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YoY shift: Lean -
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.22pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.01pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.43pp
Lean -
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
default+2
damage+1
interruption+1
cease+1
terminate+1
Positive rising
improve+1
satisfied+1
innovate+1
compliment+1
Risk Factors (Item 1A)
12,350 words
ITEM 1A.
RISK FACTORS
The following section includes some of the material factors that may adversely affect our business and operations. This is not an exhaustive list, and additional factors could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. This discussion of risk factors includes many forward-looking statements. For cautions about relying on such forward-looking statements, please refer to the section entitled “Forward Looking Statements” at the beginning of this Report immediately prior to Item 1.
Risks Related to Our Business and Industry
We have a history of losses and have received a going concern opinion from our auditors.
We have experienced significant net losses and cash flows from operations. In 2022, we incurred a net of approximately $14.4 million and had cash flows from operations of approximately $4.7 million. In 2021, we incurred a net of $19.5 million and had cash flows from operations of $2.6 million. Our independent registered public accounting firm has included in its audit reports an explanatory paragraph expressing substantial about our ability to continue as a going . We do not have sufficient cash resources from the net cash flows of operations from our current businesses to sustain our operations for the next twelve months and will rely on the continued sale of non-core assets, tax credits and related amounts, and raising capital through the sale of our securities.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
terminated+4
bridge+3
termination+2
impairment+1
disclosed+1
Positive rising
gain+3
alliances+1
gains+1
effective+1
MD&A (Item 7)
4,503 words
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes many forward-looking statements. For cautions about relying on such forward-looking statements, please refer to the section entitled “Forward Looking Statements” at the beginning of this Report immediately prior to Item 1.
The following discussion should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Report. Some of the information contained in this discussion and analysis, including information with respect to Clearday, its plans, and strategy for its business and related financing, includes forward-looking statements that involve risks and uncertainties.
Overview
We shifted our business strategy to provide technologies and innovative care solutions to address the global aging crises and be less focused on operating residential care facilities. We have used our extensive experience in senior care, including owning and operating high-performing residential care facilities in the most challenging senior care venues (Memory and Alzheimer’s treatment), to develop our purpose-built Longevity-tech platform for the 170 million Americans turning 50 by 2030. See “Recent Events.”
Prior to the first quarter of 2023, our business was primarily focused on providing care at four residential care facilities and one adult day care center and the development of our Longevity-tech platform.
Our ability to protect our patents, service marks or other proprietary rights is uncertain, exposing us to possible losses of competitive advantage.
Our efforts to protect our proprietary rights may not succeed in preventinginfringement by others or ensure that these rights will provide us with a competitive advantage. Pending patent applications by us or any of our joint venturers may not result in issued patents and the validity of issued patents may be subject to challenge. Third parties may also be able to design around the patented aspects of the products. Additionally, certain of the issued patents and patent applications are owned jointly with third parties. Because any owner or co-owner of a patent can license its rights under jointly owned patents or applications, inventions made by us jointly with others are not subject to our exclusive control. Any of these possible events could result in losses of competitive advantage.
Intellectual property infringementclaimsagainst us could materially harm the results of operations.
Our products and products that we intend to provide such as robotic technologies, incorporate several technologies, including the technologies related to the Sapphire Cryocooler and the cryogenic air quality system. Our patent positions and that of our joint venturers are uncertain and there is significant risk that others, including our competitors or potential competitors, have obtained or will obtain patents relating to our products or technologies or products or technologies planned to be introduced by us.
We believe that patents may be or have been issued, or applications may be pending, claiming various compositions of matter used in our products and products that we intend to provide. We or our third-party joint venturers may need to secure one or more licenses for these patents. There can be no assurances that such licenses could be obtained on commercially reasonable terms, or at all. We or our third-party joint venturers may be required to expend significant resources to develop alternatives that would not infringe such patents or to obtain licenses to the related technology. We or our third-party joint venturers may not be able to successfully design around these patents or obtain licenses to them and may have to defend ourselves at substantial cost againstallegations of infringement of third-party patents or other rights to intellectual property. In those circumstances, we could face significant liabilities and be forced to cease the use of key technology.
Other parties may have the right to utilize technology important to our business.
We and our third-party joint venturers utilize certain intellectual property rights under non-exclusive licenses or have granted to others the right to utilize certain intellectual property rights licensed from a third party. Because we and our third-party joint venturers may not have the exclusive rights to utilize such intellectual property, other parties may be able to compete with us, which may harm our business.
The recent unprecedented events related to the COVID-19 pandemic and the Russo-Ukrainian War have caused significant market disruptions and may have longer-term effects that Clearday cannot predict.
The recent unprecedented events related to the COVID-19 pandemic and the Russo-Ukrainian War as well as global security issues generally have caused significant market disruptions and may have longer-term effects that Clearday cannot predict. The equity and other market professionals continue to assess the consequences of such events and the extent and effectiveness of government responses, the responses of the Federal Reserve Bank and other governmental and non-governmental organizations cannot be predicted.
The residents of Clearday’s residential care communities and the clients, and expected clients, of our Longevity-tech planform and Clearday adult day care programs are primarily older individuals with pre-existing conditions, including conditions that significantly compromise their immunity. The additional procedures undertaken by our residential care and the adult day care businesses will likely result in reduced operating cash flow and profit margins. Although Clearday has procedures that address infectious diseases and contamination in a community environment, Clearday is not able to provide assurance that the communities will not be significant affected, including widespread contagion that could result in a suspension or closing of a facility. Additionally, state or federal regulatory authorities may require, and industry groups may provide, additional measures that could limit the number of individuals that may be treated at a facility, require additional staff or employees or other measures that may require significant investment or operating cost. The additional costs have primarily resulted from regulatory requirements to increase staff and provide quarantine areas. Additionally, during the initial stage of the COVID-19 pandemic, admissions to Clearday’s residential care facilities were suspended and adult day care centers were closed.
During such occasions, Clearday may experience a decline in clients. Further, depending on the severity of any occurrence, Clearday may be required to incur costs to identify, contain and remedy the impacts of those occurrences at our residential care communities or adult day care facilities. As a result, these occurrences could significantly adversely affect the results of operations.
The adult day care business has greater risks with respect to COVID-19 and other pandemics due to, among other reasons, that appropriate regulatory agencies may close such businesses, limit the capacity of such businesses, or require additional procedures or capital expenditures designed to protect customers that are costly. During the COVID-19 pandemic, many states closed adult day care centers for a period.
The Russo-Ukrainian War has caused, or has contributed to, significant inflation, increased energy costs and worsened the supply chain disruption in the U.S., each of which has contributed to increased costs for our operations which would worsen our operating results. We are not able to determine the extent or the expected period for such disruptions or if any other and similar disruptions would occur or may have greateradverse effect on our business or the U.S. economy in general.
The additional procedures and precautions undertaken by adult day care businesses in response to COVID-19 will likely result in reduced operating cash flow and profit margins.
Although Clearday has procedures that address infectious diseases and contamination in a community environment, Clearday is not able to provide assurance that the communities will not be significantly affected, including widespread contagion that could result in suspending or closing a facility. Depending on the severity of any occurrence, Clearday may be required to incur costs to identify, contain and remedy the impacts of those occurrences at residential care communities and our adult day care facilities.
Additionally, state or federal regulatory authorities may require, industry groups may provide or Clearday may otherwise determine that it would be prudent, to implement certain additional measures and/or quarantine procedures that may require significant investment and/or operating costs, such measures may include limiting the number of individuals that may be treated at a facility while requiring additional staff to manage treatment during the COVID-19 pandemic. During this time, Clearday may also experience a decline in occupancy due to residents terminating their agreements due to the uncertainty of COVID-19 and its effects on adult day care businesses and residential care facilities. Such investments and increased costs may adversely affect Clearday’s operations. The extent and duration of the impact of the COVID-19 pandemic on Clearday’s overall business is uncertain, and our ability to raise capital could be impaired.
Any other severe cold and flu season, epidemics or any other widespread illnesses could adversely affect the occupancy of Clearday’s residential care communities and facilities.
The revenues of Clearday will be dependent in large part on the occupancy levels at our residential care communities and the members of the Clearday Clubs and any other adult day care facility or other non-acute care and wellness center that will be owned or operated by Clearday. Even if the disruption to the markets and facilities are not as pronounced as during the COVID-19 pandemic, there could be significant reduction in Clearday’s revenues and there could be government or other regulatory intervention that materially increase costs, which would likely materially reduce the operating results of Clearday.
Clearday’s non-acute care and wellness business has significant concentration in industry and geographic areas which exposes Clearday to changes in market conditions in this industry and in those areas.
As of December 31, 2022, we had 4 residential care facilities are in the Little Rock Arkansas area (1), Naples, Florida (1), and the San Antonio / Austin area of Texas (2) and 1 adult day care center in San Antonio, Texas. In March and April of 2023, we entered into certain agreements to cease our operations and terminate our leases with respect to the three residential care facilities in Little Rock Arkansas and Texas as we moved our business strategy to a Longevity-tech platform. See “Recent Events.” We also expect to grow our adult day care business primarily in specified markets, in Texas, initially in Central Texas. The services and products in our Longevity-tech planform are marketed nationally and, to a lesser extent, to certain international markets. Revenues from such services and products are not, as of the date of this Report, significant compared to the residential care and adult day care facility revenues during 2022. Accordingly, we will continue to have a high concentration in select geographic markets. Additionally, our business will primarily be focused on the non-acute care businesses. As a result of this industry and geographic concentrations, the conditions affecting older Americans and the of local economies and real estate markets, changes in governmental rules and regulations, particularly with respect to senior citizens, acts of nature and other factors that may result in a decrease in demand for our services in these areas could have an adverse effect on our revenues, results of operations and cash flow. In addition, we will be particularly susceptible to revenue loss, cost increases or damage caused by severe weather conditions or natural disasters such as hurricanes, wildfires, earthquakes or tornadoes in those areas.
Circumstances that adversely affect the ability of older adults or their families to pay Clearday for our adult day care services could cause our revenues and results of operations to decline.
Clearday expects that payment for our adult day care services will be (1) private pay and not rely on government benefits, such as Medicare and Medicaid, which are generally not available for such services, and (2) benefits or payments available to veterans through the United States Department of Veterans Affairs. Clearday has currently priced the basic service fee for our adult day care centers at a monthly amount that is generally expected to be less than the monthly payment benefits to retirees from the Social Security Administration and Clearday expects that older adults that live with family members will have sufficient funds to pay such service fees and their other household expenses. There can be no assurance that the expected service fee by Clearday will be at an amount that can be afforded by Clearday’s target market for our Clearday Clubs. Economic downturns, higher levels of unemployment among family members, lower levels of consumer confidence, stock market volatility, increased inflation and/or changes in demographics, including the unprecedented effects of the COVID-19 pandemic, could adversely affect the ability of older adults to afford Clearday’s expected adult day care service fees and could result in decreased fees and revenues resulting in a decline of Clearday’s estimated operating results as many of the operating costs for an adult day care center will not vary in relation to a decrease in club members or revenues.
Clearday may not be able to operate our business or implement the business strategies.
Clearday intends to develop and expand new businesses including in the areas of home care services and products and provide services or otherwise have revenue from related services which may include retail sales of products including products that incorporate the technology of our Sapphire Cryocooler, robotics and provide other care services. Clearday created Clearday Labs to evaluate such opportunities and other strategies or business opportunities that Clearday believes would be complimentary to our existing businesses, specifically, our residential care facilities and the digital service offering, and where Clearday may benefit from certain synergies in management and leverage of assets. There can be no assurance, however, that Clearday will be able to implement our business strategy in a manner that realizes any of our intended benefits, including that Clearday will be able to acquire, internally develop or enter into strategic alliances for intended or prospective business lines.
Clearday’s planned business and growth strategy may not yield anticipated returns, may result in disruptions to the business of, may strain management resources and/or may be dilutive to Clearday’s stockholders.
Clearday’s business and growth strategies involve the development (by organic growth or, to a lesser extent, through acquisitions and joint ventures) of businesses that are focused on tech-enabled non-acute care and wellness. In evaluating Clearday’s business opportunities, Clearday will make certain assumptions regarding the expected future performance and prospects. However, newly acquired businesses or investments in businesses, or strategic alliances, may fail to perform as expected, and Clearday may not be able to manage those businesses in a manner that meets our expectations. Clearday’s acquisition activities may be subject to the following risks:
Clearday businesses that are acquired or conducted through joint ventures do not realize the synergies that it expects and require substantially greater investment than it anticipated;
Clearday may acquire or invest in businesses that realize net cash losses initially and/or for a period that is longer than Clearday anticipated;
If Clearday finances acquisitions or strategic alliances by incurring debt, Clearday’s cash flow may be insufficient to meet the required principal and interest payments;
Clearday may be unable to quickly and efficiently integrate new acquisitions or strategic alliances, and as a result Clearday’s results of operations and financial condition could be adversely affected;
Operating expenses of an acquired business or a strategic alliance may exceed budgeted amounts;
Management may be diverted from operations; and
Clearday may be required to have management teams that are not proven or that do not, for any number of reasons, perform as expected.
If Clearday cannot operate our businesses or strategic alliances to meet our financial expectations, Clearday’s financial condition, results of operations, cash flow and per share trading price our Common Stock could be adversely affected.
Clearday may use its securities and/or the securities our subsidiaries as consideration in connection with our acquisition strategy which could result in significant dilution to the relative ownership interest of holders of our capital stock prior to such acquisitions.
In addition, it is likely that Clearday will use its or a subsidiary’s securities as consideration, in part or whole, for the purchase of acquired businesses as part of our asset and business acquisition strategy. Such securities may carry rights or preferences different from or superior to those of Clearday’s common stock. Moreover, if such securities include Clearday’s common stock or securities senior to or Pari passu to or convertible or exchangeable into shares of Clearday’s common stock, the relative ownership interest of the holders of the Clearday’s capital stock would be subject to dilution.
Clearday’s strategy includes businesses that are in development or early stages and such strategies and businesses include additional venture stage risks and there is no assurance that Clearday may be able to develop our businesses organically or through acquisitions.
A fundamental strategy of Clearday is the continued development of our Longevity-tech planform, Clearday Clubs, as well as related businesses, including other products and services we expect to develop in our Clearday Labs. The products and services in our Longevity-tech planform do not have any material revenues as of the date of this Report. Clearday Clubs has opened its initial location by the acquisition of an adult day care center in San Antonio, Texas. Clearday’s ability to successfully execute future development in accordance with our business plan, or at all, will be impacted by a number of factors, including the ability to sell our remaining non-core assets, the availability of additional financing, including additional equity financing, on terms acceptable to Clearday, the availability of government programs and reimbursements, market trends, the ability to identify and execute business opportunities, including acquisitions that meet the parameters of the Clearday business plan, and increased competition for sites for the expansion opportunities or acquisitions. The development and acquisitions of future businesses may result in unforeseen operating difficulties and may require additional financial resources and attention from management. Failure to identify suitable development or acquisition businesses, effectively execute the Clearday business strategy or operating difficulties of businesses that Clearday may acquire in the future could have an adverse effect on Clearday’s financial condition, results of operations, cash flows and liquidity.
Clearday will require additional capital and there is no assurance that any debt or equity financing will be available on acceptable terms, if at all.
To the extent that Clearday develops its business through financing, including additional equity financing, there cannot be assurance that financing will be available on acceptable terms, if at all, or that Clearday may be able to satisfy the conditions precedent required to secure borrowings or utilize credit facilities, which could reduce the number, or alter the type, of investments that Clearday would make otherwise and the ability for it to expand its businesses. Any such limitation on such financing or sales of our remaining non-core assets may reduce income. To the extent that financing proves to be unavailable when needed, Clearday may also be compelled to modify our business strategy. Any failure to obtain financing or realize the sale of our remaining non-core assets or other assets may have a material adverse effect on the continued development or growth of Clearday’s business. We do not have any binding agreement with an investment banker to provide additional capital. There is no assurance that the public market conditions, the market acceptance of Clearday, the price and volume of our common stock and other factors, will enable any such offering will be consummated on terms acceptable to Clearday or that AGP or any other investment bank will then decide that it would then manage or participate in any such offering.
If Clearday fails to identify and quickly respond to changes and trends in non-acute care and wellness preferences, our business, financial condition, results of operations and prospects will be adversely impacted.
Clearday expects to provide services to the non-acute care and wellness industry and expects the products and services to be subject to dynamic changes. The needs and preferences of older adults have generally changed over the past several years, including preferences to reside in their homes longer or permanently, as well as changes in services and offerings, including delivery of home healthcare services, utilization of outpatient rehabilitation services and services that address their increasing desire to maintain active lifestyles. If Clearday fails to identify such changes and quickly and successfully respond to such changes to deliver accepted products and services, then competitors will be able to successfully penetrate the markets that Clearday will operate and Clearday will not be able to successfully grow or maintain our businesses, which would adversely affect our business, financial condition, results of operations and prospects.
Our debt leverage and financing arrangements that we may enter into may, under certain circumstances, contain restrictions and limitations that could impact our ability to operate our business.
Clearday has incurred its long term and other debt, primarily, in connection with the financing of (1) long term assets that are now held for sale, and (2) the financing of the residential care facility in Naples, Florida and its operations and (3) other loans that have funded our operations. The indebtedness of Clearday may have the effect, among other things, of reducing the flexibility of Clearday to respond to changing business and economic conditions, requiring us to use increased amounts of cash flow to service indebtedness and increasing our borrowing costs.
The remaining non-care assets may not have the net realizable value that is estimated.
Clearday intends to sell or otherwise dispose of our remaining non-care assets to raise additional funds for our tech-enabled non-acute care businesses. We do not expect to make additional investments in any of these remaining assets to be able to reposition the asset to achieve their highest or best use or otherwise achieve a better value. Further, certain of our remaining non-core assets may require additional investment to maintain, such as replacement or repairs, and deferring maintenance and other related costs could decrease the net realizable value of our remaining non-core assets. There can be no assurance that the value of our remaining non-core assets will be able to be sold for the net realizable value that is estimated or the amount that such assets are in the financial statements of Clearday.
Operators of senior care facilities must comply with the rules and regulations of governmental reimbursement programs and certification requirements, fraud and abuse regulations and are subject to new legislative developments.
Our care businesses are highly regulated by federal, state and local licensing requirements, facility inspections, reimbursement policies, regulations concerning capital and other expenditures, certification requirements and other laws, regulations and rules. Any failure to comply with such laws, requirements and regulations could affect Clearday’s ability to operate the facilities that Clearday owns or operates. Healthcare operators are subject to federal and state laws and regulations that govern financial and other arrangements between healthcare providers. These laws prohibit certain direct and indirect payments or fee-splitting arrangements between healthcare providers that are designed to induce or encourage the referral of patients to, or the recommendation of, a particular provider for medical products and services. They also require compliance with a variety of safety, health, staffing and other requirements relating to the design and conditions of the licensed facility and quality of care provided.
These regulations may also enable the regulatory agency to place liens on properties. Possible sanctions for violation of these laws and regulations include loss of licensure or certification, the imposition of civil monetary and criminalpenalties, and potential exclusion from the Medicare and Medicaid programs. The failure of Clearday to comply with these rules or regulations could have an adverse effect on our financial condition or results of operations.
In addition, this area of the law currently is subject to intense scrutiny. Additional laws and regulations may be enacted or adopted that could require changes in the design of the properties and its joint venture’s operations and thus increase the costs of these operations.
Private third-party payers continue to try to reduce healthcare costs.
Private third-party payers such as insurance companies continue their efforts to control healthcare costs through direct contracts with healthcare providers, increased utilization review practices and greater enrollment in managed care programs and preferred provider organizations. These third-party payers increasingly demand discounted fee structures and the assumption by healthcare providers of all or a portion of the financial risk. These efforts of third-party payers to limit the amount of payments that Clearday or others may receive for healthcare services could adversely affect Clearday and would adversely affect Clearday even if such insurance policies do not cover residential or non-residential care facilities that Clearday will operate as the total household cash flow would be reduced and there would be less funds available for Clearday’s services. At the same time, as a result of competitive pressures, Clearday’s ability to maintain operating margins through price increases to private pay options may be limited.
Healthcare policy changes, including proposals to reform the U.S. healthcare system, may harm the Clearday’s future business.
Healthcare costs have risen significantly over the past decade. There have been and continue to be proposals by legislators, regulators and third-party payors to keep these costs down. Clearday is unable to assess with certainty the extent of governmental requirements and regulations that will apply to Clearday’s care and wellness businesses. See “Business – Government Regulation - Residential Care and Adult Day Care Businesses.” The regulations that affect our operations are subject to changes. In addition, these regulations and other ongoing initiatives in the United States have increased and will continue to increase pressure on pricing and operations of residential and non-residential care facilities. The announcement or adoption of any government initiative could have an adverse effect on potential revenues from any product that Clearday may successfully develop. Moreover, additional legislative or regulatory changes remain possible and appear likely. Various healthcare reform proposals have also emerged at the state level. Clearday cannot predict what healthcare initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on Clearday. However, an expansion in government’s role in the U.S. healthcare industry may lower the revenues for future products and adversely affect Clearday’s future business, possibly materially.
Clearday is unable to determine the effect of the amount of wage increases that are expected with labor shortages and any regulatory changes effected by the administration of President Biden, including regulations regarding minimum wages and benefits.
The care industry, and businesses in general, have experienced, and may continue to experience, significant labor shortages, particularly for caregivers. Clearday will continue to compete with other residential care community and day care operators, among others, to attract and retain qualified personnel responsible for the day-to-day operations of Clearday’s current and planned care and wellness businesses. The market for qualified staff, including professional staff such as nurses, therapists and other healthcare professionals, is highly competitive, and periodic or geographic area shortages of such healthcare professionals may require us to increase the wages and benefits that we offer to our employees in order to attract and retain such personnel or to utilize temporary personnel at an increased cost. Additionally, any shortages of staff may require us to retain per diem employees and incur overtime, each of which would increase our wage and benefit expenses. In addition, employee benefit costs, including health insurance and workers’ compensation insurance costs, have materially increased in recent years and Clearday cannot predict the future impact of the Healthcare Reform Act, or any other future healthcare legislation, on the cost of employee health insurance. Increasing employee health insurance and workers’ compensation insurance costs may materially and adversely affect our earnings. From time-to-time labor unions may attempt to organize Clearday’s employees. If Clearday’s employees were to unionize, it could result in business interruptions, work stoppages, the degradation of service levels due to work rules, or increased operating expenses that may adversely affect the results of operations. One of the consequences of the COVID-19 pandemic is a significant shortage of employees for many industries, including our residential care industry. Additionally, many states have increased the minimum hourly wage for employees, including Florida and Arkansas. The labor shortage has increased wage pressure and is likely to increase our wage and benefit expenses.
Clearday cannot be sure that labor costs will not increase or that any increases will be recovered by corresponding increases in the rates that Clearday will charge to our clients or otherwise. Any significant failure by us to control labor costs or to pass any increases on to clients through rate increases could have a material adverse effect on our business, financial condition and results of operations. Further, increased costs charged to Clearday’s clients may reduce Clearday’s occupancy and growth and related revenues.
Additionally, healthcare and elder care are important political issues. President Biden has used, and may continue to use, executive orders to achieve policy goals and objectives. In addition, such policy goals and objectives may be realized through legislation that is sponsored or otherwise supported by President Biden’s administration. Clearday is unable to assess the consequences of improvements to the healthcare systems and that may be realized by such actions, including any effect of increased costs or taxes.
The planned adult day care business may require Clearday to make significant capital expenditures to maintain and improve care centers.
Clearday’s planned adult day care and clinics and related facilities may require from time-to-time significant expenditures to address required ongoing maintenance or to make them more attractive to Clearday’s clients. Physical characteristics of facilities are mandated by various government authorities; changes in these regulations may require Clearday to make significant expenditures. Supply chain issues and building material shortages have increased, and may continue to increase, construction costs, including the costs for expected leasehold improvements. In addition, Clearday may often be required to make significant capital expenditures when Clearday acquires, leases or manages new facilities. Clearday’s available financial resources may be insufficient to fund these expenditures. Clearday may be unable to pay increased rent at any facility without experiencing losses.
Because the AIU Merger resulted in an ownership change under Section 382 of the Internal Revenue Code Clearday, Clearday’s pre-AIU Merger NOL carryforwards and certain other tax attributes are subject to limitations.
We underwent an “ownership change” within the meaning of Section 382 of the Internal Revenue Code (“Section 382”), the corporation’s NOL carryforwards and certain other tax attributes arising before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Our NOL carryforwards and certain other tax attributes will be subject to limitations (or disallowance) on their use. Section 382 limitation will cause a significant portion of Clearday’s pre-AIU Merger net operating loss carryforwards to never be utilized. In addition, if Clearday is determined to have discontinued its historic pre-AIU Merger business following the AIU Merger, subject to certain exceptions, the Section 382 limitation could eliminate all possibility of utilizing Clearday’s pre-AIU Merger NOL carryforwards. Additional ownership changes in the future could result in additional limitations on Clearday’s NOL carryforwards. Consequently, even if we achieveprofitability, we may not be able to utilize a material portion of the NOL carryforwards and other tax attributes, which could have a material adverse effect on our cash flow and results of operations.
Clearday has a limited history of operations, and our Longevity-tech planform and Clearday Care adult day care businesses are each an emerging business that will expose us to the risks and uncertainties associated with operating and growing an emerging business within an emerging industry.
Each of the innovative care solutions and the adult day care and robotic businesses to be conducted by us is significant to our growth opportunities and plans. These businesses include the virtual day care business and the adult day care services through physical locations and the sale of robots. Clearday does not have any material operational history in such businesses by which potential investors can evaluate our past performance and likelihood of success. As of the date of this Report, we have only one adult day care business do not have any centers that use our proprietary Clearday Clubs format or any revenue from our robotic business. The financial position and results of operations of Clearday, including our most recent financial statements included in this Report, are not indicative of the tech-enabled non-acute care businesses that we intend to pursue. Such Clearday businesses do not have any earnings history for investors to estimate our future level of sales or profitability or whether Clearday will in fact have sales or profitability. As a result of such industry and geographic focus, the conditions affecting older Americans as well as the local economies and real estate markets in such geographic areas and other factors that may result in a decrease in demand for our services in these areas could have an adverse effect on Clearday’s revenues, results of operations and cash flow. A core component of our strategy is the development and expansion of our tech-enabled non-acute care businesses. Our ability to successfully execute future development in accordance with our business plan, or at all, will be impacted by a number of factors, including the ability to sell our remaining non-core assets, the availability of financing on terms acceptable to us, market trends, the ability to identify and execute business opportunities (including acquisitions that meet the parameters of the Clearday business plan), and increased competition for sites for the expansion opportunities or acquisitions. Any such limitation on any such financing or sale of the remaining non-core assets may reduce income.
If Clearday fails to identify such changes and quickly and successfully respond to such changes to deliver accepted products and services, then competitors will be able to successfully penetrate the markets in which Clearday operates which may limit Clearday’s ability to successfully grow and/or maintain our businesses, which would adversely affect our business, financial condition, results of operations and prospects.
Clearday incurred substantial expenses related to the completion of the AIU Merger.
Clearday incurred substantial expenses in connection with the completion of the September 9, 2021 AIU Merger. Most of these costs were non-recurring expenses, including a substantial fee payable to AGP and legal and other professional fees and expenses and insurance expenses, and the fees related to the registration and issuance of the common stock issued in connection with such AIU Merger. Clearday does not have excess cash flows from its existing businesses to fund the payment of such additional expenses and will require revenues from its innovative businesses or the ability to raise capital through the sale of securities. There can be no assurance that we are able to raise additional funds through the sale of its securities on terms that are acceptable or at all.
Risks Related to Our Capital Structure
Our stock price is volatile.
The market price of our common stock has been, and is expected to be, subject to significant volatility. The value of our common stock may decline regardless of our operating performance or prospects. Factors affecting our market price include:
liquidity and volume in the trading of our common stock;
market perception as to our ability to develop and launch our innovative care products and services;
our perceived prospects and liquidity, including our ability to sell non-core assets;
our perceived ability to sell products and services directly to the residents in our residential care facilities and otherwise expand our revenues from current fees from our residential care business;
variations in our operating results and whether we have achieved key business targets;
changes in, or our failure to meet, earnings estimates;
changes in securities analysts’ buy/sell recommendations;
differences between our reported results and those expected by investors and securities analysts;
announcements of new contracts by us or our competitors;
market reaction to any acquisitions, joint ventures or strategic investments announced by us or our competitors;
general economic, political or stock market conditions; and
the impact of inflation on our operations, including our ability to control costs, including labor, food, and energy expenses.
Recent events have caused stock prices for many companies, including ours, to fluctuate in ways unrelated or disproportionate to their operating performance. The general economic, political and stock market conditions that may affect the market price of our common stock are beyond our control. The market price of our common stock at any particular time may not remain the market price in the future.
We have a significant number of outstanding warrants and options and convertible securities, and future sales of the shares obtained upon exercise of these options, warrants and convertible securities could adversely affect the market price of our common stock.
As of December 31, 2022, we had
warrants that are currently exercisable to purchase up to approximately 5,112,320 shares of our common stock at a weighted average exercise price of approximately $6.88 per share, including warrants issued during 2023 to our lenders to purchase up to 1,076,000 shares of our common stock at a weighted average exercise price of approximately $0.75 per share,
securities that have been issued by our subsidiaries with an accrued amount equal to approximately $17,172,025 which may be exchanged for shares of our common stock at a price that is equal to the volume weighted average price of our common stock for 20 days prior to the date of such exchange, and
Series F Preferred Stock that may be converted into approximately 12,038,095 shares of our common stock.
an aggregate amount of 2,506,500 additional warrants that may be exercised by lenders upon the event of default of their loans at an average aggregate price per share of approximately $0.61.
The holders may sell these shares in the public markets from time to time under a registration statement or, after the applicable six-month holding period is satisfied, under Rule 144, without limitations on the timing, amount or method of sale.
Additionally, we have issued to certain lenders an aggregate amount of approximately $965,000 of senior notes and warrants to purchase an aggregate amount of approximately 1,372,500 shares of our common stock. These notes and warrants may be converted or exercised upon an event of default under such notes.
The holders of such convertible or exchangeable for our shares of common stock may exercise such rights sell a large number of shares of our comment stock, which would likely cause the market price of our common stock to decline.
Our corporate governance structure may prevent our acquisition by another company at a premium over the public trading price of our shares.
It is possible that the acquisition of most of our outstanding voting stock by another company could result in our stockholders receiving a premium over the public trading price for our shares. Provisions of our restated certificate of incorporation and our amended and restated bylaws, each as amended, and of Delaware corporate law could delay or make more difficult an acquisition of our company by merger, tender offer or proxy contest, even if it would create an immediate benefit to our stockholders. For example, our restated certificate of incorporation does not permit stockholders to act by written consent, and our bylaws generally require ninety days’ advance notice of any matters to be brought before the stockholders at an annual or special meeting.
In addition, our board of directors has the authority to issue shares of preferred stock and to determine the terms, rights and preferences of this preferred stock, including voting rights of those shares, without any further vote or action by the stockholders and while we are not listed on an exchange such as the NYSE American, we can issue a significant number of voting shares and voting power without stockholder approval. The rights of the holders of common stock may be subordinate to, and adversely affected by, the rights of holders of preferred stock that may be issued in the future. The issuance of preferred stock could also make it more difficult for a third party to acquire most of our outstanding voting stock, even at a premium over our public trading price.
Furthermore, our certificate of incorporation also provides for a classified board of directors with directors divided into three classes serving staggered terms. These provisions may have the effect of delaying or preventing a change in control of us without action by our stockholders and, therefore, could adversely affect the price of our stock or the possibility of the sale of shares to an acquiring person.
We do not anticipate declaring any cash dividends on our common stock.
We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and earnings for use in the operation and expansion of our business.
General Risk Factors
The price of Clearday’s common stock may decrease.
The market price of the Clearday’s common stock may decline as a result of a few reasons, including if:
the planned development and expansion by Clearday of the adult day care business or digital services or other innovative products and services is delayed or not successful; or
Clearday’s business and prospects are not consistent with the expectations of financial or industry analysts.
Our ability to protect our patents and other proprietary rights is uncertain, exposing us to possible losses of competitive advantage.
Our efforts to protect our proprietary rights may not succeed in preventinginfringement by others or ensure that these rights will provide us with a competitive advantage. Pending patent applications may not result in issued patents and the validity of issued patents may be subject to challenge. Third parties may also be able to design around the patented aspects of the products or design around our copyrights, including the coding for our digital services. Additionally, certain of the issued patents and patent applications are owned jointly with third parties. Because any owner or co-owner of a patent can license its rights under jointly owned patents or applications, inventions made by us jointly with others are not subject to our exclusive control. Any of these possible events could result in losses of competitive advantage.
We depend on specific patents and licenses to technologies, and it will likely need additional technologies in the future that it may not be able to obtain.
We utilize technologies under licenses of patents from others for certain of our products. These patents may be subject to challenge, which may result in significant litigation expenses (which may or may not be recoverable against future royalty obligations). Additionally, we may be required to utilize intellectual property rights owned by others, including patents developed by a third-party engineering firm for the cryogenic air quality system, and may seek licenses to do so. Such licenses may not be obtainable on commercially reasonable terms, or at all. It is also possible that Clearday may inadvertently utilize intellectual property rights held by others, which could result in substantial claims.
Other parties may have the right to utilize technology important to our business.
We utilize certain intellectual property rights under non-exclusive licenses or have granted to others the right to utilize certain intellectual property rights licensed from a third party. Because we may not have the exclusive rights to utilize such intellectual property, other parties may be able to compete with us, which may harm our business.
We will face significant competition.
We will compete with numerous care and wellness companies, including developers, owners and operators of residential and non-residential facilities, many of which own or operate facilities that are like Clearday’s current and planned facilities in the same markets in which we are, or will be located. Clearday competes with numerous other managers and operators of care and wellness businesses that are focused on the non-acute care market, including adult day care centers and products that compete with products that will be distributed by Clearday. Some of Clearday’s competitors are larger and have greater financial resources than us and some of our competitors are not for profit entities which have endowment income and may not face the same financial pressures as us. We cannot be sure that we will be able to attract enough clients or residents at rates that will generate acceptable returns or that we will be able to attract employees and keep wages and other employee benefits, insurance costs and other operating expenses at levels which will allow us to compete successfully and operate profitably.
Clearday’s competition may also be from senior housing, senior healthcare, home healthcare, medical and healthcare providers and technology companies that expand their services or otherwise provide comparable services or utilize tech-enabled products and services that Clearday will utilize. Any such company or combination of companies may have referral or strategic relationships that reduce the number of consumers that would otherwise use Clearday’s products or services. In recent years, a significant number of new senior age communities and services have been developed and continue to be developed. Accordingly, Clearday expects to have increased competitive pressures, particularly in certain geographic markets where Clearday’s intends to operate our care services. These competitive challenges may prevent Clearday from establishing, maintaining or improving revenues, which may adversely affect Clearday.
Our Longevity-tech platform may innovate and disrupt the way that care services are delivered. Other technologies may be in development and may soon be in the market that will compete with our Longevity-tech platform including those that may have more advanced technologies or automated intelligence capabilities than our Longevity-tech platform. The companies that are developing such technologies may work with multi-national companies that have significantly greater resources than us, including distribution and marketing and other services that compliment and improve the services deliverable through our Longevity-tech platform.
Federal, state and local employment related laws and regulations could increase Clearday’s cost of doing business, and Clearday may fail to comply with such laws and regulations.
Clearday’s operations are subject to a variety of federal, state and local employment related laws and regulations, including, but not limited to, the U.S. Fair Labor Standards Act, which governs matters such as minimum wages, the Family and Medical Leave Act, overtime pay, compensable time, recordkeeping and other working conditions, and a variety of similar laws that govern these and other employment related matters. Because labor represents (and will represent) a significant portion of Clearday’s ordinary operating expenses from its care and wellness businesses, compliance with these evolving laws and regulations could substantially increase Clearday’s cost of doing business, while failure to do so could subject Clearday to significant back pay awards, fines and lawsuits. Clearday’s failures to comply with federal, state and local employment related laws and regulations could have a material adverse effect on our business, financial condition and results of operations.
The US federal minimum wage increases in five steps over five years ending with a $15 minimum wage in 2025, with an automatic increase in line with changes in the median hourly wage in the economy. Certain states have increased the minimum wage to $15 per hour. Additionally, we have received benefits of the Employee Retention Credits under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) which have ended during 2021 This and other labor related actions have increased the cost of our operating expenses. The extent of such actions cannot be predicted with any certainty.
Clearday may fail to comply with laws governing the privacy and security of personal information, including relating to health information.
Clearday will be required to comply with federal and state laws governing the privacy, security, use and disclosure of personally identifiable information and protected health information. State laws also govern protected health information, and rules regarding state privacy rights. Other federal and state laws govern the privacy of other personally identifiable information. If Clearday fails to comply with applicable federal or state standards, then we could be subject to civil sanctions and criminalpenalties, which could materially and adversely affect Clearday’s business, financial condition and results of operations.
Clearday will continue to incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.
Clearday will continue to incur significant legal, accounting and other expenses, including costs associated with public company reporting requirements. Clearday will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and any exchange that Clearday may have its common stock listed. These rules and regulations are expected to increase Clearday’s legal and financial compliance costs and to make some activities more time-consuming and costly. The executive officers of Clearday will continue to need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules and regulations also have made it expensive for Clearday to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for Clearday to attract and retain qualified individuals to serve on our board of directors or as our executive officers, which may adversely affect investor confidence in Clearday and could cause our business or stock price to suffer.
Clearday may become subject to litigation, which could have an adverse effect on its performance.
Clearday may from time to time become subject to litigation, including claims relating to our residential care and other operations. Clearday’s planned businesses include the continuation of our residential care facilities, adult day care and our planned in-home care which are businesses that are regulated and have a high risk for plaintiff actions. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. Clearday generally intends to vigorously defend itself; however, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against the us may result in Clearday having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact Clearday’s earnings and cash flows, thereby having an adverse effect on Clearday’s financial condition, results of operations, cash flow and per share trading price of our common stock. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.
Clearday depends on key personnel whose continued service is not guaranteed.
Clearday’s ability to manage its businesses and anticipated future growth depends, in large part, upon the efforts of key personnel, particularly James Walesa, our Chairman and Chief Executive Officer, and B.J. Parrish, our director and Chief Operating Officer. Such key personnel have extensive knowledge and relationships and exercise substantial influence over Clearday’s operational, financing, acquisition and disposition activity. There is significant competition in the care and wellness industry for experienced personnel and there is a risk that Clearday may not be able to continue to retain our key personnel. The loss of services of one or more members of Clearday’s executive management team, or Clearday’s inability to attract and retain highly qualified personnel, could adversely affect Clearday’s business, diminish Clearday’s investment opportunities and weaken Clearday’s relationships with lenders, business partners, existing and prospective tenants and industry personnel, which could adversely affect us.
Clearday relies on information technology and systems in its operations, and any material failure, inadequacy, interruption or security failure of that technology or those systems could materially and adversely affect us.
Clearday will continue to rely on information technology and systems, including the internet and commercially available software, to process, transmit, store and safeguard information and to manage or support a variety of our business processes, including financial transactions and maintenance of records, which may include personally identifiable information of employees, residents and clients. If Clearday experiences security breaches or other similar failures, or other inadequacies or interruptions of our information technology, we could incur material costs and losses and our operations could be disrupted as a result. Further, third-party vendors could experience similar events with respect to their information technology and systems that impact the products and services they provide to us. We will continue to rely on commercially available systems, software, tools and monitoring, as well as our internal procedures and personnel, to provide security for processing, transmitting, storing and safeguarding confidential resident, customer and vendor information, such as personally identifiable information related to our employees and others, including our residents and clients, and information regarding their and Clearday’s financial accounts. We will continue to take various actions, and may incur significant costs, to maintain and protect the operation and security of our information technology and systems, including the data maintained in those systems. However, it is possible that these measures will not prevent the systems’ improper functioning or a compromise in security, such as in the event of a cyberattack or the improper disclosure of personally identifiable information.
Security breaches, computer viruses, attacks by hackers, online fraud schemes and similar breaches can create significant system disruptions, shutdowns, fraudulent transfer of assets or unauthorized disclosure of confidential information. The cybersecurity risks to Clearday and our third party vendors are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetuate illegal or fraudulent activities against Clearday, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in Clearday’s or third parties’ information technology networks and systems or operations. Any failure to maintain the security, proper function and availability of Clearday’s information technology and systems, or certain third party vendors’ failure to similarly protect their information technology and systems that are relevant to the Clearday or our operations, or to safeguard Clearday’s business processes, assets and information could result in financial losses, interrupt Clearday’s operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties. Any or all of the foregoing could materially and adversely affect our business and the value of our securities.
Changes in tax laws or other actions could have a negative effect on us.
At any time, the federal or state income tax laws, or the administrative interpretations of those laws, may be amended. Federal and state tax laws are constantly under review by persons involved in the legislative process, the IRS, the U.S. Department of the Treasury and state taxing authorities. Changes to the tax laws, regulations and administrative interpretations, which may have retroactive application, could adversely affect us. The administration of President Biden has recently proposed changes to the Internal Revenue Code that, if enacted, could have adverse tax consequences for us. Such proposals are subject to significant changes. There cannot be any assurances as to any changes in the Internal Revenue Code that may be implemented, including any that may be adverse to us.
Clearday’s insurance may not cover potential losses, including from adverse weather conditions, natural disasters and other events.
We carry commercial property, liability and other insurance coverage on our business. We select policy specifications and insured limits that we believe to be appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not expect to carry insurance for losses such as loss from riots or war because such coverage is not available or is not available at commercially reasonable rates. Some of our policies, including those covering losses due to terrorism and certain other insurance policies, are subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses, which could adversely affect our operations. We may discontinue terrorism or other insurance if the cost of premiums for any such policies exceeds, in our judgment, the expected benefit from carrying out the policies. If following the termination or failure to renew any insurance policy we experience an adverseuninsured event, we may be required to incur significant costs, which could materially adversely affect our business and financial performance. Additionally, insurance to cover the risk of business interruptions may not be available or available at commercially reasonable rates and may not cover the specific events that require the closure of interruption of any of our businesses.
If we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the assets and businesses that that was made. Furthermore, we may not be able to obtain adequate insurance coverage at reasonable costs in the future as the costs associated with property and casualty renewals may be higher than anticipated.
Clearday’s operations will be subject to risks from adverse weather and climate events.
Severe weather may have an adverse effect on certain residential care or adult day care facilities to be operated by us and by our remaining non-core assets. Flooding caused by rising sea levels and severe weather events, including hurricanes, tornadoes and widespread fires have had and may have in the future an adverse effect on such assets and facilities and result in significant losses to us and interruption of our business, even though we did not experience significant damage to our Naples facility during Hurricane Ian during September 2022. We may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our residential care communities or adult day care centers or the properties owned by use in anticipation of, during and after a severe weather or climate-related event and in terms of potential lost business due to the interruption in operations that may not be adequately covered by insurance.
Terrorist attacks or riots in any locations in which Clearday acquires properties could significantly impact the demand for, and value of, Clearday’s properties.
Terrorist attacks and other acts of terrorism or war or riots would severely impact the demand for, and value of, Clearday’s planned businesses. Terrorist attacks in any of the metropolitan areas in which the Clearday expects to have operations also could directly impact the value of Clearday through damage, destruction, loss or increased security costs, and could thereafter materially impact the availability or cost of insurance to protect against such acts. A decrease in demand could make it difficult to maintain the expansion of the adult day care business in accordance with the business plan. To the extent that any future terrorist attack otherwise disrupts Clearday’s planned businesses, it may impair the ability to make timely payments to fund operations, which would harm the operating results and could materially and adversely affect us.
Current government policies regarding interest rates and trade policies may cause a recession.
The U.S. Federal Reserve policy regarding the timing and amount of future increases in interest rates and changing U.S. and other countries’ trade policies may hinder the growth of the U.S. economy. It is unclear whether the U.S. economy will be able to withstand these challenges and continue sustained growth. Economic weakness in the U.S. economy generally or a new U.S. recession would likely adversely affect Clearday’s financial condition, including by limiting Clearday’s ability to pay rent or other obligations and causing the value of Clearday’s owned and operated residential care communities, and remaining non-core assets and of our securities to decline. Further, general economic conditions, such as inflation, commodity costs, fuel and other energy costs, costs of labor, insurance and healthcare, interest rates, and tax rates, affect our operating and general and administrative expenses, and we have no control or limited ability to control such factors. Such economic uncertainties and conditions may adversely affect us and others, including our landlords, and our clients, such as by reducing access to funding or credit, increasing the cost of credit, limiting the ability to manage interest rate risk and increasing the risk that obligations will not be fulfilled, as well as other impacts which Clearday is unable to fully anticipate.
As a “smaller reporting company,” Clearday may avail itself of reduced disclosure requirements, which may make Clearday’s common stock less attractive to investors.
Clearday is a “smaller reporting company” under applicable SEC rules and regulations. As a “smaller reporting company,” Clearday may rely on exemptions from certain disclosure requirements that are applicable to other public companies, such as simplified executive compensation disclosures and reduced financial statement disclosure requirements in our SEC filings. Clearday may continue to rely on such exemptions for so long as it remains a “smaller reporting company”. These exemptions include reduced financial disclosure, reduced disclosure obligations regarding executive compensation, and not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
Decreased disclosures in Clearday’s SEC filings due to its status as a smaller reporting company may make it harder for investors to analyze the results of operations and financial prospects. Clearday cannot predict if investors will find Clearday’s common stock less attractive if it relies on these exemptions. If some investors find Clearday’s common stock less attractive as a result, there may be a less active trading market for Clearday’s common stock and Clearday’s stock price may be more volatile. Clearday may take advantage of the reporting exemptions applicable to a smaller reporting company until it is no longer a smaller reporting company, which status would end once it has a public float greater than $250 million. In that event, Clearday could still be a smaller reporting company if its annual revenues were below $100 million, and it has a public float of less than $700 million. Clearday’s reliance on these exemptions may result in the public finding that Clearday’s common stock to be less attractive and adversely impacts the market price of Clearday’s common stock or the trading market thereof.
We are subject to penny stock regulations and restrictions, and you may have difficulty selling shares of our common stock.
The Commission has adopted regulations which generally define so-called “penny stocks” as an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock”, and we are subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to sale. As a result, this rule affects the ability of broker-dealers to sell our securities and affects the ability of purchasers to sell any of our securities in the secondary market.
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the Commission relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the Commission the authority to restrict any person from participating in a distribution of penny stock if the Commission finds that such a restriction would be in the public interest.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (“ FINRA ”) has adopted similar rules that may also limit a stockholder’s ability to buy and sell our common stock. FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for such a customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
The “penny stock” rules make it more difficult for a stockholder to deposit our common stock with a broker dealer and to purchase or sell our common stock, which reduces the volume of transactions and increases the volatility of the price of our common stock.
Clearday expects to not pay cash dividends on its common stock and investors may have to sell their shares in order to realize the value for their investment.
Clearday has not paid any cash dividends on its common stock and does not intend to pay cash dividends in the foreseeable future. Clearday intends to use its cash for reinvestment in the development and expansion of the care and wellness business and to pay its debt and lease obligations. As a result, investors may have to sell their shares of common stock to realize any of their investment.
Clearday’s internal controls over financial reporting may not be effective, which could have a significant and adverse effect on Clearday’s business and reputation.
Clearday is subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC thereunder (“Section 404”). Section 404 requires Clearday to report on the design and effectiveness of its internal controls over financial reporting.
Some, but not all, of Clearday’s officers and directors have experience as officers or directors of a public company. Clearday’s internal controls have certain material weaknesses, including insufficient segregation of duties. Clearday has instituted efforts to remediate these concerns and enhance Clearday’s internal control environment to remediate these issues by the end of 2021. However, any failure to maintain effective controls could result in significant deficiencies or material weaknesses and cause Clearday to fail to meet its periodic reporting obligations or result in material misstatements in Clearday’s financial statements. Clearday may also be required to incur costs to improve its internal control system and hire additional personnel. This could negatively impact Clearday’s results of operations.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses and divert management’s attention from operating Clearday’s business, which could have a material adverse effect on Clearday’s business.
There have been other changing laws, regulations and standards relating to corporate governance and public disclosure in addition to the Sarbanes-Oxley Act, as well as new regulations promulgated by the SEC and rules promulgated by national securities exchanges. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, Clearday’s efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Clearday’s board members, Chief Executive Officer and Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, Clearday may have difficulty attracting and retaining qualified board members and executive officers, which could have a material adverse effect on Clearday’s business. If Clearday’s efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, Clearday may incur additional expenses to comply with standards set by regulatory authorities or governing bodies which would have a material adverse effect on Clearday’s business and results of operations.
Delaware law could discourage a change in control, or an acquisition of Clearday by a third party, even if the acquisition would be favorable to stockholders.
The DGCL contains provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of Clearday, even when these attempts may be in the best interests of stockholders. Delaware law imposes conditions on certain business combination transactions with “interested stockholders”. These provisions and others that could be adopted in the future could deter unsolicited takeovers or delay or prevent changes in Clearday’s control or management, including transactions in which stockholders might otherwise receive a premium for their shares of common stock over then current market prices. These provisions may also limit the ability of stockholders to approve transactions that they may deem to be in their best interests.
Clearday’s board has the authority to issue “Blank Check” Preferred Stock, which could affect the rights of holders of Clearday’s common stock and may delay or prevent a takeover that could be in the best interests of Clearday’s stockholders.
The board of Clearday has the authority to issue shares of preferred stock (the “Series Preferred Stock”), in one or more series and to fix the number of shares constituting any such series, the voting powers, designation, preferences and relative participation, optional or other special rights and qualifications, limitations or restrictions thereof, including the dividend rights and dividend rate, terms of redemption (including sinking fund provisions), redemption price or prices, conversion rights and liquidation preferences of the shares constituting any series, without any further vote or action by the stockholders. Similarly, the Clearday board may authorize a subsidiary of Clearday to issue securities that may have any such rights, powers or preferences. The issuance of any such securities could affect the rights of the holders of Clearday’s common stock. For example, such issuance could result in a class of securities outstanding that would have preferential voting, dividend, and liquidation rights over Clearday’s common stock, and could (upon conversion or otherwise) enjoy all the rights appurtenant to the shares of our common stock. The authority possessed by the board of directors to issue Series Preferred Stock, or any such other securities could potentially be used to discourage attempts by others to obtain control of Clearday through any merger, tender offer, proxy contest or otherwise by making such attempts more difficult or costly to achieve. The board of directors may issue the Series Preferred Stock or any such other securities without stockholder approval and with voting and conversion rights which could adversely affect the voting power of holders of our common stock. There are no agreements or understandings for the issuance of Series Preferred Stock or any such other securities.
The market price and volume of Clearday’s common stock fluctuates significantly and could result in substantial losses for individual investors.
The stock market from time-to-time experiences significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may cause the market price and volume of Clearday’s common stock to decrease. In addition, the market price and volume of Clearday’s common stock is highly volatile.
Factors that may cause the market price and volume of the Clearday’s common stock to decrease include:
changes in stock market analyst recommendations regarding Clearday’s common stock or lack of analyst coverage;
fluctuations in Clearday’s results of operations, timing and announcements of our corporate news;
any adverse investor reaction to the September 9, 2021, AIU Merger;
adverse actions taken by regulatory agencies with respect to any facilities or their operations or therapeutic based procedures that Clearday provides;
any lawsuit involving any care or services or products that Clearday provides;
announcements of technological innovations by Clearday’s competitors;
public concern as to the safety of services or products developed by Clearday or others;
regulatory developments in the United States and in foreign countries;
the care and wellness industry conditions generally and general market conditions;
failure of Clearday’s results of operations to meet the expectations of stock market analysts and investors;
sales of Clearday’s common stock by its executive officers, directors and five percent stockholders or sales of substantial amounts of Clearday’s common stock, including amounts that are sold on market orders when there is insufficient volume and activity regarding our common stock;
changes in accounting principles; and
loss of any of our key employees and officers.
Further, Clearday’s common stock will be subject to market disruptions that devalue the equity markets broadly, or certain sectors, which are caused by events that are not related to the business and operations of Clearday. Recent events in exchange listed securities resulted in significant loss of market value of shares for, among other matters, pandemics and market reaction to perceived global interconnected economies.
The discussion in this Item 7 includes the conduct of businesses at three residential care facilities that as of the date of this Report we terminated. See “Recent Events.”
As of December 31, 2022, we operated four residential memory care facilities that are in three U.S. states and operated through our Memory Care America LLC (“MCA”) subsidiary. These facilities focus on treating residents suffering from any of the 25 forms of dementia that may be treated in a residential care facility, Alzheimer’s being the most common. We use our knowledge and our experience in treating dementia and other cognitive disorders to develop technology-enabled businesses, aligned to next-generation non-acute care and wellness services and products.
All of our long-lived assets are located in the United States and, during the year ended December 31, 2022, and 2021, respectively, all of our revenue was derived from within the United States.
Seasonality
Residential care facilities are seasonal in nature. Generally, residential care facilities suffer revenue losses in winter months as there is often an increase in the loss of residents during these periods primarily because of flu and other health issues during such periods.
Results of Operations
Our operating revenues during 2022 were predominately from our four residential memory care facilities and our adult day care center. MCA earns revenue primarily by providing services to individual residents for a specified monthly fee, which fee includes all services such as room, meals and programs and to a lesser extent, certain community fees for a resident to move into a facility. All of MCA’s revenues are “private pay” which are charged directly to the resident and paid by such individual’s family or administrator. Residents may terminate services upon advance notice of a specified period. A portion of our 2022 revenues were from our adult day care business. Our adult day care service earns revenues primarily by providing services to individual clients for weekday sessions, which includes activities. A part of our revenues includes reimbursements to veterans under a program by the United States Department of Veterans Affairs (VA).
Our operating expenses are primarily the expenses of our MCA facilities described below as well as the expenses that we incur in our other businesses including adult day care and our Longevity-tech platform.
These SG&A Expenses during 2022 were primarily insurance, interest expense, bank fees, equity-based compensation and audit and other professional fees.
Certain Key MCA Statistical Data for the Years ended December 31, 2022, and 2021:
The following table presents a summary of our operations of our residential care business for the years ended December 31, 2022, and 2021, which do not include corporate overhead or our innovative care businesses such as our Longevity-tech platform including our digital offerings and robotic services or our adult day care business:
Year ended,
Increase/(Decrease)
December 31,
December 31,
Amount
Percent
Revenues:
MCA Resident Facilities
Operating expenses:
Wages and benefits
MCA facility operating expenses
Lease expenses (1)
Depreciation and amortization
Total operating expenses
Operating loss
Interest
Impairment (2)
Other (income) expenses (3)
Total other/(income) expenses
Net Loss
2021 includes the results and operations of the Simpsonville facility. We did not operate the Simpsonville Facility from and after September 30, 2021.
Lease expenses includes the accrual of rent and related amounts that have not been paid to the lessor of the Simpsonville facility in connection with a dispute described in Item 3 – Legal Proceedings based on the amounts stated in the applicable lease agreement.
Impairment of Right of Use assets (leases) in 2021 regarding the facilities in New Braunfels, Texas, Naples, Florida and Simpsonville, South Carolina.
Other (income) expenses include the amount primarily arising from the forgiveness of PPP loans, and ERTC credits received and the gain on the sale of investment during 2021.
MCA expenses are primarily related to the MCA facilities and providing care to the residents, including:
wages and benefits, including wages and wage-related expenses, such as health insurance, workers’ compensation insurance and other benefits for the Company MCA employees, including MCA management;
MCA facility operating expenses, including utilities, housekeeping, dietary, maintenance, regulatory requirements, insurance and administrative costs and salaries, including the compensation to persons who develop, market and provide our innovative products and services;
lease expenses for MCA facilities;
other general and administrative expenses, principally comprised of general management including the Company’s headquarters, general insurance, legal, accounting and investments in technology;
depreciation and amortization expense on buildings and furniture and equipment;
interest expenses for loans and other financings related to the MCA businesses, including loans to one lessor of three of the MCA facilities and the mortgage financing of the one owned MCA facility; and
Other expenses for the development of technology used in supporting operations and next generation of tech-enabled non-acute care and wellness solutions.
Revenues . Our MCA Facility revenues decreased by approximately 4.0% or $0.5 million to approximately $12.1 million during 2022 from approximately $12.6 million during 2021, primarily due to lack of revenues from the Simpsonville community which was included in 2021 until September 30, when we executed the facility, lower revenues in some of the facilities due to number of residents, offset by additional revenues during 2022 from our adult day care which we acquired at the end of May 2021, resulting in approximately seven months of revenues from this facility during 2021.
Operating Expense . Operating expenses decreased by approximately 13.0% or $2.6 million to $17.6 million during 2022 from $20.1 million during 2021. MCA Facility total operating expenses are primarily allocated to the MCA wages and benefits and MCA facilities operating expenses and MCA lease expenses., primarily due to (1) the reclassification of some operating expenses into Selling General & Administrative expenses (2) offset in part by the reduction of operating expenses because, in the fourth quarter, we transferred the operations and obligations of our Simpsonville facility resulting in our operating expenses for the Simpsonville facility were reduced to a specified limit during the last quarter of 2021, which did not including the rental expense which was included for the full annual period. As such, the decrease of operating expenses allocated to the Simpsonville facility reflected only the operating expenses such as compensation and insurance during the fourth quarter. MCA lease expenses also increased due to operations and related amounts.
Research & Development. We did not record any R&D expenses during 2022 or 2021.
Depreciation and amortization. Our MCA Facility consolidated depreciation and amortization expenses increased by approximately 31.95% or $0.61 million during 2022 from $0.46 million during 2021, primarily because of the increase in such expenses allocated to MCA facilities that were being given back to the landlord as we accelerated the depreciated the remaining asset.
Interest. Our consolidated interest expense increased by approximately 248.93% or $1.7 million to $2.4 million during 2022 from $0.68 million during 2021. Our interest expense is primarily allocated to the MCA, which amounts accounted for approximately 79% or $2.4 million of such expenses during 2022 compared to approximately 100% during 2021. The increase in MCA allocated interest is primarily due to our high interest loans financings that were incurred to fund operating expenses and the development costs for our innovative products and services in advance of amounts received from the Internal Revenue Service under the employee retention tax credit (“ERTC”) program which was delayed. The interest expense that was not allocated to MCA related primarily to the mortgage on our headquarters building and other real estate assets. The amount of interest expense does not include any accrual of interest for unpaid interest under the MCA Agreements, each of which are not being paid by us. See Item 3 Legal Proceedings.
Impairment. There was not any impairment taken during 2022 as compared to 2021 where we there was an impairment charge of approximately $7.4 million impairment on our operating facilities in New Braunfels, Texas and Simpsonville, South Carolina Impairment a non-cash expense and related solely to analysis required under GAAP for long lived assets as described in footnote 4 to our 2021 audited financial statements included in this Report.
Other (income) expenses. Our consolidated other (income) expenses decreased significantly by approximately $2.3 million primarily due to ERTC grants in 2021.
Gain on sale of investment. There was no gain on the sale of investments in 2022 as compared to 2021 where there was a gain recorded before the AIU Merger realized from the gain on sale of investment or $1,172,151 during 2021 that was recorded as other (income) expenses.
Revenues and Expenses Not Allocated to the Facilities:
Revenues. We did not have any material revenues during 2022 that we have not allocated to the Facilities.
Expenses Not Allocated to the Facilities: Our operating and other expenses that are not allocated to our Facilities, included the following:
Operating Expenses . Our consolidated operating expenses decreased by approximately 31.77% or $9.0 million during 2022 from $13.2 million during 2021. We increased our accounting and financial staff to lessen our reliance on accounting consultants. Selling, General and Administrative Expenses: Our selling, general and administrative expenses decreased by a net amount of approximately 93.08% or $0.12 million during 2022 from $1.8 milling during 2021. The decrease is primarily due to the fees paid to our financial consultant or investment banker that were paid in 2021.
Depreciation and Amortization Expenses: Depreciation and amortization expenses decreased approximately 27.53% or $0.14 million.
Other (Income) Expenses: Other income increased by a net amount of approximately $million, primarily because primarily due to gains recorded in the $1.6 million of debt extinguishment with AGP and the coupled with losses in our hotel and real estate and our Simpsonville Facility
SG&A Expenses. Our consolidated SGA Expenses decreased by approximately 32.3% or $5,002,720 million during 2022 from $7,393,834 million during 2021, primarily due to the Company accounting for certain expenses including those for corporate expenses incurred in the development of the Company’s Longevity-tech platform, as operating expenses during 2022 rather than SG&A expenses as our Longevity-tech platform became available for sale or license. There was also a significant reduction in accounting services, audit, and legal services as 2022 did not have such expenses related to the AIU Merger and the amount of such expenses related to the litigations related to the Simpsonville Facility described in Item 3.
We ceased operating our Simpsonville Facility as of September 30, 2021, and terminated the lease in August 2022. During the nine months ending September 30, 2022, we recognized an aggregate net loss attributable to the Simpsonville Facility of approximately $0.65, primarily due to the continued accrual of lease expenses related to this Facility in the amount of approximately $0.63 million, offset by other income related to employee retention tax credit (“ERTC”) for certain employees under the CARES Act. As disclosed in our Current Report on Form 8-K filed on September 15, 2021, we entered into an Operations Transfer, Interim Management and Security Agreement (the “Simpsonville Transfer Agreement”) with Brookstone Terrace of Simpsonville, LLC (“Brookstone”) and, as described in Note 7 “Commitments and Contingencies” to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, we terminated this lease with the landlord in connection with the settlement of a litigation. Until the date of such lease termination, we continued to accrue the lease expense. The base rent attributable to this Facility was 97,490 per month, subject to a 2% increase commencing June 1, 2022, offset by a $30,000 monthly credit under the Simpsonville Transfer Agreement payable by Brookstone that began on May 1, 2022.
Other Leased Facilities
As described under “Recent Events,” we terminated the leases of three of our Facilities, effective May 1, 2023.
Concentration of Risk—Revenues.
The Company’s revenue for the years ended 2022 and 2021 consisted of operations from our MCA residential facilities and our adult day care facility in four states (three states as of December 31, 2022). The Company expects to continue to be dependent on revenues from our remaining MCA community and our adult day care center until we can have revenues from our Longevity-tech platform. Any failure of our MCA community or adult day care center to continue these businesses would significantly and adversely impact the Company. The MCA revenues are primarily private pay and do not rely on reimbursements from Medicare or Medicaid. The Company expects that such concentration will continue until revenues are realized from its Clearday Clubs and our Longevity-tech planform.
The COVID-19 pandemic has slowed the ability of the Company to dispose of its remaining assets that are not related to its and lowered the expected price of such remaining assets.
Liquidity and Capital Resources.
Clearday requires cash to fund its current operations and continued innovation of non-acute care and wellness services. As of December 31, 2022, Clearday has an accumulated deficit of $(79,671,065) loss from continued operations of $(14,462,738) and losses from cash flows from operating activities in the amount of $(3,978,027).
Net cash from investing activities of continuing operations of $1,051,245 and net cash from financing activities was $2,157,345 due mostly to the proceeds from the sale of redeemable preferred shares and member units in subsidiaries.
We do not have sufficient cash resources from the net cash flows of operations from our current businesses to sustain our operations for the next twelve months and will rely on the continued sale of non-core assets, tax credits, government sponsored financing programs and related amounts, and raising capital through the sale of our securities. We expect to solicit additional capital as financing prior to the expected closing of the Viveon Merger or “bridge financing” and additional financing at the close or subsequent to the Viveon Merger closing. We are discussing terms with certain lenders for the bridge financing, although there can be no assurance that any such financing transactions will be consummated on the terms or timeframe currently contemplated, or at all.
The impact of the COVID-19 pandemic and any other public health emergency could continue to have a material adverse effect on Clearday’s business, results of operations, financial condition, liquidity and prospects in the near-term and beyond 2021. For example, during December of 2022 we temporarily suspended operations at our adult day care center due to COVID-19.
Clearday expects that the following factors will affect our future liquidity:
Operating revenues are expected to be affected, primarily because of
Our ability to monetize our Longevity-care platform through rental, distribution networks and sales
Our ability to open additional adult day care centers;
Our ability to increase revenues by providing additional products and services through our Longevity-care platform; and
Our ability to continue our joint ventures and add additional alliances to develop and market other care technologies.
Operating costs are expected to be affected, primarily because of:
Our ability to reduce the staff to resident ratios in our remaining residential care facility;
The costs and expenses related to additional sales and marketing staff and staff to deploy our robots and other technologies, and reduce staff turnover through better training and recruitment;
The expiration of the Employee Retention Credit under the CARES Act,
Increased pressures on wages and agency fees due to industry staffing shortages;
Additional interest expenses related to our high interest loans that we have incurred during 2022, offset in part by expected refinancing of certain mortgages and debt and the receipt of other financings such as SBA sponsored programs and additional amounts that we expect to receive through tax credits; and
Reduced operating expenses related to our exit of memory care facilities.
Selling and general administrative costs will be affected, primarily because:
The significant product development costs that are recorded as operating expenses are expected to remain consistent or be lower as our Longevity-tech planform and Clearday Clubs business models, strategies and marketing plans have been developed; and
We will incur additional compensation expense for our executives that have suspended their compensation to allow the Company to reduce its operation cash needs.
Change in our business strategy
We have pivoted our business strategy as described in Item 1 – Recent Events. This change in business has shed three of our residential care facilities that used more than $.114 during 2022 of net cash in operations. We expect that our business that is focused on our Longevity Care platform will have substantially less net cash flow needs compared to our residential care businesses.
We expect to pursue the following that will materially affect our liquidity and net cash flow needs:
Continue the marketing of our Longevity-tech platform directly and through alliances and others;
Increase revenues in our remaining residential care facility by introducing products and services in our Longevity-tech platform that should also increase the number of residents;
Increase the number of our adult day care centers.
Obtain additional capital including bridge financing in anticipation of the Viveon Merger.
Obtain additional financing and incur additional liabilities in connection with the Viveon Merger.
COVID-19. The pandemic and the regulatory responses and additional initiatives have and will likely continue to have a material effect on Company’s facilities-based businesses and operations.
We expect to continue to monetize our remaining assets that are not related to our care businesses
Funding History.
Clearday has historically financed its operations primarily through the sale of its equity and debt securities in private placements. Clearday has incurred negative cash flows from operations. On December 31, 2022, Clearday had an aggregate amount of cash and restricted cash of $.2 and a deficit of $63.5 million.
Cash Flows.
The following table ($ in 000) shows a summary of Clearday’s cash flows for the years ended December 31, 2022, and 2021:
Year Ended December 31,
Net cash used in activities of continuing operations
Net cash provided by (used in) operating activities of discontinued operations
Net cash used in operating activities
Net cash provided by investing activities of the continuing operations
Net cash provided used in investing activities
Net cash provided by investing activities
Net cash provided by continuing operations
Net cash used / provided in financings
Net cash provided by in financing activities
Operating Activities.
Net cash used in operating activities was $3.9 million for the year ended December 31, 2022, and $2.6 million for the year ended December 31, 2021. Net cash used in continuing operations for the year ended December 31, 2022 resulted from a net loss of $14.5 million adjusted for certain non-cash items including approximately:
$1.6 million gain on the extinguishment of debt arising from the modification of the AGP Note,
$1.5 million amortization of right of use assets,
$1.2 million of costs related to derivative liabilities,
$1.0 million gain on the termination of our lease at the Simpsonville Facility,
$1.0 million relating to PPP loan forgiveness,
$0.9 million related to deferred revenues from promotional discounts,
$0.4 million related to stock-based compensation for certain officers, directors and consultative services,
$0.4 million equity issued in connection with financings, and
$0.5 million in other depreciation and amortization
Investing Activities.
Net cash provided by investing activities was $1 million for the year ended December 31, 2022, and net cash provided of $05. million for the year ended December 31, 2021. Net cash used for the year ended December 31, 2022, consists primarily of investment activities in payments for capitalized software costs of $1.9 million, $0.982 million in cash from sale of property & equipment.
Financing Activities.
Net cash provided by financing activities was $2.1 million for the year ended December 31, 2022, and net cash used of $3.2 million for year ended December 31, 2021. Net cash provided by financing activities for the year ended December 31, 2022, consisted primarily of net proceeds received from the new loans is $8.3 million (i) cash in-flow from the sale of preferred and member interests in non-controlling entity of $0 million; (ii) repayment of long-term debt in the amount of $4.8 million.
HHS Government Grants
The Company recognizes income for government grants when grant proceeds are received and the Company determines it is reasonably assured that it will comply with the conditions of the grant, the Company will recognize the distributions received in the income statement on a systematic and rational basis. The Company will estimate the fair value of the grant using the applicable HHS definitions of healthcare related expenses and lost revenue attributable to COVID-19, considering the Company’s projected and actual results at the end of each reporting period.
Upon conclusion that the Company is reasonably assured that it has met the conditions of the grant, it must measure the amount of unreimbursed health-care related expenses and lost revenue related to COVID-19 at the end of each reporting period and release that amount from Refundable Advance to Other Revenue. During the year ended December 31, 2022, the Company has received grants amounting to $0 and total grant received so far by the Company amounts to 675,868.
Contractual Obligations and Commitments.
See Note 7 “Commitments and Contingencies” of the audited consolidated financial statements within this Quarterly analysis, which information is incorporated herein by reference.
Legal Proceedings.
Clearday is subject to legal proceedings. The disclosures in this part of Management’s Discussion and Analysis of Financial Condition and Results of Operations are provided under Item 3 - Legal Proceedings.
Off-Balance Sheet Arrangements.
Clearday is not a party to any off-balance sheet transactions. Clearday has no guarantees or obligations other than those which arise out of normal business operations.
Cash and Restricted Cash.
Cash, consisting of short-term, highly liquid investments and money market funds with original maturities of three months or less at the date of purchase, are carried at cost plus accrued interest, which approximates market.
Restricted cash as of December 31, 2022, and December 31, 2021, includes cash that Clearday deposited as security for obligations arising from property taxes, property insurance and replacement reserve Clearday is required to establish escrows as required by Clearday’s mortgages and certain resident security deposits.
Critical Accounting Policies and Significant Judgments and Estimates.
The preparation of the audited consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition, Results of Operations – Critical Accounting Policies and Estimates” and the notes to our audited consolidated financial statements included in this Quarterly analysis.
During the years ended December 31, 2022, and 2021, there were no significant changes in our accounting policies and estimates other than the newly adopted accounting standards that are disclosed in Note 2 “Summary of Significant Accounting Policies” to our audited consolidated financial statements.
Impact of Climate Change.
Concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns. These and other laws may cause energy or other costs at The Company’s communities to increase. In the long term, the Company believes any such increased costs will be passed through and paid by the Company’s residents and other customers in higher charges for The Company’s services. However, in the short term, these increased costs, if material in amount, could materially and adversely affect the Company’s financial condition and results of operations.
Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change. Severe weather has had and may continue to have an adverse effect on certain senior living communities The Company operates. Flooding caused by rising seas levels and severe weather events, including hurricanes, tornadoes and widespread fires may have an adverse effect on the senior living communities the Company operates. The Company mitigates these risks by procuring insurance coverage. The Company believes adequate to protect the Company from material damage and losses resulting from the consequences of losses caused by climate change. However, the
The company cannot be sure that its mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on the Company’s financial results.
Market Risk
We are exposed to various market risks, including changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices. We do not enter into derivatives or other financial instruments for trading or speculation purposes. Our money market investments have no exposure to the auction rate securities market.
