NUTEX HEALTH HOLDCO, LLC AND AFFILIATES

COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

(With Independent Registered Public Accounting Firm’s Report Thereon)

NUTEX HEALTH HOLDCO, LLC AND AFFILIATES

TABLE OF CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Members and Board of Directors of

Nutex Health Holdco, LLC and Affiliates

Opinion on the Financial Statements

We have audited the accompanying combined and consolidated balance sheets of Nutex Health Holdco, LLC and Affiliates (the “Company”) as of December 31, 2021 and 2020, the related combined and consolidated statements of operations, changes in equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Marcum llp

Marcum llp

We have served as the Company’s auditor since 2021.

Houston, Texas

June 15, 2022

COMBINED AND CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2021 AND 2020

See accompanying notes to combined and consolidated financial statements.

COMBINED AND CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

See accompanying notes to combined and consolidated financial statements.

COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

See accompanying notes to combined and consolidated financial statements.

COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

See accompanying notes to combined and consolidated financial statements.

NUTEX HEALTH HOLDCO, LLC AND AFFILIATES

NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021 AND 2020

Note 1 – Organization and Operations

Nutex Health Holdco, LLC (the “Company”, “Nutex”, “we” or “our”) is a holding company in the micro-hospital and hospital outpatient department industry formed on October 22, 2021, as a Delaware limited liability company. The Company owns and operates 21 facilities in eight states across the Southwest and Midwest United States. We employ approximately 1500 employees and partner with over 800 physicians. Our corporate headquarters is based in Houston, Texas.

Merger with Clinigence Holdings. On April 1, 2022, the Company’s merger with Clinigence Holdings, Inc., a Delaware corporation (“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 (“MHH”) (solely for the purposes of certain sections of the Merger Agreement), Nutex Holdco LLC (solely for the purposes of certain sections of the Merger Agreement) and Thomas Vo, M.D., not individually but in his capacity as the representative of the equity holders of Nutex.

In connection with the Merger Agreement, Nutex entered into certain Contribution Agreements with holders of equity interests (“Nutex Owners”) of subsidiaries and affiliates of Nutex and MHH (the “Nutex Subsidiaries”) pursuant to which such Nutex Owners agreed to contribute certain equity interests in the Nutex Subsidiaries to Nutex in exchange for specified equity interests in Nutex (collectively, the “Contribution Transaction”). Nutex owners having ownership interests representing approximately 84% of the agreed upon 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 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, or aggregate of 592,791,712 shares of common stock of Clinigence.

Under the terms of the Contribution Agreements, contributing owners of the Under Development Hospitals and Ramping Hospitals are eligible to receive a one-time additional issuance of Company Common Stock based on their TTM EBITDA as determined on the 24th anniversary of the opening. Such additional shares will be issued at the greater of the price of the Company Common Stock at the time of determination and $2.80.

The Merger was accounted for as a “reverse merger,” with Nutex as the accounting acquirer in accordance with ASC 805, Business Combinations, and Clinigence as the accounting acquiree.

Basis of Presentation. These financial statements are presented for periods before the Company’s merger with Clinigence was completed and present the combined and consolidated financial statements of Nutex and the Nutex Subsidiaries, giving effect to the transactions contemplated by the Contribution Agreements. These entities include:

The Company’s ownership interest in the ER Entities is presented in the following table:

In addition, the ER Entities have financial and operating relationships with multiple professional entities (“PLLCs”) and real estate entities (“REEs”). The PLLCs employ the doctors who work in our emergency rooms. These entities are consolidated by the Company as variable interest entities (“VIEs”) because they do not have significant equity at risk, and the ER Entities have historically supported the PLLCs cash shortages and received the benefits of their cash surpluses.

The REEs own the land and hospital buildings which are leased to the ER Entities. The REEs have mortgage loans payable to third parties which are collateralized by the land and buildings. The REEs are also consolidated by the Company as VIEs because they do not have sufficient equity at risk and the ER Entities are guarantors of the outstanding mortgage loans.

The Company has no direct or indirect ownership interest in the PLLCs or REEs, so 100% of the equity for these entities is shown as non-controlling interest in the consolidated and combined balance sheets and statements of income. See Note 12 – Variable Interest Entities for more information concerning these entities.

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

Note 2 - Summary of Significant Accounting Policies

Net Revenue and Accounts Receivable. Net patient service revenue relates to contracts with patients and in most cases involve a third-party payor (commercial insurance, workers compensation insurance or, in limited cases, Medicare/Medicaid) in which the Company’s performance obligations are to provide emergency health care services. The Company provides 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. Each of the ER Entities and PLLCs 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.

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.

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 Federal Deposit Insurance Corporation is an independent agency of the United States government which insures deposits in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The Company has amounts, that were at times material, held in covered banking institutions in excess of the covered amounts, but does not deem the risk of loss to be likely.

Allowance for Uncollectible Accounts. Net revenue recognition and allowances for uncollectible billings require the use of estimates of the amounts that will be realized considering, among other items, retroactive adjustments that may be associated with regulatory reviews, audits, billing reviews and other matters. The Company’s policy is based on its historical bad debt experience. Because of the inherent uncertainties in estimating these allowances, it is at least reasonably possible that these estimates will change in the near term.

Inventories. Inventories, which consist primarily of medical supplies and pharmaceuticals, are valued at the lower of cost or net realizable value. Cost is determined using first-in, first-out method. All inventory on-hand is classified as finished goods.

Property and Equipment. Property and equipment are recorded at cost. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the property and equipment range from 5 to 39 years. Expenditures for additions, major renewal, and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income. Depreciation is not recorded for assets under construction until the asset is placed in service.

Intangible Assets. The Company’s intangible assets, including goodwill, have indefinite lives which are assessed for impairment at least annually, or when certain indicators of impairment exist on an interim basis. The Company’s intangible asset consists of operating licenses totaling $682,649 and goodwill totaling $1,139,297 acquired as part of the SE Texas acquisition. No impairment was recorded for the years ended December 31, 2021 and 2020.

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 on a quarterly basis using a third-party financial model that estimates 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.

Noncontrolling Interests. Noncontrolling interest (“NCI”) represent the portion of net assets in combined and 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 non-controlling interests is shown as a component of net income in the consolidated statements of income.

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.

Advertising and marketing expense. The company advertising and marketing expense consists of expense associated with marketing the company's brand and services via media outlets such as social medias and billboard signs publications.

Income Taxes. Each of the companies in these combined and consolidated financial statements are pass-through entities treated as partnerships for U.S. federal income tax purposes. Therefore, there is no provision for federal income taxes in the combined statements of income since income is taxed at the individual member level. The Companies are subject to certain state income taxes, including Texas franchise taxes and have made provision for these in the financial statements.

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. We file income tax returns in the U.S. as well as in various states jurisdictions. With few exceptions, our returns for periods prior to 2017 are no longer subject to examination by tax authorities in these jurisdictions.

Business Combinations Accounting. 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.

Revision of Prior Period Financial Statements. We made certain immaterial revisions to previously reported amounts in our combined and consolidated financial statements as of and for the year ended December 31, 2020. These revisions corrected the classification of net income and equity attributable to noncontrolling interests and corrected the presentation of items within the statement of cash flows. We evaluated these matters in accordance with SAB No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements and determined that their related impact was not material to our financial statements for any prior annual or interim period. We will correct previously reported financial information for these immaterial matters in our future filings, as applicable. A summary of the revisions to our prior period financial statements is presented below.

Reclassifications. Financial statements presented for prior periods include reclassifications that were made to conform to the current-year presentation.

Recent Accounting Pronouncements. There are no new accounting pronouncements that are expected to have a material impact on the consolidated financial statements.

Note 3 - Net Patient Service Revenue

The Company receives payment for services rendered from federal agencies, private insurance carriers, and patients for facility services from the ER Entities’ and doctor services from the PLLC’s. On average, greater than 97% of revenues are 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.

Patient service revenue, net of allowances and discounts, recognized by the ER Entities and PLLCs for the years ended December 31, 2021 and 2020 were as follows:

The following tables present our percentage of payments received by payor type for the years ended December 31, 2021 and 2020:

Note 4 - Property and Equipment

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

Note 5 - Debt

The Company and its affiliates have entered into private debt arrangements with banking institutions for the purposes of purchasing land, constructing new emergency room facilities, building out leasehold improvements, purchasing equipment, and providing working capital and liquidity through cash and lines of credit (“LOC”).

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

The amounts of lines of credit and long-term debt coming due during the five years after December 31, 2020, are as follows:

The term loan for Kyle ER is subject to a minimum debt service coverage Ratio (“DSCR”) of 1.15:1, tested annually. The term loan to Texarkana ER is subject to a minimum DSCR of 1.25:1, tested annually. The term loan to Tucson ER and Tucson Assets are subject to a minimum DSCR of 1.25:1 and minimum fixed charge coverage ratio of 1.15:1, tested quarterly. The term loans to Alexandria ER and Alexandria Assets are subject to a minimum DSCR of 1.2:1, tested annually, and require one of the partnerships to maintain unencumbered cash and cash equivalents in excess of $5,000,000. The term loan to Phoenix ER is subject to a minimum DSCR of 1.2:1, tested semi-annually at June 30th and December 31st of each calendar year, and must maintain liquid assets of not less than $750,000 to be tested annually, and must maintain a cash reserve account with the bank containing an average balance of $250,000 or greater, tested quarterly. The term loan to Topeka ER is subject to a minimum DSCR of 1.3:1.

Federal Payroll Protection Program Loans. Congress created the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide forgivable loans to eligible small businesses facing economic hardship to retain U.S. employees on their payroll during the Coronavirus Disease 2019 (“COVID-19”) pandemic.

PPP loan recipients were eligible to have their loans forgiven if the funds were used for eligible expenses over the eight-week coverage period commencing when the loan was originally disbursed. The amount of forgiveness may be reduced if the percentage of eligible expenses attributed to nonpayroll expenses exceeds 25% of the loan, if employee headcount decreases, or compensation decreases by more than 25% for each employee making less than $100,000 per year, unless the reduced headcount or compensation levels are restored.

We recognized $5,546,597 in 2021 of other income within the combined and consolidated financial statements for the forgiveness of PPP loans. 

Note 6 - Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following as of December 31:

Note 7 – Leases

The Companies have entered into hospital property and equipment rental agreements with various lessors. The ER Entities have intercompany lease agreements with the REEs, which are eliminated and not shown in the tables below. The third-party leases shown in the following tables represent hospital building and medical equipment leases. The hospital operating leases expire on various dates between July 2024 through June 2039.

The following tables disclose information about third-party leases as of and for the years ended December 31, 2021 and 2020:

Minimum lease payments for the next five years as of December 31, 2021 are as follows:  

Note 8 - 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 employees’ salary, not to exceed the maximum allowed by law. Texarkana Emergency Center & Hospital, LLC (“Texarkana”) is the only entity which may contribute a discretionary match up to 5% of its employees’ salaries. For the years ended December 31, 2021 and 2020, Texarkana did not make significant discretionary contributions to its employee plan.

Note 9 – Commitments and Contingencies

Litigation. Certain of the companies in these combined and consolidated financial statements are 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 Company’s combined and consolidated financial statements.

Note 10 – Segment Information

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