CAREVIEW COMMUNICATIONS, INC. Accounting standards require management to evaluate whether the Company can
continue as a going concern for a period of one year after the date of the
filing of this Form 10-Q ("evaluation period"). In evaluating the Company's
ability to continue as a going concern, Management considers the conditions and
events that raise substantial doubt about the Company's ability to continue as a
going concern for a period of twelve months after the Company issues its
financial statements. For the period ended June 30, 2022 , 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 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 six months
ended June 30, 2022 , the Company had an accumulated deficit of $202,736,963 ,
loss from operations of $856,520 , net cash used in operating activities of
$79,208 , and an ending cash balance of $503,080 .
As of June 30, 2022 , the Company had operating net working capital of $644,862 ,
which is accounts receivable plus inventory minus accounts payable. 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 unaudited 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 planswill be successful. As ofMarch 8, 2022 , the Company extendedHealthCor 2011 and 2012 notes throughApril 20, 2023 , by entering Allonge No. 4 and we issued warrants to purchase an aggregate of 3,000,000 shares of our Common Stock at an exercise price per
share equal to$0 .09per share. OnJune 23, 2022 , we agreed with thePDL Investment Holdings, LLC along withSteven G. Johnson and Dr.James R. Higgins in their collective capacity as the Tranche Three Lender to extend the due date fromJune 30, 2022 untilDecember 31, 2022 . Management continues to monitor the immediate and future cash flows needs of the company in a variety of ways which include forecasted net cash flows from operations, capital expenditure control, new inventory orders, debt modifications, increases sales outreach, streamlining and controlling general and administrative costs, competitive industry pricing, sale of equities, debt conversions, new product or services offerings, and new business partnerships. The Company's net losses and cash outflows raise substantial doubt about the Company's ability to continue as a going concern. The accompanying unaudited 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. 11CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - STOCKHOLDERS' EQUITY
Warrants to Purchase Common Stock of the Company
We use the Black-Scholes-Merton option pricing model ("Black-Scholes Model") to
determine the fair value of Warrants (except Warrants issued to HealthCor in
2011 (the "2011 HealthCor Warrants") as discussed in NOTE 11 and the warrants
issued in connection with a private placement completed in April 2013 ("Private
Placement Warrants"). The Black-Scholes Model requires the use of several
assumptions including volatility of the stock price, the weighted average
risk-free interest rate, and the weighted average term of the Warrants.
The risk-free interest rate assumption is based upon observed interest rates on
zero coupon U.S. Treasury bonds whose maturity period is appropriate for the
term of the Warrants and is calculated by using the average daily historical
stock prices through the day preceding the grant date. Estimated volatility is a
measure of the amount by which our stock price is expected to fluctuate each
year during the expected life of the award. Our estimated volatility is an
average of the historical volatility of our stock prices (and that of peer
entities whose stock prices were publicly available) over a period equal to the
expected life of the awards. Where appropriate we used the historical volatility
of peer entities due to the lack of sufficient historical data of our stock
price during 2007-2009. On April 20, 2021 , we issued 931,600 and 1,068,400
warrants to purchase our Common Stock at an exercise price of $0.23 per share to
HealthCor Partners and HealthCor Hybrid, respectively.
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 "Fourth 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 "2022 HealthCor Note
Extensions"). In connection with the 2022 HealthCor Note Extensions, we issued
warrants to purchase an aggregate of 3,000,000 shares of our Common Stock at an
exercise price per share equal to $0.09 per share (subject to adjustment as
described therein) and with an expiration date of March 8, 2032 to the HealthCor
Parties (collectively the "2022 HealthCor Warrants").
Also on March 8, 2022 , in connection with the 2022 HealthCor Note Extensions and
the issuance of the 2022 HealthCor Warrants, we entered into a Consent and
Agreement Pursuant to Note and Warrant Purchase Agreement (the "NWPA Consent")
with the HealthCor Parties and certain additional Existing Investors (in their
capacity as Majority Holders acting together with the HealthCor Parties),
pursuant to which, among other things, (i) the Majority Holders consented to the
2022 HealthCor Note Extensions, (ii) the Majority Holders consented to the
issuance of the 2022 HealthCor Warrants and (iii) the parties agreed that the
holders of the 2022 HealthCor Warrants would have registration rights for the
shares of Common Stock issuable upon exercise of the 2022 HealthCor Warrants
under the Registration Rights Agreement dated as of April 20, 2011 , as amended
June 30, 2015 , by and among the Company, the HealthCor Parties and the
additional investors party thereto (the "Registration Rights Agreement").
12
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A summary of our Warrants activity and related information follows:
Weighted
Average
Number of Range of Remaining
Shares Under Warrant Price Weighted Average Contractual
Warrant Per Share Exercise Price LifeBalance at December 31, 2021 18,050,458$ 0.01-$0.53 $
0.74 4.2
Granted 3,000,000 $ 0.08 $ 0.08 9.9
Expired - - - -
Canceled - - - -
Balance at June 30, 2022 21,050,458 $ 0.01-$0.53 $ 0.26 3.6
Options to Purchase Common Stock of the Company
During the six months endedJune 30, 2022 , 728,500 Options to purchase our Common Stock (the "Option(s)") were granted with a fair value of$53,120 and exercise prices of$0.06-$0.12 per share. During the six months endedJune 30, 2022 , Options totaling 110,000 were canceled.
A summary of our stock option activity and related information follows:
Weighted
Average
Number of Remaining Aggregate
Shares Under Weighted Average Contractual Intrinsic
Options Exercise Price Life Value
Balance at
December 31,
2021 40,625,477 $ 0.12 6.7 $ 1,283,975
Granted 728,500
Expired (218,333 )
Canceled -
Balance at June
30, 2022 41,135,644 $ 0.12 6.3 $ 524,550
Vested and
Exercisable at
June 30, 2022 26,199,477 $ 0.16 5.1 $ 523,925
Share-based compensation expense for Options charged to our operating results
for the six months ended June 30, 2022 and 2021 ($114,210 and $107,483 ,
respectively) is based over the awards' vested period. The estimate of
forfeitures is to be recorded at the time of grant and revised in subsequent
periods if actual forfeitures differ from the estimates. We have not included an
adjustment to our stock-based compensation expense based on the nominal amount
of the historical forfeiture rate. We do, however, revise our stock-based
compensation expense based on actual forfeitures during each reporting period.
As of June 30, 2022 , total unrecognized estimated compensation expense related
to non-vested Options granted prior to that date was approximately $304,317 .
which is expected to be recognized over a weighted-average period of 1.4 years.
No tax benefit was realized due to a continued pattern of operating losses.
13
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - OTHER CURRENT ASSETS
Other current assets consist of the following:
June 30,
2022 December 31, 2021
Prepaid expenses $ 95,211 $ 235,521
TOTAL OTHER CURRENT ASSETS $ 95,211 $ 235,521
NOTE 5 - INVENTORY
Inventory is valued at the lower of cost, determined on a first-in, first-out
(FIFO), or net realizable value. Inventory items are analyzed to determine cost
and net realizable value and appropriate valuation adjustments are then
established.
Inventory consists of the following:
June 30 ,December 31, 2022 2021
Inventory assets (finished goods)
$ 460,542 $ 349,216
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30,
2022 December 31, 2021
Network equipment $ 12,620,258 $ 12,620,258
Office equipment 229,240 229,240
Vehicles 232,411 232,411
Test Equipment 230,365 204,455
Furniture 92,846 92,846
Warehouse equipment 9,523 9,523
Leasehold improvements 5,122 5,122
TOTAL PROPERTY AND EQUIPMENT 13,419,765 13,393,855
Less: accumulated depreciation (12,544,980 ) (12,254,964 )
TOTAL PROPERTY AND EQUIPMENT, NET
Depreciation expense for the six months ended
NOTE 7 - OTHER ASSETS
Intangible assets consist of the following:
June 30, 2022
Cost Accumulated Amortization Net
Patents and trademarks $ 1,310,436 $ 371,550 $ 938,886
TOTAL INTANGIBLE ASSETS $ 1,310,436 $ 371,550 $ 938,886
14
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021
Cost Accumulated Amortization Net
Patents and trademarks $ 1,254,327 $ 343,929 $ 910,398
Other intangible assets 83,745 83,745 -
TOTAL INTANGIBLE ASSETS $ 1,338,072 427,674 $ 910,398 Other assets consist of the following:
June 30, 2022
Cost Accumulated Amortization Net
Deferred installation costs $ 1,352,041 $ 1,304,366 $ 47,675
Deferred sales commission 122,778 18,841 103,937
Prepaid license fee 249,999 177,595 72,404
Security deposit 46,124 - 46,124
TOTAL OTHER ASSETS $ 1,770,942 $ 1,500,802 $ 270,140
December 31, 2021
Cost Accumulated Amortization Net
Deferred installation costs $ 1,352,041 $ 1,283,140 $ 68,901
Deferred sales commission 122,778 18,841 103,937
Prepaid license fee 249,999 169,398 80,601
Security deposit 46,124 - 46,124
TOTAL OTHER ASSETS $ 1,770,942 $ 1,471,379 $ 299,563 NOTE 8 - OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
June 30, 2022 December 31, 2021
Accrued interest $ 11,392,653 $ 9,947,730
Accrued interest, related parties 273,736 228,528
Allowance for system removal 54,801
54,802
Accrued paid time off 113,402
173,904
Deferred officer compensation (1) 139,041
139,041
Deferred revenue 1,207,916
983,667
Accrued taxes (other than income taxes) 109,201
38,367
Insurance premium financing (2) -
103,791
Other accrued liabilities 61,810
70,388
TOTAL OTHER CURRENT LIABILITIES
(1) Salary for
2020.
(2) Renewal of directors and officer's insurance.
15
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
Deferred income tax assets and liabilities are determined based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. We do not expect to pay any significant
federal or state income tax for 2021 because of the losses recorded during the
six months ended June 30, 2022 , and net operating loss carry forwards from prior
years. Accounting standards require the consideration of a valuation allowance
for deferred tax assets if it is "more likely than not" that some component or
all the benefits of deferred tax assets will not be realized. As of June 30,
2022 , we maintained a full valuation allowance for all deferred tax assets.
Based on these requirements, no provision or benefit for income taxes has been
recorded. There were no recorded unrecognized tax benefits at the end of the
reporting period.
The Tax Cuts and Jobs Act (the "Act") was signed into law on December 22, 2017 .
Among its numerous changes to the Internal Revenue Code, the Act reduces U.S.
corporate rates from 35% to 21%. Additionally, the Act limits the use of net
operating loss carry backs, however any future net operating losses will instead
be carried forward indefinitely. Net operating losses generated from January 1,
2018 , are limited to offset 80% of current income, with the remainder of the net
operating loss continuing to carry forward indefinitely. Net operating losses
incurred before January 1, 2018 , are not subject to the 80% limitations and will
begin to expire in 2029. Based on an initial assessment of the Act, the Company
believes that the most significant impact on the Company's consolidated
financial statements will be limitations in tax deductions on interest expense.
Under the Act, interest deductions disallowed from current income will
carryforward indefinitely. The Act did not impact management's valuation
allowance position.
The effective tax rate for the six months ended
NOTE 10 - AGREEMENT WITH PDL BIOPHARMA, INC.
OnJune 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$40 million in two tranches of$20 million each. Tranche One was funded onOctober 8, 2015 (the "Tranche One Loan"). Pursuant to the terms of the PDL Credit Agreement and having not met the Tranche Two Milestones byJuly 26, 2017 , the Tranche Two funding was terminated in full. FromOctober 8, 2015 , throughMay 14, 2019 , the outstanding borrowings under the Tranche One Loan bore interest at the rate of 13.5% per annum, payable quarterly. OnMay 15, 2019 , pursuant to the terms of the Fifth Amendment to the PDL Credit Agreement (see below for additional details), the interest increased to 15.5% per annum, payable quarterly. Also, onMay 15, 2019 , pursuant to the terms of the Fourteenth Amendment to the PDL Modification Agreement (see below for additional details), the minimum cash balance requirement of$750,000 was reduced to$0 . OnJanuary 31, 2021 , the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Third Amendment to Modification Agreement (the "Twenty-Third Modification Agreement Amendment"), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender's sole discretion, to terminate the Modification Period would beJuly 31, 2018 andJanuary 31, 2021 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower's (i) interest payments that would otherwise be due under the Credit Agreement onDecember 31, 2018 ,March 31, 2019 ,June 30, 2019 ,September 30, 2019 ,December 31, 2019 ,March 31, 2020 ,June 30, 2020 ,September 30, 2020 , andOctober 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 onOctober 7, 2020 , would each be deferred untilMay 31, 2021 (the end of the extended Modification Period) and that such deferrals would be a Covered Event. The Company has evaluated the Twenty-Third Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement was accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60. 16CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OnMay 25, 2021 , the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Fourth Amendment to Modification Agreement (the "Twenty-Fourth Modification Agreement Amendment"), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender's sole discretion, to terminate the Modification Period would beJuly 31, 2018 andNovember 30, 2021 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower's (i) interest payments that would otherwise be due under the Credit Agreement onDecember 31, 2018 ,March 31, 2019 ,June 30, 2019 ,September 30, 2019 ,December 31, 2019 ,March 31, 2020 ,June 30, 2020 ,September 30, 2020 ,October 7, 2020 , and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement onOctober 7, 2020 , would each be deferred untilNovember 30, 2021 (the end of the extended Modification) and that such deferrals would be a Covered Event. The Company has evaluated the Twenty-Fourth Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60. OnNovember 29, 2021 , the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Fifth Amendment to Modification Agreement (the "Twenty-Fifth Modification Agreement Amendment"), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender's sole discretion, to terminate the Modification Period would beJuly 31, 2018 andJune 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 onDecember 31, 2018 ,March 31, 2019 ,June 30, 2019 ,September 30, 2019 ,December 31, 2019 ,March 31, 2020 ,June 30, 2020 ,September 30, 2020 andOctober 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 onOctober 7, 2020 , would each be deferred untilJune 30, 2022 (the end of the extended Modification) and that such deferrals would be a covered event. The Company has evaluated the Twenty-Fifth Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60. OnJune 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 beJuly 31, 2018 andJune 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 onDecember 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 andJune 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 onJune 30, 2022 , would each be deferred untilDecember 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. 17CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Accounting Treatment
In connection with the PDL Credit Agreement, as amended, we issued the PDL
Warrant to the Lender. The fair value of the PDL Warrant at issuance was
As ofJune 30, 2022 , the Company and Lender had entered into twenty-six amendments to the PDL Modification Agreement (as detailed above), resulting in restructuring of the PDL Credit Agreement and the accounting treatment of the related costs. Under debt modification/troubled debt guidance, we determined that the first of the eight amendments had no cash flow impact, and therefore, had no impact on accounting. Amendments nine through ten qualified for modification accounting, while the final fourteen amendments qualified for troubled debt restructuring accounting. As appropriate, we expensed the legal costs paid to third parties. For the six months endedJune 30, 2022 and 2021, pursuant to the terms of the PDL Modification Agreement, as amended,$1,550,000 and$1,550,000 , respectively, was recorded as interest expense on the accompanying consolidated financial statements.
NOTE 11 - AGREEMENT WITH HEALTHCOR
OnApril 21, 2011 , we entered into a Note and Warrant Purchase Agreement (as subsequently amended) withHealthCor Partners Fund, LP ("HealthCor Partners ") andHealthCor Hybrid Offshore Master Fund, LP ("HealthCor Hybrid" and, together withHealthCor Partners , "HealthCor") (the "HealthCor Purchase Agreement"). Pursuant to the terms of the HealthCor Purchase Agreement, we sold and issued Senior Secured Convertible Notes toHealthCor in the principal amount of$9,316 ,000and$10,684,000 , respectively (collectively the "2011HealthCor Notes"). The 2011 HealthCor Notes have a maturity date ofApril 20, 2021 . We also issued Warrants toHealthCor for the purchase of an aggregate of up to 5,488,456 and 6,294,403shares, respectively, of our Common Stock at an exercise price of$1.40 per share (collectively the "2011 HealthCor Warrants"). So long as no event of default has occurred, the outstanding principal balances of the 2011 HealthCor Notes accrue interest fromApril 21, 2011 , throughApril 20, 2016 (the "First Five-Year Note Period") at the rate of 12.5% per annum, compounding quarterly and shall be added to the outstanding principal balances of the 2011 HealthCor Notes on the last day of each calendar quarter. Interest accruing fromApril 21, 2016 , throughApril 20, 2021 (the "Second Five Year Note Period") at a rate of 10% per annum, compounding quarterly, may be paid quarterly in arrears in cash or, at our option, such interest may be added to the outstanding principal balances of the 2011 HealthCor Notes on the last day of each calendar quarter. For the period fromApril 21, 2016 , throughSeptember 30, 2018 interest has been added to the outstanding principal balance. Pursuant to the terms of the Ninth Amendment, the accrual of interest has been suspended afterSeptember 30, 2018 . From the date any event of default occurs, the interest rate, then applicable, shall be increased by five percent (5%) per annum.HealthCor has the right, upon an event of default, to declare due and payable any unpaid principal amount of the 2011 HealthCor Notes then outstanding, plus previously accrued but unpaid interest and charges, together with the interest then scheduled to accrue (calculated at the default rate described in the immediately preceding sentence) through the end of the First Five Year Note Period or the Second Five Year Note Period, as applicable. Subject to the terms of the Ninth Amendment as discussed below,HealthCor's ability to convert any portion of the outstanding and unpaid accrued interest on and principal balances of the 2011 HealthCor Notes into fully paid and nonassessable shares of our Common Stock has been eliminated. The warrants issued with this Note were cancelled with the Ninth-Amendment datedJuly 10, 2018 . 18CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OnApril 20, 2021 , we agreed with the HealthCor Parties to (i) amend the 2011 HealthCor Notes to extend the maturity date of the 2011 HealthCor Notes fromApril 20, 2021 toApril 20, 2022 by entering into Allonge No. 3 to the 2011 HealthCor Notes (the "Third 2011 Note Allonges") and (ii) amend the 2012 HealthCor Notes to extend the maturity date of the 2012 HealthCor Notes fromJanuary 30, 2022 toApril 20, 2022 by entering into Allonge No. 3 to the 2012 HealthCor Notes (the "Third 2012 Note Allonges") (such amendments to the 2011 HealthCor Notes and 2012 HealthCor Notes together, the "HealthCor Note Extensions"). In connection with the HealthCor Note Extensions, we issued warrants to purchase an aggregate of 2,000,000 shares of our Common Stock at an exercise price per share equal to$0.23 per share (subject to adjustment as described therein) and with an expiration date ofApril 20, 2031 , to the HealthCor Parties (collectively the "2021 HealthCor Warrants"). As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60. Also onApril 20, 2021 , in connection with the HealthCor Note Extensions and the issuance of the 2021 HealthCor Warrants, we entered into a Consent and Agreement Pursuant to Note and Warrant Purchase Agreement (the "2021 NWPA Consent") with the HealthCor Parties and certain additionalExisting 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 ofApril 20, 2011 , as amendedJune 30, 2015 , by and among the Company, the HealthCor Parties and the additional investors party thereto (the "Registration Rights Agreement"). OnMarch 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 fromApril 20, 2022 toApril 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 fromApril 20, 2022 toApril 20, 2023 by entering into Allonge No. 4 to the 2012 HealthCor Notes (the "Fourth 2012 Note Allonges") (such amendments to the 2011 HealthCor Notes and 2012 HealthCor Notes together, the "HealthCor Note Extensions"). In connection with the HealthCor Note Extensions, we issued warrants to purchase an aggregate of 3,000,000 shares of our Common Stock at an exercise price per share equal to$0.09 per share (subject to adjustment as described therein) and with an expiration date ofMarch 08, 2032 , to the HealthCor Parties (collectively the "2021 HealthCor Warrants"). Also onMarch 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 additionalExisting 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 ofApril 20, 2011 , as amendedJune 30, 2015 , by and among the Company, the HealthCor Parties and the additional investors party thereto (the "Registration Rights Agreement"). 19CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Below is a summary of the total underlying shares of common stock related to
Investor Group Underlying Shares of Common Stock 2014 HealthCor Notes 32,545,898 2015 Investors 22,484,829 2015 HealthCor Notes 4,496,968 February 2018 Investors 70,043,246 July 2018 Investors 32,583,203 2019 Investor 2,449,157 February 2020 Investor 13,439,916 TOTAL 178,043,217 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 onDecember 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$1,622,052 and$1,906,090 in interest for the six months endedJune 30, 2022 and 2021, respectively, related to these transactions. For the six months endedJune 30, 2022 and 2021, we recorded$735,837 and$1,462,564 , respectively, of interest related to the notes included in the HealthCor Purchase Agreement. The face amount of the 2012 HealthCor Notes, 2014 HealthCor Notes, the Fifth Amendment Notes and the Eighth Amendment Notes and all accrued PIK interest also qualify for BCF treatment as discussed above. Under the accounting standards, we determined that the restructuring of theHealthCor notes, pursuant to the terms of the Ninth Amendment, resulted in a troubled debt restructuring. As the future cash flows were greater than the carrying amount of the debt at the date of the amendment, we accounted for the change prospectively using the new effective interest rate for six months endedJune 30, 2022 . Warrants were issued with the Fourth, Fifth, Eighth, Ninth, and Allonge 3 Amendment Notes and the proceeds were allocated to the instruments based on relative fair value as the warrants did not contain any features requiring liability treatment and therefore were classified as equity. At each amendment date, the warrants were recorded as debt discount, as a reduction of the net carrying amount of the debt. The debt discounts are amortized into interest expense each period under the effective interest method. The value allocated to the Ninth Amendment Warrants was$378,000 . The value allocated to the Allonge 3 Amendment Warrants was$420,000 . Warrants were issued with Allonge 4 Amendment Notes and the proceeds were allocated to the instruments based on relative fair value as the warrants did not contain any features requiring lia0bility treatment and therefore were classified as equity. At each amendment date, the warrants were recorded as debt discount, as a reduction of the net carrying amount of the debt. The debt discounts are amortized into interest expense each period under the effective interest method. The value allocated to the Allonge 4 Amendment Warrants was$240,000 . 20CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - JOINT VENTURE AGREEMENT
OnDecember 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, toDecember 31, 2020 , and agreed to extend the time to make the quarterly payment that would otherwise be due onDecember 31, 2019 toJanuary 31, 2020 . We have evaluated the Second Amendment to the Rockwell Note under ASC 470 and determined that the amendment should be treated as a debt modification. OnJanuary 31, 2020 , the Company and Rockwell entered into a Third Amendment to the Rockwell Note (the "Third Rockwell Note Amendment"), pursuant to which Rockwell agreed to extend the time to make the quarterly payment that would otherwise be due onJanuary 31, 2020 (per the Second Rockwell Note Amendment) toFebruary 10, 2020 . We have evaluated the Third Amendment to the Rockwell Note under ASC 470 and determined that the amendment should be treated as a debt modification. Effective as ofMarch 31, 2020 , the Company and Rockwell entered into a Fourth Amendment to the Rockwell Note (the "Fourth Rockwell Note Amendment"), pursuant to which Rockwell agreed to extend the time to make the quarterly payment that would otherwise be due onMarch 31, 2020 toApril 16, 2020 . We have evaluated the Fourth Amendment to the Rockwell Note under ASC 470 and determined that the amendment should be treated as a debt modification. OnDecember 31, 2020 , the Company and Rockwell entered a Fifth Amendment to the Rockwell Note (the "Fifth Rockwell Note Amendment"), pursuant to which Rockwell agreed (i) to extend the term of the Promissory Note by one (1) year and continue the quarterly principal payments throughSeptember 30, 2021 with the final balloon payment due onDecember 31, 2021 and (ii) that the quarterly principal payment that would otherwise be due onDecember 31, 2020 will not be required to be made until the final balloon payment due date. We have evaluated the Fourth Amendment to the Rockwell Note under ASC 470 and determined that the amendment should be treated as a debt modification.
On
As of
NOTE 13 - LEASE
Under ASC Topic 842, Leases ("ASC 842"), operating lease expense is generally
recognized evenly over the term of the lease. The Company has an operating lease
primarily consisting of office space with remaining lease term of 38 months
(Lease through August 31, 2025 ).
On September 8, 2009 , we entered into a Commercial Lease Agreement (the "Lease")
for 10,578 square feet of office and warehouse space expiring on June 30, 2015 .
On March 4, 2020 , we entered into the Fourth Amendment to Commercial Lease
Agreement (the "Lease Extension"), wherein we extended the Lease through August
31, 2025 .
21
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company has further concluded that the Lease Extension has no effects on the
classification of the Lease. Rent expense for the six months ended June 30, 2022
and 2021 was $154 ,202and $140,202 , respectively.
Lease Position
Operating lease asset and liability for our operating lease were recorded in the condensed consolidated balance sheet as follows:
As of As of
June 30, 2022 December 31, 2021
Assets
Operating lease asset $ 497,059 $ 555,150
Total lease asset $ 497,059 $ 555,150
Liabilities
Current liabilities:
Operating lease liability $ 169,179 $ 162,470
Long-term liabilities:Operating lease liability, net of
current portion $ 378,821 $ 445,033
Total lease liability $ 548,000 $ 607,503
Undiscounted Cash Flows
Future lease payments included in the measurement of operating lease liability
on the condensed consolidated balance sheet as of
Quarter ending Operating
June 30, 2022 Leases
Remaining 2022 $ 105,729
2023 214,631
2024 221,069
2025 150,679
Total minimum lease payments 692,108
Less effects of discounting (144,108 )
Present value of future minimum lease payments
22
CAREVIEW COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Cash Flows
The table below presents certain information related to the cash flows for the
Company's operating lease for the six months ended
Six Months
Ended
June 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ (59,504 )
NOTE 14 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through
OnJuly 12, 2022 , we entered into amendments to the 2014 HealthCor Notes, 2015 Supplemental Notes, Eighth Amendment Supplemental Closing Notes, Tenth Amendment Supplemental Closing Notes, Twelfth Amendment Supplemental Closing Note and Thirteenth Amendment Supplemental Closing Note (collectively, the "2022 Allonges") to suspend the accrual of interest on the 2014 HealthCor Notes as to 100% of the outstanding principal amount under such notes, 2015 Supplemental Notes as to 100% of the outstanding principal amount under such notes, Eighth Amendment Supplemental Closing Notes as to 100% of the outstanding principal amount under such notes, Tenth Amendment Supplemental Closing Notes as to 100% of the outstanding principal amount under such notes, Twelfth Amendment Supplemental Closing Note as to 100% of the outstanding principal amount under such note, and Thirteenth Amendment Supplemental Closing Note as to 100% of the outstanding principal amount under such note, for all periods beginning on and afterJanuary 1, 2022 . The Company is evaluating the accounting impact of this amendment. 23
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
General The following discussion and analysis provide information which our management believes to be relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read together with our financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q (the "Report"). This information should also be read in conjunction with the information contained in our Form 10-K filed with theSecurities and Exchange Commission (the "SEC"). 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 toCareView Communications, Inc. , aNevada corporation, and unless otherwise specified, includes our wholly owned subsidiaries,CareView Communications, Inc. , aTexas corporation ("CareView-TX") andCareView Operations, LLC , aNevada limited liability company ("CareView Operations") (collectively known as the "Company's Subsidiaries").
We maintain a website at www.care-view.com and our Common Stock trades on the OTCQB under the symbol "CRVW.''
Company Overview As a leader in turnkey patient video monitoring solutions,CareView is redefining the standard of patient safety in hospitals and healthcare facilities across the country. For over a decade,CareView has relentlessly pursued innovative ways to increase patient protection, providing next generation solutions that lower operational costs and foster a culture of safety among patient, staff, and hospital leadership. With installations in more than 150 hospitals,CareView has proven that its innovative technology is creating a culture of patient safety where patient falls have decreased by 80% with sitter costs reduced by more than 65%. Anchored by the CareView Patient Safety System, this modular, scalable solution delivers flexible configurations to fit any facility while significantly increasing patient safety and operational savings. All configurations feature HD cameras, high-fidelity 2-way audio/video, LCD displays for the ultimate in capability, flexibility, and affordability. SitterView® and TeleMedView allows hospital staff to useCareView's high-quality video cameras with pan-tilt-zoom and 2-way video functionality to observe and communicate with patients remotely. WithCareView , hospitals are safely monitoring more patients while providing a higher level of care by leveragingCareView's patented technology, a portfolio that includes 40 patents. TeleMedView leverages the CareView Mobile Controller's built-in monitor and can work with the CareView Portable Controller as well. Usage of SitterView® and TeleMedView has increased in response to a growing demand for remote patient monitoring driven by increasing demands for care and staffing shortages in
the healthcare industry. COVID-19 Outbreak The Company has considered the effects of COVID-19 in the preparation of the financial statements as of and for the period endedJune 30, 2022 . We have been able to continue providing services to our current customer base and have not yet experienced a slowdown in collections. OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the "Act") was enacted. The CARES Act is an approximately$2 trillion emergency economic stimulus package in response to the coronavirus outbreak, which among other things contains numerous income tax provisions. Some of these tax provisions were retroactively effective for years ending before the date of enactment. 24
CareView Patient Safety System
Our CareView Patient Safety System provides innovative ways to increase patient protection, provides advanced solutions that lower operational costs, and helps hospitals foster a culture of safety among patients, staff, and hospital leadership. We understand the importance of providing high quality patient care in a safe environment and believe in partnering with hospitals to improve the quality of patient care and safety by providing a system that monitors continuously. We are committed to providing an affordable video monitoring tool to improve the practice of nursing, create a better work environment and make the patient's hospital stay more satisfying. Our suite of products and services can simplify and streamline the task of preventing and managing patients' falls, enhance patient safety, improve quality of care, and reduce costs. Our products and services can be used in all types of hospitals, nursing homes, adult living centers, and selected outpatient care facilities domestically and internationally. The CareView Patient Safety System includesCareView's SitterView®, providing a clear picture of up to 40 patients at once, allowing staff to intervene and document patient risks more quickly. SitterView features intuitive decision support pathway, guiding staff alarm response and pan- tilt-zoom functionality, allowing staff to home in on areas of interest.CareView's new Analytics Dashboard provides real-time metrics on utilization, compliance, and outcome data by day, week, month, and quarter. Outcomes are automatically compared to organizational goals to evaluate real-time ROI.CareView's next generation of in-room camera; the CareView Controller features an HD camera, high- fidelity 2-way audio, and an LCD display, harnessing increased performance to deliver the ultimate in capability, flexibility, and affordability for all types of hospitals. Building on top ofCareView's patented Virtual Bed Rails and Virtual Chair Rails predictive technology, theCareView Controller uses machine learning to differentiate between normal patient movements and behaviors of a patient at risk. This technology results in less false alarms, faster staff intervention, and a significant reduction in patient falls. The CareView Controller is available in multiple configurations for permanent or temporary situations, the CareView Mobile, Portable, and Fixed Controller. For situations that demand that the camera come to the patient, the CareView Mobile Controller on wheels comes with an uninterrupted external power supply for situations where power may not be readily available and can operate on the facility's wireless network. For monitoring patients within a general care unit, the CareView Portable Controller can be easily removed from mounts and moved where the workflow dictates, making this application perfect for general use. For high-risk patient rooms where behavior and self-harm may be a factor, or where a patient must be continuously monitored, theCareView fixed Controller can be installed seamlessly in the ceiling tiles leaving no exposed wiring making it ligature resistant.
The CareView Patient Safety System can be easily configured to meet the
individual privacy and security requirements of any hospital or nursing
facility.
CareView Patient Safety 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 Patient Safety 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. 25
Master Agreements and P&S Agreements are currently negotiated for a period of
five years with a minimum of two or three years; however, older P&S Agreements
were negotiated for a five-year period with a provision for automatic renewal.
P&S Agreements specific to pilot programs ("P&S Pilot Agreements") contain
pricing terms substantially like P&S Agreements, are generally three or
six-months in length and can be extended on a month-to-month basis as required.
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 Patient Safety System or for transmission errors, corruption or
compromise of data carried over local or interchange telecommunication carriers.
We grant each healthcare facility a limited, revocable, non-transferable, and
nonexclusive license to use the software, network facilities, content, and
documentation on and in the CareView Patient Safety System to the extent, and
only to the extent, necessary to access, explore and otherwise use the CareView
Patient Safety System in real time. Such non-exclusive license expires upon
termination of the P&S Agreement.
We use specific terminology to better define and track the staging and billing
of the individual components of the CareView Patient Safety System. The CareView
Patient Safety System includes three components which are separately billed; the
CareView Controller (previously known as RCP), the CareView SitterView Monitor,
and the CareView Application Server (each component referred to as a "unit").
The term "bed" refers to each healthcare facility bed as part of the overall
potential volume that a healthcare facility represents. For example, if a
healthcare facility has 200 beds, the aggregate of those beds is the overall
potential volume of that healthcare facility. The term "bed" is often used
interchangeably with "CareView Controller" as this component of the CareView
Patient Safety System consistently resides within each room where the "bed" is
located. On average, there are six SitterView Monitors for each 100 beds. The
term "deployed" means that the units have been delivered to the healthcare
facility but have not yet been installed at their respective locations within
the facility. The term "installed" means that the units have been mounted and
are operational. The term "billable" refers to the aggregate of all units on
which we charge fees. Units become billable once they are installed and the
required personnel have been trained in their use. Units are only deployed upon
the execution of a P&S Agreement or P&S Pilot Agreement.
CareView Patent Safety System Sales-Based Model
CareView's sales-based model has 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 above, under the subscription-based model. In doing so, the facility is billed for the hardware on acceptance of the contract. AfterCareView'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 end of the contract. The shift in our new contracting model has an immediate impact on the company's operations resulting in greater cash flow within 30 days of contract signing.
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.
26
With this mission in mind, in the second quarter of 2018, the Company introduced
a new sensor product that has application in both the assisted living center
market and the home health market. CareView Connect leverages both passive and
active sensors to track the activities of daily life. CareView Connect provides
peace of mind by using data from the resident's activity, existing conditions,
and environment to notify a caregiver of potential emergencies and identify the
need for dignified support. CareView Connect consists of a small emergency
assist button, two motion sensors, one sleep sensor, and one event sensor.
Resident activity levels, medication administration, sleep patterns, and
requests for assistance can all be monitored depending on which options are
selected.
The skilled nursing home market consists of approximately 2,000,000 beds, which
is double the size of the current hospital/healthcare facility bed market. The
assisted living center market is even larger at approximately 3,000,000 beds.
Our products flow naturally into the nursing home space as it is substantially
the same setting as hospital rooms.
CareView Connect is a platform consisting of several products and applications
targeted at improving level of care and efficiency. CareView is building a
cohesive and tightly integrated solution that solves several problems that
long-term care facilities face. We offer an array of wearable and stationary
buttons that allow a resident to summon help either for an emergency or
assistance, which can be anything from toileting help to assistance putting on
their shoes. We offer a mobile app capable of delivering an alert to the
caregiver and allows them document information around that alert. This allows
for workflows and reports around the alerts, i.e. how long before the alert was
handled, what was the cause of the alert, and if it was not acknowledged in a
timely manner then the alert is escalated to another individual or group. This
ensures that every alert is responded to timely and is verifiable. In addition,
the caregiver usually is carrying out a litany of daily activities directedat each facility resident.
Alert Management and Monitoring System
CareView Connect provides a suite of hardware and software that facilitate a data-driven solution for alert management and monitoring. CareView Connect's solution provides additional context, including location of the resident, which improves response time by the staff. The alert system includes a documentation platform that allows the facility's staff to classify reason for alerts and provides metrics around response time. CareView Connect's solution involves several passive sensors that monitor the resident. Caregiver Platform The caregiver platform includes a "Leave of Absence" component, which allows the facility to document when the resident is outside of their room for a duration of time. This information is incorporated with known data from the workflows and sensors to improve awareness. The Caregiver Connect mobile application provides a convenient and intuitive interface to the CareView Connect platform. The caregiver can use the mobile app to capture important information and interface with critical workflows, such as acknowledging and documenting alert presses by the resident. CareView Connect also provides a product focused on capturing and measuring the mental state and pain experienced by the resident. "How are you feeling today?" provides a convenient way to capture information about the mental state of the resident using emojis. Similarly, "What is your pain today?" allows the staff to categorize and document pain. Connect Resident is a tablet application intended for the resident's direct use. This product currently supports video conferencing with a remote caregiver, becoming a communications conduit for telehealth. Connect Resident also supports "How are you feeling today?", which allows the resident to submit this information directly. Quality of Life MetricsCareView is developing its own algorithm for measuring quality of life based on "best of breed" research and leveraging the data collected by the platform. CareView Connect's Quality of Life Metrics focuses on several categories, including Physical Activity, Bodily Pain,General Health , Vitality, Social Interaction, Mental Health, and Sleep Quality. Leveraging this data, the facility and their staff have improved visibility into the health and well-being of their residents. By applying machine learning and predictive analytics, subtle patterns and trends that may not otherwise be visible become actionable. The facility can use this information to present a more compassionate and capable level of care, differentiating the facility from their competition. The Quality of Life Metrics information can be made available to the family and loved ones, opening a new channel of remote awareness and care. Because the information is collected automatically, the family gains awareness on issues of which their loved ones may normally be unaware. The Connect Family mobile application allows family members to monitor their loved one and receive alerts and notifications based on their preferences. 27
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
OnFebruary 2, 2021 , we partnered withDecisive Point Consulting Group , aDepartment of Veterans Affairs Contractor Verification Enterprise (CVE) and a Verified Service-Disabled Veteran Owned Small Business (SDVOSB), to expand our reach within theVA hospitals andCommunity Living Centers space. Our partnership reflects our desire to collaborate with companies that share our vision of patient safety.
Indefinite Delivery Indefinite Quality (IDIQ) Contract
OnSeptember 10, 2021 , the company entered an Indefinite Delivery Indefinite Quality (IDIQ) contract for Telecare Services with their partnership,Shore Systems andSolutions, LLC (S3). The award provides S3 with a path to providing the CareView Patient Safety System to veterans and their families receiving care at the 1,293Veterans Health Administration ("VHA") facilities acrossthe United States and Territories.
General Service Administration Multiple Award Schedule
Pursuant to the terms of the Company'sGeneral Service Administration ("GSA") Multiple Award Schedule contract ("MAS"), the MAS allows us to sell theCareView Patient Safety System at a negotiated rate to the approximate 169United States Department of Veterans Affairs ("VA") facilities with over 39,000 licensed beds and the approximate 42DOD hospitals with over 2,600 licensed beds. The updated contracting 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 a 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
OnDecember 14, 2016 , the Company entered a Group Purchasing Agreement withHealthTrust Purchasing Group, L.P. ("HealthTrust") (the "HealthTrust GPO Agreement"), the nation's only committed-model Group Purchasing Organization ("GPO") headquartered inNashville, 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 onJanuary 1, 2017 and all CareView Patient Safety System components and modules are available for purchase by HealthTrust's exclusive membership. HealthTrust members may orderCareView's products and services included in the agreement directly fromCareView . 28
On
On
Group Purchasing Agreement with Premier, Inc.
OnJune 8, 2022 , the Company entered a Group Purchasing Agreement with Premier, Inc. ("Premier"), headquartered inCharlotte, N.C. Premier is a leading healthcare improvement company, uniting an alliance of more than 4,400U.S. hospitals and health systems and approximately 225,000 other providers and organizations to transform healthcare. The agreement was effective onJune 15, 2022 and all Gen 5 CareView Patient Safety System components and modules are available for purchase by Premier's exclusive membership. Premier members may orderCareView's products and services included in the agreement directly fromCareView .
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 recently implemented 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. Results of Operations Three months endedJune 30, 2022 , compared to three months endedJune 30, 2021 Three months ended June 30, 2022 2021 Change (000 's) Revenue$ 1,697 $ 1,545 $ 152 Operating expenses 2,230 2,274 (44 ) Operating income (533 ) (729 ) 196 Other, net (1,969 ) (2,291 ) 322 Net loss$ (2,502 ) $ (3,020 ) $ 518 Revenue Revenue increased approximately$152,000 for the three months endedJune 30, 2022 , as compared to the same period in 2021. The increase was attributable to recognizing deferred revenue from software sales. 29 Operating Expenses Our principal operating costs include the following items as a percentage of total operating expense. Three Months Ended June 30, 2022 2021 Human resource costs, including benefits and non-cash compensation 57 % 54 % Professional and consulting costs 12 % 11 % Depreciation and amortization 7 % 7 %
Other product deployment costs, excluding human resources and travel and entertainment costs
1 % 5 %
Travel and entertainment expense 0 %
4 %
Other expenses 23 % 19 %
Management controlled operating expenses relatively flat to prior comparative period.
Other, net Other, net decreased approximately$322,000 for the three months endedJune 30, 2022 , as compared to the same period in 2021. The decrease was attributable to not having the one-time HealthCor Allonge 3 Amendment debt restructuring and warrants costs as in the same period in 2021. Net Loss
Our second quarter 2022 net loss of approximately
Six months endedJune 30, 2022 , compared to six months endedJune 30, 2021
Six months ended
June 30,
2022 2021 Change
(000 's)
Revenue $ 4,016 $ 3,910 $ 106
Operating expenses 4,872 4,413 459
Operating income (856 ) (503 ) (353 )
Other, net (3,990 ) (5,004 ) 1,014
Net loss $ (4,846 ) $ (5,507 ) $ 661
Revenue
Revenue increased approximately
30
Operating Expenses
Our principal operating costs include the following items as a percentage of
total operating expense.
Six Months Ended
June 30,
2022 2021
Human resource costs, including benefits and non-cash
compensation 55 % 56 %
Professional and consulting costs 11 % 11 %
Depreciation and amortization 6 % 7 %
Other product deployment costs, excluding human resources and travel and entertainment costs
5 % 5 %
Travel and entertainment expense 3 %
3 %
Other expenses 20 % 18 %
Operating expenses increased by a net 10% or
Other, net
Other, net decreased approximately$1,014,000 for the six months endedJune 30, 2022 , as compared to the same period in 2021. The decrease was attributable to not having the one-time HealthCor Allonge 3 Amendment debt restructuring and warrants costs and remeasuring the debt at the modification date at the new effective date, which was lower than the same period in 2021. Net Loss
Year-to-date 2022 net loss of approximately
Liquidity and Capital Resources
Accounting standards require management to evaluate whether the Company can
continue as a going concern for a period of one year after the date of the
filing of this Form 10-Q ("evaluation period"). In evaluating the Company's
ability to continue as a going concern, Management considers the conditions and
events that raise substantial doubt about the Company's ability to continue as a
going concern for a period of twelve months after the Company issues its
financial statements. For the period ended June 30, 2022 , Management considers
the Company's current financial condition and liquidity sources, including
current funds available, forecasted future cash flows, and the Company's
conditional and unconditional obligations due before August 12, 2023 .
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 the six months ended
June 30, 2022 , the Company had an accumulated deficit of $202,736,963 , loss from
operations of $856,520 , net cash used in operating activities of $79,208 , and an
ending cash balance of $503,080 .
As of June 30, 2022 , the Company had an operating net working capital of
$644,862 , which is accounts receivable plus inventory minus accounts payable.
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.
31
As of the date of this quarterly filing, the Company modified its 2011 HealthCor
Partners Fund, LP and HealthCor Hybrid Offshore Master Fund, LP senior secured
notes currently classified as long-term liabilities that were due April 20,
2021 , for a total of approximately $46,000,000 and 2012 HealthCor Partners Fund,
LP and HealthCor Hybrid Offshore Master Fund, LP senior secured notes classified
as long- term liabilities due January 31, 2022 , for a total of approximately
$10,600,000 to extend the due dates to April 20, 2023 .
On March 08, 2022 , we agreed with the HealthCor Parties to (i) amend the 2011
HealthCor Notes to extend the maturity date of the 2011 HealthCor Notes from
April 20, 2022 to April 20, 2023 by entering into Allonge No. 4 to the 2011
HealthCor Notes (the "Third 2011 Note Allonges") and (ii) amend the 2012
HealthCor Notes to extend the maturity date of the 2012 HealthCor Notes from
April 20, 2022 to April 20, 2023 by entering into Allonge No. 4 to the 2012
HealthCor Notes (the "Fourth 2012 Note Allonges") (such amendments to the 2011
HealthCor Notes and 2012 HealthCor Notes together, the "HealthCor Note
Extensions"). In connection with the HealthCor Note Extensions, we issued
warrants to purchase an aggregate of 3,000,000 shares of our Common Stock at an
exercise price per share equal to $0.09 per share (subject to adjustment as
described therein) and with an expiration date of March 08, 2032 , to the
HealthCor Parties (collectively the "2021 HealthCor Warrants").
On June 23, 2022 , we agreed with the PDL Investment Holdings, LLC along with
Steve G. Johnson and Dr. James R. Higgins in their collective capacity as the
Tranche Three Lender to extend the due date from June 30, 2022 until December
31, 2022 .
Management continues to monitor the immediate and future cash flows needs of the
company in a variety of ways which include forecasted net cash flows from
operations, capital expenditure control, new inventory orders, debt
modifications, increases sales outreach, streamlining and controlling general
and administrative costs, competitive industry pricing, sale of equities, debt
conversions, new product or services offerings, and new business partnerships.
The Company's net losses and cash outflows raise doubt exists about the
Company's ability to continue as a going concern through
Critical Accounting Estimates Please refer to our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with the Commission onMarch 31, 2022 and incorporated herein by reference, for detailed explanation of our critical accounting estimates, which have not changed significantly during the three months endedJune 30, 2022 .
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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