Airsculpt Technologies, Inc. 10-K

Item 8. Financial Statements and Supplementary Data 64 Table of Contents INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 66 Consolidated Balance Sheets 67 Consolidated Statements of Operations 68 Consolidated Statements of Other Comprehensive Loss 69 Consolidated Statements of Changes in Stockholders’ Equity 70 Consolidated Statements of Cash Flows 71 Notes to Consolidated Financial Statements 73 65 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders AirSculpt Technologies, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of AirSculpt Technologies, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, other comprehensive loss, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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. Those standards require that we plan and perform the audit 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/ GRANT THORNTON LLP We have served as the Company’s auditor since 2018. Tampa, Florida March 14, 2025 66 Table of Contents AirSculpt Technologies, Inc. and Subsidiaries Consolidated Balance Sheets December 31, 2024 and 2023 ($000s, except for shares) December 31, 2024 December 31, 2023 Assets Current assets Cash and cash equivalents $ 8,235 $ 10,262 Taxes receivable 3,056 1,941 Prepaid expenses and other current assets 5,826 3,758 Total current assets 17,117 15,961 Property and equipment, net 37,471 28,908 Other long-term assets 6,413 5,657 Right of use operating lease assets 25,669 25,413 Intangible assets, net 41,592 46,346 Goodwill 81,734 81,734 Total assets $ 209,996 $ 204,019 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 6,256 $ 3,922 Accrued payroll and benefits 2,531 4,127 Current portion of long-term debt 4,250 2,125 Deferred revenue and patient deposits 1,169 1,463 Accrued and other current liabilities 8,304 3,303 Current operating lease liabilities 6,099 5,375 Total current liabilities 28,609 20,315 Long-term debt, net 65,456 69,503 Deferred tax liability, net 6,576 6,828 Long-term operating lease liabilities 24,248 22,665 Revolving credit funds payable 5,000 — Other long-term liabilities 817 716 Total liabilities 130,706 120,027 Commitments and contingent liabilities (Note 9) Stockholders' equity Common stock, $ 0.001 par value; shares authorized - 450,000,000 ; shares issued and outstanding - 58,369,138 and 57,355,676 , respectively 58 57 Additional paid-in capital 107,721 103,898 Accumulated other comprehensive loss ( 687 ) ( 412 ) Accumulated deficit ( 27,802 ) ( 19,551 ) Total stockholders' equity 79,290 83,992 Total liabilities and stockholders' equity $ 209,996 $ 204,019 The accompanying notes are an integral part of these consolidated financial statements. 67 Table of Contents AirSculpt Technologies, Inc. and Subsidiaries Consolidated Statements of Operations For the years ended December 31, 2024, 2023 and 2022 Twelve Months Ended December 31, (in $000s, except for shares and per share figures) 2024 2023 2022 Revenue $ 180,350 $ 195,917 $ 168,794 Operating expenses: Cost of service (exclusive of depreciation and amortization) 71,382 74,012 62,781 Selling, general and administrative (1) 98,880 102,381 101,418 Loss on debt modification — — 932 Depreciation and amortization 11,888 10,253 8,061 Loss/(gain) on disposal of long-lived assets 16 ( 212 ) 147 Total operating expenses 182,166 186,434 173,339 (Loss)/income from operations ( 1,816 ) 9,483 ( 4,545 ) Interest expense, net 6,247 6,485 6,751 Pre-tax net (loss)/income ( 8,063 ) 2,998 ( 11,296 ) Income tax expense 188 7,477 3,383 Net loss $ ( 8,251 ) $ ( 4,479 ) $ ( 14,679 ) Loss per share of common stock Basic $ ( 0.14 ) $ ( 0.08 ) $ ( 0.26 ) Diluted $ ( 0.14 ) $ ( 0.08 ) $ ( 0.26 ) Weighted average shares outstanding Basic 57,688,906 56,778,793 55,684,701 Diluted 57,688,906 56,778,793 55,684,701 (1) During the first quarter of fiscal year 2024, the Company recorded a cumulative reversal of stock compensation expense of $ 10.4 million related to reassessing the probability of achieving the performance target on certain of the Company's performance-based stock units. See Note 6 to the consolidated financial statements included in this Annual Report on Form 10-K for further discussion. The accompanying notes are an integral part of these consolidated financial statements. 68 Table of Contents AirSculpt Technologies, Inc. and Subsidiaries Consolidated Statements of Other Comprehensive Loss For the years ended December 31, 2024, 2023 and 2022 Twelve Months Ended December 31, ($000s) 2024 2023 2022 Net loss $ ( 8,251 ) $ ( 4,479 ) $ ( 14,679 ) Other comprehensive loss: Change in foreign currency translation adjustment ( 275 ) ( 336 ) ( 76 ) Total other comprehensive loss: ( 275 ) ( 336 ) ( 76 ) Comprehensive loss $ ( 8,526 ) $ ( 4,815 ) $ ( 14,755 ) The accompanying notes are an integral part of these consolidated financial statements. 69 Table of Contents AirSculpt Technologies, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity For the years ended December 31, 2024, 2023 and 2022 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss ($000s, except for shares) Shares Amount Accumulated Deficit Total Balance at December 31, 2021 55,640,154 56 83,865 — ( 393 ) 83,528 Issuance of common stock through unit vesting 541,535 — — — — — Distributions — — ( 732 ) — — ( 732 ) Dividends — — ( 24,701 ) — — ( 24,701 ) Equity-based compensation — — 29,457 — — 29,457 Payment of taxes withheld through vested equity-based compensation — — ( 2,031 ) — — ( 2,031 ) Net loss — — — — ( 14,679 ) ( 14,679 ) Other comprehensive loss — — — ( 76 ) — ( 76 ) Balance at December 31, 2022 56,181,689 56 85,858 ( 76 ) ( 15,072 ) 70,766 Issuance of common stock through unit vesting 1,173,987 1 — — — 1 Distributions — — ( 79 ) — — ( 79 ) Dividends — — 129 — — 129 Equity-based compensation — — 18,224 — — 18,224 Payment of taxes withheld through vested equity-based compensation — — ( 234 ) — — ( 234 ) Net loss — — — — ( 4,479 ) ( 4,479 ) Other comprehensive loss — — — ( 336 ) — ( 336 ) Balance at December 31, 2023 57,355,676 57 103,898 ( 412 ) ( 19,551 ) 83,992 Issuance of common stock through unit vesting 1,013,462 1 — — — 1 Dividends — — 964 — — 964 Equity-based compensation — — 3,762 — — 3,762 Payment of taxes withheld through vested equity-based compensation — — ( 903 ) — — ( 903 ) Net loss — — — — ( 8,251 ) ( 8,251 ) Other comprehensive loss — — — ( 275 ) ( 275 ) Balance at December 31, 2024 58,369,138 $ 58 $ 107,721 $ ( 687 ) $ ( 27,802 ) $ 79,290 The accompanying notes are an integral part of these consolidated financial statements. 70 Table of Contents AirSculpt Technologies, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the years ended December 31, 2024, 2023 and 2022 Twelve Months Ended December 31, ($000s) 2024 2023 2022 Cash flows from operating activities Net loss $ ( 8,251 ) $ ( 4,479 ) $ ( 14,679 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 11,888 10,253 8,061 Equity-based compensation 3,762 18,224 29,457 Non-cash interest expense; amortization of debt costs 339 207 921 Loss on debt modification — — 932 Deferred income taxes ( 252 ) 1,342 1,134 Loss/(gain) on disposal of long-lived assets 16 ( 212 ) 147 Changes in assets and liabilities Taxes receivable ( 1,115 ) 890 ( 2,831 ) Prepaid expense and other current assets ( 2,059 ) 466 ( 5 ) Other assets ( 1,011 ) ( 3,814 ) ( 7,274 ) Accounts payable 739 ( 206 ) 865 Deferred revenue and patient deposits ( 293 ) ( 896 ) ( 452 ) Accrued and other liabilities 7,587 2,181 8,171 Net cash provided by operating activities 11,350 23,956 24,447 Cash flows from investing activities Purchases of property and equipment, net ( 14,007 ) ( 9,919 ) ( 12,921 ) Net cash used in investing activities ( 14,007 ) ( 9,919 ) ( 12,921 ) Cash flows from financing activities Payment on term loan ( 2,125 ) ( 12,125 ) ( 84,263 ) Borrowings on term loan, net — — 83,503 Payments for debt modification ( 136 ) — — Proceeds from revolving credit facility 5,000 — — Distribution to member — ( 79 ) ( 1,159 ) Dividends paid to shareholders ( 252 ) ( 385 ) ( 23,160 ) Payment of taxes withheld through vested equity-based compensation ( 903 ) ( 233 ) ( 2,031 ) Other financing activity ( 954 ) ( 569 ) ( 147 ) Net cash provided by/(used in) financing activities 630 ( 13,391 ) ( 27,257 ) Net decrease in cash and cash equivalents ( 2,027 ) 646 ( 15,731 ) Cash and cash equivalents Beginning of period 10,262 9,616 25,347 End of period $ 8,235 $ 10,262 $ 9,616 Supplemental disclosure of cash flow information: Cash paid for interest $ 5,997 $ 6,277 $ 5,830 Cash paid for income taxes $ 1,808 $ 4,663 $ 4,932 Supplemental disclosure of non-cash investing information: Property and equipment included in accounts payable and accrued expenses $ 1,595 $ 283 $ 1,113 71 Table of Contents The accompanying notes are an integral part of these consolidated financial statements. 72 Table of Contents AirSculpt Technologies, Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE 1 – ORGANIZATION AND SUMMARY OF KEY ACCOUNTING POLICIES AirSculpt Technologies, Inc. (“AirSculpt” or the "Company"), was formed as a Delaware corporation on June 30, 2021. The Company's revenues are concentrated in the specialty, minimally invasive liposuction market. The Company and its consolidated subsidiaries are referred to collectively in these consolidated financial statements as “we,” “our,” and “us.” Solely for convenience, some of the copyrights, trade names and trademarks referred to in these consolidated financial statements are listed without their © , ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. The Company, through its wholly-owned subsidiaries, is a provider of practice management services to professional associations (“PAs”) located throughout the United States, Canada, and the United Kingdom. The Company owns and operates non-clinical assets and provides its management services to the PAs through management services agreements (“MSAs”). Management services provide for the administration of the non-clinical aspects of the medical operations and include, but are not limited to, financial, administrative, technical, marketing, and personnel services. Pursuant to the MSA, the PA is responsible for all clinical aspects of the medical operations of the practice. Principles of Consolidation These consolidated financial statements present the financial position and results of operations of the Company, its wholly-owned domestic and international subsidiaries, and its variable interest in the managed PAs in the United States ("Domestic PAs"), which are under the control of the Company and are considered variable interest entities in which the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation. Basis of Presentation In the opinion of management, the accompanying consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Variable Interest Entities The Company has a variable interest in the Domestic PAs where it has a long-term and unilateral controlling financial interest over their assets and operations. The Company has the ability to direct the activities that most significantly affect the Domestic PAs’ economic performance via the MSAs and related agreements. The Company is a practice management service organization and does not engage in the practice of medicine. These services are provided by licensed professionals at each of the Domestic PAs. Certain key features of the MSAs and related agreements enable the Company to assign the member interests of certain of the Domestic PAs to another member designated by the Company (i.e., “nominee shareholder”) for a nominal value in certain circumstances at the Company’s sole discretion. The MSA does not allow the Company to be involved in, or provide guidance on, the clinical operations of the Domestic PAs. The Company consolidates the Domestic PAs into the financial statements. All of the Company’s revenue is earned from services provided by the Domestic PAs and its wholly-owned foreign subsidiaries in the United Kingdom and Canada. The only assets and liabilities held by the Domestic PAs included in the accompanying consolidated balance sheets are clinical related. The clinical assets and liabilities are not material to the Company as a whole. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Concentration of Credit Risk The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Company’s revenues are concentrated in the specialty, minimally invasive liposuction market. 73 Table of Contents The Company maintains cash balances at financial institutions which may at times exceed the amount covered by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts. Revenue Recognition Revenue consists primarily of revenue earned for the provision of the Company’s patented AirSculpt® procedures. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are delivery of specialty, minimally invasive liposuction services. The Company assists patients, as needed, by providing third-party financing options to pay for procedures. The Company has arrangements with various financing companies to facilitate this option. There is a financing transaction fee based on a set percentage of the amount financed and are not contingent upon any criteria. The Company recognizes revenue based on the expected transaction price which is reduced for financing fees. Revenue for services is recognized when the service is performed. Payment is typically rendered in advance of the service. Customer contracts generally do not include more than one performance obligation. The Company’s policy is to require payment for services in advance. Payments received for services that have yet to be performed are included in deferred revenue and patient deposits. All of the deferred revenue and patient deposits as of December 31, 2023 and 2022 were recognized in revenue during the twelve months ended December 31, 2024 and 2023. For the twelve months ended December 31, 2024, 2023, and 2022, revenue from international locations was $ 6.1 million, $ 5.2 million, and $ 0.3 million, respectively, and net loss from international operations was $ 1.5 million, $ 1.9 million, and $ 1.4 million, respectively. Cost of Service Cost of service is comprised of all service and product costs related to the delivery of procedures, including but not limited to compensation to doctors, nurses and clinical staff, supply costs, and facility rent expense. Deferred Financing Costs, Net Loan costs and discounts are capitalized in the period in which they are incurred and amortized on the straight-line basis over the term of the respective financing agreement which approximates the effective interest method. These costs are included as a reduction of long-term debt on the consolidated balance sheets. Total amortization of deferred financing costs was approximately $ 0.3 million, $ 0.2 million, and $ 0.9 million for the twelve months ended December 31, 2024, 2023 and 2022, respectively. Amortization of loan costs and discounts is included as a component of interest expense. Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method of accounting over the assets’ estimated useful lives, generally five years for medical equipment, five years for office and computer equipment, and seven years for furniture and fixtures. Depreciation of leasehold improvements is based on the shorter of the estimated useful life of the improvement or the remaining lease term. As of December 31, 2024 and 2023, the Company has $ 2.4 million and $ 1.7 million recorded, respectively, in other long-term assets related to a software as a service hosting arrangement that has not yet been implemented. The software will be used to enhance the sales and marketing process. Leases The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the right to use the underlying assets for the lease term and the lease liabilities represent the obligation to make lease payments arising from the leases. Right-of-use assets and liabilities are recognized at commencement date based on the present value of future lease payments over the lease term, which includes only payments that are fixed or determinable at the time of commencement. 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 used. The Company calculates its incremental borrowing rate on a periodic 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 74 Table of Contents lease payments on a collateralized basis over a term similar to the lease. The Company applies its incremental borrowing rate using a portfolio approach. The right-of-use assets also include any lease payments made prior to commencement and is recorded net of any lease incentives received. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Goodwill and Intangible Assets Indefinite-lived, non-amortizing intangible assets include 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 is evaluated annually for impairment or sooner if factors occur that would trigger an impairment review. Judgments regarding the existence of impairment indicators are based on market conditions and operational performance. Definite-lived, amortizing intangible assets primarily consist of patents, tradenames and other intellectual property. The Company amortizes definite-lived identifiable intangible assets on a straight-line basis over their estimated useful life of 15 years. Impairment of goodwill Goodwill represents the excess of purchase price over the fair value of net assets acquired in a business combination. Goodwill is not amortized but evaluated for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that the value may not be recoverable. Events or changes in circumstances which could trigger an impairment review include significant adverse changes in the business climate, unanticipated competition, a loss of key personnel, or the strategy for the overall business, significant industry or economic trends, or significant underperformance relevant to expected historical or projected future results of operations. Goodwill is assessed for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the events or circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if the Company were to believe the fair value was more likely than not lower than the carrying value, then the Company is required to perform a quantitative analysis. The quantitative analysis involves comparing the estimated fair value of a reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the reporting unit is less than its book value, then the carrying amount of the goodwill is reduced by recording an impairment loss in an amount equal to the excess. The Company reviews goodwill for impairment annually on October 1. See “Note 2—Goodwill and Intangibles, Net” for further discussion. Long-Lived Assets The Company accounts for impairment of long-lived assets in accordance with the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill and Other and Topic 360, Impairment or Disposal of Long-Lived Assets . These standards require that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to future estimated cash flows expected to arise as a direct result of the use and eventual disposition of the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. No impairment charges were recognized for the twelve months ended December 31, 2024, 2023 and 2022. Fair Value ASC Topic 820, Fair Value Measurements and Disclosure s, defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosure requirements about fair value measurements. ASC Topic 820 defines three categories for the classification and measurement of assets and liabilities carried at fair value: Level 1: Quoted market prices in active markets for identical assets or liabilities. 75 Table of Contents Level 2: Observable market-based inputs or observable inputs that are corroborated by market data Level 3: Unobservable inputs reflecting the reporting entity’s own assumptions. The fair value of financial instruments is generally estimated through the use of public market prices, quotes from financial institutions and other available information. Judgment is required in interpreting data to develop estimates of market value and, accordingly, amounts are not necessarily indicative of the amounts that could be realized in a current market exchange. Short-term financial instruments, including cash, prepaid expenses and other current assets, accounts payable, and other liabilities, consist primarily of instruments without extended maturities, for which the fair value, based on management’s estimates, approximates their carrying values. Borrowings bear interest at what is estimated to be current market rates of interest, accordingly, carrying value approximates fair value. Earnings Per Share Basic earnings per share of common stock is computed by dividing net loss attributable to AirSculpt Technologies, Inc. for the twelve months ended December 31, 2024, 2023 and 2022 by the weighted-average number of shares of common stock outstanding during the same period. Diluted earnings per share of common stock is computed by dividing net loss attributable to AirSculpt Technologies, Inc. for the twelve months ended December 31, 2024, 2023 and 2022 by the weighted-average number of shares of common stock adjusted to give effect to potentially dilutive securities. Where the inclusion of potentially dilutive shares would be antidilutive, diluted loss per share equals basic loss per share. Advertising Costs Advertising costs are expensed in the period when the costs are incurred and are included as a component of selling, general and administrative expenses. Advertising expenses were approximately $ 33.4 million, $ 25.9 million and $ 20.6 million for the twelve months ended December 31, 2024, 2023 and 2022, respectively. Income Taxes The Company became subject to taxation as a C corporation for periods after October 28, 2021. The Company applies the provisions of ASC 740-10, Accounting for Uncertain Tax Positions (“ASC 740-10”). Under these provisions, companies must determine and assess all material positions existing as of the reporting date, including all significant uncertain positions, for all tax years that are open to assessment or challenge under tax statutes. Additionally, those positions that have only timing consequences are analyzed and separated based on ASC 740-10’s recognition and measurement model. ASC 740-10 provides guidance related to uncertain tax positions for pass-through entities and tax-exempt not-for profit entities. ASC 740-10 also modifies disclosure requirements related to uncertain tax positions for nonpublic entities and provides that all entities are subject to ASC 740-10 even if the only tax position in question is the entity’s status as a pass-through. As required by the uncertain tax position guidance, the Company recognizes 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. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the condensed consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the uncertain tax position guidance to all tax positions for which the statute of limitations remained open and determined that there are no uncertain tax positions as of December 31, 2024 or December 31, 2023. The Company is not subject to U.S. federal tax examination prior to 2021, when it was formed. 76 Table of Contents The Company has effective tax rates of approximately ( 2.3 )%, 249.4 % and ( 29.9 )% for the twelve months ended December 31, 2024, 2023 and 2022, respectively, inclusive of all applicable U.S. federal and state income taxes. Going Concern Management evaluates at each annual and interim period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. Management’s evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the consolidated financial statements are issued. Management has concluded that there are no conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the issuance of these financial statements. Recently Adopted Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures , which requires enhanced disclosures of significant segment expenses. The ASU is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024. The amendments in this ASU must be applied retrospectively to all periods presented and early adoption is permitted. The Company adopted ASU 2023-07 for the fiscal year ended December 31, 2024. Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures , which establishes new requirements for the categorization and disaggregation of information in the rate reconciliation as well as for disaggregation of income taxes paid. The ASU is effective for annual periods beginning after December 15, 2024 and interim periods beginning after December 15, 2025. The amendments in this ASU may be applied prospectively or retrospectively to all periods presented and early adoption is permitted. The Company is evaluating the impact of this ASU on its consolidated financial statements. NOTE 2 – GOODWILL AND INTANGIBLES, NET On October 2, 2018, EBS Intermediate acquired a controlling interest in EBS Enterprises, LLC in exchange for total consideration of $ 151.0 million. The fair value of the net identifiable assets at transaction date was $ 69.3 million, comprised primarily of $ 17.7 million in intangible assets related to the AirSculpt and Elite trademarks and tradenames and $ 53.6 million in intangible assets related to the AirSculpt technology and know-how. The resulting excess consideration over fair value of identifiable net assets was recorded to goodwill in the amount of $ 81.7 million. The annual review of goodwill impairment was performed in October 2024 using a qualitative analysis and the Company determined that a quantitative analysis was not required. There were no triggering events during the years ended December 31, 2024, 2023 and 2022. The Company had goodwill of $ 81.7 million at December 31, 2024 and December 31, 2023. Intangible assets consisted of the following at December 31, 2024 and December 31, 2023 (in 000’s): December 31, 2024 December 31, 2023 Useful Life Technology and know-how $ 53,600 $ 53,600 15 years Trademarks and tradenames 17,700 17,700 15 years 71,300 71,300 Accumulated amortization of technology and know-how ( 22,333 ) ( 18,759 ) Accumulated amortization of tradenames and trademarks ( 7,375 ) ( 6,195 ) Total intangible assets $ 41,592 $ 46,346 Aggregate amortization expense on intangible assets was approximately $ 4.8 million for each of the years ended December 31, 2024, 2023, and 2022. 77 Table of Contents The estimated aggregate amortization expense on intangible assets for each of the next five years and thereafter is estimated to be as follows (in 000’s): Year ending December 31, 2025 $ 4,753 2026 4,753 2027 4,753 2028 4,753 2029 4,753 Thereafter 17,827 Total $ 41,592 NOTE 3 – PROPERTY AND EQUIPMENT, NET As of December 31, 2024 and December 31, 2023 property and equipment consists of the following (in 000’s): December 31, 2024 December 31, 2023 Medical equipment $ 13,568 $ 11,576 Office and computer equipment 965 860 Furniture and fixtures 5,049 4,280 Leasehold improvements 34,270 21,982 Construction in progress 2,251 1,910 Less: Accumulated depreciation ( 18,632 ) ( 11,700 ) Property and equipment, net $ 37,471 $ 28,908 Depreciation expense was approximately $ 7.1 million, $ 5.5 million, and $ 3.3 million for the years ended December 31, 2024, 2023, and 2022 respectively. NOTE 4 – DEBT On November 7, 2022, the Company entered into a credit agreement with a syndicate of lenders (the "Credit Agreement") originally maturing November 7, 2027. Pursuant to the Credit Agreement, there is (i) an $ 85.0 million original aggregate principal amount of term loans and (ii) a revolving loan facility in an aggregate principal amount of up to $ 5.0 million. On September 29, 2023, the Company voluntarily pre-paid $ 10.0 million of the principal balance of the term loans under the Credit Agreement using cash on hand. Under the Credit Agreement, all outstanding loans bear interest based on either a base rate or SOFR plus an applicable per annum margin. The applicable per annum margin is 2.0 % or 3.0 % for base rate or SOFR, respectively, if the Company's total leverage ratio is equal to or greater than 2.0 x. If the Company's total leverage ratio is equal to or greater than 1.0 x and less than 2.0 x, the applicable per annum margin is 1.5 % or 2.5 % for base rate or SOFR, respectively. If the Company's total leverage ratio is below 1.0 x, the applicable per annum margin is 1.0 % or 2.0 % for base rate or SOFR, respectively. On September 13, 2024, the Company amended the Credit Agreement to modify certain financial condition covenants. As such, for the period of September 13, 2024 through June 30, 2025, the applicable per annum margin is 2.5 % or 3.5 % for base rate or SOFR, respectively, if the Company's total leverage ratio is equal to or greater than 2.0 x. If the Company's total leverage ratio is equal to or greater than 1.0 x and less than 2.0 x, the applicable per annum margin is 2.0 % or 3.0 % for base rate or SOFR, respectively. If the Company's total leverage ratio is below 1.0 x, the applicable per annum margin is 1.5 % or 2.5 % for base rate or SOFR, respectively. As of December 31, 2024, the interest rate was 7.86 %. 78 Table of Contents Total borrowings as of December 31, 2024 and December 31, 2023 were as follows (in 000’s): December 31, 2024 December 31, 2023 Term loan $ 70,750 $ 72,875 Unamortized debt discounts and issuance costs ( 1,044 ) ( 1,247 ) Total debt, net 69,706 71,628 Less: Current portion ( 4,250 ) ( 2,125 ) Long-term debt, net $ 65,456 $ 69,503 As of December 31, 2024 and December 31, 2023, the Company had $ 0.0 million and $ 5.0 million available on the revolving credit facility. The Company had $ 5.0 million drawn on the revolving credit facility as of December 31, 2024. The scheduled future maturities of long-term debt as of December 31, 2024 is as follows (in 000’s): Year ending December 31, 2025 $ 4,250 2026 6,375 2027 60,125 Total maturities $ 70,750 All borrowings under the Credit Agreement are cross collateralized by substantially all assets of the Company and are subject to certain restrictive covenants including quarterly total leverage ratio and fixed charge ratio requirements. The Company is in compliance with all covenants and has no letter of credit outstanding as of December 31, 2024 and December 31, 2023. NOTE 5 – LEASES The Company’s operating leases are primarily for real estate, including medical office suites and corporate offices. For the twelve months ended December 31, 2024, 2023, and 2022, the Company incurred rent expense of $ 6.7 million, $ 5.9 million, and $ 4.5 million, respectively, related to its medical office suites. The Company’s rent expense related to its medical office suites is classified in cost of services within the Company’s consolidated statements of operations. The Company incurred rent expense of $ 364,000 , $ 364,000 , and $ 323,000 for the twelve months ended December 31, 2024, 2023, and 2022, respectively, related to the corporate offices which is classified in selling, general and administrative expenses. The Company currently does not have any finance leases. Real estate lease agreements typically have initial terms of five to ten years and may include one or more options to renew. The useful life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do not contain any material residual value guarantees, restrictions or covenants. The following table presents the weighted-average lease terms and discount rates at December 31, 2024, 2023, and 2022: December 31, 2024 December 31, 2023 December 31, 2022 Weighted-average remaining lease term 4.8 years 4.7 years 4.5 years Weight average discount rate 6.7 % 6.4 % 5.1 % 79 Table of Contents The following table presents supplemental cash flow information for the twelve months ended December 31, 2024 and 2023 (in 000’s): December 31, 2024 December 31, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 6,656 $ 5,240 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 8,040 $ 9,934 Future minimum rental payments under all non-cancellable operating lease agreements for the succeeding five years are as follows, excluding common area maintenance charges that may be required by the agreements (in 000’s): Year ending December 31, 2025 $ 7,409 2026 7,299 2027 6,727 2028 5,910 2029 4,505 Thereafter 12,083 Total lease payments 43,933 Less: imputed interest ( 13,586 ) Total lease obligations $ 30,347 NOTE 6 – STOCKHOLDERS' EQUITY AND EQUITY-BASED COMPENSATION The Company may issue a maximum of 5,564,015 shares under the 2021 Equity Incentive Plan. This amount will automatically increase on January 1 of each year for a period of ten years starting on January 1, 2023, in an amount equal to the lesser of (i) four percent of the total Common Stock outstanding on December 31 of the preceding year and (ii) such smaller number of shares as determined by the Company’s board of directors. During the twelve months ended December 31, 2024 and 2023, the Company granted 590,279 and 767,261 RSUs, respectively, to certain officers, employees and non-employee directors in accordance with the 2021 Plan. Vesting and payment of these RSUs are generally subject to continuing service of the employee or non-employee director over the ratable vesting periods beginning one year from the date of grant to one or three years after the date of grant. The fair values of these RSUs were determined based on the closing price of the Company’s common stock on the trading date immediately prior to the grant date. These RSUs are not considered outstanding until vested. During the twelve months ended December 31, 2024 and 2023, the Company granted 482,165 and 624,846 PSUs, respectively, subject to the achievement of market-based conditions ("market-based PSUs"). The vesting is based on achievement of a total shareholder return relative to a specified peer group (“rTSR”). Based on the rTSR, the awards can settle in shares in a range from 0 % to 200 %. In addition to the achievement of the performance conditions, these PSUs are generally subject to the continuing service of the employee over the ratable vesting period from the earned date continuing through the settlement of the shares. For these PSUs, the shares settle in the first quarter of the year following the year in which the vesting criteria is met. The performance criteria is based on the Company’s actual performance condition results as compared to the targets. These PSUs are not considered outstanding until settled. Determining the fair value of the market-based PSU awards requires judgment. The Company uses a Monte Carlo simulation model to estimate the fair value of the market-based PSU awards. The assumptions used in this pricing model requires the input of subjective assumptions and are as follows: • Expected volatility—Expected volatility is based on historical volatilities of a publicly traded peer group based on daily price observations over a period equivalent to the expected term of the market-based PSU awards. • Expected term—The term is estimated in consideration of the time period expected to achieve the performance. 80 Table of Contents • Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury yield of treasury bonds with a maturity that approximates the expected term of the market-based PSU awards. • Expected dividend yield—The dividend yield is based on the current expectations of dividend payouts. The Company does not anticipate paying any cash dividends in the foreseeable future. The following table sets forth the assumptions that were used to calculate the fair value of the market-based PSU awards granted during the twelve months ended December 31, 2024, 2023 and 2022. 2024 2023 2022 Expected volatility 81.9 % 89.9 % 66.0 % Expected term 2.77 2.83 2.85 Risk-free interest rate 3.83 % 1.72 % 1.72 % Expected dividend yield 0 % 0 % 0 % The fair values of the PSUs not subject to a market conditions were determined based on the closing price of the Company’s common stock on the trading date immediately prior to the grant date. Restricted and Performance Equity-Based Activity A summary of the Company’s RSU and PSU activity for the twelve months ended December 31, 2024, 2023 and 2022 follows. For purposes of this summary, the Company assumes the market-based PSUs will be issued at 100 % of the units within the range of 0 % to 200 %. Unvested Units Weighted Average Grant Date Fair Value of Units Outstanding at December 31, 2021 4,673,766 14.27 Granted 359,132 15.10 Forfeitures/Cancellations ( 503,693 ) 14.13 Vestings ( 1,002,571 ) 14.76 Outstanding at December 31, 2022 3,526,634 14.23 Granted 1,442,107 6.60 Forfeitures/Cancellations ( 30,605 ) 10.83 Vestings ( 1,025,234 ) 13.93 Outstanding at December 31, 2023 3,912,902 14.23 Granted 1,072,444 7.66 Forfeitures/Cancellations ( 2,249,555 ) 12.65 Vestings ( 1,120,408 ) 10.62 Outstanding at December 31, 2024 1,615,383 $ 8.05 Other information pertaining to equity-based compensation In connection with the IPO, on November 4, 2021 the Company previously granted PSUs with performance-based vesting conditions to certain employees. The performance-based conditions include PSUs that can vest upon achieving specified stock price performance targets (the "Price Targets"), and the remaining PSUs can vest upon achieving a revenue performance target in any trailing twelve-month period up to December 31, 2024 (the "Revenue Target"). During the three months ended March 31, 2024, the Company reassessed the probability of achieving the Revenue Target and determined such achievement is improbable based on current facts and circumstances. As a result, the Company recorded a $ 10.4 million cumulative reversal of stock compensation expense related to the unvested PSUs attributable to the Revenue Target in the three months ended March 31, 2024. On August 8, 2024, Todd Magazine stepped down from his role as Chief Executive Officer of the Company, effective as of August 8, 2024, and entered into a Transition Services Agreement with the Company. In consideration of the provision by Mr. Magazine of consulting services to the Company through December 31, 2024, Mr. Magazine remained eligible to vest in 75,000 RSUs on January 1, 2025, which would have otherwise been forfeited, which resulted in an additional 81 Table of Contents $ 0.3 million in stock compensation during the twelve months ended December 31, 2024. Further, pursuant to the severance provisions under Section 7.2 of his employment agreement with the Company, Mr. Magazine remains eligible to earn a prorated portion of the PSUs granted to him in 2023 and 2024 through December 31, 2026, and December 31, 2027, respectively, and partial accelerated vesting for 209,490 RSUs, resulting in an additional $ 0.8 million in stock compensation during the twelve months ended December 31, 2024. The Company recorded equity-based compensation expense of $ 3.8 million, $ 18.2 million, and $ 29.5 million for the twelve months ended December 31, 2024, 2023, and 2022, respectively, in selling, general and administrative expenses on the consolidated statements of operations. Forfeitures are recognized as incurred. During the twelve months ended December 31, 2024, the Company had actual vestings with fair market value of $ 6.1 million and $ 0.0 million related to employees and directors, respectively. Unrecognized compensation cost related to unvested time-based shares was approximately $ 2.2 million as of December 31, 2024. Unrecognized compensation cost will be expensed annually based on the number of shares that vest during the year. As of December 31, 2024, the weighted average remaining vesting term on the unvested time-based shares was 1.70 years. Further, the Company has unrecognized compensation cost of $ 3.1 million related to the PSUs as of December 31, 2024, which will be recognized on a graded vesting basis over the requisite service period when it is probable the performance condition will be achieved. As of December 31, 2024, the weighted average remaining vesting term on the unvested PSUs was 1.85 years. On August 10, 2022, the board of directors of the Company approved a $ 0.41 per share special cash dividend. The dividend was paid on September 14, 2022, to stockholders of record at the close of business on August 26, 2022. Cash dividends paid totaled $ 0.3 million for the twelve months ended December 31, 2024. The Company's unvested stock units participate in dividends and as such, the Company had no dividends payable as of December 31, 2024. The Company recognized distributions to EBS Parent, LLC (the "Parent") of approximately $ 0.1 million, $ 1.2 million, and $ 66.9 million for the twelve months ended December 31, 2024, 2023, and 2022, respectively. NOTE 7 – EARNINGS PER SHARE Basic earnings per share of common stock is computed by dividing net income/loss attributable to AirSculpt Technologies, Inc. for the twelve months ended December 31, 2024, 2023, and 2022 by the weighted-average number of shares of common stock outstanding during the same period. Diluted earnings per share of common stock is computed by dividing net income/loss attributable to AirSculpt Technologies, Inc. for the twelve months ended December 31, 2024, 2023, and 2022 by the weighted-average number of shares of common stock adjusted to give effect to potentially dilutive securities. Where the inclusion of potentially dilutive shares would be antidilutive, diluted loss per share equals basic loss per share. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share of common stock is as follows (in 000’s except for shares and per share figures): Fiscal Year Ended December 31, 2024 2023 2022 Numerator: Net loss $ ( 8,251 ) $ ( 4,479 ) $ ( 14,679 ) Denominator: Weighted average shares of common stock outstanding - basic 57,688,906 56,778,793 55,684,701 Add: Effect of dilutive securities — — — Weighted average shares of common stock outstanding - diluted 57,688,906 56,778,793 55,684,701 Loss per share of common stock outstanding - basic and diluted $ ( 0.14 ) $ ( 0.08 ) $ ( 0.26 ) The following number of potentially dilutive shares were excluded from the calculation of diluted loss per share because the effect of including such potentially dilutive shares would have been antidilutive. 82 Table of Contents Fiscal Year Ended December 31, 2024 2023 2022 Restricted stock units 667,931 1,047,501 1,367,558 Performance and market-based stock units 947,452 1,625,882 2,159,076 NOTE 8 – INCOME TAXES Significant components of income tax expense were as follows (in 000’s): Fiscal Year Ended December 31, 2024 2023 2022 Current U.S. Federal $ ( 81 ) $ 4,565 $ 1,235 State and Local 521 1,570 1,014 Total current income tax expense 440 6,135 2,249 Deferred U.S. Federal ( 95 ) 1,192 1,109 State and Local ( 199 ) 431 25 Foreign 42 ( 281 ) — Total deferred income tax (benefit) expense ( 252 ) 1,342 1,134 Total $ 188 $ 7,477 $ 3,383 A reconciliation of income taxes computed at the U.S. federal statutory income tax rate of 21% to the Company’s income tax (expense) was as follows: Fiscal Year Ended December 31, 2024 2023 2022 At U.S. Federal statutory tax rate 21.0 % 21.0 % 21.0 % State income taxes ( 2.6 ) % 55.7 % ( 7.3 ) % Pass-through income — % — % — % Nondeductible Reorganization and IPO costs — % — % — % Nondeductible officer compensation ( 17.0 ) % 159.1 % ( 38.8 ) % Valuation allowance and other nondeductible expenses ( 3.7 ) % 13.6 % ( 4.8 ) % Total ( 2.3 ) % 249.4 % ( 29.9 ) % The effective tax rates for the fiscal years ended December 31, 2024, 2023 and 2022 were - 2.3 %, 249.4 % and ( 29.9 )%. The most significant items impacting the effective tax rate during fiscal years 2023, 2022 and 2021 are due to the Reorganization, non-deductible officer compensation expense, and the items below. The Company’s deferred tax assets (liabilities) consisted of the following (in 000’s): 83 Table of Contents December 31, 2024 2023 Deferred tax assets Accrued liabilities $ 39 $ 422 Net operating loss 1,368 827 Operating lease liability 7,181 6,497 Equity-based compensation 887 1,596 State bonus depreciation 735 425 163(j) limitation 1,837 277 Other 614 30 Total deferred tax assets 12,661 10,074 Valuation allowance ( 793 ) ( 541 ) Total deferred tax assets, net of valuation allowance 11,868 9,533 Deferred tax liabilities Property, plant and equipment ( 6,464 ) ( 5,566 ) Intangible assets ( 4,722 ) ( 3,881 ) Right-of-use asset ( 6,588 ) ( 6,014 ) Prepaid expenses and other current assets ( 690 ) ( 900 ) Total deferred tax liabilities ( 18,464 ) ( 16,361 ) Net deferred tax liabilities $ ( 6,596 ) $ ( 6,828 ) As of December 31, 2024 and 2023, we had foreign net operating loss carryforwards in the amount of $ 1.0 million and $ 4.0 million, respectively. Of the total carryforwards, $ 0.2 million and $ 1.4 million, respectively, were generated by the Company’s Canadian based subsidiary and $ 0.8 million and $ 2.6 million, respectively, were generated by the Company's United Kingdom based subsidiary. The Canadian-based net operating losses begin to expire in 2039 and the United Kingdom based net operating losses carry forward indefinitely. The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized. Valuation allowances have been established with regard to the tax benefits of our foreign net operating losses. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. After considering all of those factors, management recorded a $ 0.8 million and $ 0.5 million valuation allowance for the deferred tax assets related to the foreign net operating losses which are not more likely than not to be realized as of December 31, 2024 and 2023. Our foreign pre-tax loss was $( 1.5 ) million, $( 1.9 ) million, and $( 1.4 ) million, for the fiscal years ended December 31, 2024, 2023 and 2022, respectively. There were no valuation allowance releases in the current year. The Company maintains a full valuation allowance related to its UK subsidiary and has no other valuation allowances. Uncertain Tax Positions ASC 740 prescribes a recognition threshold of more-likely-than not to be sustained upon examination as it relates to the accounting for uncertainty in income tax benefits recognized in an enterprise’s financial statements. As of December 31, 2024 and 2023, the Company had no uncertain tax positions. NOTE 9 – COMMITMENTS AND CONTINGENCIES Professional Liability In the ordinary course of business, the Company becomes involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by the PAs employed and affiliated physicians. The Company may also become subject to other lawsuits which could involve large claims and significant costs. The Company believes, based upon a review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on its business, financial condition, results of operations, and cash flows. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on the Company’s business, financial condition, results of operations, and cash flows. 84 Table of Contents Although the Company currently maintains liability insurance coverage intended to cover professional liability and certain other claims, the Company cannot assure that its insurance coverage will be adequate to cover liabilities arising out of claims asserted against it in the future where the outcomes of such claims are unfavorable. Liabilities in excess of the Company’s insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on the Company’s business, financial condition, results of operations, and cash flows. NOTE 10 – SEGMENT INFORMATION The Company has one operating and one reportable segment: direct medical procedure services. This segment is made up of facilities and medical staff that provide the Company’s patented AirSculpt® procedures to patients. The accounting policies of the direct medical procedure services segment are the same as those presented in Note 1 - Organization and Summary of Significant Accounting Policies. The Company’s chief operating decision maker (“CODM”) is the Company’s chief executive officer. The CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources. The Company’s CODM reviews revenue, gross profit, Adjusted EBITDA and net income/(loss). The CODM uses Adjusted EBITDA as the primary profit metric to evaluate income generated from operations in deciding where to spend additional marketing dollars or allocate additional resources. Gross profit is defined as revenues less cost of service incurred and Adjusted EBITDA as net loss excluding depreciation and amortization, net interest expense, income tax expense, restructuring and related severance costs, loss on debt modification , loss/(gain) on disposal of long-lived assets, settlement costs for non-recurring litigation, and equity-based compensation. Segment information is presented below showing revenue, significant expenses and net income/(loss) (the closest GAAP measure to Adjusted EBITDA), in the same manner that the CODM reviews the operating results in assessing performance and allocating resources. Twelve Months Ended December 31, ($ in thousands) 2024 2023 2022 Revenue $ 180,350 $ 195,917 $ 168,794 Operating expenses: Cost of service (exclusive of depreciation and amortization) (1) 71,382 74,012 62,781 Advertising Cost 33,429 25,938 20,598 Facility selling, general, and administrative expense 22,933 24,694 20,427 Corporate selling, general, and administrative expense 42,518 51,749 60,393 Loss on debt modification — — 932 Depreciation and amortization 11,888 10,253 8,061 Loss/(gain) on disposal of long-lived assets 16 ( 212 ) 147 Total operating expenses 182,166 186,434 173,339 (Loss)/income from operations ( 1,816 ) 9,483 ( 4,545 ) Interest expense, net 6,247 6,485 6,751 Pre-tax net (loss)/income ( 8,063 ) 2,998 ( 11,296 ) Income tax expense 188 7,477 3,383 Net loss $ ( 8,251 ) $ ( 4,479 ) $ ( 14,679 ) Segment assets $ 209,996 $ 204,019 $ 200,759 (1) Cost of services includes the costs of physicians, nursing, supplies and rent directly related to the performance of procedures at the facility level. NOTE 11 – SUBSEQUENT EVENTS On March 12, 2025, the Company, EBS Intermediate Parent LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“EBS Parent”), EBS Enterprises LLC, a Delaware limited liability company and wholly-owned subsidiary of EBS Parent (“Borrower”), Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as the administrative agent (“SVB”), and the lenders a party thereto entered into a Third Amendment to the Credit Agreement (the “Third Amendment”). Under the terms of the Third Amendment, the parties thereto agreed to modify certain financial condition covenants made by the Company in the Credit Agreement, such that (i) the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of the Company and its subsidiaries as of the last day of the 85 Table of Contents fiscal quarters ending March 31, 2025 and June 30, 2025 must be no less than 0.50 x and 1.10 x, respectively, and no less than 1.25 x on the last day of the fiscal quarters ending September 30, 2025 and thereafter, instead of 1.10 x as of March 31, 2025 and 1.25 x as of June 30, 2025 and thereafter, as previously set forth in the Credit Agreement; (ii) the Consolidated Leverage Ratio (as defined in the Credit Agreement) of the Company and its subsidiaries as of the last day of the fiscal quarters ending March 31, 2025, June 30, 2025, September 30, 2025, December 31, 2025 and March 31, 2026, must not exceed 4.25 x, 3.50 x, 3.25 x, 3.25 x, and 2.75 x, respectively, and the Consolidated Leverage Ratio as of the last day of each fiscal quarter thereafter must not exceed 2.25 x, instead of 3.25 x as of March 31, 2025, 2.75 x as of June 30, 2025, and 2.25 x thereafter, as previously set forth in the Credit Agreement; (iii) the Company and its subsidiaries will be required to maintain minimum Liquidity (as defined in the Credit Agreement) of not less than (A) $ 3,000,000.00 as of the last day of the month ending March 31, 2025, (B) $ 5,000,000 as of the last day of the month ending April 30, 2025, and (C) $ 7,500,000.00 as of the last day of the months ending May 31, 2025 and thereafter (or the last day of each fiscal quarter thereafter upon the satisfaction of certain financial tests described therein); and (iv) new liquidity and financial reporting requirements have been added. In addition to revising the covenants listed above, the Third Amendment revised or added new terms such that (i) for outstanding loans, beginning on or about July 1, 2025, the applicable per annum margin will be increased to 3.75 % or 4.75 % for base rate or SOFR, respectively, if the Company's total leverage ratio is equal to or greater than 3.00 x, 3.50 % or 4.50 % for base rate or SOFR, respectively, if the Company's total leverage ratio is equal to or greater than 2.00 x and less than 3.00 x, and 3.25 % or 4.25 % for base rate or SOFR, respectively, if the Company's total leverage ratio is below 2.00 x, (ii) the maturity Term Loan and Revolving Credit Facility will mature on May 11, 2027 (instead of November 7, 2027); (iii) Liquidity in excess of $ 3.0 million will be used to repay the outstanding funds drawn on the revolving credit facility on a monthly basis beginning April 30, 2025; (iv) revolver draws will be subject to compliance with the minimum Liquidity covenant; (v) the Company will be required to reimburse SVB for certain fees and expenses relating to the engagement of a financial advisor, and (vi) 100 % of first $ 10.0 million of any equity proceeds will be used to repay the Term Loan and Revolving Credit Facility, subject to a carve-out of the first $ 3.0 million of equity proceeds; and any equity proceeds received from Sponsor. In consideration of the Third Amendment, the Company paid a fee equal to 0.15 % of the outstanding loans to consenting Lenders, and a $ 125,000 arrangement fee to SVB. On March 12, 2025 connection with the Third Amendment, the Company, SVB and our Sponsor (through certain affiliated entities) entered into that certain Limited Guarantee by and among Vesey Street Capital Partners Healthcare Fund, L.P., Vesey Street Capital Partners Healthcare Fund-A, L.P., SVB, a related party and who with their affiliates hold a 50.1 % ownership interest in the Company, and the Company (the "Limited Guarantee") pursuant to which our Sponsor agreed to provide a $ 10.0 million limited guaranty of the Company’s obligations under the Credit Agreement. The Limited Guarantee is callable on June 15, 2025 (or upon the earlier occurrence of certain defaults described therein) if the Company has not prepaid the Term Loan (excluding regularly scheduled amortization) by $ 10.0 million as of such date. Under the terms of the Limited Guarantee, if Sponsor is required to make any payment under the Limited Guarantee (other than as a result of a bankruptcy event), then Sponsor will be deemed to have purchased shares of common stock of the Company having an aggregate value equal to the amount of such payment. The Company has agreed to issue a subordinated note to Sponsor if a payment occurs under the Limited Guarantee, to the extent such payment does not result from the issuance of shares of common stock by the Company to Sponsor. NOTE 12 – ACCRUED AND OTHER CURRENT LIABILITIES As of December 31, 2024 and December 31, 2023 accrued and other current liabilities consists of the following (in 000’s): December 31, 2024 December 31, 2023 Accrued advertising costs $ 3,209 $ — Credit card payable 1,576 1,140 Accrued severance 1,400 — Other 2,119 2,163 Accrued and other current liabilities $ 8,304 $ 3,303 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None. 86 Table of Contents