CLEARDAY, INC. 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
31 Overview
We are a health care services company focused on servicing the largest demographic in the country - the older care consumer market, which we define as adults that are 50 years of age or older. We provide a full care spectrum of care for older Americans through:
? Our foundational business, that includes our four residential memory care
facilities that are located in three states; and one adult day care center; and
? Our Clearday Labs that develops and brings to market innovative non-acute care
and wellness solutions intended to disrupt the traditional long-term care
model. We have developed:
? Clearday Restore, our proprietary sensory therapy that combines light, sound
and aromas designed to reduce anxieties in older Americans which have
successfully used in our facilities for more than two years;
? Clearday at Home, our proprietary digital service, during 2020 as response to
COVID-19, launched through consumer and business to business (B2B) sales
channels and through our facilities;
? Robotic services through our strategic alliance with a robotic developer and
manufacturer;
? Clearday Therapeutic Streams, our proprietary service that provides guidance
to care givers as to specific issues such as assisting with activities of
daily living, for example sundowning, during 2021; and
? STI cryocooler technologies to develop our cryogenic air quality system that
removes particulates and volatile organics (which effectively sterilizes the
internal atmosphere), reduces CO2 (carbon dioxide), and regulates humidity,
by condensing or freezing the air in interior built spaces in a system that
can easily integrate with HVAC systems.
? Non-Acute Care and Wellness, isClearday's operating business including: -Clearday's innovative non-acute care and wellness services and products, including a virtual service delivered through digital channels (Clearday at Home), and adult day care (Clearday Clubs ); -Clearday's existing residential communities; - Further development and commercial sales of products and services throughClearday Labs , including robotic technologies; - Commercialization of its advanced air quality products; and - All ofClearday's general and administrative and research and development functions. ? Non-Core Assets and Related Businesses, which includes all of our assets that are held for disposition.
All net proceeds from dispositions of the non-core assets and related businesses
have been used by
Our four residential memory care facilities are located in three
All of our long-lived assets are located in
Seasonality
Our 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 flu and other health issues during such periods.
Results of Operations
Our operating revenues come 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 2021
revenues were from our adult day care business. Our adult daycare 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
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 digital platform.
SG&A Expenses. Certain costs and expenses incurred by the Company are accounted for as Selling, General & Administrative Expenses ("SG&A"), including costs and expenses that are summarized below, which we expect will not be incurred at the same level or amount. Because we do not expect to incur the same level of the costs and expenses that are summarized below, we believe that disclosure of such amounts would be useful to the analysis of our financial statements.
These SG&A Expenses during 2021 include:
(1) Development costs and expenses for the innovative services, including
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(2) Accounting and finance expenses related to the merger and becoming a public
company, which primarily consisted of accounting and consulting fees incurred to
improve the accounting and finance department, the additional consulting fees
regarding the audit and preparation of our financial statements. For the year
ended
(3) Equity based compensation, which primarily consisted of restricted stock
grants and warrants to the Company's executives and third-party consultants. For
the year ended
(4) Lease Disputes, which primarily consisted of legal and related costs in
connection with the
(5) Investment Banking Fees. We paid our financial consultant
The following summarizes the adjustments summarized above:
Selling, General
and Administrative Expense Amount
Total per 2021 Audited Financial Statements $ 7,393,834 Adjustments:
Development costs and expenses for the innovative services 573,000 Accounting and finance consulting expenses
815,000
Equity based compensation 689,776
Lease Dispute 160,000
Investment banking fees for the AIU Merger 2,600,000
Total adjustments 4,837,776
Adjusted 2021 Selling, General and Administrative Expenses
Certain Key MCA Statistical Data For the year ended
The following table presents a summary of our operations of our residential care
business for the year ended
Year ended, Increase/(Decrease)
December December
31, 2021 31, 2020 Amount Percent
Revenues:
MCA Resident
Facilities $ 12,603,346 12,594,909 8,437 0.07 %
Operating
expenses:
Wages and
benefits 9,276,098 8,636,227 639,871 7.41 %
MCA facility
operating
expenses 5,553,826 5,086,510 467,316 9.18 %
Lease expenses
(1) 4,885,958 4,545,660 340,298 7.49 %
Depreciation and
amortization 465,089 542,427 (77,388 ) (14.26 )%
Total operating
expenses 20,180,971 18,810,824 1,370,147 7.35 %
Operating loss (7,577,625 ) (6,215,915 ) (1,361,710 ) (21.9 )%
Other (income)
expenses
Interest 689,211 472,954 216,257 45.72 %
Impairment(2) 4,396,228 - 4,396,228 100.00 %
Other (income)
expenses(3) (4,505,496 ) (169,751 ) (4,335,745 ) (2,554 )%
Total
other/(income)
expenses 579,943 303,203 276,740 91.27 %
Net Loss (8,157,568 ) (6,519,118 ) 1,638,450 (25.13 )%
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(1) Lease expenses includes the accrual of rent and related amounts that have not
been paid to the lessor of the
dispute described in Item 3 - Legal Proceedings based on the amounts stated
in the applicable lease agreement.
(2) Impairment of Right of Use assets (leases) in New Braunfels , Naples , and
(3) Other (income) expense includes the amount arising from the forgiveness of
PPP loans, HHS grants and ERTC credits received.
MCA expenses are primarily related to the MCA facilities and providing care to the residents, including:
? wages and benefits, including wages and wage-related expenses, such as health
insurance, workers' compensation insurance and other benefits for the Company
MCA employees, including MCA management;
? MCA facility operating expenses, including utilities, housekeeping, dietary,
maintenance, regulatory requirements, insurance and administrative costs and
salaries, including the compensation to persons who develop, market and
provide our innovative products and services;
? lease expenses for four of the five MCA facilities;
? other general and administrative expenses, principally comprised of general
management including the Company's headquarters, general insurance, legal,
accounting and investments in technology;
? depreciation and amortization expense on buildings and furniture and
equipment;
? interest expenses for loans and other financings related to the MCA
businesses, including loans to one lessor of three of the MCA facilities and
the mortgage financing of the one owned MCA facility; and
? Other expenses for the development of technology used in supporting operations
and next generation of tech-enabled non-acute care and wellness solutions.
Revenues. Our consolidated revenues increased by approximately 1.8% or
Operating Expense. Our consolidated operating expenses increased by
approximately 24.2% or
SG&A Expenses. Our consolidated SGA Expenses increased by approximately 34.0% or
Research & Development. Our consolidated research and development expenses
decreased by approximately 100% or
Depreciation and amortization. Our consolidated depreciation and amortization
expenses decreased by approximately 11.9% or
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Interest. Our consolidated interest expense increased by approximately 192.12%
or
Impairment.The amount of impairments required under GAAP increased by 100% or
4,396,228 primarily to our MCA facilities in
Other (income) expenses. Our consolidated other (income) expenses increased
significantly by approximately 2,554% or
Gain on sale of investment. The amounts related to gain on sale of investment or
Unrealized gain/(loss) on equity investments. The amounts related to unrealized
gain/(loss) on equity investments of
Concentration of Risk-Revenues.
The Company's revenue for the year ended 2021 and 2020 consist of operations
from our MCA residential facilities and our adult daycare facility in four
states (three states as of
Non-Core Assets
The Company considers all its assets that are not used in the non-acute care and
wellness industry as non-core assets. The non-core assets as of
? One hotel property that suspended its operations since March, 2020 due to
COVID-19 and which was sold on October 1, 2021 ;
? Commercial real estate investments; and
? Investments in land.
The Company continues to evaluate the manner to sell or otherwise monetize such
assets. One of our land investments is subject to a purchase and sale agreement
for its sale that was entered into as of
Disposition Activities
During the year ended
? Transferred one hotel property to the lender; ? Sold one other hotel property; and ? Sold our investment in a medical office building. 35
The COVID-19 pandemic has slowed the ability of the Company to dispose of its remaining non-core assets and lowered the expected price of such remaining assets. The Company recently has received an offer to sell one of its non-core assets, an investment in land, and expect to continue its efforts to sell its non-core assets to fund its operations.
During 2022, we entered into an agreement to sell one of our non-core assets,
land located in
Revenues of the Non-Core Assets.
The Company primarily derived revenues from Non-Core Assets from rents and related charges.
Liquidity and Capital Resources.
Net cash from investing activities of continuing operations of
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.
The impact of the COVID-19 pandemic could continue to have a material adverse
effect on
? Operating revenues are expected to be affected, primarily because of
- Our ability to increase residents through increased sales efforts and
increased capacity as regulators are re-evaluating the number of beds
required for COVID-19 and related quarantine areas;
- Increased revenues from adult daycare, including a full year of revenues from
our acquired adult daycare facility;
- Our ability to increase revenues by providing certain additional products and
services to residents, and clients through our Clearday Direct program,
including our robotic service that we have begun to deploy in our Westover
facility in April, 2022.
? Operating costs are expected to be affected, primarily because of:
- Our ability to reduce the staff to resident ratios in the post-COVID-19
environment and that our Clearday Clubs require less staff to client ratio;
- Our ability to reduce staff turnover through better training and recruitment;
- The expiration of the Employee Retention Credit under the CARES Act,
- Increased pressures on wages and agency fees due to industry staffing
shortages;
- Additional interest expenses related to our high interest loans that we have
incurred during 2022, offset in part by expected refinancing of certain
mortgages and debt and the receipt of other financings such as SBA sponsored
programs and additional amounts that we expect to receive through tax
credits;
- Reduced operating expenses related to our Simpsonville memory care facility.
? Selling and general administrative costs will be effected and are expected to
decrease, primarily because:
? We expect to reduce our reliance on consultants that have a higher cost than
its employees that have assumed such functions and work; and
? The significant product development costs that are recorded as operating
expenses are expected to remain consistent or be lower as the Clearday at
Home and Clearday Clubs business models, strategies and marketing plans have
been developed.
Improved because of no merger costs We will have additional costs and expenses
incurred in the merger, including fees to our financial advisor and costs
generally of being a public company.
36 MCA Initiatives.
As business operations for residential care facilities began to normalize in the COVID-19 environment, we continued our evaluation of our businesses. We expect to:
? Continue our sales and marketing training to maintain and increase resident or
census occupancy percentages per available room in our facilities maintained
after December 31, 2021 ;
? Increase revenues per resident through the sale of innovative products and
services, including upgraded or premium Clearday rooms and digital and robotic
services, as well as other revenue opportunities;
? Use innovative services such as digital platforms and robotic service to
empower and enhance caregiver efficiency and effectiveness which are intended
to reduce employee / caregiver stress and turnover.
During the latter part of the third quarter of 2021, MCA began marketing its
"Calm Rooms" initially at our
COVID-19. The pandemic and the regulatory responses and additional initiatives have and will likely continue to have a material effect to Company's core businesses and operations.
Funding History.
Cash Flows.
The following table ($ in 000) shows a summary of
Year ended December 31,
2021 2020
Net cash used in operating activities of
continuing operations $ (11,832,919 ) (8,977,189 )
Net cash used in operating activities for
discontinued operations 9,222,731 (837,446 )
Net cash used in operating activities (2,610,188 ) (9,814,636 )
Net cash used in investing activities of
continuing operations (493,451 ) (353,104 )
Net cash provided by investing activities of
discontinued operations - 16,101,584
Net cash provided by investing activities (493,451 ) 15,748,480
Net cash provided by financing activities of
continuing operations - 4,884,808
Net cash used in financing activities of
discontinued operations 3,208,648 (13,512,806 )
Net cash (used)/provided in financing activities 3,208,648 (8,627,998 ) Net (decrease)/Increase in cash and restricted cash
$ 84,394 (2,694,155 )
We expect that our net cash flow will be subject to the same adjustments that we discussed above under Results of Operations - SG&A Expenses.
Operating Activities.
Net cash used in operating activities was
37 Investing Activities.
Net cash provided by investing activities was
Financing Activities.
Net cash provided by financing activities was
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 health care 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 AIU 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
Contractual Obligations and Commitments.
See the "Commitment and Contingencies" section within Note 7 of the audited consolidated financial statements within this Quarterly analysis, which information is incorporated herein by reference
Legal Proceedings.
Off-Balance Sheet Arrangements.
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
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.
38
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 year ended
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 damages and losses resulting from the consequences of losses caused by climate change. However, the
Company cannot be sure that its mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on the Company's financial results.
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.
At
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a "smaller reporting company," and, accordingly, we are not required to provide the information required by this Item.
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