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.



AIU began its business on December 31, 2018 when it acquired the businesses of
certain private funds that were engaged in providing residential memory care
services and other businesses (the “2018 Acquisition”). As a result of the 2018
Acquisition, Clearday owned and controlled the acquired businesses that included
memory care residential care facilities operated by Memory Care America LLC
(“MCA”) and other businesses and assets held for disposition.

The Company’s strategy is to provide innovative non-acute care and wellness
solutions that disrupt the traditional senior care model primarily virtually
through digital channels with its Clearday at Home service, that it developed
during 2020 and launched in Q1 2021 through consumer and business to business
(B2B) sales channels, and through its facilities. The Company owns and operates
five residential memory care facilities that are located in four U.S. states,
under the Company’s subsidiary, MCA. The MCA facilities focus on treating
residents suffering from any of the 25 forms of dementia that may be treated in
a residential care facility, Alzheimer’s being the most common. The Company uses
its knowledge and its experience in treating dementia and other cognitive
disorders to develop technology-enabled businesses, aligned to next-generation
non-acute care and wellness services and products, including adult day care and
home care products and services.

Clearday has two business segments:



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




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




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



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

All of the Company’s long-lived assets are located in the United States and,
during the three months ended March 31, 2022 and 2021, respectively, all of the
Company’s revenue was derived from within the United States.

During the three months ended March 31, 2022, Clearday continued to focus on
developing the next generation of tech-enabled non-acute care and wellness
solutions.



29





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 first quarter 2022 include:

(1) Development 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 quarter ended March 31, 2022 and 2021, these amounts were
approximately $149,000 and $475,000 (including research and development costs),
respectively. The decrease is primarily because of we completed a material
amount of research and development related to our digital platform used for
Clearday at Home and related digital services during this period and we
capitalized a certain amount of payments during this period. We may incur other
development expenses through our Clearday Labs for the development of other
products and services to the extent that such amounts are not funded by others
through our strategic alliances.

(2) Accounting and finance expenses related to the merger and becoming a public
company, which primarily consisted of accounting and consulting fees incurred to
improve the accounting and finance department, the additional consulting fees
regarding the audit and preparation of our financial statements. For the quarter
ended March 31, 2022 and 2021, these costs were approximately $86,000 and
$466,658 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.
We incurred approximately $350,000 of costs and expenses paid to third party
accounting consultants during the first quarter of 2021 reduced to approximately
$86,000 during the first quarter of 2022 or a decrease of $264,000 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 quarter ended March 31, 2022 and 2021, these amounts were $0.00 and
$637,895, respectively.

The following summarizes the adjustments described above:




                     Total Consolidated
        Selling, General and Administrative Expense                  Amount

Total per March 31, 2022 Unaudited Financial Statements $ 1,393,370
Adjustments:
Development costs and expenses for the innovative services

                149,000
Accounting and finance consulting expenses                                 86,000
Equity based compensation                                                       0
Total adjustments                                                         235,000
Adjusted Total Consolidated Selling, General and
Administrative Expenses                                        $        1,158,370



Our operating expenses for residential care and adult day care facilities
(“Facilities”) are primarily related to providing care to our residents and
customers, including:



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




30

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

Key Statistical Data For the three months ended March 31, 2022 and 2021:

A significant amount of our expenses during the three month period ending March
31, 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 three months ended March 31, 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.



                                       Three Months Ended
                                            March 31                   Increase/(Decrease)
                                      2022             2021          Amount          Percent
Revenues:                          $     3,208      $    3,050     $       158            5.18 %

Operating expenses:
Wages and benefits including
outside agency staff                     2,099           1,989             110            5.53 %
MCA facility operating expenses            596             657             (61 )         (9.28 )%
Lease expenses                             886             812              74            9.11 %
Impairment                                   -               -               -               - %
Other general & administrative
expenses                                   516             559             (43 )         (7.69 )%
Research & development expenses              -               -               -               - %
Depreciation and amortization               53              91             (38 )        (41.76 )%
Total operating expenses                 4,150           4,108              42            1.02 %

Operating loss                            (942 )        (1,058 )           116          (10.96 )%

Other (income) expenses
Interest                                   473              38             435         1144.74 %
Other (income) expenses                   (648 )           (59 )          (589 )        998.31 %
Total other/(income) expenses             (175 )           (21 )          (154 )        733.33 %

Net Loss                                  (767 )        (1,037 )           270          (26.04 )%




31





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

Revenue. Revenue from our Facilities increased by approximately 5.18%, or
approximately $0.15 million, primarily due to revenues from our adult day care
center that we acquired in the second quarter of 2021, and we operated during
the first quarter of 2022, as well as increased revenues from our residential
Facilities primarily due to a small increase in residents during these periods
and increased average rates, offset in part by promotional discounts.

Wages and Benefits. Wages and benefits increased by 5.53%, or approximately
$0.11 million during the first quarter of 2022 compared to 2021, primarily due
to increased labor related to our adult day care center which we did not operate
during the first quarter of 2021, as well as increases related to our
residential care Facilities, primarily due to increased staffing to continue
care at a high level during the COVID-19 pandemic that resulted in, among other
matters, no COVID deaths during the pandemic in our Facilities, as well as the
increase of outside agency staff of approximately $101,000, which we incurred to
maintain staffing levels. We have reduced our use of outside agency staff
significantly during April 2022 and further reduced this expense from April 30,
2022
to the date of this Report, primarily due to better staffing and scheduling
of our care persons. Although there can be no assurance that we will continue to
be able to avoid using outside agency staff, we do not expect to incur the same
level of outside agency staff after April 2022.

Facility Operating Expense. Operating expense reduced by 9.28% or approximately
$0.06 million, primarily due to a reduction property tax expense of
approximately 47% or approximately $0.1 million. Also, reductions in utility
cost of approximately 8.61% or approximately $0.02 million. There was an
increase of advertising and marketing at the facilities and day care of
approximately 99% or $0.04 million and an increase in other operational
supplies, including food, of approximately 1% or approximately $0.03 million
primarily to a COVID cost. Also, including increases related to inflation for
food. 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 increased by approximately 9.11%, or
approximately $0.09 million primarily due to certain non-building (non-cash)
leases expenses related to the in 2022 in accordance with GAAP, offset in small
part by a reduction of cash expenses related expenses incurred by us under these
triple net lease agreements and the increase of lease expenses due to our adult
day care Facility.

Other General and Administrative Expense. Other general and administrative
expenses decreased by approximately 8% or $0.01 million, primarily due to
reduced insurance cost of approximately 59% or $0.2 million. The reduction of
insurance cost was offset by an increase in maintenance expenses related to the
Facilities of 262% or $0.08 million, which increase we do not expect to continue
at the same rate in future periods, and an increase of travel and accounting
services at the facilities of 43% or $0.06 million.

Depreciation and Amortization. Depreciation and amortization decreased by
approximately 41.76% or approximately $0.04 million primarily due to lower
remaining net capitalized asset balances for leasehold improvements being
subject to depreciation during this period, which capitalized asset balances
were reduced as of December 31, 2021 impairment expense.

Interest Expense. Interest expense increased by 1,145%, or approximately $0.43
million
primarily due to higher interest expenses due to our financing of
operating and other expenses through factoring loans, 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
we continued to fund operations as well as our strategy to develop 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 would be available on acceptable terms or at
all.

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 211% or
approximately $483,575, primarily because of corporate compensation expenses and
to a lesser extent, advertising and marketing and property taxes. Corporate
compensation expense increased by approximately 319%or approximately $411,500.
Of this amount, (1) approximately $160,800 was due to a reallocation of
compensation attributable to persons in discontinued operations during the first
quarter of 2021 to corporate services during the first quarter of 2022 these
allocation make-up $210,600 in corporate compensation during the first quarter
of 2022, (2) approximately $56,600 was due to an increase of our accounting and
financial staff, and related compensation, and the continued salary of our prior
CFO of approximately $22,600 until early February, 2022, and (3) 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 $350,000 of such expenses.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses decreased by a net amount of
approximately 50% or approximately $818,400, primarily because there was
$637,900 of equity based compensation recorded during the first quarter 2021 and
no equity based compensation expense during the first quarter of 2022, and a
reduction of legal & accounting services of approximately $372,000, of which
approximately $350,000 of this decrease was attributable to accounting
consultants. We were able to reduce our use of accounting consultants

Depreciation and Amortization Expenses

Depreciation and amortization expenses decreased by approximately 10% or $7,300
primarily because of a lower amount of depreciable base of assets.



Other (Income) Expenses


Other income decreased by a net amount of approximately $242,235, primarily
because of a gain of our holdings of STI common stock recognized during the
first quarter of 2021. This stock was cancelled in the AIU Merger and
accordingly there was not any gain or loss attributable to such stock after the
third quarter of 2021.




Simpsonville Facility



We ceased operating our Simpsonville Facility as of September 30, 2021. During
the three months ending March 31, 2022, we recognized an aggregate net loss
attributable to this Facility of approximately $266,000, primarily due to the
continued accrual of lease expenses related to this Facility in the amount of
approximately $320,000, 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 Agreement”) with Brookstone Terrace of Simpsonville, LLC
(“Brookstone”). We believe that Brookstone has obtained the licenses required to
assume the full operations of this Facility and that Brookstone will acquire
this Facility from the lessor which will cause a termination of our lease after
the date of such acquisition and will assist us in negotiating with the landlord
a resolution of the Simpsonville Litigation referred to Item 3 of this Report.
However, there cannot be any assurance that any such settlement will occur on
acceptable terms or at all. Until such lease termination, we expect to continue
to accrue the lease expense. The base rent attributable to this Facility is
97,490 per month, subject to a 2% increase commencing June 1, 2022, offset by a
$30,000 monthly credit under the Simpsonville Agreement payable by Brookstone
beginning on May 1, 2022.



32





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

Concentration of Risk-Revenues

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




Non-Core Assets



The Company considers all its assets that are not used in the non-acute care and
wellness industry as non-core assets. The non-core assets as of March 31, 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 three months ended March 31, 2022, the Company did not sell any
non-core assets. We have entered into an agreement to sell the Leander Property
as described above in Note 5 to the financial statements included in Part I,
Item 1 of this Report, and as reported in our Annual Report on Form 10-K and our
Current Report on Form 8-K filed on April 11, 2022 for approximately $1.8
million
. The closing is subject to specified conditions, including land use and
zoning approvals for the purchaser’s planned development of this land parcel.

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. As of March 31, 2022, we had an
accumulated deficit of $64,811,535, loss from continued operations of $2,719,316
and losses from operating activities in discontinuing operations in the amount
of $85,277. Our strategy is to use the net proceeds from the sale of our
remaining non-core assets and the capital that we raise to fund such operations
and activities. The COVID-19 pandemic has interrupted the non-core sale process
and, to a certain extent, reduced the expected net proceeds.

We do not have sufficient cash resources from the net cash flows of operations,
from our current operations, to sustain our operations for the next twelve
months and will rely on the continued sale of non-core assets and the sale of
its securities and additional financings.



33





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

The impact of the COVID-19 pandemic could continue to have a material adverse
effect on our business, results of operations, financial condition, liquidity,
and prospects in the near-term and beyond 2021. The ultimate impact of the
COVID-19 pandemic on our results of operations, financial condition and cash
flows is highly uncertain, and cannot currently be accurately predicted. 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 liquidity:

? 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 net losses related to our Simpsonville Facility.

? Selling and general administrative costs will be effected 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.




34





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




MCA Initiatives



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



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



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



Funding History


Clearday has historically financed its operations primarily through the sale of
its equity securities in private placements and borrowings. Clearday has
incurred negative cash flows from operations. On March 31, 2022, Clearday had an
aggregate amount of cash and restricted cash of $10,000 and a deficit of $66
million




Cash Flows



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




                                                         Three Months Ended March 31,
                                                           2022                 2021

Net cash used in operating activities of continuing
operations

                                            $       (2,035 )     $       (2,277 )
Net cash used in operating activities for
discontinued operations                                          (45 )                156
Net cash used in operating activities                         (2,080 )             (2,121 )

Net cash used in investing activities of continuing
operations

                                                       (13 )               (507 )
Net cash provided by investing activities of
discontinued operations                                            -                    -
Net cash provided by investing activities                        (13 )               (507 )

Net cash provided by financing activities of
continuing operations                                          1,153                3,053
Net cash used in financing activities of
discontinued operations                                          102                 (492 )
Net cash (used)/provided in financing activities               1,255                2,561
Net decrease in cash and restricted cash                        (838 )     $          (67 )




Operating Activities


Net cash used in operating activities was $1.8 million for three months ended
March 31, 2022, and $2.1million for the three months ended March 31, 2021. Net
cash used in continuing operations for the three months ended March 31, 2022
resulted from a net loss of $2.8 million adjusted for certain non-cash items
including: (i) depreciation and amortization of $.02 million, and (ii)
amortization of debt cost of .5 million



Investing Activities


Net cash provided in investing activities was $1.5 million for the three months
ended March 31, 2022, and net cash provided of $2.5 million for the three months
ended March 31, 2021. Net cash used for three months ended March 31, 2022,
consists primarily of investment activities in payments for capitalized software
costs of $.5 million.



35





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




Financing Activities



Net cash provided by financing activities was $1.5 million for the three months
ended March 31, 2022, and net cash used of $2.5 million for the three months
ended March 31, 2021. Net cash provided by financing activities for the three
months ended March 31, 2022, consisted primarily of net proceeds received from
the new factoring loans.



HHS Government Grants


Contractual Obligations and Commitments

See the “Commitment and Contingencies” section within Note 7 of the unaudited
condensed 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 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 three months or less at the date of purchase, are
carried at cost plus accrued interest, which approximates market.

Restricted cash as of March 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 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.



36





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

During the three months ended March 31, 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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