UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission
File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices & zip code)
(Registrant’s telephone number including area code)
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ or
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| OTCQX |
We had shares of our common stock outstanding as of the close of business on August 19, 2022.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995 for these forward-looking statements. Our forward-looking statements relate to future events or our future performance and include, but are not limited to, statements concerning our business strategy, future commercial revenues, market growth, capital requirements, new product introductions, expansion plans and the adequacy of our funding. Other statements contained in this Report that are not historical facts are also forward-looking statements. We have tried, wherever possible, to identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and other comparable terminology.
We caution investors that any forward-looking statements presented in this Report, or that we may make orally or in writing from time to time, are based on the beliefs of, assumptions made by, and information currently available to, us. Such statements are based on assumptions and the actual outcome will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. As a result, our actual future results can be expected to differ from our expectations, and those differences may be material. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on known results and trends at the time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include the following:
| ● | Our limited cash and a history of losses; | |
| Our ability to fund our innovative care products and services, including Clearday at Home; | ||
| ● | The impact of any financing activity on the level of our stock price; | |
| ● | The dilutive impact of any issuances of securities to raise capital; | |
| ● | Cost and uncertainty from compliance with environmental regulations and the regulations related to operating assisted living or memory care facilities; | |
| ● | Local, regional, national and international economic conditions and events, and the impact they may have on us and our customers; | |
| ● | Increases in our labor costs or in costs we pay for goods and services; | |
| ● | Increases in tort and insurance liability costs; | |
| ● | Delays or nonpayment of government payments to us; and | |
| ● | Circumstances that adversely affect the ability of older adults or their families to pay for our services, such as economic downturns, weakening investment returns, higher levels of unemployment among our residents or potential residents’ family members, lower levels of consumer confidence, stock market volatility and/or changes in demographics. |
For further discussion of these and other factors see “Risk Factors” in our Annual Report on Form 10-K, as amended and supplemented.
This Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Report.
| I |
Clearday, Inc.
June 30, 2022
Table of Contents
References in this Report to the “Clearday”, “Company”, “we”, “us” include Clearday, Inc. and its consolidated subsidiaries, unless otherwise expressly stated or the context indicates otherwise. References in this report to “STI” or “Superconductor” are to the Company prior to the September 9, 2021 closing of the merger (the “AIU Merger”) by the Company with Allied Integral United, Inc. (“AIU”) that was described in our registration statement on Form S-4, as amended and supplemented (Registration No. 333-256138), unless otherwise expressly stated or the context indicates otherwise.
The mark “Clearday” is protected under applicable intellectual property laws. Solely for convenience, trademarks of Clearday referred to in this Report may appear without the TM symbol, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and related intellectual property rights.
| II |
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Clearday, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, 2022 | December 31, | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Other current assets | ||||||||
| Current assets held for sale | ||||||||
| Total current assets | ||||||||
| Patents and development | ||||||||
| Operating lease right-of-use assets | ||||||||
| Property and equipment, net | ||||||||
| Other long-term assets | ||||||||
| Non-current assets held for sale | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, TEMPORARY EQUITY AND DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Due to related parties | ||||||||
| Note Payable | ||||||||
| Current portion of long-term debt | ||||||||
| Operating lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Current liabilities related to assets held for sale | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Operating lease liabilities | ||||||||
| Long-term debt, less current portion, net | ||||||||
| Non-current liabilities related to assets held for sale | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Temporary equity | ||||||||
| Series
F | ||||||||
| Deficit: | ||||||||
| Preferred
Stock, $ par value, shares authorized Series A Convertible Preferred Stock, $ par value, shares authorized,
and shares issued and outstanding, as of March 31, 2022 and December 31, 2021, respectively. Liquidation value of
$ | ||||||||
| Common Stock, $ par value, and shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Clearday, Inc. Shareholders’ deficit: | ( | ) | ( | ) | ||||
| Non-controlling interest in subsidiaries | ||||||||
| Total deficit | ( | ) | ( | ) | ||||
| TOTAL LIABLITIES, TEMPORARY EQUITY AND DEFICIT | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 1 |
Clearday, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| REVENUES | ||||||||||||||||
| Resident fee revenue, net | $ | $ | $ | $ | ||||||||||||
| Adult Day Care | ||||||||||||||||
| Commercial Property Rental Revenue | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Wages & general operating expenses | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Research and Development | ||||||||||||||||
| Depreciation and amortization expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (income) expenses | ||||||||||||||||
| Interest and other expense | ||||||||||||||||
| PPP Loan Forgiveness | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized gain/(loss) on equity investments | ( | ) | ( | ) | ||||||||||||
| Other (income)/expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other (income)/expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income from discontinued operations, net of tax | ( | ) | ( | ) | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to non-controlling interest | ( | ) | ( | ) | ||||||||||||
| Preferred stock dividend | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss applicable to AIU, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per share attributable to AIU, Inc. | ||||||||||||||||
| Net loss from continued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss/income from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted average common shares basic and diluted outstanding | ||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 2 |
Clearday, Inc.
Condensed Consolidated Statements of Temporary Equity, Convertible Preferred Stock and Deficit
Six Months Ended June 30, 2022
(Unaudited)
| Temporary Equity Series F Preferred Stock | Preferred Stock Series A | Common Stock | Additional Paid- in | Accumulated | Clearday, Inc. Shareholder | Non-Controlling | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||
| Stock compensation for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of series I Convertible Preferred Stock in subsidiary | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of partnership units in subsidiary | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| PIK dividends on Convertible Preferred Stock F | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series F Incentive Common Stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series I adjustment | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Temporary Equity Series F Preferred Stock | Preferred Stock Series A | Common Stock | Additional Paid- in | Accumulated | Clearday, Inc. Shareholder | Non-Controlling | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||||||||
| PIK dividends accruals on Convertible Preferred Stock F | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Series F Incentive Common Stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Accrued of series I Convertible Preferred Stock in subsidiary | | |||||||||||||||||||||||||||||||||||||||||||
| Series I adjustment | ||||||||||||||||||||||||||||||||||||||||||||
| Dissolution of Longhorn Hospitality | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 3 |
Clearday, Inc.
Condensed Consolidated Statements of Temporary Equity, Convertible Preferred Stock and Deficit
Three Months Ended June 30, 2022
| Temporary Equity Series F Preferred Stock | Preferred Stock Series A | Common Stock | Additional Paid- in | Accumulated | Clearday, Inc. Shareholder | Non-Controlling | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Stock compensation for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of series I Convertible Preferred Stock in subsidiary | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of partnership units in subsidiary | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| PIK dividends on Convertible Preferred Stock F | 52,004 | - | ||||||||||||||||||||||||||||||||||||||||||
| Series F Incentive Common Stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series I adjustment | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Temporary Equity Series F Preferred Stock | Preferred Stock Series A | Common Stock | Additional Paid- in | Accumulated | Clearday, Inc. Shareholder | Non-Controlling | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| PIK dividends accruals on Convertible Preferred Stock F | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Series F Incentive Common Stock | - | |||||||||||||||||||||||||||||||||||||||||||
| Accrued of series I Convertible Preferred Stock in subsidiary | ||||||||||||||||||||||||||||||||||||||||||||
| Series I adjustment | ||||||||||||||||||||||||||||||||||||||||||||
| Dissolution of Longhorn Hospitality | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
Clearday, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Loss from discontinued operations, net of tax | ( | ) | ( | ) | ||||
| Loss from continued operations | ( | ) | ( | ) | ||||
| Adjustments required to reconcile net loss to cash flows used in operating activities | ||||||||
| Depreciation and amortization expense | ||||||||
| Allowance for doubtful accounts | ||||||||
| Amortization of right of use assets | ||||||||
| Gain of PPP loan forgiveness | ( | ) | ||||||
| Non-cash lease expenses | ||||||||
| Stock based compensation | ||||||||
| Amortization of debt issuance costs | ||||||||
| Unrealized gain on securities | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued interest | ||||||||
| Deferred revenue | ( | ) | ||||||
| Other non-current assets | ||||||||
| Other current liabilities | ( | ) | ( | ) | ||||
| Change in operating lease liability | ( | ) | ( | ) | ||||
| 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 | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Payments for property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of non-consolidated subsidiary: | ||||||||
| Payment for capitalized software costs | ( | ) | ||||||
| Net cash used in investing activities of continuing operations | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Repayment of debt | ( | ) | ||||||
| Borrowings on debt, net | ||||||||
| Proceeds from sale of preferred stock and member units in subsidiary | ||||||||
| Net cash provided by continuing operations | ||||||||
| Net cash used in financing activities of discontinued operations | ( | ) | ( | ) | ||||
| Net cash provided by in financing activities | ||||||||
| Change in cash and restricted cash from continuing operations | ( | ) | ||||||
| Change in cash and restricted cash from discontinued operations | ( | ) | ( | ) | ||||
| Cash and restricted cash at beginning of the year | ||||||||
| Cash and restricted cash at end of year | $ | ( | ) | $ | ||||
| Reconciliation of cash and restricted cash consist of the following: | ||||||||
| End of period | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Total cash and restricted cash | $ | $ | ||||||
| Beginning of period | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Total cash and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Organization, Description of Organization, Basis of Presentation, Summary of Significant Accounting Policies, Liquidity and Going Concern
Description of Business
Clearday, Inc., a Delaware corporation (the “Company”), formerly known as Superconductor Technologies Inc., was established in 1987 and closed a merger with Allied Integral United, Inc., a Delaware corporation (“AIU”), on September 9, 2021. This merger was described in our registration statement (“Merger Registration Statement”) on Form S-4, as amended and supplemented (Registration No. 333-256138). Prior to the closing of the merger, the Company was a leading company in developing and commercializing high temperature superconductor (“HTS”) materials and related technologies. As described in the Merger Registration Statement, after the merger, the Company continued the businesses of AIU and continued the businesses of the Company related to its Sapphire Cryocooler and its related patents and intellectual property. AIU was incorporated on December 20, 2017 and began its business on December 31, 2018 when it acquired the businesses of five (5) memory care residential facilities and other businesses (the “2018 Acquisition”). The memory care business is conducted through the Company’s Memory Care America LLC subsidiary (“MCA”), which has been in the residential care business since November 2010 and has been managed by the Company’s executives for approximately 6 years. Since the 2018 Acquisition, the Company has been developing innovative care and wellness products and services focusing on the older American market.
All of the Company’s assets that were acquired in the 2018 Acquisition and are not related to the memory care facilities or the non-acute care and wellness industry were designated as non-core businesses and held for disposition. Accordingly, such assets and liabilities are classified as held for sale in the unaudited condensed consolidated balances sheets as of June 30, 2022, and December 31, 2021. Additionally, the results of operations for these non-core businesses are classified as income from discontinued operations within the unaudited condensed consolidated statements of operations for the six months ended June 30, 2022 and 2021.
Liquidity and Going Concern
The
Company has incurred significant cumulative consolidated operating losses and negative cash flows. As of June 30, 2022, the Company has
an accumulated deficit of $
2. Summary of Significant Accounting Policies
Principles of Consolidation
The
accompanying unaudited condensed consolidated financial statements include the accounts of the Company, including its wholly owned
subsidiaries. In 2019, AIU Alternative Care, Inc., a Delaware corporation (“AIU Alt Care”), and Clearday Alternative
Care Oz Fund, L.P, a Delaware limited partnership (“Clearday OZ Fund”), were formed by AIU. The Company owns all of the
voting interests of AIU Alt Care and is the sole general partner of Clearday OZ Fund, and less than
In
November, 2019, AIU Alt Care filed a certificate of designation that authorized preferred stock designated as the Series I
In
October, 2019, AIU Alt Care formed AIU Impact Management, LLC and Clearday OZ Fund was formed. AIU Impact Management, LLC manages Clearday
OZ Fund as its general partner, owns
The
exchange rate for each of the Alt Care Preferred Stock and the limited partnership units in Clearday OZ Fund are equal to (i)
The Company reports its non-controlling interest in subsidiaries as a separate component of equity in the unaudited condensed consolidated balance sheets and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company’s common shareholders on the face of the unaudited condensed consolidated statement of operations.
| 6 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the annual financial statements of the Company and of AIU that are contained in the Company’s Form 10-K, as amended and supplemented. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated upon consolidation. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
Basis of Presentation
Basis of Presentation - The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of the Company’s management, any adjustments contained in the accompanying unaudited consolidated financial statements are of a normal recurring nature, and are necessary to fairly present the financial position of the Company as of June 30, 2022, along with its results of operations for the six month periods ended June 30, 2022 and 2021 and cash flows for the three-month periods ended June 30, 2022 and 2021. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Results of operations for the three-month period ended June 30, 2022, are not necessarily indicative of the operating results that may be expected for the full year ending December 31, 2022.
Unaudited Interim Financial Information
The unaudited condensed consolidated financial statements as of June 30, 2022 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) and GAAP. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of the Company, these unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to present fairly the Company’s financial position, results of operations and cash flows. Interim results are not necessarily indicative of results for a full year or future periods. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2021, as well as the audited consolidated financial statements of AIU that are included in our Annual Report on Form 10-K, as amended and supplemented.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities and contingencies at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Management believes that these estimates and assumptions are reasonable, however, actual results may differ and could have a material effect on future results of operations and financial position.
The impact of the COVID-19 pandemic could continue to have a material adverse effect on the Company’s business, results of operations, financial condition, liquidity, and prospects in the near-term and beyond 2022. While management has used all currently available information in its forecasts, the ultimate impact of the COVID-19 pandemic on its results of operations, financial condition and cash flows is highly uncertain, and cannot currently be accurately predicted. The Company’s results of operations, financial condition and cash flows are dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, such as a lengthy or severe recession or any other negative trend in the U.S. or global economy and any new information that may emerge concerning the COVID-19 outbreak and the actions to contain it or treat its impact, which at the present time are highly uncertain and cannot be predicted with any accuracy.
Significant estimates in our condensed consolidated financial statements relate to revenue recognition, including contractual allowances, the allowance of doubtful accounts, self-insurance reserves, long-lived assets, impairment of long-lived assets and estimates concerning our provisions for income taxes.
| 7 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Fair Value of Financial Instruments
The Company’s financial instruments are limited to cash, accounts receivable, debt and equity investments, accounts payable, operating leases and mortgage notes payable. The fair value of these financial instruments was not materially different from their carrying values on June 30, 2022.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, the Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment.
Cash and Restricted Cash
Cash, consisting of short-term, highly liquid investments and money market funds with original maturities of six months or less at the date of purchase, are carried at cost plus accrued interest, which approximates market.
Restricted cash as of June 30, 2022 and December 31, 2021 includes cash that the Company deposited as security for obligations arising from property taxes, property insurance and replacement reserve the Company is required to establish escrows as required by its mortgages and certain resident security deposits.
Investments
The Company follows ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The Company has no investment in securities as of June 30, 2022.
Goodwill
Goodwill, which has an indefinite useful life, represents the excess of purchase consideration over fair value of net assets acquired. The Company determines whether goodwill may be impaired by comparing the carrying value of the single reporting unit, including goodwill, to the fair value of the reporting unit. If the fair value is less than the carrying amount, a more detailed analysis is performed to determine whether goodwill is impaired. The impairment loss, if any, is measured as the excess of the carrying value of the goodwill over the implied fair value of the goodwill and is recorded in the Company’s consolidated statements of operations.
Software Capitalization
With
regards to developing software, any application costs incurred during the development state, both internal expenses and those paid to
third parties are capitalized. At June 30. 2022 and December 31, 2021, $
Risks and Uncertainties
The Company’s financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, investments, and trade receivables. At certain times throughout the year, the Company may maintain deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash balances due to the financial position of the depository institutions in which those deposits are held. The Company performs ongoing credit evaluations of its customers, and the risk with respect to trade receivables is further mitigated by the diversity, both by geography, of the customer base.
| 8 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was adopted.
The CARES Act appropriated funds for the U.S. Small Business Administration Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations and employment related tax credits to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company continues to examine the impact that the CARES Act may have on its business and is currently, unable to determine the impact that the CARES Act will have on its financial condition, results of operations, or liquidity.
The Company is also considering other applicable federal and state programs, including the Families First Coronavirus Response Act, which is a federal law meant to respond to the economic impacts of the ongoing COVID-19 pandemic that provides certain credits to employers, and the Work Opportunity Tax Credit (WOTC), which is a federal tax credit available to employers who invest in American job seekers who have consistently faced barriers to employment. Employers may meet their business needs and claim a tax credit if they hire an individual who is in a WOTC targeted group.
Basic and diluted earnings per share are computed and disclosed in accordance with FASB ASC Topic 260, Earnings Per Share. The Company utilizes the two-class method to compute earnings available to common shareholders. Under the two-class method, earnings are adjusted by accretion amounts to redeemable noncontrolling interests recorded at redemption value. The adjustments represent dividend distributions, in substance, to the noncontrolling interest holder as the holders have contractual rights to receive an amount upon redemption other than the fair value of the applicable shares. As a result, earnings are adjusted to reflect this in substance distribution that is different from other common shareholders. In addition, the Company allocates net earnings to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common shareholders. Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.
Accounts Receivable and Allowance for Doubtful Accounts
The Company records accounts receivable at their estimated net realizable value. Additionally, the Company estimates allowances for uncollectible amounts based upon factors which include, but are not limited to, historical payment trends, write-off experience, and the age of the receivable as well as a review of specific accounts, the terms of the agreements, the residents, the payers’ financial capacity to pay and other factors which may include likelihood and cost of litigation.
The allowance for doubtful accounts reflects estimates that the Company periodically reviews and revises based on new information, to which revisions may be material. The Company’s allowance for doubtful accounts consists of the following:
| Allowance for Doubtful Accounts | Balance at Beginning of Period | Provision for Doubtful Accounts | Write-Offs | Balance
at End of Period | ||||||||||||
| December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||
| June 30, 2022 | $ | $ | $ | |||||||||||||
Assets and Liabilities Held for Sale
The company has classified its real estate as held for sale as these are non-core assets no longer used in operations. The company recorded these assets as the less of cost or carrying value.
| 9 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line basis over their estimated useful lives, which are typically as follows:
| Asset Class | Estimated Useful Life (In Years) | |||
| Buildings | ||||
| Building improvements | ||||
| Equipment | ||||
| Computer equipment and software | ||||
| Furniture and fixtures | ||||
The Company regularly evaluates whether events or changes in circumstances have occurred that could indicate impairment in the value of the Company’s long-lived assets. If there is an indication that the carrying value of an asset is not recoverable, the Company determines the amount of impairment loss, if any, by comparing the historical carrying value of the asset to its estimated fair value, with any amount in excess of fair value recognized as an expense in the current period. The Company determines estimated fair value through an evaluation of recent financial performance, recent transactions for similar assets, market conditions and projected cash flows using standard industry valuation techniques. Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates, estimated holding periods and estimated capitalization rates (Level 3).
Valuation of Long-Lived Assets
Long-lived assets to be held and used, including property and equipment, right to use assets and definite life intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Note 3 - Real Estate, Property and Equipment, Net.
Gain (Loss) on Sale of Assets
The Company enters into real estate transactions which may include the disposal of certain commercial shopping centers and hotels, including the associated real estate; such transactions are recorded in Note 5 – Discontinued Operations. The Company recognizes gain or loss on these property sales when the transfer of control is complete. The Company recognizes gain or loss from the sale of equity method investments when the transfer of control is complete, and the Company has no continuing involvement with the transferred financial assets.
Legal Proceedings and Claims
The Company has been, is currently, and expects in the future to be involved in claims, lawsuits, and regulatory and other government audits, investigations and proceedings arising in the ordinary course of the Company’s business, some of which may involve material amounts. The Company establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Also, the defense and resolution of these claims, lawsuits, and regulatory and other government audits, investigations and proceedings may require the Company to incur significant expense. The Company accounts for claims and litigation losses in accordance with FASB, Accounting Standards Codification™, or ASC, Topic 450, Contingencies. Under FASB ASC Topic 450, loss contingency provisions are recorded for probable and estimable losses at the Company’s best estimate of a loss or, when a best estimate cannot be made, at the Company’s estimate of the minimum loss. These estimates are often developed prior to knowing the amount of the ultimate loss, require the application of considerable judgment, and are refined as additional information becomes known. Accordingly, the Company is often initially unable to develop a best estimate of loss and therefore the estimated minimum loss amount, which could be zero, is recorded; then, as information becomes known, the minimum loss amount is updated, as appropriate. Occasionally, a minimum or best estimate amount may be increased or decreased when events result in a changed expectation.
| 10 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Lease Accounting
The Company follows FASB ASC Topic 842, Leases, or ASC Topic 842, utilizing the modified retrospective transition method with no adjustments to comparative periods presented. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized.
Lessee
The Company regularly evaluates whether a contract meets the definition of a lease whenever a contract grants a party the right to control the use of an identified asset for a period of time in exchange for consideration. To the extent the identified asset is able to be shared among multiple parties, the Company has determined that one party does not have control of the identified asset and the contract is not considered a lease. The Company accounts for contracts that do not meet the definition of a lease under other relevant accounting guidance (such as ASC 606 for revenue from contacts with customers).
The
Company’s lease agreements primarily consist of building leases. These leases generally contain an initial term of
The Company classifies its lessee arrangements at inception as either operating leases or financing leases. A lease is classified as a financing lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying asset, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if none of the five criteria described above for financing lease classification is met. The Company has no financing leases as of June 30, 2022.
ROU assets associated with operating leases are included in “Right of Use Asset” on the Company’s unaudited condensed balance sheet. Current and long-term portions of lease liabilities related to operating leases are included in “Lease Liabilities, Current” and “Lease Liabilities, Long-Term” on the Company’s balance sheet as of June 30, 2022. ROU assets represent the Company’s right to use an underlying asset for the estimated lease term and lease liabilities represent the Company’s present value of its future lease payments. In assessing its leases and determining its lease liability at lease commencement or upon modification, the Company was not able to readily determine the rate implicit for its lessee arrangements, and thus has used its incremental borrowing rate on a collateralized basis to determine the present value of the lease payments. The Company’s ROU assets are measured as the balance of the lease liability plus or minus any prepaid or accrued lease payments and any unamortized initial direct costs. Operating lease expenses are recognized on a ratable basis, regardless of whether the payment terms require the Company to make payments annually, quarterly, monthly, or for the entire term in advance. If the payment terms include fixed escalator provisions, the effect of such increases is recognized on a straight-line basis. The Company calculates the straight-line expense over the contract’s estimated lease term, including any renewal option periods that the Company deems reasonably certain to be exercised.
The Company reviews the carrying value of its ROU assets for impairment, similar to its other long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company could record impairments in the future if there are changes in (1) long-term market conditions, (2) expected future operating results or (3) the utility of the assets that negatively impact the fair value of its ROU assets.
Lessor
The Company’s lessor arrangements primarily included tenant contracts within shopping centers, which is included in discontinued operations. The Company classifies its leases at inception as operating, direct financing, or sales-type leases. A lease is classified as a sales-type lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying assets or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Furthermore, when none of the above criteria is met, a lease is classified as a direct financing lease if both of the following criteria are met: (1) the present value of the of the sum of the lease payments and any residual value guaranteed by the lessee, that is not already reflected in the lease payments, equals or exceeds the fair value of the underlying asset and (2) it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. A lease is classified as an operating lease if it does not qualify as a sales-type or direct financing lease. Currently, the Company classifies all of its lessor arrangements as operating leases.
| 11 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Revenues from the Company’s lessor arrangements are recognized on a straight-line, ratable basis over the fixed, non-cancelable term of the relevant tenant contract, regardless of whether the payments from the tenant are received in equal monthly amounts during the life of a tenant contract. Certain of the Company’s tenant contracts contain fixed escalation clauses (such as fixed-dollar or fixed-percentage increases) or inflation-based escalation clauses (such as those tied to the change in CPI) and is included in discontinued operations. If the payment terms call for fixed escalations, upfront payments, or rent-free periods, the rental revenue is recognized on a straight-line basis over the fixed, non-cancelable term of the agreement. When calculating straight-line site rental revenues, the Company considers all fixed elements of tenant contractual escalation provisions.
Certain of the Company’s arrangements with tenants contain both lease and non-lease components. In such circumstances, the Company has determined (1) the timing and pattern of transfer for the lease and non-lease component are the same and (2) the stand-alone lease component would be classified as an operating lease. As such, the Company has aggregated certain non-lease components with lease components and has determined that the lease components represent the predominant component of the arrangement.
Income Taxes
The Company’s income tax expense includes U.S. income taxes. Certain items of income and expense are not reported in tax returns and financial statements in the same year. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences to be included in the Company’s unaudited condensed consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, while the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The
Company can recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained
upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with
a tax position is measured as the largest amount that has a
Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent, the Company believes that the Company is more likely than not that all or a portion of deferred tax assets will not be realized, the Company establishes a valuation allowance to reduce the deferred tax assets to the appropriate valuation. To the extent the Company establishes a valuation allowance or increase or decrease this allowance in a given period, the Company includes the related tax expense or tax benefit within the tax provision in the unaudited condensed consolidated statement of operations in that period. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the future, if the Company determines that it would be able to realize its deferred tax assets in excess of their net recorded amount, the Company will make an adjustment to the deferred tax asset valuation allowance and record an income tax benefit within the tax provision in the unaudited condensed consolidated statement of operations in that period.
The Company pays franchise taxes in certain states in which it has operations. The Company has included franchise taxes in general and administrative and operating expenses in its unaudited condensed consolidated statements of operations.
Revenue Recognition
The Company recognizes revenue from contracts with customers in accordance with ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, using the practical expedient in paragraph 606-10-10-4 that allows for the use of a portfolio approach, because we have determined that the effect of applying the guidance to our portfolios of contracts within the scope of ASC Topic 606 on our unaudited condensed consolidated financial statements would not differ materially from applying the guidance to each individual contract within the respective portfolio or our performance obligations within such portfolio. The five-step model defined by ASC Topic 606 requires the Company to: (i) identify its contracts with customers, (ii) identify its performance obligations under those contracts, (iii) determine the transaction prices of those contracts, (iv) allocate the transaction prices to its performance obligations in those contracts and (v) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.
A substantial portion of the Company’s revenue at its independent living and assisted living communities relates to contracts with residents for services that are generally under ASC Topic 606. The Company’s contracts with residents and other customers that are within the scope of ASC Topic 606 are generally short-term in nature. The Company has determined that services performed under those contracts are considered one performance obligation in accordance with ASC Topic 606 as such services are regarded as a series of distinct events with the same timing and pattern of transfer to the resident or customer. Revenue is recognized for those contracts when the Company’s performance obligation is satisfied by transferring control of the service provided to the resident or customer, which is generally when the services are provided over time.
| 12 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Resident fees at our independent living and assisted living communities consist of regular monthly charges for basic housing and support services and fees for additional requested services, such as assisted living services, personalized health services and ancillary services. Fees are specified in our agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed in advance. Funds received from residents in advance of services provided are not material to our unaudited consolidated financial statements. Some of our senior living communities require payment of an upfront entrance fee in advance of a resident moving into the community; substantially all of these community fees are non-refundable and are initially recorded as deferred revenue and included in accrued expenses and other current liabilities in our unaudited condensed consolidated balance sheets. These deferred amounts are then amortized on a straight-line basis into revenue over the term of the resident’s agreement. When the resident no longer resides within our community, the remaining deferred non-refundable fees are recognized in revenue. Revenue recorded and deferred in connection with community fees is not material to our unaudited condensed consolidated financial statements. Revenue for basic housing and support services and additional requested services is recognized in accordance with ASC Topic 606 and measured based on the consideration specified in the resident agreement and is recorded when the services are provided.
Core Business – Continuing Operations
Resident Care Contracts. Resident fees at the Company’s senior living communities may consist of regular monthly charges for basic housing and support services and fees for additional requested services and ancillary services. Fees are specified in the Company’s agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed the first of the month. Funds received from resident in advance of services are not material to the Company’s unaudited condensed consolidated financial statements.
Below is a table that shows the breakdown by percent of revenues related to contracts with residents versus resident fees for support or ancillary services.
| For the three months ended June 30, | ||||||||||||||||
| 2022 | % | 2021 | % | |||||||||||||
| Revenue from contracts with customers: | ||||||||||||||||
| Resident rent - over time | $ | % | $ | % | ||||||||||||
| Day care | % | |||||||||||||||
| Amenities and conveniences - point in time | % | |||||||||||||||
| Total revenue from contracts with customers | $ | $ | ||||||||||||||
| For the six months ended June 30, | ||||||||||||||||
| 2022 | % | 2021 | % | |||||||||||||
| Revenue from contracts with customers: | ||||||||||||||||
| Resident rent - over time | $ | % | $ | % | ||||||||||||
| Day care | % | |||||||||||||||
| Amenities and conveniences - point in time | % | % | ||||||||||||||
| Total revenue from contracts with customers | $ | $ | % | |||||||||||||
The Company relinquished operations of its facility
that was located in Simpsonville, South Carolina (the “Simpsonville Facility”) effective September 30, 2021. Total residential
rent revenues for the three months and six months ended June 30, 2022 do not include any such revenues from the Simpsonville Facility,
which were $
Resident rent from the Company’s same residential facilities increased
by $
Day care revenue is from Primrose Day care center, which we purchased in the second quarter of 2021.
| 13 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Cost of Product Revenue
Cost of product revenue represents direct and indirect costs incurred to bring the product to saleable condition.
Research and Development Expenses
All research and development costs are charged to expense as incurred. Research and development expenses primarily include (i) payroll and related costs associated with research and development performed, (ii) costs related to clinical and preclinical testing of the Company’s technologies under development, and (iii) other research and development costs including allocations of facility costs.
PPP Loans
The Company recognizes Paycheck Protection Program loans (PPP loans) under the Small Business Administration as debt instruments in accordance with ASC 470, Debt. When the loan proceeds are received, a long-term liability account (i.e., “PPP Loan Liability”) is set up. The presentation of the loan in the balance sheet is accounted for in accordance with U.S. GAAP regarding the presentation of assets and liabilities, whereas the portion of the loan due within 12 months from year end will be considered a current liability and the remaining portion will be considered a long-term liability. Also, under this guidance, a borrower should not recognize any income from the extinguishment of its debt until the borrower has been legally released as the primary obligor under the loan. In addition, the forgiveness of PPP loans as income will be recorded as other income and not included in income from operations based on the unprecedented nature of COVID-19.
ERTC Funds
The
Company was eligible to claim the employee retention tax credit (“ERTC”) for certain employees under the CARES Act. The 2021
refundable tax credit is available to employers that fully (or partially) suspend operations during any calendar quarter in 2021 due
to orders from an appropriate governmental authority, which limits commerce, travel, or group meetings due to COVID-19. The credit is
equal to 70% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of
$
General and Administrative Expenses
General and administrative expenses represent personnel costs for employees involved in general corporate functions, including finance, accounting, legal and human resources, among others. Additional costs included in general and administrative expenses consist of professional fees for legal (including patent costs), audit and other consulting services, travel and entertainment, charitable contributions, recruiting, allocated facility and general information technology costs, depreciation and amortization, and other general corporate overhead expenses.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires a financial asset, or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This ASU eliminates the probable initial recognition threshold and instead requires reflection of an entity’s current estimate of all expected credit losses. In addition, this ASU amends the current available for sale security other-than-temporary impairment model for debt securities. The length of time that the fair value of an available for sale debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists and credit losses will now be limited to the difference between a security’s amortized cost basis and its fair value. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends the transition and effective date for nonpublic entities and clarifies that receivables arising from operating leases are not in the scope of this ASU. These ASUs are effective for reporting periods beginning after December 15, 2022. The Company is assessing the potential impact that the adoption of these ASUs will have on its unaudited condensed consolidated financial statements.
In December 2019, the FASB also issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies certain requirements under Topic 740, including eliminating the exception to intra-period tax allocation when there is a loss from continuing operations and income from other sources, such as other comprehensive income or discontinued operations. The amendments in this ASU are effective for the fiscal year beginning after December 15, 2020. The Company has determined that this ASU does not have a material impact on its unaudited condensed consolidated financial statements.
| 14 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
3. Real Estate, Property and Equipment, Net
Property and equipment, net, consists of the following:
Memory Care Facilities and Corporate
Estimated Useful Lives | June 30, 2022 | December 31, 2021 | ||||||||
| Land | $ | $ | ||||||||
| Building and building improvements | ||||||||||
| Furniture, fixtures, and equipment | ||||||||||
| Total | ||||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||||
| Real estate, property and equipment, net | $ | $ | ||||||||
Non-core businesses classified as assets held for sale:
Estimated Useful Lives | June 30, 2022 | December 31, 2021 | ||||||||
| Land | $ | $ | ||||||||
| Building and building improvements | ||||||||||
| Other | ||||||||||
| Total | ||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||||
| Real estate, property and equipment, net | $ | $ | ||||||||
The
Company recorded depreciation expense relating to real estate, property, and equipment for the Company’s memory care facilities
and corporate assets in the amount of $
The Company has reviewed the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If there is an indication that the value of an asset is not recoverable, the Company determines the amount of impairment loss, if any, by comparing the historical carrying value of the asset to its estimated fair value. The Company determined estimated fair value based on input from market participants, the Company’s experience selling similar assets, market conditions and internally developed cash flow models that the Company’s assets or asset groups are expected to generate, and the Company considers these estimates to be a Level 3 fair value measurement.
Based on the Company’s review of carrying value of long-lived assets included in discontinued operations, the Company concluded that a)several of its properties were sold and did not warrant consideration; b) certain properties belonging to their continuing operations segment generate revenue, are cash flow positive and have assets with low carrying values as compared to the recoverable amounts and therefore do not meet impairment requirements; and that c) several properties might be impaired due to extended closures. Both the SeaWorld and Buda hotels have experienced extended closures since March, 2020 due to the COVID-19 pandemic and this has meant significant reductions in cash flows and on the ability to repay the mortgage loans on the properties.
| 15 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
4. Leases
The Company follows ASC 842, as discussed in Note 1 – Summary of Significant Accounting Policies, the Company has elected the package of practical expedients offered in the transition guidance which allows management not to reassess the lease identification, lease classification, and initial direct costs. The Company has elected the accounting policy practical expedient to exclude recording short term leases for all asset classes, as right-of-use assets, and lease liabilities on the unaudited condensed consolidated balance sheet. Finally, the Company has elected to recognize lease components and non-lease components separately for real estate leases.
Leases for Memory Care Facilities
The
Company leases three memory care facilities from MHI-MC San Antonio, LP, MHI-MC Little Rock, LP, and MHI-MC New Braunfels, LP (collectively
“MHI entities”) under three separate lease agreements and originally recorded a right of use asset and a lease liability
of $
As of June 30, 2022, the Company leased the memory care Simpsonville Facility from MC-Simpsonville, SC-1-UT, LLC (the “Simpsonville Landlord”) under a 15-year non-cancelable lease agreement. Beginning January 2019, the Company ceased paying the Simpsonville Landlord rent. The Landlord filed a lawsuit against the guarantors of the lease and on October 21, 2020. During the third quarter of 2022, the Company and the Simpsonville Landlord terminated this lease and agreed to settle this litigation. See Note 7 – Commitments and Contingencies for additional information.
All
leases are classified as operating leases. The Company does not have any leases within its non-core business. Therefore, no right-of-use
assets or lease liabilities were recorded within non-current assets held for sale or lease liability on the unaudited condensed consolidated
balance sheet following the adoption of ASC 842. Weighted-average remaining lease terms and discount rate as of June 30, 2022, are
| 16 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Lease Costs
For the three & six months ended June 30, 2022 and 2021, the lease costs recorded in the unaudited condensed consolidated statement of operations are as follows:
| For the Three Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Lease costs: | ||||||||
| Operating lease costs | $ | $ | ||||||
| Short-term lease costs | $ | |||||||
| Total lease costs | $ | $ | ||||||
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Lease costs: | ||||||||
| Operating lease costs | $ | $ | ||||||
| Short-term lease costs | $ | |||||||
| Total lease costs | $ | $ | ||||||
Operating Lease Payments
The following table summarizes the maturity of the Company’s operating lease liabilities as of June 30, 2022:
| Year Ending | Operating Leases | |||
| 2022 (Remaining of 2022) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total minimum lease payments | $ | |||
| Less: amounts representing interest | ||||
| Present value of future minimum lease payments | ||||
| Less: current portion | ||||
| Non-current lease liabilities | $ | |||
5. Discontinued Operations
The Company held two hotel properties during 2021, each of which were classified as non-core assets and were sold or disposed of during 2021.
| 17 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
During the quarter ended June 30, 2022, the Company sold one non-core asset:
Clearday
sold on June 30, 2022 unimproved land of approximately
On
April 5, 2022, Leander Associates, Ltd., a Texas limited partnership (“Leander Seller”) also executed a Purchase and
Sale Agreement with Leander Ridge, LLC, a Texas limited liability company (“Buyer”) to sell one of Clearday’s
non-core assets: a land parcel located in Leander, Texas (the “Leander Property”) for a consideration of $
The following statements are the unaudited condensed consolidated balance sheets and income statements for the Company’s discontinued operations:
| June 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | $ | $ | ||||||
| Investments in non-consolidated entities | ||||||||
| Note Receivables | ||||||||
| Real estate, property and equipment, net | ||||||||
| Total long-term assets held for sale | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | |||||||
| Accrued expenses | $ | |||||||
| Accrued interest | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Note payable | ||||||||
| Long-term debt, less current portion | ||||||||
| Total long-term liabilities held for sale | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| 18 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| REVENUES | ||||||||
| Commercial property rental revenue | $ | ( | ) | $ | ( | ) | ||
| Total revenues, net | ( | ) | ( | ) | ||||
| Costs and expenses | ||||||||
| Operating expenses | ||||||||
| General and administrative expenses | ||||||||
| Total operating expenses | $ | $ | ||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other/(income) expenses | ||||||||
| Interest expense | ||||||||
| Gain on disposal of assets | ||||||||
| Equity income from investees, net of applicable taxes | ||||||||
| Impairment expense (recovery) | ( | ) | ||||||
| Other (income) expenses | ( | ) | ||||||
| Total (income)/expense | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ||||
6. Indebtedness
As
of June 30, 2022 and December 31, 2021, the current portion of long-term debt within the Company’s unaudited condensed financial
statements for our core MCA and Corporate facilities is $
As
of June 30, 2022 and December 31, 2021 the long term debt less the current portion of the company debt is $
Interest and Future Maturities
The
Company has recorded interest expense in the accompanying unaudited condensed consolidated financial statements of $
The change in the interest expense reflects primarily the impact of the factoring loans we have taken out which carry a higher interest rate.
| As of June 30, | Continuing Core | Discontinued Non-Core | Total | |||||||||
| 2022 | ||||||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| Thereafter | ||||||||||||
| Total obligations | $ | $ | $ |
| 19 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table summarizes the maturity of the Company’s long-term debt and notes payable as of June 30, 2022:
| Maturity Date | Interest Rate | June
30, 2022 | December
31, 2021 | |||||||||||
| Memory Care (Core) Facilities: | ||||||||||||||
| Naples Equity Loan |
| % | | | ||||||||||
| Libertas Financing Agreement |
| % | | |||||||||||
| New Braunfels Samson Funding 1 |
| % | | |||||||||||
| New Braunfels Samson Group 2 |
| % | | |||||||||||
| Naples Operating LG Funding |
| % | | |||||||||||
| Naples LLC CFG Merchant Solutions |
| % | | |||||||||||
| MCA Invesque Loan |
| % | | |||||||||||
| New Braunfels Business Loan |
| % | | | ||||||||||
| Gearhart Loan |
| % | | | ||||||||||
| Five C’s Loan |
| % | | |||||||||||
| Jefferson | % | |||||||||||||
| GS Capital | % | |||||||||||||
| Firstfire | % | |||||||||||||
| SBA PPP Loans |
| % | | | ||||||||||
| Buda 2K Hospitality LLC |
| % | | |||||||||||
| Equity Secure Fund I, LLC |
| % | | | ||||||||||
| New Braunfels Samson Funding 1 |
| % | ||||||||||||
| New Braunfels Samson Group 2 | | % | ||||||||||||
| Naples LLC CFG Merchant Solutions | | % | ||||||||||||
| Bank Direct Payable | % | |||||||||||||
| Naples Operating PIRS Capital | % | |||||||||||||
| Little Rock Libertas | % | |||||||||||||
| PIRS Capital Financing Agreement | % | |||||||||||||
| New Braunfels Samson Funding 1 | % | |||||||||||||
| New Braunfels Samson Group 2 | % | |||||||||||||
| Little Rock Samson Funding #3 | % | |||||||||||||
| Naples Samson #1 | % | |||||||||||||
| Sixth Street | % | |||||||||||||
| Westover Samson #1 | % | |||||||||||||
| Naples LG Funding #2 | % | |||||||||||||
| New Braunfels Samson #1 | % | |||||||||||||
| Little Rock Premium Funding | % | |||||||||||||
| Notional amount of debt | | | ||||||||||||
| Less: current maturities | | |||||||||||||
| $ |
| $ | ||||||||||||
| Non-core businesses classified as liabilities held for sale: | ||||||||||||||
| Real Estate: | ||||||||||||||
| Artesia Note (6) |
| $ |
| $ |
| |||||||||
| Tamir Note |
| % | | |||||||||||
| Leander Note |
| % | | |||||||||||
| Leander Stearns National Association | % | |||||||||||||
| Notional amount of debt | | |||||||||||||
| Less: current maturities | | |||||||||||||
| $ |
| $ | ||||||||||||
| Core Businesses (Continuing Operations) Notes Payable | ||||||||||||||
| Cibolo Creek Partners promissory note |
| % | $ | $ | | |||||||||
| EIDL SBA Treas 310 |
| % | | |||||||||||
| AGP Contract |
| % | | |||||||||||
| Round Rock Development Partners Note |
| % | | | ||||||||||
| Notional amount of debt | | | ||||||||||||
| Other Current Liabilities | ||||||||||||||
| Related Party Payable - Guarantee Fees | | | ||||||||||||
| $ |
| $ | ||||||||||||
| Non-Core Businesses (Discontinued Continuing Operations) Notes Payable | ||||||||||||||
| Cibolo Creek Partners promissory note |
| % | $ |
| $ |
| ||||||||
| Notional amount of debt | | | ||||||||||||
| * | On
July 7, 2022, this note was modified to reduce the principal to $ |
On
the accompanying unaudited condensed consolidated balance sheet for core business operations includes $
| 20 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Memory Care (Core) Facilities:
Naples Equity Loan
On
April 29, 2021, the Company executed a secured promissory note with Benworth Capital Partners, LLC in the amount of $
PPP Loans
In May 2020, the Company was granted four separate loans under the Paycheck Protection Program (the “PPP Loans”) administered by the United States Small Business Administration (“SBA”) established under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which has enabled the Company to retain the Company’s employees during the period of disruption created by the Coronavirus pandemic. STI was granted one loan in March 2021. The PPP Loans, which are evidenced by Notes issued by the Company (the “Note”), mature in May 2022 and bear interest at a fixed rate of 1.0% per annum, accruing from May 2020 (“Loan Date”) and payable monthly. The Note is unsecured and guaranteed by the SBA. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The Note provides for customary defaults, including failure to make payment when due or to fulfill the Company’s obligations under the notes or related documents, reorganizations, mergers, Consolidations or other changes to the Company’s business structure, and certain defaults on other indebtedness, bankruptcy events, adverse changes in financial condition or civil or criminal actions. The PPP Loans may be accelerated upon the occurrence of a default. We expect that our remaining PPP loans (including STI) will be forgiven in the upcoming months.
| 21 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
AGP Promissory Note
The
Company entered into an unsecured promissory note with A.G.P./Alliance Global Partners (“AGP”) which was the financial adviser
to AIU in connection with the merger. The $
New Braunfels Business Loan
On
December 23, 2015, the Company executed a business loan agreement with ServisFirst Bank for $
Gearhart Loan
On
April 1, 2012, the Company executed a promissory note with Betty Gearhart for $
Five C’s, LLC Loan
As
of April 1, 2019, the Five C’s LLC entered into an agreement issuing capital stock that reduced obligations under an existing promissory
note to $
Equity Secured Fund I, LLC
On
March 26, 2021, the Company executed a promissory note for $
| 22 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Firstfire
On
April 5, 2022, Clearday, Inc. (the “Company”), entered into a Securities Purchase Agreement (the
“Note Purchase Agreement”) to issue an unsecured promissory note (the “Note”) to
an institutional lender. We used the proceeds of this financing to fund our operations. The Note provides for the net funding to
Clearday of $
The
Note provides for a one year maturity. Monthly payments on the Note of $
Jefferson Street
On
May 16, 2022, we entered into a Securities Purchase Agreement (the “Jefferson Purchase Agreement”) to issue an unsecured
promissory note (the “Jefferson Note”) to an institutional lender. This Jefferson Note provides for the proceeds to us of
$
| 23 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
GS Capital
On
May 20, 2022, we entered into a Securities Purchase Agreement (the “GS Purchase Agreement”) to issue an unsecured promissory
note (the “GS Note”) to an institutional lender. This GS Note provides for the proceeds to us of $
Sixth Street
The
Note provides for the net funding to Clearday of $
The
Note provides for a one year maturity. Monthly payments on the Note of $
Upon
any Event of Default,
Debt Related to Assets Held for Sale
| 24 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Artesia Note
On
April 1, 2013, the Company executed a promissory note with FirstCapital Bank of Texas, N.A. for a principal amount of $
Leander Note
On
October 5, 2018, the Company executed a loan agreement with Equity Security Investments for a principal amount of $
Notes Payable
The Company has notes payable to Cibolo Creek Partners, LLC, its affiliate Round Rock Development Partners, LP. These notes have a maturity date of December 31, 2025, and there is no interest accruing on any of these notes. Each of these lenders was a related party when the obligations were incurred. For more information, see Note 9 - Related Party Transactions.
7. Commitments and Contingencies
Contingencies
The
tenant, MCA Simpsonville Operating Company LLC, referred to as Tenant, of the Simpsonville Facility, and other affiliates of the Company
have a dispute with the landlord of the Simpsonville Facility, MC-Simpsonville, SC-UT, LLC, referred to as the Landlord, and its affiliates
(Embree Group of Companies: Embree Construction Group, Inc., Embree Asset Group, Inc., and Embree Capital Markets Group, Inc., referred
to collectively as Embree) under the terms of the lease. The Tenant has stopped paying rent and related charges under the lease for the
Simpsonville Facility from and after January 1, 2019. The Landlord has made demands for past rent but has not instituted legal action
against the Tenant. Instead, the Landlord filed a lawsuit against the guarantors of the lease, including Trident Healthcare Properties
I, L.P., referred to as Trident, which is a wholly owned subsidiary of the Company and an unconditional guaranty of such lease; and the
personal guarantors of the Tenant’s obligations under the Lease, including the Company’s Chairman and Chief Executive Officer.
The Company has an obligation to indemnify and hold such individuals (other than the Company’s Chairman) harmless under such personal
guarantees, and Trident is a consolidated subsidiary in the Company’s financial statements. The Company’s Chairman has indemnified
the Company for all obligations of the Company with respect to obligations to the Landlord in connection with this litigation, including
the Company’s obligations to such indemnified individuals and the Company’s subsidiaries. This litigation is captioned and
numbered MC-Simpsonville, SC-UT, LLC v. Steve Person, et. al., Cause No. 19-0651-C368 and is pending in the 368th Judicial District Court
of Williamson County, Texas. On October 21, 2020, the trial court has issued a judgment on damages in the amount of $
The Landlord filed a second action against Trident and the other guarantors on April 9, 2021, for claims similar to the action described above including relief for payment of rent past due and reimbursement of taxes from October 2020 to the time of the trial in this action. Trident and the other guarantors intend to respond to this action. The Company is not able to determine if it will prevail in such litigation. The Tenant entered into an agreement to transfer certain operations, including lease obligations, of the Simpsonville Facility. On August 5, 2022, in connection with the settlement of the action described above, Tenant and Landlord terminated the lease of the Simpsonville Facility as contemplated by such agreement to transfer of certain operations, including lease obligations, which permitted the Landlord to sell the Simpsonville Facility to a third party. The Company and Landlord are negotiating a settlement, including the amount and payment terms. There can be no assurance that the Company will settle this second action on terms that are acceptable or at all. See Note 16 - Subsequent Events.
| 25 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Certain
subsidiaries of the Company that operated hotel assets have not paid employment related taxes such as required withholdings for Texas
State unemployment taxes and federal income tax and employee and employer contributions for FICA (Social Security and Medicare) taxes,
and federal unemployment tax for the period from December 31, 2018 to December 31, 2020. These subsidiaries have since made the appropriate
filings with the Internal Revenue Service and the Company has accrued the full estimated amount of the underpaid taxes as well as the
estimated penalties and interest. As of June 30, 2022, the amount of the estimated taxes, penalties, and interest, assuming that there
is no waiver or mitigation of the penalties, is $
In addition, from time to time, the Company becomes involved in litigation matters in the ordinary course of its business. Such litigations include an action that alleges negligence and other claims regarding the death of a resident in a memory care facility. One such action was Michael Inderrieden, Individually and as Personal Representative of the Estate of Thomas Inderrieden v. MCA Simpsonville Operating Company, LLC dba Memory Care of Simpsonville; Allied Integral United, Inc. dba Clearday; Memory Care America, LLC.; MCA Management Company, Inc.; and MC-Simpsonville, SC-1-UT, LLC, that alleged various acts and breaches by the defendants that resulted in the death of a resident. This action was settled in the third quarter of 2022. Although the Company is unable to predict with certainty the eventual outcome of any litigation, the Company does not believe any of its currently pending litigation is likely to have a material adverse effect on its business.
Indemnification Agreements
Certain
lease and other obligations of the Company are guaranteed in whole or in part by James Walesa and/or BJ Parrish and others. The Company
has agreed to indemnify and hold each such individual harmless for all liabilities and payments on account of any such guaranty. The
lease obligations of the Company for its lease obligations for four of its five MCA facilities, including the lease of the MCA community
that is located in Simpsonville, South Carolina, referred to as the Simpsonville Facility. This is the facility that is the subject of
litigation and judgement against certain of our subsidiaries. We have been fully indemnified by James Walesa for all obligations that
the Company may incur with respect to an adverse judgement against the Company, including any post-judgement interest. Such indemnification
by James Walesa is under an agreement dated as of July 30, 2020. Under such agreement, James Walesa receives a fee equal to
Subsequently, an amendment to the indemnification agreement above was signed on January 19, 2021 in which additional securities were pledged on behalf of James Walesa for all obligations that Company may incur with respect to an adverse judgement and/or any post-judgement interest. In the event that Mr. Walesa is required to make any payments under this amended indemnification agreement, then Company will issue shares of AIU Care, AIU Warrants and AIU Common Stock at $ per unit as well as the AIU Series A Preferred at $ per unit, for the amount of such payment.
| 26 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Basic net income (loss) per common share is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period. For the Company’s diluted earnings per share calculation, the Company uses the “if-converted” method for preferred stock and convertible debt and the “treasury stock” method for Warrants and Options.
| Dilution shares calculation | For the Six Months Ended June 30, | |||||||
| 2022 | 2021 | |||||||
| Series A Convertible Preferred Stock | ||||||||
| Series F 6.75% Convertible Preferred Stock | ||||||||
| Series I 10.25% Convertible Preferred Stock | ||||||||
| Limited Partnership Units | ||||||||
| Warrants | ||||||||
| Stock Options | ||||||||
| Total participating securities | ||||||||
9. Related Party Transactions
Background
The Related Party Disclosures Topic provides disclosure requirements for related party transactions and certain common control relationships. Accounting and reporting issues concerning certain related party transactions and relationships are addressed in other Topics.
Information about transactions with related parties is useful in comparing an entity’s results of operations and financial position with those of prior periods and with those of other entities. It helps users of financial statements to detect and explain possible differences.
Debt
There are some loans in which executive management has loaned money to the Company. In addition, there are loans made by the Company itself in which certain executives personally guarantee the debt.
Cibolo
Creek Partners, LLC (“Cibolo Creek”) and its affiliate Round Rock Development Partners, LP (“RRDP”) have from
time to time made loans to us under revolving credit notes that bear interest at the then applicable federal rate and are payable on
demand or other date that was specified by such lender. In December 2018, AIU acquired businesses affiliated with Cibolo Creek. As of
June 30, 2022, Cibolo Creek and Round Rock were owed $
| 27 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Guarantees
From
time-to-time certain officers and directors will personally guarantee a loan. There is a guarantee fee agreement in place that details
the amount of the fee as well as payment terms for certain executives in the Company. The amount of the fee is capped at
Other Transactions
On
February 18, 2022, MCA Naples, LLC (‘Seller’) executed a purchase agreement with Richard Morris, an executive vice president
of the Company, and Arlene Berliner, JTWROS (the “Purchaser”) to sell undivided interests in the land and improvements (the
“Naples Property”) that are used for its Memory Care of Naples care facility that is in Naples, Florida (the “Naples
Facility”) for aggregate cash amount of $
Related parties of the Company, including our Chief
Executive Officer, have from time to time made as unsecured non-interest bearing advances that are due upon demand. As of June 30, 2022,
the balance of such advances from officers were an aggregate amount of approximately $
13. Deficit
The certificate of incorporation of Clearday, Inc., as amended in connection with the merger, provides for authorized shares of Common Stock and authorized shares of preferred stock, each par value $ per share.
Common Stock
AIU awarded restricted shares of its common stock in the amount of shares (representing shares of Clearday, Inc. Common Stock) to various officers, directors and a consultant; during the six months ended June 30, 2021. For the six months ended June 30, 2022, Clearday did not award any restricted stock.
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.
Preferred Stock
Prior to the AIU Merger, AIU had Series A 6.75% cumulative convertible preferred stock, $ par value, shares of such securities were issued and outstanding as of December 31, 2021. 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, $ par value. The Company has shares authorized with and issued and outstanding as of June 30, 2022 and December 31, 2021, respectively. The Series F Preferred Stock has a stated value of $ per share is exchangeable at the option of the holder into approximately 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 – Temporary, 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 $ par value, shares authorized, and shares issued and outstanding as of June 30, 2022 and December
31, 2021. Except for a preference on liquidation of $
| 28 |
Clearday, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Dividends and Distributions
For
the three and six months ended June 30, 2022 and June 30, 2021, the Company recognized dividends for the 6.75% Series F preferred stock
in the amount of $
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 AIU Merger Effective Date.
The following is a summary of such outstanding warrants at June 30, 2022:
| Common Shares | ||||||||||||||
| Total | Currently Exercisable | Exercise Price per Share | Expiration Date | |||||||||||
| Warrants related to March 2018 financing | $ | |||||||||||||
| Warrants related to March 2018 financing | $ | |||||||||||||
| Warrants related to July 2018 financing | $ | |||||||||||||
| Warrants related to July 2018 financing | $ | |||||||||||||
| Warrants related to May 2019 financing | $ | |||||||||||||
| Warrants related to October 2019 financing | $ | |||||||||||||
| Warrants related to October 2019 financing | $ | |||||||||||||
| Warrants issued by AIU that after the merger (described below) | $ | |||||||||||||
| Warrants issued by AIU for consultant | $ | |||||||||||||
Warrants that were issued by AIU have been assumed by Clearday in the merger.
As
of June 30, 2022, there are
| 29 |
Clearday, Inc.
Notes to Unaudited Condensed 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 shares
of the Company’s Common Stock as of the effective date of the merger at an exercise price of $
Stock Options
At June 30, 2022, 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 six months ended June 30, 2022. 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 June 30, 2022, there are no outstanding options under the Stock Option Plan.
Restricted Stock
On March 31, 2021, AIU issued an additional total shares of restricted common stock to executives of AIU representing approximately shares of Clearday, Inc. Common Stock. The shares vest over months and the Company valued the shares at $ per share, on the date of the agreement.
For the six months ended June 30, 2022, no shares of restricted common stock were issued.
Equity of Subsidiary
Non-Controlling Interest
In
November 2019, a certificate of incorporation was entered into by AIU Alt Care for Series I 10.25% cumulative convertible preferred stock,
par value $ per share that authorizes the issuance of shares of preferred stock and of common stock and designated
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 six months ended June 30, 2022 and 2021, $
The
exchange rate for each of the Alt Care Preferred Stock and the limited partnership units in Clearday OZ Fund to Clearday, Inc.
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 six
months ended June 30, 2022, the income for AIU Alt Care is $
Cumulative Convertible Preferred Stock and Limited Partnership Interests in Subsidiaries (NCI)
For
the six months ended June 30, 2022, AIU Alt Care closed subscriptions and issued and sold shares of Series I Cumulative Convertible
Preferred Stock (the “Alt Care Preferred Stock”), par value $ per share, and units of limited partnership interests
in Clearday OZ Fund. However, the dividends on the series I shares for the quarter ended June 30, 2022 totaled $
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 six
months ended June 30, 2022, AIU Alt Care and Clearday OZ fund has issued
Each
warrant has a term of
| 30 |
Clearday, Inc.
Notes to Unaudited Condensed 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 (
Each of the Company, Alternative 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.
14. Preferred Stock – Temporary equity
The Company has shares of preferred stock authorized, par value $ per share, including designated as Series F Preferred Stock and shares outstanding as of June 30,2022. Pursuant to the Certificate of Designations of Series F Preferred Stock, upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (“Liquidation Event”), including any Deemed Liquidation Event, as defined in the Certificate of Designations and unless otherwise determined by the majority of the holders of the Series F Preferred Stock that a transaction is not a Deemed Liquidation Event, the holders of the then outstanding Series F Preferred Stock shall be entitled to be paid a liquidation preference (“Preference Amount”) out of the assets of the Company available for distribution to its stockholders equal to the original issue price and, plus any accumulated and unpaid dividends. As the payment of this Preference Amount is not solely within the control of the Company, the Series F Preferred Stock does not qualify as permanent equity and has been classified as temporary equity. The Series F Preferred Stock is not redeemable, and it was not probable that there would be a Liquidation Event as of June 30,2022. Therefore, the Company is not currently required to accrete the Series F Preferred Stock to the aggregate liquidation value.
15. Income Taxes
The
Company did
The Company evaluates its deferred tax assets on a quarterly basis to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. The Company has assessed its position and decided that a valuation allowance as of June 30, 2022 and June 30, 2021 is not necessary at this time.
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Current tax provision (benefit): | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Total current tax benefit | ||||||||
| Less Valuation Allowance | ) | |||||||
| Total | ||||||||
16. Subsequent Events
We evaluated subsequent events and transactions occurring after June 30, 2022 through the date of this Report.
Loans
Loans:
We
incurred loans from an institutional lender in the aggregate principal amount of approximately $
| 31 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the unaudited condensed 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 Clearday, its plans, and strategy for its business and related financing, includes forward-looking statements that involve risks and uncertainties. References in this Item 2 to AIU refers to the business of Allied Integral United, Inc. that was continued after the AIU Merger, unless otherwise indicated. The following discussion uses the term Clearday to mean the business and operations of AIU prior to the AIU Merger together with certain businesses of Superconductor continued after the merger, unless otherwise indicated.
General Industry Trends.
AIU began its business on December 31, 2018 when it acquired the businesses of certain private funds that were engaged in providing residential memory care services and other businesses (the “2018 Acquisition”). As a result of the 2018 Acquisition, Clearday owned and controlled the acquired businesses that included memory care residential care facilities operated by Memory Care America LLC (“MCA”) and other businesses and assets held for disposition.
The Company’s strategy is to provide innovative non-acute care and wellness solutions that disrupt the traditional senior care model primarily virtually through digital channels with its Clearday at Home service, that it developed during 2020 and launched in the first quarter of 2021 through consumer and business to business (B2B) sales channels, and through its facilities. The Company owns and operates four residential memory care facilities that are located in three U.S. states, under the Company’s subsidiary, MCA. The MCA 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. The Company uses its knowledge and its 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, including adult day care and home care products and services.
During the six months ended June 30, 2022, we continued developing the next generation of tech-enabled non-acute care and wellness solutions, including the deployment and development of robots through its previously announced joint venture. As of the date of this Report, we offer robotic services that focus on resident engagement in one of our facilities with additional deployment in two other facilities expected by September 30, 2022. The robotic services provide enhanced care to residents through a range of engagement focused applications, including our proprietary streaming services, games, music and other digital services. The robotic services also include safety services such as fall detection, assisting in rounding and alerts to staff. We have begun marketing the robots to third parties for use in their residential care facilities and to others for home care applications. One market for use of our robotic services is skilled nursing care facilities, which may be able to access state sponsored grants and programs to fund, in whole or in part, the purchase or rental of our Mitra Robot and related services. We are also continuing improvements to our residential care facilities with our Clearday Stay rooms that provide premium furnishings and services.
Clearday has two business segments:
| ● | Non-Acute Care and Wellness, is Clearday’s operating business including: |
| - | Clearday’s innovative non-acute care and wellness services and products, including a virtual service delivered through digital channels, and adult day care; | |
| - | Clearday’s existing MCA communities; | |
| - | Further development and commercial sales of robotic technologies; | |
| - | Commercialization of its advanced air quality products; and | |
| - | All of Clearday’s general and administrative and research and development functions. |
| ● | Non-Core Assets and Related Businesses, which includes all of the assets that are held for disposition. |
All net proceeds from dispositions of the non-core assets and related businesses since the 2018 Acquisition have been used by Clearday for its working capital and to fund the development of its innovative non-acute care and wellness businesses.
All of the Company’s long-lived assets are located in the United States and, during the six months ended June 30, 2022 and 2021, respectively, all of the Company’s revenue was derived from within the United States.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Seasonality.
MCA’s residential care facilities are seasonal in nature. Generally, residential care facilities suffer revenue losses in the Winter months.
Results of Operations.
Our operating revenues are predominately from our four residential memory care facilities and our adult day care center (our “Facilities”). Our residential care Facilities earn 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 such 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 revenues were from our adult day care business. Our adult daycare Facility 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 facilities described below as well as the expenses that we incur in our digital platform.
Certain costs and expenses incurred by the Company are accounted for as Selling, General & Administrative Expenses (“SG&A”), including costs and expenses that are summarized below, which we have continued to decrease significantly since from January 1, 2020. We believe that disclosure of such amounts would be useful to the analysis of our financial statements.
These SG&A Expenses during the six months ended June 30, 2022 include:
(1) Development capitalized costs and expenses for the innovative services, including Clearday at Home, which primarily consisted of payments to a third-party consulting firm to develop the Clearday at Home and Clearday Club business models, strategies, branding and marketing, and to a lesser extent, the employment costs of the Company personnel dedicated to such development activities. For the six months ended June 30, 2022 and 2021, these amounts were approximately $1.2 million and $1.55 million (including research and development costs), respectively. The decrease is primarily because of we completed a material amount of research and development related to our digital platform used for Clearday at Home and related digital services during this period and we capitalized a certain amount of payments during this period. We may incur other development expenses through our Clearday Labs for the development of other products and services to the extent that such amounts are not funded by others through our strategic alliances.
(2) Accounting and finance expenses related to the merger and becoming a public company, which primarily consisted of accounting and consulting fees incurred to improve the accounting and finance department, the additional consulting fees regarding the audit and preparation of our financial statements. For the six months ended June 30, 2022 and 2021, these costs were approximately $381,786 and $963,641 respectively. While some of these expenses will continue, such as audit fees, we have reduced our reliance on third party accounting consultants as we have increased the number and skill set of our accounting and financial staff. These costs included approximately $542,000 of costs and expenses paid to third party accounting consultants during the six months of 2021 reduced to approximately $90,000 during the six months ended of 2022 or a decrease of $452,000 because we significantly reduced our use of such consultants beginning December 2021, which amount was, offset in part by our increase in the compensation expense for our financial accounting staff.
(3) Equity based compensation, which primarily consisted of restricted stock grants and warrants to the Company’s executives and third-party consultants. For the six months ended June 30, 2022 and 2021, these amounts were $0 and $689,912, respectively.
Our operating expenses for residential care and adult day care facilities (“Facilities”) are primarily related to providing care to our residents and customers, including:
| ● | wages and benefits, including wages and wage-related expenses, such as health insurance, workers’ compensation insurance and other benefits for the employees, including management; | |
| ● | 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; | |
| ● | 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 these businesses; and | |
| ● | other expenses for the development of technology used in supporting operations and next generation of tech-enabled non-acute care and wellness solutions |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Key statistical data for the six months ended June 30, 2022 and 2021:
A significant amount of our expenses during the six month period ending June 30, 2022 are allocated to our Facilities. We ceased operating our Simpsonville Facility as of September 30, 2021 and acquired an adult day care center during the second quarter of 2021. The following tables present a summary of our operations for the six months ended June 30, 2022 and 2021 (dollars in thousands, except per unit amounts) for our Facilities, other than the Simpsonville Facility, which we ceased operating as of September 30, 2021 and for comparative purposes has been excluded during both periods.
| Six Months Ended (Four Residential Care Facilities* and an Adult Day Care Facility) | Increase/(Decrease) | |||||||||||||||
| June 30, 2022 | June 30, 2021 | Amount | Percent | |||||||||||||
| MCA Resident Facilities | $ | 6,341 | $ | 5,927 | $ | 414 | 6.98 | % | ||||||||
| Operating expenses: | ||||||||||||||||
| Wages and benefits | 3,985 | 3,907 | 78 | 2.00 | % | |||||||||||
| MCA facility operating expenses | 1,337 | 1,089 | 248 | 22.77 | % | |||||||||||
| Lease expenses | 1,688 | 1,851 | (163 | ) | (8.81 | )% | ||||||||||
| Impairment | - | - | - | - | % | |||||||||||
| Other general & administrative expenses | 967 | 810 | 157 | 19.38 | % | |||||||||||
| Research & development expenses | - | - | - | - | % | |||||||||||
| Depreciation and amortization | 107 | 161 | (54 | ) | (33.54 | )% | ||||||||||
| Total operating expenses | 8,084 | 7,818 | 266 | 3.40 | % | |||||||||||
| Operating loss | (1,743 | ) | (1,891 | ) | 148 | (7.83 | )% | |||||||||
| Other (income) expenses | ||||||||||||||||
| Interest | 449 | 78 | 371 | 475.64 | % | |||||||||||
| Other (income) expenses | (637 | ) | (131 | ) | (506 | ) | 386.26 | % | ||||||||
| Total other/(income) expenses | (188 | ) | (53 | ) | (135 | ) | 254.72 | % | ||||||||
| Net Loss | (1,555 | ) | (1,838 | ) | 283 | (15.40 | )% | |||||||||
| * | We did not operate the Simpsonville Facility from and after September 30, 2021. This table does not include the financial statistics related to such facility for the periods presented. |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Revenue. Revenue from our Facilities increased by approximately 7%, or approximately $0.4 million, primarily due to revenues from our adult day care center that we acquired in the second quarter of 2021, and we operated during the first quarter of 2022, as well as increased revenues from our residential Facilities primarily due to a small increase in residents during these periods and increased average rates, offset in part by promotional discounts.
Wages and Benefits. Wages and benefits increased by 2%, or approximately $0.08 million during the first quarter of 2022 compared to 2021, primarily due to increased labor related to our adult day care center which we did not operate during the first six months of 2021, as well as increases related to our residential care Facilities, primarily due to increased staffing and to a smaller extent increase of outside agency staff of approximately, which we incurred to maintain staffing levels. We have reduced our use of outside agency staff significantly during April 2022, primarily due to better staffing and scheduling of our care persons. Although there can be no assurance that we will continue to be able to avoid using outside agency staff, we do not expect to incur the same level of outside agency staff after June 30, 2022.
Facility Operating Expense. Facility operating expenses increased by 22.8% or approximately $0.25 million, primarily due to a increases in food costs and supplies which were subject to inflationary pressures. We continue to evaluate our increased costs and may seek to offset such increased costs by increasing our rates for our services to the extent that such increases are acceptable to market conditions.
Lease Expenses. Lease or rent expenses decreased by approximately 8.9%, or approximately $0.163 million primarily due to one month of rent was over-accrued in 2021 and Simpsonville lease expense was subsidized by under the Simpsonville Transfer Agreement.
Other General and Administrative Expense. Other general and administrative expenses increased by approximately 19.4% or $0.16 million, primarily due to other professional services expenses related to the loan broker fees and travel costs and accounting services at the facilities offset in part by insurance cost.
Depreciation and Amortization. Depreciation and amortization decreased by approximately 33% or approximately $0.054 million primarily due to lower remaining net capitalized asset balances for leasehold improvements being subject to depreciation during this period.
Interest Expense. Interest expense increased by 475.6%, or approximately $0.37 million primarily due to higher interest expenses due to our financing of operating and other expenses through factoring facilities, offset in part by the repayment of other financings. We incurred these high interest rate financings in large part because we were not able to access the equity capital markets and in advance of our expected cash payments under the ERTC and the Families First Coronavirus Response Act (the “FFCRA”), as amended by the COVID-related Tax Relief Act of 2020, as well as expected lower compensation expenses by our ability to use federal tax credits available under the federal Work Opportunity Tax Credit (WOTC). We used the additional financing to fund operations as well as developing innovative care solutions, including our digital services and robotic services. We continue to seek equity financing with institutional parties. However, there can be no assurance that such equity capital financing facilities would be available on acceptable terms or at all.
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Expenses Not Allocated to the Facilities:
Our operating and other expenses that are not allocated to our Facilities or the Simpsonville Facility, included the following:
Operating Expenses
Operating expenses increased by a net amount of approximately 2% or approximately $0.02 million, primarily because of corporate compensation expenses and to a lesser extent, advertising and marketing and property taxes. Corporate compensation expense increased by approximately 1% or approximately $0.06 million. Of this amount, (1) approximately $0.04 million was due to a reallocation of compensation attributable to persons in discontinued operations during the first six months of 2021 to corporate services during the first six months of 2022 these allocation make-up $0.02 million in corporate compensation during the first quarter of 2022, (2) increase of corporate staff, including business development and persons dedicated to our streaming services. We increased our accounting and financial staff to lessen our reliance on accounting consultants, which as described below, resulted in a reduction of approximately $0.32 million of such expenses.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses decreased by a net amount of approximately 58% or approximately $1.9 million, primarily because there was $0.67 million of equity based compensation recorded during the first six months 2021 and no equity based compensation expense during the second quarter of 2022, and a reduction of legal & accounting services of approximately $0.58, of which approximately $0.44 of this decrease was attributable to accounting consultants. We were able to reduce our use of accounting consultants.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased by approximately 7% or $0.001.
Other (Income) Expenses
Other income decreased by a net amount of approximately $0.99 million, primarily because of 2021 ERTC grants.
Simpsonville Facility
We ceased operating our Simpsonville Facility as of September 30, 2021 and terminated the lease in August, 2022. During the six months ending June 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 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. The Simpsonville Facility operated at a loss, and we expect the lease termination will improve our future operating results.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Concentration of Risk—Revenues
The Company’s revenue for the six months ended 2022 and 2021 primarily consist of operations from our Facilities that are located in four states. The Company expects to continue to be dependent on revenues from the Facilities until the other planned businesses have revenues. Any failure of the Facilities to continue these businesses would significantly and adversely impact the Company. The 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 digital service Clearday at Home.
Non-Core Assets
The Company considers all its assets that are not used in the non-acute care and wellness industry as non-core assets. The non-core assets as of June 30, 2022 are commercial real estate investments, including land investments. The Company continues to evaluate the manner to sell or otherwise monetize such assets.
Disposition Activities
During the six months ended June 30, 2022, the Company sold one non-core asset, an unimproved land of approximately 2 acres of property located in Cibolo, Texas that was held as non-core assets for an aggregate gross amount of $980,000 that was sold on June 30, 2022. The sale of such land is part of our previously disclosed course of business to sell or otherwise monetize assets non-core assets, which are the assets (1) acquired by Clearday Operations, Inc. (formerly, Allied Integral United, Inc.), on December 31, 2018, when it began its business and that (2) are not related to our memory care facilities or our non-acute care and wellness industry.
The COVID-19 pandemic has slowed the ability of the Company to dispose of its remaining non-core assets and lowered the expected price of such remaining assets. The Company recently has received an offer to sell one of its non-core assets, an investment in land, and expect to continue its efforts to sell its non-core assets to fund its operations.
Revenues of the Non-Core Assets
The Company primarily derived revenues from Non-Core Assets from rents and related charges.
Liquidity and Capital Resources
We require cash to fund our current operations and continued innovation of non-acute care and wellness services. Our strategy is to use the net proceeds from the sale of our remaining non-core assets and the capital that we raise to fund such operations and activities. The COVID-19 pandemic has delayed the non-core sale process and, to a certain extent, reduced the expected net proceeds.
We do not have sufficient cash resources from the net cash flows of operations, from our current operations, to sustain our operations for the next twelve months and will rely on the continued sale of non-core assets and the sale of our securities and additional financings. We entered into additional factoring facilities from the period July 1, 2022 to the date of this Report for approximately $1,753,600 of revenues for aggregate net proceeds of approximately $1,292,150, of which, to the date of this Report, an aggregate amount of approximately $469,778 was paid resulting in remaining aggregate obligations of approximate $1,587,115 as of the date of this Report. After repayments, the net aggregate obligations under the factoring facilities as of the date of this Report is approximately $3,840,632.
We are negotiating the terms of financing of the equity in non-core assets with institutional lenders and anticipate that we will be able to realize approximately $1 million of mortgage financing, after refinancing of existing mortgage financing on such assets, on or prior to September 30, 2022. However, there can be no assurance that such financings will be available on acceptable terms or at all. We have engaged an investment banker and are negotiating with institutional investors for an equity investment in us, in an amount that we believe would enable us to fund our liabilities, including the factoring facilities. We have received and are evaluating a non-binding letter of intent for one such investment. However, there can be no assurance that any such equity investment will be available on acceptable terms or at all.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our results of operations, financial condition and cash flows are dependent on future developments, including the duration of the pandemic and the related length of our impact on the global economy, such as a lengthy or severe recession or any other negative trend in the U.S. or global economy and any new information that may emerge concerning the COVID-19 pandemic and the actions to contain it or treat our impact, which at the present time are highly uncertain and cannot be predicted with any accuracy.
We expect that the following factors will affect our future operating liquidity:
| ● | Operating revenues are expected to be affected, primarily because of |
| - | Our ability to increase residents through increased sales efforts, subject to regulatory requirements related to COVID-19 quarantine areas; | |
| - | Increased revenues from adult daycare, including a full year of revenues from our acquired adult daycare facility; | |
| - | Our ability to increase revenues by providing certain additional products and services to residents, and clients through our Clearday Direct program, including our robotic service that we have begun to deploy in our Westover facility in April 2022 and which we will expect to deploy in two of our other facilities before the end of the third quarter and our other facility by the end of this year. | |
| - | Our ability to market and sell robotic services in the home market. |
| ● | Operating costs are expected to be affected, primarily because of: |
| - | Our ability to reduce the staff to resident ratios in the post-COVID-19 environment and that our Clearday Clubs require less staff to client ratio; | |
| - | Our ability to 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; | |
| - | Reduced net losses related to our Simpsonville Facility. |
| ● | Selling and general administrative costs will be affected and are expected to decrease, primarily because: | |
| - | Development costs that are recorded as operating expenses related to additional products and services developed through our Clearday Labs. | |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MCA Initiatives
As business operations for residential care facilities began to normalize in the COVID-19 environment, we continued our evaluation of our businesses. We expect to:
| ● | Continue our sales and marketing training to maintain and increase resident or census occupancy percentages per available room in our Facilities; | |
| ● | Increase revenues per resident through the sale of innovative products and services, including Clearday Calm Rooms and digital and robotic services, as well as other revenue opportunities; | |
| ● | Use innovative services such as digital platforms and robotic service to empower and enhance caregiver efficiency and effectiveness which are intended to reduce employee / caregiver stress and turnover. |
COVID-19. The pandemic and the regulatory responses and additional initiatives have and will likely continue to have a material effect to Company’s core businesses and operations.
Funding History
Clearday historically financed its operations primarily through the sale of its equity securities in private placements and borrowings prior to the AIU Merger and through debt financings and factoring facility transactions after the AIU Merger. Clearday has incurred negative cash flows from operations.
Cash Flows
The following table ($ in 000) shows a summary of Clearday’s cash flows for the six months ended June 30, 2022 and 2021:
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in activities of continuing operations | (1,874,407 | ) | (2,276,797 | ) | ||||
| Net cash provided by (used in) operating activities of discontinued operations | - | 155,834 | ||||||
| Net cash used in operating activities | (1,874,407 | ) | (2,120,963 | ) | ||||
| Net cash used in investing activities of continuing operations | (28,310 | ) | (506,720 | ) | ||||
| Net cash used in investing activities | (28,310 | ) | (506,720 | ) | ||||
| Net cash provided by continuing operations | 1,139,194 | 3,053,444 | ||||||
| Net cash used in financing activities of discontinued operations | (201,552 | ) | (492,428 | ) | ||||
| Net cash provided by in financing activities | 937,642 | 2,561,016 | ||||||
Operating Activities
Net cash used in operating activities was $1.8 million for six months ended June 30, 2022, and $2.2 million for the six months ended June 30, 2021. Net cash used in continuing operations for the six months ended June 30, 2022 resulted from a net loss of $5.1 million adjusted for certain non-cash items including: (i) depreciation and amortization of $0.37 million, and (ii) amortization of debt cost of $0.43 million
Investing Activities
Net cash provided in investing activities was $0.03 million for the six months ended June 30, 2022, and net cash provided of $0.5 million for the six months ended June 30, 2021.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financing Activities
Net cash provided by financing activities was $1.5 million for the six months ended June 30, 2022. Net cash provided by financing activities for the six months ended June 30, 2022, consisted primarily of net proceeds received from factoring facilities and the loans from institutional lenders.
Government Programs
We participated in ERTC program and expect additional cash payments under the ERTC. We have applied for payments under the Families First Coronavirus Response Act (the “FFCRA”), as amended by the COVID-related Tax Relief Act of 2020, and expect to utilize the federal tax credits available under the federal Work Opportunity Tax Credit (WOTC). The amount of savings under WOTC is subject to the hiring of workers from certain disadvantaged targeted categories and is generally calculated as a percentage of wages over a twelve-month period up to worker maximum by targeted category. We estimate the amount of WOTC may be more than $75,000 per month, assuming our continuation of hiring workers who qualify under this program and that we continue to experience the same level of resignations of such workers.
Contractual Obligations and Commitments
See the “Commitment and Contingencies” section within Note 7 of the unaudited condensed consolidated financial statements within this Report, 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 1 Note 7 to the financial statements – Commitments and Contingencies.
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 six months or less at the date of purchase, are carried at cost plus accrued interest, which approximates market.
Restricted cash as of June 30, 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 unaudited condensed 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 unaudited condensed consolidated financial statements included in this quarterly analysis.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
During the six months ended June 30, 2022, there were no significant changes in our accounting policies and estimates other than the newly adopted accounting standards that are disclosed in Note 2 to our unaudited condensed 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 sea 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 damages and losses resulting from the consequences of losses caused by climate change. However, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this section.
Item 4. Evaluation of Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), has evaluated its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired controls objectives. Any “material weaknesses” in the Company’s internal controls may arise because of the internal control environment of the Company. Based upon that evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were ineffective. Specifically, the company does not have adequate segregation of duties that adequately restrict user and privileged access to certain financial applications, programs, and data to appropriate company personnel; do not adequately limit access to electronic payment systems for authorized expenditures; and have inadequate cyber controls regarding the protection of our data and restricting data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately. Management has identified these weaknesses and have adopted a program to remediate such weaknesses.
Remediation Plan. The Company has instituted efforts to remediate these concerns and enhance The Company’s internal control environment to remediate these issues by the end of the year or in the beginning of the first quarter of 2022. However, any failure to maintain effective controls could result in significant deficiencies or material weaknesses and cause the Company to fail to meet the Company’s periodic reporting obligations or result in material misstatements in the Company’s financial statements. The Company may also be required to incur costs to improve its internal control system and hire additional personnel. This could negatively impact the Company’s results of operations.
Changes in Internal Control over Financial Reporting
There have not been changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the six months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except as noted below. We increased the number of our financial and accounting staff and remediated or mitigated certain internal control weaknesses such as segregation of duties.
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PART
II
OTHER INFORMATION
Item 1. Legal Proceedings
Information on material developments in our legal proceedings is included in Note 7 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report.
ITEM 1A. Risk Factors
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this section.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit No. |
Description | |
| 31.1(1) | Certification of the Chief Executive Officer pursuant to Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2(1) | Certification of the Chief Financial Officer pursuant to Exchange Act Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1(1) | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2(1) | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS(2) | Inline XBRL Instance Document | |
| 101.SCH(2) | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL(2) | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF(2) | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB(2) | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE(2) | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
| (1) | Filed herewith. | |
| (2) | Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under those sections. |
| 42 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.
| CLEARDAY, INC. | |
| Dated: August 26, 2022 | /s/ John Bergeron |
| John R. Bergeron | |
| Chief Financial Officer | |
| /s/ James T. Walesa | |
| James T. Walesa | |
| President and Chief Executive Officer |
| 43 |
EXHIBIT 31.1
Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Principal Executive Officer
Regarding Facts and Circumstances Relating to Exchange Act Filings
I, James T. Walesa, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Clearday, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| Date: August 26, 2022 | |
| /s/ James T. Walesa | |
| James T. Walesa | |
| President and Chief Executive Officer |
EXHIBIT 31.2
Statement Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Principal Financial Officer
Regarding Facts and Circumstances Relating to Exchange Act Filings
I, John R. Bergeron, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Clearday, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| Date: August 26, 2022 | |
| /s/John R. Bergeron | |
| John R. Bergeron | |
| Chief Financial Officer |
EXHIBIT 32.1
Statement Pursuant to Section 906 the Sarbanes-Oxley Act of 2002 By
Principal Executive Officer
Regarding Facts and Circumstances Relating to Exchange Act Filings
Dated: August 26, 2022
I, James T. Walesa, Chief Executive Officer of Clearday, Inc., hereby certify, to my knowledge, that:
1. the accompanying Quarterly Report on Form 10-Q of Clearday, Inc. for the six month period ended June 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Clearday, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.
| /s/ James T. Walesa | |
| James T. Walesa | |
| President and Chief Executive Officer |
EXHIBIT 32.2
Statement Pursuant to Section 906 the Sarbanes-Oxley Act of 2002 By
Principal Financial Officer
Regarding Facts and Circumstances Relating to Exchange Act Filings
Dated: August 26, 2022
I, John R. Bergeron, Chief Financial Officer of Clearday, Inc., hereby certify, to my knowledge, that:
1. the accompanying Quarterly Report on Form 10-Q of Clearday, Inc. for the six month period ended June 30, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Clearday, Inc.
| /s/ John R. Bergeron | |
| John R. Bergeron | |
| Chief Financial Officer |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| REVENUES | ||||
| Total revenues | $ 3,135,552 | $ 3,297,981 | $ 6,345,770 | $ 7,042,042 |
| OPERATING EXPENSES | ||||
| Wages & general operating expenses | 4,437,616 | 4,921,076 | 9,071,672 | 9,523,063 |
| Selling, general and administrative expenses | 992,433 | 1,583,166 | 2,385,803 | 4,445,946 |
| Research and Development | 0 | 414,727 | 0 | 414,727 |
| Depreciation and amortization expenses | 185,044 | 129,665 | 372,259 | 304,124 |
| Total operating expenses | 5,615,093 | 7,048,634 | 11,829,734 | 14,687,860 |
| Operating loss | (2,479,541) | (3,750,653) | (5,483,964) | (7,645,818) |
| Other (income) expenses | ||||
| Interest and other expense | 395,045 | 194,618 | 896,643 | 273,399 |
| PPP Loan Forgiveness | (349,500) | (1,051,071) | (992,316) | (1,051,071) |
| Unrealized gain/(loss) on equity investments | 0 | (280,000) | 0 | (524,000) |
| Other (income)/expenses | (279,011) | (67,355) | (422,900) | (138,109) |
| Total other (income)/expenses | (233,466) | (1,203,808) | (518,573) | (1,439,781) |
| Net Loss from continuing operations | (2,246,075) | (2,546,845) | (4,965,391) | (6,206,037) |
| Income from discontinued operations, net of tax | (85,753) | 944,255 | (170,980) | 632,243 |
| Net loss | (2,331,828) | (1,602,590) | (5,136,371) | (5,573,794) |
| Net loss attributable to non-controlling interest | (74,147) | 425,016 | (218,412) | 601,068 |
| Preferred stock dividend | (1,655,926) | (2,781,078) | (3,274,941) | (5,527,838) |
| Net loss applicable to AIU, Inc. | $ (4,061,901) | $ (3,958,652) | $ (8,629,724) | $ (10,500,564) |
| Basic and diluted loss per share attributable to AIU, Inc. | ||||
| Net loss from continued operations | $ (0.13) | $ (0.19) | $ (0.30) | $ (0.48) |
| Net loss/income from discontinued operations | (0.00) | 0.07 | (0.01) | 0.05 |
| Net loss | $ (0.13) | $ (0.12) | $ (0.31) | $ (0.43) |
| Weighted average common shares basic and diluted outstanding | 17,775,792 | 13,184,865 | 16,408,710 | 13,045,936 |
| Resident Fee [Member] | ||||
| REVENUES | ||||
| Total revenues | $ 3,068,470 | $ 3,297,981 | $ 6,193,231 | $ 7,042,042 |
| Adult Day Care [Member] | ||||
| REVENUES | ||||
| Total revenues | 64,724 | 0 | 148,620 | |
| Commercial Property Rental Revenue [Member] | ||||
| REVENUES | ||||
| Total revenues | $ 2,358 | $ 0 | $ 3,919 | |
Condensed Consolidated Statements of Temporary Equity, Convertible Preferred Stock and Deficit (Unaudited) - USD ($) |
Total |
Temporary Equity Series F [Member] |
Series A Convertible Preferred Stock [Member] |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Parent [Member] |
Noncontrolling Interest [Member] |
|---|---|---|---|---|---|---|---|---|
| Beginning balance, value at Dec. 31, 2020 | $ (19,796,223) | $ 10,969,078 | $ 329 | $ 13,049 | $ 17,913,638 | $ (45,522,907) | $ (27,595,891) | $ 7,799,668 |
| Beginning balance, shares at Dec. 31, 2020 | 4,606,853 | 328,925 | 13,048,942 | |||||
| Stock compensation for services | 701,006 | $ 465 | 689,776 | 690,241 | 10,765 | |||
| Stock compensation for services, shares | 465,466 | |||||||
| Accrued of series I Convertible Preferred Stock in subsidiary | 2,577,235 | 2,320,235.00 | 2,320,235.00 | 257,000 | ||||
| Issuance of partnership units in subsidiary | 413,062 | 413,062 | ||||||
| PIK dividends accruals on Convertible Preferred Stock F | $ 2,763,919 | |||||||
| PIK dividends accruals on Convertible Preferred Stock F, shares | 138,196 | |||||||
| Series F Incentive Common Stock | ||||||||
| Series I adjustment | 1,029,234.00 | 1,029,234.00 | 1,029,234.00 | |||||
| Net loss | (9,872,292) | 0 | (10,500,563) | (10,500,563) | 628,271 | |||
| Ending balance, shares at Jun. 30, 2021 | (24,947,978) | $ 13,732,997 | $ 329 | $ 13,514 | 21,952,883 | (56,023,470) | (34,056,744) | 9,108,766 |
| Ending balance, shares at Jun. 30, 2021 | 4,745,049 | 328,925 | 13,514,408 | |||||
| Beginning balance, value at Mar. 31, 2021 | (23,832,851) | $ 12,393,392 | $ 329 | $ 13,349 | 19,924,613 | (52,064,820) | (32,126,529) | 8,293,678 |
| Beginning balance, shares at Mar. 31, 2021 | 4,693,045 | 328,925 | 13,348,614 | |||||
| Stock compensation for services | 638,061 | $ 166 | 637,895 | 637,895 | ||||
| Stock compensation for services, shares | 165,795 | |||||||
| Accrued of series I Convertible Preferred Stock in subsidiary | 640,000 | 640,000 | ||||||
| Issuance of partnership units in subsidiary | (2,180,974) | (2,781,078) | (2,781,078) | 600,104 | ||||
| PIK dividends accruals on Convertible Preferred Stock F | 1,390,373 | 1,339,605 | 1,390,373 | 1,390,539 | ||||
| PIK dividends accruals on Convertible Preferred Stock F, shares | ||||||||
| Series F Incentive Common Stock | ||||||||
| Series I adjustment | ||||||||
| Net loss | (1,602,588) | (1,177,572) | (1,177,572) | (425,016) | ||||
| Ending balance, shares at Jun. 30, 2021 | (24,947,978) | $ 13,732,997 | $ 329 | $ 13,514 | 21,952,883 | (56,023,470) | (34,056,744) | 9,108,766 |
| Ending balance, shares at Jun. 30, 2021 | 4,745,049 | 328,925 | 13,514,408 | |||||
| Beginning balance, value at Dec. 31, 2021 | (36,792,907) | $ 16,857,267 | $ 329 | $ 14,915 | 17,069,481 | (65,208,327) | (48,123,602) | 11,330,695 |
| Beginning balance, shares at Dec. 31, 2021 | 4,797,052 | 328,925 | 14,914,458 | |||||
| Accrued of series I Convertible Preferred Stock in subsidiary | 273,128 | 273,128 | ||||||
| PIK dividends accruals on Convertible Preferred Stock F | (3,274,941) | $ 3,274,941 | (3,274,941) | (3,274,941) | ||||
| Series F Incentive Common Stock | (669,898) | $ 2,859 | (2,853) | (669,904) | (669,898) | |||
| Series F Incentive Common Stock, shares | 2,861,334 | |||||||
| Series I adjustment | 0 | 0 | ||||||
| Dissolution of Longhorn Hospitality | (3,871,239) | 3,871,239 | ||||||
| Net loss | (5,354,783) | (5,136,371) | (5,136,371) | (218,412) | ||||
| Ending balance, shares at Jun. 30, 2022 | (45,819,401) | $ 20,132,208 | $ 329 | $ 17,774 | 9,920,448 | (67,143,363) | (57,204,812) | 11,385,411 |
| Ending balance, shares at Jun. 30, 2022 | 4,797,052 | 328,925 | 17,775,792 | |||||
| Beginning balance, value at Mar. 31, 2022 | (41,894,064) | $ 18,476,282 | $ 329 | $ 17,774 | 11,576,374 | (64,811,535) | (53,217,058) | 11,322,994 |
| Beginning balance, shares at Mar. 31, 2022 | 4,797,052 | 328,925 | 17,775,792 | |||||
| Accrued of series I Convertible Preferred Stock in subsidiary | 136,564 | 136,564 | ||||||
| PIK dividends accruals on Convertible Preferred Stock F | (1,655,926) | $ 1,655,926 | (1,655,926) | (1,655,926) | ||||
| Series F Incentive Common Stock | ||||||||
| Series I adjustment | ||||||||
| Dissolution of Longhorn Hospitality | ||||||||
| Net loss | (2,405,975) | (2,331,828) | (2,331,828) | (74,147) | ||||
| Ending balance, shares at Jun. 30, 2022 | $ (45,819,401) | $ 20,132,208 | $ 329 | $ 17,774 | $ 9,920,448 | $ (67,143,363) | $ (57,204,812) | $ 11,385,411 |
| Ending balance, shares at Jun. 30, 2022 | 4,797,052 | 328,925 | 17,775,792 |
Organization, Description of Organization, Basis of Presentation, Summary of Significant Accounting Policies, Liquidity and Going Concern |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Accounting Policies [Abstract] | |
| Organization, Description of Organization, Basis of Presentation, Summary of Significant Accounting Policies, Liquidity and Going Concern | 1. Organization, Description of Organization, Basis of Presentation, Summary of Significant Accounting Policies, Liquidity and Going Concern
Description of Business
Clearday, Inc., a Delaware corporation (the “Company”), formerly known as Superconductor Technologies Inc., was established in 1987 and closed a merger with Allied Integral United, Inc., a Delaware corporation (“AIU”), on September 9, 2021. This merger was described in our registration statement (“Merger Registration Statement”) on Form S-4, as amended and supplemented (Registration No. 333-256138). Prior to the closing of the merger, the Company was a leading company in developing and commercializing high temperature superconductor (“HTS”) materials and related technologies. As described in the Merger Registration Statement, after the merger, the Company continued the businesses of AIU and continued the businesses of the Company related to its Sapphire Cryocooler and its related patents and intellectual property. AIU was incorporated on December 20, 2017 and began its business on December 31, 2018 when it acquired the businesses of five (5) memory care residential facilities and other businesses (the “2018 Acquisition”). The memory care business is conducted through the Company’s Memory Care America LLC subsidiary (“MCA”), which has been in the residential care business since November 2010 and has been managed by the Company’s executives for approximately 6 years. Since the 2018 Acquisition, the Company has been developing innovative care and wellness products and services focusing on the older American market.
All of the Company’s assets that were acquired in the 2018 Acquisition and are not related to the memory care facilities or the non-acute care and wellness industry were designated as non-core businesses and held for disposition. Accordingly, such assets and liabilities are classified as held for sale in the unaudited condensed consolidated balances sheets as of June 30, 2022, and December 31, 2021. Additionally, the results of operations for these non-core businesses are classified as income from discontinued operations within the unaudited condensed consolidated statements of operations for the six months ended June 30, 2022 and 2021.
Liquidity and Going Concern
The Company has incurred significant cumulative consolidated operating losses and negative cash flows. As of June 30, 2022, the Company has an accumulated deficit of $67,143,363 continued loss from operations of $4,965,391 and net loss from discontinued operations in the amount of $170,980. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financings or other sources, including the continued sale of its non-core assets and sale or disposition of other assets. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects. The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result should the Company not continue as a going concern. Management does not believe they have sufficient cash for the next twelve months from the date of this report to continue as a going concern without raising additional capital.
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Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, including its wholly owned subsidiaries. In 2019, AIU Alternative Care, Inc., a Delaware corporation (“AIU Alt Care”), and Clearday Alternative Care Oz Fund, L.P, a Delaware limited partnership (“Clearday OZ Fund”), were formed by AIU. The Company owns all of the voting interests of AIU Alt Care and is the sole general partner of Clearday OZ Fund, and less than 1% of the preferred economic interests in such companies.
In November, 2019, AIU Alt Care filed a certificate of designation that authorized preferred stock designated as the Series I 10.25% cumulative convertible preferred stock, par value $ per share (the “Alt Care Preferred Stock”). The certificate of incorporation of AIU Alt Care authorizes shares of preferred stock of which is designated Alt Care Preferred Stock; and of common stock. Each share of The Alt Care Preferred Stock has a stated value equal to the $ Alt Care Preferred Stock original issue price.
In October, 2019, AIU Alt Care formed AIU Impact Management, LLC and Clearday OZ Fund was formed. AIU Impact Management, LLC manages Clearday OZ Fund as its general partner, owns 1% of Clearday OZ Fund and allocates 99% of income gains and losses accordingly to the limited partners.
The exchange rate for each of the Alt Care Preferred Stock and the limited partnership units in Clearday OZ Fund are equal to (i) the aggregate investment amount for such security plus accrued and unpaid 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 AIU Merger, this exchange rate was 1 share for every $10.00 of aggregate amount of the investment plus such accrued and unpaid dividends.
The Company reports its non-controlling interest in subsidiaries as a separate component of equity in the unaudited condensed consolidated balance sheets and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company’s common shareholders on the face of the unaudited condensed consolidated statement of operations.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the annual financial statements of the Company and of AIU that are contained in the Company’s Form 10-K, as amended and supplemented. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated upon consolidation. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
Basis of Presentation
Basis of Presentation - The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of the Company’s management, any adjustments contained in the accompanying unaudited consolidated financial statements are of a normal recurring nature, and are necessary to fairly present the financial position of the Company as of June 30, 2022, along with its results of operations for the six month periods ended June 30, 2022 and 2021 and cash flows for the three-month periods ended June 30, 2022 and 2021. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Results of operations for the three-month period ended June 30, 2022, are not necessarily indicative of the operating results that may be expected for the full year ending December 31, 2022.
Unaudited Interim Financial Information
The unaudited condensed consolidated financial statements as of June 30, 2022 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) and GAAP. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of the Company, these unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to present fairly the Company’s financial position, results of operations and cash flows. Interim results are not necessarily indicative of results for a full year or future periods. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2021, as well as the audited consolidated financial statements of AIU that are included in our Annual Report on Form 10-K, as amended and supplemented.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities and contingencies at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Management believes that these estimates and assumptions are reasonable, however, actual results may differ and could have a material effect on future results of operations and financial position.
The impact of the COVID-19 pandemic could continue to have a material adverse effect on the Company’s business, results of operations, financial condition, liquidity, and prospects in the near-term and beyond 2022. While management has used all currently available information in its forecasts, the ultimate impact of the COVID-19 pandemic on its results of operations, financial condition and cash flows is highly uncertain, and cannot currently be accurately predicted. The Company’s results of operations, financial condition and cash flows are dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, such as a lengthy or severe recession or any other negative trend in the U.S. or global economy and any new information that may emerge concerning the COVID-19 outbreak and the actions to contain it or treat its impact, which at the present time are highly uncertain and cannot be predicted with any accuracy.
Significant estimates in our condensed consolidated financial statements relate to revenue recognition, including contractual allowances, the allowance of doubtful accounts, self-insurance reserves, long-lived assets, impairment of long-lived assets and estimates concerning our provisions for income taxes.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Fair Value of Financial Instruments
The Company’s financial instruments are limited to cash, accounts receivable, debt and equity investments, accounts payable, operating leases and mortgage notes payable. The fair value of these financial instruments was not materially different from their carrying values on June 30, 2022.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, the Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment.
Cash and Restricted Cash
Cash, consisting of short-term, highly liquid investments and money market funds with original maturities of six months or less at the date of purchase, are carried at cost plus accrued interest, which approximates market.
Restricted cash as of June 30, 2022 and December 31, 2021 includes cash that the Company deposited as security for obligations arising from property taxes, property insurance and replacement reserve the Company is required to establish escrows as required by its mortgages and certain resident security deposits.
Investments
The Company follows ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The Company has no investment in securities as of June 30, 2022.
Goodwill
Goodwill, which has an indefinite useful life, represents the excess of purchase consideration over fair value of net assets acquired. The Company determines whether goodwill may be impaired by comparing the carrying value of the single reporting unit, including goodwill, to the fair value of the reporting unit. If the fair value is less than the carrying amount, a more detailed analysis is performed to determine whether goodwill is impaired. The impairment loss, if any, is measured as the excess of the carrying value of the goodwill over the implied fair value of the goodwill and is recorded in the Company’s consolidated statements of operations.
Software Capitalization
With regards to developing software, any application costs incurred during the development state, both internal expenses and those paid to third parties are capitalized. At June 30. 2022 and December 31, 2021, $2,743,525 and $1,783,525, respectively were the balances that will be amortized based on the useful life. These costs are included in the furniture fixture and equipment line on Note 3.
Risks and Uncertainties
The Company’s financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, investments, and trade receivables. At certain times throughout the year, the Company may maintain deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash balances due to the financial position of the depository institutions in which those deposits are held. The Company performs ongoing credit evaluations of its customers, and the risk with respect to trade receivables is further mitigated by the diversity, both by geography, of the customer base.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was adopted.
The CARES Act appropriated funds for the U.S. Small Business Administration Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations and employment related tax credits to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company continues to examine the impact that the CARES Act may have on its business and is currently, unable to determine the impact that the CARES Act will have on its financial condition, results of operations, or liquidity.
The Company is also considering other applicable federal and state programs, including the Families First Coronavirus Response Act, which is a federal law meant to respond to the economic impacts of the ongoing COVID-19 pandemic that provides certain credits to employers, and the Work Opportunity Tax Credit (WOTC), which is a federal tax credit available to employers who invest in American job seekers who have consistently faced barriers to employment. Employers may meet their business needs and claim a tax credit if they hire an individual who is in a WOTC targeted group.
Basic and diluted earnings per share are computed and disclosed in accordance with FASB ASC Topic 260, Earnings Per Share. The Company utilizes the two-class method to compute earnings available to common shareholders. Under the two-class method, earnings are adjusted by accretion amounts to redeemable noncontrolling interests recorded at redemption value. The adjustments represent dividend distributions, in substance, to the noncontrolling interest holder as the holders have contractual rights to receive an amount upon redemption other than the fair value of the applicable shares. As a result, earnings are adjusted to reflect this in substance distribution that is different from other common shareholders. In addition, the Company allocates net earnings to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common shareholders. Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.
Accounts Receivable and Allowance for Doubtful Accounts
The Company records accounts receivable at their estimated net realizable value. Additionally, the Company estimates allowances for uncollectible amounts based upon factors which include, but are not limited to, historical payment trends, write-off experience, and the age of the receivable as well as a review of specific accounts, the terms of the agreements, the residents, the payers’ financial capacity to pay and other factors which may include likelihood and cost of litigation.
The allowance for doubtful accounts reflects estimates that the Company periodically reviews and revises based on new information, to which revisions may be material. The Company’s allowance for doubtful accounts consists of the following:
Assets and Liabilities Held for Sale
The company has classified its real estate as held for sale as these are non-core assets no longer used in operations. The company recorded these assets as the less of cost or carrying value.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line basis over their estimated useful lives, which are typically as follows:
The Company regularly evaluates whether events or changes in circumstances have occurred that could indicate impairment in the value of the Company’s long-lived assets. If there is an indication that the carrying value of an asset is not recoverable, the Company determines the amount of impairment loss, if any, by comparing the historical carrying value of the asset to its estimated fair value, with any amount in excess of fair value recognized as an expense in the current period. The Company determines estimated fair value through an evaluation of recent financial performance, recent transactions for similar assets, market conditions and projected cash flows using standard industry valuation techniques. Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates, estimated holding periods and estimated capitalization rates (Level 3).
Valuation of Long-Lived Assets
Long-lived assets to be held and used, including property and equipment, right to use assets and definite life intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Note 3 - Real Estate, Property and Equipment, Net.
Gain (Loss) on Sale of Assets
The Company enters into real estate transactions which may include the disposal of certain commercial shopping centers and hotels, including the associated real estate; such transactions are recorded in Note 5 – Discontinued Operations. The Company recognizes gain or loss on these property sales when the transfer of control is complete. The Company recognizes gain or loss from the sale of equity method investments when the transfer of control is complete, and the Company has no continuing involvement with the transferred financial assets.
Legal Proceedings and Claims
The Company has been, is currently, and expects in the future to be involved in claims, lawsuits, and regulatory and other government audits, investigations and proceedings arising in the ordinary course of the Company’s business, some of which may involve material amounts. The Company establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Also, the defense and resolution of these claims, lawsuits, and regulatory and other government audits, investigations and proceedings may require the Company to incur significant expense. The Company accounts for claims and litigation losses in accordance with FASB, Accounting Standards Codification™, or ASC, Topic 450, Contingencies. Under FASB ASC Topic 450, loss contingency provisions are recorded for probable and estimable losses at the Company’s best estimate of a loss or, when a best estimate cannot be made, at the Company’s estimate of the minimum loss. These estimates are often developed prior to knowing the amount of the ultimate loss, require the application of considerable judgment, and are refined as additional information becomes known. Accordingly, the Company is often initially unable to develop a best estimate of loss and therefore the estimated minimum loss amount, which could be zero, is recorded; then, as information becomes known, the minimum loss amount is updated, as appropriate. Occasionally, a minimum or best estimate amount may be increased or decreased when events result in a changed expectation.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Lease Accounting
The Company follows FASB ASC Topic 842, Leases, or ASC Topic 842, utilizing the modified retrospective transition method with no adjustments to comparative periods presented. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized.
Lessee
The Company regularly evaluates whether a contract meets the definition of a lease whenever a contract grants a party the right to control the use of an identified asset for a period of time in exchange for consideration. To the extent the identified asset is able to be shared among multiple parties, the Company has determined that one party does not have control of the identified asset and the contract is not considered a lease. The Company accounts for contracts that do not meet the definition of a lease under other relevant accounting guidance (such as ASC 606 for revenue from contacts with customers).
The Company’s lease agreements primarily consist of building leases. These leases generally contain an initial term of 15 to 17 years and may contain renewal options. If the Company’s lease agreements include renewal option periods, the Company includes such renewal options in its calculation of the estimated lease term when it determines the options are reasonably certain to be exercised. When such renewal options are deemed to be reasonably certain, the estimated lease term determined under ASC 842 will be greater than the non-cancelable term of the contractual arrangement.
The Company classifies its lessee arrangements at inception as either operating leases or financing leases. A lease is classified as a financing lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying asset, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if none of the five criteria described above for financing lease classification is met. The Company has no financing leases as of June 30, 2022.
ROU assets associated with operating leases are included in “Right of Use Asset” on the Company’s unaudited condensed balance sheet. Current and long-term portions of lease liabilities related to operating leases are included in “Lease Liabilities, Current” and “Lease Liabilities, Long-Term” on the Company’s balance sheet as of June 30, 2022. ROU assets represent the Company’s right to use an underlying asset for the estimated lease term and lease liabilities represent the Company’s present value of its future lease payments. In assessing its leases and determining its lease liability at lease commencement or upon modification, the Company was not able to readily determine the rate implicit for its lessee arrangements, and thus has used its incremental borrowing rate on a collateralized basis to determine the present value of the lease payments. The Company’s ROU assets are measured as the balance of the lease liability plus or minus any prepaid or accrued lease payments and any unamortized initial direct costs. Operating lease expenses are recognized on a ratable basis, regardless of whether the payment terms require the Company to make payments annually, quarterly, monthly, or for the entire term in advance. If the payment terms include fixed escalator provisions, the effect of such increases is recognized on a straight-line basis. The Company calculates the straight-line expense over the contract’s estimated lease term, including any renewal option periods that the Company deems reasonably certain to be exercised.
The Company reviews the carrying value of its ROU assets for impairment, similar to its other long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company could record impairments in the future if there are changes in (1) long-term market conditions, (2) expected future operating results or (3) the utility of the assets that negatively impact the fair value of its ROU assets.
Lessor
The Company’s lessor arrangements primarily included tenant contracts within shopping centers, which is included in discontinued operations. The Company classifies its leases at inception as operating, direct financing, or sales-type leases. A lease is classified as a sales-type lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying assets or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Furthermore, when none of the above criteria is met, a lease is classified as a direct financing lease if both of the following criteria are met: (1) the present value of the of the sum of the lease payments and any residual value guaranteed by the lessee, that is not already reflected in the lease payments, equals or exceeds the fair value of the underlying asset and (2) it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. A lease is classified as an operating lease if it does not qualify as a sales-type or direct financing lease. Currently, the Company classifies all of its lessor arrangements as operating leases.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Revenues from the Company’s lessor arrangements are recognized on a straight-line, ratable basis over the fixed, non-cancelable term of the relevant tenant contract, regardless of whether the payments from the tenant are received in equal monthly amounts during the life of a tenant contract. Certain of the Company’s tenant contracts contain fixed escalation clauses (such as fixed-dollar or fixed-percentage increases) or inflation-based escalation clauses (such as those tied to the change in CPI) and is included in discontinued operations. If the payment terms call for fixed escalations, upfront payments, or rent-free periods, the rental revenue is recognized on a straight-line basis over the fixed, non-cancelable term of the agreement. When calculating straight-line site rental revenues, the Company considers all fixed elements of tenant contractual escalation provisions.
Certain of the Company’s arrangements with tenants contain both lease and non-lease components. In such circumstances, the Company has determined (1) the timing and pattern of transfer for the lease and non-lease component are the same and (2) the stand-alone lease component would be classified as an operating lease. As such, the Company has aggregated certain non-lease components with lease components and has determined that the lease components represent the predominant component of the arrangement.
Income Taxes
The Company’s income tax expense includes U.S. income taxes. Certain items of income and expense are not reported in tax returns and financial statements in the same year. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences to be included in the Company’s unaudited condensed consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, while the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company can recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that has a greater than 50% likelihood of being realized.
Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent, the Company believes that the Company is more likely than not that all or a portion of deferred tax assets will not be realized, the Company establishes a valuation allowance to reduce the deferred tax assets to the appropriate valuation. To the extent the Company establishes a valuation allowance or increase or decrease this allowance in a given period, the Company includes the related tax expense or tax benefit within the tax provision in the unaudited condensed consolidated statement of operations in that period. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the future, if the Company determines that it would be able to realize its deferred tax assets in excess of their net recorded amount, the Company will make an adjustment to the deferred tax asset valuation allowance and record an income tax benefit within the tax provision in the unaudited condensed consolidated statement of operations in that period.
The Company pays franchise taxes in certain states in which it has operations. The Company has included franchise taxes in general and administrative and operating expenses in its unaudited condensed consolidated statements of operations.
Revenue Recognition
The Company recognizes revenue from contracts with customers in accordance with ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, using the practical expedient in paragraph 606-10-10-4 that allows for the use of a portfolio approach, because we have determined that the effect of applying the guidance to our portfolios of contracts within the scope of ASC Topic 606 on our unaudited condensed consolidated financial statements would not differ materially from applying the guidance to each individual contract within the respective portfolio or our performance obligations within such portfolio. The five-step model defined by ASC Topic 606 requires the Company to: (i) identify its contracts with customers, (ii) identify its performance obligations under those contracts, (iii) determine the transaction prices of those contracts, (iv) allocate the transaction prices to its performance obligations in those contracts and (v) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.
A substantial portion of the Company’s revenue at its independent living and assisted living communities relates to contracts with residents for services that are generally under ASC Topic 606. The Company’s contracts with residents and other customers that are within the scope of ASC Topic 606 are generally short-term in nature. The Company has determined that services performed under those contracts are considered one performance obligation in accordance with ASC Topic 606 as such services are regarded as a series of distinct events with the same timing and pattern of transfer to the resident or customer. Revenue is recognized for those contracts when the Company’s performance obligation is satisfied by transferring control of the service provided to the resident or customer, which is generally when the services are provided over time.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Resident fees at our independent living and assisted living communities consist of regular monthly charges for basic housing and support services and fees for additional requested services, such as assisted living services, personalized health services and ancillary services. Fees are specified in our agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed in advance. Funds received from residents in advance of services provided are not material to our unaudited consolidated financial statements. Some of our senior living communities require payment of an upfront entrance fee in advance of a resident moving into the community; substantially all of these community fees are non-refundable and are initially recorded as deferred revenue and included in accrued expenses and other current liabilities in our unaudited condensed consolidated balance sheets. These deferred amounts are then amortized on a straight-line basis into revenue over the term of the resident’s agreement. When the resident no longer resides within our community, the remaining deferred non-refundable fees are recognized in revenue. Revenue recorded and deferred in connection with community fees is not material to our unaudited condensed consolidated financial statements. Revenue for basic housing and support services and additional requested services is recognized in accordance with ASC Topic 606 and measured based on the consideration specified in the resident agreement and is recorded when the services are provided.
Core Business – Continuing Operations
Resident Care Contracts. Resident fees at the Company’s senior living communities may consist of regular monthly charges for basic housing and support services and fees for additional requested services and ancillary services. Fees are specified in the Company’s agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed the first of the month. Funds received from resident in advance of services are not material to the Company’s unaudited condensed consolidated financial statements.
Below is a table that shows the breakdown by percent of revenues related to contracts with residents versus resident fees for support or ancillary services.
The Company relinquished operations of its facility that was located in Simpsonville, South Carolina (the “Simpsonville Facility”) effective September 30, 2021. Total residential rent revenues for the three months and six months ended June 30, 2022 do not include any such revenues from the Simpsonville Facility, which were $307,327 and $659,265 for the three months and six months ended June 30, 2021, respectively. Total revenue from contracts with customers of the Company decreased from 2022 to the comparable period of 2021 due to this relinquishment of the Simpsonville Facility, resulting in a decrease in total revenue in the second quarter. Resident fee increases for the Company’s other residential facilities during this period helped to augment revenue in 2022.
Resident rent from the Company’s same residential facilities increased by $167,610 or approximately 5.8%, during the three months ended June 30, 2022 to the comparable period of 2021 and decreased by $6,502 or approximately 0.1%, during the six months ended June 30, 2022 to the comparable period of 2021.
Day care revenue is from Primrose Day care center, which we purchased in the second quarter of 2021.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Cost of Product Revenue
Cost of product revenue represents direct and indirect costs incurred to bring the product to saleable condition.
Research and Development Expenses
All research and development costs are charged to expense as incurred. Research and development expenses primarily include (i) payroll and related costs associated with research and development performed, (ii) costs related to clinical and preclinical testing of the Company’s technologies under development, and (iii) other research and development costs including allocations of facility costs.
PPP Loans
The Company recognizes Paycheck Protection Program loans (PPP loans) under the Small Business Administration as debt instruments in accordance with ASC 470, Debt. When the loan proceeds are received, a long-term liability account (i.e., “PPP Loan Liability”) is set up. The presentation of the loan in the balance sheet is accounted for in accordance with U.S. GAAP regarding the presentation of assets and liabilities, whereas the portion of the loan due within 12 months from year end will be considered a current liability and the remaining portion will be considered a long-term liability. Also, under this guidance, a borrower should not recognize any income from the extinguishment of its debt until the borrower has been legally released as the primary obligor under the loan. In addition, the forgiveness of PPP loans as income will be recorded as other income and not included in income from operations based on the unprecedented nature of COVID-19.
ERTC Funds
The Company was eligible to claim the employee retention tax credit (“ERTC”) for certain employees under the CARES Act. The 2021 refundable tax credit is available to employers that fully (or partially) suspend operations during any calendar quarter in 2021 due to orders from an appropriate governmental authority, which limits commerce, travel, or group meetings due to COVID-19. The credit is equal to 70% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $7,000 per employee. The credit was modified and extended for wages paid from January 1, 2021, through December 31, 2021, by the “Consolidated Appropriations Act, 2021”. Certain of these credits are obtained by refunds of employer taxes that have been paid, and other amounts were obtained by reducing the amount of withholdings remitted to the IRS. The ERTC was terminated as of fourth quarter of 2021.
General and Administrative Expenses
General and administrative expenses represent personnel costs for employees involved in general corporate functions, including finance, accounting, legal and human resources, among others. Additional costs included in general and administrative expenses consist of professional fees for legal (including patent costs), audit and other consulting services, travel and entertainment, charitable contributions, recruiting, allocated facility and general information technology costs, depreciation and amortization, and other general corporate overhead expenses.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires a financial asset, or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This ASU eliminates the probable initial recognition threshold and instead requires reflection of an entity’s current estimate of all expected credit losses. In addition, this ASU amends the current available for sale security other-than-temporary impairment model for debt securities. The length of time that the fair value of an available for sale debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists and credit losses will now be limited to the difference between a security’s amortized cost basis and its fair value. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends the transition and effective date for nonpublic entities and clarifies that receivables arising from operating leases are not in the scope of this ASU. These ASUs are effective for reporting periods beginning after December 15, 2022. The Company is assessing the potential impact that the adoption of these ASUs will have on its unaudited condensed consolidated financial statements.
In December 2019, the FASB also issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies certain requirements under Topic 740, including eliminating the exception to intra-period tax allocation when there is a loss from continuing operations and income from other sources, such as other comprehensive income or discontinued operations. The amendments in this ASU are effective for the fiscal year beginning after December 15, 2020. The Company has determined that this ASU does not have a material impact on its unaudited condensed consolidated financial statements.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
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| Real Estate, Property and Equipment, Net | 3. Real Estate, Property and Equipment, Net
Property and equipment, net, consists of the following:
Memory Care Facilities and Corporate
Non-core businesses classified as assets held for sale:
The Company recorded depreciation expense relating to real estate, property, and equipment for the Company’s memory care facilities and corporate assets in the amount of $185,044 and $372,259 for the three and six months ended June 30, 2022 respectively while depreciation for three and six months ended June 30, 2021 was $129,665 and 304,124, respectively.
The Company has reviewed the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If there is an indication that the value of an asset is not recoverable, the Company determines the amount of impairment loss, if any, by comparing the historical carrying value of the asset to its estimated fair value. The Company determined estimated fair value based on input from market participants, the Company’s experience selling similar assets, market conditions and internally developed cash flow models that the Company’s assets or asset groups are expected to generate, and the Company considers these estimates to be a Level 3 fair value measurement.
Based on the Company’s review of carrying value of long-lived assets included in discontinued operations, the Company concluded that a)several of its properties were sold and did not warrant consideration; b) certain properties belonging to their continuing operations segment generate revenue, are cash flow positive and have assets with low carrying values as compared to the recoverable amounts and therefore do not meet impairment requirements; and that c) several properties might be impaired due to extended closures. Both the SeaWorld and Buda hotels have experienced extended closures since March, 2020 due to the COVID-19 pandemic and this has meant significant reductions in cash flows and on the ability to repay the mortgage loans on the properties.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
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Leases |
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| Leases | 4. Leases
The Company follows ASC 842, as discussed in Note 1 – Summary of Significant Accounting Policies, the Company has elected the package of practical expedients offered in the transition guidance which allows management not to reassess the lease identification, lease classification, and initial direct costs. The Company has elected the accounting policy practical expedient to exclude recording short term leases for all asset classes, as right-of-use assets, and lease liabilities on the unaudited condensed consolidated balance sheet. Finally, the Company has elected to recognize lease components and non-lease components separately for real estate leases.
Leases for Memory Care Facilities
The Company leases three memory care facilities from MHI-MC San Antonio, LP, MHI-MC Little Rock, LP, and MHI-MC New Braunfels, LP (collectively “MHI entities”) under three separate lease agreements and originally recorded a right of use asset and a lease liability of $35,782,153. The Amended Leases contain three options to renew, which were not considered reasonably certain of being exercised as of the lease commencement date nor the balance sheet date.
As of June 30, 2022, the Company leased the memory care Simpsonville Facility from MC-Simpsonville, SC-1-UT, LLC (the “Simpsonville Landlord”) under a 15-year non-cancelable lease agreement. Beginning January 2019, the Company ceased paying the Simpsonville Landlord rent. The Landlord filed a lawsuit against the guarantors of the lease and on October 21, 2020. During the third quarter of 2022, the Company and the Simpsonville Landlord terminated this lease and agreed to settle this litigation. See Note 7 – Commitments and Contingencies for additional information.
All leases are classified as operating leases. The Company does not have any leases within its non-core business. Therefore, no right-of-use assets or lease liabilities were recorded within non-current assets held for sale or lease liability on the unaudited condensed consolidated balance sheet following the adoption of ASC 842. Weighted-average remaining lease terms and discount rate as of June 30, 2022, are 13.5 years and 8.25%, respectively.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Lease Costs
For the three & six months ended June 30, 2022 and 2021, the lease costs recorded in the unaudited condensed consolidated statement of operations are as follows:
Operating Lease Payments
The following table summarizes the maturity of the Company’s operating lease liabilities as of June 30, 2022:
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Discontinued Operations |
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| Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations | 5. Discontinued Operations
The Company held two hotel properties during 2021, each of which were classified as non-core assets and were sold or disposed of during 2021.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
During the quarter ended June 30, 2022, the Company sold one non-core asset:
Clearday sold on June 30, 2022 unimproved land of approximately 2 acres of property located in Cibolo, Texas that was held as non-core assets for an aggregate gross amount of $980,000. The sale of such land is part of our previously disclosed course of business to sell or otherwise monetize assets non-core assets, which are the assets (1) acquired by Clearday Operations, Inc. (formerly, Allied Integral United, Inc.), on December 31, 2018, when it began its business and that (2) are not related to our memory care facilities or our non-acute care and wellness industry.
On April 5, 2022, Leander Associates, Ltd., a Texas limited partnership (“Leander Seller”) also executed a Purchase and Sale Agreement with Leander Ridge, LLC, a Texas limited liability company (“Buyer”) to sell one of Clearday’s non-core assets: a land parcel located in Leander, Texas (the “Leander Property”) for a consideration of $392,040 per acre ($9.00/sf) of developable land, for an approximate total amount of $1,842,588 (the “Purchase Price”). The Sale Agreement provides a 90-day period following the April 4, 2022 effective date, or until July 5, 2022 (the “Feasibility Period”), for the purchaser to inspect the Leander Property and conduct their analysis, appraisals and other examination of the Leander Property, including environmental inspections. On June 29, 2022, the Leander Seller sold a 6% tenant in common interest in the Leander Property for approximately $43,000. Such purchaser will share in the net proceeds in the sale of the Leander Property on a pro rata basis.
The following statements are the unaudited condensed consolidated balance sheets and income statements for the Company’s discontinued operations:
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
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Indebtedness |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indebtedness | 6. Indebtedness
As of June 30, 2022 and December 31, 2021, the current portion of long-term debt within the Company’s unaudited condensed financial statements for our core MCA and Corporate facilities is $9,293,965 and $3,941,782 respectively.
As of June 30, 2022 and December 31, 2021 the long term debt less the current portion of the company debt is $396,790 and $5,572,427. This debt is expected to be repaid primarily with the proceeds from the sales of these assets. See Note 2 – Summary of Significant Accounting Policies for more information about the Company’s assets held for sale.
Interest and Future Maturities
The Company has recorded interest expense in the accompanying unaudited condensed consolidated financial statements of $395,045 and $896,643 for the three and six months ended June 30, 2022 respectively compared to $194,618 and $273,399 respectively for the three and six months ended June 30,2021. The Company had $85,753 and $170,980 loss respectively, for discontinued operations respectively for the three and six months ended June 30, 2022 and $632,243 income and $944,255 for discontinued operations for the same periods in 2021.
The change in the interest expense reflects primarily the impact of the factoring loans we have taken out which carry a higher interest rate.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
The following table summarizes the maturity of the Company’s long-term debt and notes payable as of June 30, 2022:
On the accompanying unaudited condensed consolidated balance sheet for core business operations includes $694,615 and $0 of unamortized debt discounts as of June 30, 2022 and 2021, respectively.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Memory Care (Core) Facilities:
Naples Equity Loan
On April 29, 2021, the Company executed a secured promissory note with Benworth Capital Partners, LLC in the amount of $4,550,000. The original Naples mortgage was paid off in the amount of $2,739,195 and there were closing costs of $354,357 which netted the Company proceeds in the amount of $1,456,448. This secured promissory note is a two-year loan with interest only payments at a fixed interest rate of 9.95%. This loan is guaranteed by certain officers of the Company and is secured by the Memory Care facility located at 2626 Goodlette-Frank Road, Naples, Florida 34105.
PPP Loans
In May 2020, the Company was granted four separate loans under the Paycheck Protection Program (the “PPP Loans”) administered by the United States Small Business Administration (“SBA”) established under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which has enabled the Company to retain the Company’s employees during the period of disruption created by the Coronavirus pandemic. STI was granted one loan in March 2021. The PPP Loans, which are evidenced by Notes issued by the Company (the “Note”), mature in May 2022 and bear interest at a fixed rate of 1.0% per annum, accruing from May 2020 (“Loan Date”) and payable monthly. The Note is unsecured and guaranteed by the SBA. The Note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. The Note provides for customary defaults, including failure to make payment when due or to fulfill the Company’s obligations under the notes or related documents, reorganizations, mergers, Consolidations or other changes to the Company’s business structure, and certain defaults on other indebtedness, bankruptcy events, adverse changes in financial condition or civil or criminal actions. The PPP Loans may be accelerated upon the occurrence of a default. We expect that our remaining PPP loans (including STI) will be forgiven in the upcoming months.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
AGP Promissory Note
The Company entered into an unsecured promissory note with A.G.P./Alliance Global Partners (“AGP”) which was the financial adviser to AIU in connection with the merger. The $2,419,420, principal balance amount due of this note represents the unpaid fee amount then owed to AGP for its services. Interest under this note accrues at 2% per annum. The Company was obligated to make monthly payments of $30,000 and pay 50% of net proceeds (which shall be deemed gross proceeds minus direct selling costs, expenses and commissions) received, directly or indirectly, by the Company and/or its subsidiaries from the issuance of any equity or equity-linked financing (including convertible debt), less any selling commissions. Accrued and unpaid obligations of this note were due on September 10, 2022. On July 7, 2022, the Company and AGP modified the obligations under this note in consideration of a payment of $175,000. The modified note reduced the principal balance to $550,000, as of such date, provides for interest to continue to accrue at 2% per annum, extended the maturity from September 10, 2022 to March 31, 2023 and provides that the note represents all of the obligations of the Company to AGP. The Company may continue to prepay this note at any time without penalty or fee and will continue to pay 25% of net proceeds (which shall be deemed gross proceeds minus direct selling costs, expenses and commissions) received, directly or indirectly, by the Company and/or its subsidiaries from the issuance of any equity or equity-linked financing (including convertible debt), less any selling commissions.
New Braunfels Business Loan
On December 23, 2015, the Company executed a business loan agreement with ServisFirst Bank for $600,000. In October 2019, the loan was extended and now matures in March 2022. The loan has a fixed interest rate of 6.25%. The note is guaranteed by certain officers and directors of the Company and is collateralized by furniture, fixtures and equipment at MCA New Braunfels.
Gearhart Loan
On April 1, 2012, the Company executed a promissory note with Betty Gearhart for $200,000 (the “Gearhart Note”). Interest accrues at a fixed rate of 7.0% and is payable quarterly in January, April, July and October. In April 2015, the Company executed the First Amended and Restated Promissory Note in the principal amount of $238,578, which extended the maturity date until April 2017. The note is collateralized by the debtor granting a security interest to Betty Gearhart including all assets of MCA, LLC as well as any proceeds (including insurance proceeds) of any and all of the foregoing collateral. The maturity date of the loan was further extended in April 2017, April 2018 and April 2020. The Second Amendment to the Amended and Restated Promissory Note (the “Second Amendment”) was executed on March 5, 2020 in the principal amount of $218,578 and has a maturity date of April 1, 2021. The scheduled maturity date of this note has been further extended to December 31, 2022.
Five C’s, LLC Loan
As of April 1, 2019, the Five C’s LLC entered into an agreement issuing capital stock that reduced obligations under an existing promissory note to $325,000 that was payable one year after the initial loan was funded, with a right of AIU to extend the maturity date for an additional six-month period. As of December 31, 2020, this note was in default. Subsequently, in February 2021, an extension agreement was entered which set an interest rate of 9.85% per annum and rescheduled the maturity date to December 31, 2022. This note can be extended by the parties for successive six-month periods unless the noteholder provides a notice to the borrower that the term shall not be extended on or prior to the date that is 30 days prior than the expiration of the note.
Equity Secured Fund I, LLC
On March 26, 2021, the Company executed a promissory note for $1,000,000 with Equity Secured Fund I, LLC. The loan matures on April 26, 2022 and was subject to one (1) twelve (12)-month extension option. The Company and this lender continue to extend the maturity on a month to month basis. The interest rate of the loan is 11.50% and is guaranteed by certain officers and is collateralized the building located at 8800 Village Drive in San Antonio, Texas. Total proceeds received by the Company was $803,963 after adjusting the interest for the period amounting to approximately $115,000, which is classified as prepaid interest in the unaudited condensed unaudited condensed consolidated balance sheet; $44,891 and $5,575 that was paid for prepaid property tax and prepaid insurance respectively (both of which) are included in “net deferred finance cost” and $31,000 in closing costs.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Firstfire
On April 5, 2022, Clearday, Inc. (the “Company”), entered into a Securities Purchase Agreement (the “Note Purchase Agreement”) to issue an unsecured promissory note (the “Note”) to an institutional lender. We used the proceeds of this financing to fund our operations. The Note provides for the net funding to Clearday of $150,000 after payment of specified expenses of $3,750 and provides for an original issue discount of $18,450, resulting in a principal obligation of $172,200 and a one-time interest charge of 12% on such principal amount.
The Note provides for a one year maturity. Monthly payments on the Note of $19,286.40 will be made by Clearday with the first payment being on May 20, 2022, which payments are subject to a 10 day grace period. The Note is unsecured. The Note provides specified events of default (an “Event of Default”) including failure to timely pay the monetary obligations under the Note and such breach continues for a period of ten (10) days after written notice from the Noteholder’ a breach of covenants under the Note or the Purchase Agreement that continues for a period of twenty (20) days after written notice by the Noteholder; breach of any representation and warranty in the Note or Purchase Agreement; commencement of bankruptcy or similar proceedings; failure to maintain the listing of Clearday’s common stock on at least one of the Over-the-Counter markets such as the OTCQB; the failure of Clearday to comply with the reporting requirements of the Securities Exchange Act; Clearday’s liquidation, or a financial statement restatement by Clearday. This lender has waived the default under this Note caused by this Report not being filed when due.
Jefferson Street
On May 16, 2022, we entered into a Securities Purchase Agreement (the “Jefferson Purchase Agreement”) to issue an unsecured promissory note (the “Jefferson Note”) to an institutional lender. This Jefferson Note provides for the proceeds to us of $150,000 and provides for an original issue discount of $18,000 or 12%, resulting in a principal obligation of $168,000. We paid $15,000 in placement fees in connection with the sale of the Jefferson Note. After payment of such fees and closing cost, the sale of the Jefferson Note resulted in $135,000 in net proceeds to the us. The interest on this Jefferson Note is 12% per annum or $20,160. The Jefferson Note provides for a one year maturity. Monthly payments on the Jefferson Note of $18,816 will be made by Clearday with the first payment being on July 16, 2022, which payments are subject to a 10 day grace period, or shorter if the payment date is not a business day. The Jefferson Note is unsecured. The Jefferson Note provides specified events of default (a “Jefferson Event of Default”) including failure to timely pay the monetary obligations under the Jefferson Note and such breach continues for a period of ten (10) days after written notice from the Jefferson Noteholder’ a breach of covenants under the Jefferson Note or the Jefferson Purchase Agreement that continues for a period of twenty (20) days after written notice by the Jefferson Noteholder; breach of any representation and warranty in the Jefferson Note or Jefferson Purchase Agreement; commencement of bankruptcy or similar proceedings; failure to maintain the listing of Clearday’s common stock on at least one of the Over-the-Counter markets such as the OTCQX; the failure of Clearday to comply with the reporting requirements of the Securities Exchange Act; Clearday’s liquidation, or a financial statement restatement by Clearday. Upon any Jefferson Event of Default, the obligations under the Note will accrue interest at an annual rate of 22% and, if such Jefferson Event of Default is continuing at any time that is 180 days after the date of the Note, provide the Noteholder the right and option to convert the obligations under the Note to shares of Clearday’s common stock. The price for any such conversion is equal to 75% (or a 25% discount) of the average of the five (5) lowest per share daily volume-weighted average price of Clearday’s common stock over the ten (10) consecutive trading days that are not subject to specified market disruptions immediately preceding the date of the conversion. The conversion right of the holder of the Jefferson Note is subject to a customary limitation on beneficial ownership of 4.99% of Clearday’s common stock. Each of the Jefferson Note and the Jefferson Purchase Agreement has other customary covenants and provisions, including representations and warranties, payment of brokers, and indemnification, that Clearday will not sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business without the consent of the holder of the Jefferson Note and Clearday will maintain a reserve of authorized and unissued shares of common stock sufficient for full conversion of the obligations under the Jefferson Note. This lender has waived the default under this Note caused by this Report not being filed when due.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
GS Capital
On May 20, 2022, we entered into a Securities Purchase Agreement (the “GS Purchase Agreement”) to issue an unsecured promissory note (the “GS Note”) to an institutional lender. This GS Note provides for the proceeds to us of $103,500 and provides for an original issue discount of $12,300 or 12%, resulting in a principal obligation of $115,800. We paid $10,000 in placement fees in connection with the sale of the GS Note and certain other expenses of the lender. After payment of such fees and closing cost, the sale of the GS Note resulted in $90,000 in net proceeds to the us. The interest on this GS Note is 12% per annum or $20,160. The GS Note provides for a one year maturity. Ten monthly payments on the GS Note of $12,969.60 will be made by Clearday with the first payment being on the date that is 60 days after the issue date of the GS Note, which payments are subject to a 10 calendar day grace period, or shorter if the payment date is not a business day. The GS Note is unsecured. The GS Note provides specified events of default (a “GS Event of Default”) including failure to timely pay the monetary obligations under the GS Note, a breach of covenants under the GS Note or the GS Purchase Agreement; breach of any representation and warranty in the GS Note or GS Purchase Agreement; commencement of bankruptcy or similar proceedings; failure to maintain the listing of Clearday’s common stock on at least one of the Over-the-Counter markets such as the OTCQX; the failure of Clearday to comply with the reporting requirements of the Securities Exchange Act; Clearday’s liquidation, a financial statement restatement by Clearday, an judgment against Clearday that is not previously disclosed in our filings with the SEC that is for more than $150,000 and remains unvacated, unbonded or unstayed for 20 days, unless otherwise permitted by the holder of the GS Note, or cross defaults under any promissory note or similar instrument with initial principal obligations of $150,000 or more. Upon any GS Event of Default, the obligations under the GS Note will accrue interest at an annual rate of 22% and, if such GS Event of Default is continuing for 10 calendar days (but 30 calendar days if the Event of Default occurred in the first 150 days after the date of the GS Note), then from and after the date that is 180 days after the date of the holder of the GS Note may convert the obligations under the GS Note to shares of Clearday’s common stock. The price for any such conversion is equal to 75% (or a 25% discount) of the average of the five (5) lowest per share daily volume-weighted average price of Clearday’s common stock over the ten (10) consecutive trading days that are not subject to specified market disruptions immediately preceding the date of the conversion. The conversion right of the holder of the GS Note is subject to a customary limitation on beneficial ownership of 4.99% of Clearday’s common stock. Each of the GS Note and the GS Purchase Agreement has other customary covenants and provisions, including representations and warranties, payment of brokers, and indemnification, that Clearday will not sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business without the consent of the GS Noteholder and Clearday will maintain a reserve of authorized and unissued shares of common stock sufficient for full conversion of the obligations under the GS Note. The GS Note includes a most favored nations clause providing that the conversion price and interest rate of the GS Note will be adjusted on a ratchet basis if Clearday offers more favorable terms in any other unsecured borrowing that is $250,000 or less or that has a maturity date of one year or less such as conversion price, interest rate (whether through a straight discount or in combination with an original issue discount) or other more favorable term as to conversion price or interest rate to another party. This lender has waived the default under this Note caused by this Report not being filed when due.
Sixth Street
The Note provides for the net funding to Clearday of $150,000 after payment of specified expenses of $3,750 and provides for an original issue discount of $18,450, resulting in a principal obligation of $172,200 and a one-time interest charge of 12% on such principal amount. We paid $15,000 in placement fees in connection with the sale of the Note. The Note is not registered and was sold as a private placement exempt from the registration requirements of the Securities Act of 1933, as amended, under Section 4(a)(2) thereof.
The Note provides for a one year maturity. Monthly payments on the Note of $19,286.40 will be made by Clearday with the first payment being on July 26, 2022, which payments are subject to a 10 day grace period. The Note is unsecured. The Note provides specified events of default (an “Event of Default”) including failure to timely pay the monetary obligations under the Note and such breach continues for a period of ten (10) days after written notice from the Noteholder’ a breach of covenants under the Note or the Note Purchase Agreement that continues for a period of twenty (20) days after written notice by the Noteholder; breach of any representation and warranty in the Note or Note Purchase Agreement; commencement of bankruptcy or similar proceedings; failure to maintain the listing of Clearday’s common stock on at least one of the Over-the-Counter markets such as the OTCQB; the failure of Clearday to comply with the reporting requirements of the Securities Exchange Act; Clearday’s liquidation, or a financial statement restatement by Clearday.
Upon any Event of Default, the obligations under the Note will accrue interest at an annual rate of 22% and, if such Event of Default is continuing at any time that is 180 days after the date of the Note, provide the Noteholder the right and option to convert the obligations under the Note to shares of Clearday’s common stock. The price for any such conversion is equal to 75% (or a 25% discount) of the average of the five (5) lowest per share daily volume-weighted average price of Clearday’s common stock over the ten (10) consecutive trading days that are not subject to specified market disruptions immediately preceding the date of the conversion. The conversion right of the Noteholder is subject to a customary limitation on beneficial ownership of 4.99% of Clearday’s common stock. This lender has waived the default under this Note caused by this Report not being filed when due.
Debt Related to Assets Held for Sale
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Artesia Note
On April 1, 2013, the Company executed a promissory note with FirstCapital Bank of Texas, N.A. for a principal amount of $314,500 (“Artesia Note”). the Company executed an amendment to the Artesia Note on July 23, 2018 (“Amended Artesia Note”). The Amended Artesia Note had a principal balance of $266,048 upon execution. The original maturity date of the note was March 1, 2018, which was extended to June 23, 2033 in the Amended Artesia Note. The note requires equal monthly principal and interest payments through maturity and has no prepayment penalties. The note has a variable interest rate equal to the greater of 6.0% or the Prime rate plus 1.0%. The note is collateralized by a security interest in the property and other assets within the property and is guaranteed by certain officers and directors of the Company. As of June 30, 2022, the interest rate for this loan is 6% (the greater of 6% or the Prime rate of 3.25% plus 1.0%).
Leander Note
On October 5, 2018, the Company executed a loan agreement with Equity Security Investments for a principal amount of $700,000 (“Leander Note”) to refinance existing financing for the property. The note had an original maturity date of October 5, 2019 and was collateralized by a security interest in the property and other assets within the property and is guaranteed by certain officers and directors of the Company. The Company exercised an extension option which extended the maturity of the note to October 5, 2020. The note required interest only monthly payments with the full principal balance becoming due upon the maturity date. The note has a fixed interest rate of 12.75%. As of October 12, 2020, the maturity of the note was extended to April 5, 2021 and was refinanced on February 10, 2022 when the Company executed a $805,000 one-year loan on the Leander note that extends the new maturity date to February 10, 2023. The note has a fixed interest rate of 10.75%, which also includes a $56,000 interest reserve for one year in the withholdings. The loan is expected to be paid off at the time of the sale of this property.
Notes Payable
The Company has notes payable to Cibolo Creek Partners, LLC, its affiliate Round Rock Development Partners, LP. These notes have a maturity date of December 31, 2025, and there is no interest accruing on any of these notes. Each of these lenders was a related party when the obligations were incurred. For more information, see Note 9 - Related Party Transactions.
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Commitments and Contingencies |
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| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | 7. Commitments and Contingencies
Contingencies
The tenant, MCA Simpsonville Operating Company LLC, referred to as Tenant, of the Simpsonville Facility, and other affiliates of the Company have a dispute with the landlord of the Simpsonville Facility, MC-Simpsonville, SC-UT, LLC, referred to as the Landlord, and its affiliates (Embree Group of Companies: Embree Construction Group, Inc., Embree Asset Group, Inc., and Embree Capital Markets Group, Inc., referred to collectively as Embree) under the terms of the lease. The Tenant has stopped paying rent and related charges under the lease for the Simpsonville Facility from and after January 1, 2019. The Landlord has made demands for past rent but has not instituted legal action against the Tenant. Instead, the Landlord filed a lawsuit against the guarantors of the lease, including Trident Healthcare Properties I, L.P., referred to as Trident, which is a wholly owned subsidiary of the Company and an unconditional guaranty of such lease; and the personal guarantors of the Tenant’s obligations under the Lease, including the Company’s Chairman and Chief Executive Officer. The Company has an obligation to indemnify and hold such individuals (other than the Company’s Chairman) harmless under such personal guarantees, and Trident is a consolidated subsidiary in the Company’s financial statements. The Company’s Chairman has indemnified the Company for all obligations of the Company with respect to obligations to the Landlord in connection with this litigation, including the Company’s obligations to such indemnified individuals and the Company’s subsidiaries. This litigation is captioned and numbered MC-Simpsonville, SC-UT, LLC v. Steve Person, et. al., Cause No. 19-0651-C368 and is pending in the 368th Judicial District Court of Williamson County, Texas. On October 21, 2020, the trial court has issued a judgment on damages in the amount of $2,801,365. The trial court has not made findings of fact related to the Tenant’s liability under the Lease. Additionally, the Guarantors has appealed the trial court judgement as they believed it has reasonable likelihood of success to reduce the judgment in the amount of $248,074 in attorney’s fees. The appellate court recently entered a ruling reversing and remanding the attorneys’ fees portion of the judgment to the trial court for renewed proceedings on that issue. After the entry of the appellate court’s ruling, the Guarantors filed a motion for rehearing on the narrow issue of pre-judgment interest calculation, on which the Guarantors believe that they have a reasonable likelihood of success. The Company has accrued an amount in the unaudited condensed consolidated financial statements as of June 30, 2022 that it determined was reasonable with respect to this contingency. Subsequently, this action was settled on August 5, 2022 as reflected by an Agreed Final Judgment for an aggregate amount of $3,012,011, including costs and expenses in favor of the plaintiff, of which $2,763,936 was settled by the release of a cash bond that Tenant previously deposited with the Court and the remaining amount to be paid within six months.
The Landlord filed a second action against Trident and the other guarantors on April 9, 2021, for claims similar to the action described above including relief for payment of rent past due and reimbursement of taxes from October 2020 to the time of the trial in this action. Trident and the other guarantors intend to respond to this action. The Company is not able to determine if it will prevail in such litigation. The Tenant entered into an agreement to transfer certain operations, including lease obligations, of the Simpsonville Facility. On August 5, 2022, in connection with the settlement of the action described above, Tenant and Landlord terminated the lease of the Simpsonville Facility as contemplated by such agreement to transfer of certain operations, including lease obligations, which permitted the Landlord to sell the Simpsonville Facility to a third party. The Company and Landlord are negotiating a settlement, including the amount and payment terms. There can be no assurance that the Company will settle this second action on terms that are acceptable or at all. See Note 16 - Subsequent Events.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Certain subsidiaries of the Company that operated hotel assets have not paid employment related taxes such as required withholdings for Texas State unemployment taxes and federal income tax and employee and employer contributions for FICA (Social Security and Medicare) taxes, and federal unemployment tax for the period from December 31, 2018 to December 31, 2020. These subsidiaries have since made the appropriate filings with the Internal Revenue Service and the Company has accrued the full estimated amount of the underpaid taxes as well as the estimated penalties and interest. As of June 30, 2022, the amount of the estimated taxes, penalties, and interest, assuming that there is no waiver or mitigation of the penalties, is $361,552. The Company has accrued this amount in its unaudited condensed consolidated financial statements as of June 30, 2022.
In addition, from time to time, the Company becomes involved in litigation matters in the ordinary course of its business. Such litigations include an action that alleges negligence and other claims regarding the death of a resident in a memory care facility. One such action was Michael Inderrieden, Individually and as Personal Representative of the Estate of Thomas Inderrieden v. MCA Simpsonville Operating Company, LLC dba Memory Care of Simpsonville; Allied Integral United, Inc. dba Clearday; Memory Care America, LLC.; MCA Management Company, Inc.; and MC-Simpsonville, SC-1-UT, LLC, that alleged various acts and breaches by the defendants that resulted in the death of a resident. This action was settled in the third quarter of 2022. Although the Company is unable to predict with certainty the eventual outcome of any litigation, the Company does not believe any of its currently pending litigation is likely to have a material adverse effect on its business.
Indemnification Agreements
Certain lease and other obligations of the Company are guaranteed in whole or in part by James Walesa and/or BJ Parrish and others. The Company has agreed to indemnify and hold each such individual harmless for all liabilities and payments on account of any such guaranty. The lease obligations of the Company for its lease obligations for four of its five MCA facilities, including the lease of the MCA community that is located in Simpsonville, South Carolina, referred to as the Simpsonville Facility. This is the facility that is the subject of litigation and judgement against certain of our subsidiaries. We have been fully indemnified by James Walesa for all obligations that the Company may incur with respect to an adverse judgement against the Company, including any post-judgement interest. Such indemnification by James Walesa is under an agreement dated as of July 30, 2020. Under such agreement, James Walesa receives a fee equal to 2% of the total amount payable by AIU or any of its subsidiaries which is payable in units of shares of the Clearday Care Preferred and Clearday Warrants at $ per unit, which is the same as the cash payment for such units by third parties in the offering of such units by Clearday Care. In the event that Mr. Walesa is required to make any payments under this indemnification, then the Company will issue shares of Clearday Care Preferred and Clearday Warrants, at $ per unit, for the amount of such payment.
Subsequently, an amendment to the indemnification agreement above was signed on January 19, 2021 in which additional securities were pledged on behalf of James Walesa for all obligations that Company may incur with respect to an adverse judgement and/or any post-judgement interest. In the event that Mr. Walesa is required to make any payments under this amended indemnification agreement, then Company will issue shares of AIU Care, AIU Warrants and AIU Common Stock at $ per unit as well as the AIU Series A Preferred at $ per unit, for the amount of such payment.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
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| Earnings Per Share |
Basic net income (loss) per common share is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares and potentially dilutive securities outstanding for the period. For the Company’s diluted earnings per share calculation, the Company uses the “if-converted” method for preferred stock and convertible debt and the “treasury stock” method for Warrants and Options.
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Related Party Transactions |
6 Months Ended |
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Jun. 30, 2022 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | 9. Related Party Transactions
Background
The Related Party Disclosures Topic provides disclosure requirements for related party transactions and certain common control relationships. Accounting and reporting issues concerning certain related party transactions and relationships are addressed in other Topics.
Information about transactions with related parties is useful in comparing an entity’s results of operations and financial position with those of prior periods and with those of other entities. It helps users of financial statements to detect and explain possible differences.
Debt
There are some loans in which executive management has loaned money to the Company. In addition, there are loans made by the Company itself in which certain executives personally guarantee the debt.
Cibolo Creek Partners, LLC (“Cibolo Creek”) and its affiliate Round Rock Development Partners, LP (“RRDP”) have from time to time made loans to us under revolving credit notes that bear interest at the then applicable federal rate and are payable on demand or other date that was specified by such lender. In December 2018, AIU acquired businesses affiliated with Cibolo Creek. As of June 30, 2022, Cibolo Creek and Round Rock were owed $421,470 and $500,000 respectively by the Company.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Guarantees
From time-to-time certain officers and directors will personally guarantee a loan. There is a guarantee fee agreement in place that details the amount of the fee as well as payment terms for certain executives in the Company. The amount of the fee is capped at 1% of the amount of the outstanding note regardless of how many guarantors there are on the loan.
Other Transactions
On February 18, 2022, MCA Naples, LLC (‘Seller’) executed a purchase agreement with Richard Morris, an executive vice president of the Company, and Arlene Berliner, JTWROS (the “Purchaser”) to sell undivided interests in the land and improvements (the “Naples Property”) that are used for its Memory Care of Naples care facility that is in Naples, Florida (the “Naples Facility”) for aggregate cash amount of $100,000. At the closing of this Purchase Agreement, the purchaser of this undivided interest in the Naples Property will hold an undivided interest in the Naples Property as tenants in common and will be party to a Tenant in Common Agreement (“TIC Agreement”).
Related parties of the Company, including our Chief Executive Officer, have from time to time made as unsecured non-interest bearing advances that are due upon demand. As of June 30, 2022, the balance of such advances from officers were an aggregate amount of approximately $649,000 due to our Chief Executive Officer and his related party.
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| Deficit | 13. Deficit
The certificate of incorporation of Clearday, Inc., as amended in connection with the merger, provides for authorized shares of Common Stock and authorized shares of preferred stock, each par value $ per share.
Common Stock
AIU awarded restricted shares of its common stock in the amount of shares (representing shares of Clearday, Inc. Common Stock) to various officers, directors and a consultant; during the six months ended June 30, 2021. For the six months ended June 30, 2022, Clearday did not award any restricted stock.
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.
Preferred Stock
Prior to the AIU Merger, AIU had Series A 6.75% cumulative convertible preferred stock, $ par value, shares of such securities were issued and outstanding as of December 31, 2021. 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, $ par value. The Company has shares authorized with and issued and outstanding as of June 30, 2022 and December 31, 2021, respectively. The Series F Preferred Stock has a stated value of $ per share is exchangeable at the option of the holder into approximately 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 – Temporary, 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 $ par value, shares authorized, and shares issued and outstanding as of June 30, 2022 and December 31, 2021. 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.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Dividends and Distributions
For the three and six months ended June 30, 2022 and June 30, 2021, the Company recognized dividends for the 6.75% Series F preferred stock in the amount of $1,655,926 and $3,274,941 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 AIU Merger Effective Date.
The following is a summary of such outstanding warrants at June 30, 2022:
Warrants that were issued by AIU have been assumed by Clearday in the merger.
As of June 30, 2022, there are 1,376,118 warrants that were issued by AIU to investors in the Alt Care Preferred and units of limited partnership interests in Clearday OZ Fund. 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 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 Unaudited Condensed 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 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
At June 30, 2022, 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 six months ended June 30, 2022. 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 June 30, 2022, there are no outstanding options under the Stock Option Plan.
Restricted Stock
On March 31, 2021, AIU issued an additional total shares of restricted common stock to executives of AIU representing approximately shares of Clearday, Inc. Common Stock. The shares vest over months and the Company valued the shares at $ per share, on the date of the agreement.
For the six months ended June 30, 2022, no shares of restricted common stock were issued.
Equity of Subsidiary
Non-Controlling Interest
In November 2019, a certificate of incorporation was entered into by AIU Alt Care for Series I 10.25% cumulative convertible preferred stock, par value $ per share that authorizes the issuance of shares of preferred stock and of common stock and designated 700,000 as Series I Preferred Stock. Each share of Series I Preferred Stock has a stated value equal to the Series I Preferred Stock original issue price. For the six months ended June 30, 2022 and 2021, $0 and $257,000 was invested in AIU Alt Care, respectively in exchange for and 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 six months ended June 30, 2022 and 2021, $0 and $413,062 was invested in Clearday Oz Fund, respectively, respectively.
The exchange rate for each of the Alt Care Preferred Stock and the limited partnership units in Clearday OZ Fund 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.
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 six months ended June 30, 2022, the income for AIU Alt Care is $1,680 and Clearday Oz Fund loss is $220,618. Based on 99% ownership interest, AIU Alt Care and Clearday OZ fund incurred a loss attributable to the NCI in the amount of $1,663. and $218,412, respectively in 2022 and incurred losses of $325,476 and $103,831, respectively, for 2021.
Cumulative Convertible Preferred Stock and Limited Partnership Interests in Subsidiaries (NCI)
For the six months ended June 30, 2022, AIU Alt Care closed subscriptions and issued and sold shares of Series I Cumulative Convertible Preferred Stock (the “Alt Care Preferred Stock”), par value $ per share, and units of limited partnership interests in Clearday OZ Fund. However, the dividends on the series I shares for the quarter ended June 30, 2022 totaled $273,128.
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 six months ended June 30, 2022, AIU Alt Care and Clearday OZ fund has issued 0 and 0 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 % 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 Unaudited Condensed 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, Alternative 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.
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Preferred Stock – Temporary equity |
6 Months Ended |
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Jun. 30, 2022 | |
| Preferred Stock Temporary Equity | |
| Preferred Stock – Temporary equity | 14. Preferred Stock – Temporary equity
The Company has shares of preferred stock authorized, par value $ per share, including designated as Series F Preferred Stock and shares outstanding as of June 30,2022. Pursuant to the Certificate of Designations of Series F Preferred Stock, upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (“Liquidation Event”), including any Deemed Liquidation Event, as defined in the Certificate of Designations and unless otherwise determined by the majority of the holders of the Series F Preferred Stock that a transaction is not a Deemed Liquidation Event, the holders of the then outstanding Series F Preferred Stock shall be entitled to be paid a liquidation preference (“Preference Amount”) out of the assets of the Company available for distribution to its stockholders equal to the original issue price and, plus any accumulated and unpaid dividends. As the payment of this Preference Amount is not solely within the control of the Company, the Series F Preferred Stock does not qualify as permanent equity and has been classified as temporary equity. The Series F Preferred Stock is not redeemable, and it was not probable that there would be a Liquidation Event as of June 30,2022. Therefore, the Company is not currently required to accrete the Series F Preferred Stock to the aggregate liquidation value.
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Income Taxes |
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| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | 15. Income Taxes
The Company did not recognize a benefit or provision for income taxes for the six months ended June 30, 2022 and June 30, 2021.
The Company evaluates its deferred tax assets on a quarterly basis to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. The Company has assessed its position and decided that a valuation allowance as of June 30, 2022 and June 30, 2021 is not necessary at this time.
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Subsequent Events |
6 Months Ended |
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Jun. 30, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | 16. Subsequent Events
We evaluated subsequent events and transactions occurring after June 30, 2022 through the date of this Report.
Loans
Loans:
We incurred loans from an institutional lender in the aggregate principal amount of approximately $600,000 for aggregate net proceeds approximately $540,000, less transaction and related fees. The average interest rate on such loans is approximately 12% per annum. This loan was reported in our filing on Form 8-K that was filed on July 8, 2022 which is incorporated in this Report. This lender has waived the default under this Note caused by this Report not being filed when due. |
Summary of Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principles of Consolidation | Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, including its wholly owned subsidiaries. In 2019, AIU Alternative Care, Inc., a Delaware corporation (“AIU Alt Care”), and Clearday Alternative Care Oz Fund, L.P, a Delaware limited partnership (“Clearday OZ Fund”), were formed by AIU. The Company owns all of the voting interests of AIU Alt Care and is the sole general partner of Clearday OZ Fund, and less than 1% of the preferred economic interests in such companies.
In November, 2019, AIU Alt Care filed a certificate of designation that authorized preferred stock designated as the Series I 10.25% cumulative convertible preferred stock, par value $ per share (the “Alt Care Preferred Stock”). The certificate of incorporation of AIU Alt Care authorizes shares of preferred stock of which is designated Alt Care Preferred Stock; and of common stock. Each share of The Alt Care Preferred Stock has a stated value equal to the $ Alt Care Preferred Stock original issue price.
In October, 2019, AIU Alt Care formed AIU Impact Management, LLC and Clearday OZ Fund was formed. AIU Impact Management, LLC manages Clearday OZ Fund as its general partner, owns 1% of Clearday OZ Fund and allocates 99% of income gains and losses accordingly to the limited partners.
The exchange rate for each of the Alt Care Preferred Stock and the limited partnership units in Clearday OZ Fund are equal to (i) the aggregate investment amount for such security plus accrued and unpaid 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 AIU Merger, this exchange rate was 1 share for every $10.00 of aggregate amount of the investment plus such accrued and unpaid dividends.
The Company reports its non-controlling interest in subsidiaries as a separate component of equity in the unaudited condensed consolidated balance sheets and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company’s common shareholders on the face of the unaudited condensed consolidated statement of operations.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the annual financial statements of the Company and of AIU that are contained in the Company’s Form 10-K, as amended and supplemented. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated upon consolidation. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
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| Basis of Presentation | Basis of Presentation
Basis of Presentation - The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of the Company’s management, any adjustments contained in the accompanying unaudited consolidated financial statements are of a normal recurring nature, and are necessary to fairly present the financial position of the Company as of June 30, 2022, along with its results of operations for the six month periods ended June 30, 2022 and 2021 and cash flows for the three-month periods ended June 30, 2022 and 2021. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Results of operations for the three-month period ended June 30, 2022, are not necessarily indicative of the operating results that may be expected for the full year ending December 31, 2022.
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| Unaudited Interim Financial Information | Unaudited Interim Financial Information
The unaudited condensed consolidated financial statements as of June 30, 2022 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) and GAAP. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of the Company, these unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to present fairly the Company’s financial position, results of operations and cash flows. Interim results are not necessarily indicative of results for a full year or future periods. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2021, as well as the audited consolidated financial statements of AIU that are included in our Annual Report on Form 10-K, as amended and supplemented.
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| Use of Estimates | Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities and contingencies at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Management believes that these estimates and assumptions are reasonable, however, actual results may differ and could have a material effect on future results of operations and financial position.
The impact of the COVID-19 pandemic could continue to have a material adverse effect on the Company’s business, results of operations, financial condition, liquidity, and prospects in the near-term and beyond 2022. While management has used all currently available information in its forecasts, the ultimate impact of the COVID-19 pandemic on its results of operations, financial condition and cash flows is highly uncertain, and cannot currently be accurately predicted. The Company’s results of operations, financial condition and cash flows are dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, such as a lengthy or severe recession or any other negative trend in the U.S. or global economy and any new information that may emerge concerning the COVID-19 outbreak and the actions to contain it or treat its impact, which at the present time are highly uncertain and cannot be predicted with any accuracy.
Significant estimates in our condensed consolidated financial statements relate to revenue recognition, including contractual allowances, the allowance of doubtful accounts, self-insurance reserves, long-lived assets, impairment of long-lived assets and estimates concerning our provisions for income taxes.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
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| Fair Value of Financial Instruments | Fair Value of Financial Instruments
The Company’s financial instruments are limited to cash, accounts receivable, debt and equity investments, accounts payable, operating leases and mortgage notes payable. The fair value of these financial instruments was not materially different from their carrying values on June 30, 2022.
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| Segment Reporting | Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, the Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment.
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| Cash and Restricted Cash | Cash and Restricted Cash
Cash, consisting of short-term, highly liquid investments and money market funds with original maturities of six months or less at the date of purchase, are carried at cost plus accrued interest, which approximates market.
Restricted cash as of June 30, 2022 and December 31, 2021 includes cash that the Company deposited as security for obligations arising from property taxes, property insurance and replacement reserve the Company is required to establish escrows as required by its mortgages and certain resident security deposits.
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| Investments | Investments
The Company follows ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The Company has no investment in securities as of June 30, 2022.
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| Goodwill | Goodwill
Goodwill, which has an indefinite useful life, represents the excess of purchase consideration over fair value of net assets acquired. The Company determines whether goodwill may be impaired by comparing the carrying value of the single reporting unit, including goodwill, to the fair value of the reporting unit. If the fair value is less than the carrying amount, a more detailed analysis is performed to determine whether goodwill is impaired. The impairment loss, if any, is measured as the excess of the carrying value of the goodwill over the implied fair value of the goodwill and is recorded in the Company’s consolidated statements of operations.
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| Software Capitalization | Software Capitalization
With regards to developing software, any application costs incurred during the development state, both internal expenses and those paid to third parties are capitalized. At June 30. 2022 and December 31, 2021, $2,743,525 and $1,783,525, respectively were the balances that will be amortized based on the useful life. These costs are included in the furniture fixture and equipment line on Note 3.
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| Risks and Uncertainties | Risks and Uncertainties
The Company’s financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, investments, and trade receivables. At certain times throughout the year, the Company may maintain deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash balances due to the financial position of the depository institutions in which those deposits are held. The Company performs ongoing credit evaluations of its customers, and the risk with respect to trade receivables is further mitigated by the diversity, both by geography, of the customer base.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was adopted.
The CARES Act appropriated funds for the U.S. Small Business Administration Paycheck Protection Program (“PPP”) loans that are forgivable in certain situations and employment related tax credits to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company continues to examine the impact that the CARES Act may have on its business and is currently, unable to determine the impact that the CARES Act will have on its financial condition, results of operations, or liquidity.
The Company is also considering other applicable federal and state programs, including the Families First Coronavirus Response Act, which is a federal law meant to respond to the economic impacts of the ongoing COVID-19 pandemic that provides certain credits to employers, and the Work Opportunity Tax Credit (WOTC), which is a federal tax credit available to employers who invest in American job seekers who have consistently faced barriers to employment. Employers may meet their business needs and claim a tax credit if they hire an individual who is in a WOTC targeted group.
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| Earnings Per Share |
Basic and diluted earnings per share are computed and disclosed in accordance with FASB ASC Topic 260, Earnings Per Share. The Company utilizes the two-class method to compute earnings available to common shareholders. Under the two-class method, earnings are adjusted by accretion amounts to redeemable noncontrolling interests recorded at redemption value. The adjustments represent dividend distributions, in substance, to the noncontrolling interest holder as the holders have contractual rights to receive an amount upon redemption other than the fair value of the applicable shares. As a result, earnings are adjusted to reflect this in substance distribution that is different from other common shareholders. In addition, the Company allocates net earnings to each class of common stock and participating security as if all of the net earnings for the period had been distributed. The Company’s participating securities consist of share-based payment awards that contain a non-forfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common shareholders. Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.
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| Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts
The Company records accounts receivable at their estimated net realizable value. Additionally, the Company estimates allowances for uncollectible amounts based upon factors which include, but are not limited to, historical payment trends, write-off experience, and the age of the receivable as well as a review of specific accounts, the terms of the agreements, the residents, the payers’ financial capacity to pay and other factors which may include likelihood and cost of litigation.
The allowance for doubtful accounts reflects estimates that the Company periodically reviews and revises based on new information, to which revisions may be material. The Company’s allowance for doubtful accounts consists of the following:
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| Assets and Liabilities Held for Sale | Assets and Liabilities Held for Sale
The company has classified its real estate as held for sale as these are non-core assets no longer used in operations. The company recorded these assets as the less of cost or carrying value.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
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| Property and Equipment | Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line basis over their estimated useful lives, which are typically as follows:
The Company regularly evaluates whether events or changes in circumstances have occurred that could indicate impairment in the value of the Company’s long-lived assets. If there is an indication that the carrying value of an asset is not recoverable, the Company determines the amount of impairment loss, if any, by comparing the historical carrying value of the asset to its estimated fair value, with any amount in excess of fair value recognized as an expense in the current period. The Company determines estimated fair value through an evaluation of recent financial performance, recent transactions for similar assets, market conditions and projected cash flows using standard industry valuation techniques. Undiscounted cash flow projections and estimates of fair value amounts are based on a number of assumptions such as revenue and expense growth rates, estimated holding periods and estimated capitalization rates (Level 3).
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| Valuation of Long-Lived Assets | Valuation of Long-Lived Assets
Long-lived assets to be held and used, including property and equipment, right to use assets and definite life intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Note 3 - Real Estate, Property and Equipment, Net.
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| Gain (Loss) on Sale of Assets | Gain (Loss) on Sale of Assets
The Company enters into real estate transactions which may include the disposal of certain commercial shopping centers and hotels, including the associated real estate; such transactions are recorded in Note 5 – Discontinued Operations. The Company recognizes gain or loss on these property sales when the transfer of control is complete. The Company recognizes gain or loss from the sale of equity method investments when the transfer of control is complete, and the Company has no continuing involvement with the transferred financial assets.
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| Legal Proceedings and Claims | Legal Proceedings and Claims
The Company has been, is currently, and expects in the future to be involved in claims, lawsuits, and regulatory and other government audits, investigations and proceedings arising in the ordinary course of the Company’s business, some of which may involve material amounts. The Company establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Also, the defense and resolution of these claims, lawsuits, and regulatory and other government audits, investigations and proceedings may require the Company to incur significant expense. The Company accounts for claims and litigation losses in accordance with FASB, Accounting Standards Codification™, or ASC, Topic 450, Contingencies. Under FASB ASC Topic 450, loss contingency provisions are recorded for probable and estimable losses at the Company’s best estimate of a loss or, when a best estimate cannot be made, at the Company’s estimate of the minimum loss. These estimates are often developed prior to knowing the amount of the ultimate loss, require the application of considerable judgment, and are refined as additional information becomes known. Accordingly, the Company is often initially unable to develop a best estimate of loss and therefore the estimated minimum loss amount, which could be zero, is recorded; then, as information becomes known, the minimum loss amount is updated, as appropriate. Occasionally, a minimum or best estimate amount may be increased or decreased when events result in a changed expectation.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
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| Lease Accounting | Lease Accounting
The Company follows FASB ASC Topic 842, Leases, or ASC Topic 842, utilizing the modified retrospective transition method with no adjustments to comparative periods presented. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized.
Lessee
The Company regularly evaluates whether a contract meets the definition of a lease whenever a contract grants a party the right to control the use of an identified asset for a period of time in exchange for consideration. To the extent the identified asset is able to be shared among multiple parties, the Company has determined that one party does not have control of the identified asset and the contract is not considered a lease. The Company accounts for contracts that do not meet the definition of a lease under other relevant accounting guidance (such as ASC 606 for revenue from contacts with customers).
The Company’s lease agreements primarily consist of building leases. These leases generally contain an initial term of 15 to 17 years and may contain renewal options. If the Company’s lease agreements include renewal option periods, the Company includes such renewal options in its calculation of the estimated lease term when it determines the options are reasonably certain to be exercised. When such renewal options are deemed to be reasonably certain, the estimated lease term determined under ASC 842 will be greater than the non-cancelable term of the contractual arrangement.
The Company classifies its lessee arrangements at inception as either operating leases or financing leases. A lease is classified as a financing lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying asset, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if none of the five criteria described above for financing lease classification is met. The Company has no financing leases as of June 30, 2022.
ROU assets associated with operating leases are included in “Right of Use Asset” on the Company’s unaudited condensed balance sheet. Current and long-term portions of lease liabilities related to operating leases are included in “Lease Liabilities, Current” and “Lease Liabilities, Long-Term” on the Company’s balance sheet as of June 30, 2022. ROU assets represent the Company’s right to use an underlying asset for the estimated lease term and lease liabilities represent the Company’s present value of its future lease payments. In assessing its leases and determining its lease liability at lease commencement or upon modification, the Company was not able to readily determine the rate implicit for its lessee arrangements, and thus has used its incremental borrowing rate on a collateralized basis to determine the present value of the lease payments. The Company’s ROU assets are measured as the balance of the lease liability plus or minus any prepaid or accrued lease payments and any unamortized initial direct costs. Operating lease expenses are recognized on a ratable basis, regardless of whether the payment terms require the Company to make payments annually, quarterly, monthly, or for the entire term in advance. If the payment terms include fixed escalator provisions, the effect of such increases is recognized on a straight-line basis. The Company calculates the straight-line expense over the contract’s estimated lease term, including any renewal option periods that the Company deems reasonably certain to be exercised.
The Company reviews the carrying value of its ROU assets for impairment, similar to its other long-lived assets, whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company could record impairments in the future if there are changes in (1) long-term market conditions, (2) expected future operating results or (3) the utility of the assets that negatively impact the fair value of its ROU assets.
Lessor
The Company’s lessor arrangements primarily included tenant contracts within shopping centers, which is included in discontinued operations. The Company classifies its leases at inception as operating, direct financing, or sales-type leases. A lease is classified as a sales-type lease if at least one of the following criteria is met: (1) the lease transfers ownership of the underlying asset to the lessee, (2) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (3) the lease term is for a major part of the remaining economic life of the underlying asset, (4) the present value of the sum of the lease payments equals or exceeds substantially all of the fair value of the underlying assets or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Furthermore, when none of the above criteria is met, a lease is classified as a direct financing lease if both of the following criteria are met: (1) the present value of the of the sum of the lease payments and any residual value guaranteed by the lessee, that is not already reflected in the lease payments, equals or exceeds the fair value of the underlying asset and (2) it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. A lease is classified as an operating lease if it does not qualify as a sales-type or direct financing lease. Currently, the Company classifies all of its lessor arrangements as operating leases.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Revenues from the Company’s lessor arrangements are recognized on a straight-line, ratable basis over the fixed, non-cancelable term of the relevant tenant contract, regardless of whether the payments from the tenant are received in equal monthly amounts during the life of a tenant contract. Certain of the Company’s tenant contracts contain fixed escalation clauses (such as fixed-dollar or fixed-percentage increases) or inflation-based escalation clauses (such as those tied to the change in CPI) and is included in discontinued operations. If the payment terms call for fixed escalations, upfront payments, or rent-free periods, the rental revenue is recognized on a straight-line basis over the fixed, non-cancelable term of the agreement. When calculating straight-line site rental revenues, the Company considers all fixed elements of tenant contractual escalation provisions.
Certain of the Company’s arrangements with tenants contain both lease and non-lease components. In such circumstances, the Company has determined (1) the timing and pattern of transfer for the lease and non-lease component are the same and (2) the stand-alone lease component would be classified as an operating lease. As such, the Company has aggregated certain non-lease components with lease components and has determined that the lease components represent the predominant component of the arrangement.
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| Income Taxes | Income Taxes
The Company’s income tax expense includes U.S. income taxes. Certain items of income and expense are not reported in tax returns and financial statements in the same year. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences to be included in the Company’s unaudited condensed consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse, while the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company can recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that has a greater than 50% likelihood of being realized.
Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent, the Company believes that the Company is more likely than not that all or a portion of deferred tax assets will not be realized, the Company establishes a valuation allowance to reduce the deferred tax assets to the appropriate valuation. To the extent the Company establishes a valuation allowance or increase or decrease this allowance in a given period, the Company includes the related tax expense or tax benefit within the tax provision in the unaudited condensed consolidated statement of operations in that period. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In the future, if the Company determines that it would be able to realize its deferred tax assets in excess of their net recorded amount, the Company will make an adjustment to the deferred tax asset valuation allowance and record an income tax benefit within the tax provision in the unaudited condensed consolidated statement of operations in that period.
The Company pays franchise taxes in certain states in which it has operations. The Company has included franchise taxes in general and administrative and operating expenses in its unaudited condensed consolidated statements of operations.
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| Revenue Recognition | Revenue Recognition
The Company recognizes revenue from contracts with customers in accordance with ASC Topic 606, Revenue from Contracts with Customers, or ASC Topic 606, using the practical expedient in paragraph 606-10-10-4 that allows for the use of a portfolio approach, because we have determined that the effect of applying the guidance to our portfolios of contracts within the scope of ASC Topic 606 on our unaudited condensed consolidated financial statements would not differ materially from applying the guidance to each individual contract within the respective portfolio or our performance obligations within such portfolio. The five-step model defined by ASC Topic 606 requires the Company to: (i) identify its contracts with customers, (ii) identify its performance obligations under those contracts, (iii) determine the transaction prices of those contracts, (iv) allocate the transaction prices to its performance obligations in those contracts and (v) recognize revenue when each performance obligation under those contracts is satisfied. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration expected in exchange for those goods or services.
A substantial portion of the Company’s revenue at its independent living and assisted living communities relates to contracts with residents for services that are generally under ASC Topic 606. The Company’s contracts with residents and other customers that are within the scope of ASC Topic 606 are generally short-term in nature. The Company has determined that services performed under those contracts are considered one performance obligation in accordance with ASC Topic 606 as such services are regarded as a series of distinct events with the same timing and pattern of transfer to the resident or customer. Revenue is recognized for those contracts when the Company’s performance obligation is satisfied by transferring control of the service provided to the resident or customer, which is generally when the services are provided over time.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
Resident fees at our independent living and assisted living communities consist of regular monthly charges for basic housing and support services and fees for additional requested services, such as assisted living services, personalized health services and ancillary services. Fees are specified in our agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed in advance. Funds received from residents in advance of services provided are not material to our unaudited consolidated financial statements. Some of our senior living communities require payment of an upfront entrance fee in advance of a resident moving into the community; substantially all of these community fees are non-refundable and are initially recorded as deferred revenue and included in accrued expenses and other current liabilities in our unaudited condensed consolidated balance sheets. These deferred amounts are then amortized on a straight-line basis into revenue over the term of the resident’s agreement. When the resident no longer resides within our community, the remaining deferred non-refundable fees are recognized in revenue. Revenue recorded and deferred in connection with community fees is not material to our unaudited condensed consolidated financial statements. Revenue for basic housing and support services and additional requested services is recognized in accordance with ASC Topic 606 and measured based on the consideration specified in the resident agreement and is recorded when the services are provided.
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| Core Business – Continuing Operations | Core Business – Continuing Operations
Resident Care Contracts. Resident fees at the Company’s senior living communities may consist of regular monthly charges for basic housing and support services and fees for additional requested services and ancillary services. Fees are specified in the Company’s agreements with residents, which are generally short term (30 days to one year), with regular monthly charges billed the first of the month. Funds received from resident in advance of services are not material to the Company’s unaudited condensed consolidated financial statements.
Below is a table that shows the breakdown by percent of revenues related to contracts with residents versus resident fees for support or ancillary services.
The Company relinquished operations of its facility that was located in Simpsonville, South Carolina (the “Simpsonville Facility”) effective September 30, 2021. Total residential rent revenues for the three months and six months ended June 30, 2022 do not include any such revenues from the Simpsonville Facility, which were $307,327 and $659,265 for the three months and six months ended June 30, 2021, respectively. Total revenue from contracts with customers of the Company decreased from 2022 to the comparable period of 2021 due to this relinquishment of the Simpsonville Facility, resulting in a decrease in total revenue in the second quarter. Resident fee increases for the Company’s other residential facilities during this period helped to augment revenue in 2022.
Resident rent from the Company’s same residential facilities increased by $167,610 or approximately 5.8%, during the three months ended June 30, 2022 to the comparable period of 2021 and decreased by $6,502 or approximately 0.1%, during the six months ended June 30, 2022 to the comparable period of 2021.
Day care revenue is from Primrose Day care center, which we purchased in the second quarter of 2021. |
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| Discontinued Operations, Policy [Policy Text Block] |
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
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| Cost of Product Revenue | Cost of Product Revenue
Cost of product revenue represents direct and indirect costs incurred to bring the product to saleable condition.
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| Research and Development Expenses | Research and Development Expenses
All research and development costs are charged to expense as incurred. Research and development expenses primarily include (i) payroll and related costs associated with research and development performed, (ii) costs related to clinical and preclinical testing of the Company’s technologies under development, and (iii) other research and development costs including allocations of facility costs.
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| PPP Loans | PPP Loans
The Company recognizes Paycheck Protection Program loans (PPP loans) under the Small Business Administration as debt instruments in accordance with ASC 470, Debt. When the loan proceeds are received, a long-term liability account (i.e., “PPP Loan Liability”) is set up. The presentation of the loan in the balance sheet is accounted for in accordance with U.S. GAAP regarding the presentation of assets and liabilities, whereas the portion of the loan due within 12 months from year end will be considered a current liability and the remaining portion will be considered a long-term liability. Also, under this guidance, a borrower should not recognize any income from the extinguishment of its debt until the borrower has been legally released as the primary obligor under the loan. In addition, the forgiveness of PPP loans as income will be recorded as other income and not included in income from operations based on the unprecedented nature of COVID-19.
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| ERTC Funds | ERTC Funds
The Company was eligible to claim the employee retention tax credit (“ERTC”) for certain employees under the CARES Act. The 2021 refundable tax credit is available to employers that fully (or partially) suspend operations during any calendar quarter in 2021 due to orders from an appropriate governmental authority, which limits commerce, travel, or group meetings due to COVID-19. The credit is equal to 70% of qualified wages paid after March 12, 2020 through December 31, 2020 to qualified employees, with a maximum credit of $7,000 per employee. The credit was modified and extended for wages paid from January 1, 2021, through December 31, 2021, by the “Consolidated Appropriations Act, 2021”. Certain of these credits are obtained by refunds of employer taxes that have been paid, and other amounts were obtained by reducing the amount of withholdings remitted to the IRS. The ERTC was terminated as of fourth quarter of 2021.
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| General and Administrative Expenses | General and Administrative Expenses
General and administrative expenses represent personnel costs for employees involved in general corporate functions, including finance, accounting, legal and human resources, among others. Additional costs included in general and administrative expenses consist of professional fees for legal (including patent costs), audit and other consulting services, travel and entertainment, charitable contributions, recruiting, allocated facility and general information technology costs, depreciation and amortization, and other general corporate overhead expenses.
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| Recently Issued Accounting Pronouncements Not Yet Adopted | Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires a financial asset, or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. This ASU eliminates the probable initial recognition threshold and instead requires reflection of an entity’s current estimate of all expected credit losses. In addition, this ASU amends the current available for sale security other-than-temporary impairment model for debt securities. The length of time that the fair value of an available for sale debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists and credit losses will now be limited to the difference between a security’s amortized cost basis and its fair value. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends the transition and effective date for nonpublic entities and clarifies that receivables arising from operating leases are not in the scope of this ASU. These ASUs are effective for reporting periods beginning after December 15, 2022. The Company is assessing the potential impact that the adoption of these ASUs will have on its unaudited condensed consolidated financial statements.
In December 2019, the FASB also issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies certain requirements under Topic 740, including eliminating the exception to intra-period tax allocation when there is a loss from continuing operations and income from other sources, such as other comprehensive income or discontinued operations. The amendments in this ASU are effective for the fiscal year beginning after December 15, 2020. The Company has determined that this ASU does not have a material impact on its unaudited condensed consolidated financial statements.
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
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Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Allowance for Doubtful Accounts | The allowance for doubtful accounts reflects estimates that the Company periodically reviews and revises based on new information, to which revisions may be material. The Company’s allowance for doubtful accounts consists of the following:
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| Schedule of Estimated Useful Lives | Property and equipment are recorded at cost and depreciated using the straight-line basis over their estimated useful lives, which are typically as follows:
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| Schedule of Revenue from Contract with Customers | Below is a table that shows the breakdown by percent of revenues related to contracts with residents versus resident fees for support or ancillary services.
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Real Estate, Property and Equipment, Net (Tables) |
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| Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Real Estate, Property and Equipment | Property and equipment, net, consists of the following:
Memory Care Facilities and Corporate
Non-core businesses classified as assets held for sale:
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Leases (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Lease Cost | For the three & six months ended June 30, 2022 and 2021, the lease costs recorded in the unaudited condensed consolidated statement of operations are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Maturities of Operating Lease Liabilities | The following table summarizes the maturity of the Company’s operating lease liabilities as of June 30, 2022:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Discontinued Operations for Consolidated Balance Sheets and Income Statements | The following statements are the unaudited condensed consolidated balance sheets and income statements for the Company’s discontinued operations:
Clearday, Inc. Notes to Unaudited Condensed Consolidated Financial Statements
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Indebtedness (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Long Term Debt | The change in the interest expense reflects primarily the impact of the factoring loans we have taken out which carry a higher interest rate.
|
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| Schedule of Long Term Debt and Notes Payables | The following table summarizes the maturity of the Company’s long-term debt and notes payable as of June 30, 2022:
|
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Earnings Per Share (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Anti-dilutive Shares Computation of Earnings (Loss) Per Share |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deficit (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Outstanding Warrants | The following is a summary of such outstanding warrants at June 30, 2022:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Tax Provision | The Company evaluates its deferred tax assets on a quarterly basis to determine if a valuation allowance is required based on whether it is more likely than not that some portion of the deferred tax asset would not be realized. The Company has assessed its position and decided that a valuation allowance as of June 30, 2022 and June 30, 2021 is not necessary at this time.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Description of Organization, Basis of Presentation, Summary of Significant Accounting Policies, Liquidity and Going Concern (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| Accounting Policies [Abstract] | |||||
| Retained Earnings (Accumulated Deficit) | $ 67,143,363 | $ 67,143,363 | $ 65,208,327 | ||
| Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest | 4,965,391 | ||||
| Income (Loss) from Discontinued Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest | $ 85,753 | $ (944,255) | $ 170,980 | $ (632,243) | |
Schedule of Allowance for Doubtful Accounts (Details) - USD ($) |
6 Months Ended | 12 Months Ended | |
|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| Accounting Policies [Abstract] | |||
| Allowance for doubtful accounts, beginning balance | $ 68,911 | $ 68,911 | |
| Provision for doubtful accounts | $ 206,741 | 108,360 | |
| Write-offs | (177,277) | ||
| Allowance for doubtful accounts, ending balance | |||
Real Estate, Property and Equipment, Net (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Property, Plant and Equipment [Abstract] | ||||
| Depreciation, Depletion and Amortization | $ 185,044 | $ 129,665 | $ 372,259 | $ 304,124 |
Schedule of Lease Cost (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Leases | ||||
| Operating lease costs | $ 1,104,608 | $ 1,357,497 | $ 2,293,753 | $ 2,487,040 |
| Short-term lease costs | 8,100 | 7,434 | 19,094 | 25,922 |
| Total lease costs | $ 1,112,708 | $ 1,364,932 | $ 2,312,847 | $ 2,512,961 |
Schedule of Maturities of Operating Lease Liabilities (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Leases | ||
| 2022 (Remaining of 2022) | $ 2,014,996 | |
| 2023 | 4,114,830 | |
| 2024 | 4,211,665 | |
| 2025 | 4,310,799 | |
| 2026 | 4,412,289 | |
| 2027 | 4,516,191 | |
| Thereafter | 40,289,687 | |
| Total minimum lease payments | 63,870,457 | |
| Less: amounts representing interest | 26,736,067 | |
| Present value of future minimum lease payments | 37,134,391 | |
| Less: current portion | 1,041,859 | $ 953,817 |
| Non-current lease liabilities | $ 36,092,532 | $ 36,642,807 |
Leases (Details Narrative) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Defined Benefit Plan Disclosure [Line Items] | ||
| Right of use-of-asset and lease liability | $ 31,897,546 | $ 32,818,019 |
| Operating lease liability | $ 37,134,391 | |
| Weighted average remaining lease term | 13 years 6 months | |
| Weighted average discount rate percentage | 8.25% | |
| Memory Care Facilities [Member] | ||
| Defined Benefit Plan Disclosure [Line Items] | ||
| Right of use-of-asset and lease liability | $ 35,782,153 | |
| Operating lease liability | $ 35,782,153 |
Discontinued Operations (Details Narrative) |
6 Months Ended | ||
|---|---|---|---|
|
Jun. 29, 2022
USD ($)
|
Apr. 05, 2022
USD ($)
ft²
|
Jun. 30, 2022
USD ($)
ft²
|
|
| Discontinued Operations and Disposal Groups [Abstract] | |||
| Area of land | ft² | 9.00 | 2 | |
| Proceeds from Sale of Property Held-for-sale | $ 43,000 | $ 392,040 | $ 980,000 |
| Purchase price | $ 1,842,588 | ||
| Tenant percentage | 6.00% |
Schedule of Long Term Debt (Details) |
Jun. 30, 2022
USD ($)
|
|---|---|
| Debt Instrument [Line Items] | |
| 2022 | $ 8,123,233 |
| 2023 | 5,355,000 |
| 2024 | 0 |
| 2025 | 987,678 |
| Thereafter | 713,517 |
| Total obligations | 15,179,428 |
| Continuing Core [Member] | |
| Debt Instrument [Line Items] | |
| 2022 | 8,123,233 |
| 2023 | 4,550,000 |
| 2024 | |
| 2025 | 566,208 |
| Thereafter | 494,900 |
| Total obligations | 13,734,341 |
| Discontinued Non-Core [Member] | |
| Debt Instrument [Line Items] | |
| 2022 | |
| 2023 | 805,000 |
| 2024 | |
| 2025 | 421,470 |
| Thereafter | 218,617 |
| Total obligations | $ 1,445,087 |
Schedule of Long Term Debt and Notes Payables (Details) (Paranthetical) |
Jul. 07, 2022
USD ($)
|
|---|---|
| Debt Disclosure [Abstract] | |
| Principal amount | $ 550,000 |
| Debt maturity date | Mar. 31, 2023 |
Indebtedness (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 26, 2022 |
Jul. 07, 2022 |
Jul. 07, 2022 |
May 20, 2022 |
May 20, 2022 |
May 16, 2022 |
Apr. 05, 2022 |
Feb. 10, 2022 |
Apr. 29, 2021 |
Mar. 26, 2021 |
Oct. 12, 2020 |
Apr. 01, 2019 |
Jul. 23, 2018 |
Oct. 31, 2019 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2020 |
Dec. 31, 2021 |
Oct. 05, 2018 |
Dec. 23, 2015 |
Apr. 30, 2015 |
Apr. 01, 2013 |
Apr. 01, 2012 |
|
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Long term debt | $ 15,179,428 | $ 15,179,428 | |||||||||||||||||||||||
| Long term debt noncurrent | 1,927,100 | 1,927,100 | $ 5,572,427 | ||||||||||||||||||||||
| Interest expense | 395,045 | $ 194,618 | 896,643 | $ 273,399 | |||||||||||||||||||||
| Discontinued operation, interest expense | 85,753 | 632,243 | 170,980 | 944,255 | |||||||||||||||||||||
| Debt original issue discount | 694,615 | 0 | 694,615 | 0 | |||||||||||||||||||||
| Principal amount security investment | $ 550,000 | $ 550,000 | |||||||||||||||||||||||
| Debt instrument maturity date | Mar. 31, 2023 | ||||||||||||||||||||||||
| Stock Issued During Period, Value, New Issues | 136,564 | $ 640,000 | $ 273,128 | $ 2,577,235 | |||||||||||||||||||||
| Debt event description | the obligations under the Note will accrue interest at an annual rate of 22% and, if such Event of Default is continuing at any time that is 180 days after the date of the Note, provide the Noteholder the right and option to convert the obligations under the Note to shares of Clearday’s common stock. The price for any such conversion is equal to 75% (or a 25% discount) of the average of the five (5) lowest per share daily volume-weighted average price of Clearday’s common stock over the ten (10) consecutive trading days that are not subject to specified market disruptions immediately preceding the date of the conversion. The conversion right of the Noteholder is subject to a customary limitation on beneficial ownership of 4.99% of Clearday’s common stock | ||||||||||||||||||||||||
| Series A Cumulative Convertible Preferred Stock [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Stock Issued During Period, Value, New Issues | $ 325,000 | ||||||||||||||||||||||||
| Business Loan Agreement [Member] | ServisFirst Bank [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Interest rate stated percentage | 6.25% | ||||||||||||||||||||||||
| Principal amount security investment | $ 600,000 | ||||||||||||||||||||||||
| Maturity date description | March 2022 | ||||||||||||||||||||||||
| Five C's, LLC Loan [Member] | Note Exchange Agreement [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Interest rate stated percentage | 9.85% | ||||||||||||||||||||||||
| Debt instrument maturity date | Dec. 31, 2022 | ||||||||||||||||||||||||
| Unsecured Promissory Note [Member] | Firstfire [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Debt original issue discount | $ 18,450 | ||||||||||||||||||||||||
| Interest rate stated percentage | 12.00% | ||||||||||||||||||||||||
| Principal amount security investment | $ 172,200 | ||||||||||||||||||||||||
| Proceeds from notes payable | 150,000 | ||||||||||||||||||||||||
| Specified expenses | $ 3,750 | ||||||||||||||||||||||||
| Monthly payments | $ 19,286.40 | ||||||||||||||||||||||||
| Unsecured Promissory Note [Member] | Jefferson Purchase Agreement [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Debt original issue discount | $ 18,000 | ||||||||||||||||||||||||
| Interest rate stated percentage | 12.00% | ||||||||||||||||||||||||
| Principal amount security investment | $ 168,000 | ||||||||||||||||||||||||
| Debt instrument maturity date | Jul. 16, 2022 | ||||||||||||||||||||||||
| Proceeds from notes payable | $ 150,000 | ||||||||||||||||||||||||
| Monthly payments | 18,816 | ||||||||||||||||||||||||
| Payment for placement fees | 15,000 | ||||||||||||||||||||||||
| Net proceeds from loans payables | 135,000 | ||||||||||||||||||||||||
| Debt instrument annual interest amount | $ 20,160 | ||||||||||||||||||||||||
| Debt instrument term | 1 year | ||||||||||||||||||||||||
| Debt instrument description | The Jefferson Note is unsecured. The Jefferson Note provides specified events of default (a “Jefferson Event of Default”) including failure to timely pay the monetary obligations under the Jefferson Note and such breach continues for a period of ten (10) days after written notice from the Jefferson Noteholder’ a breach of covenants under the Jefferson Note or the Jefferson Purchase Agreement that continues for a period of twenty (20) days after written notice by the Jefferson Noteholder; breach of any representation and warranty in the Jefferson Note or Jefferson Purchase Agreement; commencement of bankruptcy or similar proceedings; failure to maintain the listing of Clearday’s common stock on at least one of the Over-the-Counter markets such as the OTCQX; the failure of Clearday to comply with the reporting requirements of the Securities Exchange Act; Clearday’s liquidation, or a financial statement restatement by Clearday. Upon any Jefferson Event of Default, the obligations under the Note will accrue interest at an annual rate of 22% and, if such Jefferson Event of Default is continuing at any time that is 180 days after the date of the Note, provide the Noteholder the right and option to convert the obligations under the Note to shares of Clearday’s common stock. The price for any such conversion is equal to 75% (or a 25% discount) of the average of the five (5) lowest per share daily volume-weighted average price of Clearday’s common stock over the ten (10) consecutive trading days that are not subject to specified market disruptions immediately preceding the date of the conversion. The conversion right of the holder of the Jefferson Note is subject to a customary limitation on beneficial ownership of 4.99% of Clearday’s common stock. Each of the Jefferson Note and the Jefferson Purchase Agreement has other customary covenants and provisions, including representations and warranties, payment of brokers, and indemnification, that Clearday will not sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business without the consent of the holder of the Jefferson Note and Clearday will maintain a reserve of authorized and unissued shares of common stock sufficient for full conversion of the obligations under the Jefferson Note. | ||||||||||||||||||||||||
| Unsecured Promissory Note [Member] | GS Purchase Agreement [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Debt original issue discount | $ 12,300 | $ 12,300 | |||||||||||||||||||||||
| Interest rate stated percentage | 12.00% | 12.00% | |||||||||||||||||||||||
| Principal amount security investment | $ 115,800 | $ 115,800 | |||||||||||||||||||||||
| Proceeds from notes payable | 103,500 | ||||||||||||||||||||||||
| Monthly payments | 12,969.60 | ||||||||||||||||||||||||
| Payment for placement fees | 10,000 | ||||||||||||||||||||||||
| Net proceeds from loans payables | 90,000 | ||||||||||||||||||||||||
| Debt instrument annual interest amount | $ 20,160 | $ 20,160 | |||||||||||||||||||||||
| Debt instrument term | 1 year | ||||||||||||||||||||||||
| Debt instrument description | The GS Note is unsecured. The GS Note provides specified events of default (a “GS Event of Default”) including failure to timely pay the monetary obligations under the GS Note, a breach of covenants under the GS Note or the GS Purchase Agreement; breach of any representation and warranty in the GS Note or GS Purchase Agreement; commencement of bankruptcy or similar proceedings; failure to maintain the listing of Clearday’s common stock on at least one of the Over-the-Counter markets such as the OTCQX; the failure of Clearday to comply with the reporting requirements of the Securities Exchange Act; Clearday’s liquidation, a financial statement restatement by Clearday, an judgment against Clearday that is not previously disclosed in our filings with the SEC that is for more than $150,000 and remains unvacated, unbonded or unstayed for 20 days, unless otherwise permitted by the holder of the GS Note, or cross defaults under any promissory note or similar instrument with initial principal obligations of $150,000 or more. Upon any GS Event of Default, the obligations under the GS Note will accrue interest at an annual rate of 22% and, if such GS Event of Default is continuing for 10 calendar days (but 30 calendar days if the Event of Default occurred in the first 150 days after the date of the GS Note), then from and after the date that is 180 days after the date of the holder of the GS Note may convert the obligations under the GS Note to shares of Clearday’s common stock. The price for any such conversion is equal to 75% (or a 25% discount) of the average of the five (5) lowest per share daily volume-weighted average price of Clearday’s common stock over the ten (10) consecutive trading days that are not subject to specified market disruptions immediately preceding the date of the conversion. The conversion right of the holder of the GS Note is subject to a customary limitation on beneficial ownership of 4.99% of Clearday’s common stock. Each of the GS Note and the GS Purchase Agreement has other customary covenants and provisions, including representations and warranties, payment of brokers, and indemnification, that Clearday will not sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business without the consent of the GS Noteholder and Clearday will maintain a reserve of authorized and unissued shares of common stock sufficient for full conversion of the obligations under the GS Note. The GS Note includes a most favored nations clause providing that the conversion price and interest rate of the GS Note will be adjusted on a ratchet basis if Clearday offers more favorable terms in any other unsecured borrowing that is $250,000 or less or that has a maturity date of one year or less such as conversion price, interest rate (whether through a straight discount or in combination with an original issue discount) or other more favorable term as to conversion price or interest rate to another party. | ||||||||||||||||||||||||
| Unsecured Promissory Note [Member] | Sixth Street [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Debt original issue discount | $ 18,450 | $ 18,450 | |||||||||||||||||||||||
| Interest rate stated percentage | 12.00% | 12.00% | |||||||||||||||||||||||
| Principal amount security investment | $ 172,200 | $ 172,200 | |||||||||||||||||||||||
| Proceeds from notes payable | 150,000 | ||||||||||||||||||||||||
| Specified expenses | 3,750 | ||||||||||||||||||||||||
| Payment for placement fees | $ 15,000 | ||||||||||||||||||||||||
| Unsecured Promissory Note [Member] | Subsequent Event [Member] | Sixth Street [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Monthly payments | $ 19,286.40 | ||||||||||||||||||||||||
| Artesia Note [Member] | FirstCapital Bank [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Interest rate stated percentage | 6.00% | 6.00% | |||||||||||||||||||||||
| Principal amount security investment | $ 266,048 | $ 314,500 | |||||||||||||||||||||||
| Debt instrument maturity date | Jun. 23, 2033 | ||||||||||||||||||||||||
| Debt instrument description | The note has a variable interest rate equal to the greater of 6.0% or the Prime rate plus 1.0%. | the greater of 6% or the Prime rate of 3.25% plus 1.0% | |||||||||||||||||||||||
| Leander Note [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Interest rate stated percentage | 10.75% | 12.75% | |||||||||||||||||||||||
| Principal amount security investment | $ 805,000 | $ 700,000 | |||||||||||||||||||||||
| Debt instrument maturity date | Feb. 10, 2023 | ||||||||||||||||||||||||
| Maturity date description | the maturity of the note was extended to April 5, 2021 | ||||||||||||||||||||||||
| Interest reserve | $ 56,000 | ||||||||||||||||||||||||
| Benworth Capital Partners LLC [Member] | Promissory Note [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Notes payable | $ 4,550,000 | ||||||||||||||||||||||||
| Mortgage paid off amount | 2,739,195 | ||||||||||||||||||||||||
| Debt Issuance Costs, Net | 354,357 | ||||||||||||||||||||||||
| Proceeds from issuance of debt | $ 1,456,448 | ||||||||||||||||||||||||
| Interest rate stated percentage | 9.95% | ||||||||||||||||||||||||
| Alliance global partners [Member]. | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Interest rate stated percentage | 2.00% | 2.00% | |||||||||||||||||||||||
| Principal amount security investment | $ 2,419,420 | $ 2,419,420 | |||||||||||||||||||||||
| Debt Instrument, Periodic Payment, Principal | $ 30,000 | ||||||||||||||||||||||||
| Debt instrument maturity date | Sep. 10, 2022 | ||||||||||||||||||||||||
| Alliance global partners [Member]. | Subsequent Event [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Interest rate stated percentage | 2.00% | 2.00% | |||||||||||||||||||||||
| Principal amount security investment | $ 550,000 | $ 550,000 | |||||||||||||||||||||||
| Repayments of Related Party Debt | $ 175,000 | ||||||||||||||||||||||||
| Betty Gearhart [Member] | Promissory Note [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Notes payable | $ 200,000 | ||||||||||||||||||||||||
| Interest rate stated percentage | 7.00% | ||||||||||||||||||||||||
| Principal amount security investment | $ 238,578 | ||||||||||||||||||||||||
| Betty Gearhart [Member] | Restated Promissory Note [Member] | Second Amendment [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Principal amount security investment | $ 218,578 | ||||||||||||||||||||||||
| Equity Secured Fund I, LLC [Member] | 8800 Village Drive Loan [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Debt Issuance Costs, Net | $ 31,000 | ||||||||||||||||||||||||
| Proceeds from issuance of debt | $ 803,963 | ||||||||||||||||||||||||
| Interest rate stated percentage | 11.50% | ||||||||||||||||||||||||
| Principal amount security investment | $ 1,000,000 | ||||||||||||||||||||||||
| Debt instrument maturity date | Apr. 26, 2022 | ||||||||||||||||||||||||
| Prepaid Interest | $ 115,000 | ||||||||||||||||||||||||
| Prepaid property tax | 44,891 | ||||||||||||||||||||||||
| Prepaid Insurance | $ 5,575 | ||||||||||||||||||||||||
| Memory Care Core and Corporate Facilities [Member] | |||||||||||||||||||||||||
| Short-Term Debt [Line Items] | |||||||||||||||||||||||||
| Long term debt | 9,293,965 | $ 9,293,965 | 3,941,782 | ||||||||||||||||||||||
| Long term debt noncurrent | $ 396,790 | $ 396,790 | $ 5,572,427 | ||||||||||||||||||||||
Commitments and Contingencies (Details Narrative) - USD ($) |
6 Months Ended | ||
|---|---|---|---|
Aug. 05, 2022 |
Jun. 30, 2022 |
Dec. 31, 2021 |
|
| Loss Contingency, Damages Awarded, Value | $ 2,801,365 | ||
| Attorney fees | 248,074 | ||
| Payments for Other Taxes | $ 3,012,011 | ||
| Cost and expenses | $ 2,763,936 | ||
| Loss contingency accrual at carrying value | $ 361,552 | ||
| Percentage of fee payable | 2.00% | ||
| Preferred stock par value | $ 0.001 | $ 0.001 | |
| Series A Preferred Stock [Member] | |||
| Preferred stock par value | 0.001 | $ 0.001 | |
| Clearday Oz Fund [Member] | |||
| Warrant price per share | 10.00 | ||
| AIU Alt Care Inc [Member] | Series A Preferred Stock [Member] | |||
| Shares issued price | 10.00 | ||
| Preferred stock par value | $ 20.00 |
Related Party Transactions (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Feb. 18, 2022 |
Jun. 30, 2022 |
|
| Guarantee fee, percentage | 1.00% | |
| Chief Executive Officer [Member] | ||
| Due to related party | $ 649,000 | |
| Cibolo Creek Partners LLC [Member] | ||
| Due to related party | 421,470 | |
| Round Rock Development Partners LP [Member] | ||
| Due to related party | $ 500,000 | |
| MCA Naples LLC [Member] | Purchase agreement [Member] | ||
| Other transactions | $ 100,000 |
Preferred Stock – Temporary equity (Details Narrative) - $ / shares |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, par value | $ 0.001 | $ 0.001 |
| Series F Preferred Stock [Member] | ||
| Preferred stock, shares authorized | 5,000,000 | |
| Preferred stock shares outstanding | 4,797,052 |
Schedule of Tax Provision (Details) - USD ($) |
Jun. 30, 2022 |
Jun. 30, 2021 |
|---|---|---|
| Current tax provision (benefit): | ||
| Federal | ||
| State | ||
| Total current tax benefit | ||
| Less Valuation Allowance | ||
| Total | $ 0 | $ 0 |
Income Taxes (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Income Tax Disclosure [Abstract] | ||
| Income tax expense benefit | $ 0 | $ 0 |
Subsequent Events (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jul. 07, 2022 |
|
| Debt Instrument [Line Items] | ||
| Principal amount | $ 550,000 | |
| Lenders [Member] | ||
| Debt Instrument [Line Items] | ||
| Principal amount | $ 600,000 | |
| Net proceeds from loans payables | $ 540,000 | |
| Debt interest rate | 12.00% |