NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
CareView
Communications, Inc., a Nevada corporation (“CareView”, the “Company”, “we”, “us”
or “our”), was originally formed in California on July 8, 1997 under the name Purpose, Inc., changing our name to
Ecogate, Inc. in April 1999, and CareView Communications, Inc. in October 2007. We began our current operation in 2003 as a healthcare
information technology company with a patented patient monitoring and entertainment system.
Our
business consists of a single segment of products and services all of which are sold and provided within the United States.
Description
of Business and Products
CareView’s
video monitoring solutions include the following:
SitterView®
and TeleMedView™ allows hospital staff to use CareView’s video cameras to observe and communicate with patients remotely.
TeleMedView leverages the CareView Mobile Controller’s built-in monitor or use the CareView Portable Controller.
Our
CareView Patient Safety System® suite of video monitoring, guest services, and related applications connect patients, families
and healthcare providers. CareView’s video monitoring system connects the patient room to a touchscreen monitor at the nursing
station or a mobile handheld device allowing the nursing staff to maintain a level of visual contact with each patient. We also
provide a suite of services including on-demand movies, Internet access via the patient’s television, and video visits with family
and friends.
CareView
Connect® Quality of Life System (“CareView Connect”) consists of an emergency assist button, motion
sensors, sleep sensor, and event sensor. Resident activity levels, medication administration, sleep patterns, and requests for
assistance can be monitored depending on which options are selected. CareView’s suite of products are designed for the long-term
care market, including Nursing Care, Home Care, Assisted Living and Independent Living.
Principles
of Consolidation
The accompanying consolidated financial statements include the accounts
of CareView Communications, Inc., a Texas corporation and CareView Operations, LLC, a Nevada limited liability company (our wholly owned
subsidiaries). All inter-company balances and transactions have been eliminated in consolidation.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
and Cash Equivalents
We
consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. We maintain
cash at financial institutions that at times may exceed federally insured limits.
Trade
Accounts Receivable
Trade
accounts receivable are customer obligations due under normal trade terms. We provide an allowance for doubtful accounts, which is based
upon a review of outstanding receivables, historical collection information and existing economic conditions. Trade accounts receivable
past due more than 90 days are considered delinquent. Delinquent receivables are written off based on individual credit evaluations,
results of collection efforts, and specific circumstances of the customer. Recoveries of accounts previously written off are recorded
as reductions of bad debt expense when received. At December 31, 2022 and 2021, an allowance for doubtful accounts of $0
and $0, respectively, was recorded.
Property
and Equipment
Property
and equipment is stated at cost, net of accumulated depreciation. Maintenance costs, which do not significantly extend the useful
lives of the respective assets, and repair costs are charged to operating expense as incurred. We include network equipment in
fixed assets upon receipt and begin depreciating such equipment when it passes our incoming inspection and is available for use.
We attribute no salvage value to the network equipment and depreciation is computed using the straight-line method based on the
estimated useful life of seven years. Depreciation of office and test equipment, warehouse equipment and furniture is computed
using the straight-line method based on the estimated useful lives of the assets, generally three years for office and test equipment,
and five years for warehouse equipment and furniture.
Inventories
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. See Note 6 for more details.
Allowance
for System Removal
On
occasion, the Company will remove subscription equipment from its larger customer premises due to contract expiration/non-renewal.
When equipment is removed an allowance is established based on the estimated cost of removal. At December 31, 2022 and 2021, an
allowance of $54,802 and $54,802, respectively, was recorded in other assets in the accompanying consolidated financial statements.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment
of Long-Lived Assets
Carrying
values of property and equipment and finite-lived intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that their carrying values may not be recoverable. Such events or circumstances include, but are not limited
to:
| ● | significant
declines in an asset’s market price; |
| ● | significant
deterioration in an asset’s physical condition; |
| ● | significant
changes in the nature or extent of an asset’s use or operation; |
| ● | significant
adverse changes in the business climate that could impact an asset’s value, including adverse actions or assessments by
regulators; |
| ● | accumulation
of costs significantly in excess of original expectations related to the acquisition or construction of an asset; |
| ● | current-period
operating, or cash flow losses combined with a history of such losses, or a forecast that demonstrates continuing losses associated
with an asset’s use; and |
| ● | expectations
that it is more likely than not that an asset will be sold or otherwise disposed of significantly before the end of our previously
estimated useful life. |
If
impairment indicators are present, we determine whether an impairment loss should be recognized by testing the applicable asset
or asset groups’ carrying value for recoverability. This test requires long-lived assets to be grouped at the lowest level
for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, the determination
of which requires judgment. We estimate the undiscounted future cash flows expected to be generated from the use and eventual
disposal of the assets and compare that estimate to the respective carrying values in order to determine if such carrying values
are recoverable. This assessment requires the exercise of judgment in assessing the future use of and projected value to be derived
from the eventual disposal of the assets to be held and used. Assessments also consider changes in asset utilization, including
the temporary idling of capacity and the expected timing for placing this capacity back into production. If the carrying value
of the asset is not recoverable, then a loss is recorded for the difference between the assets’ fair value and respective
carrying value. The fair value of the asset is determined using an “income approach” based upon a forecast of all
the expected discounted future net cash flows associated with the subject assets. Some of the more significant estimates and assumptions
include market size and growth, market share, projected selling prices, manufacturing cost and discount rate. Our estimates are
based upon our past experience, our commercial relationships, market conditions and available external information about future
trends. We believe our current assumptions and estimates are reasonable and appropriate; however, unanticipated events and changes
in market conditions could affect such estimates resulting in the need for an impairment charge in future periods. During the
years ended December 31, 2022 and 2021, no impairment was recognized.
Research
and Development
Research
and development costs are expensed as incurred. Costs regarding the development of software to be sold, leased or otherwise marketed
are subject to capitalization beginning when a product’s technological feasibility has been established and ending when
a product is available for general release to customers. We did not capitalize any such costs during the years ended December
31, 2022, and 2021.
Intellectual
Property
We
capitalize certain costs of developing software upon the establishment of technological feasibility and prior to the availability
of the product for general release to customers for our CareView Patient Safety System in accordance with GAAP. Capitalized costs
are reported at the lower of unamortized cost or net realizable value and are amortized over the estimated useful life of the
CareView Patient Safety System not to exceed five years. Additionally, we test our intangible assets for impairment whenever circumstances
indicate that their carrying value may not be recoverable. No impairment was recorded during the years ended December 31, 2022
and 2021.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Patents
and Trademarks
We
amortize our intangible assets with a finite life on a straight-line basis, over 10 years for trademarks and 20 years for patents.
We begin amortization of these costs on the date patents or trademarks are awarded.
Fair
Value of Financial Instruments
Our
financial instruments consist primarily of receivables, accounts payable, accrued expenses and short and long-term debt. The carrying
amount of receivables, accounts payable and accrued expenses approximate our fair value because of the short-term maturity of
such instruments, and they are considered Level 1 assets under the fair value hierarchy. We have elected not to carry our debt
instruments at fair value. The carrying amount of our debt approximates fair value. Interest rates that are currently available
to us for issuance of short- and long-term debt with similar terms. Remaining maturities are used to estimate the fair value of
our short- and long-term debt and would be considered Level 3 inputs under the fair value hierarchy.
We
have categorized our assets and liabilities that are valued at fair value on a recurring basis into a three- level fair value
hierarchy in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active
markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3).
Assets
and liabilities recorded in the consolidated balance sheets at fair value are categorized based on a hierarchy of inputs, as follows:
Level
1 -- Unadjusted quoted prices in active markets for identical assets or liabilities.
Level
2 -- Quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability,
either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level
3 -- Unobservable inputs for the asset or liability.
At December 31, 2022 and 2021, we had no financial assets and liabilities
valued at fair value. Carry amounts reported at approximate fair value.
Income Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities
and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the related temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized when the rate change is enacted. Valuation allowances
are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In accordance with GAAP,
we recognize the effect of uncertain income tax positions only if the positions are more likely than not of being sustained in
an audit, based on the technical merits of the position. Recognized uncertain income tax positions are measured at the largest
amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in
which those changes in judgement occur. We recognize both interest and penalties related to uncertain tax positions as part of
the income tax provision.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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”). |
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Disaggregation
of Revenue
The
following presents gross revenues disaggregated by our business models:
| | |
|
|
|
|
|
| |
| | |
For the years ended
December 31, | |
| | |
2022 | | |
2021 | |
| Sales-based contract revenue | |
| | | |
| | |
| Equipment package (point in time) | |
$ | 1,437,758 | | |
$ | 1,950,386 | |
| Software bundle (over time) | |
| 1,349,096 | | |
| 447,217 | |
| Total sales-based contract revenue | |
| 2,786,854 | | |
| 2,397,603 | |
| | |
| | | |
| | |
| Subscription-based lease revenue | |
| 5,114,487 | | |
| 5,404,623 | |
| Gross revenue | |
$ | 7,901,341 | | |
$ | 7,802,226 | |
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 sheet and recognized into revenues over time.
Our
sales-based contract payment arrangements with our customers typically include an initial equipment payment due upon signing of
the contract and subsequent payments when certain performance obligations are completed. Customer payments received in advance
of satisfaction of related performance obligations are deferred as contract liabilities. These amounts are recorded as “deferred
revenue” in our consolidated balance sheet and recognized into revenues as either a point in time or over time.
During
the years ended December 31, 2022, and 2021, a total of $230,200 and $172,056, respectively, of the beginning balance of the subscription-based
contract liability was recognized as revenue. The table below details the subscription-based contract liability activity during
the years ended December 31, 2022 and 2021.
| | |
|
|
|
|
| |
| | |
For the years ended
December 31, | |
| | |
2022 | | |
2021 | |
| Balance, beginning of period | |
$ | 231,141 | | |
$ | 238,263 | |
| Additions | |
| 30,306 | | |
| 290,620 | |
| Transfer to revenue | |
| (240,302 | ) | |
| (297,742 | ) |
| Balance, end of period | |
$ | 21,145 | | |
$ | 231,141 | |
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
During
the years ended December 31, 2022 and 2021, a total of $612,880 and $226,861, respectively, of the beginning balance of the sales-based
contract liability was recognized as revenue. The table below details the sales-based contract liability activity during the years
ended December 31, 2022 and 2021.
| | |
|
|
|
|
| |
| | |
For the years ended
December 31, | |
| | |
2022 | | |
2021 | |
| Balance, beginning of period | |
$ | 752,526 | | |
$ | 226,861 | |
| Additions | |
| 1,955,015 | | |
| 820,854 | |
| Transfer to revenue | |
| (1,838,056 | ) | |
| (295,189 | ) |
| Balance, end of period | |
$ | 869,485 | | |
$ | 752,526 | |
As
of December 31, 2022, 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 $890,630 and will be recognized into revenue
over time as follows:
| Years Ending December 31, | | |
Amount | |
| 2023 | | |
$ | 695,605 | |
| 2024 | | |
| 195,025 | |
| Thereafter | | |
| | |
| | | |
$ | 890,630 | |
Deferred revenue is included in other current liabilities in the accompanying
Balance Sheet.
Based
on our contracts, with exception to initial equipment sales, we invoice customers once our performance obligations have been
satisfied, at which point payment is unconditional. Accounts receivable is recorded when the right to consideration becomes
unconditional and are reported accordingly in our consolidated financial statements.
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 associate 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 years ended December 31, 2022 and 2021, included
in other assets in the accompanying consolidated balance sheet.
| | |
|
|
|
|
| |
| | |
For the years ended
December 31, | |
| | |
2022 | | |
2021 | |
| Balance, beginning of period | |
$ | 68,901 | | |
$ | 54,002 | |
| Additions | |
| — | | |
| 59,312 | |
| Transfer to expense | |
| (35,440 | ) | |
| (44,413 | ) |
| Balance, end of period | |
$ | 33,461 | | |
$ | 68,901 | |
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Significant
Judgements When Applying Topic 606
Contracts
with our customers are typically structured similarly and include various combinations of our products, software solutions, and
related services. Determining whether the various contract promises are considered distinct performance obligations that should
be accounted for separately versus together may require significant judgment.
Contract
transaction price is allocated to distinct performance obligations using estimated standalone selling price. We determine standalone
selling price maximizing observable inputs such as standalone sales, competitor standalone sales, or substantive renewal prices
charged to customers when they exist. In instances where standalone selling price is not observable, we utilize an estimate of
standalone selling price. Such estimates are derived from various methods that include cost plus margin, and historical pricing
practices. Judgment may be required to determine standalone selling prices for each performance obligation and whether it depicts
the amount we expect to receive in exchange for the related good or service.
Contract
modifications occur when we and our customers agree to modify existing customer contracts to change the scope or price (or both)
of the contract or when a customer terminates some, or all, of the existing services provided by us. When a contract modification
occurs, it requires us to exercise judgment to determine if the modification should be accounted for as a separate contract, the
termination of the original contract and creation of a new contract, a cumulative catch-up adjustment to the original contract,
or a combination.
Contracts
with our customers include a limited warranty on our products covering materials, workmanship, or design for the duration of contract.
We do not offer paid additional extended or lifetime warranty packages. We determined the limited warranty in our contract is
not a distinct performance obligation. We do not believe our estimates of warranty costs to be significant to our determination
of revenue recognition, and, therefore; did not reserve for warranty costs.
Leases
The
Company has an operating lease primarily consisting of office space with a remaining lease term of 32 months. At the lease commencement
date, an operating lease liability and related operating lease asset are recognized. The operating lease liabilities are calculated
using the present value of lease payments. The discount rate used is either the rate implicit in the lease, when known, or our
estimated incremental borrowing rate. Operating lease assets are valued based on the initial operating lease liabilities plus
any prepaid rent and direct costs from executing the leases
Earnings
Per Share
We calculate earnings per share (“EPS”) in accordance with
GAAP, which requires the computation and disclosure of two EPS amounts, basic and diluted. Basic EPS is computed based on the weighted
average number of common shares outstanding during the period. Diluted EPS is computed based on the weighted average number of common
shares outstanding plus all potentially dilutive common shares outstanding during the period under the treasury stock method. Such potential
dilutive common shares consist of stock options, warrants to purchase our Common Stock (the “Warrants”) and convertible debt.
Potential common shares totaling approximately 442,000,000 and 226,000,000 at December 31, 2022, and 2021, respectively, have been excluded
from the diluted earnings per share calculation as they are anti-dilutive due to our reported net loss.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Stock
Based Compensation
We
recognize compensation expense for all share-based payments granted and amended based on the grant date fair value estimated in
accordance with GAAP. Compensation expense is generally recognized on a straight-line basis over the employee’s requisite
service period based on the award’s estimated lives for fixed awards with ratable vesting provisions.
Debt
Discount Costs
Costs
incurred with parties who are providing long-term financing, with Warrants issued with the underlying debt, are reflected as a
debt discount based on the relative fair value of the debt and Warrants. These discounts are generally amortized over the life
of the related debt, using the effective interest rate method or other methods approximating the effective interest method. Additionally,
convertible debt issued with a beneficial conversion feature is recorded at a discount based on the difference in the effective
conversion price and the fair value of the Company’s stock on the date of issuance, if any. Outstanding debt is presented
net of any such discounts on the accompanying consolidated financial statements.
Deferred
Debt Issuance and Debt Financing Costs
Costs
incurred through the issuance of Warrants to parties who are providing long-term financing availability, which includes revolving
credit lines, are reflected as deferred debt issuance based on the fair value of the Warrants issued. Costs incurred with third
parties related to issuance of debt are recorded as deferred financing costs. These costs are generally amortized over the life
of the financing instrument using the effective interest rate method or other methods approximating the effective interest method.
Amounts associated with our senior secured convertible notes are netted with the outstanding debt on the accompanying consolidated
financial statements while amounts associated with credit facilities are presented in other assets on the accompanying consolidated
statements of operations.
Shipping
and Handling Costs
We
expense all shipping and handling costs as incurred. These costs are included in network operations on the accompanying consolidated
statements of operations.
Advertising
Costs
We consider advertising costs as costs associated with the promotion of
our products through the various media outlets and trade shows. We expense all advertising costs as incurred. Our advertising expense
for the years ended December 31, 2022 and 2021, totaled approximately $131,000 and $33,000, respectively.
Concentration
of Credit Risks and Customer Data
During
2022, one customer comprised 12%
of our revenue, while no other customer comprised more than 10%. During 2021, no customer comprised more than 10% of our revenue.
Use
of Estimates
Our
financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to
make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related
disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to contingencies, on an ongoing
basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions
or conditions.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Recently
Issued and Newly Adopted Accounting Pronouncements
In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in
Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain
financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s
own equity. The ASU 2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within
those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this standard.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). ASU
2016-13 modifies the measurement of expected credit losses of certain financial instruments, requiring entities to estimate an
expected lifetime credit loss on financial assets. The ASU amends the impairment model to utilize an expected loss methodology
and replaces the incurred loss methodology for financial instruments including trade receivables. The amendment requires entities
to consider other factors, such as historical loss experience, current conditions and reasonable and supportable forecasts. In
November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic
815), and Leases (Topic 842): Effective Dates, which deferred the effective date of the new guidance by one year to fiscal years
beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the impact of adopting the new accounting
standards on its consolidated financial statements.
Under ASC 815-40-35, the Company has adopted a sequencing policy whereby,
in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company's
inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number
of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments with the earliest grants
receiving the first allocation of shares. Company adopted policy for reclassification of contracts with the latest inception date first.
Pursuant to ASC 815, issuance of securities to the Company's employees or directors is not subject to the sequencing policy.
NOTE
3 – GOING CONCERN, LIQUIDITY AND MANAGMENTS 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-K (“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 year ended December
31, 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 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.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of the year ended December 31, 2022, the Company had an operating net working capital of $598,978,
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 consolidated financial
statements were issued. These conditions raise substantial doubt abput the Company’s ability to continue as a going concern.
While management will look to continue funding operations by increased sales volumes and raising additional capital from sources
such as sales of its debt or equity securities or loans to meet operating cash requirements, there is no assurance that
management’s plans will be successful.
Management
continues to monitor the immediate and future cash flows needs of the company in a variety of ways which include forecasted net
cash flows from operations, capital expenditure control, new inventory orders, debt modifications, increases sales outreach, streamlining
and controlling general and administrative costs, competitive industry pricing, sale of equities, debt conversions, new product
or services offerings, and new business partnerships.
The
Company’s net losses, cash outflows, and working capital deficit raise substantial doubt 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
4 – STOCKHOLDERS’ EQUITY
Preferred
Stock
At
December 31, 2022 and 2021, we had 20,000,000 shares of Preferred Stock, par value $0.001 authorized, and zero shares outstanding,
which can be designated by our Board of Directors.
Common
Stock
At
December 31, 2022 and 2021, we had 500,000,000 shares of Common Stock, $0.001 par value, respectively, authorized, and 141,880,748
shares of Common Stock issued and outstanding. On November 14, 2022, the Company entered into a Common Stock purchase agreement
with five of the Company’s Board of Directors. The Company sold and issued 2,500,000 shares of Common Stock at a cash price
of $0.10 per share (or $250,000). There was no Common Stock issued during the year ended December 31, 2021.
Warrants
to Purchase Common Stock of the Company
We
use the Black-Scholes-Merton option pricing model (“Black-Scholes Model”) to determine the fair value of Warrants.
The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the weighted average
risk-free interest rate, and the weighted average term of the Warrant.
The
risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period
is appropriate for the term of the Warrants and is calculated by using the average daily historical stock prices through the day
preceding the grant date. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each
year during the expected life of the award. Our estimated volatility is an average of the historical volatility of our stock prices
(and that of peer entities whose stock prices were publicly available) over a period equal to the expected life of the awards.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Active
Warrant Holders
A summary of our Warrants activity and related information follows:
| | |
Number
of Shares
Under
Warrant | |
Range
of
Warrant
Price Per
Share | |
Weighted
Average
Exercise
Price | |
Weighted
Average
Remaining
Contractual
Life | |
| Balance at December
31, 2020 | |
| 16,050,458 | |
$ | 0.01-$0.53 | |
$ | 0.76 | |
| 4.3 | |
| Granted | |
| 2,000,000 | |
$ | 0.23 | |
$ | 0.74 | |
| 9.3 | |
| Expired | |
| — | |
| | |
| | |
| | |
| Canceled | |
| — | |
| | |
| | |
| | |
Balance
at December 31, 2021 | |
| 18,050,458 | |
$ | 0.01-$0.53 | |
$ | 0.74 | |
| 4.2 | |
| Granted | |
| 3,000,000 | |
$ | 0.09 | |
$ | 0.09 | |
| 9.2 | |
| Expired | |
| (1,151,206 | ) |
$ | 0.32 | |
$ | 0.32 | |
| 2.3 | |
| Canceled | |
| (14,204,807 | ) |
$ | 0.52 | |
$ | 0.52 | |
| — | |
| Ending
Balance at December 31, 2022 | |
| 5,694,445 | |
$ | 0.01-$0.03 | |
$ | 0.024 | |
| 3.5 | |
Warrant
Activity During 2022
In
March 2022, we issued,1,397,400 ten-year Warrants (with a fair value of $125,766) at an exercise price of $0.09 per share to HealthCor
Partners Fund, LP.
In
March 2022, we issued 1,602,600 ten-year Warrants (with a fair value of $144,234) at an exercise price of $0.09 per share to HealthCor
Hybrid Offshore Master Fund, LP.
In
December 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”).
See
Note 14 for further details.
Warrant Activity During 2021
In
April 2021, we issued 931,600 ten-year Warrants (with a fair value of $195,636) at an exercise price of $0.23 per share to HealthCor
Partners Fund, LP.
In
April 2021, we issued 1,068,400 ten-year Warrants (with a fair value of $224,364) at an exercise price of $0.23 per share to HealthCor
Hybrid Offshore Master Fund, LP.
Stock
Options
The
Company’s Stock Incentive Plans include the CareView Communications, Inc.’s 2007 Stock Incentive Plan (“2007
Plan”), 2009 Stock Incentive Plan (the “2009 Plan”), 2015 Stock Option Plan (the “2015 Plan”), 2016
Stock Option Plan (the “2016 Plan”), and 2020 Stock Option Plan ( the “2020 Plan”) pursuant to which 8,000,000,
10,000,000, 5,000,000, 20,000,000 and 20,000,000 shares of Common Stock were reserved for issuance upon the exercise of options,
respectively. The Stock Incentive Plans are designed to serve as an incentive for retaining our qualified and competent key employees,
officers and directors, and certain consultants and advisors. The Stock Options vest over three years and have an
exercise period of ten years from the date of issuance.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
At
December 31, 2022, Plan Options to purchase 8,000,000 shares of our Common Stock have been issued with zero remaining outstanding
under the 2007 Plan, Plan Options to purchase 10,000,000 shares have been issued with zero remaining outstanding under the 2009
Plan, Plan Options to purchase 4,419,945 shares have been issued with 580,055 remaining outstanding under the 2015 Plan, Plan
Options to purchase 19,089,389 shares have been issued with 910,611 remaining outstanding under the 2016 Plan, and Plan Options
to purchase 14,797,533 shares have been issued with 5,202,467 remaining outstanding under the 2020 Plan.
The
valuation methodology used to determine the fair value Plan Options (the “Option(s)”) 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.
A
summary of our stock option activity and related information follows:
| |
|
Number of
Shares
Under
Option |
|
|
Weighted
Average
Exercise
Price |
|
|
Weighted
Average
Remaining
Contractual
Life |
|
|
Aggregate
Intrinsic
Value |
|
| Balance at December 31, 2020 |
|
|
40,688,968 |
|
|
$ |
0.13 |
|
|
|
7.6 |
|
|
$ |
526,724 |
|
| Granted |
|
|
362,000 |
|
|
|
0.11 |
|
|
|
9.5 |
|
|
|
500 |
|
| Expired |
|
|
(425,491) |
|
|
|
0.44 |
|
|
|
— |
|
|
|
— |
|
| Canceled |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Balance at December 31, 2021 |
|
|
40,625,477 |
|
|
$ |
0.12 |
|
|
|
6.7 |
|
|
$ |
1,283,975 |
|
| Granted |
|
|
838,500 |
|
|
$ |
0.10 |
|
|
|
9.4 |
|
|
$ |
3,000 |
|
| Expired |
|
|
(471,500 |
) |
|
$ |
0.79 |
|
|
|
— |
|
|
|
— |
|
| Canceled |
|
|
(175,000 |
) |
|
$ |
0.17 |
|
|
|
— |
|
|
|
— |
|
| Balance at December 31, 2022 |
|
|
40,817,477 |
|
|
$ |
0.12 |
|
|
|
5.8 |
|
|
$ |
526,425 |
|
| Vested and Exercisable at December 31, 2022 |
|
|
32,999,477 |
|
|
$ |
0.13 |
|
|
|
5.3 |
|
|
$ |
523,425 |
|
Share-based
compensation expense for Options charged to our operating results for the twelve months ended December 31, 2022, and 2021 were
$230,112 and $222,995, respectively. 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.
At
December 31, 2022, total unrecognized estimated compensation expense related to non-vested Options granted was $179,346,
which is expected to be recognized over a weighted-average period of
one year. No tax benefit was realized due to a continued pattern of operating losses.
NOTE
5 – INCOME TAXES
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. Based on its assessment, the Company has provided a full valuation allowance against its net
deferred tax assets as their future utilization remains uncertain at this time. During the years ended December 31, 2022 and 2021, the
deferred tax valuation allowance (decreased) / increased by $(7,601,775) and $1,581,507, respectively. The decrease in the valuation
allowance during 2022 was mainly attributable to write-downs of gross deferred tax assets.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
At
December 31, 2022, we had approximately $91,700,000 of U.S. federal net operating tax loss carryforward, some of which begins to expire
in 2028. In accordance with Section 382 of the Internal Revenue code, the usage of the Company's Federal Carryforwards could be limited
in the event of a change in ownership. As of December 31, 2022, the Company has not completed an analysis as to whether or not an ownership
change has occurred. We are currently subject to the general three-year statute of limitations for federal tax. Under this general rule,
the earliest period subject to potential audit is 2019. For years in which the Company may utilize its net operating losses, the IRS
has the ability to examine the tax year that generated those losses and propose adjustments up to the amount of losses utilized.
The
Company applies the FASB's provisions for uncertain tax positions. The Company utilizes the two-step process to determine the amount
of recognized tax benefit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial
statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant
tax authority. The Company recognizes interest and penalties associated with uncertain tax positions as a component of income tax expense.
As
of December 31, 2022, management does not believe the Company has any material uncertain tax positions that would require it to measure
and reflect the potential lack of sustainability of a position on audit in its financial statements. The Company will continue to evaluate
its uncertain tax positions in future periods to determine if measurement and recognition in its financial statements is necessary. The
Company does not believe there will be any material changes in its unrecognized tax positions over the next year.
The
provision for income taxes consists of the following:
| | |
2022 | | |
2021 | |
| Current | |
| | |
| |
| Federal | |
$ | — | | |
$ | — | |
| State income tax, net of federal benefit | |
| 6,045 | | |
| 9,672 | |
| Sub-total: | |
| 6,045 | | |
| 9,672 | |
| | |
| | | |
| | |
| Deferred | |
| | | |
| | |
| Federal | |
| — | | |
| — | |
| State income tax, net of federal benefit | |
| — | | |
| — | |
| Sub-total: | |
| — | | |
| — | |
| Total | |
$ | 6,045 | | |
$ | 9,672 | |
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Schedule of income tax reconciliation
| | |
|
|
|
|
|
| |
| | |
Years Ended December 31, | |
| | |
2022 | | |
2021 | |
| Expected income tax benefit at statutory rate | |
$ | (1,024,155 | ) | |
$ | (2,113,665 | ) |
Debt discount amortization
| |
| 55,539 | | |
| 274,596 | |
| Permanently disallowed interest | |
| 314,510 | | |
| 258,736 | |
| Non-taxable debt forgiveness income | |
| (494,332 | ) | |
| — | |
| Deferred tax adjustments | |
| 9,019,593 | | |
| — | |
| State income tax, net of federal benefit | |
| 4,776 | | |
| 9,672 | |
| Other reconciling items | |
| 1,390 | | |
| (1,174 | ) |
| Change in valuation account | |
| (7,871,276 | ) | |
| 1,581,507 | |
| Income tax expense (benefit) | |
$ | 6,045 | | |
$ | 9,672 | |
The components of the deferred tax assets and liabilities are as follows:
| | |
|
|
|
|
|
| |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Deferred Tax Assets: | |
| | | |
| | |
Tax benefit of net operating loss carry-forward
| |
$ | 19,261,098 | | |
$ | 18,726,731 | |
| Accrued interest | |
| 1,522,314 | | |
| 8,581,832 | |
Stock based compensation
| |
| 342,341 | | |
| 1,341,514 | |
| Intangible assets | |
| 14,723 | | |
| 46,658 | |
| Fixed assets | |
| 103,619 | | |
| 307,610 | |
| Accrued liabilities | |
| 67,600 | | |
| 75,895 | |
| Charitable contributions carryforward | |
| — | | |
| 5,947 | |
| Inventory reserve | |
| — | | |
| 237,527 | |
| Bad debt allowance | |
| — | | |
| (2) | |
| Research and development credit carry-forward | |
| 1 | | |
| 29,084 | |
| Debt discount | |
| — | | |
| (166,585 | ) |
| Total deferred tax assets | |
| 21,311,696 | | |
| 29,186,211 | |
| Valuation allowance for deferred tax assets | |
| (21,311,696 | ) | |
| (29,186,211 | ) |
| Deferred tax assets, net of valuation allowance | |
$ | — | | |
$ | — | |
NOTE 6 – 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:
| | |
|
|
|
|
| |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Inventory | |
$ | 301,446 | | |
$ | 349,216 | |
| TOTAL INVENTORY | |
$ | 301,446 | | |
$ | 349,216 | |
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – OTHER CURRENT ASSETS
Other current assets consist of the following:
| | |
|
|
|
|
| |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Other prepaid expenses | |
$ | 71,020 | | |
$ | 235,521 | |
| TOTAL OTHER CURRENT ASSETS | |
$ | 71,020 | | |
$ | 235,521 | |
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Network equipment | |
$ | 12,620,258 | | |
$ | 12,620,258 | |
| Office equipment | |
| 234,429 | | |
| 229,240 | |
| Vehicles | |
| 232,411 | | |
| 232,411 | |
| Test equipment | |
| 230,365 | | |
| 204,455 | |
| Furniture | |
| 92,846 | | |
| 92,846 | |
| Warehouse equipment | |
| 9,524 | | |
| 9,524 | |
| Leasehold improvements | |
| 5,121 | | |
| 5,121 | |
| | |
| 13,424,954 | | |
| 13,393,855 | |
| Less: accumulated depreciation | |
| (12,782,395 | ) | |
| (12,254,964 | ) |
| TOTAL PROPERTY AND EQUIPMENT | |
$ | 642,559 | | |
$ | 1,138,891 | |
Depreciation expense for
the years ended December 31, 2022, and 2021, was $501,521 and 578,744, respectively.
NOTE 9 – OTHER ASSETS
Intangible assets consist of the following:
| | |
December
31, 2022 | |
| | |
Cost | | |
Accumulated
Amortization | | |
Net | |
| Patents and trademarks | |
$ | 1,213,850 | | |
$ | 395,715 | | |
$ | 818,135 | |
| Other intangible assets | |
| 85,896 | | |
| 83,925 | | |
| 1,971 | |
| TOTAL INTANGIBLE ASSETS | |
$ | 1,299,746 | | |
$ | 479,640 | | |
$ | 820,106 | |
| | |
| | | |
| | | |
| | |
| | |
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 | |
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other assets consist of the following:
| | |
December 31, 2022 | |
| | |
Cost | | |
Accumulated
Amortization | | |
Net | |
| Deferred installation costs | |
$ | 1,352,041 | | |
$ | 1,318,580 | | |
$ | 33,461 | |
| Deferred Sales Commissions | |
| 163,973 | | |
| 98,116 | | |
| 65,857 | |
| Prepaid license fee | |
| 249,999 | | |
| 185,792 | | |
| 64,207 | |
| Security deposit | |
| 46,124 | | |
| — | | |
| 46,124 | |
| TOTAL OTHER ASSETS | |
$ | 1,812,137 | | |
$ | 1,602,488 | | |
$ | 209,649 | |
| | |
December 31, 2021 | |
| | |
Cost | | |
Accumulated
Amortization | | |
Net | |
| Deferred installation costs | |
$ | 1,352,041 | | |
$ | 1,283,140 | | |
$ | 68,901 | |
| Deferred Sales Commissions | |
| 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 10 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
Schedule
of other current liabilities
| | |
|
|
|
|
|
| |
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Accrued interest | |
$ | 12,933,611 | | |
$ | 9,947,730 | |
| Accrued interest, related parties | |
| 337,027 | | |
| 228,528 | |
| Allowance for system removal | |
| 54,802 | | |
| 54,802 | |
| Accrued paid time off | |
| 154,776 | | |
| 173,904 | |
| Deferred officer compensation(1) | |
| 139,041 | | |
| 139,041 | |
| Deferred revenue | |
| 890,631 | | |
| 983,667 | |
| Insurance premium financing(2) | |
| — | | |
| 103,791 | |
| Other accrued liabilities | |
| 43,389 | | |
| 108,755 | |
| TOTAL OTHER CURRENT LIABILITIES | |
$ | 14,553,277 | | |
$ | 11,740,218 | |
| (1) | Salary for Steve Johnson, CEO, between February 15, 2018,
and September 30, 2020. |
| (2) | Renewal of directors and officer’s insurance. |
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11– COMMITMENTS AND CONTINGENCIES
Debt Maturity
As of December 31, 2022, future debt payments due are
as follows:
Schedule of future debt payments
Years
Ending
December 31, | | |
| |
Total | | |
Loan Payable | | |
Convertible
Notes | |
| 2023 | | |
Related Party | |
$ | 43,094,168 | | |
$ | 700,000 | | |
$ | 42,394,168 | |
| | | |
Other | |
| 21,805,832 | | |
| 20,000,000 | | |
| 1,805,832 | |
| Total | | |
| |
$ | 64,900,000 | | |
$ | 20,700,000 | | |
$ | 44,200,000 | |
Consent and Agreement to Cancel and Exchange Existing
Notes and Warrants
On December 30, 2022, CareView 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 that certain 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 (with a total aggregate outstanding amount of approximately $88,949,000) and Warrants
(for the purchase of an aggregate of approximately 14,204,000 shares of common stock) 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.
NOTE 12– LEASE
Operating Lease
The Company has an operating lease
primarily consisting of office space with remaining lease of 18 months.
On March 4, 2020, we
entered into the Fourth Amendment to Commercial Lease Agreement (the “Lease Extension”), wherein we extended the Lease
through August 31, 2025. The Lease Extension contains a renewal provision under which the Lease has been extended for an additional
five-year period under the same terms and conditions of the original Lease Agreement. Management has identified this extension
as a reassessment event, as we have elected to exercise the Lease Extension option even though the Company had previously determined
that it was not reasonably certain to do so.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has reassessed
the discount rate at the remeasurement date, at 14.8% and the Company has remeasured its ROU asset and lease liability on our balance
sheet using the discount rate that applies as of the date of the reassessment event to remeasure its Operating lease asset and
lease liability. The reassessment is based on the remaining lease term and lease payments. The Company has further concluded that
the Lease Extension has no effects on the classification of the Lease. Rent expense for the twelve months ended December 31, 2022
and 2021 was $279,005 and $286,358, respectively.
Lease Position
Operating lease asset and
liability for our operating lease were recorded in the consolidated balance sheet as follows:
| | |
December
31, 2022 | |
| Assets | |
| |
| Operating lease asset | |
$ | 434,330 | |
| Total lease asset | |
$ | 434,330 | |
| | |
| | |
| Liabilities | |
| | |
| Current liabilities: | |
| | |
| Operating lease liability | |
$ | 175,520 | |
| | |
| | |
| Long-term liabilities: | |
| | |
| Operating lease liability, net of current portion | |
$ | 305,259 | |
| Total lease liability | |
$ | 480,779 | |
Undiscounted Cash Flows
Future lease payments included in the measurement
of operating lease liability on the consolidated balance sheet as of December 31, 2022, for the following three fiscal years and
thereafter as follows:
Year ending
December 31, | | |
Operating
Leases | |
| 2023 | | |
| 214,631 | |
| 2024 | | |
| 221,069 | |
| 2025 | | |
| 150,679 | |
| Total minimum lease payments | | |
| 586,379 | |
| Less effects of discounting | | |
| (105,601 | ) |
| Present value of future minimum lease payments | | |
$ | 480,779 | |
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13– 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 $40 million in two tranches of $20 million each. Tranche One was funded on October 8, 2015 (the “Tranche One Loan”).
Pursuant to the terms of the PDL Credit Agreement and having not met the Tranche Two Milestones by July 26, 2017, the Tranche Two
funding was terminated in full.
From October 8, 2015 through
May 14, 2019, the outstanding borrowings under the Tranche One Loan bore interest at the rate of 13.5% per annum, payable quarterly.
On May 15, 2019, pursuant to the terms of the Fifth Amendment to the PDL Credit Agreement (see below for additional details), the
interest increased to 15.5% per annum, payable quarterly. Also, on May 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.
On
January 31, 2019, February 28, 2019, March 29, 2019 and April 29, 2019, the Company and Lender entered into the Tenth, Eleventh,
Twelfth, and Thirteenth Amendments to the PDL Modification Agreement, as previously amended, respectively, pursuant to which the
parties agreed to amend the PDL Modification Agreement to provide that (A) the dates on which the Lender may elect, in the Lender’s
sole discretion, to terminate the Modification Period would be July 31, 2018 and, pursuant to the Thirteenth Amendment to the PDL
Modification Agreement, May 15, 2019 (rather than January 31, February 28, June 30, and April 30, respectively) (with each such
date permitted to be extended by the Lender in its sole discretion); (B) the Company could satisfy its obligations under the PDL
Modification Agreement, as amended, to obtain financing by obtaining (a) at least $2,050,000 in net cash proceeds from the issuance
of Capital Stock (other than Disqualified Capital Stock) or Debt on or prior to February 23, 2018 and (b) an additional (i) $750,000
in net cash proceeds from the issuance of Capital Stock (other than Disqualified Capital Stock) or Debt on or prior to July 13,
2018 and (ii) $750,000 in net cash proceeds from the issuance of Capital Stock (other than Disqualified Capital Stock) or Debt
on or prior to May 15, 2019 (rather than January 31, February 28, June 30, and April 30, respectively) (resulting in aggregate
net cash proceeds of at least $3,550,000); and (C) the Company’s quarterly interest payments that would otherwise have been
due to Lender on December 31, 2018 and June 30, 2019 would be deferred until May 15, 2019 (the end of the extended Modification
Period) and that such deferral would be a Covered Event.
On April 9, 2019, the Company,
PDL Investment entered into a Fourth Amendment to PDL Credit Agreement (the “Fourth Amendment to the PDL Credit Agreement”),
wherein the Company executed an Amended and Restated Tranche One Term Note in the principal amount of $20,000,000 to PDL Investments
(the “Amended Tranche One Loan”), pursuant to which the parties agreed, among other things, to amend the note from
registered to unregistered form.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On May 15, 2019, the
Company, the Lender, Steven G. Johnson (our Chief Executive Officer, President, Secretary and Treasurer), individually, and
Dr. James R. Higgins (a member of our board of directors), individually (Mr. Johnson and Dr. Higgins, collectively, the
“Tranche Three Lenders”) entered into a Fifth Amendment to the PDL Credit Agreement (the “Fifth PDL Credit
Agreement Amendment”), pursuant to which the parties agreed to amend the PDL Credit Agreement to, among other things,
(i) provide for a new tranche of term loan in the aggregate principal amount of $200,000, from the Tranche Three Lenders,
with a maturity date of October 7, 2020 and bearing interest at the rate of 15.5% per annum, payable quarterly in arrears
(subject to the terms of the PDL Modification Agreement, as amended) (the “Tranche Three Loan”); (ii) increase
the interest rate for outstanding borrowings under the Amended Tranche One Loan from 13.5% per annum to 15.5% per annum,
payable quarterly in arrears (subject to the terms of the PDL Modification Agreement, as amended), effective May 15, 2019,;
and (iii) provide for the issuance of the Twelfth Amendment Note, pursuant to the terms of the Twelfth Amendment to the
HealthCor Agreement (see NOTE 10 for details). Under the accounting standards, we determined that the restructuring of the
Tranche One Loan 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. Also
on May 15, 2019, upon the execution of the Fifth PDL Credit Agreement Amendment, (i) the Company sold and issued the Tranche
Three Lenders term notes in the aggregate principal amount of $200,000, payable in accordance with the terms of the PDL
Credit Agreement (the “Tranche Three Loans”), $150,000 from Mr. Johnson and $50,000 from Dr. Higgins, and (ii)
the Company issued a warrant for the purchase of 250,000 shares of Common Stock, with an exercise price per share equal to
$0.03 (subject to adjustment as described therein) and an expiration date of May 15, 2029 (the “Tranche Three Loan
Warrant”), to Dr. Higgins in connection with his Tranche Three Loan. Mr. Johnson declined to be issued a Tranche
Three Loan Warrant.
On May 15, 2019 the
Company and the Lender entered into the Fourteenth Amendment to the PDL Modification Agreement (the “Fourteenth
Amendment to the PDL Modification Agreement”), pursuant to which, in connection with the Twelfth Amendment to the
HealthCor Purchase Agreement (see NOTE 10 for further details) and the Fifth Amendment to the PDL Credit Agreement, the
parties agreed to amend the PDL Modification Agreement, as previously amended, to provide that (A) the dates on which the
Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and
September 30, 2019 (with each such date permitted to be extended by the Lender in its sole discretion); (B) the Borrower
could satisfy its obligations under the PDL Modification Agreement, as amended, to obtain financing by obtaining (a) at least
$2,050,000 in net cash proceeds from the issuance of Capital Stock (other than Disqualified Capital Stock) or Debt on or
prior to February 23, 2018 and (b) an additional (i) $1,000,000 in net cash proceeds from the issuance of Capital Stock
(other than Disqualified Capital Stock) or Debt on or prior to July 13, 2018 and (ii) $250,000 in net cash proceeds from the
issuance of Capital Stock (other than Disqualified Capital Stock) or Debt on or prior to May 15, 2019 (resulting in aggregate
net cash proceeds of at least $3,300,000); (C) the Liquidity required during the Modification Period would be lowered to $0
from $750,000; and (D) the Company’s interest payments that would otherwise be due to Lender on December 31, 2018, June
30, 2019 and June 30, 2019 would be deferred until September 30, 2019 (the end of the extended Modification Period) and that
such deferrals would be a Covered Event.
On
September 30, 2019, the Company, the Borrower, the Subsidiary Guarantor and the Lender entered into a Fifteenth Amendment to Modification
Agreement (the “Fifteenth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification
Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification
Period would be July 31, 2018 and November 30, 2019 (with each such date permitted to be extended by the Lender in its sole discretion);
and that the Borrower’s interest payments that would otherwise be due to Lender on December 31, 2018, June 30, 2019, June
30, 2019, and September 30, 2019 would be deferred until November 30, 2019 (the end of the extended Modification Period) and that
such deferrals would be a Covered Event.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 29, 2019,
the Company, the Borrower, the Subsidiary Guarantor and the Lender entered into a Sixteenth Amendment to Modification
Agreement (the “Sixteenth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the
Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to
terminate the Modification Period would be July 31, 2018 and December 31, 2019 (with each such date permitted to be extended
by the Lender in its sole discretion); and that the Borrower’s interest payments that would otherwise be due to Lender
on December 31, 2018, June 30, 2019, June 30, 2019, and September 30, 2019 would be deferred until December 31, 2019 (the end
of the extended Modification Period) and that such deferrals would be a Covered Event.
On
December 31, 2019, the Company, the Borrower, the Subsidiary Guarantor and the Lender entered into a Seventeenth Amendment to Modification
Agreement (the “Seventeenth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification
Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification
Period would be July 31, 2018 and January 17, 2020 (with each such date permitted to be extended by the Lender in its sole discretion);
and that the Borrower’s interest payments that would otherwise be due to Lender on December 31, 2018, June 30, 2019, June
30, 2019, September 30, 2019, and December 31, 2019 would be deferred until January 17, 2020 (the end of the extended Modification
Period) and that such deferrals would be a Covered Event.
On January 17, 2020, the
Company, the Borrower, the Subsidiary Guarantor and the Lender entered into an Eighteenth Amendment to Modification Agreement (the
“Eighteenth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement
to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period
would be July 31, 2018 and January 28, 2020 (with each such date permitted to be extended by the Lender in its sole discretion);
and that the Borrower’s interest payments that would otherwise be due to Lender on December 31, 2018, June 30, 2019, June
30, 2019, September 30, 2019, and December 31, 2019 would be deferred until January 28, 2020 (the end of the extended Modification
Period) and that such deferrals would be a Covered Event.
On January 28, 2020, the
Company, the Borrower, the Subsidiary Guarantor and the Lender entered into a Nineteenth Amendment to Modification Agreement
(the “Nineteenth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the
Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to
terminate the Modification Period would be July 31, 2018 and (i) April 30, 2020 (provided that Borrower obtains at least
$600,000 in cash proceeds from the issuance of Capital Stock (other than Disqualified Capital Stock) or Debt subordinated to
the Tranche One Loan (as defined in the Credit Agreement) pursuant to the terms of the Intercreditor Agreement (as defined in
the Credit Agreement) on or prior to February 11, 2020) or (ii) February 11, 2020 (if Borrower has not obtained such cash
proceeds by such date) (with each such date permitted to be extended by the Lender in its sole discretion); and that the
Borrower’s interest payments that would otherwise be due to Lender on December 31, 2018, June 30, 2019, June 30, 2019,
September 30, 2019, December 31, 2019, and June 30, 2020 would be deferred until the end of the extended Modification Period
(but with respect to the June 30, 2020 interest payment, such payment would be deferred only in the event that the end of the
extended Modification Period is April 30, 2020 rather than February 11, 2020; otherwise the Borrower will make the interest
payment due under the Credit Agreement on June 30, 2020), and that such deferrals would be a Covered Event.
The Company has evaluated
the Eighteenth and Nineteenth Modification Agreement Amendments and as the effective borrowing rate under the restructured agreement
is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10.
As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under
ASC 470-60.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
February 6, 2020, the Company, the Borrower, the Lender (in its capacity as administrative agent and lender) and the Tranche Three
Lenders entered into a Sixth Amendment to Credit Agreement (the “Sixth Credit Agreement Amendment”), pursuant to which
the parties agreed to amend the Credit Agreement to, among other things, (i) provide for additional funding under the Tranche Three
Loan, in the aggregate principal amount of $500,000, from the Tranche Three Lenders (the “Additional Tranche Three Loan”),
with a maturity date of October 7, 2020 (the fifth anniversary of the funding date of the Tranche One Loan (as defined in the Credit
Agreement)), with outstanding borrowings bearing interest at the rate of 15.5% per annum, payable quarterly in arrears (subject
to the terms of the Modification Agreement, as amended), and with payment of the Additional Tranche Three Loan and any other Obligations
(as defined in the Credit Agreement) incurred in connection with the Additional Tranche Three Loan subordinated and subject in
right and time of payment to the Payment in Full (as defined in the Credit Agreement) of the Tranche One Loan and any other Obligations
incurred in connection with the Tranche One Loan, to the extent and in the manner set forth in the Credit Agreement; and (ii) provide
for the issuance of the Thirteenth Amendment Supplemental Closing Note.
Also on February 6,
2020, upon the execution of the Sixth Credit Agreement Amendment, (i) the Borrower borrowed the Additional Tranche Three Loan
and issued to the Tranche Three Lenders term notes in the aggregate principal amount of $500,000, payable in accordance with
the terms of the Credit Agreement (the “Additional Tranche Three Term Notes”), $250,000 from Mr. Johnson and
$250,000 from Dr. Higgins, and (ii) the Company issued a warrant for the purchase of 1,000,000 shares of Common Stock, with
an exercise price per share equal to $0.01 (subject to adjustment as described therein) and expiration date of February 6,
2030 (the “Additional Tranche Three Loan Warrant”), to Dr. Higgins in connection with his Additional Tranche
Three Loan. Mr. Johnson declined to be issued an Additional Tranche Three Loan Warrant. Mr. Johnson is our Chief Executive
Officer, President, Secretary and Treasurer and is one of our directors. Dr. Higgins is one of our directors.
On April 17, 2020, the
Company and PDL Investment Holdings, LLC, entered into a Consent and Agreement Regarding SBA Loan Agreement (the “PDL Consent
Agreement”), pursuant to which the Lender (i) consented under the Credit Agreement to the Borrower’s issuing the Promissory
Note and borrowing the SBA Loan and (ii) agreed that the SBA Loan would be deemed to be debt that is permitted under the Credit
Agreement and Loan Documents.
On April 17, 2020, the Company
and the Lender entered into a Twentieth Amendment to the PDL Modification Agreement (the “Twentieth Modification Agreement
Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which
the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and September
30, 2020 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s interest
payments that would otherwise be due to Lender on December 31, 2018, June 30, 2019, June 30, 2019, September 30, 2019, December
31, 2019, June 30, 2020 and June 30, 2020 would be deferred until September 30, 2020 (the end of the extended Modification Period),
and that such deferrals would be a Covered Event. The Company has evaluated the Twentieth Modification Agreement Amendment and
as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement,
a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted
for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 30, 2020,
the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-First
Amendment to Modification Agreement (the “Twenty- First Modification Agreement Amendment”), pursuant to which the
parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the
Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and November 30, 2020 (with each
such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments
that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30,
2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for
principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would
otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until November 30, 2020 (the end of
the extended Modification Period), and that such deferrals would be a Covered Event. The Company has evaluated the
Twenty-First Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less
than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10.
As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR)
under ASC 470-60.
On November 30, 2020, the
Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Second Amendment
to Modification Agreement (the “Twenty-Second Modification Agreement Amendment”), pursuant to which the parties agreed
to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion,
to terminate the Modification Period would be July 31, 2018 and January 31, 2021 (with each such date permitted to be extended
by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the
Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June
30, 2020, September 30, 2020, and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding
under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020,
would each be deferred until January 31, 2021 (the end of the extended Modification Period) and that such deferrals would be a
Covered Event. The Company has evaluated the Twenty-Second Modification Agreement Amendment and as the effective borrowing rate
under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have
been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt
restructuring by debtors (TDR) under ASC 470-60.
On
January 31, 2021, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a
Twenty-Third Amendment to Modification Agreement (the “Twenty-Third Modification Agreement Amendment”), pursuant to
which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s
sole discretion, to terminate the Modification Period would be July 31, 2018 and January 31, 2021 (with each such date permitted
to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise
be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March
31, 2020, June 30, 2020, September 30, 2020, and October 7, 2020 and (ii) payments for principal and for any other Obligations
then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement
on October 7, 2020, would each be deferred until May 31, 2021 (the end of the extended Modification Period) and that such deferrals
would be a Covered Event. The Company has evaluated the Twenty-Third Modification Agreement Amendment and as the effective borrowing
rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to
have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement was accounted for as a troubled debt
restructuring by debtors (TDR) under ASC 470-60.
On May 25, 2021, the
Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Fourth
Amendment to Modification Agreement (the “Twenty-Fourth Modification Agreement Amendment”), pursuant to which the
parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the
Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and November 30, 2021 (with each
such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments
that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30,
2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, October 7, 2020, and (ii) payments for principal
and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be
due under the Credit Agreement on October 7, 2020, would each be deferred until November 30, 2021 (the end of the extended
Modification) and that such deferrals would be a Covered Event. The Company has evaluated the Twenty-Fourth Modification
Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing
rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been
granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 29, 2021, the
Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Fifth Amendment
to Modification Agreement (the “Twenty-Fifth Modification Agreement Amendment”), pursuant to which the parties agreed
to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion,
to terminate the Modification Period would be July 31, 2018 and June 30, 2022 (with each such date permitted to be extended by
the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the
Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June
30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding
under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020,
would each be deferred until June 30, 2022 (the end of the extended Modification) and that such deferrals would be a covered event.
The Company has evaluated the Twenty-Fifth Modification Agreement Amendment and as the effective borrowing rate under the restructured
agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC
470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors
(TDR) under ASC 470-60.
On June 23, 2022, the Company,
the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Sixth Amendment to Modification
Agreement (the “Twenty-Sixth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the
Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate
the Modification Period would be July 31, 2018 and June 30, 2022 (with each such date permitted to be extended by the Lender in
its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement
on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September
30, 2020, October 7, 2020 and June 30, 2022 and (ii) payments for principal and for any other Obligations then outstanding under
the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on June 30, 2022, would
each be deferred until December 31, 2022 (the end of the extended Modification) and that such deferrals would be a covered event.
The Company has evaluated the Twenty- Sixth Modification Agreement Amendment and as the effective borrowing rate under the restructured
agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC
470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors
(TDR) under ASC 470-60.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Accounting Treatment
As of December 31, 2022,
the Company and Lender had entered into 27 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. The amendments entered into during the years ended
December 31, 2022 and 2021 qualified for troubled debt restructuring accounting. As appropriate, we expensed the legal costs paid
to third parties. For the years ended December 31, 2022, and 2021, pursuant to the terms of the PDL Modification Agreement, as
amended, $3,100,000 and $3,100,000, respectively, was recorded as interest expense on the accompanying consolidated financial statements.
NOTE 14 – 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 $9,316,000 and $10,684,000, respectively (collectively the “2011 HealthCor Notes”). The 2011 HealthCor
Notes have a maturity date of April 20, 2021. We also issued Warrants to HealthCor for the purchase of an aggregate of up to
5,488,456 and 6,294,403 shares, 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 from April 21, 2011 through April 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 from April 21, 2016 through April 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 from April 21, 2016 through September 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 after September 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 dated July 10, 2018.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 31, 2012,
we entered the Second Amendment to the HealthCor Purchase Agreement with HealthCor (the “Second Amendment”) amending
the HealthCor Purchase Agreement and sold Senior Secured Convertible Notes to HealthCor in the principal amounts of $2,329,000
and $2,671,000, respectively (collectively the “2012 HealthCor Notes”). As provided by the Second Amendment, the 2012
HealthCor Notes are in substantially the same form as the 2011 HealthCor Notes, with changes to the “Issuance Date,”
“Maturity Date,” “First Five-Year Note Period” and other terms to consider the timing of the issuance of
the 2012 HealthCor Notes. The 2012 HealthCor Notes have a maturity date of January 30, 2022.
On
January 16, 2014, we entered a Fourth Amendment to the HealthCor Purchase Agreement with HealthCor (the “Fourth Amendment”)
and sold Senior Secured Convertible Notes to HealthCor in the principal amounts of $2,329,000 and $2,671,000 (collectively the
’’2014 HealthCor Notes’’). As provided by the Fourth Amendment, the 2014 HealthCor Notes are in substantially
the same form as the 2011 HealthCor Notes, with changes to the “Issuance Date,” “Maturity Date,” “First
Five-Year Note Period” and other terms to consider the timing of the issuance of the 2014 HealthCor Notes. The 2014 HealthCor
Notes have a maturity date of January 15, 2024.
On December 4, 2014, we entered
into a Fifth Amendment to the HealthCor Purchase Agreement (the “Fifth Amendment”) with HealthCor and certain additional
investors (such additional investors, the “2015 Investors” and, collectively with HealthCor, the “Investors”)
and agreed to sell and issue (i) additional notes in the initial aggregate principal amount of $6,000,000,with a conversion price
per share of $0.52 (subject to adjustment as described therein) (the “Fifth Amendment Notes”) and (ii) additional Warrants
for an aggregate of up to 3,692,308 shares of our Common Stock at an exercise price per share of $0.52 (subject to adjustment as
described therein) (the “Fifth Amendment Warrants”). As provided by the Fifth Amendment, the Fifth Amendment Notes
are in substantially the same form as the 2011 HealthCor Notes, with changes to the “Issuance Date,” “Maturity
Date,” “First Five-Year Note Period” and other terms to consider the timing of the issuance of the Fifth Amendment
Notes. The Fifth Amendment Notes have a maturity date of February 16, 2025.
On February 23, 2018,
we entered into an Eighth Amendment to the HealthCor Purchase Agreement (the “Eighth Amendment”) with HealthCor, the
2015 Investors and certain investors (such additional investors, the “February 2018 Investors”) and agreed to sell
and issue (i) additional notes in the initial aggregate principal amount of $2,050,000,with a conversion price per share of $0.05
(subject to adjustment as described therein) (the “Eighth Amendment Notes”) and (ii) additional Warrants for an aggregate
of up to 512,500 shares of our Common Stock at an exercise price per share of $0.05 (subject to adjustment as described therein)
(the “Eighth Amendment Warrants”). As provided by the Eighth Amendment, the Eighth Amendment Notes are in substantially
the same form as the 2011 HealthCor Notes, with changes to the “Issuance Date,” “Maturity Date,” “First
Five-Year Note Period” and other terms to consider the timing of the issuance of the Eighth Amendment Notes. The Eighth Amendment
Notes have a maturity date of February 22, 2028.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 10, 2018, we
entered into the Ninth Amendment to the HealthCor Purchase Agreement (the “Ninth Amendment”) with HealthCor, the
2015 Investors and the February 2018 Investors, pursuant to which the parties agreed to amend the HealthCor Purchase
Agreement, the 2011 HealthCor Notes, the 2012 HealthCor Notes, the 2014 HealthCor Notes, the Fifth Amendment Notes and the
Eighth Amendment Notes, as applicable, to (i) remove the rights of the holders of the 2011 HealthCor Notes and the 2012
HealthCor Notes to convert such notes to Common Stock after September 30, 2018; (ii) suspend the accrual of interest on the
2011 HealthCor Notes and the 2012 HealthCor Notes for periods after September 30, 2018; (iii) provide for the potential
earlier repayment of the 2011 HealthCor Notes and the 2012 HealthCor Notes by the Company, 120 calendar days following a
written demand for payment by the holder of such notes; provided, however, that such written demand may not be given prior to
the twelve-month anniversary of the date on which the obligations of the Company under the PDL Credit Agreement are repaid in
full; (iv) cancel the 2011 HealthCor Warrants; (v) provide for the seniority of the 2011 HealthCor Notes and the 2012
HealthCor Notes in right of payment over notes subsequently issued pursuant to the Purchase Agreement, including the 2014
HealthCor Notes, the Fifth Amendment Notes and the Eighth Amendment Notes; (vi) amend the terms of the 2014 HealthCor Notes,
the Fifth Amendment Notes and the Eighth Amendment Notes to reflect the seniority in payment of the 2011 HealthCor Notes and
2012 HealthCor Notes; and (vii) reduce the number of shares of Common Stock that the Company must at all times have
authorized and reserved for the purpose of issuance upon conversion of the notes issued pursuant to the HealthCor Purchase
Agreement (collectively, the “Notes”) and exercise of the warrants issued pursuant to the HealthCor Purchase
Agreement (collectively, the “Warrants”), from at least 120% of the aggregate number of shares of Common Stock
then issuable upon full conversion of the Notes and exercise of the Warrants to at least 100% of such aggregate number of
shares. In addition, on July 10, 2018, along with PDL, HealthCor, the 2015 Investors and the February 2018 Investors, we
entered into a Second Amendment to the Subordination and Intercreditor Agreement, to amend the Subordination and
Intercreditor Agreement dated as of September 26, 2015, as amended to provide that, in the event of a sale of the
Company’s hospital assets, after the net proceeds are first applied to repay obligations under the PDL Credit
Agreement, as amended, until paid in full, up to the next $ of such net proceeds may be retained by the Company for
working capital purposes before all remaining net proceeds are then applied to repay the obligations under the Notes in
accordance with the priorities set forth in the HealthCor Purchase Agreement and the Notes.
On
July 13, 2018, we entered into the Tenth Amendment to the HealthCor Purchase Agreement with HealthCor, the 2015 Investors, the
February 2018 Investors and certain investors (all of which are directors of the Company) (such additional investors, the “July
2018 Investors”), pursuant to which we sold and issued convertible secured promissory notes for an aggregate of $1,000,000
to the July 2018 Investors with a conversion price per share equal to $0.05 (subject to adjustment as described therein) (the “Tenth
Amendment Notes”). As provided by the Tenth Amendment, the Tenth Amendment Notes are in substantially the same form as the
2011 HealthCor Notes, with changes to the “Issuance Date,” “Maturity Date,” “First Five-Year Note
Period” and other terms to consider the timing of the issuance of the Tenth Amendment Notes. The Tenth Amendment Notes have
a maturity date of July 12, 2028.
On May 15, 2019, we entered
into the Twelfth Amendment to HealthCor Purchase Agreement with HealthCor, the 2015 Investors, the February 2018 Investors, the
July 2018 Investors, and an investor (a member of our board of directors) (such additional investor, the “2019 Investor”),
pursuant to which we sold and issued a convertible secured promissory note for $50,000 to the 2019 Investor with a conversion price
per share equal to $0.03 (subject to adjustment as described therein) (the “Twelfth Amendment Note”). As provided by
the Twelfth Amendment, the Twelfth Amendment Note is in substantially the same form as the 2011 HealthCor Notes, with changes to
the “Issuance Date,” “Maturity Date,” “First Five-Year Note Period” and other terms to take
into account the timing of the issuance of the Twelfth Amendment Note. The Twelfth Amendment Note has a maturity date of May 15,
2029. In addition, the provisions regarding interest payments, interest acceleration, optional conversion, negative covenants,
and events of default, preemptive rights and registration rights are the same as those of the 2011 HealthCor Notes. As of December
31, 2020, the underlying shares of our Common Stock related to the Twelfth Amendment Note totaled approximately 2,000,000 to the
2019 Investor.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 6, 2020, we
entered into the Thirteenth Amendment to HealthCor Purchase Agreement with HealthCor, the 2015 Investors, the February 2018
Investors, the July 2018 Investors, the 2019 Investor and an investor (a member of our board of directors) (such additional
investor, the “February 2020 Investor”), pursuant to which (i) we sold and issued a convertible secured
promissory note for $100,000 to the February 2020 Investor with a conversion price per share equal to $0.01 (subject to
adjustment as described therein) (the “Thirteenth Amendment Note”). As provided by the Twelfth Amendment, the
Twelfth Amendment Note is in substantially the same form as the 2011 HealthCor Notes, with changes to the “Issuance
Date,” “Maturity Date,” “First Five-Year Note Period” and other terms to take into account the
timing of the issuance of the Thirteenth Amendment Note. The Thirteenth Amendment Note has a maturity date of February 5,
2030. In addition, the provisions regarding interest payments, interest acceleration, optional conversion, negative
covenants, and events of default, preemptive rights and registration rights are the same as those of the 2011 HealthCor
Notes. As of December 31, 2020, the underlying shares of our Common Stock related to the Thirteenth Amendment Note totaled
approximately 11,200,000 to the 2020 Investor.
On April 17, 2020, the
Company and holders of at least a majority of the Common Stock underlying the outstanding notes and warrants to purchase shares
of our Common Stock, on an as-converted basis, sold pursuant to the Note and Warrant Purchase Agreement dated April 21, 2011, as
amended, by and among HealthCor Partners Fund, LP, HealthCor Hybrid Offshore Master Fund, LP and the other investors party thereto
(the “Majority Holders”) (the “Purchase Agreement”), entered into a Consent and Agreement Regarding SBA
Loan Agreement (the “NWPA Consent Agreement”), pursuant to which the Majority Holders (i) consented under the Purchase
Agreement to the Borrower’s issuing the Promissory Note and borrowing the SBA Loan and (ii) agreed that the SBA Loan would
be deemed to be Permitted Indebtedness under the Purchase Agreement (as defined therein).
On
April 20, 2021, we agreed with the HealthCor Parties to (i) amend the 2011 HealthCor Notes to extend the maturity date of the 2011
HealthCor Notes from April 20, 2021 to April 20, 2022 by entering into Allonge No. 3 to the 2011 HealthCor Notes (the “Third
2011 Note Allonges”) and (ii) amend the 2012 HealthCor Notes to extend the maturity date of the 2012 HealthCor Notes from
January 30, 2022 to April 20, 2022 by entering into Allonge No. 3 to the 2012 HealthCor Notes (the “Third 2012 Note Allonges”)
(such amendments to the 2011 HealthCor Notes and 2012 HealthCor Notes together, the “HealthCor Note Extensions”). In
connection with the HealthCor Note Extensions, we issued warrants to purchase an aggregate of 2,000,000 shares of our Common Stock
at an exercise price per share equal to $0.23 per share (subject to adjustment as described therein) and with an expiration date
of April 20, 2031, to the HealthCor Parties (collectively the “2021 HealthCor Warrants”). As a concession has been
granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.
Also
on April 20, 2021, in connection with the HealthCor Note Extensions and the issuance of the 2021 HealthCor Warrants, we entered
into a Consent and Agreement Pursuant to Note and Warrant Purchase Agreement (the “2021 NWPA Consent”) with the HealthCor
Parties and certain additional Existing Investors (in their capacity as Majority Holders acting together with the HealthCor Parties),
pursuant to which, among other things, (i) the Majority Holders consented to the HealthCor Note Extensions, (ii) the Majority Holders
consented to the issuance of the 2021 HealthCor Warrants and (iii) the parties agreed that the holders of the 2021 HealthCor Warrants
would have registration rights for the shares of Common Stock issuable upon exercise of the 2021 HealthCor Warrants under the Registration
Rights Agreement dated as of April 20, 2011, as amended June 30, 2015, by and among the Company, the HealthCor Parties and the
additional investors party thereto (the “Registration Rights Agreement”).
On March 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”). The conclusion
was that this was a debt modification and this was accounted for as such.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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”).
Also on March 8, 2022, the
Company issued to the HealthCor Parties the 2022 HealthCor Warrants to purchase an aggregate of 3,000,000
shares of Common Stock at an exercise price of $0.09
per share and with an expiration date of March
8, 2032. The warrants were valued at $240,000 and are amortized over the life of
the debt.
On July 1, 2022, we entered into amendments to the 2014 HealthCor Notes,
2015 Supplemental Notes, Eighth Amendment Supplemental Closing Notes, Tenth Amendment Supplemental Closing Notes, Twelfth Amendment Supplemental
Closing Note and Thirteenth Amendment Supplemental Closing Note (collectively, the “2022 Allonges”) to suspend the accrual
of interest on the 2014 HealthCor Notes as to 100% of the outstanding principal amount under such notes, 2015 Supplemental
Notes as to 100% of the outstanding principal amount under such notes, Eighth Amendment
Supplemental Closing Notes as to 100% of the outstanding principal amount under such notes, Tenth Amendment
Supplemental Closing Notes as to 100% of the outstanding principal amount under such notes, Twelfth Amendment
Supplemental Closing Note as to 100% of the outstanding principal amount under such note, and Thirteenth Amendment
Supplemental Closing Note as to 100% of the outstanding principal amount under such note, for all periods beginning
on and after January 1, 2022. This was determined to be a Troubled Debt Restructure and is accounted for accordingly.
Also on December 30, 2022, the Existing
Investors agree to the cancellation by the Company and the forfeiting of their respective rights in and to the 2011 Warrants, 2014
Supplemental Warrants, Fifth Amendment Supplemental Warrants, Sixth Amendment Supplemental Warrants, Eighth Amendment Supplemental
Warrants, 2021 Warrants and 2022 Warrants (collectively, the “Warrants”); and the Existing Investors have agreed to
waive any and all interest that has accrued, but remains unpaid on the Existing Notes held by the Existing Investors; in exchange
for releasing its second senior secured position they hold in connection with the 2011 Notes and 2012 Notes. The Existing Investors
have agreed to waive any and all interest that has accrued, but remains unpaid on the Existing Notes held by the Existing Investors
with the 2014 Notes along with the 2015 Notes, 2018 Notes, 2019 Note and 2020 Note. In exchange for releasing its second senior
secured position they hold in connection with the 2011 Notes and 2012 Notes, the HealthCor Parties will receive an additional $5,000,000 in
value in the Replacement Notes. In this troubled debt restructure, all the conversion rates were changed to $0.10. The gain from
this trouble debt restructuring was $1,489,357.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Below is a summary of the
total underlying shares of common stock related to HealthCor and related investors:
| Investor Group | |
Underlying Shares of
Common Stock | |
| 2011 HealthCor Notes | |
| 200,000,000 | |
| 2012 HealthCor Notes | |
| 50,000,000 | |
| 2014 HealthCor Notes | |
| 50,000,000 | |
| 2015 Investors | |
| 50,000,000 | |
| 2015 HealthCor Notes | |
| 10,000,000 | |
| 2022 HealthCor Notes | |
| 50,000,000 | |
| February 2018 Investors | |
| 20,500,000 | |
| July 2018 Investors | |
| 10,000,000 | |
| 2019 Investor | |
| 500,000 | |
| February 2020 Investors | |
| 1,000,000 | |
| TOTAL | |
| 442,000,000 | |
Accounting Treatment
When issuing debt or
equity securities convertible into common stock at a discount to the fair value of the common stock at the date the debt or
equity financing is committed, a company is required to record a beneficial conversion feature (“BCF”) charge. We
had three separate issuances of equity securities convertible into common stock that qualify under this accounting treatment,
(i) the 2011 HealthCor Notes, (ii) the 2012 HealthCor Notes and (iii) the 2014 HealthCor Notes. Because the conversion option
and the 2011 HealthCor Warrants on the 2011 HealthCor Notes were originally classified as a liability when issued due to the
down round provision and the removal of the provision requiring liability treatment, and subsequently reclassified to equity
on December 31, 2011 when the 2011 HealthCor Notes were amended, only the accrued interest capitalized as payment in kind
(“PIK”) since reclassification qualifies under this accounting treatment. We recorded an aggregate of $0 and
$2,734,688 in interest for the years ended December 31, 2022 and 2021, respectively, related to these transactions. For the
years ended December 31, 2022, and 2021, we recorded $0 and $3,002,790, respectively, of PIK 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 the HealthCor 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. During
the years ended December 31, 2022, and 2021, we recorded a BCF of $0 and $0, respectively. The BCF was recorded as a charge
to debt discount and a credit to additional paid in capital, with the debt discount, using the effective interest method,
amortized to interest expense over the term of the notes.
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.
NOTE 15 – JOINT
VENTURE AGREEMENT
On December 31, 2019,
the Company and Rockwell entered into a Second Amendment to the Rockwell Note (the “Second Rockwell Note
Amendment”) pursuant to which Rockwell agreed to extend the term of the Rockwell Note by one year, to December 31,
2020, and agreed to extend the time to make the quarterly payment that would otherwise be due on December 31, 2019 to January
31, 2020. We have evaluated the Second Amendment to the Rockwell Note under ASC 470 and determined that the amendment should
be treated as a debt modification.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 31, 2020, the
Company and Rockwell entered into a Third Amendment to the Rockwell Note (the “Third Rockwell Note Amendment”), pursuant
to which Rockwell agreed to extend the time to make the quarterly payment that would otherwise be due on January 31, 2020 (per
the Second Rockwell Note Amendment) to February 10, 2020. We have evaluated the Third Amendment to the Rockwell Note under ASC
470 and determined that the amendment should be treated as a debt modification.
Effective as of March 31,
2020, the Company and Rockwell entered into a Fourth Amendment to the Rockwell Note (the “Fourth Rockwell Note Amendment”),
pursuant to which Rockwell agreed to extend the time to make the quarterly payment that would otherwise be due on March 31, 2020
to April 16, 2020. We have evaluated the Fourth Amendment to the Rockwell Note under ASC 470 and determined that the amendment
should be treated as a debt modification.
On December 31, 2020,
the Company and Rockwell entered a Fifth Amendment to the Rockwell Note (the “Fifth Rockwell Note Amendment”), pursuant
to which Rockwell agreed (i) to extend the term of the Promissory Note by one (1) year and continue the quarterly principal payments
through September 30, 2021 with the final balloon payment due on December 31, 2021 and (ii) that the quarterly principal payment
that would otherwise be due on December 31, 2020 will not be required to be made until the final balloon payment due date. We have
evaluated the Fourth Amendment to the Rockwell Note under ASC 470 and determined that the amendment should be treated as a debt
modification.
On
November 30, 2021, the Company and Rockwell entered into a Sixth Amendment to the Rockwell Note (the “Sixth Rockwell Note
Amendment”), pursuant to which Rockwell agreed to extend the term of the Rockwell Note by three months, to March 31, 2022,
and agreed that the quarterly principal payment that would otherwise be due on December 31, 2021 will not be required to be made
until March 31, 2022.
On March 31, 2022, the
Rockwell Note was paid off.
NOTE 16 – SUBSEQUENT
EVENTS
Conversion of Replacement Notes
In February 1, 2023, the Company engaged “Value, Incorporated”
to render an analysis and opinion of fairness on a provision of the Replacement Notes for the Investors to convert any portion of the
outstanding principal balances of the Notes into fully paid and nonassessable shares of Common Stock at a conversion price per share that
is fair to the Company’s shareholders and option holders, subject to adjustment in accordance with anti-dilution provisions set
forth in the Notes. The Conversion Price is subject to adjustment upon the occurrence of stock splits, reverse stock splits and similar
capital events. The fairness opinion determined that the conversion price of $0.10 per share was fair.
On March 31, 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
must be completed prior to the other 50%
of the HealthCor Replacement Notes being converted (the “Second Tranche”). The Second Tranche will convert the remaining
$18,000,000
of HealthCor Replacement Notes into 180,000,000
shares at a conversion price of $0.10
per share.
CAREVIEW
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Group Purchasing Agreement with Vizient
On
February 15, 2023, the Company entered a Group Purchasing Agreement with Vizient, the nation’s largest healthcare performance
improvement company. All CareView Patient Safety System components and modules are now available for direct purchase by Vizient’s
exclusive membership.
PDL Debt Extensions
On
February 28, 2023, the Company executed the Twenty-Eighth Amendment with PDL Biopharma, Inc. (“PDL”) to extend the
date for PDL to terminate from February 28, 2023 until March 31, 2023.
On
March 31, 2023, the Company executed the Twenty-Ninth Amendment with PDL to extend the date for PDL to terminate from March 31,
2023 until April 30, 2023.
NOTE 17 – RESTATEMENT
We have restated our financial statements for year ended December 31, 2022
to correct errors identified in our balance sheet. We recorded $14,200,000 of Long-Term Liabilities that has been revised to Current Liabilities
as of December 31, 2022. This restatement was necessary to address misstatement of the balance sheet. The impact of the restatement on
our financial statement is reclassification from Long-Term Liabilities to Current Liabilities. We have concluded that the restatement
does not materially affect our liquidity or our compliance with debt covenants or other financial obligations.