Nutex Health Inc

NUTEX HEALTH INC**.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1–** Organization and Operations**

Nutex Health Inc. (“Nutex Health” or the “Company”), is a physician-led, healthcare services and operations company with 20 hospital facilities ineight states (hospital division), and a primary care-centric, risk-bearing population health management division. Our hospital division implements and operates different innovative health care models, including micro-hospitals, specialty hospitals and hospital outpatient departments (“HOPDs”). The population health management division owns and operates provider networks such as independent physician associations (“IPAs”) and offers a cloud-based proprietary technology platform to IPAs which aggregates clinical and claims data across multiple settings, information systems and sources to create a holistic view of patients and providers.

We employ 800 full-time employees, contract 230 doctors at our facilities and partner with over 1,700 physicians within our networks. Our corporate headquarters is based in Houston, Texas. We were incorporated on April 13, 2000 in the state of Delaware.

Merger of Nutex Health Holdco LLC and Clinigence Holdings, Inc. On April 1, 2022, the merger (the “Merger”) of Nutex Health Holdco LLC and Clinigence Holdings, Inc. (“Clinigence”) was completed pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) entered on November 23, 2021 between Clinigence, Nutex Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of Clinigence, Nutex, Micro Hospital Holding LLC (solely for the purposes of certain sections of the Merger Agreement), Nutex Health Holdco LLC and Thomas Vo, M.D., solely in his capacity as the representative of the equity holders of Nutex Health Holdco LLC.

In connection with the Merger Agreement, Nutex Health Holdco LLC entered into certain Contribution Agreements with holders of equity interests (“Nutex Owners”) of subsidiaries and affiliates (the “Nutex Subsidiaries”) pursuant to which such Nutex Owners agreed to contribute certain equity interests in the Nutex Subsidiaries to Nutex Health Holdco LLC in exchange for specified equity interests in Nutex Health Holdco LLC (collectively, the “Contribution Transaction”). Nutex owners having ownership interests representing approximately 84% of the agreed upon aggregate equity value of the Nutex Subsidiaries, agreed to contribute all or a portion of their equity interests, as applicable.

Pursuant to the Merger Agreement, each unit representing an equity interest in Nutex Health Holdco LLC issued and outstanding immediately prior to the effective time of the Merger but after the Contribution Transaction (collectively, the “Nutex Membership Interests”) was converted into the right to receive 3.571428575 shares of common stock of Clinigence, or an aggregate of 592,791,712 shares of common stock of Clinigence.

After completing the merger, Clinigence was renamed Nutex Health Inc.

Note 2 - Summary of Significant Accounting Policies

Basis of presentation. The merger of Nutex Health Holdco LLC and Clinigence was accounted for as a reverse business combination with Nutex Health Holdco LLC as the accounting acquirer in accordance with ASC 805,Business Combinations, and Clinigence as the accounting acquiree. Our financial statements presented for periods prior to the merger date are those of Nutex Health Holdco, LLC, as the Company’s predecessor entity. Subsequent to the merger date, our financial statements are presented on a consolidated basis including Clinigence.

The assets, including identified intangible assets, and liabilities of Clinigence were recorded at their fair values with the excess purchase price recorded as goodwill. The financial statements reflect the merger as the equivalent of the issuance of common stock for the net assets of Clinigence. The accounting for the merger did not affect the carrying values of the assets and liabilities of Nutex Health Holdco LLC.

Equity of the accounting acquirer, Nutex Health Holdco LLC, has been retroactively restated for the equivalent number of shares issued to the accounting acquirer. Similarly, shares outstanding and earnings per share have been also retroactively restated based on the equivalent number of shares issued to the accounting acquirer.

These financial statements present the Company’s consolidated financial condition and results of operations including those of majority-owned subsidiaries and variable interest entities (“VIEs”) for which we are the primary beneficiary.

The hospital division includes our healthcare billing and collections organization and hospital entities. In addition, we have financial and operating relationships with multiple professional entities (the “Physician LLCs”) and real estate entities (the “Real Estate Entities”). The Physician LLCs employ the doctors who work in our hospitals. These entities are consolidated by the Company as VIEs because they do not have significant equity at risk, and we have historically provided support to the Physician LLCs in the event of cash shortages and received the benefit of their cash surpluses.

The Real Estate Entities own the land and hospital buildings which are leased to our hospital entities. The Real Estate Entities have mortgage loans payable to third parties which are collateralized by the land and buildings. We consolidate the Real Estate Entities as VIEs in instances where our hospital entities are guarantors or co-borrowers under their outstanding mortgage loans. Since the second quarter of 2022, we deconsolidated 18 Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans.

The Company has no direct or indirect ownership interest in the consolidated Physician LLCs or Real Estate Entities, so 100% of the equity for these entities is shown as noncontrolling interests in the consolidated balance sheets and statements of operations. Many of the Physician LLCs and Real Estate Entities are owned in part and in some cases controlled by related parties including members of our executive management team.

The population health management division includes our management services organizations and a healthcare information technology company providing a cloud-based platform for healthcare organizations. In addition, Associated Hispanic Physicians of So. California (“AHISP”), an IPA entity that is not owned by us, but is consolidated as a VIE of our wholly-owned subsidiary AHP Health Management Services Inc. (“AHP”) since AHP is the primary beneficiary of its operations and has 100% control of AHISP’s operations through its management services agreement with AHISP.

All significant intercompany balances and transactions have been eliminated in consolidation.

Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include (i) estimates of net revenue and accounts receivable, (ii) fair value of acquired assets and liabilities in business combinations and (iii) impairment of long-lived assets and goodwill. Actual results could differ from those estimates.

Revenue recognition.

Hospital division – Our hospital division recognizes net patient service revenue for contracts with patients and in most cases a third-party payor (commercial insurance, workers compensation insurance or, in limited cases, Medicare/Medicaid). The Company’s performance obligations are to provide emergency health care services primarily on an outpatient basis. Net patient service revenues are recorded at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient care. These amounts are net of appropriate discounts giving recognition to differences between the Company’s charges and reimbursement rates from third party payors.

Patient service net revenues earned by the Company are recognized at a point in time when the services are provided, net of adjustments and discounts. Because all the Company’s performance obligations relate to contracts with a duration of less than one-year, certain disclosures are limited.

The transaction price is determined based on gross charges for services provided, reduced by contractual adjustments provided to third-party payors, discounts and implicit price concessions provided primarily to uninsured patients in accordance with the Company’s policy. For uninsured patients, the Company recognizes revenue based on established rates, subject to certain discounts and implicit price concessions. The Company is reimbursed from third party payors under various methodologies based on the level of care provided. We are considered “out-of-network” with commercial health plans. As there are no contractual rates established with insurance entities, revenues are estimated based on the “usual and customary” charges allowed by insurance payors using historical collection experience, historical trends of refunds and payor payment adjustments (retractions). Revenue from the Medicare program is based on reimbursement rates set by governmental authorities.

Patients who have health care insurance may also have discounts applied related to their copayment or deductible. Estimates of contractual adjustments and discounts are determined by major payor classes for outpatient revenues based on historical experience. The Company estimates implicit price concessions based on its historical collection experience with these classes of patients using a portfolio approach. The portfolios consist of major payor classes for outpatient revenue. Based on historical collection trends and other analyses, the Company concluded that revenue for a given portfolio would not be materially different than if accounting for revenue on a contract-by-contract basis.

Customer payments are due upon receipt of an explanation of benefits for insured patients or it is due upon receipt of the bill from the Company for uninsured payments. There is no financing component associated with payments due from insurers or patients.

Population health management division – The population health management division recognizes revenue for capitation and management fees for services to IPAs and physician groups and for the licensing, training, and consulting related to our cloud-based proprietary technology.

Capitation revenue consists primarily of capitated fees for medical services provided by physician-owned entities we consolidate as VIEs. Capitated arrangements are made directly with various managed care providers including HMOs. Capitation revenues are typically prepaid monthly to us based on the number of enrollees selecting us as their healthcare provider. Capitation is a fixed payment amount per patient per unit of time paid in advance for the delivery of health care services, whereby the service providers are generally liable for excess medical costs.

We receive management fees that are based on gross capitation revenues of the IPAs or physician groups we manage. Revenue is recognized and received monthly for our services. In addition, we provide consultant services that are charged as a flat fixed rate and recognized as revenue when the service is performed. Consultant services revenues represent a small portion of our total revenue.

Software licenses are provided as SaaS-based subscriptions that grants access to proprietary online databases and data management solutions. Training and consulting are project based and billable to customers on a monthly-basis or task-basis. Revenue from training and consulting are generally recognized upon delivery of training or completion of the consulting project. The duration of training and consulting projects are typically a few weeks or months and last no longer than 12 months.

SaaS-based subscriptions are generally marketed under multi-year agreements with annual, semi-annual, quarterly, or month-to-month renewals and revenue is recognized ratably over the renewal period with the unearned amounts received recorded as deferred revenue. For multiple-element arrangements accounted for in accordance with specific software accounting guidance, multiple deliverables are segregated into units of accounting which are delivered items that have value to a customer on a standalone basis.

Cash payments for SaaS-based subscriptions received in advance of the satisfaction of our performance obligations are reported as deferred revenue and recognized as revenue over the period in which the performance obligations are satisfied. The Company completes its contractual performance obligations through providing its customers access to specified data through subscriptions for a service period, and training on consulting associated with the subscriptions. We primarily invoice our customers on a monthly basis and do not provide any refunds, rights of return, or warranties.

*Cash and cash equivalents.*The Company considers all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents. The Company has cash amounts, that were at times material, held in covered banking institutions in excess of the insured amounts, but does not deem the risk of loss to be likely.

Inventories. Inventories comprise of medical supplies and pharmaceuticals used at the Company’s facilities. Inventories are measured at lower of cost or net realizable value, which includes the weighted average cost of medical supplies and pharmaceuticals. The carrying amount is assessed for net realizable value.

*Intangible assets.*Intangible assets include hospital operating licenses having indefinite lives; and acquired technology, relationships, contracts and trademark intangibles each having definite lives. Indefinite lived intangible assets are not amortized but instead are assessed for impairment at least annually, or when certain indicators of impairment exist on an interim basis. Definite lived intangible assets are amortized using the straight-line method over the estimated lives of the respective assets.

*Goodwill.*Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired. Goodwill is not amortized but instead is evaluated for impairment at the same time every year and when an event occurs or circumstances change such that it is more likely than not that impairment may exist.

Goodwill is tested for impairment at least annually by comparing the estimated fair values of our reporting units to their respective carrying values. We use an income method to estimate the fair value of these assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants, and include the amount and timing of future cash flows (including expected growth rates and profitability). Estimates utilized in the projected cash flows include consideration of macroeconomic conditions, overall category growth rates, competitive activities, Company business plans and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

On September 30, 2022, we determined that the estimated fair value of ourpopulation health management division reporting unit (representing the assets of Clinigence Holdings Inc. acquired in the reverse business combination) was less than its carrying value. Therefore, we conducted a second step of the goodwill impairment test to determine the implied fair value of the reporting unit's goodwill. In this analysis, we allocated the fair value of the reporting unit to identifiable assets and liabilities of the reporting unit. The residual fair value after this allocation was compared to the goodwill balance with the excess goodwill charged to expense. Based on this analysis, we recognized a non-cash impairment charge of$398.1 million, to reduce the carrying amount of goodwill for the population health management division reporting unit.

We recognized an impairment loss of $1.1 million in a reporting unit within our Hospital Division in the fourth quarter of 2023 for the pending closure of a facility. The closure was made in January 2024 (see Note 21). There was no other impairment of goodwill in 2023.

We believe the estimates and assumptions utilized in our impairment testing are reasonable and are comparable to those that would be used by other marketplace participants. However, actual events and results could differ substantially from those used in our valuations. To the extent such factors result in a failure to achieve the level of projected cash flows used to estimate fair value for purposes of establishing or subsequently impairing the carrying amount of goodwill and intangible assets, we may need to record additional non-cash impairment charges in the future.

*Long-lived assets.*The Company assesses the valuation of components of its property and equipment and other long-lived assets whenever events or circumstances indicate that the carrying value might not be recoverable. The Company bases its evaluation on indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such factors indicate that the carrying amount of an asset or asset group may not be recoverable, the Company determines whether an impairment has occurred by analyzing an estimate of undiscounted future cash flows at the lowest level for which identifiable cash flows exist. If the estimate of undiscounted cash flows during the estimated useful life of the asset is less than the carrying value of the asset, the Company recognizes a loss for the difference between the carrying value of the asset and its estimated fair value, generally measured by the present value of the estimated cash flows. Long-lived assets are depreciated using the straight-line method over their estimated useful lives.

*Stock-based compensation.*We account for employee stock-based compensation using the fair value method. Compensation cost for equity incentive awards is based on the fair value of the equity instrument generally on the date of grant and is recognized over the requisite service period. Forfeitures are recognized as they occur.

The Company uses the Black-Scholes option pricing model to estimate the fair value of its stock options and warrants. The Black-Scholes option pricing model requires the input of highly subjective assumptions including the expected stock price volatility of the Company’s common stock, the risk-free interest rate at the date of grant, the expected vesting term of the grant, expected dividends, and an assumption related to forfeitures of such grants. Changes in these subjective input assumptions can materially affect the fair value estimate of the Company’s stock options and warrants.

*Leases.*Leases are capitalized on the Company’s balance sheet through recognition of a liability for the discounted present value of future fixed lease payments and a corresponding right-of-use (“ROU”) asset. The ROU asset recorded at commencement of the lease represents the right to use the underlying asset over the lease term in exchange for the lease payments. When readily determinable, the Company uses the interest rate implicit in a lease to determine the present value of future lease payments. For leases where the implicit rate is not readily determinable, the Company’s incremental borrowing rate is utilized. The Company calculates its

incremental borrowing rate upon commencement of a lease, using a model that uses the U.S. Department of Treasury daily treasury yield curve and a rate spread suitable for the Company to estimate the rate of interest the Company would have to pay to borrow an amount equal to the total lease payments on a collateralized basis over a term similar to the lease. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Short-term leases which have an initial term of 12 months or less and do not have an option to purchase the underlying asset that is deemed reasonably certain to be exercised, are not recorded on the balance sheet. Rent expense for these short-term leases is recognized on a straight-line basis over the lease term, or when incurred if a month-to-month lease.

*Convertible instruments.*The Company bifurcates conversion options from their host instruments and account for them as free-standing derivative financial instruments when (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

The Company accounts for convertible debt that does not meet the criteria for equity treatment as a liability at amortized cost using the effective interest method. The Company classifies convertible debt based on the re-payment terms and conditions. Any discounts on the convertible debt and costs incurred upon issuance of the convertible debt are amortized to interest expense over the terms of the related convertible debt.

Noncontrolling interests. Noncontrolling interests (“NCI”) represent the portion of net assets in consolidated entities that are not owned by the Company. NCI is presented as a component of total equity in the consolidated balance sheets and the share of net income or loss attributable to noncontrolling interests is shown as a component of net income in the consolidated statements of operations.

Fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We classify fair value balances based on the classification of the inputs used to calculate the fair value of a transaction. The three levels related to fair value measurements are as follows:

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The estimated fair value of accounts receivable, accounts payable, accrued expenses and notes payable approximate the carrying amount due to the relatively short maturity or time to maturity of these instruments. Accounts receivable and payable with related parties may not be arms-length transactions and therefore, may not reflect fair value.

Except for the initial valuation of intangible assets in connection with business combinations and the impairments of goodwill discussed above, there were no assets or liabilities that were re-measured at fair value on a non-recurring basis during the periods presented.

*Advertising and marketing expense.*The Company advertising and marketing expense consists of expense associated with marketing its brand and services via media outlets such as social media, billboards and publications. These costs are expensed as incurred.

*Income taxes.*We account for income taxes under the asset and liability method, in which deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates is recognized in the consolidated statements of operations during the period in which the tax rate change becomes law. A valuation allowance against deferred tax assets is established if it is more likely than not that the related tax benefits will not be realized. In determining the appropriate valuation allowance, we consider the projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies and reversals of existing taxable temporary differences.

Each of the VIEs and other entities that are not wholly-owned are pass-through entities treated as partnerships for U.S. federal income tax purposes. No provision for federal income taxes is provided in the consolidated statements of operations for the noncontrolling interests associated with these entities.

We file tax returns in the U.S. and various state jurisdictions. With few exceptions, our returns for periods prior to 2018 are no longer subject to examination by tax authorities in these jurisdictions. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. If a tax position meets the “more likely than not” recognition criteria, accounting guidance requires the tax position be measured at the largest amount of benefit greater than 50% likely of being realized upon ultimate settlement. We record income tax related interest and penalties, if any, as a component in the provision for income tax expense.

*Earnings (loss) per share –*Basic earnings (loss) per share amounts are calculated by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding. Diluted earnings (loss) per share amounts are calculated by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents represent shares issuable upon the assumed conversion of outstanding convertible notes and the assumed exercise of common stock options and warrants outstanding.

Business combinations. The Company accounts for business combinations under the acquisition method of accounting. Under this method, identifiable assets acquired, the liabilities assumed, and any noncontrolling interest are recognized at their estimated fair values at the acquisition date. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. Transaction costs are expensed as incurred.

Segment reporting. A public company is required to report descriptive information about its reportable operating segments. Operating segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Aggregation of similar operating segments into a single reportable operating segment is permitted if the businesses have similar economic characteristics and meet established criteria. The Company operates three reportable segments – the hospital division, the population health management division and the real estate division. The real estate division is comprised of the Real Estate Entities.

*Variable interest entities.*On an ongoing basis, as circumstances indicate the need for reconsideration, the Company evaluates each legal entity that is not wholly-owned by the Company in accordance with the consolidation guidance. The evaluation considers all of the Company’s variable interests, including equity ownership, as well as management services agreements. A legal entity is determined to be a VIE if it (i) does not have sufficient equity to finance its activities without additional subordinated financial support; (ii) the entity is established with non-substantive voting rights; or (ii) the equity holders, as a group, lack the characteristics of a controlling financial interest. If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary.

The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company – that is, the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary.

Refer to Note 19 – “Variable Interest Entities” to the consolidated financial statements for information on the Company’s consolidated VIEs. If there are variable interests in a VIE but the Company is not the primary beneficiary, the Company may account for the investment using the equity method of accounting.

Reclassifications. Financial statements presented for prior periods include reclassifications that were made to conform to the current year presentation. The reclassifications has no effect on prior year results.

Recent accounting pronouncements.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07 (“ASU 2023-07”) –Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update applies to all public entities that are required to report segment information in accordance with Topic 280. We will be required to report segment information in accordance with the new guidance starting in the annual periods beginning after December 15, 2023. We are assessing the potential impact of this update and will make additional segment disclosures upon adoption.

In December 2023, the FASB issued ASU 2023-09 –Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update is effective for annual periods beginning after December 15, 2024. We are assessing the potential impact of this update.

Note 3 – Business Combinations

Merger of Nutex Health Holdco LLC and Clinigence Holdings, Inc.

The merger of Nutex Health Holdco LLC and Clinigence was completed pursuant to the Merger Agreement on April 1, 2022. As discussed above, the merger was accounted for as a reverse business combination with Nutex Health Holdco LLC as the accounting acquirer and Clinigence as the accounting acquiree.

The fair value of purchase consideration transferred on the closing date includes the value of the shares of the combined company owned by Clinigence shareholders at closing of the merger and the fair value of Clinigence’s outstanding and exercisable common stock options and warrants as determined using a Black-Scholes valuation model. The fair value per share of Clinigence’s common stock was $6.40; its traded closing price on April 1, 2022.

Total consideration in the merger is shown below:

The following is a revised estimate of the allocation of the total purchase consideration to acquired assets and assumed liabilities including the fair value of identified intangible assets as determined by independent valuation (a level 3 measurement):

The intangible assets denoted above each have definite lives ranging from 5 to 16 years and consisted of member and customer relationships, management contracts, tradename/trademarks and developed technology. Valuation techniques and the inputs used to arrive at each intangible asset’s fair value were as follows:

Goodwill was recognized for the expected synergies and benefits from combining the operations, resources and technologies of Nutex and Clinigence and the future growth potential and profitability of Clinigence. Goodwill arising from the reverse business combination is not tax-deductible.

We recognized a non-cash impairment charge of $398.1 million in 2022 to reduce the carrying amount of goodwill arising in the reverse business combination.

The results of operations of Clinigence have been included in the Company’s consolidated financial statements since the April 1, 2022 merger date. We expensed $3.9 million of acquisition-related costs for the merger in 2022 and $3.6 million in 2021. These costs consisted principally of legal, accounting and other professional fees for the transaction.

Supplemental Pro Forma Information – The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the merger with Clinigence had been completed on the date indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that management believes are reasonable under the circumstances.

The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on January 1, 2021, to give effect to certain events that management believes to be directly attributable to the acquisition. These pro forma adjustments primarily include an increase to depreciation and amortization expense that would have been recognized due to acquired tangible and intangible assets.

The supplemental pro forma financial information for the periods presented is as follows:

The pro forma adjustment included in the pro forma loss above included $14.2 million of one-time stock-based compensation expense related to the merger transaction. Pro forma data does not purport to be indicative of the results that would have been obtained had these events actually occurred at the beginning of the period presented and is not intended to be a projection of future results.

2023 Acquisitions

In the third quarter of 2023, the Company acquiredtwo Florida based IPAs for $0.8 million in cash, $0.8 million in Company shares, $0.3 million due to earn-out determined in the fourth quarter of 2023, and contingent consideration of up to $0.4 million in cash and $0.5 million in Company shares if the acquired IPAs meet Medicare Lives thresholds in 2024 and 2025. Substantially all of the total purchase consideration was allocated to goodwill and identified intangible assets. The acquired IPAs are reported within our Population Health Management division. Management considers these acquisitions to be immaterial.

Note 4 – Revenue

We disaggregate revenue from contracts with customers into types of services or products, consistent with our reportable segments, as follows:

Net patient service revenue. We receive payment for facility services rendered by us from federal agencies, private insurance carriers, and patients. The Physician LLCs receive payment for doctor services from these same sources. On average, greater than 93% of our net patient service revenue is paid by insurers, federal agencies, and other non-patient third parties. The remaining revenues are paid by our patients in the form of copays, deductibles, and self-payment. We generally operate as an out-of-‎network provider and, as such, do not have negotiated reimbursement rates with insurance ‎companies.

The following tables present the allocation of the transaction price with the patient between the primary patient classification of insurance coverage:

The No Surprises Act (“NSA”) is a federal law that took effect January 1, 2022, to protect consumers from most instances of “surprise” balance billing. The legislation was included in the Consolidated Appropriations Act, 2021, which was passed by Congress and signed into law by President Trump on December 27, 2020. With respect to the Company, ‎the NSA limits the amount an insured patient will pay for emergency services furnished by an out-of-network ‎provider. The NSA addresses the payment of these out-of-network providers by group health plans or health ‎insurance issuers (collectively, “insurers”). In particular, the NSA requires insurers to reimburse out-of-network ‎providers at a statutorily calculated “out-of-network rate.” In states without an all-payor model agreement or ‎specified state law, the out-of-network rate is either the amount agreed to by the insurer and the out-of-network ‎provider or an amount determined through an independent dispute resolution (“IDR”) process.

‎

The “qualifying payment amount” (QPA) is generally the median of the contracted ‎rates ‎recognized by the plan or issuer under such plans or coverage, respectively, on January 31, 2019, for the ‎same or a similar ‎item or service that is provided by a provider in the same or similar specialty and provided in the ‎geographic region in ‎which the items or service is furnished, with annual increases based on the consumer price ‎index. In other words, the ‎qualifying payment amount is typically the median rate the insurer would have paid for ‎the service if provided by an in-‎network provider or facility.‎

Under the NSA, insurers must issue an initial payment or notice of denial of payment to a provider within ‎thirty days after the provider submits a bill for an out-of-network service. If the provider disagrees with the ‎insurer’s determination, the provider may initiate athirty-day period of open negotiation with the insurer over the ‎claim. If the parties cannot resolve the dispute through negotiation, the parties may then proceed to IDR ‎arbitration.

Contract balances. Deferred revenue is presented within accrued liabilities as current liabilities and totaled $0.1 million as of December 31, 2023 and 2022. We expect to recognize revenue for these amounts within the next twelve months.

Note 5 - Property and Equipment

The principal categories of property and equipment are summarized as follows:

We deconsolidated 17 Real Estate Entities in 2022 andone Real Estate Entity in 2023. Refer to Note 19.

Depreciation and amortization of property and equipment for the years ended December 31, 2023, 2022 and 2021 totaled $6.0 million, $4.9 million and $5.3 million, respectively. Due to the closures oftwo facilities in January 2023 andtwo facilities in January 2024, we recorded an impairment loss of $3.8 million as the carrying value of the fixed assets associated with the facilities exceeded the fixed assets’ fair value.

Note 6 – Intangible Assets

The following tables provide detail of the Company’s intangible assets:

Amortization of intangible assets for the years ended December 31, 2023, 2022 and 2021 totaled $1.6 million, $1.2 million and $0, respectively. Due to the closure of a facility in January 2024, we recorded an impairment loss of $0.7 million as the carrying value of the facility’s license was greater than the license’s fair value. The following is the estimated aggregated amortization expense for each of the five succeeding fiscal years:

Note 7 – Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

Note 8 – Debt

The Company’s outstanding debt is shown in the following table:

Term loans and lines of credit. We have entered into private debt arrangements with banking institutions for the purchase of equipment and to provide working capital and liquidity through cash and lines of credit. Unless otherwise delineated above, these debt arrangements are obligations of Nutex and/or its wholly-owned subsidiaries. Consolidated Real Estate Entities have entered into private debt arrangements with banking institutions for purposes of purchasing land, constructing new emergency room facilities and building out leasehold improvements which are leased to our hospital entities. Nutex is a guarantor or, in limited cases, a co-borrower on the debt arrangements of the Real Estate Entities for the periods shown. Since the second quarter of 2022, we deconsolidated 18 Real Estate Entities after the third-party lenders released our guarantees of associated mortgage loans.

Certain outstanding debt arrangements require minimum debt service coverage ratios and other financial covenants. At December 31, 2023, we were not in compliance with the debt service coverage ratio for one term loan with an outstanding balance of $0.3 million. This balance has been included in current liabilities. At December 31, 2023, we had remaining availability of $1.4 million under outstanding lines of credit.

Pre-Paid Advance Agreement (convertible debt).

On April 11, 2023, the Company entered into a Pre-Paid Advance Agreement (the “PPA”) with YA II PN, Ltd. (“Yorkville”) pursuant to which the Company requested an advance of $15.0 million from Yorkville a “Pre-Paid Advance”) purchased by Yorkville at 90% of the face amount. Interest accrued on the outstanding balance of the Pre-Paid Advance at an annual rate equal to 0% subject to an increase to 15% upon events of default described in the PPA. The Pre-Paid Advance has a maturity date of 12 months from the Pre-Paid Advance Date.

The Company, at its option, has the right, but not the obligation, to repay early in cash a portion or all amounts outstanding under any Pre-Paid Advance, provided that the VWAP of the Common Stock is less than the Fixed Price during a period often consecutive trading days immediately prior to the date on which the Company delivers a notice to Yorkville of its intent and such notice is delivered at least 10 trading days prior to the date on which the Company will make such payment (“Optional Prepayment”). If elected, the Optional Prepayment includes a 6% payment premium (“Payment Premium”).

On April 11, 2023, the Company requested a $15.0 million initial Pre-Paid Advance in accordance with the PPA. The net proceeds of $13.5 million received by the Company from Yorkville reflect a 10% discount of $1.5 million in accordance with the PPA. Additionally, in connection with the PPA, the Company incurred $0.9 million in placement and legal fees, which the Company

classifies as debt issuance costs. The discount and the debt issuance costs are reported as a direct deduction from the face amount of the PPA and are amortized monthly based on the effective interest rate method. The amortization of the discount and debt issuance costs are reported as interest expense in the condensed consolidated statements of operations.

As a result of the Pre-Paid Advance, the Company (i) issued 21.4 million shares of Common Stock to Yorkville, reducing the principal of initial Pre-Paid Advance to $7.0 million, (ii) made Optional Prepayments of $5.2 million in accordance with the PPA, consisting of $4.9 million of principal and $0.3 million attributed to the Payment Premium and (iii) paid off in full the remaining outstanding balance of the PPA on January 30, 2024 and the parties terminated the Yorkville PPA on February 15 2024. See Note 21.

As of December 31, 2023, the net carrying amount of the PPA is $3.0 million and is presented in current portion of long-term debt within the condensed consolidated balance sheet as of December 31, 2023. The net carrying amount of $3.0 million is composed of $3.1 million in principal and $(0.1) million in unamortized discount and debt issuance costs.

Interest expense incurred under the PPA for the year ended December 31, 2023 was $1.9 million, which was the result of the amortization and reductions due to conversions and repayments. The effective interest rate for the PPA for the year ended December 31, 2023 was 19.4%.

September 2023 Convertible Debt Issuance.

From September 2023 to December 2023, the Company conducted a private offering of convertible notes (“Unsecured Convertible Term Notes”) andsix-year warrants (“Warrants”) to accredited investors (the “Holders”) as defined in Rule 501 under the 1933 Act and issued Unsecured Convertible Term Notes convertible into an aggregate of 13,462,500 shares of common stock at a conversion price of $0.40 per share and Warrants to purchase an aggregate of 6,731,250 shares of common stock at an exercise price of $0.40 per share. We also issued Warrants for the purchase of 4,038,750 shares to the placement agent. The Unsecured Convertible Term Notes mature on October 31, 2025 and the Warrants expire on December 31, 2029.

Subsequently, on March 26, 2024, the Company and the Holders agreed to amend the conversion price of the Unsecured Convertible Term Notes and exercise price of the Warrants to $0.20 each, resulting in the Unsecured Convertible Term Notes being convertible into 26,925,000 shares of common stock, the Warrants exercisable for 13,462,500 shares of common stock and the placement agent Warrants exercisable for 8,077,500 shares of common stock. See Note 21 –Subsequent Events.

The Unsecured Convertible Term Notes bear an annual interest rate of 8% if paid in cash or an annual interest rate of 10% if paid in the form of common stock. The payment of interest in the form of common stock is at the discretion of the Company. When paid in common stock, the number of shares is equal to the quotient of the total accrued interest due divided by the last reported sale price of the Company’s common stock on the last complete trading day of such quarter. The Holders have the option, at any time, to convert all or any portion of the unpaid principal and interest outstanding in common stock at the conversion price of $0.40 per share. If the Company fails to pay the outstanding principal amount and all accrued interest within 30 days of the maturity date, the interest rate payable is adjusted to 12%.

The Company appointed Emerson Equity LLC as placement agent for the September 2023 Private Offering. Per the Placement Agent Agreement, the Company agrees to pay (i) a cash commission equal to 10% of the gross proceeds and (ii) warrants to purchase a number of Common Stock equal to 20% of the total number of shares issuable upon conversion or exercise of the Unsecured Convertible Term Notes and Warrants, as applicable..

During the year ended December 31, 2023, the Company received net cash proceeds of $4.9 million, comprising of $5.4 million in gross proceeds less $0.5 million in placement agent fees paid in cash, recognized as debt issuance costs. The net cash proceeds after the placement agent fees were allocated between the Unsecured Convertible Term Notes and Warrants based on their relative fair values. The fair value of the warrants (a level 3 measurement) was determined using a Black-Scholes Option Pricing model. Key assumptions included a risk-free interest rate of 4.60%, historical volatility of 123.8% and expected term of the warrants ofsix years. A total of $0.7 million was recorded as equity for the warrants issued to Unit Holders and recognized as debt discount. Warrants issued to Emerson, also recorded as equity, was valued at $0.7 million and is recognized as debt discount. The total discount and debt issuance cost on the Unsecured Convertible Term Notes totaled $1.9 million and is amortized to interest expense over the period until maturity. The net carrying amount of the Unsecured Convertible Term Notes was $3.6 million as of December 31, 2023 and the weighted average effective interest rate on the convertible debt is 21.5%. The Unsecured Convertible Term Notes interest expense was

$0.2 million for the year ending December 30, 2023, comprising of $0.1 million in amortization expense and $0.1 million in accrued interest expense.

*Convertible notes payable.*We assumed $5.4 million principal of convertible notes payable of Clinigence outstanding at the merger date. The convertible notes payable were fully converted into 3,474,430 shares of common stock at a conversion price of$1.55 per share before their maturity on July 31, 2022. Debt discount totaling $1.7 million was accreted from April 1, 2022 to the maturity date (July 31, 2022) of the convertible notes payable.

Scheduled Maturities. Maturities of our long-term debt are as follows:

Note 9**–**** Leases**

We have entered into hospital property, office and equipment rental agreements with various lessors including related parties. The following tables disclose information about our leases of property and equipment:

Due to the closures oftwo facilities in January 2023 andtwo facilities in January 2024, we remeasured theone lease associated with a facility, recording a reduction to financing lease liabilities and financing right-of-use assets of $11.4 million in the fourth quarter of 2023. After remeasurement, we recognized an impairment loss of $24.6 million in the fourth quarter of 2023 for the remaining carrying value of the right-of-use assets associated with thefour facilities.

Note 10 – Commitments and Contingencies

Litigation. The Company, its consolidated subsidiaries or VIEs may be named in various claims and legal actions in the normal course of business. Based upon counsel and management’s opinion, the outcome of such matters is not expected to have a material adverse effect on the consolidated financial statements.

Note 11 – Employee Benefit Plans

The Company’s employees are eligible to participate in the 401(k) Savings Plan. There are no restrictions in eligibility to contribute to the 401(k) Savings Plan. Salary deferrals are allowed in amounts up to 100% of an eligible employee’s salary, not to exceed the maximum allowed by law. Two facilities contribute discretionary matches up to 5-6% of employees’ salaries. For the years ended December 31, 2023, 2022 and 2021, thetwo facilities did not make significant discretionary contributions to the employee plan.

Note 12 – Stock-based Compensation

In 2022, the Company adopted the Amended and Restated Nutex Health Inc. 2022 Equity Incentive Plan (the "2022 Plan"). The maximum aggregate number of shares that may be issued under the 2022 Plan is 5,000,000 shares, subject to increases on January 1st of each calendar year through January 1, 2027 of up to 5% annually at the discretion of the compensation committee of our Board of Directors. A total of 1,248,072 shares of common stock, par value $0.001 per share (“Common Stock”) of the Company were available for issuance under the 2022 Plan at December 31, 2023. On June 29, 2023, the stockholders of the Company approved the Amended and Restated Nutex Health Inc. 2023 Equity Incentive Plan (the “2023 Plan”) and an additional 8,751,928 new shares of Common Stock were made available for issuance under the 2023 Plan, which replaces the 2022 Plan. On December 31, 2023, a total of 11,013,943 shares of Common Stock were available for issuance under the 2023 Plan.

Awards granted under the 2023 Plan may be incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units or performance shares. The awards are granted at an exercise price equal to the fair market value on the date of grant.

Obligations for under-construction and ramping hospitals. Under the terms of the Contribution Agreements, contributing owners of the under-construction hospitals and ramping hospitals (as determined on April 1, 2022) are eligible to receive a one-time additional issuance of Company common stock.

For the year ended December 31, 2023, we recognized $0.6 million in stock-based compensation expense and additional paid-in capital based on our current estimates of future obligations to the contributing owners.

Restricted stock. On May 9, 2022, the Company issued 83,547 restricted common stock awards, valued at $325,000 to the board of directors to vest 1/12 th per month over a 12-month period. In December 2022, the recipients of all restricted common stock awards

agreed to the rescission and cancellation of all 83,547 awards*.*As a result, such shares are again available for grant under the 2022 Plan. We recognized stock-based compensation expense of $189,581 during 2022 for these awards.

Options. Clinigence had 6,500,010 options for the purchase of our common stock outstanding as of the merger date, all of which were fully vested and exercisable. The following table summarizes stock-based awards activity:

The 1,010,621 options cancelled in the fourth quarter of 2023 were held by former directors or employees of Clinigence who decided to not extend the expiration of their options.

Options outstanding as of December 31, 2023 consisted of:

Restricted Stock Units. On April 1, 2023, the Company issued 604,158 Restricted Stock Units (“RSUs”), valued at $0.6 million to certain employees. Total of 214,719 RSU Common Shares vested on April 1, 2023, another 194,719 common shares will vest on March 1, 2024 and another 194,719 common shares will vest on March 1, 2025.

For grants of restricted stock units, we recognize compensation expense over the applicable vesting period equal to the fair value of our common stock at grant date. Grants of restricted stock units generally vestone third per year on each of the first three anniversaries of the grant date. The following table summarizes the changes in restricted stock units during the year ended December 31, 2023.

As of December 31, 2023, we estimate $0.3 million of unrecognized compensation cost related to restricted stock units issued to our employees to be recognized over the weighted-average vesting period of 1.0 years.

Employee Stock Purchase Plan. In May 2023, the Board of Directors adopted the 2023 Employee Stock Purchase Plan (“2023 ESPP”), which was subsequently approved by the Company’s stockholders and became effective in June 2023. The 2023 ESPP authorizes the initial issuance of up to 5,000,000 shares of the Company’s common stock to eligible employees, who are entitled to purchase shares of common stock equal to 85% of the closing price on the purchase date with accumulated payroll deductions. During the year ending December 31, 2023, the Company issued 77,242 shares under the ESPP.

Note 13 – Equity

We are authorized to issue up to a total of 950,000,000 shares of common stock having a par value of $0.001 per share. Holders of our common stock are entitled toone vote for each share held of record on all matters submitted to a vote of stockholders and to receive ratably in proportion to the shares of common stock held by them any dividends declared from time to time by the board of directors. Our common stock has no preferences or rights of conversion, exchange, pre-exemption or other subscription rights.

Common Stock Issued. Following is a discussion of common stock issuances during the periods presented. SeeNote 8 – Debt for issuances that were registered on the Company’s registration statement on Form S-3 under the Securities Act of 1933. All issuances referenced below were unregistered and were exempt from the registration requirements of the Securities Act of 1933, as amended, under Section 4(a)(2).

Common Stock Warrants. Clinigence had 12,401,240 common stock warrants outstanding as of the merger date. As of December 31, 2023, as part of the September 2023 Private Offering, the Company issued warrants to Unit Holders to purchase 10,770,000 shares of Common Stock at a strike price of $0.40 for a period ofsix years. These warrants were outstanding but not yet exercised as of December 31, 2023. Warrant activity follows:

Warrants outstanding as of December 31, 2023 consisted of:

Note 14 – Income Taxes

Income tax expense consisted of the following:

In periods before our merger with Clinigence, Nutex Health Holdco LLC and the Nutex Subsidiaries were pass-through entities treated as partnerships for U.S. federal income tax purposes. No provision for federal income taxes was provided for these periods as federal taxes were obligations of these companies’ members. After the merger, Nutex Health Holdco LLC became a wholly-owned subsidiary of Clinigence and is included in its consolidated corporate tax filings. We recognized a non-cash charge of $21.3 million to income tax expense during 2022 for the change in tax status of Nutex Health Holdco LLC. This charge provides for the accumulated net deferred tax liabilities representing the differences between the book and tax bases of Nutex Health Holdco LLC’s assets and liabilities as of the April 1, 2022 change in tax status.

At the time of our merger with Clinigence, Clinigence had a full valuation allowance against its deferred tax assets. For the year ended December 31, 2022 we recorded a non-cash benefit of $2.4 million to income tax expense to remove the acquired valuation allowance after we concluded that the associated deferred tax assets would be realizable.

Each of the discrete items above, as well as the non-deductible goodwill impairment expense recognized in 2023 and 2022, are one-time, non-cash items.

The items accounting for differences between income taxes computed at the federal statutory rate and the provision recorded for income taxes were as follows:

Deferred tax assets and liabilities were as follows:

As of December 31, 2023, the Company had federal net operating loss carryforwards of $15.0 million and state net operating loss carryforwards of $8.1 million. These have no expiration. The Company also has a capital loss carryover of$6.4 million, that expires in 2025.

As of December 31, 2023, a valuation allowance was established against the net deferred tax asset because the Company determined it was more likely than not that future earnings will not be sufficient to realize the corresponding tax benefits. In determining the

appropriate valuation allowance, the Company considered the projected realization of tax benefits based on expected levels of future taxable income, available tax planning strategies and reversals of existing taxable temporary differences.

Note 15 – Earnings per Share

The following is the computation of earnings (loss) per basic and diluted share:

The computation of diluted earnings per common share excludes the exercise of 4,137,149 common stock options,21,803,015 warrants,389,439 restricted stock units and 2,433,908 common stock issuable upon conversion of outstanding convertible debt for the year ended December 31, 2023. The computation of diluted earnings per common share excludes the exercise of 2,335,402 common stock options and 4,212,724 warrants for the year ended December 31, 2022. The dilutive effect of convertible debt was calculated using the if-converted method, whereas the dilutive effect of the assumed exercise of outstanding options and warrants was calculated using the treasury stock method.

Note 16 - Supplemental Cash Flows Information

Note 17 – Segment Information

We report the results of our operations asthree segments in our consolidated financial statements: (i) the hospital division, (ii) the population health management division and (ii) the real estate division. The determination of our reporting segments was made on the basis of our strategic priorities, which corresponds to the manner in which our Chief Executive Officer, as our chief operating decision maker, reviews and evaluates operating performance to make decisions about resources to be allocated. We evaluate the performance of our reportable segments based on, among other measures, operating income, which is defined as income before interest expense,

other income (expense), and taxes. Corporate costs primarily include expenses for support functions and salaries and benefits for corporate employees and are excluded from segment operating results.

Reportable segment information, including intercompany transactions, is presented below:

Note 18 – Related Party Transactions ** **

Related party transactions included the following:

In connection with the merger with Clinigence, we forgave certain amounts due from Physician LLCs for past advances made by us in support of their operations. We recognized net expense of $1.5 million in the three months ended March 31, 2022 as general and administrative expense in the consolidated statements of operations. No such expense was recognized subsequently.

The Physician LLCs had outstanding obligations to their member owners, who are also Company stockholders, totaling $4.3 million at December 31, 2023, $2.1 million at December 31, 2022 and $2.7 million at December 31, 2021 are reported within accounts payable – related party in our consolidated balance sheets.

In connection with the merger with Clinigence, we forgave certain amounts due from Real Estate Entities for past advances made by us. We recognized net expense totaling $0.6 million in the three months ended March 31, 2022 as other expense in the consolidated statements of operations. No such expense was recognized subsequently.

Note 19 – Variable Interest Entities

The following tables provide the balance sheet amounts for consolidated VIEs:

The assets of each of the hospital facilities may only be used to settle the liabilities of that entity or its consolidated VIEs and may not be required to be used to settle the liabilities of any of the other hospital facilities, other VIEs, or corporate entity. Additionally, the assets of corporate entities cannot be used to settle the liabilities of VIEs. The Company has aggregated all of the Physician LLCs and Real Estate Entities for each VIE would not add more useful information.

Real Estate Entities are consolidated by the Company as VIEs because they do not have sufficient equity at risk and our hospital entities are guarantors of their outstanding mortgage loans. We have been working with the third-party lenders to remove our guarantees of their outstanding mortgage loans. As these guarantees are released, the associated Real Estate Entity no longer qualifies as a VIE and is deconsolidated. Since the second quarter of 2022, we deconsolidated 18 Real Estate Entities. There wasno gain or loss on the deconsolidation of these entities.

At the date we deconsolidated these Real Estate Entities in the second quarter of 2022, they had $2.4 million of cash, $9.8 million of fixed assets (principally land and building), $0.5 million of other assets, $69.6 million of liabilities (principally mortgage indebtedness) and $31.4 million of equity reported as noncontrolling interests.

The Real Estate Entity we deconsolidated in the first quarter of 2023 had $1.0 million of cash, $8.4 million of fixed assets (principally land and building), $0.2 million of other assets, $5.4 million of liabilities (principally mortgage indebtedness) and $4.3 million of equity reported as noncontrolling interests as of the date of deconsolidation.

Note 20 – Quarterly Financial Data (Unaudited)

The following table presents statements of operations financial data for the fourth quarter ended December 31, 2023, third quarter ended September 30, 2022, which was retrospectively changed, and for the fourth quarter ended December 31, 2022:

In our quarterly report on Form 10-Q for the period ended September 30, 2022, we reported a non-cash impairment charge of$408.5 million to reduce the carrying amount of goodwill for the population health management division reporting unit. This amount was retrospectively lowered by$10.3 million because of the changes made to thefair value of consideration paid and goodwill arising from the reverse business combination.

Note 21 - Subsequent Events

The Company has evaluated subsequent events through the filing of this report and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements except for the transaction described below:

January 2024 Equity Offering

In January 2024, the Company entered into a securities purchase agreement with an institutional investor whereby the investor agreed to purchase 66,666,666 shares of common stock and warrants to purchase up to an aggregate of 66,666,666 shares of common stock at a purchase price of $0.15 per share and will expire five years following the date of issuance. Maxim Group LLC is the placement agent for the offering. Total gross proceeds from the offering $10.0 million. After deducting placement agent expenses, net proceeds from the offering is $9.3 million.

Pre-Paid Advance Agreement with Yorkville

In January 2024, the Company issued 1,773,645 shares of Common Stock to Yorkville for the conversion of $0.3 million in principal. In addition, the Company paid off in full the remaining principal amount of the Yorkville PPA. The amount paid to Yorkville consisted of $2.7 million of principal and $0.2 million of premium in respect of prepaying the principal. No amounts were due to Yorkville on January 31, 2024.

Hospital Closings

In January 2024, the Company closedtwo Texas-based micro-hospitals in our hospital division. The estimated closing costs include employee severance totaling approximately $0.2 million which will be recognized in the first quarter of 2024.

Amendment to September 2023 Private Offering

On March 26, 2024 the Company amended the terms of the September 2023 Private Offering. The Conversion Price of the Unsecured Convertible Term Notes was amended to $0.20 per share and the exercise price of the Warrants was amended to $0.20 per shares. All other terms and provisions of the Unsecured Convertible Term Notes and the Warrants were not affected and remain in full force and effect.