CLRD Clearday Inc (CE)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2023

 

☐	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 0-21074

 

CLEARDAY, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		77-0158076
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

8800 Village Drive, Suite 106, San Antonio, Texas 78217

(Address of principal executive offices & zip code)

 

(210) 451-0839

(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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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	☐
Non-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 No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001		CLRD		OTCQX

 

We had 25,997,628 shares of our common stock outstanding as of the close of business on July 14, 2023.

 

 

 

Clearday, Inc.

Explanatory Note

 

Clearday, Inc. (the “Company”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, which was originally filed with the Securities and Exchange Commission (“SEC”) on July 17, 2023 (the “Original Filing”), to amend the Company’s unaudited condensed consolidated financial statements as of March 31, 2023 and make certain other amendments. The Company has previously filed its Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (the “June 10Q”). The amendments provided in this filing have been incorporated in the June 10Q and the Company does not expect to make any amendments to the June 10Q.

 

Part I, Item 1 Condensed Consolidated Financial Statements has been amended to reflect the following amendments:

 

		Item		As Amended				Original Filing				Difference
	●	Changes to the Condensed Consolidated Balance Sheet:
		ASSETS
		Non-Current assets
	[1]	Real estate property and equipment, net			6,321,749				6,227,965				93,784
	[1]	Total assets			10,346,008				10,252,224				93,784
		LIABILITIES, MEZZANINE EQUITY AND DEFICIT
		Current liabilities:
	[2]	Accrued expenses			5,989,892				5,966,110				23,782
	[3]	Accrued interest			895,013				471,684				423,329
	[2]	Related party payables			738,725				708,366				30,359
	[2][3]	Total current liabilities			32,828,102				32,350,632				477,470
	[2][3]	Total liabilities			37,452,825				36,975,355				477,470
		Deficit
	[4]	Additional paid-in-capital			19,132,830				19,193,946				(61,116	)
	[5]	Accumulated deficit			(79,606,718	)			(79,011,020	)			(595,698	)
	[6]	Clearday, Inc. Stockholders’ deficit:			(60,448,365	)			(59,791,551	)			(656,814	)
	[7]	Non-controlling interest in subsidiaries			11,307,705				11,034,577				273,128
		Total deficit			(49,140,660	)			(48,756,974	)			(383,686	)
		TOTAL LIABLITIES, MEZZANINE EQUITY AND DEFICIT			10,346,008				10,252,224				93,784
	●	Changes to the Condensed Consolidated Statements of Operations
		Operating Expenses
	[8]	Wages & general operating expenses			3,846,475				3,815,150				31,325
	[9]	Selling, general and administrative expenses			904,989				880,485				24,504
	[10]	Depreciation and amortization expense			296,826				324,044				(27,218	)
	[11]	Total operating expenses			5,048,290				5,019,679				28,611
	[11]	Operating Loss			(2,041,786	)			(2,013,175	)			(28,611	)
		Other (income) expenses
	[12]	Interest Expense			714,833				549,033				165,800
	[13]	Loss (gain) on the sale of fixed assets			106,467				192,407				(85,940	)
	[14]	Other (income)/expenses			498,124				10,897				487,227
	[15]	Total other (income)/expenses			(1,555,178	)			(2,122,265	)			567,087
	[16]	Net income (loss) from continuing operations			(486,608	)			109,090				(595,698	)
	[16]	Net loss attributable to Clearday, Inc. common stockholders			(2,736,347	)			(2,140,649	)			(595,698	)
		Basic and diluted loss per share attributable to Clearday, Inc.
	[17]	Weighted average common shares basic and diluted outstanding			23,910,818				24,187,743				(276,925	)
	●	Changes to the Condensed Consolidated Statements of Mezzanine Equity, Convertible Preferred Stock and Stockholders’ Deficit
	[18]	Accrual of Series I Convertible Preferred Stock in subsidiary			136,564				(136,564	)			273,128
	[19]	Stock compensation for services (common stock par value amount)			75				-				75
	[19]	Stock compensation for services (common stock additional paid in capital amount)			(61,191	)			-				(61,191	)
	[18]	Non-Controlling Interest			11,307,705				11,034,577				273,128
		Total Deficit			49,140,660				48,756,974				383,686
	●	Changes to the Condensed Consolidated Statements Of Cash Flows
		CASH FLOWS FROM OPERATING ACTIVITIES
	[20]	Net income (loss)			(486,608	)			109,090				(595,698	)
	[20]	Loss from continued operations			(486,608	)			109,090				(595,698	)
	[2]	Adjustments required to reconcile net income (loss) to cash flows used in operating activities
	[21]	Depreciation and amortization			296,826				324,044				(27,218	)
	[22]	Shares issued for services			(61,116	)			-				(61,116	)
	[23]	Loss (gain) on the sale of fixed assets			106,467				192,407				(85,940	)
	[18]	Series I preferred stock accumulated dividend			136,564				(136,564	)			273,128
	[24]	Accrued liabilities			1,193,473				746,362				447,111
	[9]	Related party payables			66,128				35,769				30,359
	[25]	Net cash used in activities of continuing operations			(1,066,342	)			(1,046,967	)			(19,375	)
	[25]	Net cash used in operating activities			(1,066,342	)			(1,046,967	)			(19,375	)
		CASH FLOWS FROM FINANCING ACTIVITIES
	[26]	Proceeds from long-term debt			1,619,316				1,534,560				84,756
	[26]	Net cash provided by in financing activities			970,195				885,439				84,756
	[27]	Change in cash and restricted cash from discontinued operations			-				195,638				(195,638	)
	[27]	Cash and restricted cash at beginning of the year			205,638				10,000				195,638
		CASH FLOWS FROM INVESTING ACTIVITIES
	[28]	Payments for property and equipment			(18,063	)			(37,437	)			19,374
	[28]	Net cash provided by (used in) investing activities of the continuing operations			(18,063	)			(37,437	)			19,374

 

 

Explanation of the amendments or revisions:

 

1	To correct the overstatement of depreciation expense on buildings and leasehold improvements, net of additional depreciation expense described in note 10, below.

 

2	To correct the understatement of accrued expenses, including an amount for consulting fees that were paid by the issuance of common stock and to correct the accrued amount payable to related persons as of March 31, 2023.

 

3	To correct the understatement of default interest for the Naples Equity Loan, including amounts accrued for prior periods that, as reported in the Original Filing, was in default and subject to additional amounts for fees, charges and interest.

 

4	To correct the overstatement of the additional paid in capital that was reported in the Original Filing.

 

5	To reflect the aggregate adjustments to Net income (loss) from continuing operations described below in note 16.

 

6	To reflect the aggregate changes to the Additional paid-in-capital and the Accumulated deficit described in notes 4 and 5.

 

7	To correct the accrual of Series I Convertible Preferred Stock in subsidiary that was reported in error in the Original Filing.

 

8	To correct the accrual for additional amounts including interest related to employment related taxes such as required withholdings for federal income tax and employee and employer contributions for FICA (Social Security and Medicare) taxes.

 

9	To correct the accrual for expenses related to consulting services of approximately (19,228), certain expenses related to the Simpsonville Facility of approximately 13,373, and rent by the Company of robots from a related party of $30,359.

 

10	To correct the depreciation and amortization expense amount for the six month period.

 

11	To correct each balance, which is the aggregate of the adjustments described in notes 8, 9, and 10.

 

12	To correct the amount of the additional interest related to the Naples Equity Loan at the default interest rate for the three months ending March 31, 2023.

 

13	To correct the amount related to the loss on disposition of assets in the Community Leases that were terminated under the Lease Termination Agreement.

 

14

To correct the accrual for the (i) Simpsonville Action 2 in the amount of $210,324 to reflect the summary judgment in this matter in favor of the Landlord on April 14, 2023 that was not appealed by the defendants and the judgment to enforce the summary judgment that was entered on September 14, 2023, each as described in Note 8 Commitments and Contingencies to the condensed consolidated financial statements; and (ii) prior accrual of interest, fees and costs related to the Naples Equity Loan of $257,592; and (iii) other adjustments including increase of other income related to the disposition of certain assets, net of depreciation.

 

15	To correct this balance, which is the aggregate of the adjustments described in notes 12, 13, and 14.

 

16	To correct this balance, which reflects the adjustments described in notes 11 and 15.

 

17	To correct the amount of the weighted average common shares basic and diluted outstanding that was incorrectly stated in the Original Filing.

 

18	To correct the computation of the non-controlling interest in the subsidiaries that was not correctly reported in the Original Filing, which is the same adjustment described in note 7.

 

19	To correct the amount of stock compensation for services that was not correctly stated in the Original Filing. This amendment is also to Stock Compensation for services – Total Deficit.

 

20	To correct this amount to reflect the aggregate adjustments to the net income described in note 16.

 

21	To correct this amount to reflect the aggregate adjustments to depreciation and amortization expense described in note 10.

 

22	To correct this amount to reflect the aggregate adjustments related to issuance of common stock for consulting services described in note 19.

 

23	To correct this amount to reflect the aggregate adjustment related to the loss on the disposition of assets described in note 13.

 

24	To correct this amount to reflect the aggregate adjustment related to the increase of certain liabilities described in notes 2 and 3.

 

25	To correct this amount to reflect the aggregate adjustments to this financial statement described in notes 20-24, inclusive.

 

26	To correct the amount of the net cash provided by in financing activities that was reported in error in the Original Filing.
27	To correct these amounts to reflect the proper classification in these balances that were incorrectly classified in discontinued operations in the Original Filing.
28	To reflect the correct amount of purchases (net) of property, plant and equipment for the period.

 

This Amendment No. 1 also

 

●	Revised the footnotes to the Company’s condensed consolidated financial statements provided in this Report,
●	Revised the Condensed Consolidated Statements of Mezzanine Equity, Convertible Preferred Stock and Stockholders’ Deficit – Three Months Ended March 31, 2023 (Unaudited) to make conforming changes to the amendments described above,
●	Revised the Condensed Consolidated Statements Of Cash Flows to add to the supplemental disclosures of non-cash investing and financing activities for the following: settlements on derivative liability; Converted Preferred Shares Series F to Common Shares; PIK dividends for Series F preferred shares; Discount on derivative liability; Termination of leases; Accounts payable exchanged for common shares; and Notes payable used to pay rent expense,
●	Supplemented such footnotes to include the amortization expense related to intangible assets for the three months ending March 31, 2023 in Note 4 — and corrected a reference to the amortization expense and carrying value for Developed technology as of December 31, 2022,
●	Corrected the referenced interest rate for certain indebtedness in Note 7 — Indebtedness, Intangible Assets, Net,
●	Revised the disclosures to Note 8 — Commitments and Contingencies to include events to the date of the filing of this Amendment No. 1,
●	Revised the disclosure regarding derivative calculation in Note 11 — Deficit,
●	Revised the disclosure regarding the sale of a property (the Stockdale Financing) and deleted the error that references such transaction as an off balance sheet financing,
●	Revised the subsequent events to include the additional subsequent events to the date of the filing of this Amendment No. 1, and
●	Revised Part I, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations to reflect the amendments described above.

 

In addition, the Company’s Principal Executive and Principal Financial Officer has provided new certifications dated as of the date of this filing in connection with this Form 10-Q/A (Exhibits 31.1, 31.2, 32.1 and 32.2).

 

The Company has considered the materiality of the amendments set forth in this Amendment No. 1 to assess whether the errors in the Original Filing were material to a reasonable investor’s perspective based on the total mix of information that has been provided to investors in the Company’s filings with the SEC, and considered relevant facts and circumstances including both quantitative and qualitative factors, including without limitation that the Company continued to incur a significant net loss from continuing operations and that the Company’s revised net cash used in activities of continuing operations was not materially different from the amount in the Original Filing. The Company notes that there is no executive compensation that would be subject to any clawback of executive compensation if the financial statements included in the Original Filing were restated.

 

Except as described above, no changes have been made to the Original Filing, and this Amendment No. 1 does not modify, amend or update in any way the financial or other information contained in the Original Filing.

 

No other material changes have been made to the Original Report. Except as may otherwise be stated, this Form 10-Q/A continues to speak as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update any related disclosures made in the Form 10-Q.

 

 

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 finance our innovative care products and services, including our Longevity-tech platform and products and services that are in development;
	●	The impact of any financing activity on the level of our stock price;
	●	The impact of any default by us of certain indebtedness and the exercise by the lenders of their respective remedies including the right to convert stock and exercise warrants at a price that is a discount to our trading price;
	●	The additional dilutive impact of any issuances of securities to raise capital, including any capital in anticipation and in advance of the previously reported merger (the “Viveon Merger”) of us with Viveon Health Acquisition Corp.;
	●	The timing and amount of financing acquired in connection with the Viveon Merger;
	●	The cost and uncertainty from compliance with environmental regulations and the regulations related to operating our memory care facilities and adult day care centers;
	●	The effect of pandemics and other public health related issues on our businesses, including actions or additional regulations by State and Federal governments;
	●	Local, regional, national and international economic conditions and events, and the impact they may have on us and our customers;
	●	The impact of inflation to our businesses, including increases in our labor costs and other costs we pay for goods and services;
	●	The impact of a shortage of workers in our industries and our ability to maintain costs while properly staffing our facilities;
	●	The availability of state funds through civil money penalty grant programs;
	●	Increases in tort and insurance liability costs;
	●	Delays or nonpayment to us, including payments related to government or agency reimbursements;
	●	Our ability to pay our liabilities, including tax obligations; 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.

 

 

Clearday, Inc.

March 31, 2023

FORM 10-Q

Table of Contents

 

		Page
PART I	Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets – March 31, 2023 and December 31, 2022 (Unaudited)	1
	Condensed Consolidated Statements of Operations – For The Three Months Ended March 31, 2023 and 2022 (Unaudited)	2
	Condensed Consolidated Statements of Mezzanine Equity, Convertible Preferred Stock and Stockholders’ Deficit – Three Months Ended March 31, 2023 and 2022 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows – For The Three Months Ended March 31, 2023 and 2022 (Unaudited)	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4	Evaluation of Disclosure Controls and Procedures.	35
PART II	Other Information
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	36

 

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.

 

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.

 

 

Clearday, Inc.

Condensed Consolidated Balance Sheets

March 31, 2023 and December 31, 2022

(Unaudited)

 

		March 31, 2023				December 31, 2022
ASSETS
Current assets:
Cash		$	81,429			$	195,638
Restricted cash			10,000				10,000
Accounts receivable, net			58,447				47,705
Prepaid expenses			113,666				213,289
Other current assets			466				-
Total current assets			264,008				466,632
Non-current assets
Operating lease right-of-use assets			-				22,792,752
Real estate property and equipment, net			6,321,749				6,522,979
Intangible assets, net			3,496,000				3,680,000
Other long-term assets			264,251				288,155
Total assets		$	10,346,008			$	33,750,518
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	3,599,141			$	6,324,002
Accrued expenses			5,989,892				8,415,609
Derivative liabilities			3,748,918				2,320,547
Accrued interest			895,013				294,370
Related party payables			738,725				672,597
Deferred revenue			13,466				901,235
Current portion long-term debt			16,746,935				16,347,290
Operating lease liabilities			-				2,907,605
Other current liabilities			1,096,012				1,140,106
Total current liabilities			32,828,102				39,323,361
Long-term liabilities:
Operating lease liabilities			-				24,415,791
Long-term debt, less current portion, net			4,624,723				1,392,940
Total liabilities			37,452,825				65,132,092
Mezzanine equity
Series F 6.75% Convertible Preferred Stock, $.001 par value, 5,000,000 share authorized, 4,791,401 and 4,797,052 issued and outstanding on March 31, 2023 and December 31, 2022, respectively. Liquidation value $102,380,677 and $101,162,577 on March 31, 2023 and December 31, 2022, respectively.			22,033,843				20,448,079
Deficit:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized
Series A Convertible Preferred Stock, $0.001 par value, 2,000,000 shares authorized, 328,925 and 328,925 shares issued and outstanding, as of March 31, 2023 and December 31, 2022, respectively. Liquidation value of $329 and $329 on March 31, 2023 and December 31, 2022, respectively			329				329
Common Stock, $0.001 par value, 25,194,402 and 20,805,448 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively			25,194				20,805
Additional paid-in-capital			19,132,830				16,098,182
Accumulated deficit			(79,606,718	)			(79,671,065	)
Clearday, Inc. Stockholders’ deficit:			(60,448,365	)			(63,551,749	)
Non-controlling interest in subsidiaries			11,307,705				11,722,096
Total deficit		$	(49,140,660	)		$	(51,829,653	)
TOTAL LIABLITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT		$	10,346,008			$	33,750,518

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

Clearday, Inc.

Condensed Consolidated Statements Of Operations

For The Three Months Ended March 31, 2023 and 2022

(Unaudited)

 

		2022				2022
		Three Months Ended March 31,
		2023				2022
REVENUES
Resident fee revenue, net		$	2,895,326			$	3,124,761
Adult day care			89,041				83,896
Commercial property rental revenue			22,137				1,561
Total revenues			3,006,504				3,210,218
OPERATING EXPENSES
Wages & general operating expenses			3,846,475				4,634,056
Selling, general and administrative expenses			904,989				1,393,370
Depreciation and amortization expense			296,826				187,215
Total operating expenses			5,048,290				6,214,641
Operating loss			(2,041,786	)			(3,004,423	)
Other (income) expenses
Interest expense			714,833				501,598
PPP loan forgiveness			-				(642,816	)
Derivative financing costs			2,567,460				-
Changes in fair value of derivative			(1,565,232	)			-
Loss on disposal of assets			106,467				-
Gain on termination of lease			(4,530,644	)			-
Extinguishment of debt			653,814				-
Other income			498,124				(143,889	)
Total other income			(1,555,178	)			(285,107	)
Net loss from continuing operations			(486,608	)			(2,719,316	)
Loss from discontinued operations, net of tax			-				(85,227	)
Net loss			(486,608	)			(2,804,543	)
Net loss attributable to non-controlling interest			(550,955	)			(144,265	)
Preferred stock dividend			(1,698,784	)			(1,619,015	)
Net loss attributable to Clearday, Inc. common stockholders		$	(2,736,347	)		$	(4,567,823	)
Basic and diluted loss per share attributable to Clearday, Inc.
Net loss from continued operations			(0.11	)			(0.29	)
Net loss from discontinued operations			0.00				(0.01	)
Net loss			(0.11	)			(0.30	)
Weighted average common shares basic and diluted outstanding			23,910,818				15,010,907

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

Clearday, Inc.

Condensed Consolidated Statements of Mezzanine Equity, Convertible Preferred Stock and Stockholders’ Deficit

Three Months Ended March 31, 2023 and 2022

(Unaudited)

 

		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Deficit				Interest				Deficit
		Mezzanine Equity Series F Preferred Stock								Preferred Stock Series A								Common Stock								Additional Paid- in				Accumulated				Clearday, Inc. Stockholders’				Non-Controlling				Total
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Deficit				Interest				Deficit
Balance at December 31, 2021			4,797,052			$	16,857,267				328,925			$	329				14,914,458			$	14,915			$	17,069,481			$	(65,208,327	)		$	(48,123,602	)		$	11,330,695			$	(36,792,907	)
PIK dividends accruals on Convertible Preferred Stock F			-				1,619,015				-				-				-				-				(1,619,015	)			-				(1,619,015	)			-				(1,619,015	)
Series F Incentive Common Stock			-				-				-				-				2,861,334				2,859				(2,853	)			-				6				-				6
Series F shares converted to common stock
Series F shares converted to common stock, shares
Accrual of Series I Convertible Preferred Stock in subsidiary			-				-				-				-				-				-				-				-				-				136,564				136,564
Series I adjustment			-				-				-				-				-				-				-				(669,904	)			(669,904	)			-				(669,904	)
Debt discount from derivative settlements
Stock issued for extinguishment of liabilities
Stock issued for extinguishment of liabilities, shares
Stock Compensation for services			-				-				-				-				-				-				-				-				-				-				-
Stock Compensation for services, shares
Shares issued for Loan			-				-				-				-				-				-				-				-				-				-				-
Shares issued for Loan, shares
Dissolution of Longhorn Hospitality			-				-				-				-				-				-				(3,871,239	)			3,871,239				-				-				-
Redemption of series F shares			-				-				-				-				-				-				-				-				-				-				-
Officer Compensation and debt conversion			-				-				-				-				-				-				-				-				-				-				-
Net loss			-				-				-				-				-				-				-				(2,804,543	)			(2,804,543	)			(144,265	)			(2,948,808	)
Balance at March 31, 2022			4,797,052			$	18,476,282				328,925			$	329				17,775,792			$	17,774			$	11,576,374			$	(64,811,535	)		$	(53,217,058	)		$	11,322,994			$	(41,894,064	)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Deficit				Interest				Deficit
		Mezzanine Equity Series F Preferred Stock								Preferred Stock Series A								Common Stock								Additional Paid- in				Accumulated				Clearday, Inc. Stockholders’				Non-Controlling				Total
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Deficit				Interest				Deficit
Balance at December 31, 2022			4,797,052			$	20,448,079				328,925			$	329				20,805,448			$	20,805			$	16,098,182			$	(79,671,065	)		$	(63,551,749	)		$	11,722,096			$	(51,829,653	)
Balance			4,797,052			$	20,448,079				328,925			$	329				20,805,448			$	20,805			$	16,098,182			$	(79,671,065	)		$	(63,551,749	)		$	11,722,096			$	(51,829,653	)
PIK dividends accruals on Convertible Preferred Stock F			-				1,698,784				-				-				-				-				(1,698,784	)			-				(1,698,784	)			-				(1,698,784	)
Series F shares converted to common stock			(5,651	)			(113,020	)			-				-				13,449				13				113,007				-				113,020				-				113,020
Accrued of series I Convertible Preferred Stock in subsidiary			-				-				-				-				-				-				-				-				-				136,564				136,564
Debt discount from derivative settlements			-				-				-				-				-				-				713,435				-				713,435				-				713,435
Stock Compensation for services			-				-				-				-				74,187				75				(61,191	)			-				(61,116	)			-				(61,116	)
Shares issued for Loan			-				-				-				-				83,160				83				70,603				-				70,686				-				70,686
Stock issued for extinguishment of liabilities			-				-				-				-				4,218,158				4,218				3,897,578				-				3,901,796				-				3,901,796
Net loss			-				-				-				-				-				-				-				64,347				64,347				(550,955	)			(486,608	)
Balance at March 31, 2023			4,791,401			$	22,033,843				328,925			$	329				25,194,402			$	25,194			$	19,132,830			$	(79,606,718	)		$	(60,448,365	)		$	11,307,705			$	(49,140,660	)
Balance			4,791,401				22,033,843				328,925				329				25,194,402				25,194				19,132,830				(79,606,718	)			(60,448,365	)			11,307,705				(49,140,660	)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

Clearday, Inc.

Condensed Consolidated Statements Of Cash Flows

For The Three Months Ended March 31, 2023 and 2022

(Unaudited)

 

		2023				2022
		Three Months Ended March 31,
		2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(486,608	)		$	(2,804,543	)
Loss from discontinued operations, net of tax			-				(85,227	)
Loss from continued operations			(486,608	)			(2,719,316	)
Adjustments required to reconcile net loss to cash flows used in operating activities
Depreciation and amortization			296,826				187,215
Amortization of right of use assets			-				459,750
Shares issued for loan commitment			70,686				-
Shares issued for services			(61,116	)			-
Financing costs from derivative liabilities			2,567,460				-
Gain on termination of leases			(4,530,644	)			-
Series I preferred stock accumulated dividend			136,564				-
Loss on the sale of fixed assets			106,467				-
Bad debt expense			179,854				-
Change in fair value of the derivatives			(1,565,232	)			-
Amortization of debt issuance costs			241,504				501,970
Amortization of discount on derivatives			540,760				-
Loss on extinguishment of debt			653,814				-
Gain on PPP loan forgiveness			-				(642,816	)
Changes in operating assets and liabilities
Accounts receivable			(190,596	)			6,145
Other current assets			23,438				-
Prepaid expenses			99,623				(433,839	)
Accounts payable			523,121				902,548
Accrued expenses			-				(181,935	)
Accrued liabilities			1,193,472				-
Deferred revenue			(887,769	)			-
Related party payable			66,128				-
Other current liabilities			(44,094	)			113,000
Change in operating lease liability			-				(227,777	)
Net cash used in operating activities of continuing operations			(1,066,342	)			(2,035,055	)
Net cash used in activities of discontinued operations			-				(45,421	)
Net cash used in operating activities			(1,066,342	)			(2,080,476	)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property and equipment			(18,063	)			(13,348	)
Net cash used in investing activities of continuing operations			(18,063	)			(13,348	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt			-				(977,263	)
Proceeds from long-term debt			1,619,316				-
Payment of long-term debt			(649,121	)			-
Payments on lease obligations			-				12,929,498
Borrowings on debt, net			-				2,130,268
Net cash provided by financing activities			970,195				14,082,503
Change in cash and restricted cash from continuing operations			(114,209	)			(895,398	)
Change in cash and restricted cash from discontinued operations			-				56,159
Cash and restricted cash at beginning of the year			205,638				975,075
Cash and restricted cash at end of year		$	91,429			$	135,836
Reconciliation of cash and restricted cash consist of the following:
End of period
Cash and cash equivalents			81,429				125,836
Restricted cash			10,000				10,000
Total cash and restricted cash		$	91,429			$	135,836
Beginning of period
Cash and cash equivalents			195,638				965,075
Restricted cash			10,000				10,000
Total cash and restricted cash		$	205,638			$	975,075
Supplemental disclosures of cash flow information
Cash paid for interest		$	649,121			$	-
Cahs paid for income taxes			-				-
Supplemental disclosures of non-cash investing and financing activities:
Settlements on derivative liability			713,435				-
PIK dividends for Series F preferred stock			1,698,784				-
Converted Preferred Shares Series F to Common Shares			113,020				-
Discount on derivative liability			1,139,578				-
Termination of leases			27,323,396				-
Accounts payable exchanged for common shares			3,247,982				-
Notes payable used to pay rent expense			3,018,547				-

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

CLEARDAY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Description of Business and Going Concern

 

Organization, Description of Business

 

Clearday, Inc., a Delaware corporation (the “Company”), formerly known as Superconductor Technologies Inc. (“STI”), was established in 1987 and closed a merger (“AIU Merger”) with Allied Integral United, Inc., a Delaware corporation (“AIU”), on September 9, 2021. The Company continued the businesses of AIU and continued one of the businesses of STI. AIU was incorporated on December 20, 2017, and began its business on December 31, 2018 when it acquired memory care residential facilities and other businesses (the “2018 Acquisition”) that was conducted since November 2010. Since the 2018 Acquisition, the Company has been developing innovative care and wellness products and services focusing on the longevity market, including its Longevity-tech platform. In the first quarter of 2023, the Company disposed of three of its four full time memory care communities to focus on its digital care services, including robotics and its Longevity care platform.

 

Going Concern

 

As of March 31, 2023, we have an accumulated deficit of $79,606,718. During the period ended March 31, 2023, we had a net loss from operations of $486,608 and net cash used in operating activities of $1,066,342. During the year ended December 31, 2022, we had a net loss from operations of $14,462,738 and cash used in operating activities of $3,978,027. The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financing or other sources, including to a limited extent, 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 prospects. The accompanying 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.

 

2. Summary of Significant Accounting Policies

 

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the interim reporting rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments (unless otherwise indicated), necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

 

Principles of Consolidation

 

The accompanying 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. The Company owns all of the voting interests of AIU Alt Care and 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 $0.01 per share (the “Alt Care Preferred Stock”). The certificate of incorporation of AIU Alt Care authorizes 1,500,000 shares of preferred stock of which 700,000 is designated Alt Care Preferred Stock; and 1,500,000 of common stock. Each share of The Alt Care Preferred Stock has a stated value equal to the $10.00 Alt Care Preferred Stock original issue price. For the year ended on December 31, 2021, $897,000 was invested in AIU Alt Care in exchange for 89,700 shares of Alt Care Preferred Stock.

 

In October 2019, AIU Alt Care formed AIU Impact Management, LLC and Clearday OZ Fund were 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.

 

6

 

CLEARDAY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The exchange rate for each of the Alt Care Preferred Stock and the Clearday OZ LP Interests 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.

 

The Company reports its non-controlling interest in subsidiaries as a separate component of equity in the balance sheets and reports both net loss attributable to the non-controlling interest and net loss attributable to the Company’s common stockholders on the face of the statement of operations.

 

Basis of Presentation

 

The Company’s condensed consolidated financial statements have been prepared in conformity with GAAP. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

Classification of Convertible Preferred Stock

 

The Company applied ASC 480, “Distinguishing Liabilities from Equity”, and revised the condensed consolidated financial statement presentation of its convertible preferred stock whose redemption is outside the control of the issuer. Registrants having such securities outstanding are required to present separately, in balance sheets, amounts applicable to the following three general classes of securities: (i) preferred stocks subject to mandatory redemption requirements or whose redemption is outside the control of the issuer; (ii) preferred stocks which are not redeemable or are redeemable solely at the option of the issuer; and (iii) common stocks. In addition, the rules require disclosure of redemption terms, five-year maturity data, and changes in redeemable preferred stock.

 

Use of Estimates

 

The Company’s condensed consolidated financial statement preparation requires that management make estimates and assumptions which affect the reporting of assets and liabilities and the related disclosure of contingent assets and liabilities in order to report these financial statements in conformity with GAAP. Actual results could differ from those estimates.

 

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 two operating segments, the Longevity-tech Platform and personal care.

 

Cash, and Restricted Cash

 

Cash, consisting of short-term, highly liquid investments and money market funds with original maturities of three months or less at the date of purchase, are carried at cost plus accrued interest, which approximates market value.

 

Restricted cash 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.

 

Accounts Receivable

 

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.

 

7

 

CLEARDAY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Real Estate Property and Equipment, Net

 

Property and equipment are stated at cost less accumulated depreciation and amortization. Maintenance and repairs are charged to operations as incurred. Depreciation and amortization are based on the straight-line method over the estimated useful lives of the related assets. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts, and any resulting gain or loss is reflected in operations in the period realized.

 

Depreciation is computed on the straight-line method with useful lives as follows:

 Schedule of Estimated Useful Lives

Asset Class		Estimated Useful Life (in years)
Buildings and building improvements			39
Leasehold improvements			15
Equipment			7
Computer equipment and software			5
Furniture and fixtures			7

 

Intangible Assets, Net

 

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 and amortized per FASB Topic ASC350-40 (“Internal-Use Software Accounting & Capitalization”). Once the software has been developed, the costs to maintain and train others for its use will be expensed. With regards to developing software, any application costs incurred during the development state, both internal expenses and those paid to third parties are capitalized and amortized based on the estimated useful life of five years.

 

Impairment Assessment

 

The Company evaluates intangible assets and other long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This includes but is not limited to significant adverse changes in business climate, market conditions or other events that indicate an assets’ carrying amount may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of each asset to the future cash flows the asset is expected to generate. If the cash flows used in the test for recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value.

 

The Company evaluates and tests the recoverability of its goodwill for impairment at least annually during its fourth quarter of each fiscal year or more often if and when circumstances indicate that goodwill may not be recoverable.

 

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 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.

 

8

 

CLEARDAY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

A substantial portion of the Company’s revenue from 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.

 

Resident fees at our residential 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 condensed 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 these community fees are non-refundable and are initially recorded as deferred revenue and included in accrued expenses and other current liabilities in our 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 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.

 

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 on the first of the month. Funds received from residents in advance of services are not material to the Company’s condensed consolidated financial statements.

 

Below is a table that shows the breakdown by percentage of revenues related to contracts with residents versus resident fees for support or ancillary services.

 Schedule of Revenue from Contract with Customers 

		For the periods ended March 31,
		2023				%				2022				%
Revenue from contracts with customers:
Resident rent - over time		$	2,895,326				96	%		$	3,124,761				97	%
Day care			89,041				3	%			83,896				3	%
Amenities and conveniences - point in time			22,137				1	%			1,561				0	%
Total revenue from contracts with customers		$	3,006,504				100	%		$	3,210,218				100	%

 

Financial Instruments

 

In accordance with the reporting requirements of the FASB ASC Topic 825, “Financial Instruments”, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the condensed consolidated financial statements when the fair value is different than the carrying value of those financial instruments. The Company does not have assets or liabilities measured at fair value on a recurring basis except its derivative liability.

 

9

 

CLEARDAY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at the balance sheet dates, nor gains or losses reported in the statements of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held during the periods presented, except as disclosed.

 

Fair Value Measurement

 

ASC Topic 820, “Fair Value Measurements”, provides a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC 820 defines the hierarchy as follows:

 

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange.

 

Level 2 - Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using highly observable inputs.

 

Level 3 - Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value.

 

The following tables present the Company’s assets and liabilities that were measured and recognized at fair value as of March 31, 2023 and December 31, 2022:

 Schedule of Assets and Liabilities Measured at Fair Value

March 31, 2023
		Level 1				Level 2				Level 3				Total
Derivative liability			-				-			$	3,748,918			$	3,748,918

 

December 31, 2022
		Level 1				Level 2				Level 3				Total
Derivative liability			-				-			$	2,320,547			$	2,320,547

 

Under the Company’s contract ordering policy, the Company first considers common shares issued and outstanding as well as reserved but unissued equity awards, such as under an equity award program. All remaining equity linked instruments such as, but not limited to, options, warrants, and debt and equity with conversion features are evaluated based on the date of issuance. If the number of shares which may be issued under the Company’s agreements exceed the authorized number of shares or are unable to be determined, equity linked instruments from that date forward are considered to be derivative liabilities until such time as the number of shares which may be issued under the Company’s agreements no longer exceed the authorized number of shares and are able to be determined.

 

The Company has outstanding note agreements containing provisions meeting the definition of a derivative liability which therefore require bifurcation. Further, pursuant to the Company’s contract ordering policy, any issuance of equity linked instruments subsequent to the initial triggering agreement will result in derivative liabilities.

 

At March 31, 2023, the Company estimated the fair value of the conversion feature derivatives embedded in the notes payable and warrants based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock of $0.51; risk-free interest rates ranging from 3.60% to 4.94%; expected volatility of the Company’s common stock ranging from 182% to 421%; estimated exercise prices ranging from $0.35 to $0.43; and terms from one to sixty months.

 

At December 31, 2022, the Company estimated the fair value of the conversion feature derivatives embedded in the notes payable and warrants based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock of $0.56; risk-free interest rates ranging from 3.99% to 4.76%; expected volatility of the Company’s common stock ranging from 183% to 572%; estimated exercise prices ranging from $0.35 to $0.75; and terms from three to sixty months.

 

10

 

CLEARDAY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

A reconciliation of the changes in the Company’s Level 3 derivative liability at fair value is as follows:

 Summary of Activity of Level 3 Liabilities

Balance - December 31, 2022		$	2,320,547
Additions			3,707,038
Settlements			(713,435	)
Change in fair value			(1,565,232	)
Balance - March 31, 2023		$	3,748,918

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC Topic 815, “Derivatives and Hedging Activities”.

 

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

 

Research and Development Costs

 

Research and development costs are charged to expense as incurred and are included in operating expenses. There were no research and development costs incurred in the three months ended March 31, 2023 or 2022.

 

Advertising Costs

 

The costs of advertising are expensed as incurred. Advertising expenses are included in the Company’s operating expenses. There were no advertising expenses in the three months ended March 31, 2023 or 2022.

 

Lease Accounting

 

The Company follows ASC Topic 842, “Leases”. 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. All ROU assets were written off effective March 31, 2023, when the Company disposed of the three leased properties described in Note 5 Leases.

 

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 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.

 

11

 

CLEARDAY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

Company includes the related tax expense or tax benefit within the tax provision in the 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 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 condensed consolidated statements of operations.

 

Earnings Per Share

 

FASB ASC Topic 260, “Earnings Per Share”, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS) computations.

 

Basic earnings (loss) per share are computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

 

Commitments and Contingencies

 

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 ASC Topic 450, “Contingencies”. Under 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.

 

Recently Issued Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (a) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (b) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (c) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share for convertible instruments by using the “if-converted” method. In addition, entities must presume share settlement for purposes of calculating diluted earnings per share when an instrument may be settled in cash or shares. For smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact that ASU 2020-06 may have on its financial statements and related disclosures.

 

12

 

CLEARDAY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

As of March 31, 2023, there were several new accounting pronouncements issued by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s condensed consolidated financial statements.

 

3. Real Estate, Property and Equipment

 

The Company’s real estate, property and equipment consisted of the following at the respective balance sheet dates:

 Schedule of Real Estate, Property and Equipment

		March 31, 2023				December 31, 2022
Land		$	2,231,879			$	2,231,879
Building and building improvements			4,975,243				4,975,243
Leasehold Improvements			710,317				846,754
Computers			57,192				332,809
Furniture, fixtures, and equipment			72,213				1,379,219
Other Equipment			74,937				518,145
Work in progress			138,187				138,187
Total			8,259,968				10,422,236
Less accumulated depreciation			(1,938,219	)			(3,899,257	)
Real estate, property and equipment, net		$	6,321,749			$	6,522,979

 

The Company recorded depreciation and amortization expenses relating to real estate, property, and equipment in the amount of $112,826 and $501,797 for the periods ended March 31, 2023, and December 31, 2022, respectively.

 

4. Intangible Assets, Net

 

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 and amortized per FASB Topic ASC350-40 (“Internal-Use Software Accounting & Capitalization”). Once the software has been developed, the costs to maintain and train others for its use will be expensed. At March 31, 2023 and March 31, 2022, $3,496,000 and $2,240,000, respectively were the balances that will be amortized based on the estimated useful life of five years. The Company began this amortization starting January 1, 2023.

 

Acquired intangible assets subject to amortization are as follows:

 

Schedule of Expected Future Amortization Expense for Intangible Assets