of sensors and number of residents in each facility.
Purchasing Agreement with Decisive Point Consulting Group, LLC
On February 2, 2021, we partnered with Decisive Point Consulting Group, a Department of Veterans Affairs Contractor Verification Enterprise (CVE) and a Verified Service-Disabled Veteran Owned Small Business (SDVOSB), to expand our reach within the VA hospitals and Community Living Centers space. Our partnership reflects our desire to collaborate with companies that share our vision of patient safety. We continue to use this partnership to contract with VA hospitals and their Community Living Centers (“CLC”).
Indefinite Delivery Indefinite Quality (IDIQ) Contract
On September 10, 2021, the Company entered an Indefinite Delivery Indefinite Quality (IDIQ) contract for Telecare Services with Shore Systems and Solutions, LLC (S3). The award provides S3 with a path to providing the CareView System to veterans and their families receiving care at the 1,293 Veterans Health Administration (“VHA”) facilities across the United States and Territories.
General Service Administration Multiple Award Schedule
Pursuant to the terms of the Company’s General Service Administration (“GSA”) Multiple Award Schedule contract (“MAS”), the MAS allows us to sell the CareView System at a negotiated rate to the approximate 169 United States Department of Veterans Affairs (“VA”) facilities with over 39,000 licensed beds and the approximate 42 DOD hospitals with over 2,600 licensed beds. The sales-based model was added to the MAS, which allows us to sell the proprietary hardware and license the software on an annualized basis. The MAS is one of the most widely accepted government contract vehicles available to agency procurement officers. GSA’s application process requires potential vendors to be recognized as highly credible and well established. CareView is the sole source provider. Our products and services represent an enormous opportunity to improve the health and safety of our Nation’s veterans.
Group Purchasing Agreement with HealthTrust Purchasing Group, LP
On December 14, 2016, the Company entered a Group Purchasing Agreement with HealthTrust Purchasing Group, L.P. (“HealthTrust”) (the “HealthTrust GPO Agreement”), the Nation’s only committed-model Group Purchasing Organization (“GPO”) headquartered in Nashville, Tennessee. HealthTrust serves approximately 1,600 acute care facilities and members in more than 26,000 other locations, including ambulatory surgery centers, physician practices, long-term care, and alternate care sites. The agreement was effective on January 1, 2017 and all CareView System components and modules are available for purchase by HealthTrust’s exclusive membership. HealthTrust members may order CareView’s products and services included in the agreement directly from CareView.
On October 1, 2018, the Company added CareView Connect to the HealthTrust GPO Agreement.
On November 1, 2020, the sales-based contract model was added to the HealthTrust GPO Agreement which allows us to sell the proprietary hardware and license the software on an annualized basis. On December 1, 2021, the HealthTrust GPO Agreement was renewed for another 3-year term. We continue to work with HealthTrust and their members to expand contracts.
Group Purchasing Agreement with Premier, Inc.
On June 8, 2022, the Company entered a Group Purchasing Agreement with Premier, Inc. (“Premier”), headquartered in Charlotte, N.C. Premier is a leading healthcare improvement company, uniting an alliance of more than 4,400 U.S. hospitals and health systems and approximately 225,000 other providers and organizations to transform healthcare. The agreement was effective on June 15, 2022 and all Gen 5 CareView System components and modules are available for purchase by Premier’s exclusive membership. Premier members may order CareView’s products and services included in the agreement directly from CareView. We are continuing to work with Premier on new contracts.
Group Purchasing Agreement with Vizient
On February 15, 2023, the Company entered a Group Purchasing Agreement with Vizient, headquartered in Irving, TX. Vizient, the nation’s largest health care performance improvement company, has a diverse membership and customer base, including academic medical centers, pediatric facilities, community hospitals, integrated health delivery networks, and non-acute health care providers, and represents more than $130 billion in annual purchasing volume. The multi-year agreement allows Vizient members the opportunity to benefit from pre-negotiated pricing for CareView products. The agreement was effective on February 15, 2023 and all Gen 5 CareView System components and modules are available for purchase by Vizient’s exclusive membership. Vizient members may order CareView’s products and services included in the agreement directly from CareView. We are continuing to work with Vizient on new contracts.
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Summary of Product and Service Usage
Our contracts typically include multiple combinations of our products, software solutions, and related services with multiple payment options. Customers can continue to lease our equipment under our subscription model or can purchase our equipment upfront under our sales-based contract model with an auto-renewal at the end of each contract period. The new sales-based contract offers our customers the flexibility of capitalizing on their investment, which in turn, replenishes our cash reserves. For the years ended December 31, 2022, and 2021, the Company executed sales-based contracts in approximate aggregated amounts of $4,309,000 and $5,600,000.
Results of Operations
Three months ended September 30, 2023, compared to three months ended September 30, 2022
Three months ended September 30, |
||||||||||||
| 2023 | 2022 | Change | ||||||||||
| (000 ’s) | ||||||||||||
| Revenue | $ | 2,425 | $ | 1,968 | $ | 457 | ||||||
| Operating expenses | 2,469 | 2,300 | 169 | |||||||||
| Operating income | (44) | (332) | 288 | |||||||||
| Other, net | (826) | (1,147 | ) | (321) | ||||||||
| Net loss | $ | (869) | $ | (1,479 | ) | $ | (609) | |||||
Revenue
Revenue increased approximately $457,000 for the three months ended September 30, 2023, as compared to the same period in 2022. The increase was attributable to recognizing hardware order fulfillment of two new customers.
Operating Expenses
Our principal operating costs include the following items as a percentage of total operating expense.
Three Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Human resource costs, including benefits and non-cash compensation | 54 | % | 60 | % | ||||
| Professional and consulting costs | 8 | % | 8 | % | ||||
| Depreciation and amortization | 4 | % | 6 | % | ||||
| Other product deployment costs, excluding human resources and travel and entertainment costs | 9 | % | 2 | % | ||||
| Travel and entertainment expense | 2 | % | 8 | % | ||||
| Other expenses | 23 | % | 16 | % | ||||
Operating expenses increased by a net 7.3% because of the following items:
| (000’s) | ||||
| Human resource costs, including benefits and non-cash compensation | $ | (31 | ) | |
| Depreciation and amortization | (35 | ) | ||
| Other product deployment costs, excluding human resources and travel and entertainment expense | 171 | |||
| Professional and consulting costs | 23 | |||
| Travel and entertainment expense | (145 | ) | ||
| Other expenses | 186 | |||
| $ | 169 |
Human resource related costs (including salaries and benefits and non-cash compensation) decreased approximately $31,000 due to less stock compensation and paid time off during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022. Product deployment costs increased approximately $171,000 due to installations and equipment costs of new sales. Travel and entertainment costs decreased approximately $145,000 due to installation employee reimbursements in 2022 third quarter mistakenly recorded to corporate transportation. For the comparable periods, other expenses increased approximately $186,000, primarily because of advertising & marketing, property taxes, dues & subscriptions and research & development.
Other, net
Other non-operating income and expense decreased by approximately $321,000, or 28%, for the three months ended September 30, 2023 in comparison to the same period in 2022, primarily because of the cancellation of all Non-PDL related and non-related parties’ interest expense in consideration for the debt to equity conversion.
Net Loss
As a result of the factors above, our third quarter 2023 net loss of approximately $869,000 decreased approximately $609,000, or 41%, as compared to approximately $1,479,000 net loss for the third quarter of 2022.
Nine months ended September 30, 2023, compared to nine months ended September 30, 2022
| Nine months ended September 30, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| (000 ’s) | ||||||||||||
| Revenue | $ | 7,917 | $ | 5,983 | $ | 1,934 | ||||||
| Operating expenses | 7,657 | 7,172 | 485 | |||||||||
| Operating income | 260 | (1,189 | ) | 1,449 | ||||||||
| Other, net | (2,521 | ) | (5,137 | ) | 2,616 | |||||||
| Net loss | $ | (2,261 | ) | $ | (6,326 | ) | $ | 4,065 | ||||
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Revenue
Revenue increased approximately $1,934,000 for the nine months ended September 30, 2023, as compared to the same period in 2022. The increase was attributable to recognizing hardware order fulfillment of new customers as well as software sales.
Other, net decreased approximately $2,616,000 for the nine months ended September 30, 2023, as compared to the same period in 2022. The decrease was attributable to the cancellation of all non-PDL, related and non-related parties’ interest expense and warrants in consideration for the debt to equity conversion.
Operating Expenses
Our principal operating costs include the following items as a percentage of total operating expense.
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Human resource costs, including benefits and non-cash compensation | 54 | % | 56 | % | ||||
| Professional and consulting costs | 10 | % | 10 | % | ||||
| Depreciation and amortization | 5 | % | 6 | % | ||||
| Other product deployment costs, excluding human resources and travel and entertainment costs | 8 | % | 3 | % | ||||
| Travel and entertainment expense | 3 | % | 4 | % | ||||
| Other expenses | 21 | % | 21 | % | ||||
Operating expenses increased by a net 6.8% or approximately $485,000. The increase was attributable to other product deployment costs of hardware sales and associated installation, training and go-live as well as sales commissions and advertising & marketing being higher than the comparable period. Other expenses comprising mainly of business insurances, rent, software licenses, public entity costs and patent maintenance expense remained relatively the same.
Net Loss
Year-to-date 2023 net loss of approximately $2,261,000 decreased approximately $4,065,000 or 64%, as compared to approximately $6,326,000 net loss for the comparable nine months of 2022.
Liquidity and Capital Resources
Accounting standards require management to evaluate whether the Company can continue as a going concern for a period of one year after the date of the filing of this Form 10-Q (“evaluation period”). In evaluating the Company’s ability to continue as a going concern, management considers the conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months after the Company issues its financial statements. For the period ended September 30, 2023, management considers the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, and the Company’s conditional and unconditional obligations due before November 12, 2024.
The Company is subject to risks like those of healthcare technology companies whereby revenues are generated based on both on a sales-based and subscription-based business model such as dependence on key individuals, uncertainty of product development, generation of revenues, positive cash flow, dependence on outside sources of capital, risks associated with research, development, and successful testing of its products, successful protection of intellectual property, ability to maintain and grow its customer base, and susceptibility to infringement on the proprietary rights of others. The attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill the Company’s growth and operating activities and generating a level of revenues adequate to support the Company’s cost structure.
The Company has experienced net losses and significant cash outflows from cash used in operating activities over the past years. As of and for the nine months ended September 30, 2023, the Company had an accumulated deficit of $206,194,185, income from operations of $259,788, net cash provided by operating activities of $170,982, and an ending cash balance of $674,020.
As of September 30, 2023, the Company had a working capital deficit of $36,099,968 consisting primarily of PDL notes payables including accrued interest. Management has evaluated the significance of the conditions described above in relation to the Company’s ability to meet its obligations and concluded that, without additional funding, the Company will not have sufficient funds to meet its obligations within one year from the date the condensed consolidated financial statements were issued. While management will look to continue funding operations by increased sales volumes and raising additional capital from sources such as sales of its debt or equity securities or loans to meet operating cash requirements, there is no assurance that management’s plans will be successful.
On March 8, 2022, we agreed with the HealthCor Parties to (i) amend the 2011 HealthCor Notes to extend the maturity date of the 2011 HealthCor Notes from April 20, 2022 to April 20, 2023 by entering into Allonge No. 4 to the 2011 HealthCor Notes (the “Third 2011 Note Allonges”) and (ii) amend the 2012 HealthCor Notes to extend the maturity date of the 2012 HealthCor Notes from April 20, 2022 to April 20, 2023 by entering into Allonge No. 4 to the 2012 HealthCor Notes (the “Fourth 2012 Note Allonges”) (such amendments to the 2011 HealthCor Notes and 2012 HealthCor Notes together, the “HealthCor Note Extensions”). In connection with the HealthCor Note Extensions, we issued the HealthCor parties warrants to purchase an aggregate of 3,000,000 shares of our Common Stock at an exercise price per share equal to $0.09 per share (subject to adjustment as described therein) and with an expiration date of March 08, 2032 (collectively the “2021 HealthCor Warrants”).
On December 30, 2022, the Company entered into a consent and agreement to cancel and exchange existing notes and issue replacement notes and cancel warrants (the “Cancellation Agreement”) with certain holders (the “Investors”) of senior secured convertible promissory notes (“Notes”) and warrants (“Warrants”) to purchase the Company’s common stock, that were issued pursuant to the Note and Warrant Purchase Agreement, dated as of April 21, 2011 (as amended, modified, or supplemented from time to time) (the “Purchase Agreement”). The Cancellation Agreement provided for the cancellation of all outstanding Notes and Warrants issued pursuant to the Purchase Agreement in exchange for the issuance of replacement senior secured convertible promissory notes (the “Replacement Notes”) with an aggregate principal amount of $44,200,000. The maturity date of the Replacement Notes was December 31, 2023. No interest accrues on the Replacement Notes. As of June 30, 2023, all replacement note were converted into shares of the Company’s common stock at $0.10 per share.
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On March 30, 2023, investors holding an aggregate of $26,200,000 of Replacement Notes exercised their right to convert the debt into shares of the Company’s common stock at $0.10 per share (the “First Tranche”). Upon conversion, the Company issued the investors in the First Tranche an aggregate of 262,000,000 shares. The First Tranche only converted 50% of the HealthCor Replacement Notes. Due to the insufficient number of the Company’s available authorized shares of common stock, a shareholder vote to authorize an increase in the Company’s authorized shares of common stock to 800,000,000 was approved on May 26, 2023.
Effective May 22, 2023, the Company’s increased its authorized shares of common stock from 500,000,000 shares to 800,000,000 shares.
On May 24, 2023, noteholders owning an aggregate of $18,000,000 Replacement Notes, provided the Company with a Conversion Notice, pursuant to the terms of the Replacement Notes, to convert the Replacement Notes into shares of the Company’s common stock at a conversion price of $0.10 per share, resulting in the issuance of an aggregate of 180,000,000 shares.
Management continues to monitor the immediate and future cash flow needs of the Company in a variety of ways which include forecasted net cash flows from operations, capital expenditure control, new inventory orders, debt modifications, increases sales outreach, streamlining and controlling general and administrative costs, competitive industry pricing, sale of equities, debt conversions, new product or services offerings, and new business partnerships.
The Company’s net losses, cash outflows, and working capital deficit raise substantial doubt about the Company’s ability to continue as a going concern through November 12, 2024. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support the Company’s cost structure.
Critical Accounting Estimates
Please refer to our Annual Report on Form 10-K/A for the year ended December 31, 2022 filed with the Commission on May 26, 2023 and incorporated herein by reference, for detailed explanation of our critical accounting estimates, which have not changed significantly during the three and nine months ended September 30, 2023.
Recently Issued and Newly Adopted Accounting Pronouncements
We do not expect that the adoption of any recent accounting pronouncements will have a material impact on our accompanying condensed consolidated financial statements.
Recent Events
None.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
None.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), we carried out an evaluation, with the participation of our management, including Steve G. Johnson, our Chief Executive Officer (“CEO”) and principal executive officer, and Jason T. Thompson, our principal financial officer and chief accounting officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report.
Under the supervision and with the participation of our CEO and principal financial and chief accounting officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023. Based on that evaluation, our CEO and principal financial and chief accounting officer concluded that our disclosure controls and procedures were not effective as of September 30, 2023 due to the continuing existence of a material weakness in internal control over financial reporting described below (which we view as an integral part of our disclosure controls and procedures). Based on the performance of additional procedures designed to ensure the reliability of our financial reporting, we believe that the condensed consolidated financial statements included in this Report fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented, in conformity with accounting principles generally accepted in the United States (“GAAP”).
Material Weakness and Remediation Plan
A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that the Company did not maintain effective internal control over financial reporting as of the quarter ended Sepember 30, 2023 due to the existence of the material weaknesses described below.
Management determined that the Company did not maintain effective internal control over financial reporting as of September 30, 2023, due to the existence of the following material weaknesses:
| ● | It was determined that the Company does not have effective controls over the identification and evaluation of the GAAP accounting for certain complex transactions in the areas of revenues, debt, and income taxes, due to a lack of technical expertise. |
| ● | Due to a lack of accounting resources, it was determined that the Company had inadequate segregation of duties in place related to its financial reporting and other management oversight. Specifically, the accounting personnel had responsibility for initiating transactions in the financial statement areas of revenues, equity, payroll, debt, and financial reporting, recording transactions, and preparing financial reports. |
Based on additional procedures and post-closing review, Management concluded that the consolidated financial statements including this report present fairly, in all material respects, results of operations, and cash flows for the periods presented, in conformity with accounting principles accepted in the United States.
We began to take steps to address our material weaknesses, through our remediation plan. We implemented the following measures:
| ● | Identify and employ additional full-time highly qualified accounting personnel to join the corporate accounting function to enhance overall monitoring, maintain standard internal controls, and accounting oversight within the Company. |
| ● | The Company hired a certified public accountant (“CPA”) as its Controller and a Senior Accountant while contracting with the former Senior Accountant. |
| ● | Implement enhanced documentation associated with management review controls and validation of the completeness and accuracy of financial reporting and key management financial reports. |
| ● | Provide training of standard operating procedures and internal controls to key stakeholders within the supply chain, logistics, and inventory processes. |
| ● | Enhance and automate existing internal control to ensure proper authorization, review, and recording of financial transactions. |
| ● | On an as-needed basis, identify and engage certain third-party subject matter experts to assist with the preparation and reporting of complex business and accounting transactions. |
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Changes in Internal Control Over Financial Reporting
Other than as described above, there were no changes in our internal control over financial reporting identified in management’s evaluations pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
Our management can provide no assurance that our disclosure controls and procedures or our internal control over financial reporting can prevent all errors and all fraud under all circumstances. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
Our Company is a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On May 24, 2023, noteholders owning an aggregate of $18,000,000 Replacement Notes, provided the Company with a Conversion Notice, pursuant to the terms of the Replacement Notes, to convert the Replacement Notes into shares of the Company’s common stock at a conversion price of $0.10 per share, resulting in the issuance of an aggregate of 180,000,000 shares.
The shares were offered and sold to accredited investors in a transaction not involving a public offering, pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. The investors represented their intentions to acquire the securities for investment only and not with a view to sale in connection with any distribution thereof, and appropriate legends were placed upon the shares issued in the transaction. The offer and sale of the securities were made without any general solicitation or advertising.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
| Exhibit No. | Date of Document | Name of Document |
| 31.1 | November 13, 2023 | Certification of Chief Executive Officer of Periodic Report pursuant to Rule 13a-14a and Rule 14d-14(a)* |
| 31.2 | November 13, 2023 | Certification of Chief Financial Officer of Periodic Report pursuant to Rule 13a-14a and Rule 15d-14(a)* |
| 32 | November 13, 2023 | 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. |
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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 13, 2023
| 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 | ||
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