Deficit

12 Months Ended

Dec. 31, 2021

Equity [Abstract]

Deficit

13. Deficit

In connection with the merger, the certificate of incorporation of Clearday, Inc. was amended. Prior to such amendment, under the charter of Clearday, Inc. (which was the charter of STI), there were 25,000,000 authorized shares of Common Stock and 2,000,000 authorized shares of preferred stock, each par value $0.001 per share. The certificate of incorporation of Clearday, Inc., as amended in connection with the merger, provides for 80,000,000 authorized shares of Common Stock and 10,000,000 authorized shares of preferred stock, each par value $0.001 per share.

Common Stock

Prior to the merger, Clearday, Inc. had 3,151,780 issued and outstanding shares of Common Stock, which included 400,000 shares held by AIU. The shares held by AIU were cancelled in connection with the merger, resulting in 2,751,780 shares of issued and outstanding shares of Common Stock as of the effective time of the merger. In connection with the merger, Clearday, Inc.

● Effected the 3.773585 -for-1 Reverse Stock Split and issued approximately 546,820 True Up Shares, as described in Note 1.

● Issued 13,638,395 shares of Common Stock to the holders of shares of AIU common stock.

● Reserved 100,000 shares of Common Stock for the conversion or exchange of warrants and convertible securities and shares to be issued to officers of STI under the Officer Agreements.

● Reserved 2,860,800 shares of Common Stock that will be issued and distributed to holders of the Clearday, Inc. Series F Preferred Stock that do not sell such shares until after the date that is six months after the effective date of the merger (such shares being the 1,200,000 shares of AIU common stock reserved by AIU for issuance contingent on certain financial transactions).

STI did not issue any restricted shares of the Common Stock for compensation during the year ended December 31, 2021.

AIU awarded restricted shares of its common stock in the amount of 453,316 shares (representing 1,080,984 shares of Clearday, Inc. Common Stock) to various officers, directors and a consultant; during the year ended on December 31, 2020. For the year ended December 31, 2021, AIU awarded restricted stock in the amount of 57,000 shares (representing 135,923 shares of Clearday, Inc. Common Stock) to various officers and employees. Such shares of AIU common stock shares were vested for compensation for services in the amount of $689,130  during 2021.

Clearday, Inc.

Notes to Audited Consolidated Financial Statements

Liquidation Preference.

In the event of the Company’s liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of the Company’s debts and other liabilities and the satisfaction of any liquidation preferences that may be granted to the holders of any then outstanding shares of preferred stock.

Rights and Preferences.

Holders of common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock, which the Company may designate and issue in the future.

Voting Rights.

Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. The Company’s amended and restated certificate of incorporation and amended and restated bylaws do not provide for cumulative voting rights. Because of this absence of cumulative voting, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose. In addition, the Company’s amended and restated certificate of incorporation also provides that the Company’s directors may be removed only for cause by the affirmative vote of the holders of at least 75% of the consolidated voting power of all the Company’s stockholders entitled to vote on the election of directors, voting together as a single class.

Subject to supermajority votes for some matters, matters shall be decided by the affirmative vote of the Company’s stockholders having a majority in voting power of the votes cast by the stockholders present or represented and voting on such matter, provided that the holders of the Company’s common stock are not allowed to vote on any amendment to the Company’s certificate of incorporation that relates solely to the terms of one or more series of preferred stock if the holders of such affected series are entitled, either separately or together with the holders or one or more such series, to approve such amendment. The affirmative vote of the holders of at least 75% of the votes that all of the Company’s stockholders would be entitled to cast in any annual election of directors and, in some cases, the affirmative vote of a majority of minority stockholders entitled to vote in any annual election of directors are required to amend or repeal the Company’s bylaws, amend or repeal certain provisions of the Company’s certificate of incorporation, approve certain transactions with certain affiliates, or approve the sale or liquidation of the Company. The vote of a majority of minority stockholders applies when an individual or entity and its affiliates or associates together own more than 50% of the voting power of the Company’s then outstanding capital stock.

Preferred Stock

Prior to the merger, AIU had Series A 6.75% cumulative convertible preferred stock, $0.01 par value, 4,606,853 shares of such securities were issued and outstanding as of December 31, 2020. Each share of Series A preferred stock has a stated value equal to the Series A original issue price. The conversion rate to the number of shares of AIU common stock is equal to 1 share for each share of Series A preferred stock. In connection with the securities, they were either converted into AIU common stock and then exchanged for the Company Common Stock or exchanged for shares of the Company’s Series F 6.75% cumulative convertible preferred stock, $0.001 par value. The Company has 5,000,000 shares authorized with 4,797,052 and 4,606,853 issued and outstanding as of December 31, 2021 and December 31, 2020, respectively. The Series F Preferred Stock has a stated value of $20.00 per share is exchangeable at the option of the holder into approximately 2.38 shares of the Company’s Common Stock, subject to adjustment for specified fundamental transactions such as stock splits, reverse stock splits and stock combinations. See Note 14 - Preferred Stock – Mezzanine, for accounting treatment of the Series F Preferred Stock.

The Series A Preferred Stock of the Company that was issued and outstanding prior to the merger remains issued and outstanding. Such preferred stock has a $.001 par value, 2,000,000 shares authorized, and 328,925 shares issued and outstanding as of December 31, 2021 and December 31, 2020. Except for a preference on liquidation of $0.01 per share, each share of Series A Preferred Stock is the economic equivalent of ten twelfths of a share of common stock into which it is convertible. Except as required by law, the Series A Preferred Stock will not have any voting rights.

On December 31, 2018, AIU acquired the businesses of certain affiliates and entities and issued AIU’s Series A Preferred Stock (which has been exchanged for shares of the Company’s Series F Preferred Stock in the merger).

Clearday, Inc.

Notes to Audited Consolidated Financial Statements

Dividends and Distributions

For the year ended December 31, 2021 and December 31 2020, the Company recognized dividends for the 6.75% Series F preferred stock in the amount of $5,888,189 and $5,472,240 respectively.

Warrants 

The Company has two separate types of warrants that are outstanding: (1) the warrants that were granted and outstanding by STI prior to the effective date of the merger and (2) the warrants assumed by the Company that were granted by AIU prior to the effective date of the merger.

STI Warrants Prior to the Merger Effective Date.

The following is a summary of such outstanding warrants at December 31 2021:

	Common Shares
	Total		Currently Exercisable		Exercise Price per Share		Expiration Date
Warrants related to August 2016 financing		2,481		2,481	$	646.95	February 2, 2022
Warrants related to March 2018 financing		7,331		7,331	$	245.84	September 9, 2023
Warrants related to March 2018 financing		513		513	$	340.73	March 6, 2023
Warrants related to July 2018 financing		119,241		119,241	$	75.48	July 25, 2023
Warrants related to July 2018 financing		7,154		7,154	$	94.35	July 25, 2023
Warrants related to May 2019 financing		5,518		5,518	$	26.96	May 23, 2024
Warrants related to October 2019 financing		100,719		100,719	$	5.39	October 10, 2024
Warrants related to October 2019 financing		14,336		14,336	$	6.74	October 8, 2024
Warrants issued by AIU that after the merger (described below)		3,281,508		3,281,508	$	5.00	November 15, 2029

Warrants that were issued by AIU and have been assumed by Clearday in the merger.

As of December, 31 2021, there are 1,376,118 warrants that were issued by AIU to investors in the Alt Care Preferred and Clearday OZ LP Interests. As of the effective date of the merger, such warrants were assumed by the Company and amended and restated to represent the same number of shares of the Company’s Common Stock that would have been issued had the holders exercised such warrants in full prior to the effective date of the merger, or an aggregate of 3,281,508 shares of the Company’s Common Stock. Each warrant may be exercised for cash at an exercise price equal to $5.00 per share, subject to adjustment for specified fundamental transactions such as stock splits, reverse stock splits and stock combinations.

Clearday, Inc.

Notes to Audited Consolidated Financial Statements

Prior to the closing of the merger, AIU issued to a consultant that is subject to an development agreement a warrant representing 500,000 shares of the Company’s Common Stock as of the effective date of the merger at an exercise price of $11.00 per share, which may be paid by customary cashless exercise. Such warrant is subject to adjustment for specified fundamental transactions such as stock splits, reverse stock splits and stock combinations.

Stock Options 

On December 31, 2021, we continued to have the two active equity award option plans, the 2003 Equity Incentive Plan and the 2013 Equity Incentive Plan (collectively, the “Stock Option Plan”) that were in effect for STI prior to the effective date of the merger. Although we can only grant new options under the 2013 Equity Incentive Plan. Under our Stock Option Plan, stock awards were made to our former directors, key employees, consultants, and non-employee directors and consisted of stock options, restricted stock awards, performance awards, and performance share awards. Stock options were granted at prices no less than the market value on the date of grant. There were no stock option exercises during the year ended December 31, 2021. None of the option grantees continued in service after the effective date of the merger. The expiration date for all of the options under the Stock Option Plan granted to any officer, director or consultant is generally the last day of the three (3)-month period following the date that such person ceases their continuous status in such capacity, subject to certain accelerated termination events that are not applicable.

As of December 31, 2021, the aggregate outstanding options under the Stock Option Plan was 7,851 shares, at an exercise price per share of $19.20 to $26,280 with a weighted average exercise price of $211.21. All such options were exercisable. The Stock Option Plan provides for proportionate adjustment to the number of shares represented by the options and the exercise price for certain events, including the reverse stock split and the issuance of the True Up Shares that were effected in connection with the merger. After such adjustments, the aggregate number of shares represented by the options is 3,641 and the price per share is between $41.40 and $56,672.74, with a weighted average exercise price equal to $455.54.

At December 31 2021 no options had an exercise price less than the current market value. All of the stock options award that were outstanding as of December 31 2021 were to officers and directors whose service terminated on September 9, 2021 in connection with the merger. Accordingly, all such options that have not been exercised on December 8, 2021 shall expire.

Restricted Stock

On March 31, 2021, AIU issued an additional 57,000 total shares of restricted common stock to executives of AIU representing approximately 135,923 shares of Clearday, Inc. Common Stock. For the year ended on December 31 2021, shares issued of restricted common stock vest over 33 months and the Company valued the 135,923 shares at $5.07 per share, on the date of the agreement.

As of December 31 2020 the Company has awarded restricted stock worth $5,103,160 or 510,316 shares to various officers, directors and consultants that will be amortized over the requisite service period. As of December 31 2019, there was $0 in unamortized stock compensation.

Clearday, Inc.

Notes to Audited Consolidated Financial Statements

Equity of Subsidiary

Non-Controlling Interest

In November 2019, a certificate of incorporation was filed by AIU Alt Care for its Series I 10.25% cumulative convertible preferred stock, par value $0.01 per share (“AIU Alt Care Preferred”) that authorizes the issuance of 1,500,000 shares of preferred stock and 1,500,000 of common stock and designated 700,000 as AIU Alt Care Preferred. Each share of AIU Alt Care Preferred has a stated value equal to the AIU Alt Care Preferred original issue price of $10.00 per share. For the year ended December 31 December 31, 2021 and 2020, approximately $907,765 and $3,641,575 was invested in AIU Alt Care, respectively, in exchange for approximately 90,776 and 364,158 shares of such preferred stock, respectively.

In October 2019, AIU Alt Care formed AIU Impact Management, LLC and they formed Clearday OZ Fund, which is managed by AIU Impact Management, LLC, as the general partner. For the year ended December 31 2021 and 2020, approximately $2,494,621 and $940,387 was invested in Clearday Oz Fund, respectively.

The exchange rate for each of the Alt Care Preferred Stock and the Clearday OZ LP Interests to Clearday, Inc. Common Stock is equal to (i) the aggregate investment amount for such security plus accrued dividends at 10.25% per annum, (ii) divided by 80% of the 20 consecutive day volume weighted closing price of the Common Stock of Clearday preceding the conversion date. Prior to the merger, these securities were exchangeable to shares of AIU common stock at a rate of 1 share for every $10.00 of aggregate amount of the investment plus such accrued dividends.

On March 31, 2020, AIU Alt Care entered into an independent consulting agreement, or the Consulting Agreement, pursuant to which the Company issued 5,000 shares of AIU Alt Care Preferred stock to the Consultant as partial consideration for financial services rendered. In connection with this transaction, the Company valued the 5,000 shares of AIU Alt Care Preferred stock at $10 per share for $50,000, on the date of the agreement. The vesting date is September 9, 2022.

A certain officer was repaid $175,000 in the first quarter of 2020 towards a $500,000 payable that was owed; the remaining balance of $325,000 was converted as of December 31, 2020 to 32,500 shares of Alt Care Preferred Stock and 32,500 warrants to purchase shares of the Company’s common stock. In November 2020, the same officer was issued 6,000 Preferred shares in exchange for a $60,000 guaranty fee. See Note 7 – Indemnification Agreements

Non-Controlling Interest Loss Allocation.

The Company applied ASC 810-10 guidance to correctly allocate the percentage of loss attributable to the NCI of each company. For the year ended December 31, 2021, the net income for AIU Alt Care is $6,068,979 and loss for Clearday Oz Fund is $602,096. Additionally, for the year ended December 31, 2020, the losses for both AIU Alt Care and Clearday OZ Fund were $423,742 and $1,267,440, respectively. Based on ownership interest, AIU Alt Care and Clearday OZ Fund incurred a net (income) attributable to the NCI in the amount of $660,690 and $6,021, respectively in 2021 and incurred losses of $419,506 and $1,254,766, respectively, for 2020.

Cumulative Convertible Preferred Stock and Limited Partnership Interests in Subsidiaries (NCI).

For the year ended December 31, 2021, AIU Alt Care closed subscriptions and issued and sold 89,700 shares of Series I Cumulative Convertible Preferred Stock (the “Alt Care Preferred Stock”), par value $0.01 per share, and 244,473 units of limited partnership interests in Clearday OZ Fund.

The terms and conditions of the Alt Care Preferred Stock and the limited partnership interests in the Clearday OZ Fund allow the investors in such interests to exchange such securities into the Company’s common stock at the then Company common stock price. For the year ended December 31 2021, AIU Alt Care and Clearday OZ Fund has issued 1,270,515 and 2,010,150 warrants, respectively.

Each warrant has a term of ten years and provides for the purchase of the 1 share of the Company’s common stock at a cash exercise price equal to 50% of the price per share of the Company’s common stock when the Company becomes a public company by filing a registration statement, reverse merger or other transaction. The number of shares of the Company’s common stock and the warrant exercise price will be subject to adjustment for stock dividends, stock splits, combinations or other similar recapitalizations after the initial exercise price has been determined.

Clearday, Inc.

Notes to Audited Consolidated Financial Statements

Dividends on the Alt Care Preferred Stock and preferred distributions on the units of limited partnership interests in Clearday OZ Fund are at each calendar quarterly month end at the applicable dividend rate (10.25%) on the original issue price of the Alt Care Preferred Stock or the units limited partnership interests. Dividends will either (a) be payable in cash, if and to the extent declared by the board of directors or the general partner, or (b) by issuing Dividend Shares equal to the aggregate accrued dividend divided by the Series I Original Issue Price. Dividends, if noticed to the Holder, will be payable after the Dividend Payment Date.

Each of the Company, AIU Alt Care and Clearday OZ Fund shall redeem the Alt Care Preferred Stock or the units of limited partnership interests on the 10 Year Redemption Date that is ten years after the final closing of the offering. The securities provide for a redemption in cash or shares of common stock at the option of Clearday, Inc., in an amount equal to the unreturned investment in the Alt Care Preferred Stock or units of limited partnership interests. Upon consummation of certain equity offerings prior to May 1, 2022, AIU Alt Care may, at its option, redeem all or a part of the Alt Care Preferred Stock for the liquidation preference plus a make-whole premium. In addition, upon the occurrence of, among other things (i) any change of control, (ii) a liquidation, dissolution, or winding up, (iii) certain insolvency events, or (iv) certain asset sales, each holder may require the Company to redeem for cash all of such holder’s then outstanding shares of Alt Care Preferred Stock.

The Certificate of Designation also sets forth certain limitations on the Company’s ability to declare or make certain dividends and distributions and engage in certain reorganizations. The limited partnership agreement has similar provisions.

Subject to certain exceptions, the holders of Alt Care Preferred Stock and the units of limited partnership interests have no voting power and no right to vote on any matter at any time, either as a separate series or class or together with any other series or class of shares of capital stock or partnership interests, and are not be entitled to call a meeting of such holders for any purpose, nor are they entitled to participate in any meeting of the holders of the Company’s common stock or participate in the management of Clearday OZ Fund by its general partner.