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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 001-40033

P3 Health Partners Inc.

(Exact name of registrant as specified in its charter)

Delaware

85-2992794

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2370 Corporate Circle Suite 300 Henderson, Nevada

89074

(Address of principal executive offices)

(Zip code)

(702) 910–3950

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange

Title of each class

    

Trading Symbol(s)

    

on which registered

Class A Common Stock, Par Value $0.0001 per share Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50

PIII

PIIIW

The Nasdaq Stock Market LLC

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of outstanding shares of the Registrant’s Class A Common Stock, par value $0.0001 as of October 14, 2022 was 41,578,890. The number of outstanding shares of the Registrant’s Class V Common Stock, par value $0.0001 as of October 14, 2022 was 202,024,923.

Table of Contents

TABLE OF CONTENTS

    

Page

Cautionary Statement Regarding Forward-Looking Statements

3

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

5

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Operations

6

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) and Mezzanine Equity

7

Condensed Consolidated Statements of Cash Flows

8

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

43

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

58

Item 4.

Controls and Procedures

58

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

60

Item 1A.

Risk Factors

60

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

60

Item 3.

Defaults Upon Senior Securities

60

Item 4.

Mine Safety Disclosures

61

Item 5.

Other Information

61

Item 6.

Exhibits

62

SIGNATURES

64

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q (this “Form 10-Q”) for the quarterly period ended June 30, 2022 may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements other than statements of historical facts contained in this Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives of management, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “would” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements in this Form 10-Q are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described under the sections in this Form 10-Q entitled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q. These forward-looking statements are subject to numerous risks, including, without limitation, the following:

our management has performed an analysis of our ability to preserve an adequate level of liquidity for a period extending twelve months and has identified substantial doubt about our ability to continue as a going concern. As a result of this analysis, we may look to add additional capital or may delay or scale back growth as needed, to generate liquidity and positive cash flow as soon as possible;
our ability to recognize the anticipated benefits of the Business Combinations (as defined below), which may be affected by, among other things, competition and our ability to grow and manage growth profitably following the Business Combinations;
changes in applicable laws or regulations;
the possibility that we may be adversely affected by other economic, business, and/or competitive factors, including economic instability and inflationary conditions;
the possibility that we may never achieve or maintain profitability;
the difficulty in evaluating our future prospects, as well as risks and challenges, due to the new and rapidly evolving business and market and our limited operating history;
the possibility that we may need to raise additional capital to fund our existing operations, develop and commercialize new services or expand our operations;
possible difficulty managing growth and expanding operations;
the continuing impact of the COVID-19 pandemic on operations, which may materially and adversely affect our business and financial results;
our ability to retain qualified personnel;

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our ability to successfully execute on growth strategies, including identifying and developing successful new geographies, physician partners, payors and patients, and accurately estimating the size, revenue or medical expense amounts of target geographies;
delays and uncertainties in the timing and process of reimbursements by third-party payors and individuals, including any changes or reductions in Medicare reimbursement rates or rules;
the termination or non-renewal of the Medicare Advantage contracts held by the health plans with which we contract, or the termination or non-renewal of our contracts with those plans;
reductions in the quality ratings of the health plans we serve;
the effectiveness and efficiency of our marketing efforts, and our ability to develop brand awareness cost-effectively;
spending changes in the healthcare industry;
we, our affiliated professional entities and other physician partners may become subject to medical liability claims;
a failure in our information technology systems;
security breaches, loss of data or other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information, expose us to liability and our reputation may be harmed and we could lose revenue, clients and members;
any future litigation against us could be costly and time-consuming to defend;
failure to adhere to all of the complex government laws and regulations that apply to our business could result in fines or penalties, being required to make changes to our operations or experiencing adverse publicity;
failure to establish and maintain effective internal control over financial reporting and remediate identified material weaknesses;
failure to comply with the continued listing standards of Nasdaq;
the possibility that our arrangements with affiliated professional entities and other physician partners is found to constitute improper rendering of medical services or fee splitting under applicable state laws;
the possibility that we face inspections, reviews, audits and investigations under federal and state government programs and contracts;
the impact on us of recent healthcare legislation and other changes in the healthcare industry and in healthcare spending is currently unknown;
the transition from volume to value-based reimbursement models may have a material adverse effect on our operations;
the risks and uncertainties identified in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in the Form 10-Q; and
the risks and uncertainties described under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk

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factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

You should read this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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PART I            FINANCIAL INFORMATION

Item 1.Financial Statements

P3 HEALTH PARTNERS INC and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

    

As of June 30, 2022

    

As of December 31, 2021

ASSETS

CURRENT ASSETS:

Cash

$

63,145,379

$

140,477,586

Restricted Cash

 

753,920

 

356,286

Health Plan Receivables, Net

 

99,806,410

 

50,251,004

Clinic Fees and Insurance Receivables, Net

 

1,931,291

 

1,090,104

Other Receivables

 

261,935

 

726,903

Prepaid Expenses and Other Current Assets

 

5,080,149

 

6,959,067

TOTAL CURRENT ASSETS

 

170,979,084

 

199,860,950

LONG-TERM ASSETS:

Property and Equipment

 

9,630,761

 

8,230,250

Less: Accumulated Depreciation

 

(1,337,796)

 

(182,321)

Property and Equipment, Net

 

8,292,965

 

8,047,929

Goodwill

 

458,294,462

 

1,309,750,216

Intangible Assets, Net

 

793,553,591

 

835,838,605

Notes Receivable, Net

 

3,579,220

 

3,590,715

Right of Use Asset

 

9,510,518

 

7,020,045

TOTAL LONG-TERM ASSETS

 

1,273,230,756

 

2,164,247,510

TOTAL ASSETS (1)

$

1,444,209,840

$

2,364,108,460

LIABILITIES, MEZZANINE EQUITY and STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts Payable and Accrued Expenses

$

20,693,070

$

17,730,683

Accrued Payroll

 

3,263,338

 

6,304,362

Health Plans Settlements Payable

 

18,022,395

 

22,548,694

Claims Payable

 

139,322,367

 

101,958,324

Premium Deficiency Reserve

 

35,021,557

 

37,835,642

Accrued Interest

 

11,329,930

 

8,771,065

Current Portion of Long-Term Debt

 

 

46,101

Short-Term Debt

 

1,178,229

 

3,578,561

TOTAL CURRENT LIABILITIES

 

228,830,886

 

198,773,432

LONG-TERM LIABILITIES:

Right of Use Liability

 

10,575,753

 

6,296,883

Warrant Liabilities

 

5,429,009

 

11,382,826

Contingent Consideration

 

3,674,192

 

3,486,593

Long-Term Debt

 

80,000,000

 

80,000,000

TOTAL LONG-TERM LIABILITIES

 

99,678,954

 

101,166,302

TOTAL LIABILITIES (1)

 

328,509,840

 

299,939,734

COMMITMENTS AND CONTINGENCIES (NOTE 23)

MEZZANINE EQUITY

Redeemable Non-Controlling Interest

 

1,007,075,525

 

1,790,617,285

STOCKHOLDERS’ EQUITY:

Class A Common Stock, $.0001 par value; 800,000,000 shares authorized; 41,578,890 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

4,158

 

4,158

Class V Common Stock, $.0001 par value; 205,000,000 shares authorized; 201,423,309 shares and 196,553,523 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

 

20,142

 

19,655

Additional Paid in Capital

 

312,945,752

 

312,945,752

Accumulated Deficit

 

(204,345,577)

 

(39,418,124)

TOTAL STOCKHOLDERS’ EQUITY

 

108,624,475

 

273,551,441

TOTAL LIABILITIES, MEZZANINE EQUITY & STOCKHOLDERS’ EQUITY

$

1,444,209,840

$

2,364,108,460

(1)

The Company’s condensed consolidated balance sheets include the assets and liabilities of its consolidated variable interest entities (“VIEs”). As discussed in Note 25: Variable Interest Entities, P3 LLC is itself a VIE. P3 LLC represents substantially all the assets and liabilities of the Company. As a result, the language and numbers below refer only to VIEs held at the P3 LLC level. The condensed consolidated balance sheets include total assets that can be used only to settle obligations of the P3 LLC’s VIEs totaling $9.2 million and $8.1 million as of June 30, 2022 and December 31, 2021, respectively, and total liabilities of the P# LLC’s consolidated VIEs for which creditors do not have recourse to the general credit of the Company totaled $7.8 million and $6.1 million as of June 30, 2022 and December 31, 2021, respectively. These VIE assets and liabilities do not include $6.0 million of investment in affiliates as of June 30, 2022 and December 31, 2021, and $28.6 million and $24.1 million of amounts due to affiliates as of June 30, 2022 and December 31, 2021, respectively, as these are eliminated in consolidation and not presented within the condensed consolidated balance sheets. See Note 25 “Variable Interest Entities.”

See accompanying notes to condensed consolidated financial statements.

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P3 HEALTH PARTNERS INC and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

Successor

Predecessor

Successor

Predecessor

 

Three Months Ended

 

Three Months Ended

 

Six Months Ended

 

Six Months Ended

    

June 30, 2022

    

    

June 30, 2021

    

June 30, 2022

    

    

June 30, 2021

 

(As Restated)

 

(As Restated)

OPERATING REVENUE:

 

  

 

  

 

  

 

  

Capitated Revenue

$

267,102,466

$

141,560,867

$

536,787,281

$

290,525,057

Other Patient Service Revenue

 

2,351,505

 

3,025,577

 

6,211,024

 

5,359,329

TOTAL OPERATING REVENUE

 

269,453,971

 

144,586,444

 

542,998,305

 

295,884,386

OPERATING EXPENSES:

 

  

 

  

 

  

 

  

Medical Expenses

 

267,448,368

 

150,380,517

 

533,269,170

 

297,005,022

Premium Deficiency Reserve

 

(1,489,571)

 

1,000,000

 

(2,814,084)

 

3,000,000

Corporate, General and Administrative Expenses

 

41,098,400

 

18,390,659

 

79,697,812

 

33,449,735

Sales and Marketing Expenses

 

1,408,096

 

356,501

 

2,272,626

 

626,742

Goodwill impairment

851,455,754

851,455,754

Depreciation and Amortization

 

21,720,081

 

429,830

 

43,471,912

 

762,378

TOTAL OPERATING EXPENSES

 

1,181,641,128

 

170,557,507

 

1,507,353,190

 

334,843,877

OPERATING LOSS

 

(912,187,157)

 

(25,971,063)

 

(964,354,885)

 

(38,959,491)

OTHER INCOME (EXPENSES):

 

  

 

  

 

  

 

  

Interest Expense, net

 

(2,733,875)

 

(2,369,764)

 

(5,495,125)

 

(4,494,049)

Mark-to-Market of Stock Warrants

 

11,815,093

 

(1,123,583)

 

5,953,817

 

(10,661,579)

TOTAL OTHER INCOME (EXPENSE)

 

9,081,218

 

(3,493,347)

 

458,692

 

(15,155,628)

LOSS BEFORE INCOME TAXES

 

(903,105,939)

 

(29,464,410)

 

(963,896,193)

 

(54,115,119)

PROVISION FOR INCOME TAXES

 

 

 

 

NET LOSS

 

(903,105,939)

 

(29,464,410)

(963,896,193)

(54,115,119)

LESS NET LOSS ATTRIBUTABLE TO REDEEMABLE NON-CONTROLLING INTERESTS

 

(748,755,990)

 

 

(798,968,740)

 

NET LOSS ATTRIBUTABLE TO CONTROLLING INTERESTS

$

(154,349,949)

$

(29,464,410)

$

(164,927,453)

$

(54,115,119)

NET LOSS PER SHARE (BASIC)

$

(3.71)

N/A1

$

(3.97)

N/A1

NET LOSS PER SHARE (DILUTED)

$

(3.73)

 

N/A1

$

(4.01)

 

N/A1

See accompanying notes to condensed consolidated financial statements.

1 The Company analyzed the calculation of net loss per member unit for predecessor periods prior to the Business Combinations and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, net loss per member unit information has not been presented for predecessor periods prior to the Business Combinations on December 3, 2021.

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P3 HEALTH PARTNERS INC and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’/MEMBERS’ EQUITY (DEFICIT) AND MEZZANINE EQUITY

(UNAUDITED)

    

    Class A

Class D

Class B-1

    

Class C

    

Redemption of 

    

    

 

Units

    

Amount

    

Units

    

Amount

 

 

Units

    

Amount

 

Units

    

Amount

Profit Interest

Accumulated Deficit

Total Members’ Deficit

MEMBERS' DEFICIT, DECEMBER 31, 2020 As Restated

 

43,000,000

$

43,656,270

16,130,034

$

47,041,554

6,000,000

$

380,000

 

1,302,083

$

67,474

$

(180,000)

$

(130,485,179)

$

(130,217,705)

Class C Unit Based Compensation

 

 

 

 

 

333,750

 

460,515

 

 

 

460,515

Net Loss

 

 

 

 

 

 

 

 

(24,650,712)

 

(24,650,712)

MEMBERS’ DEFICIT, MARCH 31, 2021 As Restated

 

43,000,000

$

43,656,270

16,130,034

$

47,041,554

6,000,000

$

380,000

 

1,635,833

$

527,989

$

(180,000)

$

(155,135,891)

$

(154,407,902)

Class B-1 and Class C Unit Based Compensation

 

 

 

2,000,000

 

380,000

 

140,000

 

183,792

 

 

 

563,792

Net Loss

 

 

 

 

 

 

 

 

(29,464,410)

 

(29,464,410)

MEMBERS’ DEFICIT, June 30, 2021 As Restated

 

43,000,000

$

43,656,270

16,130,034

47,041,554

8,000,000

$

760,000

 

1,775,833

$

711,781

$

(180,000)

$

(184,600,301)

$

(183,308,520)

Successor

Redeemable

Noncontrolling

Class A Common Stock

Class V Common Stock

Additional 

Accumulated 

Total 

    

Interests

    

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid in Capital

    

Deficit

    

Stockholders' Equity

STOCKHOLDERS' EQUITY (DEFICIT), December 31, 2021

$

1,790,617,285

 

41,578,890

$

4,158

 

196,553,523

$

19,655

$

312,945,752

$

(39,418,124)

$

273,551,441

Vesting of stock compensation awards

 

 

 

 

549,822

 

55

 

 

 

55

Stock compensation

 

11,711,427

 

 

 

 

 

 

 

Net Loss

 

(50,212,750)

 

 

 

 

 

 

(10,577,504)

 

(10,577,504)

STOCKHOLDERS' EQUITY (DEFICIT), March 31, 2022

$

1,752,115,962

 

41,578,890

$

4,158

 

197,103,345

$

19,710

$

312,945,752

$

(49,995,628)

$

262,973,992

Vesting of stock compensation awards

 

 

 

 

4,319,964

 

432

 

 

 

432

Stock compensation

 

3,715,553

 

 

 

 

 

 

 

Net Loss

 

(748,755,990)

 

 

 

 

 

 

(154,349,949)

 

(154,349,949)

STOCKHOLDERS' EQUITY (DEFICIT), June 30, 2022

$

1,007,075,525

 

41,578,890

 

4,158

 

201,423,309

 

20,142

 

312,945,752

 

(204,345,577)

 

108,624,475

See Accompanying Notes to Condensed Consolidated Financial Statements

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P3 HEALTH PARTNERS INC and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

    

Successor

  

  

Predecessor

 

Six Months Ended

 

Six Months Ended

June 30, 2022

June 30, 2021

 

(As Restated)

Cash Flows from Operating Activities

 

  

 

  

Net Loss

$

(963,896,193)

$

(54,115,119)

Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:

 

  

 

  

Depreciation and Amortization

 

43,471,912

 

762,378

Stock-Based Compensation

 

15,426,980

 

1,024,307

Goodwill impairment

851,455,754

Class A and Class D Preferred Returns

 

 

Amortization of Debt Origination Fees

 

 

349,324

Amortization of Discount from Issuance of Debt

 

 

621,305

Mark-to-Market Adjustment of Stock Warrants

 

(5,953,817)

 

10,661,579

Premium Deficiency Reserve

 

(2,814,084)

 

3,000,000

Changes in Assets and Liabilities:

 

 

  

Non-cash Interest Expense

187,599

Accounts Receivable

 

(376,219)

 

92,491

Health Plan Receivables / Premiums

 

(49,555,406)

 

1,212,093

Other Current Assets

 

1,890,414

 

(361,241)

Net Change in ROU Assets and Liabilities

3,556,272

75,337

Accounts Payable

 

1,163,574

 

(1,005,876)

Accrued Payroll

 

(3,041,024)

 

(2,648,873)

Accrued Interest

 

2,558,865

 

1,807,007

Health Plan Payables / Premiums

 

(4,526,299)

 

(1,342,803)

Claims Payable

 

37,364,043

 

5,736,206

Net Cash used in Operating Activities

 

(73,087,629)

 

(34,131,885)

Cash Flows from Investing activities

 

  

 

  

Purchase of Property, Plant and Equipment

 

(1,400,511)

 

(1,883,226)

Acquisitions

 

 

(82,000)

Increase in Notes Receivable, Net

 

 

226,808

Net Cash used in Investing Activities

 

(1,400,511)

 

(1,738,418)

Cash Flows from Financing activities

 

  

 

  

Issuance of Long-Term Debt

 

 

12,750,000

Repayment of Short-Term and Long-Term Debt

 

(2,446,433)

 

(44,629)

Loan Origination and Closing Fees

 

 

(191,250)

Net Cash used in (provided by) Financing Activities

 

(2,446,433)

 

12,514,121

Net Change in Cash and Restricted Cash

 

(76,934,573)

 

(23,356,182)

Cash and Restricted Cash, Beginning of Period

 

140,833,872

 

39,902,947

Cash and Restricted Cash, End of Period

$

63,899,299

$

16,546,765

See accompanying notes to condensed consolidated financial statements.

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P3 HEALTH PARTNERS INC and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1: Organization and Basis of Presentation

Description of Business and Business Combination

P3 Health Partners Inc. (the “Company” or “P3”) is a patient-centered and physician-led population health management company and the successor to P3 Health Group Holdings, LLC

P3 Health Group Holdings, LLC and Subsidiaries was founded on April 12, 2017 and began commercial operations on April 20, 2017 to provide population health management services on an at-risk basis to insurance plans offering medical coverage to Medicare beneficiaries under Medicare Advantage programs. Medicare Advantage programs are insurance products created solely for Medicare beneficiaries. Insurance plans contract directly with the Centers for Medicare and Medicaid Services (“CMS”) to offer Medicare beneficiaries benefits that replace traditional Medicare Fee for Service (“FFS”) coverage.

On December 3, 2021, (the “Closing Date”), the Company consummated the transactions pursuant to which, among other things, P3 Health Group Holdings, LLC merged with and into FAC Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Foresight Acquisition Corp. (“Foresight” or “Merger Sub”) (the “P3 Merger”), with Merger Sub as the surviving company, which was renamed P3 Health Group, LLC (“P3 LLC”), and FAC-A Merger Sub Corp., a Delaware corporation and a wholly owned subsidiary of Foresight, FAC-B Merger Sub Corp., a Delaware corporation and a wholly owned subsidiary of Foresight (together with FAC-A Merger Sub Corp., the “Merger Corps”) merged with and into CPF P3 Blocker-A, LLC, a Delaware limited liability company, CPF P3 Blocker-B, LLC a Delaware limited liability company (together with CPF P3 Blocker-A, LLC, the “Blockers”), with the Blockers as the surviving entities and wholly-owned subsidiaries of Foresight (collectively, the “Business Combinations”). Upon completion of the Business Combinations (the “Closing”), the Company and P3 LLC were organized in an “Up-C” structure in which all of the P3 LLC operating subsidiaries are held directly or indirectly by P3 LLC, and the Company directly owned approximately 17.1% of P3 LLC and became the sole manager of P3 LLC. Following Closing, substantially all of the Company’s assets and operations are held and conducted by P3 LLC and its subsidiaries, and the Company’s only assets are equity interest in P3 LLC. In connection with the closing of the transactions, the Company changed its name from Foresight Acquisition Corp. to P3 Health Partners Inc.

The Company’s contracts with health plans are based on an at-risk shared savings model. Under this model, the Company is financially responsible for the cost of all contractually covered services provided to members assigned to the Company by health plans in exchange for a fixed monthly “capitation” payment, which is generally a percentage of the payment health plans receive from CMS. Under this arrangement, Medicare beneficiaries generally receive all their healthcare coverage through the Company’s network of employed and affiliated physicians and specialists (except for emergency situations).

The services provided to health plans’ members vary by contract. These may include utilization management, care management, disease education, and maintenance of a quality improvement and quality management program for members assigned to the Company. The Company is also responsible for the credentialing of Company providers, processing and payment of claims and the establishment of a provider network for certain health plans. At June 30, 2022 and December 31, 2021, the Company had agreements with twenty and seventeen health plans, respectively.

The Company has Management Services Agreements (“MSAs”) and deficit funding agreements with Kahan, Wakefield, Abdou, PLLC and Bacchus, Wakefield, Kahan, PC, P3 Health Partners Professional Services P.C., P3 Medical Group, P.C. and P3 Health Partners California, P.C. (collectively, the “Network”). As more fully described in Note 25 “Variable Interest Entities”, the entities in the Network are variable interest entities and the Company is the primary beneficiary of the Network. The MSAs provide that the Company or its subsidiaries will furnish administrative personnel, office supplies and equipment, general business services, contract negotiation and billing and collection services to the Network. Fees for these services are the excess of the Network’s revenue over expenses. Per the deficit funding agreements, the Company or its subsidiaries are obligated to lend amounts to the Network to the extent expenses exceed revenues. The loan will bear interest at prime plus 2%.

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In addition to the Company’s contracts with health plans, through its relationship with Kahan, Wakefield, Abdou, PLLC and Bacchus, Wakefield, Kahan, PC, the Company provides primary healthcare services through its employed physician clinic locations. These primary care clinics are reimbursed for services provided under FFS contracts with various payers and through capitated – per member, per month (“PMPM”) arrangements.

Basis of Presentation

These unaudited interim condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of the U.S. Securities and Exchange Commission (“SEC”) Regulation S-X. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted pursuant to SEC rules and regulations dealing with interim financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair presentation of periods presented. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. For further information, refer to the consolidated financial statements and notes thereto included in our 2021 Form 10-K. There have been no significant changes to our accounting policies and estimates during the six months ended June 30, 2022 from those previously disclosed in the 2021 Form 10-K.

As a result of the Business Combinations, for accounting purposes, Foresight is the acquirer and P3 Health Group Holdings, LLC is the accounting acquiree and predecessor. The financial statement presentation includes the financial statements of P3 Health Group Holdings, LLC as “Predecessor” for the periods prior to the Closing Date (the “Predecessor Period(s)”) and of the Company as “Successor” for the periods after the Closing Date (the “Successor Period(s)”), including the consolidation of P3 Health Group Holdings, LLC.

As a result of the application of the acquisition method of accounting as of the Closing Date of the Business Combinations, the accompanying unaudited condensed consolidated financial statements include a black line division that indicates that the Predecessor and Successor reporting entities shown are presented on a different basis and are therefore, not comparable.

The Company qualifies as an Emerging Growth Company (“EGC”) and as such, has elected the extended transition period for complying with certain new or revised accounting pronouncements. During the extended transition period, the Company is not subject to certain new or revised accounting standards applicable to public companies. The accounting pronouncements pending adoption as described in Note 6 “Recent Accounting Pronouncements Not Yet Adopted” reflect effective dates for the Company as an EGC with the extended transition period.

Restatement of Prior Year Amounts

As discussed in the Company's 2021 consolidated financial statements included in the 2021 Form 10-K, the Company restated the previously issued unaudited condensed consolidated financial statements for each interim period within the fiscal years ended December 31, 2021 and December 31, 2020.

Note 2: Restatement of Previously Issued Financial Statements

The Company has restated the condensed consolidated financial statements for the three and six months ended June 30, 2021.

Network

Since 2017, P3 Health Group Holdings and P3 Health Partners, LLC (collectively with P3 Health Partners, Inc., “P3”) have entered into a collective of arrangements with the Network whereby P3 consolidates the Network under the Variable Interest Entity model in accordance with ASC Topic 810, Consolidation (“ASC 810”). Historically, all of the net losses incurred by the Network has been allocated to loss attributable to non-controlling interests. Based on an analysis of the deficit funding agreement between P3 and the Network, P3 is obligated to fund losses incurred by the Network. Because P3 is contractually obligated to fund the losses, losses incurred by the Network should not be allocated to non-controlling interests.

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Based on management’s evaluation, it was concluded that the Company’s accounting for non-controlling interests related to the Network is not attributed in the manner contemplated by ASC 810. As a result, the Company is reclassifying the loss attributable to non-controlling interest related to the Network to loss attributable to controlling interests on the Consolidated Balance Sheets, Consolidated Statements of Operations, and the Consolidated Statements of Changes in Stockholders’/Members’ Equity for the periods described above.

The Company's accounting for the loss in controlling interests instead of non-controlling interests has no impact on the Company's current or previously reported cash position, revenue, operating expenses or total operating, investing or financing cash flows.

Preferred Returns

P3's capital structure consists of Class A Units, which represent commitments from the Company’s private equity sponsors, and Class D Units, which represents an additional investment from a private equity sponsor. Both the Class A and Class D Units have voting rights and, accrue a preferred return in the amount of 8.0% per annum.

Historically, all of the accrued returns have been incorrectly recognized as interest expense on P3’s Statements of Operations and as equity on P3’s Balance Sheets. Based on the analysis of the Class A and Class D Units, the preferred returns should not be accrued until they are legally declared. As a result, the Company’s historical recording of preferred returns in equity and interest expense has been removed as no recognition is necessary until legally declared.

Class A Units

Historically, the Class A Preferred Units issued by P3 have been accounted for as permanent equity. Since the Class A Preferred Units are redeemable upon the occurrence of a Sale of the Company via the liquidation and distribution preferences that returns invested capital and the preferred return, management evaluated whether the occurrence of such an event is outside of the Company’s control. As the Class A preferred unit holders hold a majority vote, the redemption of Class A Preferred Units upon a Sale of the Company, irrespective of probability, is outside of the Company’s control.

Based on management’s evaluation, the Class A Preferred Units should be reclassified from permanent to mezzanine equity. Additionally, the Company entered into the Second Amended and Restated Limited Liability Company Agreement in 2019, which provided the holders of Class A units an 8% per annum preferred return.  The Company determined that the amendment should be accounted for as a modification. Therefore, the Company recorded the incremental increase in fair value as an adjustment to the carrying value of Class A units with an offset to APIC equivalent and accumulated deficit.

Capitated Revenues

Medicare pays capitation using a “risk adjustment model”, which compensates providers based on the health status (acuity) of each individual patient (via a Risk Adjustment Factor, “RAF”). The Company’s policy is to recognize the variable RAF component of capitation revenues, to the extent that it is probable a significant reversal will not occur. At the December 31, 2020 balance sheet date the Company determined its estimates of the RAF components of certain capitation revenues were constrained and therefore not estimable, as it was not probable a significant reversal would not occur. The Company subsequently collected the RAF components of capitation payments prior to the issuance of the 2020 financial statements, effectively relieving the constraints which previously existed at the December 31, 2020 balance sheet date.  As a result, capitation revenues for 2020 were restated based on the results of management’s analysis of the RAF component of cash receipts collected prior to the issuance 2020 financial statements which were previously determined to not be estimable. The revenue now recognized in 2020 was previously recognized in June of 2021. The total amount of the RAF adjustment was $6,532,954.

There were two other errors related to capitated revenue, other patient service revenue, and medical expenses which were corrected in the restatement. Firstly, the Company has reclassified capitated revenue streams attributable to the Network. These capitated revenues were previously classified as “other patient service revenue” and then have been reclassified into “capitated revenue”. Secondly, the Company has eliminated intercompany revenue and expense related to transactions between Bacchus and P3-NV that should have been eliminated in consolidation. Prior to the restatement noted above regarding capitated revenue, this adjustment was a decrease to other patient service revenue and a decrease to medical expenses.

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Disclosure Correction

The disclosure of the condensed financial statement of the Company’s consolidated VIE has been corrected for accrued interest and interest expense relating to the advances made to the VIE for the three and six month periods ended June 30, 2021 (see Note 25).  There is no impact to the condensed consolidated financial statements of the Company of this correction to the disclosures.

The following tables summarize the restatement adjustments on each financial statement line item affected by the restatement as of the dates, and for the periods, indicated:

    

As Previously

    

Network

    

Preferred Returns

    

Class A Units

    

Revenue

    

    

Reported

    

Adjustments

    

Adjustments

    

Adjustments

    

Adjustment

    

As Restated

Condensed Consolidated Statement of Operations for the Six Months Ended June 30, 2021 (Unaudited)

 

  

 

  

 

  

 

  

 

  

 

  

Capitated Revenue

$

294,860,130

$

$

$

$

(4,335,073)

$

290,525,057

Other Patient Service Revenue

 

8,122,849

 

 

 

 

(2,763,520)

 

5,359,329

Total Operating Revenue

 

302,982,979

 

 

 

 

(7,098,593)

 

295,884,386

Medical Expenses

 

297,570,662

 

 

 

 

(565,640)

 

297,005,022

Total Operating Expenses

 

335,409,517

 

 

 

 

(565,640)

 

334,843,877

Operating Loss

 

(32,426,538)

 

 

 

 

(6,532,953)

 

(38,959,491)

Interest Expense, net

 

(8,487,374)

 

 

3,993,325

 

 

 

(4,494,049)

Total Other Expenses

 

(19,148,953)

 

 

3,993,325

 

 

 

(15,155,628)

Net Loss Attributable to Non-Controlling Interests

 

(5,241,713)

 

5,241,713

 

 

 

 

Net Loss (formerly Net Loss Attributable to Controlling Interests)

 

(46,333,778)

 

(5,241,713)

 

3,993,325

 

 

(6,532,953)

 

(54,115,119)

Condensed Consolidated Statement of Operations for the Three Months Ended June 30, 2021 (Unaudited)

 

  

 

  

 

  

 

  

 

  

 

  

Capitated Revenue

$

147,159,665

$

$

$

$

(5,598,799)

$

141,560,866

Other Patient Service Revenue

 

4,258,933

 

 

 

 

(1,233,356)

 

3,025,577

Total Operating Revenue

 

151,418,598

 

 

 

 

(6,832,155)

 

144,586,443

Medical Expenses

 

150,679,717

 

 

 

 

(299,200)

 

150,380,517

Total Operating Expenses

 

170,856,707

 

 

 

 

(299,200)

 

170,557,507

Operating Loss

 

(19,438,108)

 

 

 

 

(6,532,955)

 

(25,971,063)

Interest Expense, net

 

(4,406,240)

 

 

2,036,476

 

 

 

(2,369,764)

Total Other Expenses

 

(5,529,823)

 

 

2,036,476

 

 

 

(3,493,347)

Net Loss Attributable to Non-Controlling Interests

 

(1,959,421)