CareView Communications Inc

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 allow 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 and can work with the CareView Portable Controller as well.

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 TM 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 and CareView Communications, Inc., a Texas corporation, our wholly owned subsidiary. All inter-company balances and transactions have been eliminated in consolidation.

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Restricted Cash

During 2022, the Company maintained$100,000 in cash collateral with Comerica Bank related to its credit card limit. As of December 31, 2023, the funds in that account are no longer restricted. We maintain cash at financial institutions that at times may exceed federally insured limits. As of December 31, 2023, our balance with Bank of Texas is approximately$794,000 above the$250,000 limit.

Trade Accounts Receivable

Trade accounts receivable are customer obligations due under normal trade terms. We provide an allowance for credit losses, 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, 2023 and 2022, an allowance for credit losses 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 ofseven 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, andfive 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 the equipment is removed, the costs for removal are calculated and recorded against the allowance. At December 31, 2023 and 2022, an allowance of $54,802 and $54,802, respectively, was recorded in other current liabilities in the accompanying 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:

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. For the year ended December 31, 2023, $334,359 of intangible patent assets were written off.

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, 2023, and 2022.

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, 2023, and 2022.

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, 2023, and 2022, we had no financial assets and liabilities reported at 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.

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:

The Company earns sales-based contract revenue from services rendered under specific agreements, which hinge on a third-party reseller who possesses the exclusive authority to engage directly with veteran-owned hospitals. Evaluating the Company's role in these contracts necessitates assessing whether it functions as the principal or agent, a determination that involves analyzing the extent of control the Company wields over the contracts.

Following its assessment, the Company reports revenue from services provided under such contracts on a gross basis. This decision is justified by the Company's primary responsibility to fulfill the contractual obligations, including delivery and installation of equipment and software, training, and its control over other services within the contract period. Furthermore, the Company directly sets the contract price with its customers based on the services outlined in the statement of work. As the Company is responsible for fulling this promise and maintains control, the Company is acting as the principal.

Disaggregation of Revenue

The following presents gross revenues disaggregated by our business models:

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 condensed consolidated balance sheet and recognized into revenues as either a point in time or over time.

During the years ended December 31, 2023, and 2022, a total of $21,145 and $240,302, respectively, of subscription-based deferred contract liability was recognized as revenue. The table below details the subscription-based contract liability activity during the years ended December 31, 2023, and 2022, included in the Other current liabilities.

During the years ended December 31, 2023, and 2022, a total of $1,894,777 and $1,838,056, respectively, of sales-based deferred contract liability was recognized as revenue. The table below details the sales-based contract liability activity during the years ended December 31, 2023 and 2022, included in the Other current liabilities.

As of December 31, 2023, the aggregate amount of deferred revenue from subscription-based contracts and sales-based contracts allocated to performance obligations that are unsatisfied or partially satisfied is approximately $1,922,925 and will be recognized into revenue over time as follows:

Based on our contracts, except for 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 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 associated costs are expensed on a straight-line basis over the life of the contract with the healthcare facility. These costs are included in network operations on the accompanying consolidated statements of operations.

The table below details the activity in these deferred installation costs during the years ended December 31, 2023, and 2022, included in other assets in the accompanying consolidated balance sheet.

Significant Judgements When Applying Topic 606

Contracts with our customers are typically structured similarly and include various combinations of our products, software solutions, and related services. Determining whether the various contract promises are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

Contract transaction price is allocated to distinct performance obligations using estimated standalone selling price. We determine standalone selling price maximizing observable inputs such as standalone sales, competitor standalone sales, or substantive renewal prices charged to customers when they exist. In instances where standalone selling price is not observable, we utilize an estimate of standalone selling price. Such estimates are derived from various methods that include cost plus margin, and historical pricing practices. Judgment may be required to determine standalone selling prices for each performance obligation and whether it depicts the amount we expect to receive in exchange for the related good or service.

Contract modifications occur when we and our customers agree to modify existing customer contracts to change the scope or price (or both) of the contract or when a customer terminates some, or all, of the existing services provided by us. When a contract modification occurs, it requires us to exercise judgment to determine if the modification should be accounted for as a separate contract, the termination of the original contract and creation of a new contract, a cumulative catch-up adjustment to the original contract, or a combination.

Contracts with our customers include a limited warranty on our products covering materials, workmanship, or design for the duration of the contract. We do not offer paid additional extended or lifetime warranty packages. We determined the limited warranty in our contract is not a distinct performance obligation. We do not believe our estimates of warranty costs to be significant to our determination of revenue recognition and, therefore, did not reserve for warranty costs.

Leases

The Company has an operating lease primarily consisting of office space with a remaining lease term of 20 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 44,178,422, and 488,511,922 at December 31, 2023, and 2022, respectively, have been excluded from the diluted earnings per share calculation as they are anti-dilutive due to our reported net loss. The 44,178,422 potential common shares consist of 38,483,977 stock options and 5,694,445 warrants.

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 amount 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, 2023, and 2022, totaled approximately $335,000 and $111,000, respectively.

Concentration of Credit Risks and Customer Data

In 2023, our revenue was driven significantly by two customers, accounting for 17% and 13% respectively, while in 2022, a single customer contributed 12% to our revenue. As of December 31, 2023, we had one customer that accounted for 21% of our accounts receivable.

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.

Recently Issued and Newly Adopted Accounting Pronouncements

In August 2020, the FASB issued 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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures, which eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40. Rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. The effective date for this amendment is upon adoption of ASU 2016-13 and should be applied prospectively, with option of a modified retrospective transition method. The Company has successfully implemented Accounting Standard 2016-13, Topic 326, and after careful consideration, management has concluded that the adoption did not result in a material impact on the financial position, results of operations, or cash flows of the Company. The Company will continue to monitor and assess the impact of this standard in subsequent reporting periods and provide any necessary updates as required by accounting regulations.

NOTE 3 –GOING CONCERN, LIQUIDITY AND MANAGMENTS PLANS

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, 2023, Management considers the Company’s current financial condition and liquidity sources, including current funds available, forecasted future cash flows, and the Company’s conditional and unconditional obligations due within 12 months of the date these financial statements are issued.

The Company is subject to risks like those of healthcare technology companies whereby revenues are generated based on both sales-based and subscription-based models, which assume dependence on key individuals, uncertainty of product development, generation of revenues, positive cash flow, dependence on outside sources of capital, risks associated with research, development, and successful testing of its products, successful protection of intellectual property, ability to maintain and grow its customer base, and susceptibility to infringement on the proprietary rights of others. The attainment of profitable operations is dependent on future events, including obtaining adequate financing to fulfill the Company’s growth and operating activities and generating a level of revenues adequate to support the Company’s cost structure.

As of the year ended December 31, 2023, the Company had a working capital deficit of $37,122,344. 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. While management will look to continue funding operations by increased sales volumes and raising additional capital from sources such as sales of its debt or equity securities or loans to meet operating cash requirements, there is no assurance that management’s plans will be successful.

On March 30, 2023, noteholders owning Replacement Notes in an aggregate of $26,200,000, entered into a Replacement Note Conversion Agreement, wherein the Replacement Notes were converted into shares of the Company’s common stock at a conversion price of $0.10 per share, resulting in the issuance of an aggregate of 262,000,000 shares (the “Conversion Shares”). The Conversion Shares bear a lockup legend that expires December 31, 2023.

Upon this conversion, and as of March 31, 2023, the Company’s officers and board of directors held the majority of the Company’s outstanding voting stock. With controlling interest of the majority of outstanding shares, the Company’s majority shareholders voted to amend its articles of incorporation to increase the authorized shares available for issuance from 500,000,000 to 800,000,000, with an effective date of May 22, 2023.

On May 24, 2023, noteholders owning Replacement Notes in the aggregate of $18,000,000, presented Conversion Notices, per the terms of the Replacement Notes, to the Company to convert the Replacement Notes into 180,000,000 shares of the Company’s common stock at a conversion price of $0.10 per share. The shares bear a lock-up legend that expires December 31, 2023.

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, 2023, and 2022, we had 20,000,000 shares of Preferred Stock, par value $0.001 authorized, andzero shares outstanding, which can be designated by our Board of Directors.

Common Stock

At December 31, 2023 and 2022, we had 800,000,000 and 500,000,000 authorized shares of Common Stock, $0.001 par value, respectively.583,880,748 and 141,880,748 shares of Common Stock are issued and outstanding, respectively. On May 24, 2023, HealthCor noteholders owning an aggregate of $18,000,000 Replacement Notes, presented Conversion Notices, pursuant to the terms of the Replacement Note, for the conversion of the Replacement Notes into 180,000,000 shares of the Company’s common stock at a conversion price of $0.10 per share. The shares bear a lockup legend that expires December 31, 2023. On March 30, 2023, HealthCor noteholders owning an aggregate of $36,000,000 Replacement Notes, entered into a Replacement Note Conversion Agreement, wherein half, fifty percent, of the HealthCor Replacement Notes were converted into shares of the Company’s common stock at a conversion price of $0.10 per share, resulting in the issuance of an aggregate of 180,000,000 shares. The other related and non-related parties Replacement Notes of $8,200,000 were likewise converted into shares of the Company’s common stock at a conversion price of $0.10 per share, resulting in the issuance of a combined total aggregate of 262,000,000 shares (the “Conversion Shares”). The shares bear a lockup legend that expired December 31, 2023. 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, for $250,000 in cash,2,500,000 shares of Common Stock at $0.10 per share.

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.

Active Warrant Holders

A summary of our Warrants activity and related information follows:

Warrant Activity During 2022 (see Note 14)

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”)

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 often years from the date of issuance.

At December 31, 2023, 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 19,051,064 shares have been issued with 948,936 remaining outstanding under the 2016 Plan, and Plan Options to purchase 15,180,191 shares have been issued with 4,819,809 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:

Share-based compensation expense for Options charged to our operating results for the twelve months ended December 31, 2023, and 2022 were $150,294 and 230,112, 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, 2023, total unrecognized estimated compensation expense related to non-vested Options granted was $68,391, which is expected to be recognized over a weighted- average period of 2.2 years. 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, 2023 and 2022, the deferred tax valuation allowance increased / (decreased) by $24,114,281 and $(7,601,775), respectively. The increase in the valuation allowance during 2023 was mainly attributable to increases in the Company’s state NOL and other deferred tax assets. The decrease in the valuation allowance during 2022 was mainly attributable to write-downs of gross deferred tax assets.

At December 31, 2023, we had approximately $86,291,000 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, 2023, 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 2020. 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, 2023, 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:

The components of the deferred tax assets and liabilities are as follows:

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:

NOTE 7 –OTHER CURRENT ASSETS

Other current assets consist of the following:

NOTE 8 -PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Depreciation expense for the years ended December 31, 2023, and 2022, was $334,676 and $501,521, respectively.

NOTE 9 –OTHER ASSETS

Intangible assets consist of the following:

Amortization expense for the years ended December 31, 2023, and 2022, was $79,447 and $51,967, respectively. Patent impairment costs for the years ended December 31, 2023, and 2022, was $334,358 and $0, respectively.

Other assets consist of the following:

NOTE 10 – OTHER CURRENT LIABILITIES

Other current liabilities consist of the following:

NOTE 11–COMMITMENTS AND CONTINGENCIES

Debt Maturity

As of December 31, 2023, future debt payments due are as follows:

Accrued interest due related parties totaled $445,528 and $337,028, as of December 31, 2023 and 2022, respectively.

Consent and Agreement to Cancel and Exchange Existing Notes and Warrants

On December 30, 2022, CareView Communications, Inc. (“CareView” or the “Company”) entered into a consent and agreement to cancel and exchange existing notes and issue replacement notes and cancel warrants (the “Cancellation Agreement”) with certain holders (the “Investors”) of senior secured convertible promissory notes (“Notes”) and warrants (“Warrants”) to purchase the Company’s common stock, that were issued pursuant to 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 $87,376,000) 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.

On March 30, 2023, HealthCor noteholders owning an aggregate of $36,000,000 Replacement Notes, entered into a Replacement Note Conversion Agreement, wherein half, fifty percent, of the HealthCor Replacement Notes were converted into shares of the Company’s common stock at a conversion price of $0.10 per share, resulting in the issuance of an aggregate of 180,000,000 shares. The other related ($6,394,168) and non-related ($1,805,832) parties Replacement Notes of $8,200,000 were likewise converted into shares of the Company’s common stock at a conversion price of $0.10 per share, resulting in the issuance of a combined total aggregate of 262,000,000 shares (the “Conversion Shares”). The shares bear a lockup legend that expires December 31, 2023.

On May 24, 2023, HealthCor noteholders owning an aggregate of $18,000,000 Replacement Notes, presented Conversion Notices, pursuant to the terms of the Replacement Note, for the conversion of the Replacement Notes into 180,000,000 shares of the Company’s common stock at a conversion price of $0.10 per share. The shares bear a lockup legend that expires December 31, 2023.

NOTE 12–LEASE

Operating Lease

The Company has an operating lease primarily consisting of office space with a remaining lease of 20 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.

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 expenses for the twelve months ended December 31, 2023, and 2022 were $295,223 and $279,005, respectively.

Lease Position

Operating lease asset and liability for our operating lease were recorded in the consolidated balance sheet as follows:

Undiscounted Cash Flows

Future lease payments included in the measurement of operating lease liability on the consolidated balance sheet as of December 31, 2023, for the following five fiscal years and thereafter as follows:

Cash Flows

The table below presents certain information related to the cash flows for the Company’s operating lease for twelve months ending December 31, 2023:

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.

On June 23, 2022, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Sixth Amendment to Modification Agreement (the “Twenty-Sixth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and June 30, 2022 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020, October 7, 2020 and June 30, 2022 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on June 30, 2022, would each be deferred until December 31, 2022 (the end of the extended Modification) and that such deferrals would be a covered event. The Company has evaluated the Twenty-Sixth Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.

On December 30, 2022, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Seventh Amendment to Modification Agreement (the “Twenty-Seventh Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and February 28, 2023 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until February 28, 2023 (the end of the extended Modification Period) and that such deferrals would be a covered event. The Company has evaluated the Twenty-seventh Modification Agreement Amendment and as the effective borrowing rate under the restructured agreement is less than the effective borrowing rate on the old agreement, a concession is deemed to have been granted under ASC 470-60-55-10. As a concession has been granted, the agreement is to be accounted for as a troubled debt restructuring by debtors (TDR) under ASC 470-60.

On February 28, 2023, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Eighth Amendment to Modification Agreement (the “Twenty-Eighth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and March 31, 2023 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until March 30, 2023 (the end of the extended Modification Period).

On March 31, 2023, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Twenty-Ninth Amendment to Modification Agreement (the “Twenty-Ninth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and April 30, 2023 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until April 30, 2023 (the end of the extended Modification Period). Under debt modification/troubled debt guidance, we determined that the first of the eight amendments had no cash flow impact, and therefore, had no impact on accounting. Amendments nine through ten qualified for modification accounting, while the final nineteen amendments qualified for troubled debt restructuring accounting. As appropriate, we expensed the legal costs paid to third parties. For the three months ended March 31, 2023 and 2022, pursuant to the terms of the PDL Modification Agreement, as amended, $802,125 and $775,000, respectively, was recorded as interest expense on the accompanying unaudited condensed consolidated financial statements.

On April 29, 2023, the Company, the Borrower, the Subsidiary Guarantor, the Lender and the Tranche Three Lenders entered into a Thirtieth Amendment to Modification Agreement (the “Thirtieth Modification Agreement Amendment”), pursuant to which the parties agreed to amend the Modification Agreement to provide that the dates on which the Lender may elect, in the Lender’s sole discretion, to terminate the Modification Period would be July 31, 2018 and May 31, 2023 (with each such date permitted to be extended by the Lender in its sole discretion); and that the Borrower’s (i) interest payments that would otherwise be due under the Credit Agreement on December 31, 2018, March 31, 2019, June 30, 2019, September 30, 2019, December 31, 2019, March 31, 2020, June 30, 2020, September 30, 2020 and October 7, 2020 and (ii) payments for principal and for any other Obligations then outstanding under the Tranche One Loan and the Tranche Three Loans that would otherwise be due under the Credit Agreement on October 7, 2020, would each be deferred until May 31, 2023 (the end of the extended Modification Period).

On May 31, 2023 (the “Effective Date”), the Company, the Borrower, the Lender, Steven G. Johnson, President and Chief Executive Officer of the Company, and Dr. James R. Higgins, a director of the Company, entered into a Seventh Amendment to Credit Agreement (the “Seventh Credit Agreement Amendment”), pursuant to which the parties agreed to amend the Credit Agreement to, among other things, (i) provide that, after the Effective Date, all accrued but unpaid interest (including interest accrued but unpaid prior to the Effective Date and excluding interest payable on the Maturity Date, in connection with any prepayment, or in the event of an Event of Default, which interest will be payable in cash) accruing on Tranche One Loans and Tranche Three Loans will be paid-in-kind on each Interest Payment Date by being added to the aggregate principal balance of the respective loans in arrears on each Interest Payment Date; (ii) require certain mandatory prepayments of the loans by the Company, including (A) quarterly prepayments in the amount, if any, that the Company’s Excess Cash Flow exceeds $600,000, (B) monthly transfers to the Inventory Reserve Account in the amount, if any, the Company’s cash exceeds $1,200,000, (C) prepayment in the amount, if any, the Company’s Inventory Reserve Account exceeds $600,000, and (D) prepayment in the amount, if any, of 100% of the gross proceeds of any indebtedness incurred by the Company (other than permitted indebtedness); and (iii) extend the Maturity Date to December 31, 2024.

On September 30, 2023 (the “Effective Date”), the Company, the Borrower, the Lender, Steven G. Johnson, President and Chief Executive Officer of the Company, and Dr. James R. Higgins, a director of the Company, entered into an Eighth Amendment to Credit Agreement (the “Eighth Credit Agreement Amendment”), pursuant to which the parties agreed to amend the Credit Agreement to modify certain texts originating within the Seventh Credit Agreement. Stricken texts include “all accrued but unpaid interest (including interest accrued but unpaid prior to the Effective Date and excluding interest payable on the Maturity Date, in connection with any prepayment, or in the event of an Event of Default, which interest will be payable in cash) accruing on Tranche One Loans and Tranche Three Loans will be paid-in-kind on each Interest Payment Date by being added to the aggregate principal balance of the respective loans in arrears on each Interest Payment Date.” Additional texts include Release of Claims, which “in consideration of the Lender’s and Agent’s agreements contained in this Amendment, each of Holdings, the Borrower and the Subsidiary Guarantor hereby releases and discharges the Lender and the Agent and their affiliates, subsidiaries, successors, assigns, directors, officers, employees, agents, consultants and attorneys (each, a “Released Person”) of and from any and all other claims, suits, actions, investigations, proceedings or demands, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law of any kind or character, known or unknown, which Holdings, the Borrower or the Subsidiary Guarantor ever had or now has against the Agent, any Lender or any other Released Person which relates, directly or indirectly, to any acts or omissions of the Agent, any Lender or any other Released Person relating to the Credit Agreement or any other Loan Document on or prior to the date hereof.”

Accounting Treatment

In connection with the PDL Credit Agreement, as amended, we issued the PDL Warrant to the Lender. As of December 31, 2023, the Amended PDL Warrant has not been exercised.

Due to the PDL Eighth Credit Agreement Amendment, the calculations for the “interest paid-in-kind” and quarterly “prepayment(s)” were removed effective with the year ending on December 31, 2023. The Company concluded that the Company is encountering financial hardship and that a concession was not granted. As the Lender has not granted a concession, the guidance contained in ASC 470-50 Modification and Extinguishment was applied. Given the present value of the cash flows under the Eighth Credit Agreement Amendment differed by less than 10% from the present value of the remaining cash flows under the terms of the prior debt agreement, the debt was determined to be not substantially different which resulted in modification accounting. The Company did not have any debt issuance costs, only legal expenses.

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.

On March 8, 2022, we agreed with the HealthCor Parties to (i) amend the 2011 HealthCor Notes to extend the maturity date of the 2011 HealthCor Notes from April 20, 2022 to April 20, 2023 by entering into Allonge No. 4 to the 2011 HealthCor Notes (the “Fourth 2011 Note Allonges”) and (ii) amend the 2012 HealthCor Notes to extend the maturity date of the 2012 HealthCor Notes from April 20, 2022 to April 20, 2023 by entering into Allonge No. 4 to the 2012 HealthCor Notes (the “Fourth 2012 Note Allonges”) (such amendments to the 2011 HealthCor Notes and 2012 HealthCor Notes together, the “2022 HealthCor Note Extensions”). In connection with the 2022 HealthCor Note Extensions, we issued warrants to purchase an aggregate of 3,000,000 shares of our Common Stock at an exercise price per share equal to $0.09 per share (subject to adjustment as described therein) and with an expiration date of March 8, 2032 to the HealthCor Parties (collectively the “2022 HealthCor Warrants”).

Also on March 8, 2022, in connection with the 2022 HealthCor Note Extensions and the issuance of the 2022 HealthCor Warrants, we entered into a Consent and Agreement Pursuant to Note and Warrant Purchase Agreement (the “NWPA Consent”) with the HealthCor Parties and certain additional Existing Investors (in their capacity as Majority Holders acting together with the HealthCor Parties), pursuant to which, among other things, (i) the Majority Holders consented to the 2022 HealthCor Note Extensions, (ii) the Majority Holders consented to the issuance of the 2022 HealthCor Warrants and (iii) the parties agreed that the holders of the 2022 HealthCor Warrants would have registration rights for the shares of Common Stock issuable upon exercise of the 2022 HealthCor Warrants under the Registration Rights Agreement dated as of April 20, 2011, as amended June 30, 2015, by and among the Company, the HealthCor Parties and the additional investors party thereto (the “Registration Rights Agreement”).

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.

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.

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 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.

On March 30, 2023, HealthCor noteholders owning an aggregate of $36,000,000 Replacement Notes, entered into a Replacement Note Conversion Agreement, wherein half, fifty percent, of the HealthCor Replacement Notes were converted into shares of the Company’s common stock at a conversion price of $0.10 per share, resulting in the issuance of an aggregate of 180,000,000 shares. The other related ($6,394,168) and non-related ($1,805,832) parties Replacement Notes of $8,200,000 were likewise converted into shares of the Company’s common stock at a conversion price of $0.10 per share, resulting in the issuance of a combined total aggregate of 262,000,000 shares (the “Conversion Shares”). The shares bear a lockup legend that expires December 31, 2023.

On May 24, 2023, HealthCor noteholders owning an aggregate of $18,000,000 Replacement Notes, presented Conversion Notices, pursuant to the terms of the Replacement Note, for the conversion of the Replacement Notes into 180,000,000 shares of the Company’s common stock at a conversion price of $0.10 per share. The shares bear a lockup legend that expires December 31, 2023.

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 $0 in interest for the years ended December 31, 2023 and 2022, respectively, related to these transactions. For the years ended December 31, 2023, and 2022, we recorded $0 and $0, 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.

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.

As of March 31, 2022, the Rockwell Note was paid off.

NOTE 16 –SUBSEQUENT EVENTS

March 5, 2024, the board of directors approved 29,837,858 stock option grants to sixteen individuals for merit. These stock options are awarded under the newly approved 2024 Stock Options Plan as well as the remainder of the 2015, 2016 and 2020 Stock Options Plans. The stock price on Tuesday, March 5, 2024 was $0.06.