10-Q: Clearday, Inc. Reports Q3 2023 Results, Navigating Transition and Pursuing Viveon Merger

Clearday, Inc. reports a significant decrease in revenue and operating expenses for Q3 2023 as it transitions its business model and pursues a merger with Viveon Health Acquisition Corp.

Summary

• Clearday, Inc. reported its financial results for the third quarter of 2023, showing a net loss attributable to Clearday, Inc. shareholders of $4,119,723.
• Revenues decreased by approximately 73% to $0.8 million, primarily due to the termination of Community Leases.
• Operating expenses decreased by approximately 57% to $2.6 million, driven by lower wages and general operating expenses.
• The company is focusing on its digital care services, including robotics and its Longevity-Tech Platform.
• Clearday is pursuing a merger with Viveon Health Acquisition Corp., with an amended agreement increasing the merger consideration to $550 million plus the aggregate exercise price for all Clearday options and warrants.
• The company has issued Senior Convertible Notes (Bridge Notes) during 2023, with an amount of up to $16,000,000 to accredited investors.
• The company has been threatened with litigation by the law firm Rigrodsky Law, P.A. alleging unjust enrichment in connection with stockholder litigation commenced by such firm related to the AIU Merger and claiming damages of $200,000.
• The company's management has concluded that the company's disclosure controls and procedures were ineffective.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company is making progress in reducing operating expenses and pursuing a merger, it faces significant challenges related to revenue decline, accumulated deficit, and ineffective internal controls. The overall sentiment is cautiously negative.

Positives

• Operating expenses decreased significantly due to the termination of Community Leases.
• The company is focusing on its digital care services and Longevity-Tech Platform.
• The merger agreement with Viveon Health Acquisition Corp. has been amended, increasing the company's valuation.
• The company recognized a $4.3 million gain related to the termination of lease obligations related to our Community Leases that were terminated in March of 2023.

Negatives

• Revenues decreased significantly due to the termination of Community Leases.
• The company has an accumulated deficit of $86,222,414 as of September 30, 2023.
• The company's management has concluded that the company's disclosure controls and procedures were ineffective.
• The company has been threatened with litigation by the law firm Rigrodsky Law, P.A. alleging unjust enrichment in connection with stockholder litigation commenced by such firm related to the AIU Merger and claiming damages of $200,000.
• The company's obligations under the Lease Transition Agreement are in default as of January 2, 2024.
• Executive management of our Naples residential care community have tendered their resignation during December 2023.

Risks

• The company's limited cash and history of losses raise concerns about its ability to continue as a going concern.
• The company's ability to finance its innovative care products and services is uncertain.
• The impact of any financing activity on the level of the company's stock price is a risk.
• The company faces risks related to compliance with environmental regulations and regulations related to operating its memory care facility and adult day care center.
• The company is subject to the impact of pandemics and other public health related issues on its businesses.
• The company is exposed to local, regional, national and international economic conditions and events.
• The company faces the impact of inflation to its businesses, including increases in labor costs.
• The company is subject to the impact of a shortage of workers in its industries.
• The company faces the risk of delays or nonpayment to it, including payments related to government or agency reimbursements.
• The company's ability to pay its liabilities, including tax obligations and the exercise of remedies by holders of its indebtedness, is a risk.
• The company is subject to circumstances that adversely affect the ability of older adults or their families to pay for its services.
• The company has loans and other indebtedness that are in default.
• The company has been threatened with litigation by the law firm Rigrodsky Law, P.A. alleging unjust enrichment in connection with stockholder litigation commenced by such firm related to the AIU Merger and claiming damages of $200,000.

Future Outlook

The company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financing or other sources, including capital that may be available in connection with the Viveon Merger.

Management Comments

• Management does not believe they have sufficient cash for the next twelve months from the date of this report to continue as a going concern without raising additional capital.
• The Company's management, with the participation of our Chief Executive Officer and acting Chief Financial Officer (our principal executive officer and principal financial officer, respectively), has evaluated its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Report.
• Based upon that evaluation, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures were ineffective.

Industry Context

The company is operating in the longevity market, which is experiencing significant growth due to the aging population. The company's focus on digital care services and its Longevity-Tech Platform aligns with the industry trend of adopting technology to improve senior care.

Comparison to Industry Standards

• It is difficult to compare Clearday's results directly to industry standards due to its unique business model and ongoing transition.
• However, the company's focus on technology and digital care aligns with the broader trend of innovation in the senior care industry, as seen in companies like Honor, Papa, and CareLinx.
• These companies are leveraging technology to provide more personalized and efficient care services to seniors.
• Clearday's financial performance is significantly impacted by its transition away from traditional residential care facilities, making comparisons to traditional senior living operators like Brookdale Senior Living and Sunrise Senior Living less relevant.

Corporate Governance

Legal Proceedings

• The company has been threatened with litigation by the law firm Rigrodsky Law, P.A. alleging unjust enrichment in connection with stockholder litigation commenced by such firm related to the AIU Merger and claiming damages of $200,000.
• The mortgage lender for the Naples, Florida facility commenced an action for nonpayment of the mortgage note (the Benworth Action).
• Eight of these financing parties have commenced actions alleging, among other matters, a breach of the MCA Agreement for non-payment and a breach of the guaranty by the applicable guarantors.

Related Party Transactions

• The company's indebtedness includes amounts loaned to it by executive management.
• The company incurs debt that is personally guaranteed by certain executives, officers and directors for which they receive a guarantee fee.
• Prior to December 31, 2018, Cibolo Creek Partners, LLC (Cibolo Creek) and its affiliate Round Rock Development Partners, LP (RRDP) made loans to us under revolving credit notes that bear interest at the then applicable federal rate and are payable on demand or other date specified by such lender.
• During the first two quarters of 2023 we used the services of Galleros Robinson, LLP, a CPA and advisory firm, for certain accounting services.
• Clearday has engaged Thinktiv, Inc. to provide services under the terms of a previously reported Services Agreement dated as of March 6, 2019, by and between Thinktiv, Inc. and Clearday Operations, Inc.
• On May 22, 2023, Stockdale Associates, Ltd. (Stockdale), a wholly owned subsidiary of Clearday, Inc. entered into a sales transaction with James Walesa, the Chief Executive Officer of the Company, for land of approximately 1.5 acres owned by Stockdale located in the city of Stockdale, Texas (the Stockdale Property).
• We have agreed to invest approximately 48 % of the net proceeds from advances of the issuance of our Bridge Notes with Viveon.

Stakeholder Impact

• Shareholders face the risk of dilution from the issuance of securities to raise capital.
• Employees may be affected by the company's cost-cutting measures and restructuring efforts.
• Customers may experience changes in the quality and availability of services as the company transitions its business model.
• Suppliers and creditors face the risk of nonpayment due to the company's financial difficulties.

Next Steps

• The company will continue to work towards closing the Viveon Merger.
• The company will focus on expanding its digital care services and Longevity-Tech Platform.
• The company will address the identified weaknesses in its internal controls.
• The company expects to negotiate an additional deferral or amendment of the payment date of the Down Payment.

Key Dates

Keywords

Clearday, Viveon Merger, Longevity-Tech Platform, Financial Results, Q3 2023, Merger, Debt, Revenue, Operating Expenses, Net Loss, Healthcare, Senior Care, Convertible Notes, Lease Termination, Litigation, Default, Internal Controls