Clearday, Inc. - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year ended December 31, 2022

or

For the transition period from _____________to____________

Commission File Number 0-21074

CLEARDAY, INC.

(Exact name of registrant as specified in its charter)

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

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (210) 451-0839

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ or No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ or No ☒

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 ☒ or No ☐

Indicate by check mark whether the registrant has submitted 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 ☒ or No ☐

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

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 ☒

The aggregate market value of the common stock held by non-affiliates was approximately $12,646,000 as of June 30, 2022 (the last business day of our most recently completed second fiscal quarter). The closing price of the common stock on that date was 1.00 as reported by the OTCQX. For purposes of this determination, we excluded the shares of common stock held by each officer and director and by each person who was known to us to own 10% or more of the outstanding common stock as of June 30, 2021. The exclusion of shares owned by the aforementioned individuals and entities from this calculation does not constitute an admission by any of such individuals or entities that he or it was or is an affiliate of ours.

We had approximately 25,131,863 shares of common stock outstanding as of the close of business on April 30, 2023.

CLEARDAY, INC.

FORM 10-K ANNUAL REPORT

Year Ended December 31, 2022

References in this Report to “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.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (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 “anticipates,” “believes,” “can,” “could,” “estimates” “expects,” “intends,” “may,” “plans,” “should,” “seeks,” “will,” “would” 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:

For further discussion of these and other factors see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this Report.

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.

PART I

Recent Events

We shifted our business strategy to move from a facility-driven real estate business to a health technology company in order to capture the massive unmet need caused by today’s disconnected longevity-tech market. We provide technologies and innovative care solutions to address the global aging crises. We have used our extensive experience in senior care, including owning and operating high-performing residential care facilities in the most challenging senior care venues (Memory and Alzheimer’s treatment), to develop our purpose-built Longevity-tech platform for the 170 million Americans turning 50 by 2030. Our Longevity-tech platform intentionally moves our focus from a facility-driven real estate business to a healthcare technologies business that is designed to capture the massive unmet senior care need. We believe that the currently available longevity-tech solutions do not address this significant market and that we are able to modernize the nearly 54,000 U.S. daily care, skilled nursing, and long-term care facilities.

We began our investment in our residential care facilities under the Memory Care America brand in 2016. In 2019, we began to develop innovative products and services to address the ongoing and worsening aging crises and developed our Clearday Club concept. In 2021 we began the development of robotic services. During 2022, we advanced our robotic service applications, deployed robotic services in our residential care facilities and began working with TRECS Institute.

The TRECS Institute (TRECS) is a non-profit organization dedicated to finding new and effective opportunities to better serve America’s growing senior population while reducing costs for our health care system. We believe that TRECS Executive Director, John Whitman, is a thought leader for transformational technologies that may advance and elevate care and/or reduce costs and that our relationship with TRECS provides independent validation of our Longevity-tech platform. During December, 2022, we and TRECS developed a strategy to use funds available through Civil Money Penalty Reinvestment Programs (CMPRPs) that are available in all 50 states. A CMPRP is funded, in large part, by the appliable government agency using Civil Money Penalties (CMPs) that are assessed against facilities for either the number of days or for each instance that such facility is not in substantial compliance with one or more Medicare and Medicaid participation requirements for long-term care facilities. The CMPRP funds are available through grant applications programs (“CMP Grants”). A facility may receive funds from a CMPRP if the applicable CMP Grant is approved. During the first quarter of 2023, TRECS engaged in a nationwide effort to apply for CMP Grants, in each state, to fund the investment of adding our robotic services and related digital services to facilities homes that will benefit from increased quality assurance and improved performance.

We have recently begun marketing the following technologies that we developed in 2022:

As part of the implementation of this business strategy, we

We believe that shifting our business strategy will enable us to achieve profitability, provide greater value to our stockholders and businesses and is one of the key reasons that Viveon chose to enter a business combination or deSPAC transaction (the “Viveon Merger”) with us at a valuation that is significantly greater than the value of our common stock market capitalization. The total consideration to be paid at closing (“Viveon Merger Closing”) under the Merger Agreement (the “Viveon Merger Consideration”) by Viveon to Clearday security holders (and those who have the right to acquire our capital stock) is significantly above our reported OTCQX market capitalization. The Viveon Merger Agreement provides for additional consideration of 5,000,000 shares of Viveon common stock, which has a value as of the Viveon Merger Closing of $50 million, that will be earned if we achieve specified earnout milestones, including profitability for any 12-month period during the 5-year period after the Viveon Merger Closing. The Viveon Merger is a stock for stock merger that is structured to not have any income tax recognition for Clearday stockholders (and those who have the right to acquire our capital stock). We and Viveon have begun marketing to raise additional capital to fund our innovative care businesses and our other obligations after the Viveon Merger Closing. Additional information regarding the Viveon Merger was provided in our Current Report on Form 8-K that was filed on April 10, 2023. There can be no assurance that the proposed Viveon Merger or any of the financing transactions will be consummated on the terms or timeframe currently contemplated, or at all.

In connection with the Viveon Merger we have solicited additional investment that would close prior the Viveon Merger Closing or “bridge financing” and have received approximately $344,200 prior to closing any such additional bridge financing, net of expenses and fees, and has advanced approximately $223,415 of such amount to Viveon for their business expenses.

We terminated the MC Facility Leases, which are all our leased memory care residential care facilities. These agreements provide for the third party negotiated exit by us of our legacy memory care businesses at these facilities that had large operating expenses, including lease payments, and incurred significant cash flow losses during 2022 that required us to incur indebtedness. Based on our 2022 operating results, we expect that the termination of these leases will save approximately $12.9 million of expenses, annually, or net annual cash savings of at least $3.3 million. After the consummation of the lease terminations, we will continue to own and operate our residential memory care facility located in Naples, Florida and our Adult Daycare center located in San Antonio, Texas. We will conduct those businesses and expect to expand our businesses using our innovative Longevity-tech platform and additional adult day care and other businesses.

Terminating the MC Facility Leases will remove, effective March 31, 2023, approximately $27,520,000 of liabilities related to the lease, as of December 31, 2022, and approximately $22,991,000 of operating lease right-of use assets, which will result in a one-time increase of other income of approximately $4,520,00, prior to the elimination of our net leasehold improvements and personal property in these facilities that is less than $250,000, as of December 31, 2022 and prior to the lease termination fee payable to the landlord. Additionally, the termination of the MC Facility Leases and our legacy memory care businesses at these MC Facilities should significantly reduce the operating cash flow losses that we have incurred at these MC Facilities enabling us to focus on our businesses that use our Longevity-tech platform that provide personalized care pathways; artificial intelligence (AI) enabled companion robotic services that include proprietary applications to enhance a user experience through proprietary digital engagement programs as well as movement analytics.

As part of our strategy, we continue to develop several marketing channels for our innovative care products and services, including through our alliance with TRECS. We believe that our alliance with TRECS which we have advanced during the first quarter of 2023, provides us a competitive advantage as a highly regarded thought leader in the senior care industry, and supports and advocates for the adoption of our Longevity-tech platform by residential care facilities. Under our alliance with TRECS, TRECS submits applications to state authorities for Civil Money Penalty Grants that may be used by skilled nursing and other senior care facilities to fund the purchase or rental of our companion robots that include our digital care solutions. We also continue to pursue other sales opportunities, including international sales.

The Company believes that it can expand its adult day care business that focuses on veterans, similar to its Primrose facility. We are actively looking for additional locations and intend to use funds from any bridge financing or from the Viveon Merger to acquire, lease and open additional locations in Central Texas.

General

We have developed a purpose-built longevity-tech platform that addresses the most pressing operational and care gaps in the longevity care market: quality of care and revenue growth. Our Longevity-tech platform enables us to become a health-tech leader. We have recently advanced the sales and marketing of our innovative care products and services that we developed since 2020, and that, we believe, creates the future of care for aging populations everywhere. Our Longevity-tech platform leverages our longevity care experience in the most challenging senior care venues (Memory and Alzheimer’s treatment.) It provides our longevity-tech solutions to the future generations whose comfort with technology, digital companionship, and virtual connections, we believe, will become the standard for aging in place.

We began developing alternative care products and solutions in 2019 when we raised capital through the issuance of Alt Care Preferred Stock and the Clearday OZ LP Interests, which we describe in “Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Equity of Subsidiary - Non-Controlling Interest” and developed our proprietary adult day care model and digital delivery of care which digitized certain of our time-tested and proven treatments and models, which extend people’s capacity to age gracefully. We then engineered these solutions to be accessed seamlessly at critical points of care through autonomous robotic services and other technologies. Our development efforts and Longevity-tech platform focus on connecting people to solutions, treatments, and care they need, from their homes to full-time care facilities, so they may age in the right place. This approach allows us to provide products and services to the multi-billion longevity care market throughout the market continuum: at home, in a skilled nursing facility, or at a daily-care or full-time living facility and through a full spectrum of solutions accessed through a digitally enabled environment where every interaction works to build a more comprehensive understanding of their well-being, including Clearday TV screens, tablets, robots, wearables, and other sensors.

Our Longevity-tech platform may capture various data required to make informed health decisions. Our “care genome” combines the behavioral, engagement, stimulation, and temperament diagnostics necessary to maximize treatment efficacy. The B.E.S.T. test framework enables us to monitor, interpret, and recommend changes to care. With this knowledge, an individual’s care team, family, and caregivers are empowered to make informed and wise decisions for their loved one’s elder care. Our Longevity-tech platform will enable a dedicated connection between families and communities that can provide new insights, monitoring, and engagement opportunities through our numerous touchpoints, including live events and therapies, group calls, and management of OT/PT and treatment adherence.

During 2022 before we were able to launch the marketing sales phase of our Longevity-tech platform, we operated four residential care facilities and a day care center that serve primarily older Americans and persons facing cognitive issues such as Alzheimer’s and other forms of dementia. These facilities were our centers of cognitive excellence in which we have developed new care models that improve the experiences of our customers, their families, and our caregivers.

Clearday believes that:

Innovation by Leveraging Technologies

Our technologies provide a combination of AI-enabled robotics and software, delivered in a Platform-as-a-Service as a drop-in modernization solution for existing facilities that improves patient outcomes, increases staff efficiency, and unlocks premium revenue opportunities for operators. We believe that providing our technologies through as a Platform-as-a-Service (PaaS) provides senior care facility operators an optimal path to more revenue, increased care quality, and lower overall costs:

Our PaaS structure provides advantages, including:

Adult Day Care—Clearday Clubs

We acquired an adult day care center in San Antonio, Texas in May 2021, and plan to develop a Clearday Club adult day care at our San Antonio headquarters building and develop a network of local, membership-based centers, which will provide to the older care market a high-standard, technology-enabled care option that is significantly less expensive than long-term residential care alternatives. Our Clearday Clubs adult day care will offer services through a monthly subscription and be characterized by welcoming facilities, trained staff, and personalized care programs that may be tailored to individual member needs. Each of the Clearday Clubs will utilize the proprietary format and programs, enabling Clearday to quickly and efficiently roll out or expand its Clearday Clubs at an efficient standard cost per center.

Our San Antonio adult day care center primarily serves veterans who receive subsidies from the U.S. Veterans Department (the VA). During the first quarter of 2023, we deployed our proprietary robotic services and other proprietary digital services at this center with success. Shortly after our deployment, we were able to substantially increase our rate (more than double) and expect to be able substantially scale our adult day care center business in Central Texas with centers that also primarily serve veterans.

Clearday Clubs is positioned by us to be an integral part of Clearday, building the complete care spectrum for older Americans enabling people to stay in their homes longer and conserve their savings. Clearday believes that the adult day care centers will be able to provide many of the full-day residential care services at a fraction of the cost. Clearday believes that current adult day care market participants include many smaller local businesses that do not provide the level of technology-enabled care, proven programming, and best practices expertise that will be provided by Clearday.

Residential Memory Care

We expect to continue to operate our Naples, Florida residential memory care facility. We have substantial experience in the residential care business which we expect to continue to leverage to develop, deploy, and improve innovative care products and services. There are 26 diagnoses of dementia, including Alzheimer’s disease. 25 of these diagnoses may be treated in a community setting and our residential care communities treat each of these 25 diagnoses. We believe that our facilities are a leader in memory care, in part because during 2021 the facilities had a below industry average adverse behavior incidents and protected residents from the COVID-19 virus as evidenced by that fact that the number of our residents that were hospitalized because of COVID-19 was below the industry average and there have not been any resident deaths directly caused by this virus to March 31, 2022. Clearday’s MCA executives have decades of experience in the cognitive residential care treatment, including policies and procedures that protect older Americans. Our residential care communities have provided us with a proprietary and extensive understanding of the non-acute care and wellness industry and serve as our foundation for innovative care solutions, including the use of Clearday Restore, a proprietary, innovative, multi-sensory therapy tailored to the needs of those with Alzheimer’s and other forms of dementia or cognitive challenges that has contributed to decreased adverse incidents, and robotics. We may selectively acquire other residential care facilities and are negotiating the acquisition of an assisted living and an independent living facility, although there can be no assurance that we would acquire such facilities on terms that are acceptable or at all.

Clearday Labs

Clearday Labs is a focus group of Clearday senior executives and advisors supported by a team of technology consultants. We have developed Clearday Labs to continue to identify and develop modern innovative products and services to support older Americans ability to Age in the Right Place. The Clearday Labs initiatives include the development of digital and robotic services in our Longevity-tech platform. We continue our dedication to improving senior care services through ongoing innovation.

Our Strategy

Clearday’s mission is to be a leading provider to the older care consumer market by providing more engaging and more affordable alternatives that will:

We believe that our “flywheel” is the API for Aging in Place from facilities to the home. Our “flywheel” illustrates our strategy using our Longevity-tech platform:

We have developed our strategy to provide the optimal combination of necessary solutions to provide innovative products and solutions in the longevity care market. We believe that our solutions will deliver optimal and proactive care interventions to patients based on their need, capacity to receive treatment, wherever they are most comfortable and allow us to develop the most continuous non-clinical data repository centered on aging adults.

Our strategy provides an operator-centric approach and curated solution mix that enables sustainable and scalable business in a high margin services industry. The advantages of our “flywheel” include:

Competitive Strengths

We believe that one of our competitive advantages is our almost two decades of knowledge as operators in the eldercare market, as well as our ability to apply this understanding consistently across a diverse array of care delivery channels. Clearday believes that our competitive strengths include that:

Opportunity Zone Fund

Clearday sponsored an opportunity fund that provided investors with the ability to utilize the significant tax advantages of investing in designated “qualified opportunity zones,” within the meaning of the Tax Cuts and Jobs Act of 2017. This sponsored fund acquired a 3-story medical office building located in San Antonio, Texas 78217 that is located on 0.84 acres and has approximately 22,265 rentable square feet. Clearday intends to use most of the ground floor for an adult day care center and for related businesses including production of virtual programing. Some of the office space will be used for Clearday’s initial medical staff training and educational center that will further develop and offer Clearday’s Technicians of Cognitive Care Program. Space in this building is also intended to be used for Clearday’s corporate headquarters.

Competition

We operate in a highly competitive market. Our residential care facilities compete with numerous other senior living community operators, as well as companies that provide senior living services, such as home healthcare companies and other real estate-based service providers. Some of Clearday’s competitors are larger and have greater financial resources than Clearday and some of Clearday’s competitors are not-for-profit entities that have endowment income and may not face the same financial pressures as Clearday. Also, in recent years, a significant number of new senior living communities have been developed, and Clearday expects this increased development activity to continue in the future. This activity has increased competitive pressures on Clearday, particularly in the geographic markets where Clearday operates its residential care facilities. Additionally, some competitors of Clearday that operate in the same geographic market as some of Clearday’s residential care facilities have renegotiated their facility lease terms which provide a lower cost structure than Clearday. Other participants that enter the longevity residential care market will have a similar cost advantage over Clearday.

The adult day care market is generally a more fragmented market in the locations that Clearday has targeted and generally does not provide the same level of tech enabled care and range of cognitive and relaxation therapies that will be offered by Clearday. There are several larger firms in the adult day care markets that are targeted by Clearday and not for profit entities, as well as a range of alternatives including social centers and religious institutions that provide some, but not all the services that will be provided by Clearday.

Certain of our products and services being developed in our Clearday Labs, including the use of robotic services, also face significant competition, including by companies that may have greater resources, more widely accepted and innovative products and stronger name recognition than we do.

Clearday addressed the competition in the home and residential care market by differentiating our facilities by, among other matters, quality of services and use of innovative therapeutic services, including Clearday Restore our digital services and our development of robotic based services.

For more information on our competitive pressures that we may face and associated risks, see “Risk Factors”.

Government Regulation

Residential Care and Adult Day Care Businesses

The senior living and healthcare industries are subject to extensive, frequently changing federal, state and local laws and regulations. These laws and regulations vary by jurisdiction but may address, among other things, licensure of facilities and personnel, required staffing ratios, the authority to provide various types of medical care, zoning and physical facility requirements, food safety, emergency preparedness plan requirements, medical waste disposal requirements, government healthcare program participation requirements, fraud and abuse prohibitions, requirement relating to reimbursement for services, recordkeeping requirements, resident rights and prohibitions against abuse and neglect, confidentiality and security of personal information. Some states may also require a certificate of need before a community may be opened or the services at an existing community may be expanded. These laws and regulatory requirements impact Clearday’s day-to-day operations and could affect Clearday’s ability to expand its facilities-based businesses into new markets and to expand our services and communities in existing markets.

There are various extremely complex federal and state laws governing a wide array of referrals, relationships, and arrangements and prohibiting fraud by healthcare providers, including those in the senior living industry. Governmental agencies are devoting increasing attention and resources to anti-fraud initiatives. Pertaining to Clearday’s provision of services to veterans that are reimbursed through benefits from the U.S. Department of Veterans Affairs (the “VA”), Clearday is subject to the federal False Claims Act that prohibits anyone from presenting, or causing to be presented to the government, claims for payment that are false, fraudulent, or are for items or services that were not provided as claimed. Either the government or a private individual acting on behalf of the government may bring an action under the False Claims Act alleging that a healthcare provider has defrauded the government and seek treble damages for false claims and the payment of additional monetary civil penalties. The False Claims Act allows a private individual with knowledge of fraud to bring a claim on behalf of the federal government and earn a percentage of the federal government’s recovery. As a result of these financial incentives, these so-called “whistleblower” suits have become more frequent. Violation of the False Claims Act may also result in loss of licensure, citations, sanctions, and other criminal or civil fines and penalties, the refund of overpayments, payment suspensions, or termination of participation in Medicare and Medicaid programs, which may also trigger default under debt and lease obligations.

Additionally, Clearday is subject to the federal Anti-Kickback Statute (“AKS”), and certain state referral laws. The AKS makes it unlawful for any person to offer or pay (or to solicit or receive) “any remuneration. directly or indirectly, overtly or covertly, in cash or in kind” for referring or recommending for purchase any item or service which is eligible for payment under a federal healthcare program, including VA benefits. A violation of the federal AKS is a felony and may also result in criminal penalties and civil sanctions, including fines and possible exclusion from government reimbursement programs, which may also cause default under debt and lease obligations The Office of Inspector General of the Department of Health and Human Services (“OIG”) has published a number of “safe harbor” regulations that define practices that may technically violate the AKS, but will not be subject to civil or criminal enforcement action. An arrangement that fails to fit within a safe harbor is not necessarily per se illegal; the OIG will evaluate the facts and circumstances of arrangements on a case-by-case basis to determine whether the arrangements involve illegal remuneration by one party to the other. Other than VA benefits, Clearday did not generally receive reimbursement from Medicare or Medicaid or other governmental programs.

Clearday’s compliance with many of the laws and regulations cited above is determined by inspection, survey and review by the applicable authority on a periodic or other basis (e.g., complaint-based) as determined from time to time by the applicable authority. Many inspection deficiencies are resolved through a plan of corrective action relating to the facility’s cited deficiencies, but a reviewing agency may have the authority to take further action against a licensed or certified facility that could result in fines, adverse licensure action (suspension, revocation, probation), suspension or denial of admissions, loss of certification as a provider under federal and/or state reimbursement programs, or imposition of other sanctions, including criminal penalties. Challenging and appealing allegations of noncompliance with applicable laws and regulations requires the expenditure of significant legal fees and management attention. Any adverse determination concerning any of Clearday’s licenses, permits or eligibility to receive government-based reimbursement, any penalties, repayments or other sanctions, and the increasing costs of required compliance with applicable laws may trigger default under debt or lease obligations, and may negatively affect its financial condition and operations. Also, adverse findings regarding any single Clearday community may have an adverse impact on Clearday’s ability to obtain or maintain licenses at other locations and may have a material adverse effect on marketing and Clearday’s reputation. In addition, states’ Attorneys General vigorously enforce consumer protection laws as those laws relate to the senior living industry. State Medicaid Fraud and Abuse Units may also investigate assisted living and memory care communities even if the community or any of its residents do not receive federal or state funds.

Clearday’s care businesses must comply with laws designed to protect the confidentiality and security of individually identifiable information. Under the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, Clearday must comply with rules adopted by HHS governing the privacy, security, use and disclosure of individually identifiable information, including financial information and protected health information, or PHI, and with security rules for electronic PHI. There may be both civil monetary penalties and criminal sanctions for noncompliance with these laws. Under the HITECH Act, penalties for violation of certain provisions may be as high as $50,000 per violation for a maximum civil penalty of $1.5 million per calendar year. In January 2013, HHS released the HIPAA Omnibus Rule, or the Omnibus Rule, which went into effect in March 2013 and required compliance with most provisions by September 2013. The Omnibus Rule modified various privacy and security requirements, including modifying the standard for providing breach notices. In addition to HIPAA, many states have enacted their own security and privacy laws relating to individually identifiable information, including financial information and health information. In some states, these laws are more burdensome than HIPAA. In instances in which the state provisions are more stringent than or differ from HIPAA, providers must comply with both the applicable federal and state standards. Failure to comply with applicable federal or state standards could subject Clearday to civil sanctions and criminal penalties, which could materially and adversely affect its business, financial condition and results of operations. HIPAA enforcement efforts have increased considerably over the past few years, with HHS, through its Office for Civil Rights, entering into several multi-million dollar HIPAA settlements in recent years. Finally, the Office for Civil Rights and other regulatory bodies have become increasingly focused on cybersecurity risks, including the emerging threat of ransomware and similar cyber-attacks. The increasing sophistication of cybersecurity threats presents challenges to the entire healthcare industry.

Insurance

Litigation against senior living and healthcare companies continues to increase, and liability insurance costs continue to increase as a result. In addition, Clearday’s employee benefit costs, including health insurance and workers’ compensation insurance, generally continue to increase.

In addition to existing government regulations, Clearday is subject to numerous property and hospitality regulations applicable to the other segments of Clearday’s business of non-core assets.

Human Capital

Number of Employees

As of December 31, 2022, Clearday had approximately 225 employees, substantially all of which were employed for the benefit of our residential care business and our innovative care and wellness products and services. None of Clearday’s employees are expected to be subject to a collective bargaining agreement or represented by a labor union. After our termination of operations at certain of our facilities as described in “Recent Events” we have approximately 60 employees.

Human Capital Definition and Scope

Clearday defines “human capital” as the resources that may be retained and deployed by Clearday to achieve its business strategies and objectives by properly governing and managing:

Clearday uses a combination of full-time employees and outsourced capabilities from independent contractors, including accounting and finance professionals.

Substantially all Clearday’s human capital are the employees of our residential care businesses. Our additional human capital includes our executive teams and those who focus on our innovative care businesses. There are several levels of human capital at MCA, including:

Human Capital Policy

Clearday’s human capital policy is to promote a culture of mutual respect that is aligned and promotes the governance and management of Clearday’s business strategies and objectives with substantially all the senior executive functions performed by its employees with the additional use of outsourced capabilities primarily when such consultants or professionals have significant and required expertise or when such use is expected to be more efficient than full-time employees. Clearday believes that certain independent contractors will continue to be important to innovate Clearday’s business, including Thinktiv, our consultant that has been retained to provide services, including market and competitive research, develop Clearday’s Longevity-tech planform and Clearday Club business models. Clearday will also retain other outside counsel and other professionals from time to time as we determine appropriate.

Material Changes in Human Capital

Clearday has retained professionals to strengthen its financial, legal and administrative capabilities, including professionals responsible for timely reporting as a public company under the Securities and Exchange Act of 1934, as amended. From and after the fourth quarter of 2021, Clearday has increased its human capital in its accounting and finance department to reduce our reliance on outside independent contractors and financial consultants and reduce our administrative costs.

Clearday has experienced an amount of executive turnover in its residential care business which Clearday believes is customary in the industry. There has been turnover in our executive and financial reporting. Clearday believes that its turnover in our residential care business is driven primarily by compensation available by other employers, including other residential care facilities, and the personal mental demands of providing the highest quality of care with dedication to protecting the most vulnerable demographic, including those suffering from dementia and other cognitive or physical limitations.

Diversity

Clearday is committed to expanding the diversity of its human capital. In our residential care business, the management team, including its President, is more than 60% women and more than 15% are minority. Our 4 independent Board directors include one woman, one minority and one elder American.

Clearday’s policies do not permit intolerant statements or actions, including those that are demeaning or prejudicial to persons of any nationality, culture, ethnicity, race, sexual orientation, gender or gender identification, age, cognitive or physical limitation or other social class. Violations or allegations of any violations may be directed to the Human Resources Executive, currently Clearday’s Chief Financial Officer, or Clearday’s Chairman for appropriate investigation and resolution by appropriate action that may include termination for cause. Clearday’s policy is to enable the continued development and advancement of its employees through education, including Clearday’s Technicians of Cognitive Care program and reimbursement for continued professional education. In addition, the Company offers sales and marketing seminars, including the seminars and coaching provided personally by Clearday’s CEO. Of our residential care business’ 5 Executive Director positions and its President, 3 (60%) of these positions were filled by employee promotions.

Human Capital Evaluation

Clearday considers numerous factors in determining the compensation for, and the amount (number) of, its human capital that is required for the proper administration and promotion of its business strategies and objectives, including Clearday’s ability to promote Clearday’s vision for its services through the following set of key principles which we refer to as The Clearday Way:

Provide Clearday’s customers with safe, positive community-based environments that increase their independence, social engagement, and overall well-being.

Deliver personalized programming and therapies that prolong Clearday’s members’ ability to live at home, rather than transitioning to full-time residential care.

Give Clearday’s members’ families the comfort of knowing their loved ones are enjoying their days with Clearday, whether at home, in a daily care Club, or in one of Clearday’s living centers.

Reduce economic anxiety for Clearday’s members and their families by offering innovative new care options at a fraction of the price of residential care.

Create innovative work environments, empowering development programs, and a purpose-driven culture that attracts and retains the highest quality caregiving staff.

Compensation includes wages, promotions, salary increases and bonus compensation and equity-based compensation that is believed by the Clearday Board to promote the human capital processes and goals that are summarized above, in addition to customary industry metrics.

Clearday evaluates its human capital using several qualitative metrics and with customary employee performance metrics, such as on-time performance and achievement of applicable assigned tasks. Clearday’s senior management in the residential and non-residential care business, such as Memory Care America and adult day care, also evaluate human capital based on an individual’s dignity and respect for the residents and clients and their dedication to energize and improve a resident’s and client’s quality of life, and adding some fun and enjoyment in their day, as well as their compliance with Clearday’s infectious control policies.

Certain Corporate Executive Officers

Clearday has a smaller number of Clearday executive officers that focus their time and attention to general administration and financial capital matters, including Clearday’s Chief Executive Officer, Chief Operating Officer, and its General Counsel and other executive officers including our Executive Vice President—Director of Real Estate Operations, and the President of our residential care business (the “corporate executives”). Compensation for the corporate executives is determined by the Clearday Board. In determining the compensation for each corporate executive, Clearday considers, among other things, such officer’s achievement of material business strategies and objectives, including their:

Executive Compensation Philosophy and Process

Clearday’s compensation has been established under the policies of the Clearday Board and is designed to help Clearday achieve its business strategies and objectives, which include increasing, on a long-term basis, the value of Clearday by improving Clearday’s financial and operating performance, improving Clearday’s competitive position within its industry, innovating and improving Clearday’s care and wellness services and products and managing risks facing Clearday.

Individual performance is an important factor in determining each element of compensation. Clearday’s Board determines, and after this offering, Clearday’s Compensation Committee will determine:

There is no formulaic approach to such determinations and such determinations are made by the Clearday Board (and will be made by the Compensation Committee) in their discretion. In exercising such discretion, the Clearday Board (or Compensation Committee) may rely on the benefit of reports and information provided by counsel, accountants and other professionals, including compensation consultants.

The compensation is intended to further align the interests of the corporate executives with those of Clearday’s stockholders. Equity compensation is used to foster such alignment. Additionally, cash bonuses may be used when Clearday has achieved net cash flow that is not reinvested in the businesses or used for distributions.

The primary factor considered by the Compensation Committee and the Board when determining discretionary compensation for the corporate executive is the historical cash and equity compensation paid to such individual and to the other corporate executives with similar specific areas of expertise and value to Clearday, and the likelihood that the Clearday could find a suitable replacement on a timely and cost-effective basis.

In addition to the consideration of the various factors described in the preceding paragraphs, the Clearday Board considers (and Compensation Committee will consider) available compensation data for similarly situated companies or that possess size or other characteristics that are similar to Clearday.

Clearday Compensation philosophy and procedures are intended to limit incentives for management to take excessive risk for short term benefit.

Board Members

Clearday’s human capital policies include the policies regarding the nomination of members of the Clearday Board with identified particular qualifications, attributes, skills and experience that are important to be represented on the Clearday Board as a whole and enable proper governance and oversight aligned with stockholder interests. Some of the factors and related qualifications, attributes, skills and experience that Clearday believes should be represented are:

Facilities

During 2022, we operated four residential care communities and one adult day care facility:

* The Memory Care of Naples facility is owned.

^ Leased facility. We have terminated each of these leases. See “Recent Events.”

# Our adult day care center is in San Antonio, Texas in a leased facility.

We also own our headquarters building located at 8800 Village Drive, San Antonio, Texas. This building is a 3-story medical office building located on 0.84 acres and has approximately 22,265 rentable square feet. We intend to use most of the ground floor for an adult day care center and a retail location for products. Some of the office space is used for Clearday’s executive offices, its educational and production centers that develop content for our Longevity-tech planform.

Material Changes in our Business

We were incorporated in Delaware on May 11, 1987. We engaged in businesses that focused on developing and commercializing high temperature superconductor and certain cryocooler technologies, which we continue to use in our development of a cryogenic air quality system.

On September 9, 2021, we closed a merger (the “AIU Merger”) with Allied Integral United, Inc. (“AIU”). The AIU Merger was described in the AIU Merger Registration Statement and our Form 10-K for the annual period ending December 31, 2021. In 2022 and 2023, we accelerated the development of our purpose-built Longevity-tech platform for the 170 million Americans turning 50 by 2030 and shifted our business strategy. Our Longevity-tech platform intentionally moves our focus from a facility-driven real estate business to a healthcare technologies business that is designed to capture the massive unmet senior care need. We believe that the currently available longevity-tech solutions do not address this significant market and that we are able to modernize the nearly 40,000 U.S. daily care, skilled nursing, and long-term care facilities.

At the end of the first quarter of 2023, we entered into agreements to exit from three of our four residential care facilities and limit our financial investment in the capital-intensive residential memory care businesses and terminate our leases (“MC Facility Leases”) of these three facilities (“MC Facilities”). On April 5, 2023, we entered into a merger agreement (“Viveon Merger Agreement”) with Viveon Health Acquisition Corp., a Delaware corporation (“Viveon”), that is a special purpose acquisition corporation or SPAC and that has its shares of common stock listed on the NYSE American exchange. See “Recent Events.”

COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19, which spread throughout the U.S. and the world, as a pandemic and has had a significant impact on the global economy, resulting in rapidly changing market and economic conditions. National and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain non-essential businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. The governmental response includes additional protocols for the health and safety of residents and staff in the Company’s facilities. The outbreak and associated restrictions on travel that have been implemented have had a material adverse impact on the Company’s business and cash flow from operations, similar to many businesses. We have generally been able to conduct our businesses with limited adverse effects resulting from COVID-19. However, there may be new strains of COVID and the state health regulations regarding elder care facilities continue to restrict operations in the event COVID is present in a residential care or adult day care facility. For example, during December 2022, we suspended operations in our San Antonio Adult Daycare center for a couple of weeks in response to a COVID-19 outbreak and there continues an extensive regulatory environment regarding COVID-19, including requirements for isolation of residents that are infected which may continue to increase operating costs.

Other Assets and Investments

We have sold certain assets that are not related to our care-focused business. Such sales include the sale of hospitality assets and other real property assets, as described in this Report under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our Proprietary Technology

We have patents related to our Sapphire Cryocooler technology: In July 2017, EU patent 2188495 (08797906.8) was granted, this patent follows the U.S. Patent granted by U.S. 8,607,560. This patent is focused on METHOD FOR CENTERING RECIPROCATING BODIES AND STRUCTURES MANUFACTURED THEREWITH, related to our Sapphire Cryocooler. We have used the Sapphire Cryocooler and related technologies as the basis for the development of our cryogenic air quality system.

We enter into confidentiality and non-disclosure agreements with our employees, suppliers and consultants to the extent that we believe it is appropriate to protect our proprietary information. Our technologies that enable our digital services, including our Longevity-tech planform, are not subject to patent protection. We have registered the mark Clearday with the United States Patent office for use in our businesses.

Government Contracts

We do not have any material government contracts, although we may seek government contracts for our cryo-pure air system. We receive reimbursements to veterans under a program by the United States Department of Veterans Affairs (VA) which we intend to expand during 2023.

Manufacturing

We produce content for our Longevity-tech planform and related digital services primarily from our production facilities located at 8800 Village Drive, Suite 106, San Antonio, TX 78217.

Backlog

We had no commercial backlog at December 31, 2022 or December 31, 2021.

Research and Development

We have not spent any amounts on research and development during 2022 or 2021. We have incurred expenses that are related to developing our innovative services and products, including the content and technologies for our Longevity-tech planform. These are not classified as research and development expenses under GAAP.

Environmental Matters

Under various federal, state, and local environmental laws, a current or previous owner or operator of real property, such as us, may be held liable in certain circumstances for the costs of investigation, removal, or remediation of certain hazardous or toxic substances, including, among others, petroleum and materials containing asbestos, that could be located on, in, at, or under a property, regardless of how such materials came to be located there. Additionally, such an owner or operator of real property may incur costs relating to the release of hazardous or toxic substances, including government fines and payments for personal injuries or damage to adjacent property. The cost of any required investigation, remediation, removal, mitigation, compliance, fines, or personal or property damages and our liability therefore could exceed the property’s value and/or our assets’ value. The presence of such substances, or the failure to properly dispose of or remediate the damage caused by such substances, may adversely affect our ability to sell such property, to attract additional residents, retain existing residents, to borrow using such property as collateral, or to develop or redevelop such property. Such laws impose liability for investigation, remediation, removal, and mitigation costs on persons who disposed of or arranged for the disposal of hazardous substances at third-party sites. Such laws and regulations often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence, release, or disposal of such substances as well as without regard to whether such release or disposal followed law at the time it occurred. Moreover, the imposition of such liability upon us could be joint and several, which means we could be required to pay for the cost of cleaning up contamination caused by others who have become insolvent or otherwise judgment proof. We do not believe that we have incurred such liabilities that would have a material adverse effect on our business, financial condition, results of operations, and cash flow.

Our operations are subject to regulation under various federal, state, and local environmental laws, including those relating to: the handling, storage, transportation, treatment, and disposal of medical waste products generated at our communities; identification and warning of the presence of asbestos-containing materials in buildings, as well as removal of such materials; the presence of other substances in the indoor environment; and protection of the environment and natural resources in connection with development or construction of our properties.

Some of our communities generate infectious or other hazardous medical waste due to the illness or physical condition of the residents, including, for example, blood-contaminated bandages, swabs and other medical waste products, and incontinence products of those residents diagnosed with an infectious disease. The management of infectious medical waste, including its handling, storage, transportation, treatment, and disposal, is subject to regulation under various federal, state, and local environmental laws. These environmental laws set forth the management requirements for such waste, as well as related permit, record-keeping, notice, and reporting obligations. Our communities’ engagement of waste management companies for the proper disposal of all infectious medical waste does not immunize us from alleged violations of such medical waste laws for operations for which we are responsible even if carried out by such waste management companies, nor does it immunize us from third-party claims for the cost to cleanup disposal sites at which such wastes have been disposed. Any finding that we are not in compliance with environmental laws could adversely affect our business, financial condition, results of operations, and cash flow.

Federal regulations require building owners and those exercising control over a building’s management to identify and warn, via signs and labels, their employees and certain other employers operating in the building of potential hazards posed by workplace exposure to installed asbestos-containing materials and potential asbestos-containing materials in their buildings. The regulations also set forth employee training, record-keeping requirements, and sampling protocols pertaining to asbestos-containing materials and potential asbestos-containing materials. Significant fines can be assessed for violation of these regulations. Building owners and those exercising control over a building’s management may be subject to an increased risk of personal injury lawsuits by workers and others exposed to asbestos-containing materials and potential asbestos-containing materials. The regulations may affect the value of a building containing asbestos-containing materials and potential asbestos-containing materials in which we have invested. Federal, state, and local laws and regulations also govern the removal, encapsulation, disturbance, handling, and/or disposal of asbestos-containing materials and potential asbestos-containing materials when such materials are in poor condition or in the event of construction, remodeling, renovation, or demolition of a building. Such laws may impose liability for improper handling or a release to the environment of asbestos-containing materials and potential asbestos-containing materials and may provide for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with asbestos-containing materials and potential asbestos-containing materials.

The presence of mold, lead-based paint, contaminants in drinking water, radon, and/or other substances at any of the communities we own or may acquire may lead to the incurrence of costs for remediation, mitigation, or the implementation of an operations and maintenance plan. Furthermore, the presence of mold, lead-based paint, contaminants in drinking water, radon, and/or other substances at any of the communities we own or may acquire may present a risk that third parties will seek recovery from the owners, operators, or tenants of such properties for personal injury or property damage. In some circumstances, areas affected by mold may be unusable for periods of time for repairs, and even after successful remediation, the known prior presence of extensive mold could adversely affect the ability of a community to retain or attract residents and could adversely affect a community’s market value.

We believe that we are in material compliance with applicable environmental laws. We are unable to predict the future course of federal, state, and local environmental regulation and legislation. Changes in the environmental regulatory framework (including legislative or regulatory efforts designed to address climate change) could have a material adverse effect on our business. Because environmental laws vary from state to state, expansion of our operations to states where we do not currently operate may subject us to additional restrictions on the manner in which we operate our communities. We did not make any material capital expenditures in connection with environmental, health, and safety laws, ordinances and regulations in 2022 or 2021.

Corporate Information

Our principal executive offices are located at 8800 Village Drive, San Antonio, TX 78217 and our telephone number is (210) 451-0839. We were incorporated in Delaware on May 11, 1987. Additional information about us is available on our website at www.myclearday.com. The information on our web site is not incorporated herein by reference.

The following section includes some of the material factors that may adversely affect our business and operations. This is not an exhaustive list, and additional factors could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. This discussion of risk factors includes many forward-looking statements. For cautions about relying on such forward-looking statements, please refer to the section entitled “Forward Looking Statements” at the beginning of this Report immediately prior to Item 1.

Risks Related to Our Business and Industry

We have a history of losses and have received a going concern opinion from our auditors.

We have experienced significant net losses and negative cash flows from operations. In 2022, we incurred a net loss of approximately $14.4 million and had negative cash flows from operations of approximately $4.7 million. In 2021, we incurred a net loss of $19.5 million and had negative cash flows from operations of $2.6 million. Our independent registered public accounting firm has included in its audit reports an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. We do not have sufficient cash resources from the net cash flows of operations from our current businesses to sustain our operations for the next twelve months and will rely on the continued sale of non-core assets, tax credits and related amounts, and raising capital through the sale of our securities.

Our ability to protect our patents, service marks or other proprietary rights is uncertain, exposing us to possible losses of competitive advantage.

Our efforts to protect our proprietary rights may not succeed in preventing infringement by others or ensure that these rights will provide us with a competitive advantage. Pending patent applications by us or any of our joint venturers may not result in issued patents and the validity of issued patents may be subject to challenge. Third parties may also be able to design around the patented aspects of the products. Additionally, certain of the issued patents and patent applications are owned jointly with third parties. Because any owner or co-owner of a patent can license its rights under jointly owned patents or applications, inventions made by us jointly with others are not subject to our exclusive control. Any of these possible events could result in losses of competitive advantage.

Intellectual property infringement claims against us could materially harm the results of operations.

Our products and products that we intend to provide such as robotic technologies, incorporate several technologies, including the technologies related to the Sapphire Cryocooler and the cryogenic air quality system. Our patent positions and that of our joint venturers are uncertain and there is significant risk that others, including our competitors or potential competitors, have obtained or will obtain patents relating to our products or technologies or products or technologies planned to be introduced by us.

We believe that patents may be or have been issued, or applications may be pending, claiming various compositions of matter used in our products and products that we intend to provide. We or our third-party joint venturers may need to secure one or more licenses for these patents. There can be no assurances that such licenses could be obtained on commercially reasonable terms, or at all. We or our third-party joint venturers may be required to expend significant resources to develop alternatives that would not infringe such patents or to obtain licenses to the related technology. We or our third-party joint venturers may not be able to successfully design around these patents or obtain licenses to them and may have to defend ourselves at substantial cost against allegations of infringement of third-party patents or other rights to intellectual property. In those circumstances, we could face significant liabilities and be forced to cease the use of key technology.

Other parties may have the right to utilize technology important to our business.

We and our third-party joint venturers utilize certain intellectual property rights under non-exclusive licenses or have granted to others the right to utilize certain intellectual property rights licensed from a third party. Because we and our third-party joint venturers may not have the exclusive rights to utilize such intellectual property, other parties may be able to compete with us, which may harm our business.

The recent unprecedented events related to the COVID-19 pandemic and the Russo-Ukrainian War have caused significant market disruptions and may have longer-term effects that Clearday cannot predict.

The recent unprecedented events related to the COVID-19 pandemic and the Russo-Ukrainian War as well as global security issues generally have caused significant market disruptions and may have longer-term effects that Clearday cannot predict. The equity and other market professionals continue to assess the consequences of such events and the extent and effectiveness of government responses, the responses of the Federal Reserve Bank and other governmental and non-governmental organizations cannot be predicted.

The residents of Clearday’s residential care communities and the clients, and expected clients, of our Longevity-tech planform and Clearday adult day care programs are primarily older individuals with pre-existing conditions, including conditions that significantly compromise their immunity. The additional procedures undertaken by our residential care and the adult day care businesses will likely result in reduced operating cash flow and profit margins. Although Clearday has procedures that address infectious diseases and contamination in a community environment, Clearday is not able to provide assurance that the communities will not be significant affected, including widespread contagion that could result in a suspension or closing of a facility. Additionally, state or federal regulatory authorities may require, and industry groups may provide, additional measures that could limit the number of individuals that may be treated at a facility, require additional staff or employees or other measures that may require significant investment or operating cost. The additional costs have primarily resulted from regulatory requirements to increase staff and provide quarantine areas. Additionally, during the initial stage of the COVID-19 pandemic, admissions to Clearday’s residential care facilities were suspended and adult day care centers were closed.

During such occasions, Clearday may experience a decline in clients. Further, depending on the severity of any occurrence, Clearday may be required to incur costs to identify, contain and remedy the impacts of those occurrences at our residential care communities or adult day care facilities. As a result, these occurrences could significantly adversely affect the results of operations.

The adult day care business has greater risks with respect to COVID-19 and other pandemics due to, among other reasons, that appropriate regulatory agencies may close such businesses, limit the capacity of such businesses, or require additional procedures or capital expenditures designed to protect customers that are costly. During the COVID-19 pandemic, many states closed adult day care centers for a period.

The Russo-Ukrainian War has caused, or has contributed to, significant inflation, increased energy costs and worsened the supply chain disruption in the U.S., each of which has contributed to increased costs for our operations which would worsen our operating results. We are not able to determine the extent or the expected period for such disruptions or if any other and similar disruptions would occur or may have greater adverse effect on our business or the U.S. economy in general.

The additional procedures and precautions undertaken by adult day care businesses in response to COVID-19 will likely result in reduced operating cash flow and profit margins.

Although Clearday has procedures that address infectious diseases and contamination in a community environment, Clearday is not able to provide assurance that the communities will not be significantly affected, including widespread contagion that could result in suspending or closing a facility. Depending on the severity of any occurrence, Clearday may be required to incur costs to identify, contain and remedy the impacts of those occurrences at residential care communities and our adult day care facilities.

Additionally, state or federal regulatory authorities may require, industry groups may provide or Clearday may otherwise determine that it would be prudent, to implement certain additional measures and/or quarantine procedures that may require significant investment and/or operating costs, such measures may include limiting the number of individuals that may be treated at a facility while requiring additional staff to manage treatment during the COVID-19 pandemic. During this time, Clearday may also experience a decline in occupancy due to residents terminating their agreements due to the uncertainty of COVID-19 and its effects on adult day care businesses and residential care facilities. Such investments and increased costs may adversely affect Clearday’s operations. The extent and duration of the impact of the COVID-19 pandemic on Clearday’s overall business is uncertain, and our ability to raise capital could be impaired.

Any other severe cold and flu season, epidemics or any other widespread illnesses could adversely affect the occupancy of Clearday’s residential care communities and facilities.

The revenues of Clearday will be dependent in large part on the occupancy levels at our residential care communities and the members of the Clearday Clubs and any other adult day care facility or other non-acute care and wellness center that will be owned or operated by Clearday. Even if the disruption to the markets and facilities are not as pronounced as during the COVID-19 pandemic, there could be significant reduction in Clearday’s revenues and there could be government or other regulatory intervention that materially increase costs, which would likely materially reduce the operating results of Clearday.

Clearday’s non-acute care and wellness business has significant concentration in industry and geographic areas which exposes Clearday to changes in market conditions in this industry and in those areas.

As of December 31, 2022, we had 4 residential care facilities are in the Little Rock Arkansas area (1), Naples, Florida (1), and the San Antonio / Austin area of Texas (2) and 1 adult day care center in San Antonio, Texas. In March and April of 2023, we entered into certain agreements to cease our operations and terminate our leases with respect to the three residential care facilities in Little Rock Arkansas and Texas as we moved our business strategy to a Longevity-tech platform. See “Recent Events.” We also expect to grow our adult day care business primarily in specified markets, in Texas, initially in Central Texas. The services and products in our Longevity-tech planform are marketed nationally and, to a lesser extent, to certain international markets. Revenues from such services and products are not, as of the date of this Report, significant compared to the residential care and adult day care facility revenues during 2022. Accordingly, we will continue to have a high concentration in select geographic markets. Additionally, our business will primarily be focused on the non-acute care businesses. As a result of this industry and geographic concentrations, the conditions affecting older Americans and the of local economies and real estate markets, changes in governmental rules and regulations, particularly with respect to senior citizens, acts of nature and other factors that may result in a decrease in demand for our services in these areas could have an adverse effect on our revenues, results of operations and cash flow. In addition, we will be particularly susceptible to revenue loss, cost increases or damage caused by severe weather conditions or natural disasters such as hurricanes, wildfires, earthquakes or tornadoes in those areas.

Circumstances that adversely affect the ability of older adults or their families to pay Clearday for our adult day care services could cause our revenues and results of operations to decline.

Clearday expects that payment for our adult day care services will be (1) private pay and not rely on government benefits, such as Medicare and Medicaid, which are generally not available for such services, and (2) benefits or payments available to veterans through the United States Department of Veterans Affairs. Clearday has currently priced the basic service fee for our adult day care centers at a monthly amount that is generally expected to be less than the monthly payment benefits to retirees from the Social Security Administration and Clearday expects that older adults that live with family members will have sufficient funds to pay such service fees and their other household expenses. There can be no assurance that the expected service fee by Clearday will be at an amount that can be afforded by Clearday’s target market for our Clearday Clubs. Economic downturns, higher levels of unemployment among family members, lower levels of consumer confidence, stock market volatility, increased inflation and/or changes in demographics, including the unprecedented effects of the COVID-19 pandemic, could adversely affect the ability of older adults to afford Clearday’s expected adult day care service fees and could result in decreased fees and revenues resulting in a decline of Clearday’s estimated operating results as many of the operating costs for an adult day care center will not vary in relation to a decrease in club members or revenues.

Clearday may not be able to operate our business or implement the business strategies.

Clearday intends to develop and expand new businesses including in the areas of home care services and products and provide services or otherwise have revenue from related services which may include retail sales of products including products that incorporate the technology of our Sapphire Cryocooler, robotics and provide other care services. Clearday created Clearday Labs to evaluate such opportunities and other strategies or business opportunities that Clearday believes would be complimentary to our existing businesses, specifically, our residential care facilities and the digital service offering, and where Clearday may benefit from certain synergies in management and leverage of assets. There can be no assurance, however, that Clearday will be able to implement our business strategy in a manner that realizes any of our intended benefits, including that Clearday will be able to acquire, internally develop or enter into strategic alliances for intended or prospective business lines.

Clearday’s planned business and growth strategy may not yield anticipated returns, may result in disruptions to the business of, may strain management resources and/or may be dilutive to Clearday’s stockholders.

Clearday’s business and growth strategies involve the development (by organic growth or, to a lesser extent, through acquisitions and joint ventures) of businesses that are focused on tech-enabled non-acute care and wellness. In evaluating Clearday’s business opportunities, Clearday will make certain assumptions regarding the expected future performance and prospects. However, newly acquired businesses or investments in businesses, or strategic alliances, may fail to perform as expected, and Clearday may not be able to manage those businesses in a manner that meets our expectations. Clearday’s acquisition activities may be subject to the following risks:

If Clearday cannot operate our businesses or strategic alliances to meet our financial expectations, Clearday’s financial condition, results of operations, cash flow and per share trading price our Common Stock could be adversely affected.

Clearday may use its securities and/or the securities our subsidiaries as consideration in connection with our acquisition strategy which could result in significant dilution to the relative ownership interest of holders of our capital stock prior to such acquisitions.

In addition, it is likely that Clearday will use its or a subsidiary’s securities as consideration, in part or whole, for the purchase of acquired businesses as part of our asset and business acquisition strategy. Such securities may carry rights or preferences different from or superior to those of Clearday’s common stock. Moreover, if such securities include Clearday’s common stock or securities senior to or Pari passu to or convertible or exchangeable into shares of Clearday’s common stock, the relative ownership interest of the holders of the Clearday’s capital stock would be subject to dilution.

Clearday’s strategy includes businesses that are in development or early stages and such strategies and businesses include additional venture stage risks and there is no assurance that Clearday may be able to develop our businesses organically or through acquisitions.

A fundamental strategy of Clearday is the continued development of our Longevity-tech planform, Clearday Clubs, as well as related businesses, including other products and services we expect to develop in our Clearday Labs. The products and services in our Longevity-tech planform do not have any material revenues as of the date of this Report. Clearday Clubs has opened its initial location by the acquisition of an adult day care center in San Antonio, Texas. Clearday’s ability to successfully execute future development in accordance with our business plan, or at all, will be impacted by a number of factors, including the ability to sell our remaining non-core assets, the availability of additional financing, including additional equity financing, on terms acceptable to Clearday, the availability of government programs and reimbursements, market trends, the ability to identify and execute business opportunities, including acquisitions that meet the parameters of the Clearday business plan, and increased competition for sites for the expansion opportunities or acquisitions. The development and acquisitions of future businesses may result in unforeseen operating difficulties and may require additional financial resources and attention from management. Failure to identify suitable development or acquisition businesses, effectively execute the Clearday business strategy or operating difficulties of businesses that Clearday may acquire in the future could have an adverse effect on Clearday’s financial condition, results of operations, cash flows and liquidity.

Clearday will require additional capital and there is no assurance that any debt or equity financing will be available on acceptable terms, if at all.

To the extent that Clearday develops its business through financing, including additional equity financing, there cannot be assurance that financing will be available on acceptable terms, if at all, or that Clearday may be able to satisfy the conditions precedent required to secure borrowings or utilize credit facilities, which could reduce the number, or alter the type, of investments that Clearday would make otherwise and the ability for it to expand its businesses. Any such limitation on such financing or sales of our remaining non-core assets may reduce income. To the extent that financing proves to be unavailable when needed, Clearday may also be compelled to modify our business strategy. Any failure to obtain financing or realize the sale of our remaining non-core assets or other assets may have a material adverse effect on the continued development or growth of Clearday’s business. We do not have any binding agreement with an investment banker to provide additional capital. There is no assurance that the public market conditions, the market acceptance of Clearday, the price and volume of our common stock and other factors, will enable any such offering will be consummated on terms acceptable to Clearday or that AGP or any other investment bank will then decide that it would then manage or participate in any such offering.

If Clearday fails to identify and quickly respond to changes and trends in non-acute care and wellness preferences, our business, financial condition, results of operations and prospects will be adversely impacted.

Clearday expects to provide services to the non-acute care and wellness industry and expects the products and services to be subject to dynamic changes. The needs and preferences of older adults have generally changed over the past several years, including preferences to reside in their homes longer or permanently, as well as changes in services and offerings, including delivery of home healthcare services, utilization of outpatient rehabilitation services and services that address their increasing desire to maintain active lifestyles. If Clearday fails to identify such changes and quickly and successfully respond to such changes to deliver accepted products and services, then competitors will be able to successfully penetrate the markets that Clearday will operate and Clearday will not be able to successfully grow or maintain our businesses, which would adversely affect our business, financial condition, results of operations and prospects.

Our debt leverage and financing arrangements that we may enter into may, under certain circumstances, contain restrictions and limitations that could impact our ability to operate our business.

Clearday has incurred its long term and other debt, primarily, in connection with the financing of (1) long term assets that are now held for sale, and (2) the financing of the residential care facility in Naples, Florida and its operations and (3) other loans that have funded our operations. The indebtedness of Clearday may have the effect, among other things, of reducing the flexibility of Clearday to respond to changing business and economic conditions, requiring us to use increased amounts of cash flow to service indebtedness and increasing our borrowing costs.

The remaining non-care assets may not have the net realizable value that is estimated.

Clearday intends to sell or otherwise dispose of our remaining non-care assets to raise additional funds for our tech-enabled non-acute care businesses. We do not expect to make additional investments in any of these remaining assets to be able to reposition the asset to achieve their highest or best use or otherwise achieve a better value. Further, certain of our remaining non-core assets may require additional investment to maintain, such as replacement or repairs, and deferring maintenance and other related costs could decrease the net realizable value of our remaining non-core assets. There can be no assurance that the value of our remaining non-core assets will be able to be sold for the net realizable value that is estimated or the amount that such assets are in the financial statements of Clearday.

Operators of senior care facilities must comply with the rules and regulations of governmental reimbursement programs and certification requirements, fraud and abuse regulations and are subject to new legislative developments.

Our care businesses are highly regulated by federal, state and local licensing requirements, facility inspections, reimbursement policies, regulations concerning capital and other expenditures, certification requirements and other laws, regulations and rules. Any failure to comply with such laws, requirements and regulations could affect Clearday’s ability to operate the facilities that Clearday owns or operates. Healthcare operators are subject to federal and state laws and regulations that govern financial and other arrangements between healthcare providers. These laws prohibit certain direct and indirect payments or fee-splitting arrangements between healthcare providers that are designed to induce or encourage the referral of patients to, or the recommendation of, a particular provider for medical products and services. They also require compliance with a variety of safety, health, staffing and other requirements relating to the design and conditions of the licensed facility and quality of care provided.

These regulations may also enable the regulatory agency to place liens on properties. Possible sanctions for violation of these laws and regulations include loss of licensure or certification, the imposition of civil monetary and criminal penalties, and potential exclusion from the Medicare and Medicaid programs. The failure of Clearday to comply with these rules or regulations could have an adverse effect on our financial condition or results of operations.

In addition, this area of the law currently is subject to intense scrutiny. Additional laws and regulations may be enacted or adopted that could require changes in the design of the properties and its joint venture’s operations and thus increase the costs of these operations.

Private third-party payers continue to try to reduce healthcare costs.

Private third-party payers such as insurance companies continue their efforts to control healthcare costs through direct contracts with healthcare providers, increased utilization review practices and greater enrollment in managed care programs and preferred provider organizations. These third-party payers increasingly demand discounted fee structures and the assumption by healthcare providers of all or a portion of the financial risk. These efforts of third-party payers to limit the amount of payments that Clearday or others may receive for healthcare services could adversely affect Clearday and would adversely affect Clearday even if such insurance policies do not cover residential or non-residential care facilities that Clearday will operate as the total household cash flow would be reduced and there would be less funds available for Clearday’s services. At the same time, as a result of competitive pressures, Clearday’s ability to maintain operating margins through price increases to private pay options may be limited.

Healthcare policy changes, including proposals to reform the U.S. healthcare system, may harm the Clearday’s future business.

Healthcare costs have risen significantly over the past decade. There have been and continue to be proposals by legislators, regulators and third-party payors to keep these costs down. Clearday is unable to assess with certainty the extent of governmental requirements and regulations that will apply to Clearday’s care and wellness businesses. See “Business – Government Regulation - Residential Care and Adult Day Care Businesses.” The regulations that affect our operations are subject to changes. In addition, these regulations and other ongoing initiatives in the United States have increased and will continue to increase pressure on pricing and operations of residential and non-residential care facilities. The announcement or adoption of any government initiative could have an adverse effect on potential revenues from any product that Clearday may successfully develop. Moreover, additional legislative or regulatory changes remain possible and appear likely. Various healthcare reform proposals have also emerged at the state level. Clearday cannot predict what healthcare initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on Clearday. However, an expansion in government’s role in the U.S. healthcare industry may lower the revenues for future products and adversely affect Clearday’s future business, possibly materially.

Clearday is unable to determine the effect of the amount of wage increases that are expected with labor shortages and any regulatory changes effected by the administration of President Biden, including regulations regarding minimum wages and benefits.

The care industry, and businesses in general, have experienced, and may continue to experience, significant labor shortages, particularly for caregivers. Clearday will continue to compete with other residential care community and day care operators, among others, to attract and retain qualified personnel responsible for the day-to-day operations of Clearday’s current and planned care and wellness businesses. The market for qualified staff, including professional staff such as nurses, therapists and other healthcare professionals, is highly competitive, and periodic or geographic area shortages of such healthcare professionals may require us to increase the wages and benefits that we offer to our employees in order to attract and retain such personnel or to utilize temporary personnel at an increased cost. Additionally, any shortages of staff may require us to retain per diem employees and incur overtime, each of which would increase our wage and benefit expenses. In addition, employee benefit costs, including health insurance and workers’ compensation insurance costs, have materially increased in recent years and Clearday cannot predict the future impact of the Healthcare Reform Act, or any other future healthcare legislation, on the cost of employee health insurance. Increasing employee health insurance and workers’ compensation insurance costs may materially and adversely affect our earnings. From time-to-time labor unions may attempt to organize Clearday’s employees. If Clearday’s employees were to unionize, it could result in business interruptions, work stoppages, the degradation of service levels due to work rules, or increased operating expenses that may adversely affect the results of operations. One of the consequences of the COVID-19 pandemic is a significant shortage of employees for many industries, including our residential care industry. Additionally, many states have increased the minimum hourly wage for employees, including Florida and Arkansas. The labor shortage has increased wage pressure and is likely to increase our wage and benefit expenses.

Clearday cannot be sure that labor costs will not increase or that any increases will be recovered by corresponding increases in the rates that Clearday will charge to our clients or otherwise. Any significant failure by us to control labor costs or to pass any increases on to clients through rate increases could have a material adverse effect on our business, financial condition and results of operations. Further, increased costs charged to Clearday’s clients may reduce Clearday’s occupancy and growth and related revenues.

Additionally, healthcare and elder care are important political issues. President Biden has used, and may continue to use, executive orders to achieve policy goals and objectives. In addition, such policy goals and objectives may be realized through legislation that is sponsored or otherwise supported by President Biden’s administration. Clearday is unable to assess the consequences of improvements to the healthcare systems and that may be realized by such actions, including any effect of increased costs or taxes.

The planned adult day care business may require Clearday to make significant capital expenditures to maintain and improve care centers.

Clearday’s planned adult day care and clinics and related facilities may require from time-to-time significant expenditures to address required ongoing maintenance or to make them more attractive to Clearday’s clients. Physical characteristics of facilities are mandated by various government authorities; changes in these regulations may require Clearday to make significant expenditures. Supply chain issues and building material shortages have increased, and may continue to increase, construction costs, including the costs for expected leasehold improvements. In addition, Clearday may often be required to make significant capital expenditures when Clearday acquires, leases or manages new facilities. Clearday’s available financial resources may be insufficient to fund these expenditures. Clearday may be unable to pay increased rent at any facility without experiencing losses.

Because the AIU Merger resulted in an ownership change under Section 382 of the Internal Revenue Code Clearday, Clearday’s pre-AIU Merger NOL carryforwards and certain other tax attributes are subject to limitations.

We underwent an “ownership change” within the meaning of Section 382 of the Internal Revenue Code (“Section 382”), the corporation’s NOL carryforwards and certain other tax attributes arising before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Our NOL carryforwards and certain other tax attributes will be subject to limitations (or disallowance) on their use. Section 382 limitation will cause a significant portion of Clearday’s pre-AIU Merger net operating loss carryforwards to never be utilized. In addition, if Clearday is determined to have discontinued its historic pre-AIU Merger business following the AIU Merger, subject to certain exceptions, the Section 382 limitation could eliminate all possibility of utilizing Clearday’s pre-AIU Merger NOL carryforwards. Additional ownership changes in the future could result in additional limitations on Clearday’s NOL carryforwards. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of the NOL carryforwards and other tax attributes, which could have a material adverse effect on our cash flow and results of operations.

Clearday has a limited history of operations, and our Longevity-tech planform and Clearday Care adult day care businesses are each an emerging business that will expose us to the risks and uncertainties associated with operating and growing an emerging business within an emerging industry.

Each of the innovative care solutions and the adult day care and robotic businesses to be conducted by us is significant to our growth opportunities and plans. These businesses include the virtual day care business and the adult day care services through physical locations and the sale of robots. Clearday does not have any material operational history in such businesses by which potential investors can evaluate our past performance and likelihood of success. As of the date of this Report, we have only one adult day care business do not have any centers that use our proprietary Clearday Clubs format or any revenue from our robotic business. The financial position and results of operations of Clearday, including our most recent financial statements included in this Report, are not indicative of the tech-enabled non-acute care businesses that we intend to pursue. Such Clearday businesses do not have any earnings history for investors to estimate our future level of sales or profitability or whether Clearday will in fact have sales or profitability. As a result of such industry and geographic focus, the conditions affecting older Americans as well as the local economies and real estate markets in such geographic areas and other factors that may result in a decrease in demand for our services in these areas could have an adverse effect on Clearday’s revenues, results of operations and cash flow. A core component of our strategy is the development and expansion of our tech-enabled non-acute care businesses. Our ability to successfully execute future development in accordance with our business plan, or at all, will be impacted by a number of factors, including the ability to sell our remaining non-core assets, the availability of financing on terms acceptable to us, market trends, the ability to identify and execute business opportunities (including acquisitions that meet the parameters of the Clearday business plan), and increased competition for sites for the expansion opportunities or acquisitions. Any such limitation on any such financing or sale of the remaining non-core assets may reduce income.

If Clearday fails to identify such changes and quickly and successfully respond to such changes to deliver accepted products and services, then competitors will be able to successfully penetrate the markets in which Clearday operates which may limit Clearday’s ability to successfully grow and/or maintain our businesses, which would adversely affect our business, financial condition, results of operations and prospects.

Clearday incurred substantial expenses related to the completion of the AIU Merger.

Clearday incurred substantial expenses in connection with the completion of the September 9, 2021 AIU Merger. Most of these costs were non-recurring expenses, including a substantial fee payable to AGP and legal and other professional fees and expenses and insurance expenses, and the fees related to the registration and issuance of the common stock issued in connection with such AIU Merger. Clearday does not have excess cash flows from its existing businesses to fund the payment of such additional expenses and will require revenues from its innovative businesses or the ability to raise capital through the sale of securities. There can be no assurance that we are able to raise additional funds through the sale of its securities on terms that are acceptable or at all.

Risks Related to Our Capital Structure

Our stock price is volatile.

The market price of our common stock has been, and is expected to be, subject to significant volatility. The value of our common stock may decline regardless of our operating performance or prospects. Factors affecting our market price include:

Recent events have caused stock prices for many companies, including ours, to fluctuate in ways unrelated or disproportionate to their operating performance. The general economic, political and stock market conditions that may affect the market price of our common stock are beyond our control. The market price of our common stock at any particular time may not remain the market price in the future.

We have a significant number of outstanding warrants and options and convertible securities, and future sales of the shares obtained upon exercise of these options, warrants and convertible securities could adversely affect the market price of our common stock.

As of December 31, 2022, we had

The holders may sell these shares in the public markets from time to time under a registration statement or, after the applicable six-month holding period is satisfied, under Rule 144, without limitations on the timing, amount or method of sale.

Additionally, we have issued to certain lenders an aggregate amount of approximately $965,000 of senior notes and warrants to purchase an aggregate amount of approximately 1,372,500 shares of our common stock. These notes and warrants may be converted or exercised upon an event of default under such notes.

The holders of such convertible or exchangeable for our shares of common stock may exercise such rights sell a large number of shares of our comment stock, which would likely cause the market price of our common stock to decline.

Our corporate governance structure may prevent our acquisition by another company at a premium over the public trading price of our shares.

It is possible that the acquisition of most of our outstanding voting stock by another company could result in our stockholders receiving a premium over the public trading price for our shares. Provisions of our restated certificate of incorporation and our amended and restated bylaws, each as amended, and of Delaware corporate law could delay or make more difficult an acquisition of our company by merger, tender offer or proxy contest, even if it would create an immediate benefit to our stockholders. For example, our restated certificate of incorporation does not permit stockholders to act by written consent, and our bylaws generally require ninety days’ advance notice of any matters to be brought before the stockholders at an annual or special meeting.

In addition, our board of directors has the authority to issue shares of preferred stock and to determine the terms, rights and preferences of this preferred stock, including voting rights of those shares, without any further vote or action by the stockholders and while we are not listed on an exchange such as the NYSE American, we can issue a significant number of voting shares and voting power without stockholder approval. The rights of the holders of common stock may be subordinate to, and adversely affected by, the rights of holders of preferred stock that may be issued in the future. The issuance of preferred stock could also make it more difficult for a third party to acquire most of our outstanding voting stock, even at a premium over our public trading price.

Furthermore, our certificate of incorporation also provides for a classified board of directors with directors divided into three classes serving staggered terms. These provisions may have the effect of delaying or preventing a change in control of us without action by our stockholders and, therefore, could adversely affect the price of our stock or the possibility of the sale of shares to an acquiring person.

We do not anticipate declaring any cash dividends on our common stock.

We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and earnings for use in the operation and expansion of our business.

General Risk Factors

The price of Clearday’s common stock may decrease.

The market price of the Clearday’s common stock may decline as a result of a few reasons, including if:

Our ability to protect our patents and other proprietary rights is uncertain, exposing us to possible losses of competitive advantage.

Our efforts to protect our proprietary rights may not succeed in preventing infringement by others or ensure that these rights will provide us with a competitive advantage. Pending patent applications may not result in issued patents and the validity of issued patents may be subject to challenge. Third parties may also be able to design around the patented aspects of the products or design around our copyrights, including the coding for our digital services. Additionally, certain of the issued patents and patent applications are owned jointly with third parties. Because any owner or co-owner of a patent can license its rights under jointly owned patents or applications, inventions made by us jointly with others are not subject to our exclusive control. Any of these possible events could result in losses of competitive advantage.

We depend on specific patents and licenses to technologies, and it will likely need additional technologies in the future that it may not be able to obtain.

We utilize technologies under licenses of patents from others for certain of our products. These patents may be subject to challenge, which may result in significant litigation expenses (which may or may not be recoverable against future royalty obligations). Additionally, we may be required to utilize intellectual property rights owned by others, including patents developed by a third-party engineering firm for the cryogenic air quality system, and may seek licenses to do so. Such licenses may not be obtainable on commercially reasonable terms, or at all. It is also possible that Clearday may inadvertently utilize intellectual property rights held by others, which could result in substantial claims.

Other parties may have the right to utilize technology important to our business.

We utilize certain intellectual property rights under non-exclusive licenses or have granted to others the right to utilize certain intellectual property rights licensed from a third party. Because we may not have the exclusive rights to utilize such intellectual property, other parties may be able to compete with us, which may harm our business.

We will face significant competition.

We will compete with numerous care and wellness companies, including developers, owners and operators of residential and non-residential facilities, many of which own or operate facilities that are like Clearday’s current and planned facilities in the same markets in which we are, or will be located. Clearday competes with numerous other managers and operators of care and wellness businesses that are focused on the non-acute care market, including adult day care centers and products that compete with products that will be distributed by Clearday. Some of Clearday’s competitors are larger and have greater financial resources than us and some of our competitors are not for profit entities which have endowment income and may not face the same financial pressures as us. We cannot be sure that we will be able to attract enough clients or residents at rates that will generate acceptable returns or that we will be able to attract employees and keep wages and other employee benefits, insurance costs and other operating expenses at levels which will allow us to compete successfully and operate profitably.

Clearday’s competition may also be from senior housing, senior healthcare, home healthcare, medical and healthcare providers and technology companies that expand their services or otherwise provide comparable services or utilize tech-enabled products and services that Clearday will utilize. Any such company or combination of companies may have referral or strategic relationships that reduce the number of consumers that would otherwise use Clearday’s products or services. In recent years, a significant number of new senior age communities and services have been developed and continue to be developed. Accordingly, Clearday expects to have increased competitive pressures, particularly in certain geographic markets where Clearday’s intends to operate our care services. These competitive challenges may prevent Clearday from establishing, maintaining or improving revenues, which may adversely affect Clearday.

Our Longevity-tech platform may innovate and disrupt the way that care services are delivered. Other technologies may be in development and may soon be in the market that will compete with our Longevity-tech platform including those that may have more advanced technologies or automated intelligence capabilities than our Longevity-tech platform. The companies that are developing such technologies may work with multi-national companies that have significantly greater resources than us, including distribution and marketing and other services that compliment and improve the services deliverable through our Longevity-tech platform.

Federal, state and local employment related laws and regulations could increase Clearday’s cost of doing business, and Clearday may fail to comply with such laws and regulations.

Clearday’s operations are subject to a variety of federal, state and local employment related laws and regulations, including, but not limited to, the U.S. Fair Labor Standards Act, which governs matters such as minimum wages, the Family and Medical Leave Act, overtime pay, compensable time, recordkeeping and other working conditions, and a variety of similar laws that govern these and other employment related matters. Because labor represents (and will represent) a significant portion of Clearday’s ordinary operating expenses from its care and wellness businesses, compliance with these evolving laws and regulations could substantially increase Clearday’s cost of doing business, while failure to do so could subject Clearday to significant back pay awards, fines and lawsuits. Clearday’s failures to comply with federal, state and local employment related laws and regulations could have a material adverse effect on our business, financial condition and results of operations.

The US federal minimum wage increases in five steps over five years ending with a $15 minimum wage in 2025, with an automatic increase in line with changes in the median hourly wage in the economy. Certain states have increased the minimum wage to $15 per hour. Additionally, we have received benefits of the Employee Retention Credits under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) which have ended during 2021 This and other labor related actions have increased the cost of our operating expenses. The extent of such actions cannot be predicted with any certainty.

Clearday may fail to comply with laws governing the privacy and security of personal information, including relating to health information.

Clearday will be required to comply with federal and state laws governing the privacy, security, use and disclosure of personally identifiable information and protected health information. State laws also govern protected health information, and rules regarding state privacy rights. Other federal and state laws govern the privacy of other personally identifiable information. If Clearday fails to comply with applicable federal or state standards, then we could be subject to civil sanctions and criminal penalties, which could materially and adversely affect Clearday’s business, financial condition and results of operations.

Clearday will continue to incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.

Clearday will continue to incur significant legal, accounting and other expenses, including costs associated with public company reporting requirements. Clearday will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and any exchange that Clearday may have its common stock listed. These rules and regulations are expected to increase Clearday’s legal and financial compliance costs and to make some activities more time-consuming and costly. The executive officers of Clearday will continue to need to devote substantial time to gaining expertise regarding operations as a public company and compliance with applicable laws and regulations. These rules and regulations also have made it expensive for Clearday to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for Clearday to attract and retain qualified individuals to serve on our board of directors or as our executive officers, which may adversely affect investor confidence in Clearday and could cause our business or stock price to suffer.

Clearday may become subject to litigation, which could have an adverse effect on its performance.

Clearday may from time to time become subject to litigation, including claims relating to our residential care and other operations. Clearday’s planned businesses include the continuation of our residential care facilities, adult day care and our planned in-home care which are businesses that are regulated and have a high risk for plaintiff actions. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. Clearday generally intends to vigorously defend itself; however, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against the us may result in Clearday having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact Clearday’s earnings and cash flows, thereby having an adverse effect on Clearday’s financial condition, results of operations, cash flow and per share trading price of our common stock. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors.

Clearday depends on key personnel whose continued service is not guaranteed.

Clearday’s ability to manage its businesses and anticipated future growth depends, in large part, upon the efforts of key personnel, particularly James Walesa, our Chairman and Chief Executive Officer, and B.J. Parrish, our director and Chief Operating Officer. Such key personnel have extensive knowledge and relationships and exercise substantial influence over Clearday’s operational, financing, acquisition and disposition activity. There is significant competition in the care and wellness industry for experienced personnel and there is a risk that Clearday may not be able to continue to retain our key personnel. The loss of services of one or more members of Clearday’s executive management team, or Clearday’s inability to attract and retain highly qualified personnel, could adversely affect Clearday’s business, diminish Clearday’s investment opportunities and weaken Clearday’s relationships with lenders, business partners, existing and prospective tenants and industry personnel, which could adversely affect us.

Clearday relies on information technology and systems in its operations, and any material failure, inadequacy, interruption or security failure of that technology or those systems could materially and adversely affect us.

Clearday will continue to rely on information technology and systems, including the internet and commercially available software, to process, transmit, store and safeguard information and to manage or support a variety of our business processes, including financial transactions and maintenance of records, which may include personally identifiable information of employees, residents and clients. If Clearday experiences security breaches or other similar failures, or other inadequacies or interruptions of our information technology, we could incur material costs and losses and our operations could be disrupted as a result. Further, third-party vendors could experience similar events with respect to their information technology and systems that impact the products and services they provide to us. We will continue to rely on commercially available systems, software, tools and monitoring, as well as our internal procedures and personnel, to provide security for processing, transmitting, storing and safeguarding confidential resident, customer and vendor information, such as personally identifiable information related to our employees and others, including our residents and clients, and information regarding their and Clearday’s financial accounts. We will continue to take various actions, and may incur significant costs, to maintain and protect the operation and security of our information technology and systems, including the data maintained in those systems. However, it is possible that these measures will not prevent the systems’ improper functioning or a compromise in security, such as in the event of a cyberattack or the improper disclosure of personally identifiable information.

Security breaches, computer viruses, attacks by hackers, online fraud schemes and similar breaches can create significant system disruptions, shutdowns, fraudulent transfer of assets or unauthorized disclosure of confidential information. The cybersecurity risks to Clearday and our third party vendors are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetuate illegal or fraudulent activities against Clearday, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in Clearday’s or third parties’ information technology networks and systems or operations. Any failure to maintain the security, proper function and availability of Clearday’s information technology and systems, or certain third party vendors’ failure to similarly protect their information technology and systems that are relevant to the Clearday or our operations, or to safeguard Clearday’s business processes, assets and information could result in financial losses, interrupt Clearday’s operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties. Any or all of the foregoing could materially and adversely affect our business and the value of our securities.

Changes in tax laws or other actions could have a negative effect on us.

At any time, the federal or state income tax laws, or the administrative interpretations of those laws, may be amended. Federal and state tax laws are constantly under review by persons involved in the legislative process, the IRS, the U.S. Department of the Treasury and state taxing authorities. Changes to the tax laws, regulations and administrative interpretations, which may have retroactive application, could adversely affect us. The administration of President Biden has recently proposed changes to the Internal Revenue Code that, if enacted, could have adverse tax consequences for us. Such proposals are subject to significant changes. There cannot be any assurances as to any changes in the Internal Revenue Code that may be implemented, including any that may be adverse to us.

Clearday’s insurance may not cover potential losses, including from adverse weather conditions, natural disasters and other events.

We carry commercial property, liability and other insurance coverage on our business. We select policy specifications and insured limits that we believe to be appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice. We do not expect to carry insurance for losses such as loss from riots or war because such coverage is not available or is not available at commercially reasonable rates. Some of our policies, including those covering losses due to terrorism and certain other insurance policies, are subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses, which could adversely affect our operations. We may discontinue terrorism or other insurance if the cost of premiums for any such policies exceeds, in our judgment, the expected benefit from carrying out the policies. If following the termination or failure to renew any insurance policy we experience an adverse uninsured event, we may be required to incur significant costs, which could materially adversely affect our business and financial performance. Additionally, insurance to cover the risk of business interruptions may not be available or available at commercially reasonable rates and may not cover the specific events that require the closure of interruption of any of our businesses.

If we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the assets and businesses that that was made. Furthermore, we may not be able to obtain adequate insurance coverage at reasonable costs in the future as the costs associated with property and casualty renewals may be higher than anticipated.

Clearday’s operations will be subject to risks from adverse weather and climate events.

Severe weather may have an adverse effect on certain residential care or adult day care facilities to be operated by us and by our remaining non-core assets. Flooding caused by rising sea levels and severe weather events, including hurricanes, tornadoes and widespread fires have had and may have in the future an adverse effect on such assets and facilities and result in significant losses to us and interruption of our business, even though we did not experience significant damage to our Naples facility during Hurricane Ian during September 2022. We may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our residential care communities or adult day care centers or the properties owned by use in anticipation of, during and after a severe weather or climate-related event and in terms of potential lost business due to the interruption in operations that may not be adequately covered by insurance.

Terrorist attacks or riots in any locations in which Clearday acquires properties could significantly impact the demand for, and value of, Clearday’s properties.

Terrorist attacks and other acts of terrorism or war or riots would severely impact the demand for, and value of, Clearday’s planned businesses. Terrorist attacks in any of the metropolitan areas in which the Clearday expects to have operations also could directly impact the value of Clearday through damage, destruction, loss or increased security costs, and could thereafter materially impact the availability or cost of insurance to protect against such acts. A decrease in demand could make it difficult to maintain the expansion of the adult day care business in accordance with the business plan. To the extent that any future terrorist attack otherwise disrupts Clearday’s planned businesses, it may impair the ability to make timely payments to fund operations, which would harm the operating results and could materially and adversely affect us.

Current government policies regarding interest rates and trade policies may cause a recession.

The U.S. Federal Reserve policy regarding the timing and amount of future increases in interest rates and changing U.S. and other countries’ trade policies may hinder the growth of the U.S. economy. It is unclear whether the U.S. economy will be able to withstand these challenges and continue sustained growth. Economic weakness in the U.S. economy generally or a new U.S. recession would likely adversely affect Clearday’s financial condition, including by limiting Clearday’s ability to pay rent or other obligations and causing the value of Clearday’s owned and operated residential care communities, and remaining non-core assets and of our securities to decline. Further, general economic conditions, such as inflation, commodity costs, fuel and other energy costs, costs of labor, insurance and healthcare, interest rates, and tax rates, affect our operating and general and administrative expenses, and we have no control or limited ability to control such factors. Such economic uncertainties and conditions may adversely affect us and others, including our landlords, and our clients, such as by reducing access to funding or credit, increasing the cost of credit, limiting the ability to manage interest rate risk and increasing the risk that obligations will not be fulfilled, as well as other impacts which Clearday is unable to fully anticipate.

As a “smaller reporting company,” Clearday may avail itself of reduced disclosure requirements, which may make Clearday’s common stock less attractive to investors.

Clearday is a “smaller reporting company” under applicable SEC rules and regulations. As a “smaller reporting company,” Clearday may rely on exemptions from certain disclosure requirements that are applicable to other public companies, such as simplified executive compensation disclosures and reduced financial statement disclosure requirements in our SEC filings. Clearday may continue to rely on such exemptions for so long as it remains a “smaller reporting company”. These exemptions include reduced financial disclosure, reduced disclosure obligations regarding executive compensation, and not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Decreased disclosures in Clearday’s SEC filings due to its status as a smaller reporting company may make it harder for investors to analyze the results of operations and financial prospects. Clearday cannot predict if investors will find Clearday’s common stock less attractive if it relies on these exemptions. If some investors find Clearday’s common stock less attractive as a result, there may be a less active trading market for Clearday’s common stock and Clearday’s stock price may be more volatile. Clearday may take advantage of the reporting exemptions applicable to a smaller reporting company until it is no longer a smaller reporting company, which status would end once it has a public float greater than $250 million. In that event, Clearday could still be a smaller reporting company if its annual revenues were below $100 million, and it has a public float of less than $700 million. Clearday’s reliance on these exemptions may result in the public finding that Clearday’s common stock to be less attractive and adversely impacts the market price of Clearday’s common stock or the trading market thereof.

We are subject to penny stock regulations and restrictions, and you may have difficulty selling shares of our common stock.

The Commission has adopted regulations which generally define so-called “penny stocks” as an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock”, and we are subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction prior to sale. As a result, this rule affects the ability of broker-dealers to sell our securities and affects the ability of purchasers to sell any of our securities in the secondary market.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the Commission relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the Commission the authority to restrict any person from participating in a distribution of penny stock if the Commission finds that such a restriction would be in the public interest.

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (“FINRA”) has adopted similar rules that may also limit a stockholder’s ability to buy and sell our common stock. FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for such a customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

The “penny stock” rules make it more difficult for a stockholder to deposit our common stock with a broker dealer and to purchase or sell our common stock, which reduces the volume of transactions and increases the volatility of the price of our common stock.

Clearday expects to not pay cash dividends on its common stock and investors may have to sell their shares in order to realize the value for their investment.

Clearday has not paid any cash dividends on its common stock and does not intend to pay cash dividends in the foreseeable future. Clearday intends to use its cash for reinvestment in the development and expansion of the care and wellness business and to pay its debt and lease obligations. As a result, investors may have to sell their shares of common stock to realize any of their investment.

Clearday’s internal controls over financial reporting may not be effective, which could have a significant and adverse effect on Clearday’s business and reputation.

Clearday is subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC thereunder (“Section 404”). Section 404 requires Clearday to report on the design and effectiveness of its internal controls over financial reporting.

Some, but not all, of Clearday’s officers and directors have experience as officers or directors of a public company. Clearday’s internal controls have certain material weaknesses, including insufficient segregation of duties. Clearday has instituted efforts to remediate these concerns and enhance Clearday’s internal control environment to remediate these issues by the end of 2021. However, any failure to maintain effective controls could result in significant deficiencies or material weaknesses and cause Clearday to fail to meet its periodic reporting obligations or result in material misstatements in Clearday’s financial statements. Clearday may also be required to incur costs to improve its internal control system and hire additional personnel. This could negatively impact Clearday’s results of operations.

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses and divert management’s attention from operating Clearday’s business, which could have a material adverse effect on Clearday’s business.

There have been other changing laws, regulations and standards relating to corporate governance and public disclosure in addition to the Sarbanes-Oxley Act, as well as new regulations promulgated by the SEC and rules promulgated by national securities exchanges. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, Clearday’s efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Clearday’s board members, Chief Executive Officer and Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, Clearday may have difficulty attracting and retaining qualified board members and executive officers, which could have a material adverse effect on Clearday’s business. If Clearday’s efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, Clearday may incur additional expenses to comply with standards set by regulatory authorities or governing bodies which would have a material adverse effect on Clearday’s business and results of operations.

Delaware law could discourage a change in control, or an acquisition of Clearday by a third party, even if the acquisition would be favorable to stockholders.

The DGCL contains provisions that may have the effect of making more difficult or delaying attempts by others to obtain control of Clearday, even when these attempts may be in the best interests of stockholders. Delaware law imposes conditions on certain business combination transactions with “interested stockholders”. These provisions and others that could be adopted in the future could deter unsolicited takeovers or delay or prevent changes in Clearday’s control or management, including transactions in which stockholders might otherwise receive a premium for their shares of common stock over then current market prices. These provisions may also limit the ability of stockholders to approve transactions that they may deem to be in their best interests.

Clearday’s board has the authority to issue “Blank Check” Preferred Stock, which could affect the rights of holders of Clearday’s common stock and may delay or prevent a takeover that could be in the best interests of Clearday’s stockholders.

The board of Clearday has the authority to issue shares of preferred stock (the “Series Preferred Stock”), in one or more series and to fix the number of shares constituting any such series, the voting powers, designation, preferences and relative participation, optional or other special rights and qualifications, limitations or restrictions thereof, including the dividend rights and dividend rate, terms of redemption (including sinking fund provisions), redemption price or prices, conversion rights and liquidation preferences of the shares constituting any series, without any further vote or action by the stockholders. Similarly, the Clearday board may authorize a subsidiary of Clearday to issue securities that may have any such rights, powers or preferences. The issuance of any such securities could affect the rights of the holders of Clearday’s common stock. For example, such issuance could result in a class of securities outstanding that would have preferential voting, dividend, and liquidation rights over Clearday’s common stock, and could (upon conversion or otherwise) enjoy all the rights appurtenant to the shares of our common stock. The authority possessed by the board of directors to issue Series Preferred Stock, or any such other securities could potentially be used to discourage attempts by others to obtain control of Clearday through any merger, tender offer, proxy contest or otherwise by making such attempts more difficult or costly to achieve. The board of directors may issue the Series Preferred Stock or any such other securities without stockholder approval and with voting and conversion rights which could adversely affect the voting power of holders of our common stock. There are no agreements or understandings for the issuance of Series Preferred Stock or any such other securities.

The market price and volume of Clearday’s common stock fluctuates significantly and could result in substantial losses for individual investors.

The stock market from time-to-time experiences significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may cause the market price and volume of Clearday’s common stock to decrease. In addition, the market price and volume of Clearday’s common stock is highly volatile.

Factors that may cause the market price and volume of the Clearday’s common stock to decrease include:

Further, Clearday’s common stock will be subject to market disruptions that devalue the equity markets broadly, or certain sectors, which are caused by events that are not related to the business and operations of Clearday. Recent events in exchange listed securities resulted in significant loss of market value of shares for, among other matters, pandemics and market reaction to perceived global interconnected economies.

Not applicable.

During 2022, Clearday operated 4 residential care facilities and one adult day care facility:

* The Memory Care of Naples facility is owned, and the other facilities were leased. Each of these leased facilities was terminated as described in “Recent Events.”

Our adult day care center is in San Antonio, Texas in a leased facility of approximately 5,100 square feet.

We also own our headquarters building located at 8800 Village Drive, San Antonio, Texas. This building is a 3-story medical office building located on 0.84 acres and has approximately 22,265 rentable square feet. Our Naples facility is subject to a mortgage of approximately $4,550,000 that is due on May 2, 2023. Our headquarters building in San Antonio, Texas is subject to a mortgage loan.

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 established 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 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.

From time to time, we are party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. Excluding ordinary, routine litigation incidental to our business, we are not currently a party to any legal proceedings that we believe would reasonably be expected to have a material adverse effect on our business, financial condition or results of operation or cash flow.

As of the date of this Report, we are subject to certain lawsuits, claims and other legal proceedings, including the following:

The tenant, MCA Simpsonville Operating Company LLC, referred to as Tenant, of the MCA community that is located in Simpsonville, South Carolina, referred to as 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. After non-payment, the Landlord instituted litigation (“Simpsonville Action 1”) that is captioned and numbered MC-Simpsonville, SC-UT, LLC v. Steve Person, et. al., Cause No. 19-0651-C368 in the 368th Judicial District Court of Williamson County, Texas. After the trial court issued a judgment on damages in the amount of $2,801,365 and appeals of this judgment 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 of $248,075 to be paid within six months after the entry of the judgment. We have not paid this amount. In connection with the settlement of Simpsonville Action 1, Tenant entered into an agreement to transfer certain operations, including lease obligations, of the Simpsonville Facility 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 and thereby limit the future obligations under the lease.

The Landlord filed a second action on April 9, 2021 (Simpsonville Action 2), for claims similar to Simpsonville Action 1 including relief for payment of rent past due and reimbursement of taxes from October 2020 to the time of the trial in this action. This action captioned and numbered MC-Simpsonville, SC-UT, LLC v. Steve Person, James Walesa and Trident Healthcare Properties I, LP, Cause No. 21-0513-C425 in the 425th Judicial District Court of Williamson County, Texas. The court granted summary judgment in this matter in favor of the Landlord on April 14, 2023. Trident and the individual guarantors may appeal this judgement although there can be no assurance that Trident or the individual guarantors will be able prevail in any such appeal. The Landlord may pursue a final order of the court at the completion of a trial or otherwise. If such final order is granted, then subject to any appeal or other action, the Landlord may pursue to enforce the final judgement.

Under the structure used for the lease and operations of the Simpsonville Facility, a subsidiary of Clearday, Inc., Tenant is the direct obligor under the lease and another subsidiary of Clearday, Trident, is a guarantor of the lease obligations. Neither Tenant or Trident have any material assets. We are assessing the exposure of these matters to Clearday, Inc. under these actions, including any liability under indemnification agreements with the individual guarantors. We are scheduling a mediation of this matter and expect to attempt to negotiate a settlement, including the amount and payment terms with the Landlord. Such settlement discussions may continue after any summary judgement against Trident and the individual guarantors. There can be no assurance that the Company will settle these actions on terms that are acceptable or at all.

Certain subsidiaries of the Company that operate hotel assets did not pay 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 certain periods from December 31, 2018, to December 31, 2021. 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 December 31, 2022, the amount of the estimated taxes, penalties, and interest, assuming that there is no waiver or mitigation of the penalties, is $261,000. The Company has accrued this amount in its audited consolidated financial statements as of December 31, 2022. We have met with the staff of the Internal Revenue Service with respect to this matter and believe that this subsidiary is entitled to additional tax credits and adjustments that would substantially reduce this liability. However, there can be no assurance that the Internal Revenue Service will agree that such credits and adjustments are available. Our audited consolidated financial statements as of December 31, 2022, do not accrue any amounts for such credits and adjustments.

In the fourth quarter of 2021, certain subsidiaries of the Company did not remit payroll taxes related to the Earned Retentions Tax Credit (“ERTC”). The ERTC program permitted an offset for such obligations and was terminated during the fourth quarter with an effective termination date of September 30, 2021. As a result, the Company has accrued $1,243,557 in such payroll taxes as of December 31, 2022. These subsidiaries have applied for certain tax credits, including ERTC and Families First Coronavirus Response Act. The Company expects to use such credits that will be applied to reduce these payroll tax liabilities.

Certain subsidiaries of the Company that operate our residential care communities have not paid employment related taxes such as required withholdings for federal income tax and employee and employer contributions for FICA (Social Security and Medicare) taxes, and federal and state unemployment tax from and after the payroll period that ended September 16, 2022. These subsidiaries have since made the appropriate filings with the Internal Revenue Service and the Company has accrued the amount of the underpayment in its audited consolidated financial statements as of December 31, 2022, of approximately $527,000, which amount does not include any taxes, penalties, and interest. We have met with the staff of the Internal Revenue Service with respect to this matter and believe that these subsidiaries are entitled to additional tax credits and adjustments that would substantially reduce this aggregate liability. However, there can be no assurance that the Internal Revenue Service will agree that such credits and adjustments are available. Our audited consolidated financial statements as of December 31, 2022, do not accrue any amounts for such credits and adjustments.

Certain subsidiaries of the Company that operate residential care facilities (“MCA Borrowers”) incurred certain financings through merchant credit advances. Such financings were provided by creditors under agreements (“MCA Agreements”) that describe the transaction as the sale of future receivables by the applicable MCA Borrower. The aggregate accrued amount of these financings is approximately $2,925,195, as summarized in Note 6 “Indebtedness.” Eight of these financing parties have commenced actions alleging, among other matters, a breach of the MCA Agreement for non-payment and a breach of the guaranty by the applicable guarantors. These actions demand monetary damages that, in the aggregate, are approximately $1,531,640, plus other costs, fees and certain other amounts.

These actions are

James Walesa is our Chief Executive Officer, and/or Christin Hemmens, is an officer of Clearday. Other than as set forth above, each of these actions are in the pleading or discovery stage of litigation. We cannot provide any assurance that we would prevail in any of these actions or that we would be able to settle any of these actions on favorable terms, if at all.

A mortgage lender for our Naples, Florida facility commenced an action for nonpayment of the mortgage note. The action is captioned A.AD.A, INC.; Anga Properties, LLC; Arce Holdings, LLC; Benfam Holdings LLC; Carolina Resources, LLC; Emilio Diaz SD Investment Account, LLC; Michael B. and Irma B. Goldstein; David J. Gonzalez; Hersab Holdings, LLC; Indocan Investment USA Corporation; Armando Navarro; Robbia Properties LLC; Shochat Holdings I LLC; and Wekwit, Inc. (collectively referred to as the Naples Lender) vs. MCA Naples, LLC, Case No. 11-2023-CA-000243-0001- flied in the Circuit Court in and for Collier County, Florida (the “Benworth Action”). This litigation arises from the nonpayment under the mortgage and promissory note. The Benworth Action demands payment of the principal amount of the promissory note of $4,550,000 together with default interest, late charges, costs advanced, insurance advances, attorney’s fees and costs and seeks the Final Judgment of Foreclosure and such further relief as the court deems just and proper. The Benworth Action also seeks the amount from James Walesa, our Chief Executive Officer, under the personal irrevocable and unconditional guaranty, in favor of Benworth Capital Partners, LLC, of the obligations of MCA Naples, LLC under the mortgage and promissory note.

We are negotiating a forbearance or similar agreement with the Naples Lender which we expect will include payments under the promissory note and the settlement of the other claims and costs. We believe that the fair value of the building and land are greater than the amounts owed under the mortgage. We may also seek to refinance the mortgage obligations to the Naples Lender with another lender. There is no assurance, however, that we would be able to agree to any forbearance or similar agreement or be able to refinance the property on terms that are acceptable or at all.

We have been threatened with litigation by the law firm Rigrodsky Law, P.A. alleging unjust enrichment in connection with shareholder litigation commenced by such firm related to the AIU Merger and claiming damages of $200,000. This law firm alleges that the complaint that was filed caused material supplemental disclosures. The Company is assessing these allegations and expects to respond appropriately.

Not applicable.

PART II

Market for Common Stock

Our common stock trades on the OTC Markets OTCQB under the symbol “CLRD”. The following table details the high and low closing prices for our Common Stock as reported by OTC Markets OTCQB for the periods indicated.

* The AIU Merger closed during this period. Prior to such closing, the stock price was that of Superconductor Technologies Inc.

The high and low prices during the first quarter of 2023 ended March 31, 2023, were $1.30 and $0.47, respectively.

Holders of Record

We had approximately 425 holders of record of our common stock on March 31, 2023. This number does not include stockholders for whom shares were held in a “nominee” or “street” name.

Dividends

We have never paid cash dividends and intend to employ all available funds in the development of our business. We have no plans to pay cash dividends soon. Our ability to declare or pay dividends on shares of our common stock is subject to the requirement that we pay an equivalent dividend on each outstanding share of our Preferred Stock (on an as-converted basis).

Sales of Unregistered Securities

The information regarding the sale of equity securities of the Company required by this item has been previously included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

Repurchases of Equity Securities

None.

Warrants

The Company has three separate types of warrants that are outstanding:

The following is a summary of such outstanding warrants at December 31 2022:

STI Warrants Prior to the AIU Merger Effective Date.

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

Lender Additional Remedy Warrants:

Each of the following warrants were issued in connection with a financing and provides that the warrant may only be issued upon an event of default under the related promissory note.

Lender Warrants:

Derivative Calculation

During the year ended December 31, 2022, the Company calculated the fair value of the warrants granted based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock on the date of issuance ranging from $0.81 to $0.82; risk-free interest rates ranging from 2.88% to 3.92%; volatility ranging from 130% to 132% based on the historical volatility of the Company’s common stock; exercise prices of $0.50; and terms of sixty months.

Stock Options

On December 31, 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 AIU 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 three and twelve months ended December 31, 2022. There were no stock options that were exercisable on December 31, 2022.

Restricted Stock

During 2022, we issued approximately 558,150 shares of our common stock to an institutional lender as additional fees for loans, 1,778,436 shares of common stock to our Chief Executive Officer in exchange for indebtedness we owed such individual and for $200,000 as stock-based compensation and approximately 334,345 shares of our common stock to third party consultants for services.

As of December 31, 2022, there was no unamortized stock compensation.

Equity of Subsidiary

Non-Controlling Interest

The AIU Alt Care Preferred stock and the Clearday OZ LP Interests accrue a preferred return of 10.25% per annum.

The exchange rate for each of the Alt Care Preferred Stock and the Clearday OZ LP Interests to Clearday, Inc. Common Stock is equal to (i) the aggregate investment amount for such security plus accrued dividends at 10.25% per annum, (ii) divided by 80% of the 20 consecutive day volume weighted closing price of the Common Stock of Clearday preceding the conversion date. Prior to the AIU 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.

Not applicable.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes many forward-looking statements. For cautions about relying on such forward-looking statements, please refer to the section entitled “Forward Looking Statements” at the beginning of this Report immediately prior to Item 1.

The following discussion should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this Report. Some of the information contained in this discussion and analysis, including information with respect to Clearday, its plans, and strategy for its business and related financing, includes forward-looking statements that involve risks and uncertainties.

Overview

We shifted our business strategy to provide technologies and innovative care solutions to address the global aging crises and be less focused on operating residential care facilities. We have used our extensive experience in senior care, including owning and operating high-performing residential care facilities in the most challenging senior care venues (Memory and Alzheimer’s treatment), to develop our purpose-built Longevity-tech platform for the 170 million Americans turning 50 by 2030. See “Recent Events.”

Prior to the first quarter of 2023, our business was primarily focused on providing care at four residential care facilities and one adult day care center and the development of our Longevity-tech platform.

The discussion in this Item 7 includes the conduct of businesses at three residential care facilities that as of the date of this Report we terminated. See “Recent Events.”

As of December 31, 2022, we operated four residential memory care facilities that are in three U.S. states and operated through our Memory Care America LLC (“MCA”) subsidiary. These facilities focus on treating residents suffering from any of the 25 forms of dementia that may be treated in a residential care facility, Alzheimer’s being the most common. We use our knowledge and our experience in treating dementia and other cognitive disorders to develop technology-enabled businesses, aligned to next-generation non-acute care and wellness services and products.

All of our long-lived assets are located in the United States and, during the year ended December 31, 2022, and 2021, respectively, all of our revenue was derived from within the United States.

Seasonality

Residential care facilities are seasonal in nature. Generally, residential care facilities suffer revenue losses in winter months as there is often an increase in the loss of residents during these periods primarily because of flu and other health issues during such periods.

Results of Operations

Our operating revenues during 2022 were predominately from our four residential memory care facilities and our adult day care center. MCA earns revenue primarily by providing services to individual residents for a specified monthly fee, which fee includes all services such as room, meals and programs and to a lesser extent, certain community fees for a resident to move into a facility. All of MCA’s revenues are “private pay” which are charged directly to the resident and paid by such individual’s family or administrator. Residents may terminate services upon advance notice of a specified period. A portion of our 2022 revenues were from our adult day care business. Our adult day care service earns revenues primarily by providing services to individual clients for weekday sessions, which includes activities. A part of our revenues includes reimbursements to veterans under a program by the United States Department of Veterans Affairs (VA).

Our operating expenses are primarily the expenses of our MCA facilities described below as well as the expenses that we incur in our other businesses including adult day care and our Longevity-tech platform.

These SG&A Expenses during 2022 were primarily insurance, interest expense, bank fees, equity-based compensation and audit and other professional fees.

Certain Key MCA Statistical Data for the Years ended December 31, 2022, and 2021:

The following table presents a summary of our operations of our residential care business for the years ended December 31, 2022, and 2021, which do not include corporate overhead or our innovative care businesses such as our Longevity-tech platform including our digital offerings and robotic services or our adult day care business:

MCA expenses are primarily related to the MCA facilities and providing care to the residents, including:

Revenues. Our MCA Facility revenues decreased by approximately 4.0% or $0.5 million to approximately $12.1 million during 2022 from approximately $12.6 million during 2021, primarily due to lack of revenues from the Simpsonville community which was included in 2021 until September 30, when we executed the facility, lower revenues in some of the facilities due to number of residents, offset by additional revenues during 2022 from our adult day care which we acquired at the end of May 2021, resulting in approximately seven months of revenues from this facility during 2021.

Operating Expense. Operating expenses decreased by approximately 13.0% or $2.6 million to $17.6 million during 2022 from $20.1 million during 2021. MCA Facility total operating expenses are primarily allocated to the MCA wages and benefits and MCA facilities operating expenses and MCA lease expenses., primarily due to (1) the reclassification of some operating expenses into Selling General & Administrative expenses (2) offset in part by the reduction of operating expenses because, in the fourth quarter, we transferred the operations and obligations of our Simpsonville facility resulting in our operating expenses for the Simpsonville facility were reduced to a specified limit during the last quarter of 2021, which did not including the rental expense which was included for the full annual period. As such, the decrease of operating expenses allocated to the Simpsonville facility reflected only the operating expenses such as compensation and insurance during the fourth quarter. MCA lease expenses also increased due to operations and related amounts.

Research & Development. We did not record any R&D expenses during 2022 or 2021.

Depreciation and amortization. Our MCA Facility consolidated depreciation and amortization expenses increased by approximately 31.95% or $0.61 million during 2022 from $0.46 million during 2021, primarily because of the increase in such expenses allocated to MCA facilities that were being given back to the landlord as we accelerated the depreciated the remaining asset.

Interest. Our consolidated interest expense increased by approximately 248.93% or $1.7 million to $2.4 million during 2022 from $0.68 million during 2021. Our interest expense is primarily allocated to the MCA, which amounts accounted for approximately 79% or $2.4 million of such expenses during 2022 compared to approximately 100% during 2021. The increase in MCA allocated interest is primarily due to our high interest loans financings that were incurred to fund operating expenses and the development costs for our innovative products and services in advance of amounts received from the Internal Revenue Service under the employee retention tax credit (“ERTC”) program which was delayed. The interest expense that was not allocated to MCA related primarily to the mortgage on our headquarters building and other real estate assets. The amount of interest expense does not include any accrual of interest for unpaid interest under the MCA Agreements, each of which are not being paid by us. See Item 3 Legal Proceedings.

Impairment. There was not any impairment taken during 2022 as compared to 2021 where we there was an impairment charge of approximately $7.4 million impairment on our operating facilities in New Braunfels, Texas and Simpsonville, South Carolina Impairment a non-cash expense and related solely to analysis required under GAAP for long lived assets as described in footnote 4 to our 2021 audited financial statements included in this Report.

Other (income) expenses. Our consolidated other (income) expenses decreased significantly by approximately $2.3 million primarily due to ERTC grants in 2021.

Gain on sale of investment. There was no gain on the sale of investments in 2022 as compared to 2021 where there was a gain recorded before the AIU Merger realized from the gain on sale of investment or $1,172,151 during 2021 that was recorded as other (income) expenses.

Revenues and Expenses Not Allocated to the Facilities:

Revenues. We did not have any material revenues during 2022 that we have not allocated to the Facilities.

Expenses Not Allocated to the Facilities: Our operating and other expenses that are not allocated to our Facilities, included the following:

Operating Expenses. Our consolidated operating expenses decreased by approximately 31.77% or $9.0 million during 2022 from $13.2 million during 2021. We increased our accounting and financial staff to lessen our reliance on accounting consultants. Selling, General and Administrative Expenses: Our selling, general and administrative expenses decreased by a net amount of approximately 93.08% or $0.12 million during 2022 from $1.8 milling during 2021. The decrease is primarily due to the fees paid to our financial consultant or investment banker that were paid in 2021.

Depreciation and Amortization Expenses: Depreciation and amortization expenses decreased approximately 27.53% or $0.14 million.

Other (Income) Expenses: Other income increased by a net amount of approximately $million, primarily because primarily due to gains recorded in the $1.6 million of debt extinguishment with AGP and the coupled with losses in our hotel and real estate and our Simpsonville Facility

SG&A Expenses. Our consolidated SGA Expenses decreased by approximately 32.3% or $5,002,720 million during 2022 from $7,393,834 million during 2021, primarily due to the Company accounting for certain expenses including those for corporate expenses incurred in the development of the Company’s Longevity-tech platform, as operating expenses during 2022 rather than SG&A expenses as our Longevity-tech platform became available for sale or license. There was also a significant reduction in accounting services, audit, and legal services as 2022 did not have such expenses related to the AIU Merger and the amount of such expenses related to the litigations related to the Simpsonville Facility described in Item 3.

We ceased operating our Simpsonville Facility as of September 30, 2021, and terminated the lease in August 2022. During the nine months ending September 30, 2022, we recognized an aggregate net loss attributable to the Simpsonville Facility of approximately $0.65, primarily due to the continued accrual of lease expenses related to this Facility in the amount of approximately $0.63 million, offset by other income related to employee retention tax credit (“ERTC”) for certain employees under the CARES Act. As disclosed in our Current Report on Form 8-K filed on September 15, 2021, we entered into an Operations Transfer, Interim Management and Security Agreement (the “Simpsonville Transfer Agreement”) with Brookstone Terrace of Simpsonville, LLC (“Brookstone”) and, as described in Note 7 “Commitments and Contingencies” to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, we terminated this lease with the landlord in connection with the settlement of a litigation. Until the date of such lease termination, we continued to accrue the lease expense. The base rent attributable to this Facility was 97,490 per month, subject to a 2% increase commencing June 1, 2022, offset by a $30,000 monthly credit under the Simpsonville Transfer Agreement payable by Brookstone that began on May 1, 2022.

Other Leased Facilities

As described under “Recent Events,” we terminated the leases of three of our Facilities, effective May 1, 2023.

Concentration of Risk—Revenues.

The Company’s revenue for the years ended 2022 and 2021 consisted of operations from our MCA residential facilities and our adult day care facility in four states (three states as of December 31, 2022). The Company expects to continue to be dependent on revenues from our remaining MCA community and our adult day care center until we can have revenues from our Longevity-tech platform. Any failure of our MCA community or adult day care center to continue these businesses would significantly and adversely impact the Company. The MCA revenues are primarily private pay and do not rely on reimbursements from Medicare or Medicaid. The Company expects that such concentration will continue until revenues are realized from its Clearday Clubs and our Longevity-tech planform.

The COVID-19 pandemic has slowed the ability of the Company to dispose of its remaining assets that are not related to its and lowered the expected price of such remaining assets.

Liquidity and Capital Resources.

Clearday requires cash to fund its current operations and continued innovation of non-acute care and wellness services. As of December 31, 2022, Clearday has an accumulated deficit of $(79,671,065) loss from continued operations of $(14,462,738) and losses from cash flows from operating activities in the amount of $(3,978,027).

Net cash from investing activities of continuing operations of $1,051,245 and net cash from financing activities was $2,157,345 due mostly to the proceeds from the sale of redeemable preferred shares and member units in subsidiaries.

We do not have sufficient cash resources from the net cash flows of operations from our current businesses to sustain our operations for the next twelve months and will rely on the continued sale of non-core assets, tax credits, government sponsored financing programs and related amounts, and raising capital through the sale of our securities. We expect to solicit additional capital as financing prior to the expected closing of the Viveon Merger or “bridge financing” and additional financing at the close or subsequent to the Viveon Merger closing. We are discussing terms with certain lenders for the bridge financing, although there can be no assurance that any such financing transactions will be consummated on the terms or timeframe currently contemplated, or at all.

The impact of the COVID-19 pandemic and any other public health emergency could continue to have a material adverse effect on Clearday’s business, results of operations, financial condition, liquidity and prospects in the near-term and beyond 2021. For example, during December of 2022 we temporarily suspended operations at our adult day care center due to COVID-19.

Clearday expects that the following factors will affect our future liquidity:

Change in our business strategy

We have pivoted our business strategy as described in Item 1 – Recent Events. This change in business has shed three of our residential care facilities that used more than $.114 during 2022 of net cash in operations. We expect that our business that is focused on our Longevity Care platform will have substantially less net cash flow needs compared to our residential care businesses.

We expect to pursue the following that will materially affect our liquidity and net cash flow needs:

COVID-19. The pandemic and the regulatory responses and additional initiatives have and will likely continue to have a material effect on Company’s facilities-based businesses and operations.

We expect to continue to monetize our remaining assets that are not related to our care businesses

Funding History.

Clearday has historically financed its operations primarily through the sale of its equity and debt securities in private placements. Clearday has incurred negative cash flows from operations. On December 31, 2022, Clearday had an aggregate amount of cash and restricted cash of $.2 and a deficit of $63.5 million.

Cash Flows.

The following table ($ in 000) shows a summary of Clearday’s cash flows for the years ended December 31, 2022, and 2021:

Operating Activities.

Net cash used in operating activities was $3.9 million for the year ended December 31, 2022, and $2.6 million for the year ended December 31, 2021. Net cash used in continuing operations for the year ended December 31, 2022 resulted from a net loss of $14.5 million adjusted for certain non-cash items including approximately:

Investing Activities.

Net cash provided by investing activities was $1 million for the year ended December 31, 2022, and net cash provided of $05. million for the year ended December 31, 2021. Net cash used for the year ended December 31, 2022, consists primarily of investment activities in payments for capitalized software costs of $1.9 million, $0.982 million in cash from sale of property & equipment.

Financing Activities.

Net cash provided by financing activities was $2.1 million for the year ended December 31, 2022, and net cash used of $3.2 million for year ended December 31, 2021. Net cash provided by financing activities for the year ended December 31, 2022, consisted primarily of net proceeds received from the new loans is $8.3 million (i) cash in-flow from the sale of preferred and member interests in non-controlling entity of $0 million; (ii) repayment of long-term debt in the amount of $4.8 million.

HHS Government Grants

The Company recognizes income for government grants when grant proceeds are received and the Company determines it is reasonably assured that it will comply with the conditions of the grant, the Company will recognize the distributions received in the income statement on a systematic and rational basis. The Company will estimate the fair value of the grant using the applicable HHS definitions of healthcare related expenses and lost revenue attributable to COVID-19, considering the Company’s projected and actual results at the end of each reporting period.

Upon conclusion that the Company is reasonably assured that it has met the conditions of the grant, it must measure the amount of unreimbursed health-care related expenses and lost revenue related to COVID-19 at the end of each reporting period and release that amount from Refundable Advance to Other Revenue. During the year ended December 31, 2022, the Company has received grants amounting to $0 and total grant received so far by the Company amounts to 675,868.

Contractual Obligations and Commitments.

See Note 7 “Commitments and Contingencies” of the audited consolidated financial statements within this Quarterly analysis, which information is incorporated herein by reference.

Legal Proceedings.

Clearday is subject to legal proceedings. The disclosures in this part of Management’s Discussion and Analysis of Financial Condition and Results of Operations are provided under Item 3 - Legal Proceedings.

Off-Balance Sheet Arrangements.

Clearday is not a party to any off-balance sheet transactions. Clearday has no guarantees or obligations other than those which arise out of normal business operations.

Cash and Restricted Cash.

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

Restricted cash as of December 31, 2022, and December 31, 2021, includes cash that Clearday deposited as security for obligations arising from property taxes, property insurance and replacement reserve Clearday is required to establish escrows as required by Clearday’s mortgages and certain resident security deposits.

Critical Accounting Policies and Significant Judgments and Estimates.

The preparation of the audited consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

For a description of the accounting policies that, in management’s opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgment or estimates were made, materially affect our reported financial position, results of operations, or cash flows, see “Management’s Discussion and Analysis of Financial Condition, Results of Operations – Critical Accounting Policies and Estimates” and the notes to our audited consolidated financial statements included in this Quarterly analysis.

During the years ended December 31, 2022, and 2021, there were no significant changes in our accounting policies and estimates other than the newly adopted accounting standards that are disclosed in Note 2 “Summary of Significant Accounting Policies” to our audited consolidated financial statements.

Impact of Climate Change.

Concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns. These and other laws may cause energy or other costs at The Company’s communities to increase. In the long term, the Company believes any such increased costs will be passed through and paid by the Company’s residents and other customers in higher charges for The Company’s services. However, in the short term, these increased costs, if material in amount, could materially and adversely affect the Company’s financial condition and results of operations.

Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change. Severe weather has had and may continue to have an adverse effect on certain senior living communities The Company operates. Flooding caused by rising seas levels and severe weather events, including hurricanes, tornadoes and widespread fires may have an adverse effect on the senior living communities the Company operates. The Company mitigates these risks by procuring insurance coverage. The Company believes adequate to protect the Company from material damage and losses resulting from the consequences of losses caused by climate change. However, the

The company cannot be sure that its mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on the Company’s financial results.

Market Risk

We are exposed to various market risks, including changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices. We do not enter into derivatives or other financial instruments for trading or speculation purposes. Our money market investments have no exposure to the auction rate securities market.

We are a “smaller reporting company,” and, accordingly, we are not required to provide the information required by this Item.

The consolidated financial statements required by this Item, together with the report of our independent registered public accounting firm, begin on page F-1, immediately following the signatures to this annual report. Please refer to Item 15 of this report for an index of the consolidated financial statements included in this annual report.

None

Disclosure Controls and Procedures; Changes in Internal Control Over Financial Reporting

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 our 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.

We instituted efforts to remediate these concerns and enhance our internal control environment, including increasing the number and skill set of its accounting and financial staff and reducing our reliance on third party accounting consultants. 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 been no 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 year ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None.

Not Applicable

PART III

Directors and Executive Officers

The following table sets forth certain information regarding those individuals currently serving as our directors (or nominated to serve as a director) and executive officers as of March 31, 2023:

Each of our directors was nominated based on the assessment of our Nominating Committee and our Board that he has demonstrated: an ability to make meaningful contributions to our Board; independence; strong communication and analytical skills; and a reputation for honesty and ethical conduct. Our Board consists of and seeks to continue to include persons whose diversity of skills, experience and background are complementary to those of our other directors.

James T. Walesa

Chair of the Board and Chief Executive Officer

Mr. Walesa has served as the Chairman of Clearday’s board of directors and its Chief Executive Officer since the closing of the AIU Merger. He has been the Chairman and CEO of AIU, now known as Clearday Operations, Inc., since its formation. Mr. Walesa has been part of the managers or otherwise active in the business of Clearday and its predecessors. Mr. Walesa has more than three decades of experience in financial services with an emphasis on the real estate, energy and care and wellness industries. In 1988, Mr. Walesa founded the Asset Management & Protection Corporation (AMPC), where he currently serves as its Principal, a position he has held since 1988. From September 4, 2019, to December 2021 (when he retired as a securities broker), Mr. Walesa was a registered representative with Arkadios Capital LLC, a SEC full-service broker dealer, resident in their office in Park Ridge, Illinois. After such retirement, Mr. Walesa directed his business activities to Clearday. Mr. Walesa previously served on the advisory board of Nasdaq-traded Bank Financial Corp. (Nasdaq: BFIN) and currently serves as a member of the board of directors of Gadsden Properties, Inc. (OTC PINK: GADS), and the chairman of the board of Citadel Exploration, Inc. (OTC PINK: COIL) and a member of the board of directors of SitePro, a private company. He was the Chicago chairman for the National Multiple Sclerosis Society and is a member of the Alzheimer’s Alois Society in recognition of his leadership and support of the Alzheimer’s Association to prevent and cure dementia related disease. Mr. Walesa received a B.S. in Business Administration from Rockford University. Mr. Walesa was selected to serve on the board of Clearday due to his expertise in the real estate industry and his investment and capital market experience. Mr. Walesa was a director and officer of Clearday when its subsidiary filed for bankruptcy protection during July 2019. Additionally, Mr. Walesa is the guarantor of certain indebtedness of the Company or its subsidiaries that are subject to litigation and judgements as described under “Description of Business—Legal Proceedings”.

Clearday believes that Mr. Walesa’s knowledge of the business of Clearday, including his relationship with the Clearday stockholders, his negotiation of the AIU Merger agreement and his knowledge of the longevity care and wellness market qualify him to serve as the Chairman of the board of directors of the combined company.

BJ Parrish

Director and Chief Operating Officer and Chief Financial Officer

Mr. Parrish has served as a member of Clearday’s board of directors and its Chief Operating Officer since the closing of the AIU Merger and the Interim Chief Financial Officer since November 2022. He has been the director and the Chief Operating Officer of AIU, now known as Clearday Operations, Inc., since its formation. Mr. Parrish has served as the Chief Financial Officer and Secretary of Cibolo Creek Partners, LLC, a Delaware limited liability company, (“Cibolo Creek”), since 2005 and a Director since 2013 and, in such capacity, was integral to the investment and operations of the businesses that were acquired by Clearday. Mr. Parrish is responsible for the financial management of Cibolo Creek and the investments of which it serves as general partner or manager. Mr. Parrish is also instrumental in the raising of capital through both the equity and debt markets for all of Cibolo Creek’s investment ventures. Prior to Cibolo Creek, Mr. Parrish served as the Vice President of Cibolo Creek’s predecessor company, Midland Red Oak Realty Inc. where he was involved in the formation of a $100 million credit facility, as well the acquisition and disposition of over $200 million worth of commercial real estate assets across the Southwest United States. Prior to Midland Red Oak Realty Inc., Mr. Parrish was a financial analyst and a manager of investor relations with Southwest Royalties, Inc., a privately held oil and gas exploration and production company. Mr. Parrish received a B.B.A. in finance and an M.B.A., both from the University of Texas Permian Basin. Mr. Parrish is also the Interim Chief Executive Officer and a member of the board of directors of Gadsden Properties, Inc. (OTC: GADS). Mr. Parrish was selected to serve on the board of GPI due to his expertise in the real estate industry and his investment and capital market experience. Mr. Parrish was a director and officer of Clearday when its subsidiary filed for bankruptcy protection during July 2019.

Clearday believes that Mr. Parrish’s knowledge of the business of Clearday, and his knowledge of the longevity care and wellness market as well as his leadership in the sale of the non-core assets qualify him to serve as a member of the board of directors of the combined company.

Elizabeth M. Caveness

Director

Beth Caveness has served as a director, the Chair of our Compensation Committee and a member of our Governance and Nominating Committee since the closing of the AIU Merger. Beth Caveness, in 2001, founded Village Pharmacy of Hampstead Inc., an independent pharmacy located in Hampstead, North Carolina. She grew the business to four pharmacies and sold these independent pharmacies. Dr. Caveness is active in advocacy and works on a state and national level to improve pharmacy. She is a member of National Community Pharmacists Association (“NCPA”), North Carolina Association of Pharmacists and Community Pharmacy Enhanced Services Networks and serves on the Independent Pharmacy Network committee of PillPAC, a political action committee for the NCAP and on the advisory board for the Pender County, North Carolina Health Department. Dr. Caveness received her B.S. Biochemistry from North Carolina State University in 1986, a B.S. Pharmacy from the University of North Carolina at Chapel Hill in 1990 and her PharmD. from the University of North Carolina at Chapel Hill in 2005.

Clearday believes that Dr. Caveness’ experience as a pharmacist of almost 35 years and her knowledge and advocacy of the evolutions in the businesses that provide pharmaceuticals, nutraceuticals and related products in the longevity care and wellness industry qualify her to serve as a member of the board of directors of the combined company.

Alan H. Channing

Director

Alan Channing has served as a director, member of our Audit Committee, member of our Compensation Committee, Chair of our Governance and Nominating Committee since the closing of the AIU Merger. Alan Channing became the principal officer of Channing Consulting Group, LLC following his retirement as President and CEO of the Sinai Health System, Chicago, Illinois, in 2014, a role he held for ten years. Sinai Health System, a safety net provider, is an integrated delivery system located on Chicago’s west side. Under Mr. Channing’s leadership, Sinai achieved national recognition for clinical quality, community engagement and benefit, addressing disparities and creating the concept of “pre-primary” care. Mr. Channing has been the CEO of several large teaching hospitals including Wishard Memorial in Indianapolis, Elmhurst Hospital Center in Queens, New York, and the renowned Bellevue Hospital Center in Manhattan. Channing has served as a resource to the Ohio Hospital Association, the Cleveland Center for Health Affairs, Greater New York Hospital Association and the Hospital Association of New York State. He has testified before the US Congress, the Ohio Senate, and both houses of the Illinois legislature. He served as chairman of the Illinois Hospital Association during a challenging legislative year and as board chairman of Family Health Network, a Medicaid managed care company. He serves as an advisor to several healthcare organizations including AVIA Health which focuses on digital transformation for healthcare providers; 330 Partners which advises Federally Qualified Healthcare Clinics (FQHCs) on strategy, partnerships, and operations; and Genesis Orthopedics & Sports Medicine, a Chicago based orthopedic practice. Mr. Channing is active in many charities. He is a member of the Board of Directors of Medical Home Network (MHN), a not-for-profit collaborative that unites provider communities and diverse healthcare entities around a common goal: to redesign healthcare delivery and transform the way care is managed at the practice level. MHN began by focusing on Maternal and Child Health on the West and South Sides of Chicago. From October 2015 to present is an Algebra and Trig tutor with the New York City Public Schools. Mr. Channing graduated in 1968 with a B.S. Engineering /Industrial Management from the University of Cincinnati and in 2001 with a M.S. in Hospital Management from The Ohio State University where he retains an assistant professorship.

Clearday believes that Mr. Channing’s experience and knowledge of approximately five decades in sophisticated hospital systems including his knowledge of the longevity care and wellness qualify him to serve as a member of the board of directors of the combined company.

Jeffrey A. Coleman

Director

Jeffrey A. Coleman has served as a director, a member of our Audit Committee and a member of our Governance and Nominating Committee since the closing of the AIU Merger. Jeffrey A. Coleman is an attorney with 20 years’ experience in litigation and transactional work with a focus on elder and geriatric issues. This work has seen him represent an array of clients in his field, including professional fiduciaries, businesses, lenders, and individuals. He has also represented businesses as general counsel, including work as general counsel for a publicly traded company, Citadel Exploration, Inc. In his role as general counsel of such company, he was responsible for risk analysis, negotiation, solving operational challenges, and successfully completing acquisitions and divestitures. Mr. Coleman graduated from the University of California at Santa Barbara with high honors in 1997 and received a J.D. from Fordham University School of Law in 2000.

Clearday believes that Mr. Coleman’s experience, including his role as the general counsel of a public company, and almost 20 years of legal experience qualify him to serve as a member of the board of directors of the combined company.

Richard Levychin, CPA, CGMA

Director

Richard Levychin has served as a director and Chair of our Audit Committee since his appointment on January 31, 2022. Richard Levychin is a Managing Partner in the Commercial Audit and Assurance practice of Galleros Robinson, Certified Public Accountants, LLP, a mid-sized CPA and Advisory firm with offices in New York, New Jersey, Florida, and the Philippines, where he focuses on both privately and publicly held companies. Prior to taking this position in October 2018, Richard was the managing partner of KBL, LLP, a PCAOB certified independent registered accounting firm, since 1994. Mr. Levychin has over 35 years of accounting, auditing, business advisory services and tax experience working with both privately owned and public entities in various industries including media, entertainment, real estate, manufacturing, not-for-profit, technology, retail, technology, and professional services. His experience also includes expertise with SEC filings, initial public offerings, and compliance with regulatory bodies. As a business adviser, he advises companies, helping them to identify and define their business and financial objectives, and then provides them with the on-going personal attention necessary to help them achieve their established goals. Mr. Levychin is a member of the Board of Directors of Pershing Resources Company, Inc. (OTCMKTS: PSGR) and a member of the Board of Directors and Chairperson of the Audit Committee of AgriFORCE Growing Systems Ltd. (NasdaqCM: AGRI).

Mr. Levychin has written articles on a wide range of topics, which have been featured in several periodicals including Dollars and Sense, New York Enterprise Report, Black Enterprise Magazine, Forbes, Business Insider, and The Network Journal. He has also conducted seminars on a wide range of business topics including SEC matters and taxation for several organizations including the Black Enterprise Entrepreneurs Conference, the Entrepreneurs’ Organization (New York chapter) and the Learning Annex. Mr. Levychin is a member of several organizations including the New York State Society of Certified Public Accountants, the National Association of Tax Professionals, and the American Institute of Certified Public Accountants (AICPA). Richard was a founding member of the AICPA’s National Diversity and Inclusion Commission. He has also served as a member of the Governing Council of the AICPA, which is the governing body that oversees and sets policies for the AICPA. Richard is a member and a former board member of the New York Chapter of the Entrepreneurs’ Organization (“EO”), a dynamic, global network of more than 14,000 business owners in over 50 countries.

In 2018 Mr. Levychin was a recipient of the 5 Chamber Alliance MWBE Award from the Manhattan Chamber of Commerce. In 2016 Richard was presented with the 2016 Arthur Ashe Leadership Award. In 2015 Richard was presented by his alma mater Baruch College with the Baruch College Alumni Association’s “Alumni Leadership Award for Business”. In 2013 Richard received the title of Best Accountant from The New York Enterprise Report. Mr. Levychin is a past winner of The Network Journal’s prestigious “40 Under 40” award.

He is a graduate of Baruch College, where he received a Bachelors in Business Administration Degree (Accounting).

We have determined that Mr. Levychin is well suited to serve on our Board and chair our Audit Committee due to his decades of experience as a member of a PCAOB certified independent registered accounting firms, including decades of expertise with SEC filings and public offerings.

John R. Bergeron, CPA

Independent Contractor Former Chief Financial Officer

John Bergeron served as our Executive Vice President and Chief Financial Officer since December 8, 2021 through November 23, 2022. In such a capacity, he is our principal financial and accounting consultant. Mr. Bergeron provided consulting services to us during November and December 2021. Mr. Bergeron was also the Chief Financial Officer of Spine Injury Solutions, Inc., since October 2011 and one of their directors since July 2010 until the date that such company was sold, March 30, 2022. From May 2008 through September 2014, he served as President of Jolpeg Inc., a private firm that consults on financial matters in service industries. From May 2002 until May 2008, Mr. Bergeron served as Divisional Controller of Able Manufacturing, a division of NCI Group, Inc, where his responsibilities included financial reporting, budgeting and Sarbanes-Oxley Act compliance. Prior to that, Mr. Bergeron worked as controller of different internet companies and as an accounting manager for several other private firms. He has also worked as an auditor for Arthur Andersen. Mr. Bergeron has more than thirty years’ experience in financial management and corporate development of manufacturing and service industry companies. He has extensive experience in financial reporting of public companies, risk management, business process re-engineering, and structuring and implementing accounting procedures and internal control programs for Sarbanes-Oxley Act compliance. Mr. Bergeron is a Certified Public Accountant. He received a Bachelor of Business Administration in Accounting from Lamar University in 1979.

Linda L. Carrasco

Executive Vice President and President Memory Care America LLC

Ms. Carrasco has served as our Executive Vice President since the closing of the AIU Merger and has served as the President of our subsidiary MCA, Clearday’s residential memory care facility business, since July 2019, when she was promoted to that position from the Executive Director of the MCA’s Westover Hills, Texas facility, a position she held since June 2015. Prior to joining Clearday, Ms. Carrasco was the Executive Director—Sales specialist of Emeritus Senior Living in San Antonio, Texas and Oklahoma. Ms. Carrasco has more than 35 years of experience in skilled care residential facilities, including a license social worker (LBSW) for Town and Country Manor Nursing and Rehabilitation from 2010 to 2011, and Executive Director and Marketing Director of Asista Corporation from 1998 to 2010, and Manager and Regional Manager of Texas and Arizona of Southwest Health Management from 1994 to 1998. Ms. Carrasco holds a B.S. from Southwest Texas State University and holds the Assisted Living / Personal Care Management Certificate License, the Texas State Board of Social Workers Examiners Licensed Baccalaureate and is a Certified/Qualified Activities Director.

Richard M. Morris

Executive Vice President and General Counsel

Richard M. Morris has served as Clearday’s Executive Vice President and General Counsel since the closing of the AIU Merger and served in such capacity for AIU, now known as Clearday Operations, Inc., since January 1, 2020. Mr. Morris has been our lead executive in the development of our joint ventures including the development of our robotic services platform and is responsible for the significant decrease of our legal fees and related expenses. While serving as Clearday’s General Counsel since January 2020, Mr. Morris continues to practice law as a partner of Wilson Williams LLC, a corporate transaction boutique firm in its New York City office. Mr. Morris has been practicing attorney since 1990, including being a corporate partner with Herrick, Feinstein LLP, New York from 2002 to 2018 where he focused on securities and other regulatory matters; and as a Corporate partner with Allegaert Berger & Vogel LLP, New York, New York, since November 2018 to January 2020. In such positions with law firms, Mr. Morris was Clearday’s primary corporate and transaction counsel. Prior to becoming a lawyer, Mr. Morris was an auditor with the Commodities Exchange, Inc. in New York and later focused on operations and financial management at Kidder Peabody & Co. He also was the U.S. Audit Manager for the financial division for a diversified Australian company. Mr. Morris has a B.S. in Accounting from New York University (1982) and a J.D. from Fordham University School of Law (1990), with bar admissions in New York and Connecticut.

Gary Sawina

Executive Vice President and Director of Real Estate Operations

Mr. Sawina has served Clearday as its Executive Vice President and Director of Real Estate since the closing of the AIU Merger and has served in such position for AIU, now known as Clearday Operations, Inc., since its formation. In such capacity is the officer that oversees all aspects of the development of Clearday’s real estate including the renovation of 8800 Village Drive, the design and build out spaces for Clearday’s Adult Day Care centers and management of all of Clearday’s MCA and hotel facilities. Mr. Sawina has directly overseen the management of numerous new construction projects ranging from $42 million to $500 million in capital expenditures. In response to the pandemic, Mr. Sawina designed retrofits for the hotel properties so that rooms may be efficiently converted to negative pressure rooms. Mr. Sawina is a Las Vegas native and has had a career in gaming and hospitality of more than 40 years with senior positions. He held several gaming licenses, including Level 1 Gaming License—Nevada from 1990 to 2000; Level 1 Gaming License—Louisiana from 2002 to 2004; Level 1 Gaming License—Indiana from 2004 to 2010; and Owner’s Liquor License—Clark County, Nevada from 1999 to 2001. Mr. Sawina holds his B.S. in Business and Hotel Administration from University of Nevada, Las Vegas (1979).

Corporate Governance Policies and Practices

The following is a summary of our corporate governance policies and practices:

Board Leadership Structure and Role in Risk Oversight

Our Board is involved in overseeing our risk management through our Audit Committee. Under its charter, our Audit Committee is responsible for inquiring with management and our independent auditors about significant areas of risk or exposure and assessing the steps management has taken to minimize such risks.

Stockholder Communications with Directors

Stockholders who want to communicate with our Board or with a particular director or committee may send a letter to our Secretary at Clearday, Inc, 8800 Village Drive, 2^nd Floor, San Antonio, Texas 78217. The mailing envelope should contain a clear notation indicating that the enclosed letter is a “Board Communication” or “Director Communication.” All such letters should state whether the intended recipients are all members of our Board or just certain specified individual directors or a specified committee. The Secretary will circulate the communications (except for commercial solicitations) to the appropriate director or directors. Communications marked “Confidential” will be forwarded unopened.

Attendance at Annual Meetings of Stockholders

We expect all our Board members to attend our annual meetings of stockholders in the absence of a showing of good cause for failure to do so.

Board Meetings and Committees

During 2022, each of our directors attended at least 90% of the aggregate of (i) the total number of Board meetings and (ii) the total number of meetings of the committees on which the director served.

Board of Directors

Our Board has three standing committees: an Audit Committee established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934 (our “Audit Committee”), a Compensation Committee (our “Compensation Committee”) and a Governance and Nominating Committee (our “Nominating Committee”). Our Audit Committee, Compensation Committee and Nominating Committee each have a charter, which is available at the “Corporate Governance” section under the “Investors” tab on our website at www.myclearday.com.

Audit Committee

The principal functions of our Audit Committee are to hire our independent public auditors, to review the scope and results of the year-end audit with management and the independent auditors, to review our accounting principles and our system of internal accounting controls and to review our annual and quarterly reports before filing them with the SEC. The current members of our Audit Committee are Mr. Levychin (Chairman), Mr. Channing and Mr. Coleman.

Our Board has determined that all members of our Audit Committee are “independent” as defined under the rules of the SEC. Our Board has determined that Mr. Levychin is an “audit committee financial expert.”

Compensation Committee

Our Compensation Committee reviews and approves salaries, bonuses and other benefits payable to our executive officers and administers our management incentive plan. Our Compensation Committee makes all compensation decisions with respect to our Chief Executive Officer and makes recommendations to our Board regarding non-equity compensation and equity awards to our other named executive officers (set forth below under “Executive Compensation—Summary Compensation Table”) and all other elected officers. In doing so, with respect to named executive officers other than the Chief Executive Officer, our Compensation Committee generally receives a recommendation from our Chief Executive Officer and other officers as appropriate. Our Chief Executive Officer also generally recommends the number of options or other equity awards to be granted to executive officers, within a range associated with the individual executive’s salary level and presents this to our Compensation Committee for its review and approval.

Our Compensation Committee uses available data to review and compare our compensation levels to market compensation levels, taking into consideration the other companies’ size, the industry, and the individual executive’s level of responsibility, as well as anecdotal data regarding the compensation practices of other employers. We do not annually benchmark our executive compensation against a defined peer group, since we believe that defining such a group is difficult and would not materially affect our decisions. Our Compensation Committee does not generally hire an outside consulting firm to assist with compensation, as we believe that the value of doing so is exceeded by the costs. No compensation consultant was engaged to provide advice or recommendations on our executive or director compensation for 2022.

Our Compensation Committee also reviews the compensation of directors and recommends to our Board the amounts and types of cash to be paid and equity awards to be granted to our directors.

The current members of our Compensation Committee are Ms. Caveness (Chair), and Mr. Channing. Our Board has determined that all members of our Compensation Committee are “independent” as defined under the rules of the SEC. Our Compensation Committee will only delegate its authority to the extent consistent with our certificate of incorporation and bylaws and applicable laws, regulations and listing standards.

Our Compensation Committee created the Stock Option Committee (our “Stock Option Committee”) consisting of two members—our Compensation Committee Chair and the Chief Executive Officer. The purpose of our Stock Option Committee is to facilitate the timely granting of stock options in connection with hiring, promotions and other special situations, and therefore our Stock Option Committee meets only periodically as certain events occur. Our Stock Option Committee is empowered to grant options to non-executive employees up to a preset annual aggregate limit. The Stock Option Committee did not meet during 2021. Our Compensation Committee supervises these grants and retains exclusive authority for all executive officer grants and the annual employee grants. The current members of our Stock Option Committee are Ms. Caveness (Chair) and Mr. Walesa.

Governance and Nominating Committee

Our Governance and Nominating Committee is responsible for overseeing and, as appropriate, making recommendations to our Board regarding, membership and constitution of our Board and its role in overseeing our affairs. Our Governance and Nominating Committee is responsible for proposing a slate of directors for election by the stockholders at each annual meeting and for proposing candidates to fill any vacancies. Our Governance and Nominating Committee is also responsible for the corporate governance practices and policies of our Board and its committees. The current members of our Governance and Nominating Committee are Mr. Channing (Chair), Ms. Caveness and Mr. Coleman. Our Governance and Nominating Committee met one time in 2022. Our Board has determined that all members of our Governance and Nominating Committee are “independent” as defined under the rules of the SEC.

Our Governance and Nominating Committee manages the process for evaluating current Board members at the time they are considered for re- nomination. After considering the appropriate skills and characteristics required on our Board, the current makeup of our Board, the results of the evaluations, and the wishes of our Board members to be re-nominated, our Governance and Nominating Committee recommends to our Board whether those individuals should be re-nominated.

Our Governance and Nominating Committee periodically reviews our Board whether it believes our Board would benefit from adding a new member(s), and if so, the appropriate skills and characteristics required for the new member(s). If our Board determines that a new member would be beneficial, our Governance and Nominating Committee solicits and receives recommendations for candidates and manages the process for evaluating candidates. Our considerations for board members are described in the Report under “Human Capital-Board Members.”

AUDIT COMMITTEE REPORT

The information contained in this Audit Committee Report shall not be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing (except to the extent that we specifically incorporate this information by reference) and shall not otherwise be deemed “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934 (except to the extent that we specifically request that this information be treated as soliciting material or specifically incorporate this information by reference).

Our Audit Committee reviews our financial reporting process on behalf of our Board. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal controls. Our Audit Committee has reviewed and discussed the audited financial statements with management. In addition, our Audit Committee has discussed with our independent registered public accounting firm the matters required to be discussed by Statements on Public Company Accounting Oversight Board Auditing Standard No. 16 “Communications with Audit Committees”.

Our Audit Committee has also received the written disclosures and the letter from our independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding their communications with the audit committee concerning independence, and has discussed with them their independence, including whether their provision of other non-audit services to us is compatible with maintaining their independence.

Our Audit Committee discussed with our independent registered public accounting firm the overall scope and plans for the audit. Our Audit Committee meets with them, with and without management present, to discuss the results of their examinations, the evaluation of our internal controls and the overall quality of our reporting.

Based upon the review and discussions referred to in the foregoing paragraphs, our Audit Committee recommended to our Board that the audited financial statements be included in our Annual Report on Form 10-K for 2021 for filing with the Securities and Exchange Commission.

Summary Compensation Table

The following table sets forth for the annual periods ending December 31, 2022, and 2021 the base salary and other compensation of our (i) President and Chief Executive Officer and (ii) our other two most highly compensated officers for 2022 (our “named executive officers”):

Narrative Disclosure to Summary Compensation Table

Employment Agreements

We do not have any employment agreements with any of our current executive officers other than the Officer Agreements with our prior executives. We had an employment agreement with our prior Chief Financial Officer, which is described in the AIU Merger Registration Statement and is no longer in effect.

Non-Equity Incentive Compensation

We maintain a bonus plan for executive officers and selected other members of senior management that was created by STI and which we will continue. Under the plan, our Compensation Committee establishes financial and other pertinent objectives for the period and assigns each executive officer an annual target bonus amount based on a percentage of his or her base salary, which ranges from 20% to 100%. Our Compensation Committee also retains the authority to award discretionary bonuses for performance in other aspects of the business not covered by the established goals. In December 2017, our Compensation Committee decided, based on then-current economic conditions, to not establish financial performance targets under this plan and to not award cash bonuses based on financial objectives going forward. Our Compensation Committee did reserve the right to award discretionary bonuses if appropriate; however, no bonuses were awarded for 2022 or 2021 under this plan.

Equity Grants

During 2022 and 2021, we issued restricted stock to our executive officers as disclosed under the Summary Compensation Table, above.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information with respect to outstanding options and unvested shares of restricted stock on December 31, 2022: There are no options outstanding at December 31, 2022.

Option Awards Stock Awards

All the stock options that have been issued to the STI executives under a stock option plan have expired. There are no options that have been issued by Clearday or STI that are outstanding.

Non-employee Director Compensation Table

The following table summarizes the compensation paid to our non-employee directors during 2022: