CLEARDAY, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and related notes included elsewhere
in this Report. Some of the information contained in this discussion and
analysis including information with respect Clearday, its plans, and strategy
for its business and related financing, includes forward-looking statements that
involve risks and uncertainties. References in this Item 2 to AIU refers to the
business of Allied Integral United, Inc. that was continued after the AIU
Merger, unless otherwise indicated. The following discussion uses the term
Clearday to mean the business and operations of AIU prior to the AIU Merger
together with certain businesses of Superconductor continued after the merger,
unless otherwise indicated.




General Industry Trends.



The Company’s strategy is to provide innovative non-acute care and wellness
solutions that disrupt the traditional senior care model primarily virtually
through digital channels with its Clearday at Home service, that it developed
during 2020 and launched in the first quarter of 2021 through consumer and
business to business (B2B) sales channels, and through its facilities. The
Company owns and operates four residential memory care facilities and an adult
day care center that are located in three U.S. states, under the Company’s
subsidiary, Memory Care America or “MCA”. The MCA facilities focus on treating
residents suffering from any of the 25 forms of dementia that may be treated in
a residential care facility, Alzheimer’s being the most common. The Company uses
its knowledge and its experience in treating dementia and other cognitive
disorders to develop technology-enabled businesses, aligned to next-generation
non-acute care and wellness services and products, including adult day care and
home care products and services.

During the nine months ended September 30, 2022, we continued developing the
next generation of tech-enabled non-acute care and wellness solutions, including
the deployment and development of robots through its previously announced joint
venture. As of the date of this Report, we offer robotic services that focus on
engagement and assist staff or caregivers. The robotic services provide enhanced
care to residents through a range of engagement focused applications, including
our proprietary streaming services, games, music and other digital services. The
robotic services also include safety services such as fall detection, assisting
in rounding and alerts to staff. We have begun marketing the robots to third
parties for use in their residential care facilities and to others for home care
applications to diversify and expand our revenue streams. One market for use of
our robotic services is skilled nursing care facilities, which may have access
to a variety of funding sources, including government reimbursement programs, so
for the purchase or rental of our Mitra Robot and related services. We believe
that robotic services enable care to move from the traditional 1:1 ratio (a
caregiver providing services to one person at a time) to a 1:many ratio (a
caregiver providing services to more than one person at a time, while continuing
to provide excellent care). We are also continuing improvements to our
residential care facilities with our Clearday Stay rooms that provide premium
furnishings and services. We believe that market for robotic services should
continue to expand as industry participants continue to use and leverage
technology for long term care and governments continue to evaluate the funding
of innovative technologies, such as the legislation recently introduced in the
U.S. Congress, the Innovative Cognitive Care for Veterans Act of 2022, that
would provide funding to the Veterans Administration for a pilot program to use
innovative care. We are also supporting our marketing of robotic services by
adding sales focused executives. Additionally, we expect to work with a leading
public university academic health center to study the benefits of our robotic
services with patients at home challenged by geriatric syndrome, a term that is
often used to refer to common health conditions in older adults that do not fit
into distinct organ-based disease categories and often have multifactorial
causes, including conditions such as cognitive impairment, delirium,
incontinence, malnutrition, falls, gait disorders, pressure ulcers, sleep
disorders, sensory deficits, fatigue, and dizziness. We are currently
negotiating the terms of a memorandum of understanding with this academic health
center in which they would purchase Mitra robots for a peer review study and
expect to finalize this agreement during the fourth quarter. Although the
primary investigator of this study supports the purchase and use of the Mitra
robots, there can be no assurance that we will be able to enter into this
memorandum of understanding on acceptable terms or at all.

Clearday has two business segments:



  ? Non-Acute Care and Wellness, is Clearday's operating business including:




  - Clearday's innovative non-acute care and wellness services and products,
    including a virtual service delivered through digital channels;
  - Clearday's existing MCA communities, including adult day care;
  - Further development and commercial sales of robotic technologies;
  - Commercialization of its advanced air quality products; and
  - All of Clearday's general and administrative and research and development
    functions.




  ? Non-Core Assets and Related Businesses, which includes all of the assets that
    are held for disposition.



All net proceeds from dispositions of the non-core assets and related businesses
since the 2018 Acquisition have been used by Clearday for its working capital
and to fund the development of its innovative non-acute care and wellness
businesses.

All of the Company’s long-lived assets are located in the United States and,
during the nine months ended September 30, 2022 and 2021, respectively, all of
the Company’s revenue was derived from within the United States.



35






Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.



Seasonality.


MCA’s residential care facilities are seasonal in nature. Generally, residential
care facilities suffer revenue losses in the Winter months.



Results of Operations.


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

Our operating expenses are primarily the expenses of our facilities described
below as well as the expenses that we incur in our digital platform.

Certain costs and expenses incurred by the Company are accounted for as Selling,
General & Administrative Expenses (“SG&A”), including costs and expenses that
are summarized below, which we have continued to decrease significantly since
from January 1, 2020. We believe that disclosure of such amounts would be useful
to the analysis of our financial statements.

These SG&A Expenses during the nine months ended September 30, 2022 include:

(1) Development capitalized costs and expenses for the innovative services,
including Clearday at Home, which primarily consisted of payments to a
third-party consulting firm to develop the Clearday at Home and Clearday Club
business models, strategies, branding and marketing, and to a lesser extent, the
employment costs of the Company personnel dedicated to such development
activities. For the nine months ended September 30, 2022 and 2021, these amounts
were approximately $1.2 million and $1.55 million (including costs related to
research and development of products and services), respectively. The decrease
is primarily because of we completed a material amount of development related to
our robotic service and our digital platform used for Clearday at Home and
related digital services during this period and we capitalized a certain amount
of payments during this period. We may incur other development expenses through
our Clearday Labs for the development of other products and services to the
extent that such amounts are not funded by others through our strategic
alliances.

(2) Accounting and finance expenses related to the AIU Merger, 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 nine months ended September 30,
2022
and 2021, these costs were approximately $381,786 and $963,641
respectively. While some of these expenses will continue, such as audit fees, we
have reduced our reliance on third party accounting consultants as we have
increased the number and skill set of our accounting and financial staff. These
costs included approximately $542,000 of costs and expenses paid to third party
accounting consultants during the three and nine months of 2021 reduced to
approximately $90,000 during the three and nine months ended of 2022 or a
decrease of $452,000 because we significantly reduced our use of such
consultants beginning December 2021, which amount was, offset in part by our
increase in the compensation expense for our financial accounting staff.

(3) Equity based compensation, which primarily consisted of restricted stock
grants and warrants to the Company’s executives and third-party consultants. For
the nine months ended September 30, 2022 and 2021, these amounts were $0 and
$689,912, respectively.

Our operating expenses for our Facilities are primarily related to providing
care to our residents and customers, including:



    ?   wages and benefits, including wages and wage-related expenses, such as
        health insurance, workers' compensation insurance and other benefits for
        the employees, including management;
    ?   facility operating expenses, including utilities, housekeeping, dietary,
        maintenance, regulatory requirements, insurance and administrative costs
        and salaries, including the compensation to persons who develop, market
        and provide our innovative products and services;
    ?   lease expenses;
    ?   other general and administrative expenses, principally comprised of
        general management including the Company's headquarters, general
        insurance, legal, accounting and investments in technology;
    ?   depreciation and amortization expense on buildings and furniture and
        equipment;
    ?   interest expenses for loans and other financings related to these
        businesses; and
    ?   other expenses for the development of technology used in supporting
        operations and next generation of tech-enabled non-acute care and wellness
        solutions




36






Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations

Key statistical data for the nine months ended September 30, 2022 and 2021:

A significant amount of our expenses during the nine-month period ending
September 30, 2022 are allocated to our Facilities. We ceased operating our
Simpsonville Facility as of September 30, 2021 and acquired an adult day care
center during the second quarter of 2021. The following tables present a summary
of our operations for the nine months ended September 30, 2022 and 2021 (dollars
in thousands, except per unit amounts) for our Facilities, other than the
Simpsonville Facility, which we ceased operating as of September 30, 2021 and
for comparative purposes has been excluded during both periods.



                                          Nine Months Ended
                                            (Facilities*)                 Increase/(Decrease)
                                   September 30,       September
                                        2022            30, 2021         Amount         Percent
MCA Resident Facilities            $        9,139     $      8,946     $       193           2.16 %

Operating expenses:
Wages and benefits                          6,021            5,940              81           1.36 %
MCA facility operating expenses             1,918            1,626             292          17.96 %
Lease expenses                              2,689            2,858            (169 )        (5.91 )%
Impairment                                      -            1,501          (1,501 )         (100 )%
Other general & administrative
expenses                                    1,482            1,236             246          19.90 %
Research & development expenses                 -                -               -              - %
Depreciation and amortization                 160              218             (58 )       (26.61 )%
Total operating expenses                   12,270           13,379             266          (8.29 )%

Operating loss                             (3,131 )         (4,433 )         1,302         (29.37 )%

Other (income) expenses
Interest                                    1,240              268             972         362.69 %
Other (income) expenses                      (891 )           (492 )          (399 )        81.10 %
Total other/(income) expenses                 349             (224 )          (573 )       255.80 %

Net Loss                                   (3,480 )         (4,209 )           729         (17.32 )%



* We did not operate the Simpsonville Facility from and after September 30, 2021.

This table does not include the financial statistics related to such facility

for the periods presented.




37






Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations

Revenue. Revenue from our Facilities increased by approximately 2.2%, or
approximately $0.19 million, primarily due to revenues from our adult day care
center that we acquired in the second quarter of 2021, as well as increased
revenues from our residential Facilities primarily due to a small increase in
residents during these periods and increased average rates, offset in part by
promotional discounts. During the first nine months of 2022, we provided
promotional discounts for early payment of resident fees that were used to
finance, in part, our operations and growth initiatives including our robotic
services and Clearday at Home. Such amounts were approximately 1.7% or our
revenues during this period. If such discounts were not provided, then our
revenue from our Facilities would have increased by approximately $0.34 million
or approximately 3.8%.

Wages and Benefits. Wages and benefits increased by 1.3%, or approximately $0.08
million
during the first quarter of 2022 compared to 2021, primarily due to
increased labor related to our adult day care center which we acquired and began
to operate at the end of the second quarter of 2021, as well as increases
related to our residential care Facilities, primarily due to increased staffing
costs mostly related to nursing staff, and to a smaller extent increase of
outside agency staff. We believe that our increase in wages and benefits reflect
the conditions in the residential care sector generally, including factors such
as less labor that is available due to the Great Resignation in the U.S. and
other factors. We have reduced our use of outside agency staff significantly
from April, 2022, primarily due to better staffing and scheduling of our care
persons. Although there can be no assurance that we will continue to be able to
avoid using outside agency staff, we expect to continue to be able to maintain
our lower use of outside agency staff after April, 2022.

Facility Operating Expense. Facility operating expenses increased by 17.96% or
approximately $0.29 million, primarily due to a increases in food costs and
supplies which were subject to inflationary pressures. We believe that our
increase in food costs and supplies reflect the conditions in the residential
care sector generally, including factors such as less inflation and supply chain
disruptions. We continue to evaluate our increased costs and may seek to offset
such increased costs by increasing our rates for our services to the extent that
such increases are acceptable to market conditions.

Lease Expenses. Lease or rent expenses decreased by approximately 5.9%, or
approximately $0.169 million primarily due to one month of rent that was
over-accrued in 2021 and Simpsonville lease expense that was subsidized by under
the Simpsonville Transfer Agreement.

Other General and Administrative Expense. Other general and administrative
expenses increased by approximately 19.9% or $0.24 million, primarily due to
other professional services expenses related to the loan broker fees and travel
costs and accounting services at the facilities offset in part by lower
insurance cost.

Depreciation and Amortization. Depreciation and amortization decreased by
approximately 27% or approximately $0.058 million primarily due to lower
remaining net capitalized asset balances for leasehold improvements being
subject to depreciation during this period.

Interest Expense. Interest expense increased by 362.69%, or approximately $0.97
million
primarily due to higher interest expenses due to our financing of
operating and other expenses through merchant cash loan facilities, offset in
part by the repayment of other financings. We incurred these high interest rate
financings in large part because we were not able to access the equity capital
markets and in advance of our expected cash payments under the ERTC and the
Families First Coronavirus Response Act (the “FFCRA”), as amended by the
COVID-related Tax Relief Act of 2020, as well as expected lower compensation
expenses by our ability to use federal tax credits available under the federal
Work Opportunity Tax Credit (WOTC). We used the additional financing to fund
operations as well as developing innovative care solutions, including our
digital services and robotic services. We continue to seek equity financing with
institutional parties. However, there can be no assurance that such equity
capital financing facilities would be available on acceptable terms or at all.



38






Expenses Not Allocated to the Facilities:

Our operating and other expenses that are not allocated to our Facilities or the
Simpsonville Facility, included the following:



Operating Expenses


Operating expenses increased by a net amount of approximately 2% or
approximately $0.02 million, primarily because of corporate compensation
expenses and to a lesser extent, advertising and marketing and property taxes.
Corporate compensation expense increased by approximately 1% or approximately
$0.06 million. Of this amount, (1) approximately $0.04 million was due to a
reallocation of compensation attributable to persons in discontinued operations
during the first nine months of 2021 to corporate services during the first nine
months of 2022 these allocation make-up $0.02 million in corporate compensation
during the first quarter of 2022, (2) increase of corporate staff, including
business development and persons dedicated to our streaming services. We
increased our accounting and financial staff to lessen our reliance on
accounting consultants, which as described below, resulted in a reduction of
approximately $0.32 million of such expenses.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses decreased by a net amount of
approximately 76.84% or approximately $6 million, primarily because there was
$1.9 million of equity-based compensation recorded during 2021 and no equity
based compensation expense during the second quarter of 2022, and a reduction of
legal & accounting services of approximately $1, of which approximately $0.44 of
this decrease was attributable to accounting consultants. There was also a $2.6
million
transaction cost to for investment banking fees related to our merger
that closed on September 9, 2021 See Note 6 for additional information.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased by approximately 16.04% or
$0.03.




Other (Income) Expenses



Other income Increased by a net amount of approximately $6.18 million, primarily
because primarily due to gains recorded in 2021 of $2.09 million and the writing
off of Simpsonville intercompany transactions of $6.11 million in September
2022
.




Simpsonville Facility



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 to our unaudited condensed consolidated financial statements
included in Part I, Item 1 of this Report, we terminated this lease with the
landlord in connection with the settlement of a litigation. Until the date of
such lease termination, we continued to accrue the lease expense. The base rent
attributable to this Facility was 97,490 per month, subject to a 2% increase
commencing June 1, 2022, offset by a $30,000 monthly credit under the
Simpsonville Transfer Agreement payable by Brookstone that began on May 1, 2022.
The Simpsonville Facility operated at a loss, and we expect the lease
termination will improve our future operating results.



39






Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations.

Concentration of Risk-Revenues

The Company’s revenue for the nine months ended 2022 and 2021 primarily consist
of operations from our Facilities that are located in four states. The Company
expects to continue to be dependent on revenues from the Facilities until the
other planned businesses have revenues. Any failure of the Facilities to
continue these businesses would significantly and adversely impact the Company.
The revenues are primarily private pay and do not rely on reimbursements from
Medicare or Medicaid. The Company expects that such concentration will continue
until revenues are realized from its digital service Clearday at Home, its robot
services and additional revenues from adult day care services.



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 September 30,
2022
are commercial real estate investments, including land investments. The
Company continues to evaluate the manner to sell or otherwise monetize such
assets.




Disposition Activities



During the nine months ended September 30, 2022, the Company sold one non-core
asset, an unimproved land of approximately 2 acres of property located in
Cibolo, Texas that was held as non-core assets for an aggregate gross amount of
$980,000 that was sold on September 30, 2022. The sale of such land is part of
our previously disclosed course of business to sell or otherwise monetize assets
non-core assets, which are the assets (1) acquired by Clearday Operations, Inc.
(formerly, Allied Integral United, Inc.), on December 31, 2018, when it began
its business and that (2) are not related to our memory care facilities or our
non-acute care and wellness industry.

The COVID-19 pandemic has slowed the ability of the Company to dispose of its
remaining non-core assets and lowered the expected price of such remaining
assets. The Company recently has received an offer to sell one of its non-core
assets, an investment in land, and expect to continue its efforts to sell its
non-core assets to fund its operations.

Revenues of the Non-Core Assets

The Company primarily derived revenues from Non-Core Assets from rents and
related charges.

Liquidity and Capital Resources

We require cash to fund our current operations and continued innovation of
non-acute care and wellness services. Our strategy is to use the net proceeds
from the sale of our remaining non-core assets and the capital that we raise to
fund such operations and activities. The COVID-19 pandemic and other factors,
including the increase of interest rates generally have delayed the non-core
sale process and reduced our expected net proceeds and are expected to increase
our cost of additional financings.

We do not have sufficient cash resources from the net cash flows of operations,
from our current operations, to sustain our operations for the next twelve
months and will rely on the continued sale of non-core assets and the sale of
its securities and additional financings. We have agreed to defer the cash
payment of certain amounts under the lease of our residential care facilities:
we have deferred the payment of October rent to December 8, 2022; deferred the
payment of November and December rent to January 9, 2023; and deferred the
payment of January rent to February 7, 2023.

Additionally, we have applied for certain tax credits in the aggregate amount of
approximately $315,000 and expect to apply and be eligible for an additional
amount of tax credits of approximately $500,000.

We have been able to obtain additional financing of the equity of our non-core
assets during the third quarter and the fourth quarter of more than $500,000. We
continue to seek financing of the equity in our remaining non-core assets with
institutional and private lenders. However, there can be no assurance that such
financings will be available on acceptable terms or at all. We have engaged an
investment banker and are negotiating with institutional investors for an equity
investment in us, in an amount that we believe would enable us to fund our
liabilities, including payments to our creditors. During the fourth quarter, we
received and are evaluating a non-binding letter of intent for one such
investment transaction. However, there can be no assurance that any such equity
investment will be available on acceptable terms or at all.



40






Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations

Our results of operations, financial condition and cash flows are dependent on
future developments, including the duration of the pandemic and the related
length of our impact on the global economy, such as a lengthy or severe
recession or any other negative trend in the U.S. or global economy and any new
information that may emerge concerning the COVID-19 pandemic and the actions to
contain it or treat our impact, which at the present time are highly uncertain
and cannot be predicted with any accuracy.

We expect that the following factors will affect our future operating liquidity:

? Operating revenues are expected to be affected, primarily because of

– Our ability to increase residents through increased sales efforts, subject to

regulatory requirements including those related to COVID-19 quarantine areas;

– Increased revenues from adult daycare, including a full year of revenues from

our acquired adult daycare facility and our ability to increase residential

fees;

– Our ability to increase revenues by providing certain additional products and

services to residents, and clients through our Clearday Direct program,

including our robotic services to facilities and the consumer or home market;

and

– Any discounts or promotions that we may provide.

? 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, and our

ability to utilize the Work Opportunity Tax Credit (WOTC)

– Increased pressures on wages and agency fees due to industry staffing

shortages;

– Additional interest expenses related to our high interest loans that we have

incurred during 2022, offset in part by expected refinancing of certain

mortgages and debt and the receipt of other financings such as SBA sponsored

programs and additional amounts that we expect to receive through tax credits;

– Reduced net losses related to our Simpsonville Facility; and

– The amount of payments to our creditors and others related to our

    contingencies.



? Selling and general administrative costs will be affected and are expected to

decrease, primarily because:

– Development costs that are recorded as operating expenses related to

additional products and services developed through our Clearday Labs.




41






Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations




MCA Initiatives



As business operations for residential care facilities began to normalize in the
COVID-19 environment, we continued our evaluation of our businesses. We expect
to:



  ? Expand the marketing and sales of robotic services;
  ? Continue our sales and marketing training to maintain and increase resident or
    census occupancy percentages per available room in our Facilities;
  ? Increase revenues per resident through the sale of innovative products and
    services, including Clearday Calm Rooms and digital and robotic services, as
    well as other revenue opportunities;
  ? Use innovative services such as digital platforms and robotic service to
    empower and enhance caregiver efficiency and effectiveness which are intended
    to reduce employee / caregiver stress and turnover.



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



Funding History


Clearday historically financed its operations primarily through the sale of its
equity securities in private placements and borrowings prior to the AIU Merger
and through debt financings and merchant cash loan facility transactions after
the AIU Merger. Clearday has incurred negative cash flows from operations.



Cash Flows


The following table ($ in 000) shows a summary of Clearday’s cash flows for the
nine months ended September 30, 2022 and 2021:




                                                      Nine Months Ended September 30,
                                                         2022                  2021
Net cash used in activities of continuing
operations                                               (2,263,858 )          (2,276,797 )
Net cash provided by (used in) operating
activities of discontinued operations                             -               155,834
Net cash used in operating activities                    (2,263,858 )          (2,120,963 )
Net cash used in investing activities of
continuing operations                                       (28,310 )            (506,720 )
Net cash used in investing activities                       (28,310 )            (506,720 )
Net cash provided by continuing operations                1,327,093             3,053,444
Net cash used in financing activities of
discontinued operations                                    (201,552 )            (492,428 )
Net cash provided by in financing activities              1,327,093             2,561,016




Operating Activities


Net cash used in operating activities was $2.2 million for nine months ended
September 30, 2022, and $2.1 million for the nine months ended September 30,
2021
. Net cash used in continuing operations for the nine months ended September
30, 2022
resulted from a net loss of $5.2 million adjusted for certain non-cash
items including: (i) depreciation and amortization of $0.51 million, and (ii)
amortization of debt cost of $0.84 million



Investing Activities


Net cash provided in investing activities was $0.33 million for the nine months
ended September 30, 2022, and net cash provided of $.5 million for the nine
months ended September 30, 2021.



42






Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations




Financing Activities



Net cash provided by financing activities was $1.3 million for the nine months
ended September 30, 2022. Net cash provided by financing activities for the nine
months ended September 30, 2022, consisted primarily of net proceeds received
from merchant cash loan facilities and the loans from institutional lenders.



Government Programs


We participated in ERTC program and expect additional cash payments under the
ERTC. We have applied for payments under the Families First Coronavirus Response
Act (the “FFCRA”), as amended by the COVID-related Tax Relief Act of 2020, and
expect to utilize the federal tax credits available under the federal Work
Opportunity Tax Credit (WOTC). The amount of savings under WOTC is subject to
the hiring of workers from certain disadvantaged targeted categories and is
generally calculated as a percentage of wages over a twelve-month period up to
worker maximum by targeted category.

Contractual Obligations and Commitments

See the “Commitment and Contingencies” section within Note 7 of the unaudited
condensed consolidated financial statements within this Report, which
information is incorporated herein by reference.



Legal Proceedings


Clearday is subject to legal proceedings. The disclosures in this part of
Management’s Discussion and Analysis of Financial Condition and Results of
Operations are provided under Item 1 Note 7 to the financial statements –
Commitments and Contingencies.

Off-Balance Sheet Arrangements

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




Cash and Restricted Cash



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

Restricted cash as of September 30, 2022 and December 31, 2021 includes cash
that Clearday deposited as security for obligations arising from property taxes,
property insurance and replacement reserve Clearday is required to establish
escrows as required by Clearday’s mortgages and certain resident security
deposits.

Critical Accounting Policies and Significant Judgments and Estimates

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

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



43






Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations

During the nine months ended September 30, 2022, there were no significant
changes in our accounting policies and estimates other than the newly adopted
accounting standards that are disclosed in Note 2 to our unaudited condensed
consolidated financial statements.



Impact of Climate Change


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

Some observers believe severe weather in different parts of the world over the
last few years is evidence of global climate change. Severe weather has had and
may continue to have an adverse effect on certain senior living communities The
Company operates. Flooding caused by rising sea levels and severe weather
events, including hurricanes, tornadoes and widespread fires may have an adverse
effect on the senior living communities the Company operates. The Company
mitigates these risks by procuring insurance coverage The Company believes
adequate to protect the Company from material damages and losses resulting from
the consequences of losses caused by climate change. However, the Company cannot
be sure that its mitigation efforts will be sufficient or that future storms,
rising sea levels or other changes that may occur due to future climate change
could not have a material adverse effect on the Company’s financial results.

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